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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 20-F**

 

| **x** | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended DECEMBER 31, 2009** |
|-------|-------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Commissionfile number **1-15018**

 
| **Fibria Celulose S.A.**                                                                                                                                                                                  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (Exact name of Registrant as specified in its charter)                                                                                                                                                    |
|                                                                                                                                                                                                      |
| **N/A**                                                                                                                                                                                                   |
| (Translation of Registrant’s name into English)                                                                                                                                                      |
|                                                                                                                                                                                                      |
| **Federative Republic of Brazil**                                                                                                                                                                         |
| (Jurisdiction of incorporation or organization)                                                                                                                                                           |
|                                                                                                                                                                                                      |
| **Alameda Santos, 1357, 6****th**** floor**

**01419-908, São Paulo, SP, Brazil**                                                                                                               |
| (Address of principal executive offices)                                                                                                                                                                  |
|                                                                                                                                                                                                      |
| **Carlos Augusto Lira Aguiar**

**Chief Executive Officer and Interim Treasury  & Investor Relations Officer**

**Phone: (55 11) 2138-4565**

**Fax: (55 11) 2138-4065**

**Email: ir@fibria.com.br** |
| (Name, Telephone, E-mail and/or Facsimile number and Address of  Company Contact Person)                                                                                                                  |

 

Securitiesregistered 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**                 |

 

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*******             **Not for trading purposes but only inconnection with the registration on the New York Stock Exchange of AmericanDepositary Shares representing those common shares.

 

Securitiesregistered or to be registered pursuant to Section 12(g) of the Act:  **None**

 

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Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act:  **None**

 

Thenumber of outstanding shares of each class of stock of Fibria Celulose S.A. asof **December 31, 2009**:

**467,934,646         Shares ofCommon Stock**

 

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

x Yes   o No

 

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

o Yes   x No

 

Note— Checking the box above will not relieve any registrant required to file reportspursuant to Section 13 or 15(d) of the Securities Exchange Act of1934 from their obligations under those Sections.

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

x Yes   o No

 

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

o Yes   x No

 

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

 

| Large accelerated filer x |   | Accelerated filer o |   | Non-accelerated filer o |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicateby check mark which basis of accounting the registrant has used to prepare thefinancial statements included in this filing:

 

| U.S. GAAP x |   | International Financial Reporting Standards as issued  by the International Accounting Standards Board o |   | Other o |
|-------------|--------|----------------------------------------------------------------------------------------------------------|--------|---------|

 

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

o Yes   x No

 

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**TABLEOF CONTENTS**

 
| ** **                                                                             | ** ** | **Page**   |
|----------------------------------------------------------------------------------------|------------|------------|
| ** **                                                                             | ** ** | ** ** |
| ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND  ADVISERS                         |       | 1          |
|                                                                                   |       |       |
| ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE                                        |       | 1          |
|                                                                                   |       |       |
| ITEM  3. KEY INFORMATION                                                               |       | 1          |
|                                                                                   |       |       |
| ITEM 4. INFORMATION ON FIBRIA                                                          |       | 21         |
|                                                                                   |       |       |
| ITEM 4A. UNRESOLVED STAFF COMMENTS                                                     |       | 56         |
|                                                                                   |       |       |
| ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                   |       | 56         |
|                                                                                   |       |       |
| ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                     |       | 93         |
|                                                                                   |       |       |
| ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY  TRANSACTIONS                             |       | 103        |
|                                                                                   |       |       |
| ITEM 8. FINANCIAL INFORMATION                                                          |       | 106        |
|                                                                                   |       |       |
| ITEM  9. THE OFFER AND LISTING                                                         |       | 114        |
|                                                                                   |       |       |
| ITEM 10. ADDITIONAL INFORMATION                                                        |       | 117        |
|                                                                                   |       |       |
| ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES  ABOUT MARKET RISK                   |       | 128        |
|                                                                                   |       |       |
| ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY  SECURITIES                       |       | 132        |
|                                                                                   |       |       |
| ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND  DELINQUENCIES                              |       | 133        |
|                                                                                   |       |       |
| ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF  SECURITY HOLDERS AND USE OF PROCEEDS |       | 133        |
|                                                                                   |       |       |
| ITEM 15. CONTROLS AND PROCEDURES                                                       |       | 133        |
|                                                                                   |       |       |
| ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT                                             |       | 133        |
|                                                                                   |       |       |
| ITEM  16B. CODE OF ETHICS                                                              |       | 134        |
|                                                                                   |       |       |
| ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES                                       |       | 134        |
|                                                                                   |       |       |
| ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR  AUDIT COMMITTEES                  |       | 135        |
|                                                                                   |       |       |
| ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER  AND AFFILIATED PURCHASERS      |       | 135        |
|                                                                                   |       |       |
| ITEM 16F. CHANGES IN REGISTRANT’S CERTIFYING  ACCOUNTANT                          |       | 135        |
|                                                                                   |       |       |
| ITEM 16G. CORPORATE GOVERNANCE                                                         |       | 135        |
|                                                                                   |       |       |
| ITEM 17. FINANCIAL STATEMENTS                                                          |       | 138        |
|                                                                                   |       |       |
| ITEM 18. FINANCIAL STATEMENTS                                                          |       | 138        |
|                                                                                   |       |       |
| ITEM 19. EXHIBITS                                                                      |       | 138        |

 

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**INTRODUCTION**

 

All references in thisannual report to:

 

·                  “Fibria,” “we,” “our”, “us” and the “Company”are to Fibria Celulose S.A. (formerly Votorantim Celulose e Papel S.A.) and itsconsolidated subsidiaries (unless the context otherwise requires);

 

·                  “Votorantim Group” are to the group of companies,including Fibria, controlled by the Ermírio de Moraes family;

 

·                  “Votorantim Industrial S.A.”, or “VID,”are to our immediate parent company and the holding company of the VotorantimGroup; Votorantim Participações S.A. or “VPar” which controls three areas ofthe Group’s business:  VotorantimIndustrial, Votorantim Finance and Votorantim New Businesses, each of themcontaining one or more business units;

 

·                  “Aracruz” are to Aracruz Celulose S.A.and its subsidiaries;

 

·                  “Aracruz mill” are to the Barra do Riacho millpreviously owned by Aracruz;

 

·                  AracruzAcquisition” are to our acquisition of 100% equity interest in Aracruz as aresult of (1) Fibria’sacquisition in the first half of 2009 of (a) Arapar S.A., or Arapar, andSão Teófilo Representações e Participações S.A., or São Teófilo, whose soleassets consisted of 12.35% of the total share capital, including 28.0% of thevoting share capital, of Aracruz and (b) 12.35% of the total sharecapital, including 28.0% of the voting share capital, of Aracruz from Messrs. JosephYacoub Safra and Moises Yacoub Safra, or the Safra Family, (2) theacquisition of 13,828,307 common shares of Aracruz, representing 3.04% of theoutstanding common shares of Aracruz and 1.34% of the total share capital ofAracruz, in the mandatory tender offer launched by Fibria that took place on July 1,2009, (3) the acquisition of 56,880,857 common share of Aracruz from BNDESon May 27, 2009, and (4) the Stock Swap Merger;

 

·                  “BNDESPar” are to BNDES ParticipaçõesS.A., a wholly owned subsidiary of BNDES, the Brazilian economic and socialdevelopment bank owned by the Brazilian federal government;

 

·                  “Nova” are to NovaHPI Participações Ltda., a company of the Votorantim Group;

 

·                  the “Ermírio deMoraes family” are to the families of Antonio Ermírio de Moraes, ErmírioPereira de Moraes, Maria Helena de Moraes Scripilliti and José Ermírio deMoraes (in memoriam);

 

·                  the “Brazilian government” are to thefederal government of the Federative Republic of Brazil and its agencies ;

 

·                  “*Real*,” “*Reais*” or “R$” are to Brazilian *Reais*,the official currency of Brazil;

 

·                  “U.S.$,” “Dollars” or “U.S. Dollars” areto United States Dollars;

 

·                  “ton” and “MT” are to one metric ton(1,000 kilograms). One kilogram equals approximately 2.2 pounds;

 

·                  “kiloton” are to one thousand metric tons(1,000 tons);

 

·                  “BEKP” are to bleached eucalyptus kraftpulp;

 

·                  “ADSs” are to our American DepositaryShares, each representing one of our common shares;

 

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·                  “CVM” are to the Comissão de ValoresMobiliários, the Brazilian securities commission;

 

·                  “Brazilian GAAP” are to accountingpractices adopted in Brazil, which are based on Brazilian corporate law (Law No. 6,404of December 15, 1976, as amended by Law No. 10,303 of October 1,2001 and by Law No. 11,638 of December 2007), the rules andregulations of the CVM, and the accounting standards issued by the *Instituto dos Auditores Independentes do Brasil*, theBrazilian Institute of Independent Accountants, or IBRACON and the Brazilianaccounting standards board, the *Comitê de PronunciamentosContábeis*, or the CPC;

 

·                  “Central Bank” to the Brazilian CentralBank, the monetary authority of Brazil;

 

·                  “VCP” is to Fibria before the merger ofAracruz;

 

·                  “Portocel” is to a port facility in theState of Espirito Santo, which is operated by PORTOCEL — Terminal Especializadode Barra do Riacho S.A., a joint venture between Fibria and CeluloseNipo-Brasileira S.A. — CENIBRA;

 

·                  “Commission” are to the Securities andExchange Commission; and

 

·                  “U.S. GAAP” are to generally acceptedaccounting principles in the United States.

 

As used in this annualreport, one hectare equals approximately 2.471 acres and one kilometerequals approximately 0.621 miles. References in this annual report to nominal production capacity orproduction capacity mean annual projected capacity for which the facility wasdesigned, with the facility operating under optimal conditions, 24 hours aday, for 365 days a year and subject to reductions in rates of productionfor scheduled maintenance only.  Actual productioncapacity may vary depending on operating conditions, the grades of pulp orpaper produced and other factors.

 

**PRESENTATIONOF FINANCIAL AND OTHER DATA**

 

We maintain our books andrecords in *reais*, which are thebasis for our statutory financial statements (not included in this annualreport), prepared under Brazilian GAAP, which are used to determine incometaxes and mandatory minimum dividend calculations. We have also preparedconsolidated balance sheets at December 31, 2009 and 2008 and the relatedconsolidated statements of operations, cash flows and changes in shareholders’equity for the years ended December 31, 2009, 2008 and 2007, all stated inU.S. Dollars in accordance with generally accepted accounting principles in theUnited States, or U.S. GAAP. Our U.S. GAAP financial statements are included inthis annual report.  The selectedfinancial information at and for the years ended December 31, 2009, 2008,2007, 2006 and 2005 are derived from our audited U.S. GAAP financialstatements. One should read the selected financial information together withour financial statements, including the notes thereto, included elsewherein this annual report.  Financial andother data in this annual report regarding Fibria and its consolidatedsubsidiaries as of December 31, 2008 and earlier dates are historical innature and does not give pro forma effect to the acquisition and merger ofAracruz with and into Fibria.  Ourresults of operations for the year ended December 31, 2009 include theeffects of such acquisition and merger since January 21, 2009 and aretherefore not fully comparable to our results of operations for the year ended December 31,2008.

 

Our reporting currency inthis annual report for all periods is the U.S. Dollar.  However, as we transact the majority of ourbusiness in *reais* we have adopted the *Real* as the functional currency. Our affiliates locatedoutside Brazil had elected the U.S. Dollar as their functional currency throughDecember 31, 2008. Following our acquisition of the control and merger ofthe operations of Aracruz which previously reported its financial statementsprepared under U.S. GAAP which were filed separately with the SEC using theU.S. Dollar as its functional currency, the functional currency for itsbusiness was changed to the *Real.*As aresult of the remeasurement of amounts to U.S. Dollars and other adjustmentsrelated to the differences in the accounting principles between U.S. GAAP andBrazilian GAAP, the amounts of net income (loss) and shareholders’ equity asreported in our audited consolidated financial statements presented hereindiffer from those included in our statutory accounting records.

 

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Rather than the noon buyingexchange rate in New York City as reported by the Federal Reserve Bank of NewYork, because the noon buying rate was not consistently reported for *reais*during the periods shown in this annual report, thecommercial selling exchange rate in Brazil is used in this annual report. TheU.S. Dollar equivalent information presented in the annual report should not beconstrued as implying that the *Real* amounts represent or couldhave been or could be converted into U.S. Dollars at these or any other rate.See “Item 3. Key Information Selected Financial Data — Exchange Rates” forinformation regarding exchange rates applicable to the Brazilian currency since2005.

 

We make statements inthis annual report about our competitive position and market share in, and themarket size of, the pulp and paper industry. We have made these statements onthe basis of statistics and other information from third-party sources that webelieve are reliable.  We derive thisthird-party information principally from monthly reports published by BRACELPA— *Associação Brasileira de Celulose e Papel*(the Brazilian Association of Pulp and Paper), RISI (Resource InformationSystems Inc.), PPPC (Pulp and Paper Product Council), and Hawking Wright, allof them specialized consultants in the pulp market.  Although we have no reason to believe thatany of this information or these reports are inaccurate in any materialrespect, we have not independently verified the competitive position, marketshare, market size or market growth data provided by third parties or byindustry or general publications.

 

**FORWARD-LOOKINGSTATEMENTS**

 

This annual reportincludes forward-looking statements, principally in “Item 3. KeyInformation — Risk Factors” “Item 4. Information on Fibria Business —Overview” and “Item 5. Operating and Financial Review and Prospects.”  We have based these forward-lookingstatements largely on our current expectations about future events andfinancial trends affecting our business. These forward-looking statements are subject to risks, uncertainties andassumptions, including among other things:

 

·                  our direction and future operation;

 

·                  the implementation of our principaloperating strategies;

 

·                  general economic, political and businessconditions, both in Brazil and in our principal export markets;

 

·                  industry trends and the general level ofdemand for, and change in the market prices of, our products;

 

·                  the performance of the Brazilian andworld economies, including the impact of a longer than anticipated continuationof the current worldwide economic downturn or further deterioration in world economicconditions;

 

·                  existing and future governmentalregulation, including tax, labor, pension and environmental laws and regulationsand import tariffs in Brazil and in other markets in which we operate or towhich we export our products;

 

·                  the competitive nature of the industriesin which we operate;

 

·                  our level of capitalization, includingthe levels of our indebtedness and overall leverage;

 

·                  the cost and availability of financing;

 

·                  our compliance with the covenantscontained in the instruments governing our indebtedness;

 

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·                  our acquisitions, joint ventures,strategic alliances or divestiture plans, and our ability to successfully integratethe operations of businesses or other assets that we acquire, including theAracruz Acquisition;

 

·                  the implementation of our financingstrategy and capital expenditure plans;

 

·                  inflation and fluctuations in currencyexchange rates, including the Brazilian *Real* and theU.S. Dollar;

 

·                  legal and administrative proceedings towhich we are or may become a party;

 

·                  the volatility of the prices of the rawmaterials we sell or purchase to use in our business;

 

·                  other statements included in this annualreport that are not historical; and

 

·                  other factors or trends affecting ourfinancial condition or results of operations, including those factors identifiedor discussed in “Item 3. Key Information — Risk Factors.”

 

The words “anticipate”, “believe”,“continue”, “could”, “estimate”, “expect”, “hope”, “intend”, “may”, “might”, “should”,“would”, “will”, “understand” and similar words are intended to identifyforward looking statements.  We undertakeno obligation to update publicly or revise any forward-looking statementsbecause of new information, future events or otherwise.  In light of these risks and uncertainties,the forward looking information, events and circumstances discussed in thisannual report might not occur and are not guarantees of futureperformance.  Our actual results andperformance could differ substantially.

 

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**PART I**

 

# **ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS**

#  

Not applicable.

 

# **ITEM 2.  OFFERSTATISTICS AND EXPECTED TIMETABLE**

#  

Not applicable.

 

# **ITEM 3.  KEYINFORMATION**

#  

**A.****                                   ****Selected Financial Data**

 

The following tablepresents a summary of our selected financial and operating data at the datesand for each of the periods indicated. You should read the followinginformation together with our financial statements, including thenotes thereto, included elsewhere in this annual report, “Presentation ofFinancial and other data” and “Item 5. Operating and Financial Review andProspects”. Financial and other data concerning Fibria and its consolidatedsubsidiaries as of December 31, 2008 and earlier dates is historical innature and does not give pro forma effect to our acquisition and consolidationof Aracruz in 2009. All of 2009 data reflect the acquisition and merger ofAracruz Celulose S.A., which has been consolidated from January 21, 2009.

 
| ** **                                                                          | ** ** | **At and for the year ended December 31,**                           | ** ** |
|-------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------|------------|
| **STATEMENT OF OPERATIONS  DATA**                                                   | ** ** | **2009**                                                                  | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                                          | ** ** | **(in U.S.$ million except  number of shares and per share amount)** | ** ** |
|                                                                                |       |                                                                      |       |   |   |   |   |   |   |   |   |
| **Net operating revenues:**                                                         |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Domestic  sales                                                                     |       | 688                                                                       |       | 721 |   | 709 |   | 685 |   | 564 |   |
| Export sales                                                                        |       | 2,112                                                                     |       | 645 |   | 624 |   | 632 |   | 566 |   |
| Total net  operating revenues                                                       |       | 2,800                                                                     |       | 1,366 |   | 1,333 |   | 1,317 |   | 1,130 |   |
| **Operating costs and expenses:**                                                   |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Cost of  sales (1)                                                                  |       | 2,425                                                                     |       | 1,026 |   | 976 |   | 892 |   | 729 |   |
| Selling,  marketing, general and administrative                                     |       | 303                                                                       |       | 123 |   | 113 |   | 120 |   | 118 |   |
| Gain on  remeasurement of original investment in Aracruz, net                       |       | (514                                                                      | )          | — |   | — |   | — |   | — |   |
| Gain on  exchange of assets, net                                                    |       | —                                                                    |       | — |   | (955 | ) | — |   | — |   |
| Other  operating expense net                                                        |       | 219                                                                       |       | 17 |   | 13 |   | 20 |   | 36 |   |
| Total                                                                               |       | 2,433                                                                     |       | 1,166 |   | 147 |   | 1,032 |   | 883 |   |
| **Operating income**                                                                |       | 367                                                                       |       | 200 |   | 1,186 |   | 285 |   | 247 |   |
| **Non-operating income (expenses):**                                                |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Financial  income (expenses), net                                                   |       | (148                                                                      | )          | (78 | ) | 91 |   | 18 |   | (40 | ) |
| Foreign  exchange gain (loss) and unrealized gain (loss) on swap, net               |       | 1,055                                                                     |       | (593 | ) | 214 |   | (4 | ) | (5 | ) |
| Total                                                                               |       | 907                                                                       |       | (671 | ) | 305 |   | 14 |   | (45 | ) |
| **Income (loss) before taxes on income and equity in affiliates**                   |       | 1,274                                                                     |       | (471 | ) | 1,491 |   | 299 |   | 202 |   |
| Current  income tax (expense) benefit                                               |       | 1                                                                         |       | (2 | ) | (35 | ) | (25 | ) | 8 |   |
| Deferred  income tax expense on gain on exchange of assets                          |       | —                                                                    |       | — |   | (327 | ) | — |   | — |   |
| Deferred  income tax (expense) benefit                                              |       | (485                                                                      | )          | 200 |   | (21 | ) | 21 |   | — |   |
| **Income  (loss) before equity in affiliates**                                      |       | 790                                                                       |       | (273 | ) | 1,108 |   | 295 |   | 210 |   |
| Equity in  earnings (losses) of affiliates                                     |       | 17                                                                        |       | (132 | ) | 113 |   | 77 |   | 54 |   |
| **Net  income (loss) from continuing operations**                                   |       | 807                                                                       |       | (405 | ) | 1,221 |   | 372 |   | 264 |   |
| Discontinued operations                                                             |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Income from  discontinued operations                                                |       | 56                                                                        |       | — |   | — |   | — |   | — |   |
| Income tax  expense, net                                                            |       | (19                                                                       | )          | — |   | — |   | — |   | — |   |
| Net income  from discontinued operations                                            |       | 37                                                                        |       | — |   | — |   | — |   | — |   |
| **Consolidated  net income (loss)**                                                 |       | 844                                                                       |       | (405 | ) | 1,221 |   | 372 |   | 264 |   |
| Net income  attributable to non-controlling interest                                |       | (331                                                                      | )          | — |   | — |   | — |   | — |   |
| **Net income (loss)**                                                               |       | 513                                                                       |       | (405 | ) | 1,221 |   | 372 |   | 264 |   |
| Continuing  operations                                                              |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Net income  applicable to preferred shares                                          |       | 393                                                                       |       | — |   | 618 |   | 188 |   | 124 |   |
| Net income  (loss) applicable to common shares                                      |       | 120                                                                       |       | (405 | ) | 603 |   | 184 |   | 140 |   |
| **Net income (loss)**                                                               |       | 513                                                                       |       | (405 | ) | 1,221 |   | 372 |   | 264 |   |
| **Basic and diluted earnings (losses) per share or ADR (in U.S. Dollars):**(2)      |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Continuing operations                                                               |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Preferred                                                                           |       | 4.15                                                                      |       | — |   | 6.28 |   | 1.97 |   | 1.46 |   |
| Common                                                                              |       | 0.43                                                                      |       | (3.83 | ) | 5.71 |   | 1.79 |   | 1.33 |   |
| **Discontinued operations**                                                         |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Preferred                                                                           |       | 0.25                                                                      |       | — |   | — |   | — |   | — |   |
| Common                                                                              |       | 0.06                                                                      |       | — |   | — |   | — |   | — |   |
| **Weighted average number of shares outstanding (in thousands):**                   |       |                                                                      |       |   |   |   |   |   |   |   |   |
| Preferred                                                                           |       | 89,406                                                                    |       | 96,888 |   | 98,444 |   | 92,240 |   | 85,451 |   |
| Common                                                                              |       | 241,086                                                                   |       | 105,702 |   | 105,702 |   | 105,702 |   | 105,702 |   |
| **Dividends and interest attributable to capital per share (in U.S.  Dollars):**(3) |       |                                                                      |       |   |   | U.S.$ |   | U.S.$ |   | U.S.$ |   |
| Preferred                                                                           |       | —                                                                    |       | — |   | 0.70 |   | 0.80 |   | 0.45 |   |
| Common                                                                              |       | —                                                                    |       | — |   | 0.64 |   | 0.72 |   | 0.41 |   |

 

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| **BALANCE SHEET DATA**                  | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                        | ** ** | **(in U.S.$ million)** | ** ** |
|                                              |       |                             |       |     |       |     |       |     |       |     |       |
| Cash and  cash equivalents                        |       | 365                              |       | 280      |       | 565      |       | 405      |       | 261      |       |
| Trading  securities                               |       | 1,812                            |       | 43       |       | —   |       | —   |       | —   |       |
| Available  for sale securities                    |       | —                           |       | —   |       | 176      |       | 365      |       | 446      |       |
| Held-to-maturity  investments(4)                  |       | 93                               |       | —   |       | —   |       | —   |       | —   |       |
| Property,  plant and equipment, net               |       | 9,271                            |       | 3,866    |       | 3,916    |       | 1,945    |       | 1,758    |       |
| Investment  in affiliates, including all goodwill |       | 3,604                            |       | 289      |       | 1,009    |       | 900      |       | 596      |       |
| Other assets                                      |       | 2,939                            |       | 752      |       | 739      |       | 789      |       | 670      |       |
| Total assets                                      |       | 18,084                           |       | 5,230    |       | 6,405    |       | 4,404    |       | 3,731    |       |
| Short-term  debt(5)                               |       | 360                              |       | 438      |       | 211      |       | 242      |       | 132      |       |
| Long-term  debt, including current portion        |       | 5,944                            |       | 1,649    |       | 1,353    |       | 1,299    |       | 1,364    |       |
| Payable -  Aracruz Acquisition                    |       | 2,122                            |       | —   |       | —   |       | —   |       | —   |       |
| Other  liabilities                                |       | 1,784                            |       | 618      |       | 958      |       | 588      |       | 498      |       |
| Shareholders’  equity                        |       | 7,874                            |       | 2,525    |       | 3,883    |       | 2,275    |       | 1,737    |       |
| Total  liability and shareholders equity          |       | 18,084                           |       | 5,230    |       | 6,405    |       | 4,404    |       | 3,731    |       |

 
| **OTHER FINANCIAL DATA**              | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                            |       |     |       |     |       |     |       |     |       |     |       |
| Gross margin                                    |       | 13.4     | %          | 24.9     | %          | 26.8     | %          | 32.3     | %          | 35.5     | %          |
| Operating  margin(6)                            |       | 13.1     | %          | 14.6     | %          | 89.0     | %          | 21.6     | %          | 21.9     | %          |
| Capital  expenditures                           |       | 803      |       | 692      |       | 477      |       | 248      |       | 247      |       |
| Acquisition  of interest in equity affiliate(7) |       | —   |       | —   |       | —   |       | 36       |       | 275      |       |
| Depreciation,  amortization and depletion       |       | 654      |       | 160      |       | 143      |       | 193      |       | 117      |       |
| Cash flow  provided by (used in):               |       |     |       |     |       |     |       |     |       |     |       |
| Operating  activities                           |       | 1,136    |       | 388      |       | 333      |       | 382      |       | 234      |       |
| Investing  activities                           |       | (2,079   | )          | (507     | )          | (145     | )          | (113     | )          | (626     | )          |
| Financing  activities                           |       | 1,241    |       | 116      |       | (113     | )          | (107     | )          | 505      |       |

 

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| **OPERATIONAL DATA**                           | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                |       |     |       |     |       |     |       |     |       |     |       |
| Number of  employees (at year end (8)               |       | 5,045    |       | 3,010    |       | 2,857    |       | 3,498    |       | 3,620    |       |
| Nominal  production capacity (thousand metric tons) |       |     |       |     |       |     |       |     |       |     |       |
| Pulp                                                |       | 5,400    |       | 1,425    |       | 1,415    |       | 1,480    |       | 1,400    |       |
| Paper                                               |       | 385      |       | 415      |       | 365      |       | 640      |       | 635      |       |
| Sales  volumes (thousand metric tons):              |       | 5,277    |       | 1,591    |       | 1,597    |       | 1,611    |       | 1,493    |       |
| Domestic  market:                                   |       | 800      |       | 635      |       | 630      |       | 591      |       | 506      |       |
| Market pulp                                         |       | 463      |       | 289      |       | 228      |       | 109      |       | 80       |       |
| Paper                                               |       | 337      |       | 346      |       | 402      |       | 482      |       | 426      |       |
| Printing and  writing and Coated                    |       | 220      |       | 219      |       | 287      |       | 371      |       | 331      |       |
| Other  specialty papers (9)                         |       | 117      |       | 127      |       | 115      |       | 111      |       | 95       |       |
| International  market:                              |       | 4,477    |       | 956      |       | 967      |       | 1,020    |       | 987      |       |
| Market pulp                                         |       | 4,440    |       | 911      |       | 870      |       | 832      |       | 787      |       |
| Paper                                               |       | 37       |       | 45       |       | 97       |       | 188      |       | 200      |       |

 

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| (1) | To  be consistent with the accounting classification previously adopted by  Aracruz, during 2009 the Company changed the manner by which it classifies  freight expenses in the statement of operations (previously recorded in  Selling and marketing expenses and now classified as part of Cost of Sales).  In common with many Brazilian companies operating in the pulp export sector,  the Company considers freight to be part of the cost of delivering  inventories to the point of sale at which the customer takes title. As  virtually all Aracruz’s sales are of pulp for the export market, this  classification better reflects the nature of the costs. For the years ended  December 31, 2008 and 2007, US$ 92 million and US$ 89 million were  reclassified from Selling and marketing expenses to Cost of sales,  respectively. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Based  on the weighted average number of shares outstanding for each period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (3) | Dividends  and interest attributable to capital paid per shares in U.S. Dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| (4) | Includes  current and non-current portions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| (5) | Excludes  current portion of long-term debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| (6) | The  2007 percentage includes the non-recurring gain of U.S.$ 955 million related  to the exchange of assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| (7) | Includes  the excess of the cost of investment over the underlying fair value of net  assets on the acquisition of a 23.03% indirect interest in Ripasa S.A.  Celulose e Papel (Ripasa) in 2005 for U.S.$ 275 million. In July 2006,  we disbursed an additional U.S.$ 36 million to Ripasa non-controlling  preferred shareholders in settlement of their claims challenging Ripasa’s  corporate restructuring. In May, 2006, our shareholders and those of Suzano  Bahia Sul Papel e Celulose S.A., (“Suzano”), and Ripasa and Ripasa  Participações S.A. (“Ripar”) approved the corporate-restructuring that  allowed Ripasa’s non-controlling preferred shareholders to exchange their  interests in Ripasa for VCP and Suzano shares, thus increasing VCP’s capital  by U.S.$ 168 million.       |
| (8) | The  increase in the number of employees in 2009 reflects the acquisition of  Aracruz that occurred in 2009. See “Item 4. Information on Fibria — History  and Development of Fibria”.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| (9) | Includes  sales of thermal and carbonless papers, sales of third-party products by KSR  and sales of specialty papers produced at the Mogi das Cruzes mill (which was  sold in April 2007), such as label papers, finish foil, soap wrapping  papers, etc.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

** **

**Exchange Rates**

 

The appreciation of the *Real* thatoccurred during the period beginning January 1, 2005 continued throughAugust, 2008 (reaching its highest value during the year on August 1 whenthe official exchange rate reached R$ 1.5593 to U.S.$ 1.00) but was followed bysharp depreciations in many Emerging Markets currencies, including the *Real,*beginning in September 2008.  In thesecond quarter of 2009, the *Real*started to resume itsappreciation trend, going from R$2.3152 on March 31, 2009 to R$1.7412 at December 31,2009.  The exchange rate, which hasfreely floated since 1999, is determined principally by negotiations within theBrazilian interbank market, but still may be influenced by occasional BrazilianCentral Bank intervention to control unstable movements in the market-driven rate. All foreign exchange transactions are carried out through institutionsauthorized to operate by the Brazilian Central Bank and are subject toregistration with the Brazilian Central Bank’s electronic registrations system.

 

During each of the threeyears in the period ending December 31, 2007, the *Real* appreciated against the U.S.Dollar 13%, 9% and 21%, respectively. For the year ending December 31, 2008 the *Real* depreciated by 24% in theyear.  On December 31, 2009, thecommercial market exchange rate for purchasing U.S. Dollars was R$ 1.7412 toU.S.$ 1.00, representing an appreciation of 34% for the year ended December 31,2009. The *Real’s*appreciation  during the last nine monthsof 2009 can be explained by a strong Dollar inflow to the country’s capitalaccount, a positive result from the Brazilian trade balance and the assignmentof an investment grade rating by 

 

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Moody’s to Brazil in September 2009.  Foreign exchange reserves increasedsignificantly during the five years ending December 31, 2009, going fromU.S.$ 52 billion in 2004 to approximately U.S.$ 239 billion in 2009.

 

The Brazilian government has, since 2000, and with theintent of simplification, consistently introduced significant changes to theBrazilian foreign exchange market.  Recent changes have included, amongothers, the Brazilian Central Bank reduction of exchange controls over exports.  Exporters may retain outside of Brazil up to100% of the proceeds generated by their exports.   National Monetary Council’s Resolution 3417of October 27, 2006 increased the maximum period for the compulsoryliquidation of foreign exchange related to export transactions from 360 to 750days and on March 24, 2010, Resolution 3844 extended the term limit underwhich the Brazilian Treasury can purchase foreign currency in anticipation ofthe country’s future maturities of sovereign debt from 360 to 750 days of futurematurities.

 

We cannot assure you thatthe *Real* will not either devalueor appreciate substantially in the near future.  See “Item 3. KeyInformation Risk factors — Risks related to Brazil” and “Item 5. Operatingand Financial Review and Prospects — Overview — Brazilian Economic Environment.” The following table shows the commercial selling exchange rate for U.S. Dollarsfor the periods and dates indicated.

 
| ** **                       | ** ** | **Exchange Rate of Reais per U.S. $ 1.00** | ** ** |
|----------------------------------|------------|-------------------------------------------------|------------|
| **Year Ended December 31,** | ** ** | **Low**                                         | ** ** | **High** | ** ** | **Average(1)** | ** ** | **Period-end** | ** ** |
|                             |       |                                            |       |   |   |   |   |   |   |
| 2005                             |       | 2.1633                                          |       | 2.7621 |   | 2.4357 |   | 2.3407 |   |
| 2006                             |       | 2.0586                                          |       | 2.3711 |   | 2.1751 |   | 2.1380 |   |
| 2007                             |       | 1.7325                                          |       | 2.1556 |   | 1.9483 |   | 1.7713 |   |
| 2008                             |       | 1.5593                                          |       | 2.5004 |   | 1.8357 |   | 2.3370 |   |
| 2009                             |       | 1.7024                                          |       | 2.4218 |   | 1.9991 |   | 1.7412 |   |

 
| **Month Ended**                    | ** ** | **Low** | ** ** | **High** | ** ** | **Average(1)** | ** ** | **Period-end** | ** ** |
|-----------------------------------------|------------|---------|------------|----------|------------|----------------|------------|----------------|------------|
|                                    |       |    |       |     |       |           |       |           |       |
| October 31, 2009                   |       | 1.7037  |       | 1.7844   |       | 1.7383         |       | 1.7440         |       |
| November 30, 2009                  |       | 1.7024  |       | 1.7588   |       | 1.7288         |       | 1.7505         |       |
| December 31, 2009                  |       | 1.7096  |       | 1.7879   |       | 1.7507         |       | 1.7412         |       |
| January 31, 2010                   |       | 1.7227  |       | 1.8748   |       | 1.7815         |       | 1.8748         |       |
| February 27, 2010                  |       | 1.8046  |       | 1.8773   |       | 1.8433         |       | 1.8110         |       |
| March 31, 2010                     |       | 1.7637  |       | 1.8231   |       | 1.7872         |       | 1.7810         |       |
| April 2010 (through April 26) |       | 1.7446  |       | 1.7806   |       | 1.7596         |       | 1.7446         |       |

 

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Source:  Brazilian Central Bank.

 

(1)          Represents the daily averageexchange rate during each of the relevant periods.

 

**B.****                                   ****Capitalization andIndebtedness**

 

Not applicable.

 

**C.****                                   ****Reasons for the Offerand Use of Proceeds**

 

Not applicable.

 

**D.****                                   ****Risk Factors**

 

We are subject to variousrisks resulting from changing competitive, economic, political and socialconditions that could harm our business, results of operations or financialcondition.  The risks described below arenot the only ones we face.

 

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Beginning in 2007, wechanged our strategy to focus more on pulp as our core business rather than onpaper.  However, paper still remains as acomplementary business to pulp.  Thisrepositioning in our strategy may have some impact on our risk factors.  See “Item 4. Information on Fibria — Historyand Development of Fibria.”

 

**Risks Relating to Fibria and the Pulp and Paper Industry**

 

***The market prices for our products arecyclical.***

 

The prices we are able toobtain for our products depend on prevailing world prices for market pulp andpaper.  World prices have historicallybeen cyclical and subject to significant fluctuations over short periods oftime depending on a number of factors, including:

 

·                  worldwide demand for pulp and paperproducts;

 

·                  worldwide production capacity andinventories;

 

·                  the strategies adopted by major pulp andpaper producers; and

 

·                  the availability of substitutes for ourproducts.

 

All of these factors arebeyond our control.

 

Over the last threeyears, BEKP average list prices in North America, Europe and Asia havefluctuated from U.S.$ 744, U.S.$ 710 and U.S.$ 665 per ton, respectively, in2007 to U.S.$ 811, U.S.$ 789 and U.S.$ 686 per ton, respectively, in 2008. Forthe year ended December 31, 2009, BEKP average list prices in NorthAmerica, Europe and Asia were U.S.$ 621, U.S.$ 571 and U.S.$ 517 per ton,respectively. Price fluctuations occur not only from year to year but alsowithin a given year as a result of global and regional economic conditions,capacity constraints and mill openings and closures, and supply of and demandfor both raw materials and finished products, among other factors. For example,in 2008, the combination of a favorable pulp market showing robust demandthrough August, particularly in China and Europe, supply reductions caused bythe low level of world inventories, high-cost capacity closures and fewcapacity additions, environmental issues, and wood shortages contributed tomultiple price increases of U.S.$20-40 per ton in each region. During theremaining four-month period of 2008, prices declined significantly due to lowerdemand caused by the onset of the worldwide financial crisis. In 2009, theslowdown in the world economy affected directly pulp prices worldwide with theAsian market suffering the most, reaching a low of U.S.$ 380 ton in March andrecovering to U.S.$ 660 per ton at December 31, 2009.  As of March 2010, BEKP price continuedto increase for all regions, to U.S.$ 820, U.S.$ 790 and U.S.$ 750 for NorthAmerica, Europe and Asia respectively.

 

Although we havelong-term relationships with many of our customers, no assurance can be giventhat the prices for pulp or paper will stabilize or not decline further in thefuture, or that demand for our products will not decline in the future. As aresult, no assurance can be given that we will be able to operate ourproduction facilities in a profitable manner in the future. A significantdecline in the price of one or more of our products could have a materialadverse effect on our net operating revenues, operating income and netincome.  Furthermore, discounts from listprices are frequently granted by sellers to significant purchasers, which mayalso impact the pulp price.  See “Item 3.Key Information — Exchange Rates”.

 

The price of paperproducts, although less volatile than the price of pulp, also fluctuates inresponse to global demand, production and fluctuations in pulp prices andexchange rates. Capacity changes have also occurred on the paper side, and in2009 we saw some price adjustment in several grades in the North American andEuropean markets.  According to HawkinsWright, prices of uncoated wood free paper in the United States market and whenusing a December price point in each year for comparative purposes,increased 3% and 8% in 2007 and 2008, respectively, but declined 7% in 2009.

 

It is possible that themarket prices for pulp and paper will decline in the future or that there willnot be sufficient demand for our products to enable us to operate ourproduction facilities in an economical manner.

 

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***A slowdown in demand in China may adverselyaffect our exports.***

 

China is an increasinglyimportant market for us.  China during2009 represented approximately 25% of our total sales and 28% of our exports. Adecline in demand by China for our products could adversely affect our exportsand, therefore, our operational and financial results.

 

***A slowdown due to the global economiccrisis may adversely affect demand and price for our products.***

 

Demand for our pulpproducts is directly linked to overall economic activity within thoseinternational markets in which we sell our products. Demand for our paperproducts is directly linked to overall economic activity in Brazil. A continueddecline in the level of activity in either the domestic or the internationalmarkets within which we operate could adversely affect both the demand for andthe price of our products and have a material adverse effect on us. Thedeterioration of Brazilian and global economic conditions could, among otherthings:

 

·                  further negatively impact global demandfor pulp, or further lower market prices for our products, which could resultin a continued reduction of our sales, operating income and cash flows;

 

·                  make it more difficult or costly for usto obtain financing for our operations or investments or to refinance our debtin the future;

 

·                  cause our lenders to make it moredifficult or expensive for us to obtain any technical or other waivers underour debt agreements to the extent we may seek them in the future;

 

·                  impair the financial condition of some ofour customers, suppliers or counterparties to our derivative instruments,thereby increasing customer bad debts or non-performance by suppliers orcounterparties;

 

·                  decrease the value of certain of ourinvestments; and

 

·                  impair the financial viability of ourinsurers. “See Item 5. Operating and Financial Review and Prospects — Overview.”

 

***Our consolidated indebtedness will require that asignificant portion of our cash flow be used to pay the principal and interestwith respect to that indebtedness.***

 

We have a significantlevel of indebtedness. In 2009, Fibria increased its borrowings to not onlyfinance the Aracruz Acquisition but also refinance and in certain instancesprepay, indebtedness incurred by Aracruz in 2008 as a result of its significantlosses in connection with certain derivative financial instruments.  As of December 31, 2009, our totalconsolidated indebtedness (including amounts due relating to the purchase priceof the Aracruz Acquisition) amounted to U.S.$ 8,426 million, 72% of whichrepresented long-term indebtedness. Part of our debt strategy over thenext few years includes our intention to use a substantial portion of ourconsolidated cash flow (including synergies resulting from our acquisition ofAracruz in January 2009, and from the sale of the Guaíba unit in December 2009)to pay principal and interest with respect to this indebtedness. We presentlyintend to lower our leverage in the coming years. The level of our indebtednesscould have important consequences to the holders of our ADSs, including thefollowing:

 

·                  make it more difficult for us to makepayments of dividends and other distributions to our shareholders, includingthe holders of our ADSs;

 

·                  limit our ability to obtain any necessaryfinancing in the future for working capital and capital expenditures;

 

·                  require that a substantial portion of ourcash flow from operations must be dedicated to the payment of principal andinterest on our indebtedness and may not be available for other purposes;

 

·                  limit our flexibility in planning for, orreacting to changes in, our business; and

 

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·                  increase our vulnerability in the eventof a downturn in our business.

 

***Our exports expose us to political and economic risks inforeign countries.***

 

Our sales outside Brazil,primarily to the European Union and Asia, and to a lesser extent to the UnitedStates, accounted for 75% and 47% of our total consolidated net sales duringthe year ended December 31, 2009 and the year ended December 31,2008, respectively. Our exports expose us to risks not faced by companies thatlimit themselves to operating only in Brazil or any single country. Forexample, our exports may be affected by import restrictions and tariffs, othertrade protection measures, and import or export licensing requirements. Ourfuture financial performance will depend significantly on economic, politicaland social conditions in our principal export markets (the United States, theEuropean Union and Asia). Other risks associated with our internationalactivities include:

 

·                  lower global demand for pulp, which couldresult in a reduction of our sales, operating income and cash flows;

 

·                  changes in foreign currency exchangerates and inflation in the foreign countries in which we operate;

 

·                  exchange controls;

 

·                  changes in a specific country’s or region’spolitical or economic conditions, particularly in developing markets;

 

·                  adverse consequences deriving fromchanges in regulatory requirements, including environmental rules andregulations;

 

·                  difficulties and costs associated withcomplying with, and enforcing remedies under, a wide variety of complexinternational laws, treaties, and regulations;

 

·                  adverse consequences from changes in taxlaws; and

 

·                  distribution costs, disruptions inshipping or reduced availability of freight transportation.

 

While we attempt tomanage certain of these risks through the use of risk management programs,these strategies cannot and do not fully eliminate these risks. An occurrenceof any of these events may negatively impact our ability to transact businessin certain existing or developing markets and have a material adverse effect onour business.

 

***Price volatility of the Real and certain other currenciesrelative to the U.S.*****Dollar*could adversely affect our results of operations,cash flows and financial condition.***

 

We are affected byfluctuations in the *Real* andcertain other currencies relative to the U.S. Dollar. A substantial portion ofour revenues and debt is denominated in U.S. Dollars, and changes in exchangerates may result in losses or gains in our net U.S. Dollar-denominatedindebtedness and accounts payable. Changes in exchange rates resulted in a netforeign exchange gain of U.S.$ 1,055 million during the year ended December 31,2009, a net foreign exchange loss of U.S.$ 593 million in 2008 and a netforeign exchange gain of U.S.$ 214 million in 2007.  In addition, the price volatility of theBrazilian *Real* (and certain other currencies)against the U.S. Dollar affects our results because most of our costs of goodssold are denominated in *reais*, while asubstantial portion of our revenues are U.S. Dollar-denominated (or otherwiselinked to the U.S. Dollar). In addition, a key factor in determining prices ofmarket pulp and paper products in the world market is fluctuations in currencyexchange rates. Currency fluctuations are expected to continue to affect ourfinancial income, expense and cash flow generation. Significant volatility incurrency prices may also result in disruption of certain countries’ foreignexchange markets and may limit our ability to transfer or to convert suchcurrencies into U.S. Dollars and other currencies for the purpose of makingtimely payments of interest and principal on our indebtedness. The governmentsof certain countries to which we export may institute restrictive exchange ratepolicies in the future.

 

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***Our business may be adversely impacted by risks related tohedging activities.***

 

We regularly enter intocurrency hedging transactions in accordance with our risk management policythat cover varying periods of time and have varying pricing provisions. We areexposed to potential changes in the value of our derivative instrumentsprimarily caused by fluctuations in currency exchange rates and interest rates.These fluctuations may result from changes in economic conditions, investorsentiment, monetary and fiscal policies, the liquidity of global markets, internationaland regional political events, and acts of war or terrorism. For example, in2008, we suffered losses due to the sudden depreciation of the *Real* against the U.S. Dollar in the second half of 2008,which followed an extended period of appreciation of the *Real*against the U.S. Dollar. Aracruz, consolidated with Fibria effective January 21,2009, incurred significant losses in 2008 from derivative transactions totalingU.S.$2.16 billion due to the depreciation of the *Real*in the latter half of 2008 and its short position with respect to the U.S.Dollar against the *Real*. Inaddition, because we account for our derivative instruments using themark-to-market accounting method in accordance with U.S. GAAP, themark-to-market value of such instruments may increase or decrease prior totheir settlement date and, as a result, we may incur unrealized losses due tofactors beyond our control, including certain of the factors described above.

 

***We may be adversely affected by the imposition andenforcement of more stringent environmental regulations that would require usto spend additional funds.***

 

We are subject tostringent federal, state and local environmental laws and regulations in Brazilgoverning air emissions, effluent discharges, solid wastes, odor andreforestation, and we require permits from governmental agencies for certain ofour operations.  Changes in these lawsand regulations and/or changes in the policies and procedures used to enforceexisting laws and regulations could adversely affect us.  If we violate or fail to comply with theselaws, regulations and permits, we could be fined or otherwise sanctioned byregulators or our permits could be revoked, and our ability to operate could besuspended or otherwise adversely affected. In addition, noncompliance with these laws, regulations and permitscould result in criminal sanctions for us and for our employees.  We could also be responsible for relatedenvironmental remediation costs, which could be substantial.

 

Brazilian environmentalregulations applicable to forests are complex because they are a blendcomposition of federal, state and municipal regulations; requirements and restrictionsmay vary among those public entities. These restrictions are a consequence of pressure from social movementsand organizations against so-called “green deserts” which include, amongothers, sugar cane plantations for ethanol production and eucalyptus forests.

 

It is possible thatgovernmental agencies or other authorities will pass new laws or imposeadditional laws and regulations even more stringent than the ones currently inforce or will seek a more stringent interpretation of existing laws andregulations that would require us to spend additional funds on environmentalcompliance or limit our ability to operate as we currently do.  In addition, these actions could increase thecosts associated with renewing existing permits or applying for new ones.  There can be no assurance that theseadditional funds or costs will not be material or that existing permits will berenewed.

 

In addition,environmental laws and regulations in certain countries may be more stringentthan the ones we are subject to in Brazil, which may lead to such countriesimposing trade related sanctions against Brazil or our industry.  Furthermore, our inability to comply withmore stringent foreign environmental laws and regulations may prevent us fromseeking lower cost financing from foreign governmental related or multilateraldevelopment organizations, which may condition future financing on ourcompliance with more stringent environmental laws and regulations.

 

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***Actions by federal or state legislatures or publicenforcement authorities may adversely affect our operations.***

 

In the past, the State ofEspírito Santo, where Fibria has operations through its Aracruz unit, hadenacted laws to restrict the planting of eucalyptus forests for purposes ofpulp production. Although injunctive relief against those state laws has beenobtained, and new state legislation has revoked them, there can be no assurancethat similar laws will not be enacted in the future which would imposelimitations or restrictions on planting eucalyptus in the region where weoperate. In the second quarter of 2007, a number of non-governmentalorganizations and the Federal Public Prosecution Office of the State of RioGrande do Sul brought two Civil Public Suits (*AçõesCivis Públicas*) questioning the validity of the procedures adoptedby the State Foundation for Environmental Protection (*Fundação Estadual de Proteção Ambiental)*,or FEPAM, the Rio Grande do Sul state agency for environmental protection, inissuing environmental licenses for eucalyptus plantations in that state. Aprovisional measure was initially granted, to determine that FEPAM cease toissue environmental licenses for eucalyptus plantations, and so theresponsibility for the issuance of such licenses was transferred to theBrazilian Environmental and Natural Resources Institute (*Instituto Brasileiro do Meio Ambiente e dos RecursosNaturais Renováveis*), or IBAMA, the Brazilian  environmental institute. The provisionalmeasure was suspended by the Federal Court of the Fourth Region at the requestof the Government of the State of Rio Grande do Sul. We believe that suchsuspension will be confirmed by the court’s definitive decision on the merits.However, there can be no assurance that such definitive decision will befavorable to us or that similar suits will not be brought in the future thatwould impose a limitation or restriction on plantation of eucalyptus or thatwould affect our licenses or permits.

 

***We may be materially adversely affected if operations at thetransportation, storage, distribution and port facilities we own or utilizewere to experience significant interruptions.***

 

Our operations aredependent upon the uninterrupted operation of transportation, storage,distribution and port facilities that we own or utilize. Operations atfacilities that we own or utilize to transport, store, distribute and exportour products could be partially or completely shut down, temporarily orpermanently, as the result of any number of circumstances that are not withinour control, such as:

 

·                  catastrophic events;

 

·                  strikes or other labor difficulties;

 

·                  other disruptions in means oftransportation; and

 

·                  suspension or termination of concessionsgranted to us or to our commercial partners or independent contractors relatingto the right to provide a specific service.

 

Any significantinterruption at these facilities or inability to transport products to or fromthese facilities (including through exports) or to or from our customers forany reason would materially adversely affect us.

 

***Our insurance coverage may be insufficient to cover ourlosses, especially in cases of damage to our forests.***

 

Our insurance may beinsufficient to cover losses that we might incur. We have comprehensiveinsurance with leading insurers to cover damages to our facilities caused byfire, general third-party liability for accidents and operational risks, andinternational and domestic transportation. However, we do not maintaininsurance coverage against fire, disease and other risks in connection with asignificant portion of our forests.  Theoccurrence of losses or other damages not covered by insurance or that exceed ourinsurance limits could result in significant unexpected additional costs.  “See Item 4. Information on Fibria BusinessOverview — Insurance”.

 

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***We face significant competition in some of our lines ofbusiness, which may adversely affect our market share and profitability.***

 

The pulp and paperindustry is highly competitive. In the international pulp market, certain ofour competitors may have greater financial strength and access to cheapersources of capital, and consequently have the ability to support strategicexpenditures directed to increase market share. Our market share may beadversely affected if we are unable to successfully continue to expand ourproduction capacity at the same pace as our competitors. In addition, mostmarkets for pulp are served by several suppliers, often from differentcountries.

 

Many factors influenceour competitive position, including mill efficiency and operating rates and theavailability, quality and cost of wood, energy, water, chemicals, logistics andlabor, and exchange rate fluctuations. Some of our competitors may have greaterfinancial and marketing resources, and greater breadth of product offeringsthan we do. If we are unable to remain competitive with these producers in thefuture, our market share may be adversely affected. In the domestic papermarket, we face competition from international companies that may have greaterability to support strategic expenditures directed to increase market share.Traditionally, imports of paper have not provided substantial competition forus in Brazil due to, among other factors, logistics costs and exchange ratesaffecting those products. However, the continuing appreciation of the *Real*against the U.S. Dollar from 2004 tothe second half of 2008 resulted in increased imports of selected grades ofpaper, thus increasing competition in Brazil in this product line. In 2009,imports showed a downturn, impacted by an 8% depreciation of the *Real* against the U.S. Dollar (averagerate) and by falling demand affected by the worldwide economic crisis.  In addition, downward pressure on the pricesof pulp and paper by our competitors may affect our profitability.

 

***Delays in the expansion of our facilities or in building newfacilities may affect our costs and results of operations.***

 

As part of our strategyto increase our international market share and improve our competitivenessthrough greater economies of scale, we may expand or build one or moreproduction facilities.  The expansion orconstruction of a production facility involves various risks.  These risks include engineering,construction, regulatory and other significant challenges that may delay orprevent the successful operation of the project or significantly increase ourcosts.  Our ability to completesuccessfully any expansion or new construction project on time is also subjectto financing and other risks.

 

We may be adversely affectedbecause:

 

·                  we may either not be able to complete anyexpansion or new construction project on time or within budget or be requiredby market conditions or other factors to delay the initiation of constructionor the timetable to complete new projects or expansions;

 

·                  our new or modified facilities may notoperate at designed capacity or may cost more to operate than we expect;

 

·                  we may not be able to sell our additionalproduction at attractive prices; and

 

·                  we may not have the cash or be able toacquire financing to implement our growth plans.

 

***Any further downgrade in our credit ratings could adverselyaffect the availability of new financing and increase our cost of capital.***

 

In 2006 and 2007, therisk rating agencies, Fitch Ratings Inc., or Fitch, Moody’s Investor Service, Inc.,or Moody’s, and Standard & Poor’s Ratings Group, or S&P, assignedan investment-grade rating to our foreign currency debt under foreign law, thusreducing our average cost of capital. However, on February 2, 2009, Fitch,Moody’s and S&P reduced our rating to BB+/Negative, Ba1/Negative andBB/Negative, respectively. On October 13, 2009, Fitch further reduced ourrating to BB/Stable.  The ratingscurrently assigned to our foreign currency debt under foreign law are BB/Stableby Fitch, Bal/Stable by Moody’s and BB/Positive by S&P.  If our ratings were to be further downgradedby the rating agencies due to any external factor, our own operatingperformance and/or 

 

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increased debt levelsassociated with our acquisition of Aracruz, our cost of capital would likelyincrease. Any downgrade could also negatively affect our operating andfinancial results and the availability of future financing.

 

***Our financing agreements include important covenants,including covenants to maintain financial ratios. Any default arising from abreach of such covenants could have a material adverse effect on us.***

 

We are party to severalfinancing agreements that require us to maintain certain financial ratios or tocomply with other specific covenants. These financial ratios and covenants,some of which are subject to certain important exceptions, include:

 

·                  limitations on capital expenditures;

 

·                  limitations on incurrence of additionalindebtedness;

 

·                  limitations on prepayment of otherindebtedness

 

·                  limitations on liens;

 

·                  limitations on issuing guarantees;

 

·                  limitation on issuing or selling sharecapital of subsidiaries;

 

·                  limations on paying dividends or makingcertain other restricted payments;

 

·                  limitations on consummating certain assetsales;

 

·                  limitations on entering into certaintransactions with affiliates;

 

·                  limitations as to mergers orconsolidations with any other person or selling or otherwise disposing of allor substantially all of our assets;

 

·                  the maintenance of maximum debt toadjusted EBITDA ratios; and

 

·                  the maintenance of minimum debt servicecoverage ratios.

 

Any default on the termsof our financing agreements that is not waived by the relevant creditors mayresult in a decision by such creditors to accelerate the outstanding balance ofthe relevant debt. This may also result in the foreclosure on collateral andaccelerate the maturity of debts under other financing agreements due to crossdefault provisions. Our assets and cash flow may be insufficient to pay thefull outstanding balance under such financing agreements, either upon theirscheduled maturity dates or upon any acceleration of payments following anevent of default. If such events were to occur, our financial condition wouldbe adversely affected.

 

***Unfavorable outcomes in pending litigation may negativelyaffect our results of operations, cash flows and financial condition.***

 

We are involved innumerous tax, civil and labor disputes involving significant monetary claims.If unfavorable decisions are rendered in one or more of these lawsuits, wecould be required to pay substantial amounts, which could materially adverselyaffect our results of operations, cash flows and financial condition. For someof these lawsuits, we have not established any provision on our balance sheetor have established provisions only for part of the amounts in question, basedon our judgment as to the likelihood of winning these lawsuits. An unfavorableoutcome in any of such lawsuits could have a material adverse effect on ourresults of operations, cash flows and financial condition.  These lawsuits include a securities classaction lawsuit filed in November 2008 against Aracruz and certain of itsofficers and directors in a U.S. federal court purportedly on behalf of personswho purchased Aracruz’s shares and American Depositary Receipts between April 7and October 2, 2008, which lawsuit Fibria is defending. The complaintasserts claims for alleged violations of Section 10(b) of theExchange Act and 

 

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Rule 10b-5 promulgatedthereunder and Section 20(a) of the Exchange Act, alleging thatAracruz misrepresented or failed to disclose information in connection with,and losses arising from, certain derivative transactions into which it hadentered. The plaintiffs are seeking unspecified compensatory damages andexpense reimbursement. See “Note 17 — Commitments and Contingencies” to ouraudited consolidated financial statements.

 

Two tax assessments inthe amounts of U.S.$122.8 million and U.S.$520.8 million were issued by theBrazilian Federal Tax Authority (*Secretariada Receita Federal*), or SRF, against our company, with respect tocorporate income tax (*Imposto de RendaPessoa Jurídica*), or IRPJ, and Social Contribution on Net Income (*Contribuição Social Sobre o Lucro Líquido*),or CSLL, on the income resulting from an equity adjustment for investment inforeign controlled companies during the period from 2002 to 2006. Although we consider the expectation of loss under these assessments to beremote and have recorded no provision with respect thereto, an adverse outcomein these proceedings could have a material adverse effect on our results ofoperations, cash flows and financial condition.

 

***We rely on third parties for some of our technology.***

 

We rely on third partiesfor the technology that we use to make some of our value-added pulp and paperproducts.  For example, Oji Paper ofJapan has granted us the right to use its technology to manufacture and sellcertain thermal papers in Brazil and to sell these products in some othercountries, see “Item 4. Information on Fibria — History and Development ofFibria — Strategic Business Agreement (SBA) with Oji Paper”. If a third-partylicensor of technology that we use refused to continue licensing its technologyto us, our results of operations could be adversely affected.

 

***We may be adversely affected by price volatility of energyinputs.***

 

The effectiveness of ourenergy matrix planning, composed by black liquor, electric energy, gas, oil andothers, can be placed at risk due to price volatility of these components, and,as a result such price volatility has a direct impact on our operational andfinancial result.

 

***Competition for land for use as eucalyptus forests or forother crops, such as soy beans, sugar cane and other commodities, may affectour expansion.***

 

Greater global demand forcertain commodities, especially grains and bio-fuel, may impact our forestoperations in two ways:

 

·                  Greater competition for land could impactits price. Grain and bio-fuel production generally are economically superior toforestry activities, and as a result, prospective increases in land values mayinhibit expansion of new forests;

 

·                  For the same reason described above, wemay face difficulties in convincing third-party partners to begin or to expandeucalyptus production for use in the pulp industry.

 

***We conduct certain of our operations through joint venturesthat we do not solely control.***

 

In March 2005,Fibria and Suzano Bahia Sul Papel e Celulose S.A., or Suzano, acquired controlof Ripasa. In September 2008, Ripasa was transformed into a cost andproduction sharing unit, know as Consórcio Paulista de Papel e Celulose, orConpacel. Conpacel operates a pulp and paper mill in the Municipality ofAmericana, State of São Paulo. The members of the consortium have undividedinterests in assets, liabilities and operations of the venture. Fibria andSuzano each own 50% of the net assets of Conpacel, and each entity is entitledto 50% of Conpacel’s production.

 

In October 2000,Aracruz acquired a 45% stake in Veracel, a joint venture that operates a pulpplant and forests in the south of the State of Bahia, and increased its equityinterest in Veracel to 50% in January 2003. Stora Enso OYJ, or Stora Enso,owns the remaining 50% of the equity interests in Veracel.  Fibria as legal successor of Aracruz andStora Enso are party to a shareholders’ agreement with respect to Veracel,pursuant to which they have the right to nominate an equal number of boardmembers. Under this shareholders’ agreement, each shareholder may 

 

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be required to makecapital contributions and, if any of the parties fails to comply with any ofits obligations regarding Veracel’s funding needs in connection with apre-agreed investment and capital contribution plan, the other shareholdershall have the right to require the defaulting shareholder to transfer all ofits equity interests in Veracel to the other shareholder at a discounted marketvalue.  In case Fibria is the defaultingshareholder, we may be obligated to sell our interest in Veracel to Stora Enso,therefore adversely impacting our pulp production volumes and revenues frompulp sales.

 

In view of our sharedcontrol of these entities as described above, we may not unilaterally makemajor decisions with respect to such entities. In addition, the existing contractual arrangements with respect to theseentities may constrain our ability to cause Veracel and Conpacel to takeactions that would be in our best interests, and may prevent us from refrainingthem from taking actions that would be adverse to our interests.

 

***Variousother risks could have a material adverse effect on our operational andfinancial results.***

 

Our operations aresubject to various other risks affecting our forests and manufacturingprocesses, including fire, drought, disease, climate changes, strikes, portclosings, shipping costs, electrical failures and factory explosions, whichcould have a material adverse effect on our operational and financial results.

 

***If we are unable to manage potential problems and risksrelated to acquisitions and alliances, our business and growth prospects maysuffer.  Some of our competitors may bebetter positioned to acquire other pulp and paper businesses.***

 

We may, as part of ourbusiness strategy, acquire other businesses in Brazil or elsewhere or enterinto alliances.  Our management is unableto predict whether or when any prospective acquisitions or alliances willoccur, or the likelihood of a material transaction being completed on favorableterms and conditions.  Our ability tocontinue to expand successfully through acquisitions or alliances depends onmany factors, including our ability to identify acquisitions and negotiate,finance and close transactions.  Even ifwe complete future acquisitions:

 

·                  we could fail to successfully integratethe operations, services and products of any acquired company;

 

·                  we could fail to select the best partnersor fail to effectively plan and manage any alliance strategy;

 

·                  the acquisitions could increase ourcosts;

 

·                  our management’s attention could bediverted from other business concerns; and

 

·                  we could lose key employees of theacquired company.

 

Our failure to integratenew businesses or manage new alliances successfully could adversely affect ourbusiness and financial performance. Furthermore, the world pulp and paper industry is undergoingconsolidation, and many companies compete for acquisition and allianceopportunities in our industry.  Some ofour competitors have greater financial and other resources than we do.  This may reduce the likelihood that we willbe successful in completing acquisitions and alliances necessary for theexpansion of our business. In addition, any major acquisition we consider maybe subject to regulatory approval.  Wemay not be successful in obtaining required regulatory approvals on a timelybasis or at all.  See “Item 4.Information on Fibria — History and Development of Fibria.” and “Item 5.Operating and Financial Review and Prospects — Operating Results — RecentDevelopments.”

 

***The loss of certain of our customers could cause asignificant impact on our results of operations, cash flows and financialcondition.***

 

During the year ended December 31,2009, our twenty largest customers accounted for approximately 73% of ourconsolidated revenues from pulp sales. If we were unable to replace the salesvolumes represented by any of these important customers, the loss of any ofthese customers could have a material adverse effect on our results ofoperations, cash flows and financial condition.

 

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***Wemay be subject to labor disputes from time to time that may adversely affectus.***

 

Most of our employees arerepresented by unions or equivalent bodies and are covered by collectivebargaining or similar agreements which are subject to periodicrenegotiation.  We have occasionallyexperienced brief work slowdowns.  Inaddition, we may not successfully conclude our labor negotiations onsatisfactory terms, which may result in a significant increase in the cost oflabor or may result in work stoppages or labor disturbances that disruptour operations.  Any such cost increases,work stoppages or disturbances could materially adversely affect us.

 

***Our controlling shareholders have the power to control usand all of our subsidiaries and their interests may conflict with those ofother shareholders.***

 

We are jointly controlledby VID and BNDESPar. Our controlling shareholders have the power to control usand all of our subsidiaries, including the power to:

 

·                  elect our directors; and

 

·                  determine the outcome of any actionrequiring shareholder approval, including transactions with related parties,corporate reorganizations and dispositions and the timing and payment of anyfuture dividends.

 

In addition, BNDES wasthe creditor with respect to approximately 10% of our consolidated indebtednessas of December 31, 2009 and is expected to loan significant funds in thefuture. As one of our significant shareholders and the subsidiary of one of ourimportant creditors (BNDES), BNDESPar may exercise influence over our businessand corporate decisions, and its actions may be influenced by the policies ofthe Brazilian federal government, which may conflict with the interest of ourshareholders and holders of our ADSs. We currently engage in, and expect in thefuture to engage in, commercial and financial transactions, from time to time,with our controlling shareholders or their affiliates. Commercial and financialtransactions between our affiliates and us create the potential for, or couldresult in, conflicts of interests. For a discussion of certain related partytransactions, see “Item 7. Major Shareholders and Related Party Transactions —Related Party Transactions.”

 

In addition, one of ourdirect controlling shareholder, VID, has entered into a shareholders agreementunder which the approval of certain matters will depend on the affirmative voteof BNDESPar.  See “Item 10C. MaterialContracts — Shareholders’ Agreement of Fibria”. BNDESPar is a subsidiary of *BancoNacional de Desenvolvimento Econômico e Social*, or BNDES, theBrazilian social and economic development bank. See “Item 5. Operating and Financial Review and Prospects — Liquidityand Capital Resources — Debt — BNDES” and Exhibits 4.11 and 4.12 to this annualreport.

 

**Risks Relating to the Aracruz Acquisition**

 

***The benefits that we expect to achieve from operating as acombined enterprise with Aracruz may not be achieved.***

 

Although we expect that the combined operations ofVCP and Aracruz would produce substantial synergies, the integration of twolarge companies presents significant challenges to management.  No assurance can be given that we will beable to fully integrate in Fibria the operations of VCP and Aracruz withoutencountering difficulties, which may include, among other things, the loss ofkey employees, diversion of management attention, the disruption of ourrespective ongoing businesses or possible inconsistencies in standards,procedures and policies. There can also be no assurance as to the extent towhich we will be able to produce the synergies that we anticipate from theAracruz Acquisition or the Stock Swap Merger, or as to the timing for theirrealization, or as to the expenses that will be incurred in connection withrealizing synergy benefits from the Aracruz Acquisition. In particular, it maybe difficult for us to realize anticipated cost savings from the combination ofthe Companies’ production facilities. It may also be difficult for us torealize anticipated synergy benefits from the joint acquisition of rawmaterials, sharing of improved production techniques and integration ofadministrative departments.

 

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***We may fail to realize the anticipated business growthopportunities, cost savings, increased profits, synergies and other benefitsanticipated from the AracruzAcquisition.***

 

Achievingthe advantages of the Aracruz Acquisition will depend partly on the continuedrapid and efficient combination of the activities of VCP and Aracruz, twocompanies of considerable size that functioned independently with differentbusiness cultures, production techniques, systems and compensation structures.

 

Theintegration process involves inherent costs and uncertainties.  We believe the consideration paid for theAracruz Acquisition was justified, in part, by the business growthopportunities, cost savings, increased profits, synergies, revenue benefits andother benefits we anticipate achieving by combining our VCP operations withthose of Aracruz. However, these anticipated business growth opportunities,cost savings, increased profits, synergies and other benefits may not develop,and the assumptions upon which we determined the consideration paid for theAracruz Acquisition may prove to be incorrect.

 

Implementationof the acquisition and the successful integration of Aracruz will also requirea significant amount of management time and, thus, may affect or impairmanagement’s ability to run our business effectively during the period of theintegration. In addition, we may not have, or be able to retain, employees withthe appropriate skill sets for the tasks associated with our integration plan,which could adversely affect the integration of Aracruz. In addition, employeedepartures and early retirements in the process of achieving synergies andcompany integration may create management challenges in respect of thebusinesses that have been acquired.

 

Althoughthe estimated expense savings and revenue synergies contemplated by the AracruzAcquisition are significant, there can be no assurance that we will realizethese benefits in the time expected, or at all. Any failures, material delaysor unexpected costs of the integration process could therefore have a materialadverse effect on our business, results of operations and financial condition.

 

Althoughthe estimated expense savings and revenue synergies contemplated by the AracruzAcquisition are significant, there can be no assurance that we will realizethese benefits in the time expected, or at all. Any failures, material delaysor unexpected costs of the integration process could therefore have a materialadverse effect on our business, results of operations and financial condition.

 

***The Brazilian antitrust authorities could impose costly orrestrictive conditions on the approval of the Aracruz Acquisition.***

 

The Aracruz Acquisition is subject to the finalapproval of the Brazilian antitrust authorities. However, Brazilian lawpermitted us to consummate the transaction prior to receiving this finalapproval. We submitted the terms and conditions of the transaction for reviewby the antitrust authorities in August 2008. The antitrust authoritieswill determine whether the transaction negatively impacts competitiveconditions in the markets in which we compete or adversely affects consumers inthese markets. The filing covers the successive acquisitions of equityinterests in Aracruz.

 

The antitrust filing is currently under theanalysis of the Secretariat of Economic Control of the Department of Financeand the final decision is expected to be issued by the end of 2010.

 

Any action by the Brazilian antitrust authoritiesto impose conditions or performance commitments on us as part of the approvalprocess for the transaction could materially and adversely affect our business,negatively affect our financial performance and prevent us from achieving theanticipated benefits of the Aracruz Acquisition. We do not anticipate that anyrestrictions or conditions with respect to the Aracruz Acquisition will beimposed by the Brazilian antitrust authorities or, in the event restrictions orconditions are imposed, that such restrictions or conditions would have a materialadverse affect on our business.

 

***An impairment of goodwill or other intangible assets wouldadversely affect our financial condition and results of operations.***

 

Asa result of the Aracruz Acquisition, we have recognized U.S.$ 1,926 million ofgoodwill on our balance sheet as of January 21, 2009 and have recordedseveral intangible assets from the Aracruz business (including database,patents, chemical and others supplies relationships) with a fair value of U.S.$331 million. Under US GAAP, goodwill and intangible assets with indefinite lifeare not amortized but are tested for impairment annually or more often if anevent or circumstance indicates that an impairment loss may have been incurred.Other intangible 

 

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assetswith a finite life are amortized on a straight-line basis over their estimateduseful lives and reviewed for impairment whenever there is an indication ofimpairment. In particular, if the combination of the businesses meets withunexpected difficulties, or if our business does not develop as expected,impairment charges may be incurred in the future that could be significant andthat could have an adverse effect on our results of operations and financialcondition.

 

**Risks Relating to Brazil**

 

***Brazilian economic and political conditions and perceptionsof these conditions in the international market have a direct impact on ourbusiness and our access to international capital and debt markets, and couldadversely affect our results of operations and financial condition***.

 

Our operations areconducted in Brazil, and although our pulp is mainly sold to internationalcustomers, we sell much of our paper products to customers in Brazil.Accordingly, our financial condition and results of operations aresubstantially dependent on economic conditions in Brazil. Brazil’s grossdomestic product, or GDP, in real terms, grew by 5.4% in 2007, 5.1% in 2008 anddecreased 0.2% in 2009 (source: *Instituto Brasileiro deGeografia e Estatística* — IBGE). We cannot assure that GDP will increase or remain stable in the future.Future developments in the Brazilian economy may affect Brazil’s growth ratesand, consequently, the consumption of pulp and paper. As a result, thesedevelopments could impair our business strategies, results of operations orfinancial condition. The Brazilian government frequently intervenes in theBrazilian economy and occasionally makes material changes in policies andregulations.  Our business, financialcondition and results of operations may be adversely affected by changes ingovernment policies as well as general economic factors, including:

 

·                  currency fluctuations;

 

·                  inflation;

 

·                  interest rates;

 

·                  energy policy;

 

·                  liquidity of domestic capital and lendingmarkets;

 

·                  tax policy; and

 

·                  other political, diplomatic, social andeconomic developments in or affecting Brazil.

 

Historically, the country’spolitical scenario has influenced the performance of the Brazilian economy andpolitical crises have affected the confidence of investors and the generalpublic, which resulted in economic deceleration and affected the trading pricesof common and preferred shares issued by companies listed on the stockexchange.  Future developments inpolicies of the Brazilian government and/or the uncertainty of whether and whensuch policies and regulations may be implemented, all of which are beyond thecontrol of the Company and could adversely affect our business, financialcondition, results of operations or prospects and the market price of ourshares and ADSs.

 

***Inflation, and the Brazilian government’s measures to combatinflation, may contribute significantly to economic uncertainty in Brazil, andmay have adverse effects on our business and results of operations.***

 

Brazil has historicallyexperienced high rates of inflation. Inflation, as well as government effortsto combat inflation, had significant negative effects on the Brazilian economy,particularly prior to 1995. Inflation rates were 7.7% in 2007, 9.8% in 2008 anda deflation of 1.7% in 2009, as measured by the General Market Price Index (*Índice Geral de Preços—Mercado*), or IGP—M,compiled by the Getulio Vargas Foundation (*FundaçãoGetulio Vargas*), or FGV. Our cash costs and operating expenses aresubstantially denominated in *reais*andtend to increase with Brazilian inflation because our suppliers and providersgenerally increase prices to reflect the depreciation of the currency.  In addition, high inflation generally leadsto higher domestic interest rates and, as a result, our costs of 

 

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*Real-*denominated debt may increase.  The Brazilian government’s measures tocontrol inflation have often included maintaining a tight monetary policy withhigh interest rates, restricting thereby the availability of credit andreducing economic growth. Inflation, actions to combat inflation and publicspeculation about possible additional actions also may contribute materially toeconomic uncertainty in Brazil and accordingly weaken investor confidence inBrazil, thus impacting our ability to access the international capital markets.Brazil may experience high levels of inflation in the future, which may impactdomestic demand for our products. Inflationary pressures may also curtail ourability to access foreign financial markets and may lead to further governmentintervention in the economy, including the introduction of government policiesthat may materially adversely affect the overall performance of the Brazilianeconomy, which in turn may materially adversely affect us. See “Item 5.Operating and Financial Review and Prospects Overview — Brazilian EconomicEnvironment.”

 

***Exchange rate instability may adversely affect our financialcondition and results of operations and the market price of our shares andADSs.***

 

Because a significantportion of our revenues and assets is denominated in *reais* and we have U.S. Dollar-denominated debt and otherliabilities, we may be adversely affected by any future depreciations of the *Real* against the U.S. Dollar.  The Brazilian currency has been devaluedperiodically during the last four decades. See “Item 3. Key Information — Selected Financial Data ExchangeRates.”

 

Our production costs andoperating expenses are substantially all in *reais* and willgenerally increase, when expressed in U.S. Dollars, as a result of localcurrency appreciation. If the rate of Brazilian inflation increases morerapidly than the rate of appreciation of the U.S. Dollar against the *Real*, then, as expressed in U.S. Dollars, our operatingexpenses may increase. In addition, any significant depreciation of the *Real* may produce exchange losses on unhedged debtdenominated in foreign currency.  The *Real* appreciated 13%, 9% and 21% against the U.S. Dollar in2005, 2006 and 2007, and depreciated 24% in 2008. The *Real*appreciated by 34% against the U.S. Dollar in the year ended December 31,2009. The Central Bank has intervened occasionally to control unstablemovements in the foreign exchange rate. We cannot predict whether the CentralBank will continue to let the *Real* floatfreely.  Accordingly, it is not possibleto predict what impact the Brazilian government’s exchange rate policies mayhave on us.  We cannot assure you thatthe Brazilian government will not in the future impose a band within which the *Real*U.S. Dollar exchange rate could fluctuate or set afixed exchange rate, nor can we predict what impact such an event might have onour financial condition or results of operations.

 

Depreciations of the *Real* relative to the U.S. Dollar alsocreate additional inflationary pressures in Brazil that may negatively affectus. They generally curtail access to foreign financial markets and may requiregovernment intervention, including recessionary governmental policies.  Certain governmental measures to combatinflation may contribute significantly to economic uncertainty in Brazil and toheightened volatility in the Brazilian securities markets.”  Depreciations also reduce the U.S. Dollarvalue of distributions and dividends on our ADSs and the market price of ourshares and ADSs.

 

Foreign exchangefluctuation may impact the results of our derivative instruments, used inaccordance with our hedging strategy. See “Item 11. Quantitative and Qualitative Disclosures about MarketRisk.”

 

***Changes in Brazilian tax laws may have an adverse impact onthe taxes applicable to our business.***

 

The Brazilian governmentfrequently implements changes to tax regimes that may affect us and ourcustomers. These changes include changes in prevailing tax rates and,occasionally, enactment of temporary taxes, the proceeds of which are earmarkedfor designated governmental purposes.

 

Some of these changes mayresult in increases in our tax payments, which could adversely affect industryprofitability and increase the prices of our products, restrict our ability todo business in our existing and target markets and cause our financial resultsto suffer. There can be no assurance that we will be able to maintain ourprojected cash flow and profitability following any increases in Braziliantaxes applicable to us and our operations.

 

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***We may be impacted by governmental actions affecting theBrazilian markets and economy.***

 

The Brazilian governmenthas exercised and continues to exercise substantial influence over many aspectsof the private sector. The Brazilian government, for example, could impose somerestrictions for the export market, by creating export duties for any product,including our main source of revenues (market pulp), affecting the margins andthe profitability of exporting companies. In addition, the Brazilian governmentthrough BNDES owns or controls many companies, including some of the largest inBrazil. For example, the BNDES, through its wholly-owned subsidiary company,BNDESPar, is a joint controlling shareholder of our company together with VID,as per shareholder agreement terms, and so has historically been one of ourimportant creditors.

 

***Fluctuations in interest rates could increase the cost ofservicing our debt and negatively affect our overall financial performance.***

 

Our financial expensesare affected by changes in interest rates, such as the Interbank DepositCertificate (*Certificado de DepósitoInterbancário*), or CDI, and the London Interbank Offered Rate, orLIBOR. The CDI rate has fluctuated significantly in the past in response to theexpansion or contraction of the Brazilian economy, inflation, Braziliangovernment policies and other factors. For example, the CDI rate increased from11% as of December 31, 2007, to 14% as of December 31, 2008. The CDIrate as of December 31, 2009 was 9%. Due to the U.S. economic crisis,LIBOR rates have also fluctuated and have decreased in recent months inresponse to the Federal Reserve’s monetary policy. A significant increase ininterest rates, particularly the CDI or LIBOR, could have a material adverseeffect on our financial expenses and could negatively affect our overallfinancial performance. On the other hand, a significant reduction in the CDIrate or LIBOR could adversely impact the financial revenues derived from ourinvesting activities.

 

***Economic and market conditions in other countries, includingin developing countries, may materially and adversely affect the Brazilianeconomy and, therefore, the market value of our ADSs.***

 

The market for securitiesissued by Brazilian companies is influenced by economic and market conditionsin Brazil, and, to varying degrees, market conditions in other countries,including Latin American and developing countries. Although economic conditionsare different in each country, the reaction of investors to developments in onecountry may cause the capital markets in other countries to fluctuate.Developments or conditions in other countries, including developing countries,have at times significantly affected the availability of credit in theBrazilian economy and resulted in considerable outflows of funds and declinesin the amount of foreign currency invested in Brazil, as well as limited accessto international capital markets, all of which may materially and adverselyaffect our ability to borrow funds at an acceptable interest rate or to raiseequity capital when and if there should be a need for us to do so. Thevolatility in market prices for Brazilian securities has increased from time totime, and investors’ perception of increased risk due to crises in othercountries, including developing countries, may also lead to a reduction in themarket price of our ADSs.

 

**RisksRelating to Our Shares and ADSs**

 

***Exchange controls and restrictions on remittances abroad mayadversely affect holders of our ADSs.***

 

One may be adverselyaffected if the Brazilian government imposes restrictions on the remittance toforeign investors of the proceeds of their investments in Brazil and, as it hasdone in the past, on the conversion of the *Real*into foreign currencies.  Theserestrictions could hinder or prevent the conversion of dividends, distributionsor the proceeds from any sale of shares or ADSs, as the case may be, into U.S.Dollars and the remittance of U.S. Dollars abroad.  We cannot assure you that the government willnot take this type of or similar measures in the future.  Holders of our ADSs could be adverselyaffected by delays in, or a refusal to grant, any required governmentalapproval for conversion of *Real*payments and remittances abroad in respect of the shares, including the sharesunderlying the ADSs.  In such a case, ourADS depositary will distribute *reais*or hold the *reais* it cannotconvert for the account of the ADS holders who have not been paid.

 

***Holders of our ADSs may face difficulties in serving processon or enforcing judgments against us and other persons.***

 

We are organized underand are subject to the laws of Brazil and most of our directors and executiveofficers and our independent registered public accounting firm resides or isbased in Brazil. Substantially all of our 

 

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assets and those of theseother persons are located in Brazil. As a result, it may not be possible forholders of the ADSs to effect service of process upon us or these other personswithin the United States or other jurisdictions outside Brazil or to enforceagainst us or these other persons judgments obtained in the United States orother jurisdictions outside Brazil. Because judgments of U.S. courts for civilliabilities based upon the U.S. federal securities laws may only be enforced inBrazil if certain conditions are met, Fibria ADS holders may face greaterdifficulties in protecting their interests due to actions by us, our directorsor executive officers than would shareholders of a U.S. corporation.

 

***The relative volatility and illiquidity of the Braziliansecurities markets may adversely affect holders of our ADSs.***

 

Investments insecurities, such as our common shares or ADSs, of issuers from emerging marketcountries, including Brazil, involves a higher degree of risk than investmentsin securities of issuers from more developed countries. The Braziliansecurities market is substantially smaller, less liquid, more concentrated andmore volatile than major securities markets in the United States. There is alsosignificantly greater concentration in the Brazilian securities market than inmajor securities markets in the United States. These features may substantiallylimit the ability to sell the common shares underlying the ADSs at a price andtime at which holders wish to do so. The BM&FBOVESPA had a marketcapitalization of U.S.$1.3 trillion as of December 31, 2009, and anaverage monthly trading volume of approximately U.S.$53 billion in 2009. Incomparison, the NYSE had a domestic market capitalization of U.S.$11.8 trillion(excluding funds and non-U.S. companies) as of December 31, 2009. A liquidand active market may never develop for our common shares or ADSs, and as aresult, the ability of Fibria ADS holders to sell at the desired price or timemay be significantly hindered.

 

***Holders of our ADSs may face difficulties in protectingtheir interests because we are subject to different corporate rules andregulations as a Brazilian company and our shareholders may have fewer and lesswell-defined rights.***

 

Holders of ADSs are notdirect shareholders of our company and are unable to enforce the rights ofshareholders under our bylaws and Brazilian law. Our corporate affairs aregoverned by our bylaws and Brazilian law, which differ from the legalprinciples that would apply if we were incorporated in a jurisdiction in theUnited States, or elsewhere outside Brazil. Under Brazilian law, the rights ofa holder of our common shares to protect its interests with respect to actionsby us, our directors or executive officers may be fewer and less well-definedthan under the laws of other jurisdictions.

 

Although insider tradingand price manipulation are crimes under Brazilian law, the Brazilian securitiesmarkets are not as highly regulated and supervised as the U.S. securitiesmarkets or the markets in some other jurisdictions. In addition, rules andpolicies against self-dealing or for preserving shareholder interests may beless well-defined and enforced in Brazil than in the United States and certainother countries, which may put holders of our common shares or ADSs at apotential disadvantage. In addition, the disclosure required of publiccompanies in Brazil may be less complete or informative than that required ofpublicly-held companies in the United States or in certain other countries.

 

***Holders of our ADSs may not be able to exercise their votingrights.***

 

Holders of our ADSs mayonly exercise voting rights with respect to their underlying common shares inaccordance with the provisions of the deposit agreement for the Fibria ADSprogram, or the Fibria Deposit Agreement. Under the Fibria Deposit Agreement,ADS holders may only vote by giving voting instructions to the FibriaDepositary. Because the Fibria Depositary appears on Fibria’s share registriesand not the ADS holders, such holders are unable to exercise their right tovote without the representation of the Fibria Depositary unless they surrendertheir ADS for cancellation in exchange for our common shares. In addition,pursuant to the Fibria Deposit Agreement, the Fibria Depositary will onlynotify our ADS holders of an upcoming vote and arrange to mail proxy cards tothose holders if we request the Fibria Depositary to do so. Pursuant to ourbylaws, the first call for a shareholders’ meeting must be published at least15 days in advance of the relevant meeting, and the second call must bepublished at least eight days in advance of the meeting, in the case ofinsufficient quorum to approve the matters included in the first meeting. As aresult, there may not be enough time for ADS holders to surrender their 

 

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ADSs and withdrawunderlying common shares, or for them to receive a proxy card in time to ensurethat they can provide the Fibria Depositary with voting instructions. TheFibria Depositary and its agents are not liable for failure to mail proxy cardsin time for ADS holders to vote the common shares underlying their ADSs or tocarry out voting instructions in the manner as instructed or at all. As aresult, holders of ADSs may not be able to exercise the voting rights attachedto the common shares underlying their ADSs.

 

***An exchange of ADSs for shares risks the loss of certain foreigncurrency remittance and Brazilian tax advantages.***

 

The ADSs benefit from thecertificate of foreign capital registration, which permits the FibriaDepositary to convert dividends and other distributions with respect to commonshares into foreign currency, and to remit the proceeds abroad. Holders of ADSswho exchange their ADSs for common shares will then be entitled to rely on thedepositary’s certificate of foreign capital registration for five business daysfrom the date of exchange. Thereafter, they will not be able to remitnon-Brazilian currency abroad unless they obtain their own certificate offoreign capital registration, or unless they qualify under Resolution No. 2,689/00of the CMN, which entitles certain investors to buy and sell shares onBrazilian stock exchanges without obtaining separate certificates ofregistration. If holders of ADSs do not qualify under Resolution No. 2,689/00,they will generally be subject to less favorable tax treatment on distributionswith respect to our common shares. There can be no assurance that thecertificate of registration of the Fibria Depositary, or any certificate offoreign capital registration obtained by holders of ADSs, will not be affectedby future legislative or regulatory changes, or that additional Brazilian lawrestrictions applicable to their investment in the ADSs may not be imposed inthe future.

 

***Holders of our shares will be subject to, and holders of ourADSs could be subject to, Brazilian income tax on capital gains from sales ofshares or ADSs.***

 

Brazilian Law No. 10,833/03provides that gains on the disposition of assets located in Brazil bynon-residents of Brazil, whether to other non-residents or to Brazilianresidents, will be subject to Brazilian taxation. The common shares areexpected to be treated as assets located in Brazil for purposes of the law, andgains on the disposition of common shares, even by non-residents of Brazil, areexpected to be subject to Brazilian taxation. In addition, the ADSs may betreated as assets located in Brazil for purposes of the law, and thereforegains on the disposition of ADSs by non-residents of Brazil may also be subjectto Brazilian taxation. Although the holders of ADSs outside Brazil may havegrounds to assert that Law No. 10,833/00 does not apply to sales or otherdispositions of ADSs, it is not possible to predict whether that understandingwill ultimately prevail in the courts of Brazil given the general and unclearscope of Law No. 10,833/03 and the absence of judicial court rulings inrespect thereto.

 

***Holders of our ADSs may not be able to exercise thepreemptive rights relating to the shares.***

 

Holders of our ADSs maynot be able to exercise the preemptive rights relating to the common sharesunderlying their ADSs unless a registration statement under the U.S. SecuritiesAct of 1933, as amended (the “Securities Act”) is effective with respect tothose  exemption from the registrationrequirements of the Securities Act is available. We are not obligated to file aregistration statement with respect to the shares or other securities relatingto these preemptive rights and we cannot assure holders of our ADSs that wewill file any such registration statement. Unless we file a registrationstatement or an exemption from registration applies, holders of our ADSs mayreceive only the net proceeds from the sale of their preemptive rights by thedepositary or, if the preemptive rights cannot be sold, the rights will be allowedto lapse.

 

***Judgments of Brazilian courts with respect to our shareswill be payable only in reais.***

 

If proceedings arebrought in the courts of Brazil seeking to enforce our obligations in respectof the common shares, we will not be required to discharge our obligations in acurrency other than *reais*. UnderBrazilian exchange control limitations, an obligation in Brazil to pay amountsdenominated in a currency other than *reais*mayonly be satisfied in Brazilian currency at the exchange rate, as determined bythe Central Bank, in effect on the date the judgment is obtained, and suchamounts are then adjusted to reflect exchange rate variations through theeffective payment date. The then prevailing exchange rate may not affordnon-Brazilian investors with full compensation for any claim arising out of orrelated to our obligations under the common shares or the ADSs.

 

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# **ITEM 4. INFORMATION ON FIBRIA**

#  

**A.****                                   ****History and Developmentof Fibria**

 

We are incorporated underthe laws of the Federative Republic of Brazil under the name Fibria CeluloseS.A., as a publicly-held company with unlimited duration. We have the legalstatus of a *sociedade anônima de capitalaberto*, or a stock corporation, operating under the Braziliancorporate law. Our headquarters and principal executive offices are located atAlameda Santos, 1357, 6th floor, 01419 908, São Paulo, SP, Brazil(telephone: 55 11 2138-4565). Our website address is www.fibria.com.br.Investor information can be found on our website under the caption of “InvestorsRelations”.  Information contained on ourwebsite is, however, not incorporated by reference in, and should not beconsidered a part of this annual report. Our agent for service of process in the United States is CT Corporation,111 Eighth Avenue, New York, New York 10011.

 

Our activities began in1988 when the Votorantim Group purchased Celpav Celulose e Papel Ltda., orCelpav, a pulp and paper producer based in the state of São Paulo.  We began production in 1991 after expandingand modernizing our facilities.  In September 1992,the Votorantim Group purchased Indústrias de Papel Simão S.A., or Papel Simão,which was listed on the Bovespa.  Viasubsequent corporate reorganizations, Celpav was merged and into Papel Simãowhich renamed Votorantim Celulose e Papel S.A. in 1999.

 

On April 19, 2000,we completed a registered offering of 7,920,000 ADSs.  Each ADS represented 500 preferred shares,and the ADSs were listed on the New York Stock Exchange under the symbol “VCP.”  Of the 7,920,000 ADSs being offered at thattime, we sold 2,047,648 ADSs and certain of our shareholders sold the remaining5,872,352 ADSs.  Concurrently,440,000,000 preferred shares were sold in Brazil.

 

Because VCP changed itsname to Fibria on November 5, 2009, with the Aracruz Acquisition (see “Item4. Information in Fibria History and Development — The Aracruz Acquisition”),the last trading day of VCP shares on the NYSE under the ticker symbol VCP was November 17,2009. From November 18, 2009 on, the ticker symbol has changed to “FBR”.

 

Since our founding in 1988,Fibria has grown and expanded by the organic expansion of its pulp mills andpaper production facilities, including the disposition of assets and lines ofbusiness that were deemed not a part of its core business, and selectiveacquisition of equity interests in other pulp and paper companies.  During the period of 1988 through 2009 themore significant of these capacity expansions, acquisitions and transactionswere as follows:

 

1)     Acquisition, in 2001, of 28.0% of the voting shares(representing 12.35% of the total capital) of Aracruz from the Mondi Group, forapproximately U.S.$ 370 million.  Weacquired our interest in Aracruz in order to increase our exposure to theinternational pulp market, and we accounted for this investment under theequity method.  We reduced the book valueof our investment in Aracruz to an amount equal to the market value of AracruzADRs at December 31, 2002.  Theimpairment provision of U.S.$ 136 million was determined based on themarket price of U.S.$ 18.56 per each Aracruz ADRs on December 31,2002, and the amount was charged directly to profit and loss.  Due to the Stock Swap Merger with us the lasttrading day for one Aracruz ADR was November 17, 2009 and its final marketprice was U.S.$ 21.25. See “Item 5. Operating and Financial Review andProspects — Operating Results — Recent Developments”. At December 31, 2008the market price for one Aracruz ADR was U.S.$ 11.28.

 

2)     Expansion of the Jacarei mill, completed in 2005,which increased our installed capacity for pulp to 1.1 million metric tons perannum with a total investment of U.S.$ 495 million.

 

3)     In 2005 we purchased through a 50% joint venture withSuzano Bahia Sul Papel e Celulose S.A., or Suzano, the common and preferredshares of Ripasa.  On March 31,2005, we finalized the acquisition, through a 50% joint venture, of 77.59% (ourinterest – 38.80%) indirect interest in the voting capital and 46.06% (ourinterest – 23.03%) indirect interest in the total capital of Ripasa, forU.S.$ 275 million.  A purchase optionwas also signed for the option to purchase common shares and preferred shares,totaling 22.41% of the voting stock and 13.45% of the total stock, respectivelyand to be exercised within six years, for a total current amount ofU.S.$ 179 million.  In subsequentperiods a summary of related transactions that occurred with respect to theRipasa acquisition is as follows:

 

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a)     In 2006 we and Suzano reached an agreement withnon-controlling shareholders of Ripasa and began selling Americana’s unitproducts as a pre-consortium stage whereby each party purchased 50% of Ripasa’sproduction and resold it within its own distribution channels.  The share purchase option with the formercontrolling shareholders of Ripasa was modified.

 

b)    In 2007 we completed the disposition of Ripasaoperating facilities not deemed to be a part of our core business.

 

c)     In 2008 we and Suzano received permission from theBrazilian tax authorities to form a production consortium to operate the Ripasafacility and re-purchased part of our preferred shares issued in 2005 toacquire Ripasa and cancel substantially all of the above share purchase option.

 

4*)**   *In 2005, we announced the beginning of theenvironmental licensing process for the implementation of a bleached eucalyptuspulp factory to be built in Rio Grande do Sul (the “Losango” project).  If implemented, this unit will occupy an areaof approximately 500 hectares, located in the region of RioGrande-Pelotas-Arroio Grande.  Overallnominal capacity is expected to be 1.5 million tons of pulp per year. We haveprogressed with the environmental licensing and basic engineering and technicalaspects of the project and continue to form the forestry base.  In 2008 we announced a postponement, infurther development of the project’s industrial aspects in view of the thencurrent uncertainty as to worldwide economic conditions.  Losango project is part of the portfolio ofprojects that Fibria has to expand pulp capacity. As of December 31, 2009we had approximately 110,432 hectares of land of which 42,796 hectares (58,971hectares including forest partnership program) are planted areas designated forthis project. See “4. Information on Fibria — Property, Plant and Equipment —Expansion**.”**

 

5)     Exchange of assets with International Paper:

 

In September 2006,International Paper, a wholly owned subsidiary of      InternationalPaper Company, and Fibria entered into an Exchange Agreement (the “ExchangeAgreement”).  Pursuant to the terms ofthe Exchange Agreement, International Paper agreed to exchange its pulp millproject (the “Project Mill”) developed in Três Lagoas, state of Mato Grosso doSul, Brazil (together with approximately 100,000 hectares of surroundingforestlands) for Fibria’s Luiz Antonio pulp and uncoated paper mill andapproximately 60,000 hectares of forestlands located in the state of São Paulo,Brazil.  The Luiz Antonio mill produced355,000 metric tons of uncoated papers and 100,000 metric tons of market pulpannually.  The 100,000 metric tons ofmarket pulp will be supplied to Fibria, for its use in other facilities, oncompetitive terms under a long-term supply agreement.

 

Under the ExchangeAgreement, International Paper is granted the right to construct, at its cost,up to two paper machines adjacent to, and integrated with, the ProjectMill.  International Paper exercised itsright to build the first paper machine adjacent to the Project Mill.  If International Paper exercises its right tobuild the second paper machine adjacent to the Project Mill, in the samecondition as the first one: (1) certain parcels of real property will beretained by International Paper upon which the paper machine will beconstructed and (2) the paper machine will be supported by long-termsupply agreements under which Fibria will provide International Paper pulp oncompetitive terms and utilities and rates based on Fibria’s actual operatingcosts.  International Paper has alreadyfully funded the Project Mill as stated at the exchange asset date in theamount of U.S. $1.15 billion for the mill. Pursuant to an amendment to the agreement, all financial income accruingfrom the funds in trust was applied, exclusively, in the project underconstruction.  This financial income in2009, 2008 and 2007 was U.S.$ 6 million, U.S.$ 32 million and U.S.$ 124million, respectively.

 

On January 2, 2007,Fibria created a new subsidiary, LA Celulose e Papel Ltda. (“LA”), as part of      the asset exchange agreement with InternationalPaper.  This wholly owned subsidiary hasno significant assets or liabilities.  OnJanuary 2, 2007, Fibria transferred to LA the assets of the Luiz Antoniomill and related forests.  On February 1,2007, Fibria transferred LA to International Paper and received Chamflora (thenan International Paper subsidiary) in exchange. Chamflora had contracted an internationally recognized engineering andconstruction company, Pöyry Engenharia (“Pöyry”), on an Engineering,Procurement and Construction, or EPC, basis to build the Três Lagoas mill as aturn-key project.  Pöyry managedsubcontractors and acquired the equipment and other supplies in order to placethe plant in operation.  Pöyry earned amanagement fee and borne the construction risks and was entitled to anysurpluses or be responsible for shortfalls based on the funds already paid toPöyry for the EPC, which had in turn transferred to a commercial bank acting asthe Trustee Bank (“Trustee”) the corresponding funds to complete 

 

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the project.  These resources have been disbursed by theTrustee in accordance with the physical construction schedule of the project,which also contemplated the orders with third parties to supply equipment andservices being rendered in Três Lagoas to Chamflora.  Effective February 1, 2007, and with thecompletion of the asset exchange, Chamflora’s name was changed to VCP MatoGrosso do Sul Celulose Ltda. (VCP-MS), and it is accounting for these EPCdisbursements as a “Construction in Progress”. Upon completion of the construction and start-up of the mill, thesecosts would be transferred to the appropriate fixed assets accounts.

 

In October 2007, oursubsidiary VCP-MS signed an agreement with ALL - América Latina Logística S.A (“ALL”)for ALL to provide transport services for more than 1 million tons per year ofpulp from Três Lagoas to the port of Santos for a twenty-year term beginning in2009.  The      agreementprovides primarily for (i) railway transportation service from thefacility to the port of the pulp volume produced in Três Lagoas; (ii) constructionof a railway spur line connecting ALL’s main rail line to the facility; and (iii) investmentsby both companies for wagons,   locomotives and permanent railwayinfrastructure.

 

In November 2007, weredefined the scope of the pulp project mill in Três Lagoas, state of MatoGrosso do Sul, by increasing the nominal capacity from 1,000,000 tons to1,300,000 tons per year of bleached eucalyptus pulp with a total estimated costfor the mill of approximately U.S.$ 1.5 billion.  The capacity and value of the project wereredefined due to three factors:  (i) changesin market conditions such as commodities and international price increases,especially for metals; (ii) currency appreciation over the U.S. Dollar;and (iii) strong demand for equipment in every sector of the economy.

 

The mill’s start upoccurred in March 2009.  We believethat the pulp project mill in Três Lagoas, state of Mato Grosso do Sul, has apotential for a future second phase expansion. See “Item 4. Information on Fibria — Property, Plant and Equipment —Expansion” and “Item 10. Additional Information — Material Contracts.”

 

6)     Joint-venture with Ahlstrom:

 

In May 2007, weannounced an intended joint venture agreement with the Finnish company Ahlstromfor the paper production in our facility located in Jacareí, state of São Paulo.  The agreement was concluded in September 2007and Ahlstrom acquired a 60% interest of this new joint venture for the paperassets in Jacareí mill, denominated Ahlstrom VCP Indústria de Papéis EspeciaisS.A. (“Ahlstrom VCP”), with an option to purchase the remaining 40% within twoyears.

 

In September 2008,pursuant to a series of options which were part of the agreement with Ahlstrom,we sold to Ahlstrom our remaining 40% equity interest in the joint-venturecompany for U.S.$ 42 million.  See “Item4C. Organizational Structure” and “Item 10C. Additional Information — MaterialContracts”.

 

The parties also signed along-term agreement whereby Fibria will supply eucalyptus pulp, utilities andother services to Ahlstrom VCP at the Jacarei mill at competitive prices, inorder to partly support an annual production capacity of approximately 105,000tons per year of uncoated wood-free papers.

 

7)     Strategic Business Agreement (SBA) with Oji Paper:

 

In August 2007 weannounced the execution of a long term SBA with Oji Paper.  The agreement will allow us to further ouroffering of thermal paper technologies in Brazil and the region of LatinAmerica, while allowing Oji to expand its worldwide presence as a market leaderin thermal technology.  Through theexecution of the SBA, we will be able to draw on the technologies of Oji aswell as its global subsidiaries including the technology of Kanzaki SpecialtyPapers, Inc (KSP), Kanzan Spezialpapiere GmbH (Kanzan) and Oji Paper ThailandLtd. (OPT).  Going forward, we will beprepared to meet the growing demands of an expanding market by drawing on thetechnological process of Oji Paper globally. The SBA agreement coupled with the completion in 2008 of our Piracicabamill expansion permitted the continuation of enhanced quality products andimproved value to our customers.  See **“**Item 10C. Additional Information —Material Contracts.”

 

Other recent developmentsinclude the following:

 

1)     The Aracruz Acquisition

 

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In October 2001, weacquired 12.35% of the total share capital, (equivalent to 28% of the votingshare capital) of Aracruz and became a party to a shareholders’ agreement withthe members of the Lorentzen, Moreira Salles and Almeida Braga families (the “Families”)and Messers. Joseph Yacoub Safra and Moises Yacoub Safra (the “Safra” family)relating to the control of Aracruz. As a result, under US GAAP, weproportionally recognized our interest in Aracruz in our financial statementsusing the equity method.

 

On January 21, 2009,we acquired Arapar S.A., or Arapar, and São Teófilo Representações eParticipações S.A., or São Teófilo, holding companies controlled by theFamilies, whose sole assets together consisted of 12.35% of the total sharecapital, (equivalent to 28% of the voting share capital) of Aracruz, for R$2,710 million (equivalent to U.S.$ 1,151 million at the exchange rate of January 21,2009). Under the purchase agreement, the purchase price is payable in sixsemi-annual installments without interest as follows: (1) R$ 500 millionwas paid in January 21, 2009; (2) R$ 500 million was paid on July 5,2009; (3) R$ 500 million was paid on January 5, 2010; (4) R$ 500million is due on July 5, 2010; (5) R$ 410 million is due on January 5,2011; and (6) R$ 300 million is due on July 5, 2011. At December 31,2009 the U.S.$ equivalents of the remaining unpaid installments was U.S.$ 982million.

 

On April 29, 2009,we purchased 12.35% of the total share capital (equivalent to 28% of the votingshare capital) of Aracruz from Safra family, for R$2,710 million (equivalent toU.S.$ 1,241 million at the exchange rate of April 29, 2009).  The purchase price for these shares is payablein six semi-annual installments without interest, and except for oneinstallment, are payable as follows: (1) R$ 600 million was paid duringthe period of April and May 2009; (2) R$ 500 million was paid inJanuary 2010; (3) R$ 500 million is due in July 2010; (4) R$400 million plus interest computed at 105% of the Brazilian interbank borrowingrate (CDI) is due in October 2010; (5) R$ 410 million is due in January 2011;and (6) R$ 300 million is due in July 2011. At December 31, 2009the U.S.$ equivalents of the remaining unpaid installments was U.S.$ 1,212million.

 

Following theseacquisitions, we owned 37.05% of the total share capital (equivalent to 84% ofthe voting share capital) of Aracruz.  Asa result of these purchases, in accordance with US GAAP, we have fullyconsolidated the assets, liabilities and results of operations of Aracruz andits consolidated subsidiaries in our financial statements as from January 21,2009, when we have acquired the control.

 

2)     Capital Increase

 

In April and May 2009,we issued and sold (1) 62.1 million common shares to our controllingshareholder, VID, for R$1,180 million, which was paid through the applicationof R$1,000 million of previously issued advances for capital increases andR$180 million in cash, (2) 43.6 million preferred shares to BNDESPar inexchange for 56.9 million common shares of Aracruz, representing 12.49% of thetotal share capital (equivalent to 5.51% of the voting share capital) ofAracruz, (3) 95.8 million preferred shares to BNDESPar for R$1,820 millionin cash, and (4) an aggregate of 9.3 million preferred shares to theFamilies and Arainvest for an aggregate of R$180 million.

 

In connection with thiscapital increase, BNDESPar subscribed to debentures issued by VID that wereconvertible into common shares of our company held by VID. Under thesedebentures, VID was obligated to invest the net proceeds it received fromBNDESPar to purchase shares of our company. On September 3, 2009, BNDESParexercised its option to convert the VID Debentures. As a result of thisconversion, VID transferred 30.5 million common shares of our company toBNDESPar. Upon this conversion and at that date, BNDES owned 41.8% of ouroutstanding shares and VID owned 35.2% of our outstanding shares.

 

3)     Mandatory Public Purchase Offer

 

In connection with theAracruz Acquisition, on June 1, 2009, we announced the commencement of amandatory public purchase offer for any and all outstanding common shares ofAracruz not held by us, as required under the Brazilian Corporation Lawfollowing a change in control of a publicly-held Brazilian corporation. Theauction with respect to this tender offer took place on the BM&FBOVESPAfrom June 2 to July 1, 2009. During the auction period, we acquired 13,828,307 common shares ofAracruz, representing 3.04% of the outstanding voting share capital of Aracruz(equivalent to 1.34% of the total share capital) of Aracruz, for an aggregatepurchase price of R$236.6 million, payable according to the same paymentschedule agreed by the Families and Safra family in connection with the AracruzAcquisition.  Following this transaction,we owned 42.6% of the total share capital (equivalent to 98.2% of the votingshare capital) of Aracruz.

 

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4)     Stock Swap Merger

 

Following the AracruzAcquisition, we began to implement a corporate reorganization to simplify ourcapital structure.  As part of thiscorporate reorganization, on August 24, 2009, VCP and Aracruz each heldextraordinary shareholders’ meetings at which the Stock Swap Merger wasapproved. Pursuant to the Stock Swap Merger:

 

·      each issued and outstanding common share of Aracruz(other than common shares held directly or indirectly by VCP or with respect towhich the holder exercises withdrawal rights) was exchanged for 0.1347 of VCP’scommon shares;

 

·      each issued and outstanding preferred share of Aracruz(other than preferred shares held by VCP) was exchanged for 0.1347 of VCP’scommon shares; and

 

·      Aracruz became a wholly-owned subsidiary of VCP.

 

5)     Merger of Aracruz into VCP

 

The merger of Aracruzbecame effective on December 31, 2009, as a result of the favorable voteat the extraordinary shareholders’ meetings held on December 22, 2009.

 

6)     Refinancing of Aracruz’s Derivative Debt

 

Aracruz sufferedsignificant losses in 2008 from derivative transactions in a total amount ofU.S. $2.160 billion.  These losses weredue to the depreciation of the *Real* in thesecond half of 2008 and Aracruz’s short position with respect to the U.S.Dollar against the *Rea*l.  These transactions were unwound in October andNovember of 2008. As of December 31, 2008, Aracruz’s totalobligations related to its derivative losses amounted to U.S.$ 2,160million.  Aracruz renegotiated theseliabilities with the respective counterparties under the relevant derivativefinancial instruments pursuant to a secured, long-term export prepayment facilityagreement and secured loan, or the Export Prepayment Refinancing CreditFacility, which was executed on May 13, 2009 and under which AracruzTrading International Ltd. ATI, a wholly-owned subsidiary of Aracruz, is theborrower. In addition to Aracruz’s obligations under these derivative financialinstruments, outstanding export prepayment loans with certain bank creditors inan aggregate principal amount of U.S.$ 501 million were transferred by therelevant bank creditors in exchange for loans that would be repaid by ATI tothese bank creditors pursuant to the terms and conditions set forth in theExport Prepayment Refinancing Credit Facility. The refinancing of this indebtedness was completed on August 13,2009. From the approximately U.S.$3.6 billion raised under this LiabilityManagement Plan (See “Item 5. Operational and Financial Review Prospects —Liquidity and Capital Resources — Liability Management Plan”), U.S.$2,160million were used to pay in December 2009 the pre-payment of significantlyall of the derivative debt. This pre-payment resulted in a renegotiation of thefinancial ratios and other restrictions on this debt. On November 16,2009, we successfully managed to conclude the renegotiation to align the termsof the derivative debt with those of its other existing contracts, therebyeliminating a significant number of restrictive conditions previouslyprevailing in the derivatives contract.

 

7)     Sale of Guaíba Unit

 

On October 8, 2009,we entered into a purchase and sale agreement with Empresas CMPC S.A., or CMPC,a company based in Santiago, Chile, for the sale of (i) our pulp and papermill located in the city of Guaíba, in the State of Rio Grande do Sul, (ii) landtotaling an area of approximately 212,000 hectares of forestland associatedwith this mill (of which 32,000 hectares are leased, under partnerships), (iii) licensesand authorizations for a project to expand the pulp mill’s production capacityto approximately 1.75 million tons a year, and (iv) all of the sharecapital of Aracruz Riograndense S.A., which we refer to collectively as theGuaíba unit, located in the municipality of Guaíba in the state of Rio Grandedo Sul, for an aggregate purchase price of U.S. $1,430 million.

 

8)     On December 15, 2009 the Company concluded thesale to CMPC.  The original saleconsideration of U.S.$ 1,430 million was reduced by U.S.$ 20 millionfor adjustments to leased assets (not impacting cash) and U.S.$ 28 millionrelated to physical forestry measurements. The transaction generated a loss of U.S.$ 90 million, 

 

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recorded in Otheroperating (expense) income, net. This unit was a part of the Aracruz businessand was not consolidated in 2008 and 2007. The disposition of the Guaíba unithas been treated as a discontinued operation.

 

On December 15, 2009the Company received US$ 1,300 million and in January 2010 received asecond installment of US$ 80 million.

 

**CapitalExpenditures**

 

Our capital expendituresdisbursements totaled U.S.$ 803 in 2009, U.S.$ 692 million in 2008and U.S.$ 477 million in 2007.  We expect our capital expenditure tobe U.S.$ 631 million in 2010. The increase in capital expendituresfrom 2008 to 2009 was mainly due to large investmentsin the increase of nominal capacity of the pulp mill in TrêsLagoas (state of Mato Grosso do Sul). We continued investing in a newforest reserve (land acquisition and plantation) in Mato Grosso do Sul State,in the center of Brazil. These expenditures for land acquisition andforestry plantation not only reduce our dependence on raw materials from thirdparties, but also assure our supply of raw materials for current or eventualexpansion of our pulp mill capacity.

 

We believe that ourparticipation in Ripasa as a production unit, with 50% of volumes being sold byFibria, the corresponding synergies and our prior investments in our ownfacilities will allow us to continue to grow and continue to implement ourbusiness plan.

 

The table below setsforth a breakdown of our most significant capital expenditures for the periodsindicated:

 
| ** **                                                                                                                                                                                                         | ** ** | **2009**                        | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------|------------|----------|------------|----------|------------|
| ** **                                                                                                                                                                                                         | ** ** | **in U.S.$ millions** | ** ** |
| Expansion                                                                                                                                                                                                          |       | 504                             |       | 391      |       | 67       |       |
| Forests (including land purchases)                                                                                                                                                                                 |       | 201                             |       | 222      |       | 216      |       |
| Improvements/modernization                                                                                                                                                                                         |       | 16                              |       | 12       |       | 12       |       |
| Other (includes maintenance and information  technology)                                                                                                                                                           |       | 76                              |       | 35       |       | 58       |       |
| Sub Total                                                                                                                                                                                                     |       | 797                             |       | 660      |       | 353      |       |
| Fixed assets related to Três Lagoas expansion  purchased with proceeds of financial income earned on trust fund deposits  (see “Item 4A. Information on Fibria — History and Development of Fibria) |       | 6                               |       | 32       |       | 124      |       |
| Total                                                                                                                                                                                                              |       | 803                             |       | 692      |       | 477      |       |

 

If we consider our 50%stake in Veracel, we have an additional capital expenditure of U.S.$ 39 millionrespectively, primarily related to the plantation and forestrymaintenance, increasing our total capital expenditure for 2009 toU.S.$ 842 million.

 

The following table showsthe estimated breakdown of planned capital expenditures during 2010, which isexpected to be financed by cash generated from operations and by existing cash:

 
| ** **                                                                           | ** ** | **in U.S.$ millions** | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------|------------|
| Expansion projects                                                                   |       | 31                         |       |
| Forests                                                                              |       | 351                        |       |
| Other (includes maintenance, information technology  and improvements/modernization) |       | 249                        |       |
| Total                                                                                |       | 631                        |       |

 

If we consider our 50%stake in Veracel, which has planned 2010 expenditures of U.S.$ 85 million, respectively,we will have a total capital expenditure in 2010 of U.S.$716 million.

 

**B.****                                   ****Business Overview**

 

After having acquiredAracruz in the first half of 2009, we became the world’s largest producer ofmarket pulp, according to Hawkins Wright, with an aggregate pulp productioncapacity of approximately 5.4 million tons, 

 

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representingapproximately 32% of the world production capacity of BEKP, as of December 31,2009.  We believe that we are one of thelowest-cost producers of BEKP in the world, primarily due to our economies ofscale, state-of-the-art and strategically located production facilities, theshort harvest cycle of our trees and our use of high-end technology in ouroperations.  In 2009, according to ourestimates, we maintained a position as a leading producer of specialtycarbonless and thermal paper in Brazil and as one of the five largest Brazilianproducers of uncoated printing and writing paper (as reported by Bracelpa in2008).  The results of operations ofAracruz is being consolidated into our financial statements as from January 21,2009.  We recently adopted the trademark “Fibria”for our pulp and paper operations.

 

For the year ended December 31,2009, we produced 4,789 kilotons of eucalyptus pulp (including 50% of Veracel),recorded consolidated net revenues from BEKP sales of U.S.$ 2,246.1 million(including 50% of Veracel), produced 313.8 kilotons of paper products andrecorded consolidated net revenues from paper sales of U.S.$ 263.9 million. In2008, we produced 1,404 kilotons of eucalyptus pulp, recorded consolidated netrevenues from BEKP sales of U.S.$773.4 million, produced 318.1 (including theproduction from Conpancel) kilotons of paper products and recorded consolidatednet revenues from paper sales of U.S.$ 593.1 million.

 

Our forest base (ownland, leasing, partnership) is broad and diversified, and as of December 31,2009, it comprised a total land area of approximately 1.043 million hectareslocated in six Brazilian states.  Out ofthis total, 585.1 thousand hectares consisted of forested areas and 393.4thousand hectares of wild life conservation areas.

 

We produce bleached eucalyptuskraft pulp at the following three pulp mills, among others, 100% owned by ourcompany:

 

·                  the Aracruz pulp mill, which has anannual production capacity of 2.3 million tons and which we acquired as part ofthe Aracruz Acquisition;

 

·                  the Três Lagoas pulp mill, which has anannual production capacity of 1.3 million tons and commenced operations on March 30,2009; and

 

·                  the Jacareí pulp mill, which has anannual production capacity of 1.1 million tons.

 

In addition, we have (1) a50% interest in Veracel, which owns and operates a pulp mill in themunicipality of Eunápolis, State of Bahia with an annual production capacity of1.1 million tons, and (2) a 50% interest in Conpacel, which owns andoperates a pulp mill in the city of Americana, State of São Paulo with anannual pulp production capacity of 650 kilotons. We account for our rights andobligations in this cost and production sharing venture according to ourundivided interest as defined in the Consortium Agreement, and record them aspart of our operations according to their nature.

 

We produce coated anduncoated paper, carbonless paper and thermal paper at our Piracicaba papermill, which has an annual production capacity of 190 kilotons. In addition,Conpacel owns and operates a paper mill in the municipality of Americana, Stateof São Paulo with an annual production capacity of 390 kilotons of uncoated andcoated paper.

 

Our paper distributionbusiness unit, known as KSR, utilizes a multiple location, automated warehousesystem that permits efficient distribution of an extensive product line,including graphic papers and products, throughout Brazil. This warehouse anddistribution system is supported by a specialized transportation fleet.

 

Export sales accountedfor 91% and 76% of our pulp sales volume during the years ended December 31,2009 and 2008, respectively. Domestic sales accounted for 90%and 88% of ourpaper sales volume during the year ended December 31, 2009 and 2008,respectively. We export pulp and paper products from a terminal and warehousethat we operate at the port of Santos, in the State of São Paulo, and exportpulp products from Portocel, a specialized port terminal that is operated byour subsidiary Portocel, which is located three kilometers from our Aracruzpulp mill, in the State of Espírito Santo. We also operate a port terminal located in the city of Caravelas in theState of Bahia, from which we transport wood to our Aracruz pulp mill, andanother port terminal in the city of Belmonte, in the south of the State ofBahia, from which we transport pulp produced by Veracel to Portocel.

 

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The following map sets forth the location of theproduction facilities and the port terminals we operate:

 

 

**OurOwnership Structure**

 

We are jointly controlledby VID, a wholly-owned subsidiary of VPar (the holding company of theVotorantim Group) and BNDESPar, a subsidiary of BNDES. VPar in turn iscontrolled by Hejoassu Administração S.A. which is controlled by the Ermírio deMoraes family.  As a result of thepurchase of an additional equity interest in Aracruz and corporatere-organization of Fibria, both of which occurred during the first semester of2009, our exchange offer for outstanding Aracruz shares and the merger ofAracruz into us, our ownership structure and principal subsidiaries as of December 31,2009 is presented in the following chart. See “Item 4. OrganizationalStructure” for the total economic structure of Fibria and “Item 5. Operatingand Financial Review and Prospects — Operating Results — Recent Developments”for prospective changes in our ownership structure and principal subsidiaries:

 

 

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(1) Fibriaparticipates in a cost and production sharing venture with Suzano whichoperates a pulp and paper plant in Americana São Paulo.  Under the various agreements, the memberseach have a 50% undivided interest in assets, liabilities and operations of theventure.  Fibria is entitled to 50% ofthe Consortium’s production beginning September 1, 2008.  See note 4(a)(v) to the ConsolidatedFinancial Statements.

 

As of December 31,2009, our total shares amounted to 467,934,646 common shares. See “Item 5.Operating and Financial Review and Prospects — Operating Results — RecentDevelopments”.

 

**OurStrengths**

 

Global leadership inmarket pulp

 

We are the world’slargest producer of market pulp according to Hawkins Wright, with a total pulpproduction capacity of approximately 5.4 million tons as of December 31,2009 and a focus on the international markets. We estimate that in 2009 we accounted for approximately 32% of the worldproduction capacity of BEKP, approximately 19% of the world production capacityof bleached hardwood kraft market pulp and approximately 10% of the worldproduction capacity of chemical market pulp. Our leadership is based on the sustainability of our forest operations(including as a result of the shorter harvest cycle in Brazil as compared toother relevant countries), our state-of-the-art technology (including modernfacilities and advanced cloning methods), our high productivity, our strongcustomer base and our long-term relationships with our customers.

 

Low production costs

 

Our efficientlystructured operations in Brazil result in relatively low cash productioncosts.  We believe that we are one of thelowest-cost producers of BEKP in the world. Our low production costs relative to many of our competitors are due toa number of factors, including:

 

·                  our significant economies of scale;

 

·                  our advanced forestry techniques inmanaging the planting, maintenance and harvesting of our forests;

 

·                  our modern industrial plants;

 

·                  the comparatively short harvest cycle ofour trees; and

 

·                  relatively low energy and chemical costs.

 

Climate and soilconditions in Brazil enable us to harvest our eucalyptus trees in approximatelyseven years (on average) after planting, while harvesting cycles of otherforest species in the southern United States, Canada and Scandinavia can lastfrom 25 to 70 years.  Harvesting cyclesof our main non-Brazilian competitors in the BEKP market (Spain, Portugal andChile) are approximately eight to 10 years.

 

State-of-the-artproduction facilities

 

Our mills have adoptedthe latest designs, technologies and production processes as a result ofsignificant investments we have made. The advanced technology and production processes used in our mills allowus to use a lower level of raw materials, mainly chemicals, which consequentlyreduces our production costs. In addition, our mills have advantages over oldermills, particularly with respect to reduced emissions and solid waste disposal,providing for a more streamlined, efficient and environmental-friendly pulpproduction process. The Três Lagoas and Veracel mills, two of the largestsingle-line pulp production facilities in the world, each also have one of thelowest production costs of market pulp per ton in the world. This is the resultof state-of-the-art technology, including modern processes and equipmentsassociated with efficiency in forests, as well as short distances betweenforests and mills.

 

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State-of-the-art researchand technology

 

Fibria began plantingeucalyptus plantations at the end of the 1960s using seeds from the Rio ClaroForest Nursery (SP). At that time, four species were considered appropriate forthe area: Eucalyptus *grandis*, E. *saligna*, E. *urophylla*, andE. *alba*. Since then, many superior treeswere developed both as a result of the improvement program and the use ofcloning. As a result, cloned forests offered significant gains in productivity,uniformity, and wood quality, giving the company an outstanding position on theworld market. Fibria uses a group of selected clones in its plantations. Theseclones are frequently replaced to ensure sufficient genetic diversity and toreduce the probability of pests and diseases. Today, various geneticenhancement methods are used for developing advanced generations of Eucalyptus.Those techniques involve the selection of plants with better performance andcrossing them during successive generations. In addition, Fibria constantlyworks on methods to boost plantation productivity. Thanks to continuousprogress, the land now used to supply our pulp mills is one-half the area thatwould have been necessary 40 years ago when forest productivity levels weremuch lower.

 

Product development alsomade important advances in the drive to meet the principal demands of the papermarket, with a view to augmenting the market share of eucalyptus fibers. Aspart of this process, distinctive alternative features of the fibers have beendeveloped, in tandem with well-known and strategically chosen partners,involving the engineering of the fiber, the pulp production process andtechnology offered to the client. The progress achieved has enabled us to keepoffering exclusive products despite operating in a commodity market. Technologyforecasting has led to well thought out alternatives for new markets, as wellas advances in basic know-how and applications in relation to bioenergy,climate change and the eucalyptus genome.

 

Integrated operations

 

Our operation isvertically integrated. It begins with eucalyptus seedling production, thenplantation and forest keeping, and ends in our production mills afterharvesting, logging and wood transportation. Then, our products are dispatchedto our own harbor facility. In 2008, we were able to satisfy approximately 80%of fiber requirements with eucalyptus wood from our forests, and in 2009 thisnumber increased to approximately 94% (including Guaíba’s consumption from January toNovember), reflecting the corporate changes in this year, and the influence ofthe wood supply in the new mill at Mato Grosso do Sul and in Aracruz’s mills inEspírito Santo.  The following tablepresents the wood source delivered at the mills (in m3):

 
| **Fibria Mills** | ** ** | **Fibria Forests** | ** ** | **Others** | ** ** | **Total**  | ** ** |
|------------------|------------|--------------------|------------|------------|------------|------------|------------|
|             |       |               |       |       |       |       |       |
| Jacareí     |       | 3,447,470          |       | 222,081    |       | 3,669,551  |       |
| Aracruz          |       | 7,013,699          |       | 1,049,679  |       | 8,063,378  |       |
| Trës Lagoas |       | 4,810,000          |       | 0          |       | 4,810,000  |       |
| Veracel          |       | 1,744,000          |       | 0          |       | 1,744,000  |       |
| Conpacel         |       | 1,152,293          |       | 60,647     |       | 1,212,940  |       |
| Total            |       | 18,167,462         |       | 1,332,407  |       | 19,499,869 |       |

 

Considering the increasein total pulp production, only 12% of the pulp was converted into paper in2009, as opposed to 16% in 2008 and 20% in 2007.  The integrated operations allowed us tomaintain the cost of wood, our primary raw material, at low levels, and tomitigate certain wood shortage risks, as well as, the variation in wood marketprice.

 

Strong customer base

 

We have long-termrelationships with leading global paper manufacturers, particularly in thetissue segment.  We have long-term salescontracts with the majority of our pulp customers, including most of ourlargest customers.

 

Efficient logistics

 

Our transportation andlogistics activities are efficient and diversified.  The strategic location of our facilitiesallows us to have lower transportation costs for wood delivered to ourproduction facilities and for finished products delivered to port terminals forexport.  We use third-party providers totransport wood to our production 

 

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facilities by truck, railand barge.  The average distance from ourforests to our mills is less than that of many of our domestic andinternational competitors, resulting in logistical efficiencies (for example,certain of our competitors in China meet their raw material needs with woodimported from Russia).  Our forests arelocated an average distance of 160 kilometers from our pulp mills.  Since October 2005, we have operated arailway terminal to receive wood at our Jacareí pulp mill, which hascontributed to a significant reduction in wood transportation costs for thismill.  Portocel, the port terminal weoperate in the State of Espírito Santo, is located approximately threekilometers from the site of our Aracruz pulp mill and permits us to not onlyefficiently export pulp produced at the Aracruz mill but also receive oceanbarges containing pulp from our Veracel facility as well as wood harvested inthe State of Bahia and used in the Aracruz pulp facility, thereby realizingsignificant reductions in transportation costs. We also export pulp and paperproducts from a terminal and warehouse that we operate at the port of Santos,in the State of São Paulo. We also have a strategically located distributioncenter in the State of São Paulo that allows us to efficiently store anddistribute our pulp and paper products to the domestic market with a loweraverage transit time.

 

Conducting our operationsin a sustainable way

 

We are committed tooperating our businesses and resources in a sustainable manner in accordancewith world-class sustainability standards. We have been part of the BusinessSustainability Index (ISE) of the BM&FBOVESPA since 2005 and, in 2008 wewere included in the Dow Jones Sustainability Index (DJSI)  alongside the leading global companiescommitted to the balance between economic, social and environmental issues.  We seek to use and process natural resourcesin our production processes with a minimum of waste; to efficiently use energyand, where possible, rely on renewable energy sources, such as biomass derivedfrom wood debarking, bark and scraps which we use to generate thermal andelectric energy; and to reduce greenhouse emissions in all of ouroperations.  We strive to be recognizedas a leader in each of these areas in the locations in which we operate ourbusinesses.

 

**OurStrategies**

 

Increase our market sharein the international pulp market

 

We intend to takeadvantage of our competitive strengths to further increase our market share inthe international pulp market.  We havefocused our marketing efforts on the sale of BEKP to tissue manufacturers, amarket segment that, in addition to being more stable than other marketsegments, has experienced global consumption growth at a cumulative aggregateannual growth rate of approximately 4.1% for the period from 1986 to 2008 andrelative stability when compared to other paper manufacturers (coated and uncoated),which have experienced higher volatility and flat growth over the same period.

 

According to a recentsurvey by RISI, global tissue consumption is expected to grow at the rate ofapproximately 1.5% in 2009 and 3.3% in 2010, with China being the principaldriving force for tissue consumption.

 

We believe that we canfurther increase our market share by leveraging our long-term customerrelationships and focusing on customer service and product customization.  We continue to strive to meet our customers’needs by supplying customized pulp products with specifications that facilitatetheir manufacture of specific paper products. We strive for a high degree of customer satisfaction and are working tofurther improve the management of our inventory, which we believe will allow usto reduce the timing of our deliveries and better service our customers.

 

Enhance our financialstrength and corporate governance

 

As of December 31,2009, our total consolidated indebtedness amounted to U.S.$ 8,426 million, 72%of which represented long-term indebtedness. We are working to reduce our leverage levels and have instituted theLiability Management Plan to aid us in this effort.  (See “Item 5. Operating and Financial Reviewand Prospects — Liquidity and capital Resources).  Furthermore and, in order to improve ouraccess to capital sources, we intend to upgrade the listing of our shares tothe Novo Mercado (“New Market”) listing segment of the BM&FBOVESPA.  The *Novo Mercado*listing segment imposes the most stringent corporate governance rules ofany listing segment of the BM&FBOVESPA. All the adjustments necessary forthe Company’s adhesion to Bovespa’s Novo Mercado have been made, withindependent members on the Board of Directors and the Bylaws 

 

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already amended to complywith this listing segment’s rules (see “Item 10. Additional Information —Shareholders Agreement of Fibria”).

 

Increase operatingefficiencies

 

We intend to maintain thefocus on our low-cost operations through greater operating efficiencies andeconomies of scale.  To this end, weintend to continue to:

 

·                  focus on reducing our wood costs throughincreased eucalyptus yields by continuing to invest in the genetic improvementof our trees;

 

·                  take advantage from climate and soilconditions in Brazil and the short harvest cycle of eucalyptus trees;

 

·                  capture synergies resulting from ouracquisition of Aracruz;

 

·                  improve the efficiency of our operationsthrough further investment in harvesting equipment, production facilities andadvanced information technology.

 

·                  continue to develop state-of-the-artresearch and technology areas, with following objectives:

 

·                  to strengthen our leadership in ForestryTechnology, as a major competitive advantage;

 

·                  to strive for operational excellence inall processes, to focus on meeting key quality demands at minimum cost andmaintain lowest cost producer status;

 

·                  to enhance value addition and fosterclose relationships with clients via differentiation of products dedicated tokey strategic customers;

 

·                  to enhance technological developmentsaimed at recognition of the socio-environmental excellence of Fibria’soperations and procedures; and

 

·                  to maintain and develop close awarenesswith regard to frontier technologies leading to innovative ways for the use ofbiomass and processing plants, such as the generation of biofuels, alternativeenergy sources and new products derived from the basic components of wood.

 

**OurProducts**

 

We produce bleachedeucalyptus kraft pulp and a variety of paper products.  We produce pulp both for sale and for use inour paper production. We sell pulp to the Brazilian domestic market and to theexport market. We produce coated and uncoated printing and writing paper,carbonless, thermal and other specialty papers.

 

***Pulp***

 

We only produce bleachedeucalyptus kraft pulp from planted eucalyptus trees.  Bleached eucalyptus kraft pulp is ahigh-quality variety of hardwood pulp. Eucalyptus is a hardwood tree, and itspulp has short fibers and is generally better suited to manufacturing tissue,coated and uncoated printing and writing paper and coated packagingboards.  Short fibers are optimal formanufacturing wood-free paper with good printability, smoothness, brightnessand uniformity. “Market pulp” is the pulp sold to producers of paper products,as opposed to pulp produced by an integrated paper producer, for use in paperproduction facilities.  “Kraft” pulp ispulp produced in a chemical process using sulphate.

 

During the year ended December 31,2009, we produced 4,789 kilotons of pulp (including 50.0% of the pulpproduction of Veracel and Conpacel) representing 41.5% of total Brazilian pulpproduction. In 2008, we produced 1,404 kilotons of pulp (including 50.0% of thepulp production of Conpacel), representing 11.52% of total Brazilian pulpproduction, compared to 1,348 kilotons in 2007, or 11.75% of total Brazilianpulp production.

 

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The following table setsforth our production volume of eucalyptus pulp and a breakdown of our BEKPsales volume by market for the periods indicated.

 
| ** **                       | ** ** | **Year  Ended December 31,** | ** ** |
|----------------------------------|------------|-----------------------------------|------------|
| ** **                       | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007(1)** | ** ** |
| ** **                       | ** ** | **(thousands  of tons)**          | ** ** | **% of  total** | ** ** | **(thousands  of tons)** | ** ** | **% of  total** | ** ** | **(thousands  of tons)** | ** ** | **% of  total** | ** ** |
|                             |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Production volume(2)             |       | 4,789                             |       |   |   | 1,404 |   |   |   | 1,394 |   |   |   |
| Internal consumption(3)          |       | 196                               |       |   |   | 260 |   |   |   | 346 |   |   |   |
| Sales volume(4):                 |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Brazil                           |       | 462.8                             |       | 9.4 |   | 289.3 |   | 18.5 |   | 227.8 |   | 15.4 |   |
| Europe                           |       | 1,465.3                           |       | 29.9 |   | 543.7 |   | 34.8 |   | 557.6 |   | 37.7 |   |
| North America                    |       | 1,110.1                           |       | 22.6 |   | 85.9 |   | 5.5 |   | 81.0 |   | 5.5 |   |
| Asia/Middle East/Oceana/Africa   |       | 1,820.6                           |       | 37.1 |   | 279.6 |   | 17.9 |   | 229.6 |   | 15.5 |   |
| Latin America (excluding Brazil) |       | 44.4                              |       | 1.0 |   | 2.2 |   | 0.1 |   | 1.7 |   | 0.1 |   |
|                             |       | 4,903.2                           |       | 100.0 |   | 1,200.7 |   | 76.9 |   | 1,097.7 |   | 74.1 |   |

 

----

| (1) | Includes  the production volume and sales volume of the Luiz Antonio pulp mill prior to  February 1, 2007.                                                                                                                                                                                                                                                                                          |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes  50% of the production volume of Conpacel’s Americana pulp mill from  September 2008 and 50% of the production volume of Ripasa’s Americana  pulp mill prior to September 2008. Excludes production volume of Aracruz  for periods ending prior to January 21, 2009. Includes the sale of the  pulp purchased from Veracel (50% of Veracel’s production) in 2009. |
| (3) | Represents  integrated pulp used by our paper mills.                                                                                                                                                                                                                                                                                                                                                     |
| (4) | Includes  50% of the sales volume of Conpacel’s Americana pulp mill from  September 2008 and 50% of the sales volume of Ripasa’s Americana pulp  mill prior to September 2008. Excludes sales volume of Aracruz for  periods ending prior to January 21, 2009. Includes the sale of the pulp  purchased from Veracel (50% of Veracel’s production) in 2009.                |

 

The following table setsforth a breakdown of our BEKP net sales revenue by market for the periodsindicated.

 
| ** **                       | ** ** | **Year  Ended December 31,** | ** ** |
|----------------------------------|------------|-----------------------------------|------------|
| ** **                       | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007(1)** | ** ** |
| ** **                       | ** ** | **(in U.S.$  million)**           | ** ** | **% of  total** | ** ** | **(in U.S.$  million)** | ** ** | **% of  total** | ** ** | **(in U.S.$  million)** | ** ** | **% of  total** | ** ** |
|                             |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Net sales revenues(2):           |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Brazil                           |       | 171.3                             |       | 7.6 |   | 170.8 |   | 22.1 |   | 121.4 |   | 18.5 |   |
| Europe                           |       | 684.7                             |       | 30.5 |   | 359.5 |   | 46.5 |   | 343.1 |   | 52.2 |   |
| North America                    |       | 518.7                             |       | 23.1 |   | 56.8 |   | 7.3 |   | 49.9 |   | 7.6 |   |
| Asia/Middle East/Oceana/Africa   |       | 850.7                             |       | 37.9 |   | 184.9 |   | 23.9 |   | 141.3 |   | 21.5 |   |
| Latin America (excluding Brazil) |       | 20.7                              |       | 0.9 |   | 1.4 |   | 0.2 |   | 1.0 |   | 0.2 |   |
|                             |       | 2,246.1                           |       | 100 |   | 773.4 |   | 100 |   | 656.7 |   | 100 |   |

 

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| (1) | Includes  the net sales of the Luiz Antonio pulp mill prior to February 1, 2007.                                                                                                                                                                                                                                                                                                                        |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Includes  50% of the net sales revenue of Conpacel’s Americana pulp mill from  September 2008 and 50% of the net sales revenue of Ripasa’s Americana  pulp mill prior to September 2008. Excludes net sales revenue of Aracruz  for the periods ending prior to January 21, 2009. Includes the sale of  the pulp purchased from Veracel (50% of Veracel’s production) in 2009. |

 

***Paper***

 

During year ended December 31,2009, we produced 313.8 kilotons of paper (including 50.0% of the paperproduction of Conpacel). In 2008, we produced 318.1 kilotons of paper(including 50.0% of the pulp production of Conpacel), representing 3.38% oftotal Brazilian paper production, compared to 203.2 kilotons in 2007, or 2.26%of total Brazilian production.  Theproduction and sale of uncoated printing and writing paper was our major lineof business in the paper products segment in 2009, accounting for approximately43.3% of our paper sales volume.

 

The following tableprovides a brief description of our principal paper products and lists thefacilities where they are produced by us:

 
| **Product**                        | ** ** | **Description**                                                                              | ** ** | **Facility**            |
|------------------------------------|------------|----------------------------------------------------------------------------------------------|------------|-------------------------|
| Coated printing and  writing paper |       | Coated woodfree paper  used for promotional materials, folders, internal sheets and cover of |       | Piracicaba and Conpacel |

 

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|                                 |   | magazines, books,  tabloids, inserts and mailing.                                                                                                                                        |   |       |
|--------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------|
| Uncoated printing and  writing paper |   | Uncoated woodfree paper  in reels, sheets and cut-size designed for maximum performance in  photocopying machines and laser and inkjet printers, and alkaline offset  paper.             |   | Conpacel   |
| Carbonless paper                     |   | Used to produce  multi-copy forms for credit card receipts, invoices and other applications in  place of traditional carbon paper.                                                       |   | Piracicaba |
| Thermal paper                        |   | Traditionally used in  fax machines; new applications include supermarket receipts, bar code labels,  toll tickets, water and gas bills and receipts for ATMs and credit card  machines. |   | Piracicaba |

 

*Printingand writing paper*.  According to Bracelpa, in 2009, we were Brazil’sfourth largest producer of uncoated offset paper, third largest producer ofuncoated cut-size paper and second largest producer of coated paper.  In 2009, we produced 252,425 tons of printingand writing paper, consisting of 157,419 tons of uncoated paper and 95,006 tonsof coated paper.  We produce coated anduncoated paper in reels and sheets and cut-size paper.  We estimate based on Bracelpa and importsstatistics that, as of December 31, 2009, we have estimated domesticmarket shares of 19%, 7% and 13% in the coated, uncoated (offset) and cut-sizeprinting and writing markets, respectively.

 

*Carbonlessand thermal papers*.  In 2009, we manufactured 61,380 tons ofthermal and carbonless paper in reels and sheets at our Piracicaba productionfacility. As of December 31, 2009, we estimate our domestic market shareis 76% in each of the carbonless and thermal paper markets.

 

We manufacture thermalpaper products with technology licensed by Oji Paper, a market leader forthermal papers, under certain technology licensing agreements.  We have a technology transfer agreement withOji Paper pursuant to which Oji Paper has agreed to share secret formulas,processes, technical information and know-how it has developed relating to theproduction of thermal paper. The agreement also grants us an exclusive,non-assignable license to manufacture and sell certain thermal papers in Braziland a non-exclusive, non-assignable license to sell such products in LatinAmerica, Africa and the Middle East. In August 2007, we enhanced ourexisting agreement with Oji Paper by executing a long-term strategic businessagreement with them, which allows us to further expand the offering of thermalpaper technologies in Brazil and the Latin America region, thereby alsoallowing Oji Paper to expand its worldwide presence as a market leader inthermal paper technology.  Pursuant toour strategic business agreement with Oji Paper, we will also be able to drawon the technologies of Oji Paper’s global subsidiaries, including Kanzaki SpecialtyPapers Inc., Kanzan Spezialpapiere GmbH and Oji Paper (Thailand) Ltd.  Going forward, we believe that we will beprepared to meet the growing demands of an expanding market by drawing on thetechnological processes of Oji Paper globally, and we anticipate that ourstrategic business agreement coupled with the expansion of our Piracicaba millwill allow us to continue to enhance the quality of our thermal paper and offerimproved value to our customers.

 

The following table setsforth our production volume of paper by product and shows a breakdown of ourpaper sales volume by product for the periods indicated.

 
| ** **                              | ** ** | **2009**                 | ** ** | **2008**        | ** ** | **2007(1)(2)**           | ** ** |
|-----------------------------------------|------------|--------------------------|------------|-----------------|------------|--------------------------|------------|
| ** **                              | ** ** | **(thousands of  tons)** | ** ** | **% of  total** | ** ** | **(thousands of  tons)** | ** ** | **% of  total** | ** ** | **(thousands of  tons)** | ** ** | **% of  total** | ** ** |
|                                    |       |                     |       |            |       |                     |       |   |   |   |   |   |   |
| Production volume(3)                    |       |                     |       |            |       |                     |       |   |   |   |   |   |   |
| Uncoated paper                          |       | 157.4                    |       | 50.2            |       | 155.5                    |       | 50.0 |   | 210.4 |   | 48.6 |   |
| Coated paper                            |       | 95.0                     |       | 30.3            |       | 97.1                     |       | 29.8 |   | 149.8 |   | 34.6 |   |
| Carbonless, thermal and specialty paper |       | 61.4                     |       | 19.6            |       | 65.5                     |       | 20.1 |   | 72.5 |   | 16.8 |   |
|                                    |       | 313.8                    |       | 100.0           |       | 318.1                    |       | 100.0 |   | 432.7 |   | 100.0 |   |
| Domestic net sales(4):                  |       |                     |       |            |       |                     |       |   |   |   |   |   |   |
| Uncoated paper                          |       | 127.7                    |       | 34.2            |       | 121.1                    |       | 39.6 |   | 158.4 |   | 31.7 |   |
| Coated paper                            |       | 91.1                     |       | 24.4            |       | 98.3                     |       | 22.0 |   | 129.0 |   | 25.8 |   |
| Carbonless, thermal and specialty paper |       | 117.8                    |       | 31              |       | 126.3                    |       | 28.2 |   | 114.4 |   | 22.9 |   |
| Total domestic net sales                |       | 336.6                    |       |            |       | 345.7                    |       |   |   | 401.8 |   |   |   |
| Export net sales                        |       | 37.0                     |       | 9.9             |       | 45.0                     |       | 10 |   | 97.4 |   | 19.5 |   |
|                                    |       | 373.6                    |       | 100.0           |       | 390.7                    |       | 100.0 |   | 499.2 |   | 100.0 |   |

 

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| (1) | Includes  the production volume and sales volume of the Luiz Antonio paper mill prior  to February 1, 2007, the Mogi das Cruzes paper mill prior to May 1,  2007 and the Jacareí paper mill prior to September 3, 2007.                                                              |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Excludes  50% of the production volume and sales volume of Ripasa’s Embu paper mill  prior to March 30, 2007 and 50% of the production volume and sales  volume of Ripasa’s Cubatão and Limeira paper mills prior to November 1,  2007.                                         |
| (3) | Includes  50% of the production volume of Conpacel’s Americana paper mill from  September 2008 and 50% of the production volume of Ripasa’s Americana  paper mill prior to September 2008. Excludes production volume of  Aracruz for periods ending prior to January 21, 2009. |
| (4) | Excludes the Guaíba Unit, which was considered as discontinued  operation in 2009.                                                                                                                                                                                                                  |

 

***Our Pulp and Paper Production***

 

***Production Facilities***

 

The following tableprovides certain information regarding our production facilities and productionfor the periods indicated:

 
| ** **            | ** ** | ** **          | ** ** | **Annual  Production  Capacity as of** | ** ** | **Production  for the Year Ended December 31,** | ** ** |
|-----------------------|------------|---------------------|------------|----------------------------------------|------------|------------------------------------------------------|------------|
| **Facility**          | ** ** | **Location**        | ** ** | **Dec  31, 2009**                      | ** ** | **2009**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **            | ** ** | ** **          | ** ** | **(tons  per year)**                   | ** ** | **(in  tons)**                                       | ** ** |
| **Pulp Facilities**:  |       |                |       |                                   |       |                                                 |       |   |   |   |   |
| Aracruz(1)            |       | Espírito Santo |       | 2,300,000                              |       | 2,203,125                                            |       | — |   | — |   |
| Três Lagoas      |       | Mato Grosso do Sul  |       | 1,300,000                              |       | 803,653                                              |       | — |   | — |   |
| Jacareí          |       | São Paulo      |       | 1,100,000                              |       | 1,070,197                                            |       | 1,081,930 |   | 1,080,100 |   |
| Veracel(1)(2)         |       | Bahia               |       | 550,000                                |       | 523,236                                              |       | — |   | — |   |
| Conpacel(3)           |       | São Paulo      |       | 170,000                                |       | 188,853                                              |       | 181,300 |   | 144,200 |   |
|                  |       |                |       |                                   |       |                                                 |       |   |   |   |   |
| **Paper Facilities:** |       |                |       |                                   |       |                                                 |       |   |   |   |   |
| Conpacel(3)           |       | São Paulo      |       | 195,000                                |       | 194,075                                              |       | 194,000 |   | 193,300 |   |
| Piracicaba            |       | São Paulo      |       | 190,000                                |       | 119,730                                              |       | 164,300 |   | 159,400 |   |

 

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| (1) | Represents  mills acquired as part of the Aracruz Acquisition. Excludes the Guaíba Unit  which was considered as discontinued operation in 2009.                                           |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Represents  50% of the annual production capacity and production of Veracel’s pulp mill.  Veracel is a joint venture in which each of Stora Enso and our company has a  50% interest.      |
| (3) | Represents  50% of the annual production capacity and production of Conpacel’s pulp and  paper mill. Conpacel is a consortium in which each of Suzano and our company  has a 50% interest. |

 

***Pulp Production Process***

 

We use advanced,automated harvesting equipment in our forests. The logs are transported either by truck, rail or barge (or acombination of these) from the forests to our production facilities where theyare unloaded and then taken by conveyor belt to be debarked and chipped. In2001, the Jacareí mill introduced a new, more efficient production processwhereby wood chips for the production of pulp are produced at plantation sitesusing portable chipping equipment.  Withthese new chipping machines, we are able to carry out chipping in the forestand thereby improve tree utilization and reduce noise levels at the mill.  In addition, forest residues are returneddirectly to the plantation soil, contributing to the recycling of nutrients.The chips are sent to digesters, where they are mixed with chemicals and cookedunder pressure. During this process, lignin and resins are removed from thewood.  Once removed, the lignin is usedas fuel to produce steam and electrical energy for our pulp mills. The usedchemicals are removed at various stages of the production process and recycledwithin our pulp mills.

 

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The unbleached pulp isthen sent through the oxygen delignification process and the chemical bleachingprocess, traditionally using chlorine dioxide, ozone and hydrogen peroxide(Jacareí mill) or chlorine dioxide, oxygen and hydrogen peroxide (Três Lagoasand Aracruz mills). The cellulose fibers are screened, pressed and dried.  The dried pulp is cut into sheets and packedinto bales, resulting in market pulp.

 

Among the variouschemical processes for producing chemical pulp, the most common is the kraftprocess, which we use to produce our pulp. The kraft process helps to maintain the inherent strength of the woodfibers and thus produces a pulp that is especially well suited formanufacturing printing and writing papers, specialty papers and tissue.

 

The kraft pulp productionprocess traditionally involved the use of elementary chlorine for bleaching.  In recent years, demand for pulp that isbleached using little or no chlorine has grown significantly because ofconcerns over possible carcinogenic effects of chlorinated organic compoundsreleased in water.  Elemental chlorinefree, or ECF, pulp is produced without using elementary chlorine in itsbleaching process.  We only produce ECFpulp.

 

***Paper Production Process***

 

Production of paperbegins with the production of its principal raw material, pulp, from wood. Weonly produce printing and writing papers and specialty papers, which includethermal and carbonless paper.  Printingand writing papers are classified according to whether they are coated oruncoated and whether the pulp from which they are made is chemically processedto eliminate lignin, called wood-free paper, or contains some lignin, calledmechanical or wood-containing.  We make uncoated and coated wood-freeprinting and writing paper.

 

To produce printing andwriting paper, we use 100% short-fiber eucalyptus bleached pulp.  Once delivered to the paper mill, the pulp isrefined, which increases the level of resistance of the fibers for theproduction of specific grades of paper. Certain materials are then added to the refined pulp to strengthen and improvethe quality of the paper. These additives include synthetic sizing andprecipitated calcium carbonate (the alkaline process). The mixture is thenpumped to the paper machine where the paper is pressed and dried.  Finally, the resulting paper is sent to befinished in accordance with customer specifications.

 

Throughout the productionprocess from wood to paper, various pulp and paper byproducts are produced thatmay be converted internally into value-added products or sold.

 

***Raw Materials***

 

***Wood***

 

Our pulp production issolely from eucalyptus hardwood grown in sustainable forest plantations. During2009, we were able to meet 93.7% of the total fiber requirements witheucalyptus wood from our forested areas. Wood cost varied from 29% to 42% ofour pulp cash cost during the year. The wood cost variation is caused by thedifferences  between each pulp mill’soperation technology and the forest management practices, which in turn, varydue to diverse type of soils and climate conditions.

 

Eucalyptus trees areamong the fastest-growing trees in the world given that climate and soilconditions in Brazil allow for eucalyptus tree harvest rotations ofapproximately seven years, as compared to harvest rotations of approximately 10to 12 years in Chile, and up to 25 years in the southern United States. Ourpaper production uses pulp as a raw material.

 

Our forestry base isbroad and comprised of total forestry area of 1,042,680 hectares as of December 31,2009 located in seven Brazilian states, consisting of 585,088 hectares ofplanted areas and 393,400 hectares of preserved areas. In addition, ourproduction facilities and land destined for other uses occupy approximately64,191 hectares of land.  The followingtable describes the location and the area of our land:

 

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| **State**              | ** ** | **Forested**       | ** ** | **Conservation** | ** ** | **Other** | ** ** | **Total**   | ** ** |
|------------------------|------------|--------------------|------------|------------------|------------|-----------|------------|-------------|------------|
| ** **             | ** ** | **(in  hectares)** | ** ** |
| Rio Grande do Sul(1)   |       | 42,796.3           |       | 59,697.4         |       | 7,938.4   |       | 110,432.1   |       |
| São Paulo(2)      |       | 118,772.8          |       | 68,828.3         |       | 12,376.2  |       | 199,977.3   |       |
| Minas Gerais           |       | 13,284.5           |       | 12,774.3         |       | 1,168.6   |       | 27,227.3    |       |
| Rio de Janeiro         |       | 1,695.3            |       | 1,464.8          |       | 250.9     |       | 3,411.0     |       |
| Mato Grosso do Sul     |       | 154,164.1          |       | 67,769.8         |       | 16,440.1  |       | 238,374.0   |       |
| Bahia(3)               |       | 150,702.8          |       | 122,010.3        |       | 15,901.7  |       | 288,614.8   |       |
| Espírito Santo(4) |       | 103,672.6          |       | 60,855.0         |       | 10,115.4  |       | 174,642.9   |       |
| Total                  |       | 585,088.4          |       | 393,399.9        |       | 64,191.3  |       | 1,042,679.5 |       |

 

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| (1) | Excludes  the Guaíba Unit which operations were discontinued in 2009.        |
|-----|-----------------------------------------------------------------------------------|
| (2) | Includes  50% of the forests associated with the production facility of Conpacel. |
| (3) | Includes  50% of the forests associated with the production facility of Veracel.  |
| (4) | Includes  10,355.7 hectares to be transferred to an Indian reservation.           |

 

***Energy***

 

We use several sources togenerate thermal and electric energy for our respective operations, includingblack liquor, biomass derived from wood debarking, bark and scraps, natural gasand fuel oil.

 

In 2009, we generatedinternally approximately 91% of our electric energy requirements for the pulpand paper production process. Of the total amount of thermal and electricalenergy used, 90% was from renewable fuels, such as black liquor and biomassthat are byproducts of the pulp production process, and 10% was fromnon-renewable fuels that we purchased, such as oil and natural gas.  Conpacel generated approximately 45% of itsenergy requirements for the pulp and paper production process internally, ofwhich 82% was from renewable fuels, and 16% was from non-renewable fuels.  At the Aracruz unit, 98% of the electricalenergy needs in 2009 were met by burning by-products generated from pulpproduction.  We believe that our internalsources of supply will allow us to maintain a cost advantage in these areas forthe foreseeable future.

 

The remainder of ourenergy needs is met through purchases of electricity, fuel oil and natural gasfrom other sources.

 

***Chemicals***

 

We use several chemicalsin the pulp bleaching process. We have significant dependence on certainchemicals and, therefore, adopts strong measures to mitigate it.  Until December 1999, we maintained andoperated an electrochemical plant on the same site as the mill at the AracruzUnit to produce some of the chemicals used in the pulp bleaching process,specifically chlorine, caustic soda and sodium chlorate.  In 1999, Aracruz sold an electrochemicalplant at its Barra do Riacho production facility to Canadianoxy ChemicalsHoldings Ltd., or Canexus. In connection with this sale, Canexus and Aracruzentered into a successively renewable contract for the reciprocal supply of rawmaterials, services and products over a 25-year period.  The agreement obligates Aracruz to provide acontinuous supply of raw materials, primarily water and steam, to theelectrochemical plant, and the plant to provide bleaching chemicals to us, atcompetitive prices. At the time of the sale, the electrochemical plant had thecapacity to produce approximately 36,000 tons per year of sodium chlorate,36,000 tons per year of caustic soda and 32,000 tons per year of chlorine.  The plant also produces hydrochloric acid andsodium hypochlorite (liquid bleach). In the event of termination of theagreement or a proposed sale by Canexus, the agreement provides that Aracruzhas the right of first negotiation for the acquisition of the electrochemicalplant.  Any interruption of theoperations of the electrochemical plant could require us to seek alternativesources in the market for certain chemicals essential to our production ofpulp.

 

As of December 31,2009, we had long-term “take-or-pay” contracts with several suppliers ofchemical products, power, transport and diesel fuel for periods from one to 10years.  Our contractual obligations inconnection with such contracts were approximately U.S.$ 77 million in 2009, U.S.$64 million in 2008 and U.S.$ 58 million in 2007.  Additionally, we have long-term “take-or-pay”contracts with a supplier of pulp for 30 years. The contractual obligation in connection with this contract is U.S.$ 52million in 2009, U.S.$ 65 million in 2008 and U.S. 42 million in 2007. See Note17 “Commitments and Contingencies” to our consolidated financial statements.

 

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***Water***

 

Water, while not a significantcost component of our raw materials, is essential to the production of pulp andpaper.  In 2009, we used 30.9 cubicmeters of water per ton of pulp and paper (IPPC — Integrated PollutionPrevention Control reference is 30 to 50 cubic meters per ton).  We believe our water usage rates are amongthe lowest usage rates within the pulp and paper industry and we arecontinually introducing new technology and implementing improvements in ourindustrial processes and methods to further decrease our usage rates.  We believe that our water supplies arecurrently adequate.

 

The water used at theTrês Lagoas, Jacareí and Piracicaba units is obtained from the Paraná, Paraibado Sul and Piracicaba River systems, which are adjacent to our mills. Eachriver system is within a separate hydrological river basin, thereby reducingthe overall risk of unavailability of water due to adverse atmospheric orhydrological conditions.  The water usedat the Aracruz Unit is provided by several rivers and a public interest projectbetween Aracruz and the municipal governments of Aracruz and Linhares, aneighboring city, to obtain water from the Rio Doce River through an existingsystem of canals and rivers.  The projectprovides water for the local communities and for the industrial and chemicaldistricts of the Municipality of Aracruz, as well as for irrigation ofagricultural activities in the northern region of the State of EspíritoSanto.  The water from these sourcesflows into a 35 million cubic meter reservoir on the mill site. We estimatethat the reservoir in the Aracruz Unit holds enough water to supply the mill’sneeds for a five-year period in the event of a drought.

 

In the Aracruz Unit,wastewater undergoes a two-stage purification treatment process before it flowsinto the ocean.  The Jacareí and TrêsLagoas mills use the technology of activated sludge in double stage to treatthe wastewater and the Piracicaba mill uses active sludge in one stage, whichguarantees at least 95% of BOD (Biological Organic Demand) removal.

 

The Brazilian governmentimposes tariffs on the industrial usage of river water.  These tariffs have not had a significantimpact on our costs.

 

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***Logistics***

 

***Delivery of Wood to Our Pulp Mills***

 

Our forests are locatedan average distance of 160 kilometers from our pulp mills. We transport wood toour mills by truck, rail and sea barge. In 2009, we transported a total ofapproximately 19.5 million cubic meters of wood to our mills from which 88%through truck, 10% through sea barge (or a combination of these) and 2% throughrail. Although sea barge and rail transport have a smaller participation inwood logistics, both of them have a strategic role in optimizing logistic costsat the Aracruz and Jacareí mills, respectively. Transportation of wood to themills represents a large portion of our pulp production costs, and improvementsin transportation logistics and costs are a priority for the company.  See “Item 4. Information on Fibria —Property, Plant and Equipment” for details regarding our logistics.

 

At the Aracruz unit, inthe end of 2002, we improved the logistics of our rail transportation and  launched a Multimodal TransportationSystems—Maritime, Road and Rail—, with the main objective to enhance logisticsand further integrate the Mill-Port-Forest system. In 2003, a fourkilometer-long rail spur used for unloading wood shipments directly at theAracruz pulp mill’s yard was completed. This improvement was important tooptimize the receiving process of the wood that comes from the northern part ofthe State of Minas Gerais and other areas within the State of Espírito Santo.Our integrated, coastal wood shipment project involves an integrated tug andbarge system and two port terminals. This sea transportation system links thefar south of Bahia to the mills in the State of Espírito Santo. The portcomplex of Portocel, adjacent to the mills at Aracruz, receives wood fromplantations in southern Bahia via barge. In 2009, the operation betweenCaravelas and Portocel was able to transport over 2.0 million cubic meters ofwood. Besides optimizing transport costs, the sea mode eliminated over 60,000truck journeys along the BR 101 highway last year, reducing traffic on the roadand cutting emissions of greenhouse gases as a result of lower fossil fuelconsumption. In addition, Portocel’s terminals are used to export over 98% ofthe pulp produced in Aracruz mills, and 100% of Veracel’s production(considering the 50% owned by Fibria). We own 51% of Portocel, the company thatoperates the port terminal of Aracruz. The remaining 49% of Portocel is ownedby Cenibra, another pulp manufacturer and one of our competitors.

 

In March 2005, weexecuted an agreement with a major logistics company to transport wood to ourJacareí pulp mill and also approved an investment to construct a railwayterminal to unload the wood at the Jacareí pulp mill.  The new wood terminal has been operationalsince October 2005 and has resulted in a significant reduction in our woodtransportation costs.

 

***Delivery of Pulp and Paper to Our Customer***

 

All of our pulp producedfor export is delivered to our customers via ocean-going vessels.

 

In September 2002,we signed a pulp transportation contract with MRS, permitting the constructionof a railway spur-line connecting the Jacareí plant to MRS’s main railroadline, and thereby enabling us to transport pulp by rail from the mill to theport of Santos. The pulp transportation agreement requires the transportationof a minimum tonnage equivalent to U.S.$7.4 million per year, over a ten-yearperiod.  We have a concession from thegovernment of the State of São Paulo to operate a terminal and a warehouse at theport of Santos. The concession was granted under a renewable ten-yearoperational lease agreement with Companhia Docas do Estado de São Paulo—CODESPthat expires in September 2017.

 

The port of Santos islocated on the coast of the State of São Paulo, approximately 150 kilometersfrom the Jacareí mill. The operation of the port has facilitated the growth ofour exports because it allows us to load vessels with pulp directly from ourterminal, thereby significantly reducing freight and handling costs.  Our total warehouse area at the port ofSantos is 16,020 square meters and our total warehouse volume capacity at theport of Santos is 38,000 square meters.

 

The pulp produced forexport at the Aracruz pulp mill is transported by truck from the mill to theport of Aracruz (Portocel), which is located approximately three kilometersfrom the mill site.  The port is a modernfacility that currently has the capacity to handle approximately 10 milliontons of pulp and wood per year, moving up to 5.5 

 

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million tons of pulpoverseas. Warehouse facilities at the port are capable of storing approximately220,000 tons of pulp (static storage).

 

In September 2007,we executed an agreement with América Latina Logística S.A., or ALL, to providetransport services for more than 1 million tons per year of pulp from the TrêsLagoas pulp mill to the port of Santos for a twenty-year term beginning in2009.  The agreement, pursuant to whichwe anticipate investing approximately U.S.$70 million, stipulates: (1) railwaytransport service from the facility to the port of the pulp volume produced inTrês Lagoas; (2) construction of a railway spur line connecting ALL’s mainrail line to the facility; and (3) investments by both us and ALL forwagons, locomotives and permanent railway infrastructure.

 

We also use trucks ownedand operated by third parties to transport finished pulp and paper productsfrom our facilities to our customers in Brazil and other regions in LatinAmerica.

 

In September 2007,we contracted Abrange Logística to handle all the operational logisticalactivities for our Jacareí, Piracicaba, Limeira and Três Lagoas plants andConpacel’s Americana plant. In connection with this logistics outsourcingcontract, in 2008, we established a strategically located distribution centeraccessible by two major road systems (Anhanguera and D. Pedro) in Campinas, SãoPaulo.  The distribution center’s totalcovered storage area is 15,000 square meters, providing a storage capacity ofapproximately 21,000 metric tons of paper. Our Piracicaba and Conpacel papermills now transfer the majority of their production to this distribution centerwhere the products are stored and efficiently distributed with a lower averagetransit time.

 

We derive additionallogistical synergies from KSR, our paper distribution business unit and aleader in the paper distribution sector in Brazil.  KSR plays a strategic role in our paperoperations through its ability to reach all regions of Brazil and servicecustomers in areas such as printing, editorial, stationery, copying, smallbusiness, converters (forms, notebooks), newspaper, and public authorities.

 

***Marketing and Sales***

 

We sell our pulp andpaper products in both the domestic and export markets.  Our internal sales staff consists of 58employees operating throughout Brazil, excluding the sales staff of KSR, ourpaper distribution business unit.  KSRhas a sales staff of 220 employees and 67 independent sales agents.  Our subsidiary Fibria International GmbH(Austria), employs 21 sales and marketing staff, who operate throughout Europe,North America and Asia.

 

We are focused ondeveloping close, long-term customer relationships by meeting the customer’sspecific requirements, and we constantly seek to increase our understanding ofour respective customers and tailor our products to customer needs.

 

***Pulp***

 

The sales volume of pulpfiber in 2009 reached a total of 4,903,168 tons, about 308% higher than thevolume traded in 2008. This significant increase was mainly due to theacquisition of Aracruz in January 2009 and increased availability ofproduct from a new plant in Três Lagoas. Exports accounted for 91% of total sales of pulp, and the Asian marketabsorbed the largest amount - 1,820.6 kilotons, or 37% of total sales. Sales toAsia showed record growth of 551% in 2009. Sales to the domestic market alsoincreased 60% in 2009 to the level of 462.8 thousand tons.  This increase was mainly due to sales for thenew paper machine from International Paper at Três Lagoas. Traditional marketsfor pulp, Europe and North America, purchased in 2009 1,465.3 thousand tons and1,110.1 thousand tons of pulp, respectively.

 

Sales in 2009 weredistributed among end use segments as following: 43% Tissue, 33% Printing andWriting and 24% Specialty.

 

We have long-term salescontracts with a substantial portion of our customers, including several of ourlargest customers.  These contractsgenerally commit our customers to specified monthly purchases of pulp at pricesannounced each month.  These prices mayvary among the different geographic areas in which our customers are locatedand generally follow the established list price of BEKP announced by majorglobal pulp producers.

 

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***Paper***

 

In 2009, 90% of our papersales volume and 93% of our net revenues from paper sales, including 50% ofConpacel sales, were generated in the domestic market. Our customer base forpaper products is substantially diversified. None of our domestic or international customers accounted for more than10% of our sales of paper products in 2009.

 

We sell approximately 13%of our paper products through KSR. Domestically, KSR’s distribution network consists of 19 branches (32point of sales), which are strategically located with warehouses used forstorage purposes, and a workforce composed of 68 independent sales agents.  As of December 31, 2009, KSR was thesegment leader in paper distribution in Brazil, with an estimated market shareof approximately 20%.  Through KSR, wesell paper products to approximately 14,000 customers, including smallprinters, stationery stores and industrial companies throughout Brazil, as wellas the Brazilian government.  KSR alsosells the products of other paper companies in areas where they do not competewith us, in both the export and domestic markets.  As a result, we are able to offer a widerange of complementary products, with prompt delivery.

 

We also sell our paperproducts in all major world markets. In 2009, we exported 34,153 tons ofprinting and writing paper, which primarily consisted of uncoated paper. Wealso exported 2,860 tons of carbonless and thermal papers.  In 2009, 46% of our net sales from paperexports were to North America, 15% to Europe and 39% to Latin Americancountries other than Brazil.

 

**ContractualConsortium and Jointly Controlled Company**

 

***Conpacel***

 

In September 2008,Ripasa, in which we and Suzano each owned 50% interests, was transformed intoConpacel, a production unit operating as a cost and production sharingconsortium. Conpacel operates an integrated pulp and paper mill in the city ofAmericana, in the state of São Paulo. Conpacel produces bleached eucalyptuskraft pulp and uncoated and coated paper. Conpacel’s annual pulp productioncapacity is 650,000 tons and its annual paper production capacity is 390,000tons.

 

Each of Fibria and Suzanohas an undivided 50% interest in the assets, liabilities, costs and operationsof Conpacel.  Each of Fibria and Suzanoare entitled to 50% of Conpacel’s production. Conpacel does not make salesdirectly to third parties.

 

A consortium contractwith a term of 30 years defines the obligations and responsibilities of Fibriaand Suzano, rights to revenues, and management of operations andaccounting. Conpacel may be wound up prior to the expiration of the termsof the consortium contract through deliberation of the parties, bankruptcy orsettlement.

 

Under the consortiumcontract, a general manager that is independent of Fibria and Suzano isresponsible for determining Conpacel’s capital expenditure budget and fordetermining the capital contributions required to be made by Fibria and Suzanoto Conpacel.

 

Under Brazilian law,contractual consortiums, such as Conpacel, do not constitute legalentities. Fibria and Suzano are responsible for Conpacel’s assets andliabilities as per their respective contractually defined obligations.

 

***Veracel***

 

Veracel, is a company (*sociedade anônima de capital fechado*)organized under the laws of Brazil, in which each of Fibria and Stora Enso owns50% of the equity interests (it had been a joint-venture between Aracruz andStora Enso). Veracel grows and manages eucalyptus plantations and operates apulp mill in the city of Eunápolis, in the state of Bahia. Veracel producesBEKP and has an annual production capacity of 1.1 million tons.

 

Fibria and Stora Ensohave entered into a shareholders agreement defining their respective rights andobligations as shareholders of Veracel. This shareholders agreement expires in January 2023and can be automatically extended for successive 20-year terms unless notice tothe contrary is given by either party.

 

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The Veracel shareholders’agreement provides that:

 

·      each of Fibria and Stora Enso has theright to nominate three members of Veracel’s six-member board of directors;

 

·      under certain circumstances, Fibria andStora Enso may be required to make capital contributions to Veracel, on a prorata basis;

 

·      if either shareholder fails to complywith any of its obligations regarding Veracel’s funding needs in connection withVeracel’s investment plan and capital contributions, the other shareholdershall have the right to require the defaulting shareholder to transfer all (butnot less than all) of its shares to the other shareholder at a discountedmarket value calculated according to the provisions of the Veracel shareholders’agreement;

 

·      so long as either Fibria or any of itssubsidiaries is a shareholder of Veracel, Fibria will not acquire (or cause tobe acquired) any interest in real property in the core area of Veracel;

 

·      so long as either Fibria or any of itssubsidiaries is a shareholder of Veracel, Veracel will not acquire (or cause tobe acquired) any interest in real property in the core area of Fibria.

 

In March 2005,Aracruz entered into a Pulp Supply and Purchase Agreement with Veracel pursuantto which Aracruz has agreed to buy 50% of the annual output of pulp from theVeracel mill. This agreement entered into force in May 2005, and will bein effect for as long as the Veracel Shareholders’ Agreement is effective.

 

***Vendor Program***

 

Sales of our products toour domestic customers are for cash, credit or through a program called thevendor program.  For purposes of thisannual report, we have referred to our credit sales as the “non-vendor program.”  See “Item 5. Operating and Financial Reviewand Prospects — Revenue Recognition and Accounts Receivable — Vendor Program”.

 

**Competition**

 

We are the largestproducer and exporter of BEKP in the world. In the pulp market, competition isbased primarily on quality (particularly consistency of product), service,price and reliability. Brazilian eucalyptus pulp producers have significantcost advantages over producers in other regions.

 

We estimate that in 2009we accounted for approximately 32% of the world production capacity of BEKP,approximately 19% of the world production capacity of bleached hardwood kraftmarket pulp and approximately 10% of the world production capacity of chemicalmarket pulp.

 

The table below shows theproduction capacity of the ten largest producers of market pulp in 2009

 
| **Producer**        | ** ** | **Tons (in thousands)** | ** ** |
|---------------------|------------|-------------------------|------------|
| Fibria              |       | 5,400                   |       |
| Arauco              |       | 3,205                   |       |
| APRIL               |       | 2,430                   |       |
| Sodra               |       | 2,065                   |       |
| CMPC                |       | 2,020                   |       |
| Weyerhaeuser        |       | 1,820                   |       |
| APP                 |       | 1,730                   |       |
| UPM  - Kymmene      |       | 1,700                   |       |
| Stora  Enso         |       | 1,685                   |       |
| Canfor  Corporation |       | 1,675                   |       |

 

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*Source*: Hawkins Wright — November 2009market outlook and Fibria analysis

 

In the domestic market,Fibria had a market share of 41.5% of the Brazilian BEKP market in 2009 interms of volume.

 

To the extent that pulpfrom other hardwoods can be substituted for the slightly more expensive BEKP,producers of BEKP also compete with producers of pulp from other hardwoods.Such competition is based more on cost and less on quality or suitability ofthe pulp for use in higher quality paper products. Although bleached hardwoodkraft market pulp is produced in most regions of the world, the dominantproducers are located in Asia, Latin America and Europe, which as of December 31,2009****accounted for 85% in theaggregate, and 22%, 44% and 19%, respectively, of the world’s total bleachedhardwood kraft market pulp production capacity.

 

As an integrated pulp andpaper producer, we compete not only with other integrated pulp and paperproducers but also with companies that produce only pulp or paper.  Many of these producers have greaterfinancial resources than we do. Our production levels have been, and willcontinue to be small by comparison to overall world pulp and paper production,and the prices for our products will depend on prevailing world prices andother factors.

 

According to Bracelpa, wewere the fourth largest Brazilian paper producer by volume, after InternationalPaper, Suzano and Klabin.  In addition,we are the leader in Brazil in the production of certain specialty papers suchas carbonless and thermal paper. Our main competitors in carbonless and thermalpaper are located outside of Brazil.

 

**Environmentalpolicies**

 

The Brazilianconstitution grants the federal government, state and munipalities the power toenact environmental protection laws and issue regulations under such laws.While the federal government has the power to promulgate environmentalregulations setting forth minimum standards of environmental protection, stategovernments have the power to enact more stringent environmental regulations.The municipalities may only issue regulations with respect to matters of localinterest or to supplement federal or state laws. Most of the environmentalregulations in Brazil are thus at the state and local level rather than at thefederal level, with environmental standards established in the operatingpermits issued to each plant rather than through regulations of generalapplicability. Applications for the renewal of operating permits are reviewedperiodically.

 

The procedure to obtainan environmental license includes the following:

 

·      the preliminary or provisional license —granted during the preliminary stage of the planning of the facility. Thislicense provides an approval for the location and concept of the facility basedon its environmental impact and establishes the basic requirements to be metduring the subsequent stages of the project implementation;

 

·      the installation license — authorizes theconstruction of the facility in accordance with the specifications set forth inthe plans, programs and projects approved by the authorities; and

 

·      the operating license  — authorizes the operation of the facilityafter receipt of the preliminary and the installation licenses, and providesconfirmation by the authorities that the environmental control measures andconditions required for the operation of the facility have been taken.

 

Environmental licensesare valid for a specified term but may be cancelled if any of the conditions orrequirements imposed by the licensing authority for maintenance of the relevantlicense is not fulfilled.

 

Occasionally,jurisdictional conflicts among environmental licensing authorities occur whenthe proposed exploratory activity is in a location that is regulated by morethan one municipality or state, or is under the jurisdiction of both the stateand federal governments. In addition, depending on the level of theenvironmental impact that is caused by the exploratory activity, theenvironmental licensing procedure may require assessments of environmentalimpact and the holding of public hearings, which may increase the complexityand the duration of the licensing procedure considerably, and expose theexploratory activity to potential legal claims.

 

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All of the states ofBrazil require licenses for the installation and operation of our industrialplants. These regulations were introduced in the last ten to twenty years. We aresubject to the regulations of state environmental agencies of São Paulo,Espírito Santo, Rio Grande do Sul and Mato Grosso do Sul, respectively known as*Companhia Ambiental do Estado de São Paulo*(CETESB), *Instituto Estadual do MeioAmbiente* (IEMA), *FundaçãoEstadual de Proteção Ambiental Henrique Luiz Roessler* (FEPAM) and *Instituto de Meio ambiente do Mato Grosso do Sul*(IMASUL). Pursuant tothese state regulations, state authorities are empowered to regulate a company’soperations by providing company-specific environmental standards in suchcompany’s operating permit.

 

Our forestry activitiesare jointly regulated by the Brazilian federal environmental agencies and thestate environmental agencies of the states of São Paulo, Espírito Santo, MinasGerais (*Fundação Estadual do Meio Ambiente*(FEAM)), Bahia (*Secretaria Estadual do MeioAmbiente* (SEMA)) and Rio Grande do Sul.  The planting and cutting of trees is subjectto prior approval by the relevant state or federal environmental agency.Brazilian law requires that at least 20% of the landholdings of a forestrycompany be registered and maintained with native species.

 

In addition, ouroperations are subject to various environmental laws and regulations issued bygovernmental authorities relating to air emissions, element discharges, solid wasteand odor.

 

Pursuant to Brazilianlaw, individuals or legal entities that violate environmental laws can bepunished by criminal and administrative sanctions.  Criminal sanctions range from fines toimprisonment, in case of individuals, including directors, officers andmanagers of legal entities, or dissolution, in the case of legal entities.Administrative sanctions include fines, partial or total suspension ofactivities, forfeiture or restriction of tax incentives or benefits, andcancellation or suspension of financings from governmental agencies. Inaddition to criminal and administrative sanctions, pursuant to Brazilianenvironmental laws, the violator must also recover or indemnify the damage thatwas caused to the environment and third parties.  Because Brazilian environmental law uses astandard of strict liability in determining the obligation to remediate damagescaused to the environment and to indemnify affected third parties, theimposition of any such obligation is made regardless of whether the polluter isfound to have been negligent. In addition, the corporate structure of apolluting company may be disregarded if the structure is deemed to be anobstacle to the complete recovery of the environmental damages.

 

We make periodicmodifications to plants relating to environmental technology and equipment, andfor the implementation of new procedures to minimize environmental risksassociated with spills and potential releases.

 

As of December 31,2009, the land under our control, in the States of São Paulo, Rio Grande doSul, Mato Grosso do Sul, Bahia, Espírito Santo and Minas Gerais, was 1,042.7thousand hectares (including 64.2 thousand hectares of land used for roads andareas that cannot be planted), of which approximately 37.7% is preserved asconservation areas with native vegetation. For preserved areas, our environmental planning division may recommendplantation or recovery by means of natural regeneration of native vegetation.  In partnership with various universities, weconduct research and monitor the fauna and flora of these sites.

 

The total land under ourcontrol, forested areas, conservation areas, and land related to our structureand production facilities, is distributed as follows within Brazil:

 
| ** **             | ** ** | **Total  Area** | ** ** | **Percentage  of Conservation Area** | ** ** |
|------------------------|------------|-----------------|------------|--------------------------------------|------------|
|                   |       |            |       |                                 |       |
| Rio Grande do Sul(1)   |       | 110,432.1       |       | 54.1                                 |       |
| São Paulo(2)      |       | 199,977.3       |       | 34.4                                 |       |
| Minas Gerais           |       | 27,227.3        |       | 46.9                                 |       |
| Rio de Janeiro         |       | 3,411.0         |       | 42.9                                 |       |
| Mato Grosso do Sul     |       | 238,374.0       |       | 28.4                                 |       |
| Bahia(3)               |       | 288,614.8       |       | 42.3                                 |       |
| Espírito Santo(4) |       | 174,642.9       |       | 34.8                                 |       |
| Total                  |       | 1,042,679.5     |       | 37.7                                 |       |

 

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| (1) | Excluding  the Guaíba Unit which operations were discontinued in 2009.       |
|-----|-----------------------------------------------------------------------------------|
| (2) | Includes  50% of the forests associated with the production facility of Conpacel. |
| (3) | Includes  50% of the forests associated with the production facility of Veracel.  |
| (4) | Includes  10,355.7 hectares to be transferred to an Indian reservation.           |

 

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We do not anticipate ourcompliance with existing or proposed environmental laws or regulations aslikely to require material capital expenditures. We cannot assure you, however,that the implementation of more stringent environmental regulations in the futurewill not require significant capital or other expenditures. For a descriptionof certain legal matters relating to environmental regulation, see “Item 8.Financial Information — Legal Matters.”

 

Wehave received a number of administrative warnings in the past five years forisolated violations of the maximum levels for emissions or effluents, includingodors.  The largest payment we have madeindividually was related to a solid residue release that occurred on September 10,2005, when an industrial embankment burst at the Jacareí unit and non-dangerousresidues (class 2A) covered part of a road and a stream, causing reversibledamage to the environment.  Fibria tookall necessary measures to reduce the damage to the environment andcommunity.  We acted in a transparentmanner by immediately notifying CETESB and other government agencies of theincident, as well as issuing a press release.

 

Wedeveloped a project to recover the industrial embankment and to reduce thedamage to the environment, representing an investment cost of approximatelyU.S.$ 9 million, of which U.S.$ 3 million were disbursed in 2005 and U.S.$ 6million in 2006.  In 2007, an additionalU.S.$ 2 million out of U.S.$ 4 million was disbursed.  In view of our continuing investment inenvironmental projects, we also have a project to provide alternatives to treatsolid waste disposals.  We invested U.S.$4.5 million in 2007 and U.S.$ 7.1 million in 2008.

 

***Environmental indicators***

 

Ouroperating and production processes utilize natural resources and generateliquid effluents, residual wastes and air emissions which may adversely affectthe environment.

 

Accordingto ecoefficiency, environmental management aims to produce the minimum wasteacceptable by the environment.  Webelieve that by using state-of-the-art technology, in conjunction withenvironmental management system, environmental protection becomes moreefficient and it is possible to pursue the path to sustainability.

 

***Liquid effluents***

 

Wateris critical to the process of manufacturing pulp and paper.  We obtain water from the rivers that flowadjacent to our mills.  The use of cleantechnologies, with the re-use of water in the process brings about significantgains to the environment.  By adoptingclean technologies it is possible to obtain environmental benefits.  Because of a strong water recycling program,Fibria has obtained low values in terms of water consumption at the Jacareimill.  These results are underinternational references, such as IPPC (30 to 50 m3/Adt). This value representsa benchmarking in terms of water discharge compared to other mills.  After the water has been used in themanufacturing process, we pass the effluents through mechanical and biologicaltreatments before returning them to the rivers. We also have emergency lagoons and tanks that enable us to avoidreleasing untreated effluents into the rivers in the event of a problem withour effluent process.  Effluentcharacteristics are monitored constantly through chemical, physical andbiological analyses.  We also have aspill control system to avoid disturbances in the wastewater treatment plant.

 

Ourunits use a two-stage process to treat the effluents generated during theproduction process.  During the firststage, solids such as fibers, clay and carbonates are removed from theeffluents.  During the second stage,these solids undergo a biological treatment in which suspended and dissolvedmaterials are broken down through the action of microorganisms.  We hired a third party to evaluate thequality of the effluents generated during the production process and with theresults of these analyses, we implement actions to minimize the generation ofeffluents and maximize the reutilization in the process.  Our industrial units are developingalternatives that seek to reduce the consumption of water and the generation ofeffluents by optimizing the production process and increasing the reuse andrecirculation of water.  In Jacareí mill,the closing circuit project reached a water reutilization rate of 85%.  For a description of the imposition oftariffs on river water use, see “Item 4B. Business Overview — Rawmaterials — Water” above.

 

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***Solid wastes***

 

Fibriahas a strong and efficient waste management program to collect, treat anddispose of solid waste.  New compostingtechnologies have been adopted as an alternative means to treat and disposeindustrial waste.  We have identifiedproductive uses for a portion of the solid waste generated during our pulp andpaper production processes and have adopted the following programs for handlingand disposal of such solid waste residue:

 

·      co-processing and recycling process withceramic manufacturing companies to produce bricks (Piracicaba mill);

 

·      licensed landfills (in all mills); and

 

·      composting systemand use in forests as soil correction agents.

 

Ourseparate Conpacel facility uses similar programs and, in addition, a compostingsystem in which solid wastes are transformed into organic material for use inour forests.

 

Theremainder of solid waste is either sold to third parties for use in theirproduction processes or disposed of in sanitary landfills owned by Fibria.  The small amount of hazardous waste generatedat our facilities is collected, treated and disposed of in accordance with therequirements of Brazilian law.

 

***Atmospheric emissions***

 

Asa byproduct of production, certain odoriferous compounds and particulateemissions are released into the atmosphere. In order to control these emissions, the sources of these emissions arefitted with control equipment such as electrostatic precipitators,multi-cyclones and gas scrubbers, which minimize or remove certain particlesand compounds from the emissions.  Inorder to control odor emissions, our mills use an efficient system forcollection and incineration of odoriferous, diluted and concentrated gases andis outfitted with an alternative gas scrubber removal system to be used whenincineration is not possible.  Theexpansion of the Jacareí facility included similar equipment and processes tocontrol emissions.  Our efforts toproduce less intensive carbon products began over ten years ago. In 1998,Fibria, at that time named VCP, carried out a carbon inventory covering all ofits mills.  Both VCP and Aracruz havebeen disclosing information for the Carbon Disclosure Project since 2006.  Fibria is highly committed to climate changeand intends to disclose the information demanded by the Carbon DisclosureProject by the end of the next fiscal year.

 

In2009, Fibria concluded its first Carbon Footprint test, which recorded a netpositive carbon footprint. Fibria has a total of 15.867 million tCO2eqsequestered by its eucalyptus forests through photosynthesis, which representsthe specific sequestration of 3.87 tCO2eq per ton of pulp produced, and, atotal emission of 1.802 tCO2eq, representing the specific emissions of 0.50tCO2eq per ton of pulp produced.  Fibria’sCarbon Footprint is certified by BRTÜV.

 

***Forest preservation***

 

All of wood comes fromtree plantations instead of from native forests.  The land we manage is generally not of highenough quality to be used for other forms of agriculture.  Our cultivation program seeks to preserve thehealth of our forests, and Brazilian law requires that at least 20% of our landeither be covered with native forests or cultivated with indigenous species oftrees rather than eucalyptus or pine.

 

***Forestry Certification System***

 

Fibria maintains rigorouscontrol over the origin of its main raw material. Managed areas have qualityand environmental issues addressed and attested by ISO 9001/2000 and ISO 14001certifications. Exceptions are subjected to a strict procurement process.Regarding forest certification systems, Fibria has Forest Stewardship Counsil -FSC certification in the São Paulo and Mato Grosso do Sul forestry areas andCerflor (Brazilian forestry certification scheme, internationally recognized byPEFC — Programme for the Endorsement of Forest Certification) 

 

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in the Mato Grosso doSul, Espírito Santo, Bahia and Minas Gerais forestry areas. Wood treaceabilityis certified by CoC-FSC in Jacareí and Três Lagoas mill, and by CoC-Cerflor inthe Aracruz Unit.

 

***Natural resources***

 

Since the 1980s, we havebeen harvesting eucalyptus through uniform propagated seedlings from carefullyselected trees.  The characteristics ofthe seedlings we select are matched to different growing regions and ourproducts.  This method allows us to (1) greatlyincrease forestry productivity, (2) comply with environmental regulations,and (3) contribute to carbon reduction in the atmosphere.

 

Pursuant to the BrazilianForestry Code (Law No. 4,771 of September 15, 1965), we set aside aportion of our forests for preservation, conservation and environmentalrecovery.  These areas consist of eithernative forests or riparian buffer zones, or are maintained to satisfy specificecological interests.  We also invest inenvironmental studies, together with domestic and international universities,research centers and renowned consultants, in order to improve theenvironmental conditions of our plantations, and ensure that we protect thenative fauna in the areas in which we operate. We created a program designed to protect and preserve the fauna of areaswith distinctive environmental aspects and implemented it in all forest areas.

 

With the results obtainedfrom the studies and monitoring carried out in 2009, it has been possible toupdate Fibria’s biodiversity data, and notably the information aboutbirdlife.  More than 144,000 birds havebeen registered since 1989 — by means of capture, census, line-transectsampling and observations — classified among 67 families and 605 distinctspecies.  Approximately 15,500 birds havebeen banded, for the gathering of information about their continuance andmovements within the Company’s areas.

 

***Insurance***

 

Wemaintain fully comprehensive insurance with leading insurers to cover propertydamage and business interruption risk, as well as in respect of internationaland domestic transportation. As a result of our acquisition of Aracruz inDecember 2009, we inherited a second insurance policy, with maximum riskcoverage of U.S.$1,800 million, which overlapped with our existing policy, withmaximum risk coverage of U.S.$1,300 million. We renegotiated these policies asof March 31, 2010 such that we currently have a single policy with maximum riskcoverage of U.S.$1,800 million, which we believe offers more than sufficientcoverage for our current assets.

 

Wedo not maintain insurance coverage against fire, disease and other risks to ourforests. There is a fire and disease risk associated with our forestryactivities, however, we believe the total damage would be mitigated by our 124risk management procedures and the fact that our individual forests are notlocated in close proximity to one another, thereby eliminating any risk that afire or disease in one of our forests could spread easily to any other of ourforests. We have taken various steps to prevent fires from occurring in ourforests, including the maintenance of fire observation towers, a fleet of fireengines and teams of fire-fighting personnel, which we believe are safe andcost-effective methods of fire prevention. In each of the past three years, theforest fires have we have experienced have not resulted in material damages toour total planted area. Given the natural protection afforded by the spread outlocations of our forests, we do not believe that insuring our forests would becost-effective. 

 

Wedo not make provisions for risks of loss from fire and disease, and all lossesand damages that occur are charged to expenses when incurred. We have notsuffered a material loss from either fire or disease in our forests.

 

**Overviewof the Pulp and Paper Industry**

 

***Pulp Industry Overview***

 

Wood pulp is theprincipal ingredient in the manufacture of woodpulp-containing paper. Pulp is classified according to (a) the type of wood or fiber from whichit is made, (b) the manner in which the wood or fiber is processed, and (c) whetherit is bleached.

 

There are two types ofwood pulp that can be produced.  Hardwood pulp is produced using hardwoodtrees, such as eucalyptus, aspen, birch and acacia.  Pulp made fromhardwood, such as eucalyptus, has short fibers and is generally better suited tomanufacturing coated and uncoated printing and writing papers, tissue andcoated packaging boards*.  Chemicallypulped short fibers* are the best type for the manufacture ofwood-free paper with good printability, smoothness, brightness anduniformity.  Softwood pulp is produced using softwood trees, such as pinesand fir.  Pulp made from softwoods has long fibers and is generally usedin manufacturing papers that require durability and strength, such askraftliner, and those requiring high opacity, such as newsprint and directorypapers.  We produce only hardwood pulp from planted eucalyptus trees.

 

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The pulp manufacturing processmay determine a pulp’s suitability for particular end uses.  Mechanicalpulp refers to pulp processed to leave in some lignin and other organicmaterials holding the wood fibers together.  Chemical pulp refers to pulpmade using chemical processes to dissolve the lignin.  Among the variouschemical processes for chemical pulp, the most common is the kraft process,which we use to produce our pulp.  The kraft process helps to maintain theinherent strength of the wood fibers and thus produces a pulp that isespecially well suited for manufacturing printing and writing papers, specialtypapers and tissue.

 

Bleached pulp is used fora variety of purposes, including printing and writing papers, specialty papersand tissue.  Unbleached pulp is brown in color and is used in theproduction of wrapping paper, corrugated containers and other paper andcardboard materials.  Many companies, including us, *are using* the ECF method in theirproduction of bleached pulp.  ECF is a bleaching process that does notutilize elemental chlorine.  This process has been developed in part toeliminate any possible carcinogenic effects attributed to the dioxins that areproduced during the bleaching process and released in the water.

 

As a result of thevariety of wood types and processes used to produce pulp, the pulp market hasbecome increasingly specialized in terms of technical characteristics. Hardwood and, particularly, eucalyptus pulp, exhibit many of the physical andchemical properties most valued by printing and writing paper manufacturers andother bleached pulp consumers, such as opacity, grade and printability. As a result of increasing specialization, many *paper*manufacturers developed their own customized mix of pulp inputsknown as “furnish” for use in their paper manufacturing.  In addition, asmore paper manufacturers have come to appreciate the technical characteristicsof hardwood pulp and rely upon a significant hardwood pulp component in theirfurnish, the market for hardwood pulp has grown more rapidly than the marketfor softwood pulp.

 

Eucalyptus is one of manytypes of hardwood used to make pulp.  We believe that for certain useseucalyptus pulp is superior because of the greater consistency in the qualityof its fibers and because it can improve paper’s opacity, formation andprintability.  Eucalyptus pulp has gained wide acceptance among producersof printing and writing papers in Europe and among producers of tissue papersin North America because of its softness and absorbency.

 

***Paper Industry Overview***

 

There are six majorgroups of paper products produced by the paper industry:

 

·      newsprint paper, used to print newspaper;

 

·      printing and writing papers, used for abroad range of purposes, including writing, photocopying, commercial printing,business and computer forms;

 

·      tissue papers, used to produce tissue,toilet papers and paper towels;

 

·      packaging papers encompassing kraftpaper, containerboard (corrugated paper and linerboard) and liquid packagingboard;

 

·      cardboard; and

 

·      specialty papers.

 

We produce printing andwriting papers, specialty papers, and thermal and carbonless paper, asubcategory of specialty papers.

 

Printing and writingpapers are classified according to whether they are coated or uncoated, andwhether the pulp from which they are made is chemically processed to eliminatelignin, called wood-free paper, or contains some lignin, called mechanical orwood-containing.  We make uncoated andcoated wood-free printing and writing paper.

 

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Printing and writingpaper is sold either in reels or in packages of pre-cut sheets, calledcut-size.  We sell our paper in bothreels and cut-size.  Reels of paper areused by manufacturers of paper products such as business forms, writing pads,packaged sheets of pre-cut paper, books and envelopes.  Customers require different size reelsdepending on the type of machines they use. Cut-size paper is used in offices for general commercial purposes, suchas photocopying and writing.  There hasbeen a general trend in recent years toward the use of standardized pre-cutsheets rather than preprinted and continuous business forms and computerpaper.  This trend has led many paperproducers, including us, to reduce sales of reels and to integrate cuttingmachines in their paper mills, increasing their production of cut-size papers.

 

The market for paper hasa large number of producers and consumers and more product differentiation thanthe market for pulp.  Prices for paperare cyclical but are less volatile than pulp prices.  The prices for paper and paperboard havehistorically followed the trends of pulp prices.  The key factors that drive paper prices areoverall economic activity, capacity expansion and fluctuations in currentexchange rates.

 

During the period between2007 and 2009, Brazilian paper producers were reducing their supply surplusthrough export sales influenced by internal demand fluctuation and increasedcompetition from imports of selected paper grades due to the appreciation ofthe *Real* against the U.S. Dollar (10% in2007 and 6% in 2008). In 2009, the effects of the *Real’s*average 8.2% depreciation, caused by the worldwide financial crisis, have notbeen directly felt in the market, since it was overcame by other effects, includingthe following: the overall decline in paper consumption (specially in maturemarkets such as North America, Europe and Japan, where paper consumption as awhole declined by over 10%, affected by the plummeted advertising expenditure)and the increased offer of paper from those mature markets to other regions,specially Latin America.

 

After some recovery inrecent years, international prices decreased in 2009, affected by reduceddemand.  In 2010, some producersimplemented some price increases in the first quarter of the year. This trendis supported by the expected increase in demand for coated grades and someforthcoming capacity closure in the woodfree market. Still, supply and demandfundamentals should remain closely tied to the performance of the worldeconomy.

 

**TheBrazilian pulp and paper industry**

 

Brazil is predominantly atropical country, with approximately 90% of its territory located north of theTropic of Capricorn.  As a result, inmost regions of Brazil, the soil and climate are very favorable to forestgrowth.  In Brazil, eucalyptus trees haveshort growing cycles of approximately seven years, compared to 10 to 12 yearsfor eucalyptus trees in Chile and 25 years in the United States.  The production of wood in Brazil, therefore,requires less time and a smaller growing area than in North America and Europe,which results in higher yields.  See “Item4B. Information on Fibria — Business Overview — Raw Materials — Wood”.

 

Brazil’s high technologyand natural advantages in forestry make it one of the world’s lowest-costproducers of pulp, and in the last 20 years Brazil has become an important pulpexporter.  As one of the world’slowest-cost producers of pulp, Brazilian pulp producers are able to weathermore favorably than other producers through periods of low pulp demand.  This shorter maturing period also enablesBrazilian producers to expedite the process of genetically improving theEucalyptus species utilized.  In thismanner, the Brazilian Eucalyptus is one of the pulping trees species that haveevolved more rapidly and consistently over recent years, resulting insignificant improvements in its productivity.

 

Capitalizing on itsadvantages in pulp production, Brazil has developed a diversified paperindustry with modern technology and a potential for growth in both the domesticand export markets.  In recent years,there has been a marked increase in paper consumption in Brazil, which is animportant indicator of the economic development of a country, with exception ofthe year 2009 which was impacted by the worldwide economic crisis.  We believe that there is growth potential fordomestic consumption, because per capita consumption is still low in comparisonwith developed countries.  Per capitaconsumption of paper is estimated at 60.0 kilos per year, according to RISI, anews and information provider for the pulp, paper, converting forest productsand allied industries.

 

Brazilian pulp and papercompanies have made large investments over the last ten years in order tocompete more effectively and on a larger scale with traditional pulp suppliersin the international market.  In 

 

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addition, technologicaldevelopment in the paper industry has been supported by the research efforts ofmajor producers and by financing from BNDES.

 

Consolidation in theBrazilian pulp and paper industry is currently underway.  The table below shows the market participationof the five largest producers in terms of sales for the years indicated:

 
| ** **                      | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------|------------|----------------------------------|------------|
| **(in  thousands of tons)**     | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|                            |       |                             |       |   |   |   |   |   |   |   |   |
| Brazilian pulp production (1)   |       | 13,498                           |       | 12,697 |   | 11,997 |   | 11,180 |   | 10,352 |   |
| Brazilian paper production      |       | 9,368                            |       | 9,409 |   | 9,010 |   | 8,725 |   | 8,597 |   |
| Total pulp and paper production |       | 22,866                           |       | 22,106 |   | 21,007 |   | 19,905 |   | 18,949 |   |
| Total five top producers        |       | N.A.                             |       | 13,574 |   | 12,580 |   | 11,982 |   | 11,462 |   |
| % Top five                      |       | N.A.                             |       | 59.9 | % | 60.2 | % | 60.5 | % | 60.5 | % |

 

----

(1)   Pulp numbers represent pulpvolume produced.  (2) Not availableat the date of preparation of this annual report.

 

Source: Bracelpa.

 

Brazil produces bothcommodity grade paper, such as kraft linerboard, and more value-added paperproducts, such as thermal, carbonless and fiduciary paper.  Brazil is self-sufficient in all types ofpaper, except newsprint, coated paper and certain specialty grades.  The paper market is larger than the pulpmarket in terms of the numbers of producers, consumers and variety of products.  Paper prices tend to be less volatile thanprices for pulp.

 

**Cyclicalnature of world pulp and paper prices**

 

World pulp and paperprices are cyclical because demand for paper depends heavily on generaleconomic conditions and because production capacity adjusts slowly to changesin demand.

 

Over the last threeyears, BEKP prices (market pulp) in the United States, Europe and Asia,respectively, have fluctuated from U.S.$ 744, U.S.$ 710 and U.S.$ 665 per ton,in 2007 to U.S.$ 811, U.S.$ 789 and U.S.$ 686 per ton, respectively, in 2008.For the year ended December 31, 2009, BEKP average list prices in NorthAmerica, Europe and Asia were U.S.$ 621, U.S.$ 571 and U.S.$ 517 per ton,respectively.  As demonstrated, suchprice fluctuations occur not only year to year but also within a year as aresult of global and regional economic conditions, and supply and demand.  The price of paper products, although lessvolatile than the price of pulp, also fluctuates in response to global demand,production and fluctuations in pulp prices and exchange rates. Capacity changeshave also occurred on the paper side, and in 2009 we saw some price adjustmentin several grades in North America and European markets.  According to Hawkins Wright, prices ofuncoated wood free paper in the United States market and when using a December pricepoint in each year for comparative purposes, increased 3% and 8% in 2007 and2008, respectively, but declined 7% in 2009.

 

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The following chart showsthe historical eucalyptus pulp price fluctuations per region during 2009:

 

 

Source: Hawkins Wright

 

The following table setsforth the estimated cash production costs per ton of bleached hardwood kraftmarket pulp pre-sold in Northern Europe for the fourth quarter of 2009, forproducers in the regions indicated. Cash production costs are total productioncosts less depreciation and depletion and do not include any transportationcosts.  Amounts have been expressed on aper ton basis in U.S. Dollars, with local currencies translated at prevailingexchange rates.  Particular producers mayhave production costs significantly above or below regional averages.

 
| **Delivered Cash Costs BHKP CIF (per ton)** | ** ** | **Fourth Quarter, 2009** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|
| Brazil                                      |       | 328                      |       |
| Indonesia                                   |       | 334                      |       |
| Chile                                       |       | 334                      |       |
| Russia                                      |       | 383                      |       |
| China                                       |       | 455                      |       |
| Iberia/Norway                               |       | 488                      |       |
| USA                                         |       | 511                      |       |
| Sweden                                      |       | 514                      |       |
| Finland                                     |       | 557                      |       |
| Canada                                      |       | 557                      |       |
| South  Korea                                |       | 562                      |       |
| Japan                                       |       | 585                      |       |

 

Source: Hawkins Wright.

 

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**C.****           ****Organizational Structure**

 

The chart below shows ourorganizational structure as of December 31, 2009 (% of total capital):

 

 

----

| (1) | VCP-MS  Celulose Sul Matogrossense Ltda. adopted the name Fibria-MS Celulose Sul  Matogrossense Ltda. on February 12, 2009. |
|-----|----------------------------------------------------------------------------------------------------------------------------------|
| (2) | Aracruz  Trading International Ltd. adopted the name Fibria Trading International Ltd.  on March 1, 2009.                   |
| (3) | VCP  Overseas adopted the name Fibria Overseas on March 1, 2010.                                                            |

 

Our operations areconducted by Fibria Celulose S.A. as the controlling and principal operatingcompany.  Although being a stand-alonecompany, we are a member of the Votorantim Group, which has other interests inBrazil and abroad, principally in cement, metallurgy, agribusiness, chemicalsand financial services.  Consolidated netoperating revenues of the Votorantim Group were approximately U.S.$ 15billion, U.S.$ 18 billion and U.S.$ 16 billion in 2009, 2008 and 2007,respectively, based on the consolidated financial statements prepared inaccordance with Brazilian GAAP, data translated to U.S. Dollars at thecorresponding year-end exchange rates, of which 20%, 9%, 10% in 2009, 2008 and2007  respectively, represented pulp andpaper activities.  Net consolidated salesinclude the industrial units of the Votorantim Group, as well as VotorantimFinanças, which includes Banco Votorantim. Our immediate parent company is VID, which in turn is ultimatelycontrolled by Hejoassu Administração S.A. (“Hejoassu”).  Hejoassu is formed by the Board Members ofthe Votorantim Group.  It is composed byfamily members, responsible for the main decisions and business strategies.  Hejoassu is controlled by the Ermírio deMoraes family.  See “Item 4B. —Information on Fibria — Business Overview — Our Ownership Structure.”

 

In order to facilitateaccess to our international customers and to the international financialmarkets, we have established a wholly-owned subsidiary, Fibria TradingInternational Ltd (formerly “Aracruz Trading International Ltd”), to performand manage our exports to clients in Europe, Asia and in North America.

 

**D.****           ****Property, Plant and Equipment**

 

Overview

 

Our headquarters arelocated in the state of São Paulo, where we concentrate our financial,administrative and trading functions.

 

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Ourprincipal pulp mill, the Aracruz unit, located in the state of Espírito Santo,is the largest bleached hardwood kraft market pulp production facility in the worldand that we acquired as part of the Aracruz Acquisition.

 

TheAracruz, Jacareí, Três Lagoas and Veracel units consist of large receivingyards for the logs, debarking, chipping and digesting equipment, packaging,warehousing facilities and a fully computerized control system thatcontinuously monitors the entire production process. Steam turbines provide acontinuous power supply for that process. Fuel for the generation of steam ismainly provided by waste products from the pulp production process. Externalbackup power supplies are also available on sites. Electrochemical plantslocated within the boundaries of the production facilities provide most of thechemicals used in the pulp bleaching process.

 

AracruzUnit

 

TheAracruz Unit has three production lines: Fiberline A, Fiberline B and Fiberline C. The nominal productioncapacity of the Aracruz Unit is approximately 2,300,000 tons of BEKP.

 

TheAracruz Unit’s area totaled 354,528 hectares at the end of 2009, of whicharound 203,142 hectares is eucalyptus plantation, 131,283 hectares is coveredwith natural preserved ecosystems (preservation area), and 20,102 hectares hasother uses. The Aracruz Unit is located approximately three kilometers from theport facilities at Aracruz (Portocel), of which we own 51%.

 

On May 4,2009, as part of the terms and conditions set forth on the Export PrepaymentCredit Facility, we transferred the Aracruz industrial plant to Alícia PapéisS.A., or Alícia, a wholly-owned subsidiary of Aracruz, which in turn mortgagedthe Aracruz industrial plant as collateral and pledged certain associated landand forests as collateral. We also pledged all of Alicia’s shares as collateralfor the Export Prepayment Credit Facility.

 

JacareíUnit

 

TheJacareí Unit is located in the state of São Paulo and has a nominal productioncapacity of approximately 1,100,000 tons of market pulp.

 

TheJacareí Unit’s area totaled 159,886 hectares at the end of 2009, of which88,090 hectares is eucalyptus plantation, 61,418 hectares is covered with naturalpreserved ecosystems (preservation area), and 10,378 hectares has other uses.The pulp produced at the Jacareí Unit is transported by rail to the port ofSantos which is 150km distant  from theunit.

 

TrêsLagoas Unit

 

TheTrês Lagoas Unit began commercial operations in March 2009 and is thelargest single line pulp production facility in the world with a productioncapacity of 1,300,00 tons of pulp. This unit is located in the state of MatoGrosso do Sul. At year end 2009, the Três Lagoas unit’s area totaled 238,374hectares of which 154,164 is eucalyptus plantation, 67,770 hectares is coveredwith natural preserved ecosystems (preservation area), and 16,440 hectares hasother uses. Três Lagoas’ pulp production is transported by rail to the port ofSantos which is 788km distant from the unit.

 

Veraceland Conpacel Units

 

Inaddition, we have (1) a 50% interest in Veracel, which owns and operates apulp mill in the municipality of Eunápolis, State of Bahia, with an annualproduction capacity of 1,100,000 tons, and (2) a 50% interest in Conpacel,which operates a pulp mill in the city of Americana, State of São Paulo, withan annual pulp production capacity of 650,000 tons of pulp. The pulp producedin these two units is transported to Portocel and the port of Santosrespectively, located an average distance of 541km and 220 km from therespective units.

 

Thefollowing table sets forth the distance between our forests (including thetransport of pulpwood purchased in the market) and our mills, the distance ofthese mills to the port of embarkation, and the nominal capacity of each millat December 31, 2009:

 

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| **Facility**     | ** ** | **Pulp/Paper** | ** ** | **Distance  from  forest (pulp) or  pulp mill (paper)** | ** ** | **Distance  from  port of Santos** | ** ** | **Distance  from  port of Portocel** | ** ** | **Pulp/Paper  capacity********(tons/year)** | ** ** | **Major  products**                                                                                     |
|------------------|------------|----------------|------------|--------------------------------------------------------------|------------|------------------------------------|------------|--------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|
| Aracruz          |       | Pulp           |       | 208 km                                                       |       | —                             |       | 3 km                                 |       | 2,300,000                                   |       | Bleached eucalyptus kraft pulp                                                                          |
| Veracel (50%)    |       | Pulp           |       | 54 km                                                        |       | —                             |       | 541 km                               |       | 1,100,000                                   |       | Bleached eucalyptus kraft pulp                                                                          |
| Três Lagoas |       | Pulp           |       | 73 km                                                        |       | 788 km                             |       | —                               |       | 1,300,000                                   |       | Bleached eucalyptus kraft pulp                                                                          |
| Jacareí     |       | Pulp           |       | 210 km                                                       |       | 150 km                             |       | —                               |       | 1,100,000                                   |       | Bleached eucalyptus kraft pulp                                                                          |
| Piracicaba       |       | Paper          |       | 150 km                                                       |       | 229 km                             |       | —                               |       | 190,000                                     |       | Thermal and carbonless paper; coated printing and writing paper                                         |
| Conpacel (50%)   |       | Pulp/Paper     |       | 217 km                                                       |       | 220 km                             |       | —                               |       | 325,000/195,000                             |       | Bleached eucalyptus kraft pulp. Uncoated printing and writing paper;  coated printing and writing paper |

 

Source:  Fibria.

 

***Eucalyptus forests***

 

Currently,we obtain the majority of our wood from 585,088 hectares of forest plantationfrom a total of 1,042,680 hectares of land located in seven Brazilian states(São Paulo, Rio de Janeiro, Espírito Santo, Bahia, Mato Grosso do Sul, MinasGerais and Rio Grande do Sul).  While wehave enough wood to fulfill our needs, from time to time and when the terms areattractive we purchase wood from unrelated third parties to be used in thepaper and paper and pulp mills.  In theyear ended December 31, 2009, the Aracruz Unit consumed approximately 87%of our own wood denoting a strong participation of local Forest Partners in thesupply chain, while the São Paulo mill’s consumption of our own wood reached94% and the others units were nearly 100% supplied with own forested wood.

 

At December 31,2009, we also had over 4,000 forest partners with tracts of forest cultivation(mostly in Espírito Santo, Bahia, Rio Grande do Sul and São Paulo state), andanother 250 land rental contracts, making our wood supplies relativelydispersed.  Our forests are located anaverage distance of 160 kilometers from our pulp mills. In order to reduce thisaverage distance, we have limited our leases and forest partners to thosecloser to our mills. Brazilian forest legislation requires that privateproperties have at least 20% of the area kept for conservation of nativeecosystems, fragments of wild life or natural restored forest area (throughplanting of indigenous species). Of our own forests, approximately 56.1% areeucalyptus forest plantation, while 37.7% is conservation forest and theremaining 6.2% has other uses.

 

Whilethe dispersion of our forest land entails some additional costs, we believethat it significantly reduces the risks of fire and disease. We also seek tominimize fire risk by maintaining a system of 61 fire observation towers, afleet of 38 fire trucks, over 20 fire fighting brigades and 33 fully equippedpatrol cars monitoring the areas 7 days a week. In addition, we have beenparticipating in a 15 year joint task force with two other major forestcompanies in South Bahia (Arcelor-Mittal and Suzano-Bahia Sul). Given thenatural protection afforded by the dispersion of our forests, we believe thatprevention is the key strategy to avoid insuring our forests, therefore, weassume all risks of losses from fire and other casualties. In addition, weannually monitor and manage our forests to prevent losses from leaf-cutter antsand any other insect break-outs. We have never suffered a material loss fromeither fire or disease in forests that we harvest.

 

Ourstrategic goal to guarantee fiber supply and to ensure our long-term growthincludes the establishment of a new area in the state of Rio Grande do Sul,currently with 110,432 hectares of which 42,796 hectares is eucalyptus forest,and a new forest base in the state of Mato Grosso do Sul of 238,374 hectares,of which 154,164 

 

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hectares are forestplantation, which originated from the asset swap with International Paper,concluded in February 2007.

 

Growthin the southern region of Brazil is driven mostly by the availability of land atattractive costs, the proximity to northern Uruguay (additional woodavailability) and also the proximity to Rio Grande port, which will allow us tobuild an export terminal.  Thisparticular region has a distinct climate regime in which the main rainfallperiod is during the winter. This climate variation permits us to grow somesubtropical eucalyptus species, such as E.globulus, E.maidenii and otherspecies, with favorable wood properties, high pulp yield and which arerecognized by pulp producers as the best eucalyptus species. The forestproductivity in this new area is similar to São Paulo forests and in additionwe also have: (i) qualified labor force; (ii) inter-modaltransportation options; and (iii) favorable political, social andenvironmental conditions which results in the area being important to ourlong-term growth strategy.

 

In2009 as part of our reforestation efforts, we planted approximately 9,500hectares of eucalyptus in order to maintain our mills wood supply and pulpproduction. The harvested eucalyptus forests yielded between 40 and 50 cubicmeters of wood per hectare per year that is an average of 280 — 350 m3/ha/yearat 7 years harvesting age. Our forest productivity reflects the excellentclimate and soil conditions for growing eucalyptus trees in all Brazilianstates, with enough incidence of both sunlight and rainfall. In 2009, followingthe economic crisis that began in late 2008, there was very little planting atall sites, except at Mato Grosso do Sul, where we planted over 9,500 hectares.The ratio between plantation and coppice regeneration also changed from 90:10to 20:80. Although managing the regenerated coppice from the harvested forestis less productive than planting a new forest, it also requires a lower initialdisbursement and suits the economic scenario we faced in 2009.  For the year ended December 31, 2009, wemanaged over 40,000 hectares of coppice regeneration as opposed to 9,500hectares of plantation only.

 

In2009, we operated six nurseries and produced over 30 million plants (rootedcuttings/seedlings) at our nurseries, all of which were planted in our forestsor supplied to the Forest Savings Program. To develop our eucalyptus forests,we select trees after precise genetic field trials, elite selected trees arecloned (cultivars) and then they are multiplied in large scale by vegetativepropagation process (rooted cuttings). Vegetative propagation allows us to plant trees with the most favorablegenetic characteristics for pulp production. These characteristics include fast growth rate, good quality of woodfibers, resistance to disease and “self-pruning” branches.  Greater tree standardization provided bycloning also permits us to increase mechanization in tree harvesting, logging,and mill transportation, making it easier to adjust equipment and machinery totopographical conditions. Currently, almost 90% of our plantations areoriginated in rooted cuttings and 10% are seedlings coming from Tree BreedingOrchards.

 

In2009 we registered two new cultivars and in 2008 we obtained patents on sixEucalyptus cultivars (clones).

 

Wecontinue to review our efforts at community relations and the common good, aspart of our contribution to social and economic development.  For example, we invited our neighbors to jointhe Forestry Savings Program that is an opportunity to have a share of theforest benefits as to diversify their production chain and to increase theirproperty income in a partnership project. On December 31, 2009, localfarmers, mostly small properties, have already planted 128,611 hectares(including Conpacel and Veracel) of new forests with our support.

 

**Expansion**

 

In March 2009,we started up the Três Lagoas project (Projeto Horizonte) located in the stateof Mato Grosso do Sul.  The learningcurve of this project achieved, successfully, the predicted capacity,increasing our annual capacity by 1,300,000 tons. The total amount invested inthis project was U.S.$ 716 million. This amount includes only disbursementsmade directly from Fibria, being in addition to the funds we received throughour Asset Swap agreement with International Paper.  See “Item 4. Information on Fibria — Historyand Development”.  For 2010, we willmaintain investments in the acquisition of land and eucalyptus plantations inthe state of Mato Grosso do Sul.  Futureexpansion plans will depend on the global economic recovery. Possible futureprojects would include the expansion of three existing mills as follows:Veracel II with a nominal capacity of 1.5 million tons (50% Fibria); TrêsLagoas II which would represent an additional capacity of 1.5 million tons anda 1.5 million ton additional 

 

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capacity from a fourthline in Aracruz IV. The only greenfield project would be Losango I, a new unitwhich would be located in the state of Rio Grande do Sul with a capacity of 1.5million tons of pulp.

 

# **ITEM 4A.  UNRESOLVED STAFF COMMENTS**

#  

On March 23,2010 the Commission’s Staff delivered a letter to us concerning certaindisclosures in our Annual Report on Form 20-F for the fiscal year ended December 31,2008.  We provided our response to theStaff on April 8, 2010.

 

# **ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS**

#  

Youshould read the following discussion in conjunction with our auditedconsolidated financial statements and accompanying notes and otherfinancial information included elsewhere in this annual report, and inconjunction with the financial information included under “Item 3A. KeyInformation — Selected Financial Data.” This section contains forward-looking statements that involve risks anduncertainties.  Our actual results maydiffer materially from those discussed in the forward-looking statements as aresult of various factors, including, without limitation, those set forth in “Item 3D.— Key Information — Risk Factors” and the matters set forth in this annualreport generally.

 

**Overview**

 

Weproduce pulp and paper products in Brazil, including wood free printing andwriting papers and specialty papers.

 

*Pulp*.  Fibria produces bleachedeucalyptus pulp, part of which it sells domestically and internationally andthe remainder of which it uses for its paper business. It has responded to theincreased demand in the international pulp market during the period beginning2005 by increasing its pulp exports via increased volumes arising from thecompletion of the Jacarei mill expansion in 2006 and its de-bottlenecking in2007 and the expansion of its market presence in the Asian and Europeanmarkets. The acquisition of Aracruz effective January 21, 2009 and the newTrês Lagoas pulp facility further increased our commitment to the internationalpulp market.

 

Thefollowing table sets forth our sales volume of pulp to the export market bygeographic region for the periods indicated:

 
| ** **                       | ** ** | **2009**  | ** ** | **2008**        | ** ** | **2007** | ** ** |
|----------------------------------|------------|-----------|------------|-----------------|------------|----------|------------|
| ** **                       | ** ** | **Tons**  | ** ** | **% of  total** | ** ** | **Tons** | ** ** | **% of total** | ** ** | **Tons** | ** ** | **% of total** | ** ** |
| North America                    |       | 1,110,104 |       | 25.0            |       | 85,910   |       | 9.4 |   | 81,038 |   | 9.3 |   |
| Latin America                    |       | 44,404    |       | 1.0             |       | 2,231    |       | 0.2 |   | 1,685 |   | 0.2 |   |
| Europe                           |       | 1,465,337 |       | 33.0            |       | 543,745  |       | 59.6 |   | 557,610 |   | 64.1 |   |
| Asia/Middle  East/Oceania/Africa |       | 1,820,571 |       | 41.0            |       | 279,626  |       | 30.7 |   | 229,563 |   | 26.4 |   |
| Total Exports                    |       | 4,440,416 |       | 100.0           |       | 911,512  |       | 100.0 |   | 869,897 |   | 100.0 |   |

 

Thedomestic market for pulp represents an important part of the pulp segment ofour business. The following table sets forth are sales volume of pulp to thedomestic market and the total volume of sales for each of the periods presentedbelow:

 
| ** **         | ** ** | **2009**  | ** ** | **2008**       | ** ** | **2007**  | ** ** |
|--------------------|------------|-----------|------------|----------------|------------|-----------|------------|
| ** **         | ** ** | **Tons**  | ** ** | **% of total** | ** ** | **Tons**  | ** ** | **% of total** | ** ** | **Tons** | ** ** | **% of total** | ** ** |
| Domestic market    |       | 462,752   |       | 9.4            |       | 289.256   |       | 24.1 |   | 227.756 |   | 20.7 |   |
| Total sales volume |       | 4,903,168 |       | 100.0          |       | 1,200,767 |       | 100.0 |   | 1,097,652 |   | 100.0 |   |

 

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Theincrease in domestic market pulp volumes in 2009 is due primarily to the salesderiving from pulp produced at the Três Lagoas facility (commercial operationsbegan on March 30, 2009), and delivered to the adjacent paper facility ofInternational Paper. See “Item 4. Information on Fibria — History andDevelopment”. The increases in volumes during 2008 and 2007, as compared toprevious periods, are principally a result of our divestments during theseperiods of selected domestic paper assets (Luis Antonio, Mogi and Ahlstrom).Pulp production previously used in the paper business and classified as such isnow supplied and sold to these production facilities and owned by third partiesand, accordingly, now classified as domestic market pulp.

 

*Paper*.  Fibria produces various typesof paper products for the domestic and international markets.  It is important to note that the 2009, 2008and 2007 periods are not fully comparable with prior periods due to thedivestments of the Luis Antonio, Mogi and Ahlstrom during those periods as partof our strategic repositioning of the paper business.

 

Withinthe domestic market, we have continued our strategy of increasing theproportion of our sales of value-added products, such as coated, thermal andcarbonless and other specialty papers, and to remain as a leading market shareproducer of these value-added paper products. The relevance of high value added papers was reinforced, on August 2009,by the increased capacity of the Piracicaba coated machine by 25,000 tons ofthermal papers, allowing for an even higher leverage of the benefits of thetechnology exchange agreement that Fibria has with Oji Paper.

 

Thedomestic market for paper products is the most significant geographic area ofthis business segment as illustrated by the following table.

 
| ** **                        | ** ** | **2009** | ** ** | **2008**        | ** ** | **2007** | ** ** |
|-----------------------------------|------------|----------|------------|-----------------|------------|----------|------------|
| ** **                        | ** ** | **Tons** | ** ** | **% of  total** | ** ** | **Tons** | ** ** | **% of total** | ** ** | **Tons** | ** ** | **% of total** | ** ** |
| Domestic                          |       | 336.7    |       | 90              |       | 345.7    |       | 88 |   | 401.8 |   | 80 |   |
| Exports                           |       | 37.0     |       | 10              |       | 45.0     |       | 12 |   | 97.5 |   | 20 |   |
| Total Paper                       |       | 373.7    |       | 100             |       | 390.7    |       | 100 |   | 499.3 |   | 100 |   |
| North America                     |       | 17.0     |       | 46              |       | 11.4     |       | 25 |   | 20.8 |   | 21 |   |
| Latin America                     |       | 14.4     |       | 39              |       | 27.0     |       | 60 |   | 57.9 |   | 59 |   |
| Europe                            |       | 5.6      |       | 15              |       | 6.6      |       | 15 |   | 15.6 |   | 16 |   |
| Asia/Middle East/  Oceania/Africa |       | —   |       | —          |       | —   |       | — |   | 3.2 |   | 4 |   |
| Total                             |       | 373.7    |       | 100             |       | 390.7    |       | 100 |   | 499.3 |   | 100 |   |

 

Oursales of paper outside Brazil as a percentage of our total sales of paper interms of volume were 20% for 2007, 12% for 2008 and 10% for 2009.

 

**Liquidityand Capital Resources**

 

TheCompany’s liquidity has historically been sourced from cash generated byoperations, short-term borrowings and, depending upon market conditions andother factors, long-term borrowings.  Wemanage our liquidity position by first considering our cash and cash equivalents,short-term financial investments and short-term debt; and thereafter accountsreceivable and long-term borrowings, together with our prioritization andre-ordering of the capital expenditure projects.

 

Sincea significant portion of our operating revenues is derived from exports (2009: 75%;2008 and 2007: 47%- See “Item 3. Key Information — Selected Financial Data”) wetraditionally choose from a variety of trade finance programs offered byseveral financial institutions under which we borrow short-term funds bytransferring either our current or future export receivables to theseinstitutions.  See Notes 12 and 13 to ouraudited consolidated financial statements. These trade finance programsgenerally have less financial and administrative cost than discounting ourdomestic accounts receivables or short-term working capital loans; thus ourpreference not to use either of the latter to manage our liquidity.  The current worldwide financial crisis hasnot affected the availability of short-term credit facilities to Fibria; theircost has however increased due to the combined effect of the crisis itself, 

 

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its effect on theavailability of trade finance to emerging markets such as Brazil, the financialmarket’s perception and evaluation of the country risk of Brazil and the**downgrade in our credit rating.  See “Item 3. Key Information — RiskFactors — Risks Relating to Fibria and the Pulp and Paper Industry”.

 

Long-termborrowings have generally been used to finance our major capital expenditureprojects and have historically been sourced principally by either exportprepayment contracts under which we, or a wholly owned subsidiary, borrow fundsby offering the guarantee of export contracts (see Note 13(a) to ouraudited consolidated financial statements) or fixed asset acquisition financingprograms offered by the BNDES, a related party, (see Note 13(h) to ouraudited consolidated financial statements). The scheduled maturities of these long-term loans have been structuredto match the expected cash flow from the conclusion of the related capitalexpenditure projects and, as a result, reduce the risk of any significantdeterioration of our liquidity position. We also rely on bonds or notes issued in the international markets byeither wholly owned subsidiaries or by Votorantim Group subsidiaries, alldomiciled in other countries.  See Notes13(b), (f) and (g) to our audited consolidated financial statements.Our ability to access long-term funding sources has not been, to-date,significantly affected by the effects of the global financial crisis, althoughthe maturity of any intended borrowings have been reduced and their prospectivecost has increased for the same reasons cited above with respect to ourshort-term borrowings.

 

Theselong-term borrowings contain various covenants regarding compliance withcertain financial ratios and other minor restrictions.  At December 31, 2009, the Company was incompliance with covenants on all loan agreements.

 

*The Liability Management Plan*

 

Fibriaprogressed significantly in its liability management strategy in the fourthquarter of 2009, aiming at  matching loanmaturities with cash generation and improving its capital structure. We willmaintain our liability management plan in order to both recover our investmentgrade rating and execute our growth strategy under favorable market conditions.

 

Thesale of the Guaíba Unit was the first step in implementing the plan. On October 8,2009, Aracruz and VCP signed a contract with CMPC, based in Santiago, Chile,for the transfer of ownership of the assets represented by the industrialinstallations, lands and forests collectively known as the Guaíba unit. Thisunit is located in the municipality of Guaíba, in the state of Rio Grande doSul. In general terms, it comprises: (i) a pulp mill with an annualproduction capacity of approximately 450,000 tons (approximately 8% of thetotal capacity at the time); (ii) a paper plant, with an annual productioncapacity of around 60,000 tons; (iii) land totalling an area ofapproximately 212,000 hectares (of which 32,000 hectares are leased, underpartnerships); as well as (iv) licenses and authorizations for a projectto expand the pulp mill, raising its production capacity to around 1.75 milliontons a year. The sale price that has been agreed for the Guaíba unit is U.S.$1,430 million. The original sale consideration of U.S.$ 1,430 million wasreduced by U.S.$ 20 million for adjustments to leased assets (not impactingcash) and U.S.$ 28 million related to physical forestry measurements.  The transaction generated a loss of U.S.$ 90million, recorded in Other operating (expense) income, net.  On December 15, 2009 the Companyreceived U.S.$ 1,300 million and in January 2010 received a secondinstallment of U.S.$ 80 million.

 

On October 30,2009, Fibria Overseas Finance Ltd., a wholly owned Cayman Island subsidiary ofFibria, issued U.S.$ 1,000 million in notes due in 2019 at a coupon of 9.25%per annum and yield of 9.375%.

 

In December 2009,we completed a two tranche pre export finance totaling U.S.$ 1,175 million withtwelve financial institutions. The tranche A has a five-year term with a graceperiod of three years accruing interest at Libor +4%. The tranche B has aseven-year term with a grace period of five years accruing interest at Libor +4.25%. Both tranches will have the margins reduced by 100 basis points at thetime Fibria’s leverage ratios fall below 3.5. The funds were received on December 28,2009.

 

Thetotal amount of U.S.$3.6 billion raised through their plan were used to prepayU.S.$2.1 billion in derivative debt and to cover the debt maturing in 2010 and2011, including the debt resulting from the Aracruz Acquisition. At the sametime, Fibria concluded negotiations to align the terms of its derivative debtwith those of its other contracts. As a result, a series of restrictiveconditions that had been included in the derivatives contract were

 

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eliminated. On December 21,2009 this debt was U.S.$ 501 million as a result of the above prepayment. Thisspecific debt will be repaid beginning in 2015.

 

**Prices**

 

Allreferences to prices relate to average prices determined by dividing the netoperating revenues by the corresponding tonnage.

 

*Pulp*.  Our pulp operations areaffected by prevailing world market prices for pulp, the amount of pulpproduced and sold worldwide, and the pulp requirements of our paperbusiness.  The prices that we are able toobtain for our pulp depend upon prevailing world market prices, whichhistorically have been cyclical and subject to significant fluctuations overrelatively short periods of time.  Theprice of pulp is quoted in U.S. Dollars. Domestic sales of pulp are denominated in *reais*; however, as export sales, they generally reflect theinternational price of pulp, which is denominated in U.S. Dollars.  Over the last three years BEKP prices (marketpulp) in the United States, Europe and Asia, respectively, have fluctuated fromU.S.$ 744, U.S.$ 710 and U.S.$ 665 per ton, in 2007 to U.S.$811, U.S.$ 789 and U.S.$ 686 per ton, respectively, in 2008.  For the year ended December 31, 2009,BEKP average list prices in North America, Europe and Asia were U.S.$ 621,U.S.$ 571 and U.S.$ 517 per ton, respectively. As of March 2010, BEKP price continued to increase for all regions,to U.S.$ 820, U.S.$ 790 and U.S.$ 750 for North America, Europe and Asiarespectively.  As demonstrated, suchprice fluctuations occur not only year to year but also within a year as aresult of global and regional economic conditions, and supply and demand.

 

Thelong-term historical cyclicality of pulp prices as measured by the changes inaverage C&F (Cost and Freight) price per ton for our export sales ofbleached eucalyptus market pulp over the last several years is illustrated inthe following table.

 
| ** ** | ** ** | **C&F in U.S.$** | ** ** |
|------------|------------|----------------------|------------|
| 2003       |       | 511                  |       |
| 2004       |       | 531                  |       |
| 2005       |       | 594                  |       |
| 2006       |       | 648                  |       |
| 2007       |       | 776                  |       |
| 2008       |       | 711                  |       |
| 2009       |       | 565                  |       |

 

Source: Fibria.

 

*Paper*.  Our paper operations areaffected primarily by demand for paper in Brazil and by Brazilian economicconditions and, to a lesser extent, international paper prices and exchangerates.  The price of paper products,although less volatile than the price of pulp, experiences fluctuations inresponse to global demand and production and fluctuations in pulp prices.  Prices for printing and writing papers aregenerally linked to international prices. In response to the cyclical nature of the paper market, we haveincreased our production of value-added paper products, such as coated, thermaland carbonless papers, which are less sensitive to cyclical price variations.Capacity changes have also occurred on the paper side, and in 2009 we saw someprice adjustment in several grades in North America and European markets.According to Hawkins Wright, prices of uncoated wood free paper in the UnitedStates market and when using a December price point in each year forcomparative purposes increased, 3% and 8% in 2007 and 2008, respectively, butdeclined 7% in 2009.

 

**Costsand operating expenses**

 

Ourprincipal costs of production are incurred in *reais*and consist of raw materials (primarily wood and chemicals), labor anddepreciation.  In the last three years, our costs have fluctuatedsignificantly when expressed in U.S. Dollars as a result of the volatility ofthe *Real* against the U.S. Dolla*r*.  Our business iscapital intensive and a portion of our costs is fixed.  We seek tomaintain high capacity utilization rates to benefit from economies of scale andproduction efficiencies resulting from the operation of large, efficientproduction facilities and machines.

 

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**Financialincome**

 

Wederive financial income from several sources, including interest on cash andcash equivalents and finance charges on sales with credit terms. The unrealizedgains from cross-currency interest-rate swap contracts are recorded at fairmarket value on our balance sheet as a liability and in our statement ofoperations as “Foreign exchange gain (loss) and unrealized gain (loss) onswaps, net.”  We enter into thesearrangements to reduce our exposure resulting from a possible depreciation ofthe *real* in relation to the U.S.Dollar because a high proportion of our debt is denominated in U.S.Dollars.  See “Item 5. Operating andFinancial Review and Prospects — Overview — Brazilian Economic Environment” and“Item 5. Operating and Financial Review and Prospects — Liquidity and CapitalResources — Debt.”  Our financial incomein 2007 and 2008 also included income from the funds in trust related to theconstruction of the Três Lagoas project mill. See “Item 4. Information on Fibria — History and Development of Fibria”.

 

**Financialexpenses**

 

Weincur financial expenses from several sources, including short-term debt andlong-term debt.  We principally seeklong-term financing to fund our projects, which are generally of a long-termnature.  Short-term debt is comprised ofboth r*eais* and U.S.Dollar-denominated working capital arising from commercial banks and short-termsecured loans.  Long-term debt consistsof both U.S.-Dollar debt, arising principally from export loans and bondsissued in the international capital markets, and *Real*-denominated debt, borrowed from BNDES.  Additionally, we prefer to carry U.S.-Dollardenominated debt since it has the effect of being a natural hedge from thefunds obtained through exports.  See “Item5. Operating and Financial Review and Prospects — Liquidity and CapitalResources.”

 

**Discussionof critical accounting policies**

 

Criticalaccounting policies are those that are important both to the portrayal of ourfinancial condition and operational results and that require our management’smost difficult, subjective or complex judgments, often as a result of the needto make estimates about the effect of matters that are inherentlyuncertain.  As the number of variablesand assumptions affecting the possible future resolution of the uncertaintiesincrease, those judgments become even more subjective and complex.  In order to provide an understanding abouthow management forms its judgments about future events, including the variablesand assumptions underlying the estimates, and the sensitivity of thosejudgments to different circumstances, we have identified the following criticalaccounting policies:

 

·                  revenue recognition and accounts receivable;

 

·                  business combinations and impairments;

 

·                  recoverability of long-lived assets;

 

·                  asset retirement obligation;

 

·                  investment - consolidation or equity method analysis;

 

·                  forest development costs and impairment tests;

 

·                  deferred taxes;

 

·                  tax contingencies;

 

·                  employee benefits and other related matters;

 

·                  fair value of financial instruments — put and call options;

 

·                  financial instruments and hedge; and

 

·                  earnings per share.

 

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***Revenue recognition and accounts receivable***

 

Werecognize revenue and associated costs of sales at the time our products aredelivered to our customers or when title and associated risks pass to ourcustomers.  Revenue is recorded net ofsales returns. Our customers that purchase on credit agree to payment termsthat effectively include finance charges. The finance charge on each sale is the difference between the amount thecustomer agrees to pay at the due date and the cash sale price.  The finance charges are recognized over thepayment period and are included in financial income.  Recognition of revenue for our two segmentsand for domestic and export sales is based on the following principles:

 

Pulp- domestic market:  Sales are primarily under credit terms whichdo not exceed 30 days or through Fibria’s vendor program.  Revenue recognition is consistent with thatapplied to paper sales.

 

Pulp- export market:  All export orders are normally fulfilled frominventories maintained at own or third-party warehouses located close tostrategic markets.  These sales arerecognized when products are delivered to the carrier and risks have passed tothe customer.

 

Paper- domestic market:  Sales are either on cash or credit terms(normally 30, 60, 90 days) or through our vendor program.  Credit sales receivables are discounted topresent values as our price list is dependent on the length of creditgranted.  Revenue is recognized when thecustomer takes delivery of the product either upon delivery to the customer’scarrier (Incoterms FOB) or premises (Incoterms CIF).  Sales through our vendor program are made tocertain of our pre-qualifying domestic customers Under the vendor program, thecustomer agrees to pay the bank at a later date and the bank in turn pays us onbehalf of the customer for the purchase price of the product upon itsdelivery.  We guarantee full repayment ofthe loan for which the maximum allowable term for payment is generally 180days, though in the case of a few customers, we extend the term to 240 days.

 

Paper- export market:  Export orders are normally fulfilled frominventories maintained at our own or third-party warehouses located close tostrategic markets.  We recognize revenueand associated costs of sales at the time products are delivered to the carrierand risks have passed to the customer. Incoterms CIF and Incoterms FOB terms determine timing of revenuerecognition.

 

*Discounting of short-term receivables and interest income*

 

Ourcustomers that purchase on credit agree to payment terms that effectivelyinclude finance charges.  The financecharge on each sale is the difference between the amount the customer agrees topay at the due date and the cash sale price at date of sale.  The finance charges are recognized over thepayment period and are included in financial income, and accounts receivablefrom these transactions, including short-term receivables, are discounted topresent value.

 

*Vendor program*

 

Someof the sales of our products to certain of our domestic customers are performedthrough a program called the “vendor program,” where the purchases from us arefinanced by a bank that has established a direct financing program.

 

Thevendor program, available to only some of our customers, is a means by whichthe bank essentially finances our customers’ purchases.  Under this program, the customer agrees topay the bank at a later date and the bank in turn pays us on behalf of thecustomer for the purchase price of the product upon its delivery to thecustomer.  We, as the vendor, act as aguarantor under the program of the value of the sale plus the interest on thefunds charged to the customer.  As aresult, the customer can take advantage of lower interest costs that arise as aresult of the bank looking to us, and not our individual customers, as theprimary support for the credit risk.  Inaddition to the lower interest cost, the customer obtains additional benefitsin the form of lower value-added taxes since the interest charged by the bankto the customer is not subject to these taxes that would otherwise have accruedhad we incorporated the finance charges into the sales value and billed theamount directly to our customer.  Theterms of sale under the vendor program depend on the customer’s credit rating,which is based on our own internal credit review, and typically are for 150 to160 days; although in the case of a few selected customers may be up to either180 or 240 days.

 

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Thisguarantee does not expose the Company to any greater risk or net obligationthan a credit sale.  We retain the samerisk of loss on customer accounts under the vendor program that we do under ourown non-vendor program sales and we mitigate this risk by the continuousevaluation of both vendor and non-vendor receivables for collectability.  In the case of a non-vendor credit sale,revenue is recorded on shipment, and a receivable is created.  If the credit sales customer does not pay thereceivable, then the Company would establish a doubtful accounts allowance ifit considered loss to be probable.  In avendor financed sale, the Company records revenue also on shipment and receivesfull payment from the bank.  If thecustomer does not pay the bank within the specified time period, the Companywould have to satisfy it guarantee with the bank.  The Company would, at that time, charge theobligation to selling expenses if it considered the loss to be probable.  The Company would then look to the customerfor payment on the sale.  At this point,after satisfying the guarantee to the bank, the Company is in the same positionas if had made a credit sale; the customer owes the Company for the value ofthe sale.  If the customer does not pay,the Company loses the value of the sale which had been recorded as a bad debtexpense.  The Company’s losses fromguarantee’s, net of amounts recovered from our customers, has historically beennegligible.

 

Annually,the Company considers the provisions of ASC Topic 460, “Guarantees” and ASCTopic 605, “Revenue Recognition” in accounting for the vendor program.  Guarantee income from these arrangements arenot significant and although ASC Topic 605 was considered in the determinationof whether to account for our product sales and income from guarantees as apossible multiple deliverables, these were considered not to be material.  The Company’s historical analysis indicatesthat the fair value of the guarantees to be insignificant as the Company hasnot incurred significant losses in the past. The Company recognizes revenue for each of the elements of the sale ofthe products when the customer takes delivery.

 

*Allowance for doubtful accounts*

 

Theallowance for doubtful accounts is recorded in an amount we consider sufficientto cover any probable losses on realization of our accounts receivable from ourcustomers and is included under selling expenses; no adjustment is made to netoperating revenues.  Our accountingpolicy for establishing the allowance for doubtful accounts reserve issummarized as follows:

 

·                  all invoices are individually analyzed by our accounting department, inconnection with the legal, collection and credit departments, in order tomeasure the amount of the probable expected losses, and, consequently, todetermine the allowance for doubtful accounts to be recorded.

 

·                  for bankrupt customers, the Company has the criteria of reserving 100%of their open balances.

 

·                  the other customers who have overdue invoices will have reservesvarying from the range of 1% to 100% calculated over their open balances.

 

Weperform initial and ongoing credit evaluations of our customers and, whendeemed necessary, obtain collateral or letters of credit to protect ourinterests.  Additionally, most of ourexport sales to the US, Europe and Asia are secured by letters of credit andcredit insurance.  We establish anallowance for doubtful accounts against receivables we believe will not befully collected.

 

***Business combinations and impairments***

 

*Aracruz*

 

We acquired 28% of thevoting capital and 12.4% of the total capital of Aracruz on October 3,2001, for U.S.$ 370 million, generating goodwill on our portion of theunderlying fair value of the net assets of U.S.$ 155 million.  ASC Topic 350, “Intangibles — Goodwill andOther” was applied.

 

ASC Topic 323 “Investments— Equity Method and Joint Ventures”, required us to determine if, among otherfactors, a decrease in market value is other than a temporary impairment.  As the quoted market price of the investee’spublicly traded stock during 2002 was consistently quoted below book value, aone-time impairment provision was recorded in 2002 based on the market price ofthe Aracruz ADRs on December 31, 2002. The impairment charge of U.S.$ 136 million (gross of deferred income taxeffects of U.S.$ 46 million) was recorded 

 

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directly as a charge to income (“Equity loss ofinvestee”).  On January 21, 2009, weacquired an additional 12.35% interest in the total share capital (equivalentto 28% of the voting share capital) of Aracruz for R$ 2,710 million from theFamilies, increasing our voting interest to 56% . As a result of this purchase,we have fully consolidated the assets, liabilities and results of operations ofAracruz and its consolidated subsidiaries in our financial statements as from January 21,2009.  In April 2009, we acquired anadditional 12.35% interest in the total share capital (equivalent to 28% of thevoting share capital) of Aracruz for   R$2,710 million, from the Safra faimily. Following these acquisitions, we owned 37.05% of the total share capital(equivalent to 84% of the voting share capital) of Aracruz.  On June 1, 2009, we announced thecommencement of a mandatory public purchase offer for any and all outstandingcommon shares of Aracruz, the auction for which took place on theBM&FBOVESPA on July 1, 2009 when we acquired 3.04% of the outstandingvoting share capital of Aracruz (equivalent to 1.34% of the total sharecapital), for R$ 236.6 million. Following this transaction, we owned 42.6% of the total share capital(equivalent to 98.2% of the voting share capital) of Aracruz.  On August 24, 2009, the shareholders ofthe respective companies approved a stock swap merger in which each remainingissued and each remaining issued and outstanding preferred share of Aracruz wasexchanged for 0.1347 of VCP’s common shares. Thereafter the full merger ofAracruz into VCP was completed. The fair value of the non-controlling interestin Aracruz was determined by applying the market approach, based on the quotedprice at January 21, 2009.  Theacquisitions of the non-controlling interests were recorded based on fairvalues and the total amount of U.S.$ 360 was credited to the “Additional paidin capital”.

 

As a result of thesetransactions, at December 31, 2009, our consolidated financial statementspresent a goodwill balance of U.S.$ 2,490 million related to the AracruzAcquisition.  The one-time impairmentprovision was recorded in 2002 and related deferred tax asset was reversed and,consistent with ASC Topic 805, “Business Combination” (“ASC Topic 805”), a gainof U.S.$ 514 million was recorded in the year ended December 31, 2009 uponre-measurement of the previously held equity interests to fair value at thedate of the control acquisition. The purchase consideration for Aracruz and theallocation of the assets acquired and liabilities assumed were recognized atthe acquisition date, including the fair value of the non-controlling interestin determining the determination of goodwill. The goodwill was assigned toAracruz’s pulp segment. The deferred tax effects do not contemplate thepossible effects of the tax deductibility of goodwill for Brazilian income taxpurposes.  The Company determined that asof December 31, 2009, there were no effects of measurement periodadjustments on the goodwill and on provision for contingencies. The fair valueof identified intangible assets acquired (including databases, patents,chemical and other supplier relationships) was determined using the incomeapproach, which discounted expected future cash flows to present value. Thecash flows were discounted at a rate of 8.55% p.a. The fair value of thenon-controlling interest in Aracruz was determined by applying the marketapproach, based on the quoted price at January 21, 2009. The Company hasconcluded the Aracruz Acquisition analysis of current issues and no adjustmentswere recorded after the acquisition date.

 

*Conpacel*

 

TheCompany accounted for its investment in Conpacel using the equity method ofaccounting until August 31, 2008. Beginning September 1, 2008, we started to recognize our 50% equityinterest in the Consortium’s operations (which basically operates in our papersegment) and no longer applied the equity method.  The related goodwill is disclosed separatelyas “Goodwill” at December 31, 2009 and 2008 of U.S.$ 177 million andU.S.$ 132 million, respectively. This goodwill is reviewed, at least, annually for impairment pursuant toASC Topic 350, “Intangibles— Goodwill and Other”.

 

*Impairment*

 

TheCompany evaluates the carrying value of goodwill annually and more frequentlyif events occur or circumstances change that would more likely than not reducethe fair value of the reporting unit below its carrying amount. Suchcircumstances could include, but are not limited to: (i) a significant adversechange in legal factors or in the business climate, (ii) unanticipatedcompetition, or (iii) an adverse action or assessment by a regulator. Whenevaluating whether goodwill is impaired, the Company first compares the fairvalue of each reporting unit to its carrying value, including goodwill.Alternatively, the Company compares the fair value of the reporting unit towhich the goodwill is assigned to the reporting unit’s carrying amount,including goodwill. The fair value of the reporting unit is estimated using adiscounted cash flow approach. If the carrying amount of the reporting unitexceeds its fair value, then the amount of the impairment loss must bemeasured. The impairment loss would be 

 

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calculated by comparingthe implied fair value of the reporting unit’s goodwill to its carrying amount.In calculating the implied fair value of the reporting unit’s goodwill, thefair value of the reporting unit is allocated to all of the other assets andliabilities of that unit based on their fair values. The excess of the fairvalue of a reporting unit over the amount assigned to its other assets andliabilities is the implied fair value of goodwill. An impairment loss would berecognized when the carrying amount of goodwill exceeds its implied fair value.

 

Otherthan as mentioned above, these reviews to date have not indicated the need torecognize any impairment.

 

***Recoverability of long-lived assets***

 

Wereview our long-lived assets to be held and used in the Company’s activities,for possible impairment whenever events or changes in circumstances indicatethat the carrying value of an asset or group of assets may not be recoverableon the basis of undiscounted future cash flows as required by ASC Topic 360, “Property,Plant and Equipment”.  The reviews arecarried out at the lowest level of groups of assets to which we are able toattribute identifiable future cash flows. Asset groups are forestry projects or production facilities for paperand pulp.  We adjust the net book valueof the underlying assets if the sum of the expected future cash flows is lessthan book value.  These reviews to datehave not indicated the need to recognize any impairment.

 

***Asset retirement obligation***

 

Weconsidered ASC Topic 410, “Asset retirement and environmental obligations”, indetermining whether to record an asset retirement obligation for property,plant and equipment and have concluded that no such adjustment was required aswe have no retirement obligation for which there are existing legal obligationsand that obligation is unavoidable.  TheCompany does not have any long-lived asset that it expects to abandon, ordispose of that would require an asset retirement obligation provision.

 

***Investment - consolidation or equity methodanalysis***

 

ASCTopic 810, “Consolidation”, requires companies to apply the “variable interestmodel” to determine which entity holds the controlling financial interest on aninvestee for consolidation purposes. Three investees, all incorporated in Brazil are not consolidated and areaccounted for using the equity method. They are:

 

·                  **Conpacel:** Fibria participates in a cost andproduction sharing venture with Suzano which operates a pulp and paper plant inAmericana, São Paulo, which was formerly owned by Ripasa, a subsidiary ofFibria and Suzano.  Under the variousagreements, the members have undivided interests in assets, liabilities andoperations of the venture.  On May 12,2008, Brazilian tax authorities approved the transformation of Ripasa into aproduction unit operating as a Consortium (an unincorporated joint-venture inwhich each party has an undivided interest) of Fibria and Suzano.  Conpacel began its operations on September 1,2008.  Fibria and Suzano each own 50% ofthe net assets of Conpacel.  Fibria isentitled to 50% of the Consortium’s production beginning September 1,2008.  Through August 30, 2008, theinvestment in the corporate entity Ripasa was recorded on the equity basis ofaccounting.  From September 1, 2008when the Consortium began operations, as no separate legal entity exists, thereis no consolidation of a separate entity, pursuant to ASC Topic 323, “EquityMethod and Joint Venture”, Fibria accounts for its rights and obligationsaccording to its undivided interest as defined in the consortium agreement, andrecords them according to their nature, principally property, plant andequipment.  Revenue and costs arerecorded as part of Fibria’s operations and the liabilities are recorded assuppliers or financing, according to their nature;

 

·                  **Aracruz**: Through December 31, 2008, weowned 28.0% of the common voting shares, which represented 12.4% of the totalshare capital, of Aracruz, which we acquired in 2001.  We had the right to appoint three of the tendirectors to the Aracruz Board of Directors under the terms of a ShareholderAgreement that expired on May 11, 2008. The investment was treated on an equity accounting basis.  See “Item 5. Operating and Financial Reviewand Prospects — Operating Results — Recent Developments”. For the years 2007and 2008 and for the 21 day period in the January 21, 2009 after 

 

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which its operations were acquired by Fibria and werethereafter consolidated.  Beginning January 21,2009 we account for Aracruz’s 50% interest in Veracel on the equity method.

 

·                  **Ahlstrom VCP**: Management has concluded that theventure is not required to be consolidated as Ahlstrom has been the controllingshareholder with a 60% participation from the venture’s inception in September 2007until Ahlstrom purchased the remaining 40% held by Fibria in August 2008.  Additionally, Ahlstrom is the primarybeneficiary due to (i) its 60% participation (ii) Fibria’s option tosell its 40% interest at a fixed or formula based price insulating it fromabsorbing future possible losses, (iii) Ahlstrom’s option to buy Fibria’s40% interest in the joint venture at a fixed or formulae-based price allows itto receive the majority of the residual returns and (iv) the fair value ofthe puts and calls between Fibria and Ahlstrom would not increase Fibria’sinterest to more than 50% of the fair value of the entity.  Accordingly the investment was treated on anequity accounting basis during the period of ownership from September 2007to August 2008.

 

***Forest development costs***

 

Forestdevelopment costs, primarily project implementation costs (preparation of soil,planting, pest control and clearing, etc.) and similar ongoing developmentcosts are capitalized as incurred.  As aresult of improvements in forest management techniques, including geneticimprovement in trees, we now harvest and replant our forests approximatelyevery seven years and capitalized costs are expensed at the time of eachharvest.

 

***Deferred taxes***

 

Werecognize deferred tax assets and liabilities based on the temporarydifferences between the financial statement carrying amounts and the tax basisof assets and liabilities.  If we or oneof our subsidiaries operate at a loss or are unable to generate sufficientfuture taxable income, or if there is a material change in the actual effectivetax rates or time period within which the underlying temporary differencesbecome taxable or deductible, we evaluate the need to establish a valuationallowance against all or a significant portion of our deferred tax assetsresulting in an increase in our effective tax rate.

 

***Tax contingencies***

 

We arecurrently involved in certain tax proceedings and have filed claims to avoidpayment of taxes that we do not believe are due.  When tax obligations are clearly establishedby current legislation, even though we are contesting the tax and may not havesettled amounts allegedly due, we fully provide for the obligation and relatedcharges.  As discussed in Note 17 toour audited consolidated financial statements at and for the year ended December 31,2009, in the case of tax assessments or other contingent liabilities, we haveaccrued our estimate of the costs for the resolution of these claims when weconsider loss of our claim to be probable. The tax contingencies and obligations which are being disputed relateprimarily to value-added sales and excise taxes, taxes on revenue, socialsecurity contributions, income tax and tax on bank account transactions.  These estimates have been developed inconsultation with outside legal counsel handling our defense in these mattersand were based upon an analysis of potential results.  Additionally, the Company had no effect onthe financial information or disclosures related to the  “Accounting for Uncertainty in Income Taxes”(Note 22 to our audited consolidated financial statements for the year ended December 31,2009).

 

***Employee benefits and other related matters***

 

In2000, we began co-sponsoring a multi-employer defined contribution plan whichprovides pension and post-retirement benefits. We also contribute to the Government pension, welfare and redundancyplans on behalf of our employees and these contributions are expensed asincurred.  Most of our employees aremembers of unions, with which we enter into collective-bargaining arrangementsannually.  The liability for futurecompensation for employee vacations is accrued as earned.

 

Weadopt ASC topic 715, “Compensation-Retirement Benefits”, which require aprovision for the costs of post-retirement benefits expected to be paid tocurrent, former or inactive employees upon retirement.  Expenses relating to benefits we provide toour current employees are expensed as incurred whereas those relating toretired 

 

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employees (current aswell as expected in the future) and their dependents are accounted inaccordance with ASC Topic 715.

 

***Fair value of financial instruments —calland put options***

 

Putand call options exist as a result of the (i) acquisition of Ripasa in2005 and (ii) disposal of the Paper product facilities within the Jacareímill to Ahlstrom in 2007.  The optionsare accounted for as derivative instruments pursuant to ASC Topic 815, “Derivativeand Hedging” which requires, among other things, that these instruments beinitially recognized at their fair values and subsequent fair value changes berecognized in the statement of operations for the period.  Descriptions of the relevant details are asfollows:

 

(i) Ripasa:

 

Writtenput and call options were established in separate agreements (subsequentlyamended) at the time of the acquisition of the Ripasa shares, when it was originallyprovided former controlling shareholders of Ripasa - the Zarzur family - and buyers with an option to require the other party respectively to buyor to sell such shares in determined conditions as per each contract foresight.After the transformation of Ripasa shares into Ripar shares and subsequentlythe split and merger of such Company into VCP and Suzano - when the minorityshareholders and Zarzur family received shares of Suzano and VCP - the formershareholders exercised most part of its rights of call, remaining today only afinal call option of 340.048 shares of Fibria.

 

(ii) TheAhlstrom VCP venture

 

When,in 2007, Fibria contributed a portion of its Jacareí mill assets in exchangefor a 40% interest in Ahlstrom VCP, under the terms of the agreement, Ahlstromhad an option to purchase an additional 20% and, at a later stage, the remaining20% of the shares in the joint venture held by Fibria, whereas Fibria had anoption to sell the same number of shares at the same time.  In September 2008, we sold to Ahlstromour remaining 40% equity interest in the joint-venture company for U.S.$ 42million, canceling the put and call options mentioned above.

 

***Financial instruments and hedge***

 

Forthe financial instruments, we make and assume assumptions as to future foreignexchange and interest rates to recognize the fair value of each instrument.  See Note 16 to our audited consolidatedfinancial statements.  For more detailsrelated to the possible impact of fluctuations in the foreign exchange andinterest rates on our principal financial instruments and positions, see “Item11. Quantitative and Qualitative Disclosures About Market Risk.”

 

***Earnings (loss) per share***

 

Inconformity with ASC Topic 260, “Earnings per share” through the date ofconversion of our preferred shares into common shares, we presented earningsper share for each class of shares, taking into account that the preferredshares are entitled to a dividend 10% greater than that paid to the commonshares.  The computation has been made asif the net income (loss) for each period will be fully distributed.  As earnings may be capitalized or otherwiseappropriated, there is no assurance that either common or preferredshareholders will receive dividends.  Wemay also pay dividends through interest attributed to capital in accordancewith our by-laws.

 

Consistentwith guidance provided by ASC Topic 260, “Earnings per share”, an entity wouldallocate losses to the preferred shares in periods of net loss if, based on thecontractual terms of the participating security, the preferred shares had notonly the right to participate in the earnings of the issuer, but also acontractual obligation to share in the losses. The Company’s preferred shares do not have a contractual obligation toshare in the losses.  Accordingly, theloss per share for the year ended December 31, 2008 was computed only forcommon shares.

 

At thetime of the conversion of our preferred shares to common shares, we applied theguidance in ASC Topic 260-10-S99, “Earnings per Shares — SEC Materials”,whereby the excess of the fair value of the consideration transferred to theholders of the preferred stockholder over the carrying amount of the preferredstock in the balance sheet was subtracted from net income to arrive at netearnings available to common shareholders in the calculation 

 

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of earnings per share.For purposes of displaying earnings per share, the amount was treated in amanner similar to the treatment of dividends paid to the holders of thepreferred shares. The conceptual return or dividends, on preferred shares arededucted from net earnings to arrive at net earnings available to commonshareholders.

 

***Changes to Brazilian GAAP***

 

Law11.638, enacted on December 28, 2007, amended Brazilian Corporate Law withrespect to certain accounting practices, having introduced the most farreaching revision of accounting practices adopted in Brazil (Brazilian GAAP)since the Brazilian Corporate Law was sanctioned in 1976 to facilitate thetransition from Brazilian GAAP to International Financial Reporting Standards (“IFRS”).  Such amendment affected the presentation ofthe financial statements prepared in accordance with accounting practices thenadopted in Brazil (not present herewith) which are the basis for computing theminimum mandatory dividend.  In December 2008,the Brazilian government issued Provisional Measure No. 449, whichinstituted the RTT for the determination of taxable net income of companiessubject to the taxable profit regime as a result of the implementation of thesechanges in accounting policies and Law No. 6,404/76, as amended as fromthe year ending December 31, 2008. In addition to the accounting provisions stipulated by Law 11.638, thelaw mandated that the CVM, and the Brazilian Central Bank, or BACEN, instruct anew Brazilian accounting standards board, the *Comitê dePronunciamentos Contábeis*, or the CPC, to issue standards toharmonize Brazilian GAAP with IFRS.

 

TheBACEN and the CVM have prescribed that financial institutions and publicly-heldcompanies must prepare their consolidated financial statements in accordancewith IFRS for the year ending December 31, 2010, with comparative figuresfor 2009.  Upon adoption of IFRS, ourconsolidated financial statements will differ significantly from theconsolidated financial statements prepared in accordance with US GAAP includedherein. We have made no attempt to identify or quantify the impact of thosedifferences.

 

Newaccounting rules introduced by Law No. 11,638/07 and by the CPCbecame effective for the year-end financial statements prepared relating to anyfiscal year starting as of or after January 1, 2008 and have been appliedto our statutory financial statements, not presented herein.  Further significant changes to Brazilian GAAPwhich affect all publicly-listed and private Brazilian companies wereintroduced from January 1, 2010 when new accounting rules introducedby the CPC, which will also be required to be presented for comparativeperiods, will become effective. Companies may elect to defer adoption untilsuch time as the annual financial statements for the year ending December 31,2010 are presented (whereupon comparative financial statements will berestated).  Once we adopt the newBrazilian GAAP accounting standards for statutory purposes from 2010, ourfinancial statements from 2010 and our financial statements for comparativeperiods may differ significantly from the consolidated financial statementsprepared under US GAAP included herein. We have made no attempt to identify or quantify the impact of thosedifferences.

 

**Brazilianeconomic environment**

 

Ourresults of operations and financial condition, as reported in our financialstatements, have been affected by the rate of Brazilian inflation and the rateof appreciation or depreciation of the Brazilian currency against the U.S.Dollar, when the annual average rate is considered.

 

Thetable below shows the Brazilian general price inflation (according to theIPCA), appreciation of the *Real*against the U.S. Dollar and the period-end exchange rate and average exchangerates for the periods shown:

 
| ** **                                                                                 | ** ** | **Year ended  December 31,** | ** ** |
|--------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                 | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Inflation (IPCA)                                                                           |       | 4.2                               | %          | 5.9 | % | 4.5 | % | 3.1 | % | 5.7 | % |
| Appreciation (depreciation)  of the *Real* vs. U.S. Dollar  (year on year, annual average) |       | 34.2                              | %          | -24.2 | % | 20.7 | % | 9.5 | % | 13.4 | % |
| Year/period-end exchange  rate—U.S.$ 1.00                                        |       | R$                                | 1.74       |   | R$ | 2.34 |   | R$ | 1.77 |   | R$ | 2.14 |   | R$ | 2.34 |   |
| Average  (daily-weighted) exchange rate(1) U.S.$ 1.00                       |       | R$                                | 1.99       |   | R$ | 1.83 |   | R$ | 1.95 |   | R$ | 2.18 |   | R$ | 2.44 |   |

 

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(1)          The average (daily) exchangerate is the sum of the closing exchange rates at the end of each business daydivided by the number of business days in the period.

 

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**A.****                                   ****Operating Results**

 

**RecentDevelopments**

 

*Acquisition of additional equity interest in Aracruz*

 

On January 20,2009, Fibria announced the conclusion of negotiations with the controllingshareholders of Arapar S.A. (“Arapar”) members of the Families, to acquire127,506,457 common shares issued by Aracruz, representing 28.03% of the votingcapital of Aracruz for a purchase price of R$2,710 million (equivalent to U.S.$1,151 million at the exchange rate of January 21, 2009)  payable in six semi-annual installments asfollows: (i) R$ 500 million in cash due on January 21, 2009, whichwas duly paid;(ii) R$ 500 million was due on July 5, 2009, of which R$ 400million was paid in cash, and the remaining R$ 100 million was credited infavor of the Families against Fibria to be used as payment for preferred sharesissued by Fibria in a capital increase; (iii) R$ 500 million was paid incash on January 5, 2010 which was duly paid; (iv) R$ 500 million incash due on July 5, 2010;(v) R$ 410 million in cash due on January 5,2011; and (vi) R$ 300 million in cash due on July 5, 2011.  At that time, Fibria owned 56% of Aracruz’svoting capital, becoming the controlling shareholder of Aracruz.

 

On March 5,2009, Fibria entered into an agreement with Safra family, to acquire anadditional 127,506,457 common shares of Aracruz, representing another 28% ofAracruz’s voting capital, as a result of Arainvest’s exercise of tag-alongrights in connection with the transaction carried out with the Families.  The purchase price was R$ 2,710 million(equivalent to U.S.$ 1,241 million at the exchange rate of April 29, 2009)..  The purchase price for these shares ispayable in six semi-annual installments, and except for one installment thatincludes interest, the others do not have any interest and they are payable asfollows: (1) R$ 600 million was paid during the period of April and May 2009;(2) R$ 500 million was paid in January 2010; (3) R$ 500 millionis due in July 2010; (4) R$ 400 million plus interest computed at105% of the Brazilian interbank borrowing rate (CDI) is due in October 2010;(5) R$ 410 million is due in January 2011; and (6) R$ 300million is due in July 2011.  At December 31,2009 the US.$ equivalents of the remaining unpaid installments was U.S.$ 1,212million.  The acquisition of the Safrafamily equity interest in Aracruz was closed on April 29, 2009.

 

Thenominal value of the total transaction was R$5,420 million (equivalent to U.S.$2,302 million at the exchange rate of January 21, 2009) and its presentvalue was the equivalent of R$ 4,688 million (equivalent to U.S.$ 1,991 millionat the exchange rate of January 21, 2009).

 

*Increase in Fibria’s capital*

 

Concurrentlywith the acquisition of the additional equity interest in Aracruz, anExtraordinary Shareholders Meeting of the Company was held on February 6,2009, which contemplated management’s proposal to increase capital by up toR$4,254 million (equivalent to U.S.$ 1,877 million), with the issuance of223,894,737 new shares, of which 62,105,306 would be common shares and up to161,789,431 preferred shares at a unit price of R$19.00 per share, via aprivate subscription.

 

Theissuance price corresponds to the value of the average market price of Fibria’sshares traded on the stock exchange during the period beginning December 2,2008 through and including January 16, 2009 as increased by a premium of11.78%, which represented in the opinion of the Company’s management, the valueof the new shares to be issued.  At thisExtraordinary Shareholder Meeting, management’s proposal was approved aspresented, with the aforementioned capital increase to be subscribed and paidin the following manner:

 

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(i)    VID subscribed, via the exercise of itspreemptive right, 62,105,306 common shares equivalent to  R$1,180 million (which was equivalent toU.S.$ 510 million at the exchange rates of January 21, 2009 and March 27,2009) of which R$1 billion was paid with Advances for Future Capital Increasespreviously made and the remaining R$180 million in cash;

 

(ii)   BNDESPar, subscribed 43,588,699 preferredshares of Fibria, equivalent to R$864 million (which was equivalent to U.S.$438 million at the exchange rate of May 29, 2009) and paid in equity with56,880,857 common shares of Aracruz then holded by the bank, which werereceived and subscribed at a unit price of R$14.56.  The shares of Fibria were issued at a unitprice of R$19.00;

 

(iii)  BNDESPar subscribed to 95,789,474 preferredshares of Fibria equivalent to R$1,820 million (which was equivalent to U.S.$797 million at the exchange rate of March 30, 2009 and April 29,2009), requiring VID to transfer to BNDESPar, the preemptive right to subscribeto these preferred shares that remain after the subscription;

 

(iv)  The remaining shareholders of Aracruz, holdersof outstanding and in circulation common shares, had the right to subscribeusing their common shares of Aracruz, which received at a unit value ofR$14.56.  The exchange of these sharesfor**preferred shares of Fibriawas at the per unit value of R$19.00 and the difference was subscribed in moneyand none of such shareholders elected to subscribe;

 

(v)   The Families and Safra family subscribedpreferred shares of Fibria totaling a value of R$91 million and R$86 million ,respectively (equivalent to U.S.$ 41 million and U.S. $40 million at theexchange rate of April 29, 2009, respectively).

 

Theabove capital subscriptions made on April 30, 2009 were ratified at anExtraordinary Shareholder Meeting’s of Fibria on May 27, 2009.  See “Item 7A. Major Shareholders”.

 

Aftercompletion of the capital increase, our controlling shareholder VID andBNDESPar on October 29, 2009 executed a shareholders’ agreement whichprovides that (a) 20.7606% of the total capital of Fibria held by BNDESParwill be bound to the agreement for 3 years after its execution, such thatBNDESPar and VID will together hold at least 50.1% of the voting capital ofFibria during this period; (b) the approval of certain matters will dependon the affirmative vote of BNDESPar; and (c) from the first day after the3rd year after its execution the shareholders’ agreement will subject only11.0445% of the shares held by BNDESPar to the terms of the agreement; and (d) fromJune 2014 onwards none of the BNDESPar shares will be bound by the termsof the agreement.  See “Item 10.Additional Information — Material Contracts — Shareholders’ Agreement ofAracruz”.

 

*MandatoryPublic Purchase Offer*

 

Inconnection with the Aracruz Acquisition, on June 1, 2009, we announced thecommencement of a mandatory public purchase offer for any and all outstandingcommon shares of Aracruz not held by us, as required under the BrazilianCorporation Law following a change in control of a publicly-held Braziliancorporation. The auction with respect to this tender offer took place on theBM&FBOVESPA from June 2 to July 1, 2009. During the auction period, weacquired 13,828,307 common shares of Aracruz, representing 3.04% of theoutstanding voting share capital of Aracruz (equivalent to 1.34% of the totalshare capital) of Aracruz, for an aggregate purchase price of R$236.6 million,payable according to the same payment schedule agreed by the Families and Safrafamily in connection with the Aracruz Acquisition. Following this transaction,we owned 42.6% of the total share capital (equivalent to 98.2% of the votingshare capital) of Aracruz.

 

*Conversion of preferred shares into common shares*

 

Pursuant to the Brazilian Corporate Law, corporatetransactions that alter the features of a company’s class of shares, includingthe Aracruz conversion, must be approved by the general shareholders meetingand ratified by holders of a majority of the issued and outstanding class ofthe affected stock, voting as separate classes.

 

On May 30,2009, at an Extraordinary Shareholders Meetings of Fibria, the conversion ofits preferred shares into common shares at the exchange ratio of 0.91 commonshares for one preferred share (VCP Conversion) was approved and, thereafter,subsequently ratified by a majority of the company’s preferred shareholders ata Special Meeting held on the same day. Preferred shareholders who did not wish to have their shares convertedhad a 30 day period that ended on July 2, 2009, to inform the company thatthey, instead of converting their shares, choose to redeem the shares for therespective book value per share.   As aconsequence of the conversion, our capital stock consists only of commonshares.  Our ADSs represent commonshares.

 

Inaddition, also on May 30, 2009, the common shareholders of Aracruzconvened at an Extraordinary Shareholder Meeting and voted to approve a recapitalizationof Aracruz consisting of the conversion of Aracruz’s Class A Preferred andClass B Preferred Shares into common shares of Aracruz at the ratio of0.91 common share for each and every one of Aracruz’s Class A Preferredand Class B Preferred Shares (Aracruz Conversion).  .

 

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*Merger of preferred shares issued by Aracruz into Fibria*

 

Aspart of the corporate reorganization following our acquisition of additionalinterest in Aracruz, our management and Aracruz’s management called anExtraordinary Shareholder Meeting of each company to vote a businesscombination under the Brazilian Corporate Law known as a stock swap merger (*incorporação de ações*).  Pursuant to the stock swap merger, all theissued and outstanding Aracruz shares not held by Fibria were exchanged forFibria common shares on November 12, 2009, at 0.1347 ratio, so thatAracruz shareholders became Fibria shareholders and Aracruz became awholly-owned subsidiary of Fibria.

 

Therefore,Aracruz’s preferred shares, both Classes “A” and “B”, that were traded in theBOVESPA under the symbol “ARCZ5” and “ARCZ6”, respectively, and Class “B”preferred shares that were traded in the NYSE in the form of ADSs under thesymbol “ARA”, were exchanged by common shares of Fibria, under the symbol “FBR”and “FIBR”, respectively, as from November 18, 2009.  Due to the merger with Fibria, the lasttrading day for Aracruz securities was November 17, 2009.

 

On December 17,2009, Aracruz filed its certification of a foreign private issuer’s terminationof registration with the SEC.  Untilthen, Aracruz kept filing periodic information with the SEC, including annualreports.

 

*Merger ofAracruz into Fibria*

 

On December 31,2009, as per Shareholders Meetings of both Aracruz and Fibria of December 22,2009, Aracruz was merged into Fibria and as a result, Aracruz ceased to existand Fibria, as the surviving company, legally succeeded Aracruz as for itsrights and liabilities.

 

**Resultsof operations**

 

Thefollowing table sets forth certain items derived from our statements ofoperations for the years indicated:

 
| ** **                                                            | ** ** | **Year ended  December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                            | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                            | ** ** | **(U.S.$ in  millions)**     | ** ** |
| Net operating revenue                                                 |       | U.S.$                             | 2,800      |   | U.S.$ | 1,366 |   | U.S.$ | 1,333 |   |
| Cost of sales                                                         |       | (2,425                            | )          | (1,026 | ) | (976 | ) |
| Gross profit                                                          |       | 375                               |       | 340 |   | 357 |   |
| Selling and marketing expenses                                        |       | (152                              | )          | (51 | ) | (49 | ) |
| General and administrative expenses                                   |       | (151                              | )          | (72 | ) | (64 | ) |
| Gain on exchange of assets, net                                       |       | —                            |       | — |   | 955 |   |
| Gain on remeasurement of original investment in  Aracruz, net         |       | 514                               |       | — |   | — |   |
| Other operating expenses, net                                         |       | (219                              | )          | (17 | ) | (13 | ) |
| Operating income                                                      |       | U.S.$                             | 367        |   | U.S.$ | 200 |   | U.S.$ | 1,186 |   |
| Financial income                                                      |       | 501                               |       | 149 |   | 236 |   |
| Financial expense                                                     |       | (649                              | )          | (227 | ) | (145 | ) |
| Foreign exchange gain (loss) and unrealized gain  (loss) on swap, net |       | 1,055                             |       | (593 | ) | 214 |   |
| Income (loss) before taxes on income and equity in  affiliates        |       | 1,274                             |       | (471 | ) | 1,491 |   |
| Current income tax                                                    |       | 1                                 |       | (2 | ) | (35 | ) |
| Deferred income tax on asset exchange gain                            |       | —                            |       | — |   | (327 | ) |
| Deferred income tax (expense) benefit                                 |       | (485                              | )          | 200 |   | (21 | ) |
| Equity in earnings (losses) of affiliates                             |       | 17                                |       | (132 | ) | 113 |   |
| Net income (loss) from continuing operation                           |       | 807                               |       | (405 | ) | 1,221 |   |
| Discontinued operation                                                |       | 37                                |       | — |   | — |   |
| Net income attributable to non-controlling interest                   |       | (331                              | )          | — |   | — |   |
| Net income (loss) attributable to shareholders of  the Company        |       | 513                               |       | (405 | ) | 1,221 |   |

 

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Weoperate in two business segments:  pulpand paper, which together account for approximately 99% of our sales. We alsohave a minor portion of our revenues from our port operations in Portocel.

 

Thefollowing table sets forth, by reportable segment, our net operating revenue asdetermined in accordance with U.S. GAAP:

 
| ** **                                    | ** ** | **Year ended  December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|
| ** **                                    | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Pulp:**                                     |       |                              |       |   |   |   |   |
| Volumes (in tons)                             |       |                              |       |   |   |   |   |
| Domestic                                      |       | 462,752                           |       | 289,256 |   | 227,756 |   |
| Export                                        |       | 4,440,416                         |       | 911,511 |   | 869,897 |   |
| Total                                         |       | 4,903,168                         |       | 1,200,767 |   | 1,097,652 |   |
|                                          |       |                              |       |   |   |   |   |
| Average prices (U.S. Dollars per ton)         |       | U.S.$                             | 458        |   | U.S.$ | 644 |   | U.S.$ | 598 |   |
| Domestic                                      |       | U.S.$                             | 370        |   | U.S.$ | 590 |   | U.S.$ | 533 |   |
| Export                                        |       | U.S.$                             | 467        |   | U.S.$ | 661 |   | U.S.$ | 615 |   |
| Net operating revenue (in thousands of U.S.$) |       |                              |       |   |   |   |   |
| Domestic                                      |       | 171,266                           |       | 170,759 |   | 121,411 |   |
| Export                                        |       | 2,074,852                         |       | 602,600 |   | 535,277 |   |
| Total                                         |       | 2,246,118                         |       | 773,359 |   | 656,689 |   |
|                                          |       |                              |       |   |   |   |   |
| **Paper:**                                    |       |                              |       |   |   |   |   |
| Volumes (in tons)                             |       |                              |       |   |   |   |   |
| Domestic                                      |       |                              |       |   |   |   |   |
| Uncoated printing and writing                 |       | 127,713                           |       | 121,194 |   | 158,405 |   |
| Coated printing and writing                   |       | 91,137                            |       | 98,271 |   | 129,025 |   |
| Chemical / Special                            |       | 117,807                           |       | 126,265 |   | 114,407 |   |
| Export                                        |       |                              |       |   |   |   |   |
| Uncoated printing and writing                 |       | 34,153                            |       | 41,799 |   | 81,329 |   |
| Coated printing and writing                   |       | —                            |       | 2,706 |   | 15,891 |   |
| Chemical / Special                            |       | 2,860                             |       | 453 |   | 279 |   |
| Total                                         |       | 373,670                           |       | 390,688 |   | 499,336 |   |
|                                          |       |                              |       |   |   |   |   |
| Average prices (in U.S.$ per ton)        |       | U.S.$                             | 1,411      |   | U.S.$ | 1,518 |   | U.S.$ | 1,354 |   |
| Domestic                                      |       | U.S.$                             | 1,457      |   | U.S.$ | 1,591 |   | U.S.$ | 1,462 |   |
| Export                                        |       | U.S.$                             | 995        |   | U.S.$ | 955 |   | U.S.$ | 908 |   |
| Net operating revenue (in thousands of U.S.$) |       |                              |       |   |   |   |   |
| Domestic                                      |       | 490,696                           |       | 550,163 |   | 587,464 |   |
| Export                                        |       | 36,844                            |       | 42,928 |   | 88,513 |   |
| Total                                         |       | 527,530                           |       | 593,090 |   | 675,976 |   |
|                                          |       |                              |       |   |   |   |   |
| **Combined:**                                 |       |                              |       |   |   |   |   |
| Volumes (in tons)                             |       |                              |       |   |   |   |   |
| Domestic                                      |       | 799,409                           |       | 634,986 |   | 629,592 |   |
| Export                                        |       | 4,477,429                         |       | 956,469 |   | 967,396 |   |
| Total                                         |       | 5,276,838                         |       | 1,591,455 |   | 1,596,988 |   |
| Average prices (in U.S.$ per ton)        |       |                              |       |   |   |   |   |
| Domestic                                      |       | U.S.$                             | 828        |   | U.S.$ | 1,135 |   | U.S.$ | 1,126 |   |
| Export                                        |       | U.S.$                             | 472        |   | U.S.$ | 675 |   | U.S.$ | 645 |   |
| Net operating revenue (in thousands of U.S.$) |       |                              |       |   |   |   |   |
| Domestic                                      |       | 661,952                           |       | 720,922 |   | 708,875 |   |
| Export                                        |       | 2,111,696                         |       | 645,527 |   | 623,790 |   |
| Total                                         |       | 2,773,648                         |       | 1,366,449 |   | 1,332,665 |   |

 

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**Yearended December 31, 2009 compared to year ended December 31, 2008**

 

Introduction

 

Theyear 2009 began with the continuation of the general economic slowdown that hadbegun in September 2008.  Weakworldwide demand, coupled with high pulp inventory by both producers andconsumers resulted in, among other things, many pulp mill closures andtemporary mill as Fibria and other pulp producers adjusted supply todemand.  These factors caused continuousdeclines in pulp prices during the first semester and resulted in list pricesreaching lows of U.S.$ 475 in Europe and U.S.$ 450 in Asia during April andU.S.$505 in North America in June 2009 (declines of 21%, 6% and 26%,respectively, from list prices of December 31, 2008).   Thereafter an overall economic recovery inall markets, especially China began and that continued through year end.  Strong demand resulted in world pulpinventory levels in December reaching 27 days of supply, 19 days lowerthan in the same period of 2008 and at the lowest level of the normalrange.  This permitted Fibria to not onlymaximize the additional volumes and operating efficiencies being obtained fromthe new pulp mill in Três Lagoas and integration of its production units withthose of Aracruz but also implement several price increases throughout thesecond semester. Pulp prices ended the year 2009 at U.S.$ 730 in North America,U.S.$ 700 in Europe and U.S.$ 660 in Asia; increases of 47%, 47% and 45%,respectively from their aforementioned 2009 low points.

 

Competitionin the domestic paper market, caused principally by lower consumption due tothe overall economic conditions in the first semester plus increasing levels ofpaper imports at competitive prices due to the gradual appreciation of the *Real* that occurred throughout the calendar year, resulted ina retraction of 2.4% in overall domestic paper sales (Bracelpa) and decliningmargins. Export sales volumes, especially specialty papers, compensated in partfor the decline in paper sales volumes and revenues.

 

Theannual average exchange rate was R$ 1.9991 to U.S.$ 1.00 in 2009 as compared toR$ 1.8357 to U.S.$ 1.00 in 2008.

 

Becauseof the acquisition and consolidation of Aracuz’s operations with those of VCPeffective January 21, 2009, a comparison of historical revenue and expensecategories on a year-to-year basis is not meaningful.  Accordingly, various costs and expensecategories are discussed and analyzed on a vertical basis (percentages of totalsales).  See “Item 5. Operating andFinancial Review and Prospects — Operating Results — Year ended December 31,2009 (historical) compared to year ended December 31, 2008 (supplementalpro forma).

 

Netoperating revenues

 

Netrevenues increased in 2009 by 105% to U.S.$ 2,800 million from U.S.$ 1,366million in 2008.  This increase wascaused principally by the increased volumes of product sold which offset pricedecreases in both the pulp and paper segments. Volumes sold increased from1,591,455 tons in 2008 to 5,276,838 tons in 2009 due principally to theacquisition of Aracruz effective January 21, 2009 and the start-up,effective March 30, 2009, of the Três Lagoas production unit. Volumesattributable to these two factors were approximately 2,300,000 tons and 700,000tons, respectively, during the year. Average international pulp prices decreased by nearly 29% while averagepaper prices increased 4%. In the domestic market both pulp and paper pricesdecreased 37% and 8% in US Dollar terms respectively. The acquisition ofAracruz’s operations, which are focused primarily on the export market, plusTrês Lagoas production, changed the composition of our domestic/export salesrevenue and volume mix.

 

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Pulp:In this segment, 2009 sales volumes were 4,903,168 tons, an increase of 308%from the 1,200,767 tons of 2008.  Theacquisition of Aracruz, effective January 21, 2009, and the start-up ofproduction from the Três Lagoas mill beginning in March contributed intotal to approximately 3,000,000 tons to the overall 2009 volume increase.Accordingly, net operating revenues of the segment increased by 190%, fromU.S.$773,359 to U.S.$ 2,246,118 principally due to these factors which offset adecline in the average U.S. Dollar price of pulp from U.S.$ 644 to U.S.$ 458.Pulp exports represented 92% and 91% of revenues and sales volumes for the yearended December 31, 2009 as compared to 78% and 76% for the year ended December 31,2008.  Domestic pulp sales represented 8%and 9% of revenue and sales volumes for the year ended December 31, 2009as compared to 22% and 24% for the year ended December 31, 2008.

 

Paper:  Within this segment, total volumes decreasedby 5% from 390,688 tons to 373,670 tons due to the combined effects of loweroverall economic activity in the first semester and increased competitionthroughout the year from imported products. Volumes and revenues of specialtyand coated papers, both high value-added products, increased due to demand andthe availability of additional volumes due to the 2008 completion of the secondcoating line at our Piracicaba facility; these increases partially offset thedecline in the domestic uncoated paper market due to the factors mentionedabove.

 

Costof Sales

 

Costof sales increased by 136% to U.S.$ 2,425 million for the year ended December 2009from U.S.$ 1,026 million during the corresponding period of 2008. The increasewas a result of (1) volumes associated with the Aracruz Acquisition,effective January 21, 2009, representing an increase of U.S.$ 1,220million, 53% of the total cost for the year and (2) additional volumesfrom Três Lagoas unit which represented an increase in cost of U.S.$279million.  Both effects were partiallyoffset by the depreciation of the *Real*on our *Real-*dominated costs (average rate)

 

Sellingand Marketing Expenses

 

Sellingexpenses increased by 198% to U.S.$152 million for the year ended December 31,2009 from U.S.$51 million during the corresponding period of 2008, primarily asa result of (1) the effects of the full consolidation of the results ofAracruz in the year ended December 31, 2009, representing an increase ofU.S.$ 71 million, and (2) the increase in pulp volume sales due to theadditional production from the start-up of Três Lagoas mill, launched in March,2009.

 

Generaland Administrative Expenses

 

Generaland administrative expenses increased by 110% to U.S.$ 151 million during theyear ended December 31, 2009 from U.S.$72 million during the correspondingperiod of 2008, primarily as a result of the effects of the full consolidationof the results of Aracruz in the year ended December 31, 2009. Increasedadministrative expenses arising from the Aracruz Acquisition primarily fromhigher third-party service expenses (primarily legal fees) contributed to thehigher general and administrative expenses. As a percentage of net operatingrevenue, general and administrative expenses were stable when compared to thesame period in 2008 (5%).

 

Gainon Remeasurement of Original Investment in Aracruz

 

Thisnon-recurring gain arises from the Aracruz Acquisition; under ASC Topic 805once control is obtained the Company is required to re-measure previously heldequity interests to fair value, and record the gain or loss directly tostatement of operations. Fibria obtained control on January 21, 2009 andrecognized a pre-tax gain in operating income in the amount of U.S.$ 514million as a result of remeasuring to fair value its original 12.35% economicinterest in Aracruz.

 

OtherOperating Income (Expenses), Net

 

Otheroperating expenses, net, were U.S.$ 219 million in the year ended December 31,2009 compared to other operating expenses of U.S.$17 million in thecorresponding period in 2008, mostly as a result of loss generated by the saleof Guaíba in the total amount of U.S.$ 90 million.

 

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OperatingIncome

 

As aresult of the foregoing, operating income increased by 84% to U.S.$ 367 millionduring the year ended December 31, 2009 from U.S.$200 million during thecorresponding period of 2008. As a percentage of net operating revenue, theoperating income margin was 13% during the year ended December 31, 2009compared to 15% in 2008.

 

FinancialIncome

 

Financialincome increased to U.S.$ 501 million for the year ended December 31, 2009as compared to U.S.$ 149 million for the year ended December 31, 2008mainly due to an increase in the funds available for investments in the totalamount of U.S.$ 382 million and the reversal of interest, charges and fine oncontingencies provisions in the total amount of U.S.$ 92 million.  The increase in funds available wasprincipally from (1) the cash flow from the Aracruz and Três Lagoasoperations not present in 2008; (2) the proceeds of capital increase and (3) theproceeds from additional borrowings that were incurred during the year.

 

Financial Expenses

 

Financial expensesincreased to U.S.$ 649 million for the year ended December 31, 2009 ascompared to U.S.$ 227 million for the year ended December 31, 2008primarily due to the increase in indebtedness as a result of the assumption ofAracruz’s liabilities due to its acquisition and consolidation.  Interest and charges on debt was U.S.$ 517million compared to U.S.$ 86 million in 2008.

 

Foreignexchange gain (loss) and unrealized gain (loss) on swaps and tradingsecurities, net

 

Foreignexchange gains amounted to U.S.$ 1,055 million for the year ended December 31,2009 compared to U.S.$ 593 million of losses for the year ended December 31,2008.  This result was primarily due tothe impact of the 34% appreciation of the *Real* againstthe U.S. Dollar on our total foreign currency debt in 2009, compared to 24%depreciation of the R*eal* against U.SDollar in 2008.  Our total debtdenominated in U.S. Dollar was U.S.$ 4,776 million as of December 31, 2009(represented 57% of the total debt), compared to U.S.$ 1,394 million in 2008,representing 88% of the total.

 

Incometax benefit (expenses)

 

Forthe year ended December 31, 2009, Fibria recorded an income tax expense ofU.S.$ 484 million compared to a benefit of U.S.$ 198 million for the year endedDecember 31, 2008.  The tax expenseis related principally to deferred tax liabilities arising from the gain onremeasurement of our original investment in Aracruz and differences in recordedbasis of fixed assets acquired in the acquisition.  The effective tax rate was 38% for the yearended December 31, 2009, and 42% for the year ended December 31,2008.

 

Equityin earnings (losses) of affiliates

 

Fibriarecorded earnings in affiliates in the total amount of U.S.$ 17 million for theyear ended December 31, 2009 from losses of U.S.$ 132 million for the yearended December 31, 2008.  Thischange is due to the inclusion of our 12.35% interest in Aracruz’s losses inour 2008 results and its exclusion in 2009 due to Aracruz being consolidated inour 2009 results.  The earnings inaffiliates in the year ended December 31, 2009 is mainly related to ourinterest in Veracel.

 

Net income (loss)

 

As aresult of the foregoing, Fibria recorded net income of U.S.$ 513 million for the year ended December 31, 2009compared to a loss of U.S.$ 405 million for the year ended December 31, 2008.

 

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**Yearended December 31, 2008 compared to year ended December 31, 2007**

 

Introduction

 

Duringthe first half of 2008, the pulp market conditions were favorable with robustdemand, particularly in China and Europe, and reduced supply on low worldinventories, few capacity additions, environmental issues, shortage of wood andclosures of high cost capacity.  As aresult, pulp prices increased through July. On the paper side, market conditions were marked by higher competitionin local market, mainly from imports, due to the appreciation of the *Real* against the U.S. Dollar through earlyAugust, resulting in lower domestic prices. Additionally, the stronger exchange rate reduced export margins andforced local paper producers to shift volumes to the domestic market,increasing supply and competition in this market.  After August, demand slowdown resulted inseveral individual decreases in pulp list prices of U.S.$20/ton in Europe andNorth America, and U.S.$30/ton in Asia, offsetting the increases of the firsthalf of this year.  Final list prices at December 31,2008 were U.S.$680/ton in North America, U.S.$600/ton in Europe andU.S.$480/ton in Asia.  Even with thisreduction, the average list price was higher than the previous year.

 

Due tothe depreciation of the *Real*beginningin September 2008 paper notebook exports sales dropped and, as a result,competition for notebook sales increased in the local market.  The second half of the year, has historicallywitnessed an increase in paper demand when compared to the first half of theyear.  This result is attributed to alarger number of advertising campaigns (more commemorative dates and end ofyear celebrations) and the notebook segment beginning production and increasinginventories for the upcoming school year. In addition, a Brazilian Federal Government program that distributesbooks to students who need assistance began. These factors, which contributed to the growing domestic consumption forpaper products, did not result in increased volumes of paper sales, since theappreciation of the *Real*through August 2008caused intense competition from imported products.  The depreciation of the *Real* beginning in September 2008 hasresulted in reduced competition from imported products.

 

Theannual average *Real* exchange rate was R$ 1.8346 to U.S.$ 1.00 in December 31,2008, compared to R$ 1.9501 to U.S.$ 1.00 in the same period in 2007, anappreciation of 6%.  See “Item 5. Operatingand Financial Review and Prospects — Overview — Brazilian economic environment.”

 

Netoperating revenue

 

Netoperating revenue increased by 2% to U.S.$ 1,366 million in December 31,2008 from U.S.$ 1,333 million in December 31, 2007, with an increase inaverage price of 3% and stable sales volumes. The steadiness of volume was attributable to lower paper sales derivedfrom the paper asset divestments during the year, offset by the higherefficiency in pulp production at both Jacareí and Ripasa units.  On the price side, international pulp andpaper prices increased while local prices increased in U.S. Dollars due to theappreciation of the *Real* againstthe U.S. Dollar through early August. Sales volume totaled 1,591,455 tons for the period ended December 31,2008 from 1,596,988 tons for the period ended December 31, 2007.  Approximately 53% of Fibria’s net operatingrevenue was made in the domestic market for the years ended December 31,2008 and 2007.  Fibria’s revenue mix forthe year ended December 31, 2008 was 43% for paper and 57% for pulpconsistent with the 51% and 49%, respectively, for the year ended December 31,2007.

 

Pulp.  In the pulp segment, sales volume increasedby 9% to 1,200,767 tons for the year ended December 31, 2008 from 1,097,652tons for the year ended December 31, 2007. The increase in volume was due to greater market pulp production at theJacareí mill, to new volumes from Conpacel and due to the Ahlstrom and Mogipaper asset divestments, whose integrated pulp became market pulp.  Net operating revenue attributable to pulpincreased by 18% to U.S.$ 773.4 million for the year ended December 31,2008 from U.S.$ 656.7 million for the year ended December 31, 2007.  This increase was due to the additional salesvolume and to the 8% higher average prices of pulp.  Pulp exports constituted 78 % and 76% ofrevenues and sales volume, respectively, of pulp for the year ended December 31,2008 compared to 82% and 79% for the year ended December 31, 2007.  In the domestic market, the volume of pulpsold increased 27% to 289,256 tons.  Thisincrease was mainly due to the additional volumes of Ripasa and to theintegrated pulp that became market pulp after the paper assets wererestructured.

 

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Paper.  In the paper segment, total volumes decreasedby 22% for the year ended December 31, 2008, driven mainly by the LuizAntonio asset exchange and by the volumes allocated to the Ahlstrom jointventure at the Jacareí mill.  Exportvolumes decreased by 54% to 44,958 tons for the year ended December 31,2008 compared to the year ended December 31, 2007 while domestic volumesdeclined 14% to 345,730 tons in the same period.  Net operating revenue attributable to paperdecreased by 12% to U.S.$ 593.1 million for the year ended December 31,2008, from U.S.$ 676.0 million for the year ended December 31, 2007,boosted by a 12% increase in the average price of paper.  The domestic market accounted for 93% ofpaper revenues for the year ended December 31, 2008 compared to 87% forthe year ended December 31, 2007.

 

Costof sales

 

Costof sales increased by 5% to U.S.$ 1,026 million for the year ended December 31,2008 from U.S.$ 976 million for the year ended December 31, 2007.  This increase was mostly due to the negativeimpact of a stronger *Real* throughearly August on Fibria’s costs denominated in *reais*, an increase in labor costs, higher costs related tothe purchase and resale of the products from Conpacel and greater mix of highvalue added products whose pulp is purchased at the market prices.  These variations were partially offset byproductivity gains and cost savings.  Forthe same reasons, Fibria’s gross margin decreased to 24.9% for the year ended December 31,2008 compared to 26.8% for the year ended December 31, 2007, partiallyoffset by higher average prices.

 

To beconsistent with the accounting classification previously adopted by Aracruz,during 2009 the Company changed the manner by which it classifies freightexpenses in the statement of operations (previously recorded in Selling andmarketing expenses and now classified as part of Cost of Sales). In common withmany Brazilian companies operating in the pulp export sector, the Companyconsiders freight to be part of the cost of delivering inventories to the pointof sale at which the customer takes title. As virtually all Aracruz’s sales areof pulp for the export market, this classification better reflects the natureof the costs. For the years ended December 31, 2008 and 2007, US$ 92million and US$ 89 million were reclassified from Selling and marketingexpenses to Cost of sales, respectively.

 

Sellingand marketing expenses

 

Salesexpenses increased by 4% to U.S.$ 51 million for the year ended December 31,2008.  This increase resulted mainly fromthe higher sales in the domestic market which are denominated in localcurrency.  As a percentage of netoperating revenue, selling and marketing expenses also remained stable ataround 4% when compared to the year ended December 31, 2007.

 

Generaland administrative expenses

 

Generaland administrative expenses increased by 13% to U.S.$ 72 million for the yearended December 31, 2008.  Theincrease was mainly attributable to expenses with corporate reorganization ofU.S.$ 4 million.  As a percentage of netoperating revenue, general and administrative expenses also remained stable ataround 15% when compared to the year ended December 31, 2007.

 

Thecorporate reorganization that occurred during the fourth quarter with theobjective to adjust Fibria to the global economy slowdown scenario resulted inadditional, non-recurring administrative expense of about U.S.$ 4 million.

 

Otheroperating expenses (income), net

 

Othernet operating expenses totaled U.S.$ 17 million for the year ended December 31,2008 compared to net operating income of U.S.$ 942 million for the year ended December 31,2007.  This variation is due solely tothe inclusion of the pre-tax gain of U.S.$ 955 million on the 2007 related tothe asset exchange of the Luiz Antonio mill. See Note 4(b) to our auditedconsolidated financial statements.

 

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Operatingincome

 

Operatingincome decreased to U.S.$ 200 million for the year ended December 31, 2008from U.S.$ 1,186 million for the year ended December 31, 2007.  This decrease was primarily due to the inclusionof the non-recurring gain on the 2007 related to the asset exchange of LuizAntonio mill.  See Note 4(b) to ouraudited consolidated financial statements.

 

Pulp(including intersegment transactions at market values).  Operating income attributable to pulpincreased by 1% to U.S.$ 143 million for the year ended December 31, 2008from U.S.$ 142 million for the year ended December 31, 2007.  This increase was primarily due to theadverse effect of the currency depreciation through early August onproduction costs, which are mostly denominated in local currency.  The increase was also helped by highervolumes which increased 9% compared to the year ended December 31, 2007and higher sales prices which increased 8% over the year ended December 31,2008.

 

Paper(including intersegment transactions at market values).  Operating income attributable to paperdecreased by 36% to U.S.$ 57 million for the year ended December 31, 2008from U.S.$ 89 million for the year ended December 31, 2007.  This decrease was primarily due to 22% lowersales volume, partially offset by 12% higher sales price, mainly in thedomestic market which was driven by high value-added papers mix.

 

Financialincome

 

Financialincome decreased by 37% to U.S.$ 149 million for the year ended December 31,2008 from U.S.$ 236 million for the year ended December 31, 2007.  The decrease was primarily due to thereduction of the financial income accrued from the funds in the Trustee ( See “Item 4A.Information on Fibria — History and Development of Fibria.”) to be applied tothe Projeto Horizonte in 2007, also due to lower amount of cash investments inlocal currency.

 

Financialexpenses

 

Financialexpenses increased to U.S.$ 227 million for the year ended December 31,2008 from U.S.$ 145 million for the year ended December 31, 2007.  The increase was primarily due to *Real*depreciation against the U.S. Dollar from early August to December 31,2008, based on our debts amounts denominated in Dollars.

 

Foreignexchange gain (loss) and unrealized gain (loss) on swaps and tradingsecurities, net

 

Foreignexchange losses amounted to U.S.$ 593 million for the year ended December 31,2008 from U.S.$ 214 million gains for the year ended December 31,2007.  This result was primarily due tothe impact of the depreciation of the *Real*against the U.S. Dollar from early August to December 31, 2008 on oursale of non-deliverable forwards, swaps and target forwards derivativeinstruments.  The losses recorded onforeign-currency based transactions are translated to U.S. Dollars and reportedin Fibria’s statement of operations.

 

Incometax benefit (expenses)

 

Forthe year ended December 31, 2008, Fibria recorded an income tax benefit ofU.S.$ 198 million compared to an expense of U.S.$ 383 million for the yearended December 31, 2007.  Thebenefit was mainly due to the recognition of deferred income tax benefits ontax loss carryforwards and on temporary differences related to foreign exchangegains and losses, which are taxed on a cash basis.  The effective tax rate was (42%) for the yearended December 31, 2008, generated mainly by the equity in earnings(losses) of affiliates and by the differences in foreign income tax rates,which are considered permanent differences, compared to 26% for the year ended December 31,2007.

 

Equityin earnings (losses) of affiliates

 

Fibriarecorded losses of affiliates in the total amount of U.S.$ 132 million for theyear ended December 31, 2008 against earnings of U.S.$ 113 million for theyear ended December 31, 2007.  Thisdecrease was mostly due to our  interestin Aracruz’s losses in the amount of U.S.$153 million (total loss was U.S.$1,239 million), mainly due to derivatives losses.

 

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Netincome (loss)

 

As aresult of the foregoing, Fibria recorded a loss of U.S.$ 405 million for theyear ended December 31, 2008 compared to net income of U.S.$ 1,221 millionfor the year ended December 31, 2007.

 

**UnauditedFibria Pro Forma Condensed Consolidated Financial Data under U.S. GAAP**

 

Thefollowing unaudited pro forma condensed consolidated financial data for thestatement of operations of the year ended December 31, 2008 was preparedto reflect the (1) Aracruz Acquisition and (2) the disposition of theGuaíba unit, as further described in “Item 4. Information on Fibria — Historyand Development of Fibria — The Aracruz Acquisition”, and in “Item 4.Information on Fibria — History and Development of Fibria — Sale of Guaíba unit”,respectively, in order to provide a more meaningful comparison of our operatingresults for the years ended December 31, 2009 and 2008.

 

Theunaudited pro forma condensed consolidated financial information for the yearended December 31, 2008 was prepared using the U.S. GAAP historicalconsolidated financial information of VCP and of Aracruz and was based on theestimates and assumptions set forth in the notes described below under thissection.  The unaudited pro formacondensed consolidated financial information is being furnished solely forinformational purposes. Although we believe that the unaudited pro formacondensed consolidated financial information is presented based on reasonableassumptions of our management, you should not interpret them as our actualresults of operations, as an indication of our future consolidated results, asa basis for the calculation of dividends or for any other purposes. Theunaudited pro forma financial information is provided for illustrative purposesonly and does not purport to represent what the actual consolidated results ofoperations or the consolidated financial position of Fibria would have been ifthe Aracruz Acquisition or the Sale of the Guaíba unit had occurred on January 1,2008, and it is not necessarily indicative of our future consolidated resultsof operations or consolidated financial position. The unaudited pro formafinancial information, for example, does not reflect (1) any integrationcosts that may be incurred as a result of the Aracruz Acquisition, (2) anysynergies, operating efficiencies and cost savings that may result from theAracruz Acquisition or the Sale of the Guaíba unit, (3) any benefits thatmay be derived from the combined company’s growth projects, or (4) changesin prices and foreign exchange rates subsequent to the dates of the unauditedpro forma condensed consolidated financial information.

 

UnauditedPro Forma Condensed Consolidated Statement of Operations For the Year Ended December 31,2008:

 
| ** **                                                                    | ** ** | **VCP  Consolidated  (as reported)**                                        | ** ** | **Consolidation  of********Aracruz********(Note  1(a))** | ** ** | **Consolidation  Adjustment  (Note 1(b))** | ** ** | **Depreciation and  Amortization of  Tangible and  Intangible Assets,  net of tax********(Note  1(c))** | ** ** | **Sale of  Guaiba unit  and Aracruz  Riograndense  Ltda.********(Note  1(d))** | ** ** | **VCP********Pro********Forma** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                                                    | ** ** | **(U.S.$ in millions unless otherwise indicated)** | ** ** |
| **Operating revenues**                                                        |       |                                                                        |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       |                            |       |
| Export Sales                                                                  |       | 645                                                                         |       | 1,785                                                    |       | —                                     |       | —                                                                                                  |       | (192                                                                           | )          | 2,238                           |       |
| Domestic sales                                                                |       | 721                                                                         |       | 126                                                      |       | —                                     |       | —                                                                                                  |       | (97                                                                            | )          | 750                             |       |
| **Net operating revenue**                                                     |       | 1,366                                                                       |       | 1,911                                                    |       | —                                     |       | —                                                                                                  |       | (289                                                                           | )          | 2,988                           |       |
| Operating cost and expenses                                                   |       |                                                                        |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       |                            |       |
| Cost of Sales                                                                 |       | (1,026                                                                      | )          | (1,338                                                   | )          | —                                     |       | (105                                                                                                    | )          | 182                                                                            |       | (2,287                          | )          |
| Selling and marketing                                                         |       | (51                                                                         | )          | (88                                                      | )          | —                                     |       | —                                                                                                  |       | 9                                                                              |       | (130                            | )          |
| General and administrative                                                    |       | (72                                                                         | )          | (65                                                      | )          | —                                     |       | —                                                                                                  |       | 4                                                                              |       | (133                            | )          |
| Other operating expenses, net                                                 |       | (17                                                                         | )          | (78                                                      | )          | —                                     |       | (36                                                                                                     | )          | (32                                                                            | )          | (163                            | )          |
|                                                                          |       | (1,166                                                                      | )          | (1,569                                                   | )          | —                                     |       | (141                                                                                                    | )          | 163                                                                            |       | (2,713                          | )          |
| **Operating income**                                                          |       | 200                                                                         |       | 342                                                      |       | —                                     |       | (141                                                                                                    | )          | (126                                                                           | )          | 275                             |       |
| **Non-operating income and expenses**                                         |       |                                                                        |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       |                            |       |
| Financial income                                                              |       | 149                                                                         |       | 65                                                       |       | —                                     |       | 1                                                                                                       |       | (1                                                                             | )          | 214                             |       |
| Financial expenses                                                            |       | (227                                                                        | )          | (113                                                     | )          | —                                     |       | (2                                                                                                      | )          | —                                                                         |       | (342                            | )          |
| Foreign exchange loss, net                                                    |       | (593                                                                        | )          | 73                                                       |       | —                                     |       | —                                                                                                  |       | 4                                                                              |       | (516                            | )          |
| Losses on derivative transactions                                             |       | —                                                                      |       | (2,160                                                   | )          | —                                     |       | —                                                                                                  |       | —                                                                         |       | (2,160                          | )          |
|                                                                          |       |                                                                        |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       |                            |       |
|                                                                          |       | (671                                                                        | )          | (2,135                                                   | )          | —                                     |       | (1                                                                                                      | )          | 3                                                                              |       | (2,804                          | )          |
| **Loss before taxes on income and equity in affiliates**                      |       | (471                                                                        | )          | (1,793                                                   | )          | —                                     |       | (142                                                                                                    | )          | (123                                                                           | )          | (2,529                          | )          |
| **Income tax and social contribution**                                        |       |                                                                        |       |                                                     |       | —                                     |       | —                                                                                                  |       |                                                                           |       |                            |       |
| Current                                                                       |       | (2                                                                          | )          | (34                                                      | )          | —                                     |       | —                                                                                                  |       | 28                                                                             |       | (8                              | )          |
| Deferred                                                                      |       | 200                                                                         |       | 524                                                      |       | —                                     |       | 48                                                                                                      |       | 10                                                                             |       | 782                             |       |
| **Loss before equity in affiliates**                                          |       | (273                                                                        | )          | (1,303                                                   | )          | —                                     |       | (94                                                                                                     | )          | (85                                                                            | )          | (1,755                          | )          |
| **Equity in earnings of affiliates**                                          |       | (132                                                                        | )          | 64                                                       |       | 153                                        |       | (10                                                                                                     | )          | —                                                                         |       | 75                              |       |
| **Loss from continuing operations**                                           |       | (405                                                                        | )          | (1,239                                                   | )          | 153                                        |       | (104                                                                                                    | )          | (85                                                                            | )          | (1,680                          | )          |
| **Loss from continuing operations-Preferred shares**                          |       | —                                                                      |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       | —                          |       |
| **Loss from continuing operations-Common shares**                             |       | (405                                                                        | )          |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       | (1,680                          | )          |
| ** **                                                                    |       | (405                                                                        | )          |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       | (1,680                          | )          |
| ** **                                                                    |       |                                                                        |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       |                            |       |
| **Basic and diluted loss from continuing operations of VCP-in U.S.  Dollars** |       |                                                                        |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       |                            |       |
| **Per preferred share or ADS**                                                |       | —                                                                      |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       | N/A                             |       |
| **Per common share**                                                          |       | (3.83                                                                       | )          |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       | (3.59                           | )          |
| **Weighted average number of shares outstanding-thousands**                   |       |                                                                        |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       |                            |       |
| **Preferred share or ADS**                                                    |       | 96,888                                                                      |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       | N/A                             |       |
| **Common share**                                                              |       | 105,702                                                                     |       |                                                     |       |                                       |       |                                                                                                    |       |                                                                           |       | 467,935                         |       |

 

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**Unaudited Pro Forma Condensed Consolidated Statement of OperationsAdjustments**

 

***(a) Consolidationof Aracruz***

 

This pro forma adjustment represents the fullconsolidation of Aracruz in the Company’s statement of operations for the yearended December 31, 2008 as if the acquisition transaction resulting in the100% ownership of Aracruz had occurred as of January 1, 2008.

 

***(b) ConsolidationAdjustment***

 

This pro forma adjustment represents thereversal of equity in loss since Aracruz is now fully consolidated by theCompany.

 

***(c) Depreciationand Amortization of Tangibles and Intangibles Assets, Net of Tax***

 

The pro forma depreciation and amortization expenseadjustments are as follows:

 

·                  Increase in basis of property, plant and equipmentacquired of U.S.$ 1,165 million amortized based on useful lives on a straightline basis.  Pro forma depreciationexpense, included in cost of sales, for the year ended December 31, 2008was U.S.$ 86 million.

 

·                  Increase in basis of intangible assetsacquired of U.S.$ 333 million amortized based on useful lives on a straightline basis.  Pro forma amortizationexpense, included in cost of sales, for the year ended December 31, 2008was U.S.$ 36 million.

 

·                  Net assets acquired included a favorablecontract which committed suppliers to deliver product with a fair value abovethe book value of the advances to the same suppliers and which resulted in apro forma adjustment of U.S.$ 144 million, which was included ininventories.  Pro forma cost of sales forthe year ended December 21, 2008 includes an additional charge of U.S.$ 19million for inventories sold representing the allocation for the year based onthe appraisal report.

 

Proforma adjustments on the purchase accounting have been made to record thedeferred tax timing differences calculated at Company’s composite statutoryrate of 34% on the fair value amortization of net assets acquired andliabilities assumed.  Pro forma incometax and social contribution, included in income tax benefit, for the year endedDecember 31, 2008 was U.S.$ 48 million.

 

Thefollowing are the useful lives of the assets depreciated, amortized anddepleted on straight line basis following to the Aracruz Acquisition:

 

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| ** **                      | ** ** | **Useful lives  in years)** | ** ** |
|---------------------------------|------------|-----------------------------|------------|
|                            |       |                        |       |
| Building and improvements       |       | 30                          |       |
| Industrial and forest equipment |       | 18                          |       |
| Forest                          |       | 7                           |       |
| Intangibles                     |       | 10                          |       |

 

***(d)   Sale of the Guaíba Unit andAracruz Riograndense***

 

Theseadjustments are made to reflect the carve-out amounts attributable to the netassets of the Guaíba unit and Aracruz Riograndense, which were effectively soldat December 2009.

 

An adjustment was made to remove the originalgoodwill on the purchase price allocation recorded in the Company books on theinvestment in the Guaíba unit and Aracruz Riograndense, of U.S.$29 million forthe year ended December 31, 2008. The removal of original goodwillresulted in an adjustment to deferred income tax relating to these adjustmentsbased upon the statutory composite rate of 34% of U.S.$10 million for the yearended December 31, 2008.

 

The provision for dismantling of the plant inAracruz Riograndense of U.S.$12 million is no longer required under the presentscenario for the Sale of Guaíba unit and Aracruz Riograndense as the purchaserhas acquired the unit without the need for dismantling by Aracruz. The originalprovision was made in the year ended December 31, 2008 and for pro formapresentation purposes is now being reversed.

 

Upon the Sale of the Guaíba unit and AracruzRiograndense, Aracruz will lose the right to offset PIS and COFINS direct taxon revenue credits arising from acquisitions of property, plant and equipmentrelated to this unit.  Accordingly, suchamounts are written off against cost of sales as pro forma adjustments ofU.S.$7 million for the year ended December 31, 2008 based on theassumption the sale was consummated on January 1, 2008. There is no incometax effect on this adjustment.

 

Thefollowing supplementary information demonstrates the historical statement ofoperations for the year ended December 31, 2009 and the unaudited proforma condensed statement of operations for the year ended December 31,2008 in order to provide a more meaningful comparison of our operating resultsfor the years then ended.

 
| ** **                                                            | ** ** | **Year ended  December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                            | ** ** | **Historical********2009**        | ** ** | **Pro Forma********2008** | ** ** |
| ** **                                                            | ** ** | **(U.S.$ in  millions)**     | ** ** |
| Net operating revenue                                                 |       | 2,800                             |       | 2,988 |   |
| Cost of sales                                                         |       | (2,425                            | )          | (2,287 | ) |
| Gross profit                                                          |       | 375                               |       | 701 |   |
| Selling and marketing expenses                                        |       | (152                              | )          | (130 | ) |
| General and administrative expenses                                   |       | (151                              | )          | (133 | ) |
| Gain on remeasurement of original investment in  Aracruz, net         |       | 514                               |       | — |   |
| Other operating expense, net                                          |       | (219                              | )          | (163 | ) |
| Operating income                                                      |       | 367                               |       | 275 |   |
| Financial income                                                      |       | 501                               |       | 214 |   |
| Financial expense                                                     |       | (649                              | )          | (342 | ) |
| Foreign exchange gain (loss) and unrealized gain  (loss) on swap, net |       | 1,055                             |       | (516 | ) |
| Losses on derivative transactions                                     |       | —                            |       | (2,160 | ) |
| Income (loss) before taxes on income and equity in  affiliates        |       | 1,274                             |       | (2,529 | ) |
| Current income tax                                                    |       | 1                                 |       | (8 | ) |
| Deferred income tax on asset exchange gain                            |       | —                            |       | — |   |
| Deferred income (expense) tax benefit                                 |       | (485                              | )          | 782 |   |
| Equity in earnings of affiliates, net                                 |       | 17                                |       | 75 |   |
| Net income (loss) from continuing operation                           |       | 807                               |       | (1,680 | ) |

 

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Weoperate in two business segments:  pulpand paper, which together account for 99% of our sales. We also have a minorportion of our revenues from our port operations in Portocel. The followingtable sets forth, by reportable segment, our net operating revenue asdetermined in accordance with U.S. GAAP:

 
| ** **                                    | ** ** | **Year ended  December 31,** | ** ** |
|-----------------------------------------------|------------|-----------------------------------|------------|
| ** **                                    | ** ** | **Historical********2009**        | ** ** | **Pro Forma********2008** | ** ** |
| **Pulp:**                                     |       |                              |       |   |   |
| Volumes (in tons)                             |       |                              |       |   |   |
| Domestic                                      |       | 462,752                           |       | 299,576 |   |
| Export                                        |       | 4,440,416                         |       | 3,450,384 |   |
| Total                                         |       | 4,903,168                         |       | 3,749,960 |   |
|                                          |       |                              |       |   |   |
| Average prices (U.S. Dollars per ton)         |       | U.S.$                             | 458        |   | U.S.$ | 632 |   |
| Domestic                                      |       | U.S.$                             | 370        |   | U.S.$ | 590 |   |
| Export                                        |       | U.S.$                             | 467        |   | U.S.$ | 636 |   |
| Net operating revenue (in thousands of U.S.$) |       |                              |       |   |   |
| Domestic                                      |       | 171,266                           |       | 176,876 |   |
| Export                                        |       | 2,074,852                         |       | 2,194,690 |   |
| Total                                         |       | 2,246,118                         |       | 2,371,566 |   |
|                                          |       |                              |       |   |   |
| **Paper:**                                    |       |                              |       |   |   |
| Volumes (in tons)                             |       |                              |       |   |   |
| Domestic                                      |       |                              |       |   |   |
| Uncoated printing and writing                 |       | 127,713                           |       | 120,214 |   |
| Coated printing and writing                   |       | 91,137                            |       | 98,271 |   |
| Chemical / Special                            |       | 117,807                           |       | 126,265 |   |
| Export                                        |       |                              |       |   |   |
| Uncoated printing and writing                 |       | 34,153                            |       | 42,779 |   |
| Coated printing and writing                   |       | —                            |       | 2,706 |   |
| Chemical / Special                            |       | 2,860                             |       | 453 |   |
| Total                                         |       | 373,670                           |       | 390,688 |   |
|                                          |       |                              |       |   |   |
| Average prices (in U.S.$ per ton)        |       | U.S.$                             | 1,411      |   | U.S.$ | 1,517 |   |
| Domestic                                      |       | U.S.$                             | 1,457      |   | U.S.$ | 1,592 |   |
| Export                                        |       | U.S.$                             | 995        |   | U.S.$ | 957 |   |
| Net operating revenue (in thousands of U.S.$) |       |                              |       |   |   |
| Domestic                                      |       | 490,696                           |       | 548,741 |   |
| Export                                        |       | 36,844                            |       | 43,961 |   |
| Total                                         |       | 527,530                           |       | 592,702 |   |
|                                          |       |                              |       |   |   |
| **Combined:**                                 |       |                              |       |   |   |
| Volumes (in tons)                             |       |                              |       |   |   |
| Domestic                                      |       | 799,409                           |       | 644,326 |   |
| Export                                        |       | 4,477,429                         |       | 3,496,322 |   |
| Total                                         |       | 5,276,838                         |       | 4,140,648 |   |
| Average prices (in U.S.$ per ton)        |       |                              |       |   |   |
| Domestic                                      |       | U.S.$                             | 828        |   | U.S.$ | 1,126 |   |
| Export                                        |       | U.S.$                             | 472        |   | U.S.$ | 640 |   |
| Net operating revenue (in thousands of U.S.$) |       |                              |       |   |   |
| Domestic                                      |       | 661,952                           |       | 725,618 |   |
| Export                                        |       | 2,111,696                         |       | 2,238,651 |   |
| Total                                         |       | 2,773,648                         |       | 2,964,269 |   |

 

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**Yearended December 31, 2009 (historical) compared to year ended December 31,2008 (supplemental pro forma)**

 

Introduction

 

See “Item 5.Operating Results — Results of Operations — Year ended December 31, 2009compared to year ended December 31, 2008 — Introduction.”

 

Netoperating revenue

 

Net operating revenuedecreased by 6% to U.S.$ 2,800 million in the year ended December 31, 2009from U.S.$ 2,988 million in December 31, 2008. This result is mainlyattributable to an average market pulp price 27% lower than the priceregistered in 2008 which offset the 27% increase in total sales volumes. Theincrease in sales volume was attributable to the additional production of theTrês Lagoas Unit which started it operations in March 2009. Sales volumetotaled 5,276,838 tons for the year ended December 31, 2009 from 4,140,648tons for the period ended December 31, 2008.  Approximately 8% and 7% of Fibria’s netoperating revenue was made in the domestic market for the years ended December 31,2009 and 2008, respectively. Fibria’s revenue mix for the year ended December 31,2009 was 19% for paper and 81% for pulp consistent with the 20% and 80%,respectively, for the year ended December 31, 2008.

 

Pulp.In the pulp segment, sales volume increased by 31% to 4,903,168 tons for the yearended December 31, 2009 from 3,749,960 tons for the year ended December 31,2008. The increase in volume was mainly due to the additional capacity from theTrês Lagoas mill which started its operations in March 2009. Net operatingrevenue attributable to pulp decreased by 5% to U.S.$ 2,246 million for theyear ended December 31, 2009 from U.S.$ 2,371 million for the year ended December 31,2008.  This result can be explained by a28% decrease in the average prices of pulp. Pulp exports constituted 92% and91% of revenues and sales volume, respectively, of pulp for the year ended December 31,2009 compared to 93% and 92% for the year ended December 31, 2008.  In the domestic market, the volume of pulpsold increased 54% to 462,752 tons from 299,576 tons in 2008. This increase canalso be explained by the additional volumes of Três Lagoas sold to a thirdparty paper mill adjacent to our facility.

 

Paper.In the paper segment, total volumes decreased by 4% for the year ended December 31,2009 mainly as a result of a lower demand in the paper market — according toBracelpa data, the annual balance showed a 2.4% retraction in this segment.Export volumes decreased by 19% to 37,013 tons for the year ended December 31,2009 compared to the year ended December 31, 2008 while domestic volumesdeclined 2% to 336,657 tons in the same period. Net operating revenue attributable to paper decreased by 11% to U.S.$528 million for the year ended December 31, 2009, from U.S.$ 593 millionfor the year ended December 31, 2008, driven by a 7% decrease in theaverage price of paper.  The domesticmarket accounted for 93% of paper revenues for the year ended December 31,2009 stable when compared to 2008.

 

Costof sales

 

Costof sales increased by 6% to U.S.$ 2,425 million for the year ended December 31,2009 from U.S.$ 2,287 million for the year ended December 31, 2008.  This increase was mainly related to thevolumes associated to the Três Lagoas unit, effective from March 30, 2009,which represented an increase in the amount of U.S.$ 279 million, partiallyoffset by the depreciation of the *Real*(averagerate)*.*

 

Sellingand marketing expenses

 

Salesexpenses increased by 17% to U.S.$ 152 million for the year ended December 31,2009 from U.S.$ 130 million in the corresponding period of 2008. This increaseresulted mainly from the higher sales of market pulp which in turn increasedmostly due to the higher sales volumes attributable to the start of operationsof the Três Lagoas mill.  As a percentageof net operating revenue, sales expense remained relatively stable whencompared to the year ended December 31, 2008.

 

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Generaland administrative expenses

 

Generaland administrative expenses increased by 14% to U.S.$ 151 million for the yearended December 31, 2009 from U.S.$ 133 million in the corresponding periodof 2008. The increase was mainly attributable to the appreciation of the *Real* in the period as of our costs are denominated in reais.Disbursements with the corporate reorganization also contributed to higherexpenses. As a percentage of net operating revenue, general and administrativeexpenses remained relatively stable when compared to the year ended December 31,2008.

 

Gainon Remeasurement of Original Investment in Aracruz

 

Thisgain arose from the Aracruz Acquisition; under ASC Topic 805 once control isobtained the Company is required to re-measure previously held equity intereststo fair value, and record the gain or loss directly to statement of operations.Fibria obtained control on January 21, 2009 and recognized a gain inoperating income in the amount of U.S.$514 million as a result of remeasuringto fair value its original 12.35% economic interest in Aracruz.

 

OtherOperating Expenses, Net

 

Otheroperating expenses, net, were U.S.$ 219 million in the year ended December 31,2009 compared to other operating expenses of U.S.$163 million in thecorresponding period in 2008, mostly as a result of loss generated by the saleof Guaíba in the total amount of U.S.$ 90 million.

 

Operatingincome

 

Forthe reasons explained above, operating income increased to U.S.$ 367 millionfor the year ended December 31, 2009 from U.S.$ 275 million for the yearended December 31, 2008.

 

Financialincome

 

Financialincome increased to U.S.$ 501 million for the year ended December 31, 2009as compared to U.S.$ 214 million for the year ended December 31, 2008 dueto an increase in the funds available for investments and a reversal ofinterest, charges, and fine on contingencies provision in the amount of U.S.$92 million. The increase in funds available was principally from the TrêsLagoas operations not present in 2008; (2) the proceeds of capital increaseand (3) the proceeds from additional borrowings that were incurred duringthe year.

 

FinancialExpenses

 

Financialexpenses increased to U.S.$ 649 million for the year ended December 31,2009 as compared to U.S.$ 342 million for the year ended December 31, 2008primarily due to the increase in indebtedness as a result of the assumption ofAracruz’s liabilities due to its acquisition and consolidation.

 

Foreignexchange gain (loss) and unrealized gain (loss) on swaps and tradingsecurities, net

 

Foreignexchange gains amounted to U.S.$ 1,055 million for the year ended December 31,2009 from U.S.$ 516 million losses for the year ended December 31, 2008.This result was primarily due to the impact of the 34% appreciation of the *Real* against the U.S. Dollar on our total foreign currencydebt in 2009, compared to 24% depreciation of the *Real*against U.S Dollar in 2008.

 

Losson derivative transactions

 

Theloss of U.S.$ 2,160 million refers to losses that occurred in 2008 due to themark-to-market adjustment incurred by Aracruz on certain financial derivatives.

 

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Incometax benefit (expenses)

 

Forthe year ended December 31, 2009, Fibria recorded an income tax expense ofU.S.$ 484 million compared to a benefit of U.S.$ 782 million for the year endedDecember 31, 2008.  The benefit wasmainly due to the recognition of deferred income tax benefits on tax losscarryforwards and on temporary differences related to foreign exchange gainsand losses due to Aracruz’s derivatives losses in 2008. The effective tax ratewas 38% for the year ended December 31, 2009 and 31% for the year ended December 31,2008.

 

Equityin earnings (losses) of affiliates

 

Fibriarecorded earnings of affiliates in the total amount of U.S.$ 17 million for theyear ended December 31, 2009 against earnings of U.S.$ 75 million for theyear ended December 31, 2008.  Thedecrease is due principally to the sale of the Ahlstrom joint venture effectiveSeptember 1, 2008, and the Conpacel Consortium which prior to September 1,2008 was recorded under the equity method.

 

Netincome (loss)

 

As aresult of the foregoing, Fibria recorded net income of U.S.$ 513 million forthe year ended December 31, 2009 compared to a loss of U.S.$ 1,680 millionfor the year ended December 31, 2008 which was mainly impacted by Aracruz’sderivatives loss in 2008.

 

**B.****                                   ****Liquidity and CapitalResources**

 

**Liquidity**

 

See “Item5. Operating and Financial Review and Prospects — Liquidity and CapitalResources” for a discussion of our policies and actions.

 

At December 31,2009, our cash and cash equivalents (which exclude trading securities andheld-to maturity investments was U.S.$365 million (U.S.$ 280 million atyear-end 2008). This increase is mainly due to the proceeds of additional debtincurred under our Liability Management Plan (See “Item 5. Operational andFinancial Review and Prospects — Liquidity and Capital Resources”).

 

At December 31,2009, we had U.S.$112 million (of a total of U.S.$ 2,270 million) in depositsand investments with our affiliate, Banco Votorantim S.A.  See “Item 7. — Major Shareholders and RelatedParty Transactions — Related Party Transactions” and Note 15 to our auditedconsolidated financial statements.  Atyear-end 2008 we had approximately U.S.$ 40 million (of a total of U.S.$323million) in deposits and investments with our affiliate, Banco Votorantim S.A.

 

At December 31,2009, our cash, cash equivalents, trading securities and held to maturityinvestments (current portion) were U.S.$2,232 million (U.S.$323 million atyear-end 2008).  The increase is dueprincipally to the receipt on December 15, 2009 of U.S.$ 1,300 million inproceeds from the sale of the Guaiba unit (See “Item 5. Operating and FinancialReview and Prospects — Liquidity and Capital Resources”).

 

At December 31,2009, our balance sheet presented a positive working capital balance ofU.S.$1,043 million compared to a negative working capital balance of U.S.$337million at year-end 2008.  We do notexpect to have any difficulty in meeting our short-term obligations due tocapital increases in cash occurred in early 2009 as a result of the acquisitionof an additional equity interest in Aracruz and we had additional long-termborrowings that occurred throughout the year of 2009.  See “Item 5. Operating Results — RecentDevelopments — Liquidity and Capital Resources”.

 

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**Sourcesof funds**

 

Operatingactivities provided net cash flows of U.S.$1,136 million in 2009 compared toU.S.$388 million in 2008 and U.S.$333 million in 2007.

 

Financingactivities, which include short-term and long-term secured and unsecuredborrowings and debt repayments, generated positive net cash flow of U.S.$1,241million in 2009, and of U.S.$116 million in 2008 and negative U.S.$113 millionin 2007.

 

At December 31,2009, our gross debt totaled U.S.$8,426 million; of this amount, long-term debtrepresented 72%  in 2009 compared to 56%in 2008.  Approximately 57% of our debtwas denominated in foreign currencies. At December 31, 2009, our net debt was U.S.$6,156 million ascompared to U.S.$1,764 million at December 31, 2008.

 

**Usesof funds**

 

Investingactivities, which were comprised principally of production capacity increasesin Três Lagoas mill, the development of forestry assets (land acquisition,planting and forest maintenance) and other capital expenditures consumed cashin investing activities in the total amount of U.S.$2,079 million in 2009,U.S.$507 million in 2008 and U.S.$145 million in 2007.

 

**Debt**

 

At December 31,2009, our total debt was U.S.$8,426 million, consisting of U.S.$2,345 millionin short-term debt (28% of total debt). At December 31, 2008, our totaldebt was U.S.$2,087 million, consisting of U.S.$928 million in short-term debt(44% of total debt).

 

Mostof our U.S. Dolla*r*-denominated borrowings areeither prepayments or export credits made in respect of our export sales orinternational capital market borrowings which have lower interest ratescompared to domestic financings.  Withrespect to our *Real*-denominated borrowings,almost all are with the BNDES. At December 31, 2009 and 2008 ouroutstanding borrowings with the BNDES were U.S.$ 805 million and U.S.$ 120million, respectively.

 

*Export credits (prepayment)*

 

Due tothe depreciation of the *Real* in thelatter half of 2008, Aracruz suffered significant losses in connection withcertain derivative transactions in which Aracruz held a short position in U.S.Dollar against the *Real*, includingtarget forward swaps, non-deliverable forwards and swaps with options. Thesetransactions were unwound or terminated early during the period of October 27to November 3, 2008.

 

Afterthe unwinding or early termination of those derivative transactions, Aracruzbegan negotiations with the derivative transaction counterparties (or theiraffiliates) or creditor banks for the repayment of the debt arising from thesetransactions. On January 19, 2009, banks holding more than 80% of the debtresulting from these transactions agreed with Aracruz on the terms of therepayment of this debt. Shortly thereafter, additional creditors agreed to theterms of the repayment of this debt.

 

On May 13,2009, Aracruz and the creditor banks entered into the Export PrepaymentRefinancing Credit Facility, which sets forth the terms and conditions of therepayment of Aracruz’s obligations owed to the creditor banks, or theRestructured Obligations. Aracruz Trading International (“ATI”) is the borrowerunder the Export Prepayment Refinancing Credit Facility, and ATI’s obligationsunder the facility are jointly and severally guaranteed by Aracruz and itssubsidiaries, Aracruz Celulose (USA) Inc. and Alícia Papéis S.A. See “Item 4C.Information on Fibria — Organizational Structure”. The principal amount of theRestructured Obligations bears interest at three-month LIBOR, plus a marginthat commences at 3.50% per annum and increased semiannually by 0.25% per annumbeginning in 2010 to a maximum of 6% per annum.

 

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Thistransaction was settled on August 13, 2009. On that date, outstandingexport prepayment loans with certain bank creditors were transferred by therelevant bank creditors to ATI in exchange for loans that will be repaid by ATIto these bank creditors pursuant to the terms and conditions set forth in theExport Prepayment Refinancing Credit Facility. As of that date, the aggregateprincipal amount outstanding under the Export Prepayment Refinancing CreditFacility was U.S.$2.6 billion.

 

On December 31,2009, the balance of this Export Prepayment Refinancing Credit Facility wasreduced by U.S.$ 2,160 million, with the proceedings obtained from theLiability Management Plan undertaken by the Company in the second half of 2009(see “Item 5. Operating and Financial Review and Prospects — Liquidity andCapital Resources — The Liability Management Plan”), which enabled the Companyto align its terms with those of its other existing contracts, therebyeliminating a significant number of restrictive conditions previously prevailingin the derivatives contract. Nevertheless, the security package was kept.

 

Thefacility is secured by, among other collateral, (1) a mortgage on the landand equipment of the Aracruz Unit and certain land associated with this unit, (2) apledge of certain forests associated with the Aracruz Unit and (3) a firstpriority security interest in certain export receivables and a relatedcollateral account.

 

On November 25,2009, Fibria entered into a U.S.$1,175 million two tranches export creditfacility agreement with twelve financial institutions. The tranche A isfive-year term with a grace period of three years grace period at a cost ofLibor +4%. The tranche B is a seven-year term with a grace period of five yearsat a cost of Libor + 4.25%. Both tranches will have the margins reduced by 100bps at the time Fibria leverage rations are below 3.5 times. The funds werereceived on December 28, 2009.

 

OnAugust, 18, 2009, VCP-MS entered into a U.S.$182 million export credit facilityagreement with two financial institutions, as arrangers, and ECA (Finnishexport credit agency), as lender. We are a guarantor under this floating ratefacility. Principal payments are due semi-annually from February 15, 2010to February 15, 2018.

 

On July 10,2009, VCP Overseas Holding Kft entered into a U.S.$ 54 million export creditfacility agreement with a financial institution. Fibria and VCP-MS areguarantors under the floating-rate facility. Principal payments are duequarterly from July 14, 2010 to July 16, 2012.

 

In September 2008,Fibria recorded its 50% share of the Conpacel’s loans which at September 30,2008 totaled U.S.$ 83 million comprising contracts for export prepayment (U.S.$73 million) and import financing (U.S.$ 10 million) which mature in 2012.  At December 31, 2009 the outstandingamount was U.S.$ 22 million.

 

In May 2008,Fibria signed an export prepayment contract with Nordea Bank AB for theaggregate amount U.S.$ 50 million at LIBOR plus 0.68% p.a. Payments are duethrough 2012 in installments to match export shipments.  The financings are guaranteed by exportcontracts.

 

In June 2007we signed an Export Prepayment contract with Banco Bilbao Vizcaya Argentariafor U.S.$ 100 million at LIBOR plus 0.38% p.a. Payments are due through 2015 ininstallments to match export shipments. The financings are guaranteed by export contracts.

 

*Domestic fixed-rate notes*

 

On December 29,2009, Fibria entered into a U.S.$ 42 million financing with Banco do Brasilreferring to Fund for the Financing of the Brazilian Midwest Region (“FCO”) at8.5% fixed rates in *reais*. This isa subsidized finance to boost investments on the Central East region of Brazil.This amount will mature from July 2010 through December 2017.

 

In April 2008Fibria signed a bridge loan with ABN AMRO Bank NA in an aggregate amount ofU.S.$ 200 million at LIBOR plus 2% p.a. The financing matured on September 26,2008, and was guaranteed by a security interest in financial assets.  The maturity date was renegotiated anddeferred to March 24, 2010, indexed at LIBOR plus 5%. During 2009 someclauses were renegotiated, one of those established that the principal shouldbe repaid on October 15, 2010.

 

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*International fixed-rate notes*

 

*Fibria*

 

On October 30,2009, Fibria Overseas Finance Ltd., a wholly owned Cayman Island subsidiary ofFibria, see “Item 4C. Information on Fibria — Organizational Structure”, issuedU.S.$ 1,000 million in notes due in 2019 at a coupon of 9.25% p.a. and yield of9.375%.

 

Theindenture for this issue of notes contains a number of covenants including,among others:

 

·                  incur additional indebtedness,

 

·                  make investments,

 

·                  issue or sell capital stock of restricted subsidiaries,

 

·                  sell assets,

 

·                  enter into sale and leaseback transactions,

 

·                  engage in transactions with affiliates,

 

·                  create unrestricted subsidiaries,

 

·                  create certain liens, and

 

·                  consolidate, merge or transfer all or substantially all of our assetsand the assets of our subsidiaries on a consolidated basis.

 

*Voto-VotorantimIII*

 

In January 2004,VPar, our ultimate controlling shareholder, formed Voto-Votorantim III, acompany based in the Cayman Islands, for the sole purpose of raisingfunds.  Voto-Votorantim III issuedU.S.$ 300 million, 7.875% Bonds due 2014 in the international market.  We received 15% of the total amountoriginally issued U.S.$ 45 million, and are the guarantors for thisamount.

 

The indenture for the issue of notes byVoto-Votorantim III contains a number of covenants including, among others:

 

·                  limitations on our ability to incur debt;

 

·                  limitations on the existence of liens onour properties; and

 

·                  limitations on transactions with related parties, which generally mustbe on terms no less favorable than those that could be obtained in comparablearm’s-length transactions.

 

*Voto-VotorantimIV*

* *

OnJune 24, 2005, Voto-Votorantim IV, a wholly-owned subsidiary of VPar, issuedU.S.$ 400 million of 7.75% Notes due 2020 that were placed with investors inNorth America, Europe, Asia and Latin America.  Fibria is a guarantor of 50% of the 7.75%Notes due 2020 and in turn received U.S.$ 200 million of the proceeds.  On September 6, 2005, we acquired a 50%equity interest in Voto-Votorantim IV and continue as the guarantor for 50% ofthese Notes.

 

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The indenture for theissue of notes by Voto-Votorantim IV contains a number of covenants includingamong others:

 

·                  Limitations on our ability to incur debt;

 

·                  Limitation on the extence of liens on our properties;and

 

·                  Limitations on transactions with related parties,which generally must be on terms no less favorable than those that could beobtained in comparable arm’s length transaction.

* *

*BNDES*

 

BNDES, the parent ofBNDESPar, one of our principal shareholders, has been an important source ofdebt financing.  At December 31,2009, total BNDES loans outstanding totaled U.S.$ 805 million relatedprincipally to the capacity increase projects, all of which are denominated in *reais*. The BNDES loans are secured by liens on property, plant and equipment,and a lien on certain land, and by personal guarantees of an owner of Hejoassu,the ultimate parent of the Votorantim Group. The majority of our loans with BNDES bear interest are indexed usingeither the *Taxa de Juros de Longo Prazo*,or TJLP, a nominal long-term interest rate that includes an inflationfactor.  The remaining BNDES loans areindexed by the UMBNDES which is a weighted average exchange variation on a basketof currencies, predominantly U.S. Dollars, held by BNDES.  At December 31, 2009, the TJLP was fixedat 6.00% per year, and during 2008 averaged 6.25% per year.

 

As of December 31,2009, BNDES had lent approximately 10% of our financial indebtedness, and isexpected to loan significant funds in the future. See below details on amountand maturities:

 
| **Index** | ** ** | **U.S.$ MM** | ** ** | **Maturity** | ** ** |
|-----------|------------|-------------------|------------|--------------|------------|
| TJLP      |       | 725               |       | 2017         |       |
| UMBNDES   |       | 80                |       | 2017         |       |
|      |       | 805               |       |         |       |

 

For further informationon the financing agreements with BNDES, see Exhibits 4.11 and 4.12 to thisannual report.

 

Leasing

 

The Company signedcapital leases agreement with the Bank Société Générale for the acquisition ofmachinery used to fell and harvest trees in the total amount of U.S.$ 50million. The first tranche of U.S.$ 3 million was released in September 2008and matures in 2013.  The outstandingamount as of December 31, 2009 was U.S.$ 18 million.

 

On December 31,2008, Fibria recorded its 50% share of the Consortium pulp machine leasingliabilities that totaled U.S.$ 26 million as of December 31, 2009, whichmature in 2014.

 

*Maturities*

 

At December 31,2009, the amount of our short-term debt (including current portion of ourlong-term debt and the payable for Aracruz Acquisition) was U.S.$ 2,345million, with a weighted average interest rate of 6.90%, compared to U.S.$ 438million at December 31, 2008, with a weighted average interest rate of6.06%.  At December 31, 2009, theannual maturities of our long-term debt excluding current portion were asfollows:

 

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| **Year**    | ** ** | **Amount**                   | ** ** |
|-------------|------------|------------------------------|------------|
| ** **  | ** ** | **(U.S.$ in millions)** | ** ** |
| 2011        |       | 1,147                        |       |
| 2012        |       | 528                          |       |
| 2013        |       | 773                          |       |
| 2014        |       | 957                          |       |
| After  2014 |       | 2,676                        |       |
| Total       |       | 6,081                        |       |

* *

*Covenants*

 

At December 31,2008, the Company was not in compliance with covenants on certain loanagreements as a result of a proportional consolidation of Aracruz based onBrazilian GAAP, plus Três Lagoas project investments and the devaluation of thereal. See Note 9(a) and 12(i) to the consolidated financialstatements and “Item 5 — Management Discussion and Analysis — Year ended December 31,2008 compared to year ended December 31, 2007 - Equity in earnings(losses) of affiliates”.  Nonetheless, inNovember 2008, we began the renegotiation of the terms of these covenantswith the creditor banks, for which we have concluded the negotiations for morethan 80% of the affected loan agreements. Management, at this time, considers none of these renegotiated covenantsor guarantees, if requested, are restrictive or inhibitive to the Company’scurrent level of operations.  We believethat our sources of funds and management actions, such as the capital increasethat occurred on April 30, 2009 (partially offsetting the effect ofadditional leverage of the purchase of Aracruz common shares) and increase ofcredit lines by diversifying creditor banks portfolio, are, and will continueto be, adequate to meet our liquidity levels and currently anticipated uses of funds,which include working capital, recurring capital expenditures and debtrepayment.

 

In the case of the 20% ofaffected loan agreements, which includes a loan from BNDES (one of ourshareholders) the creditor banks do not have the right to demand repayment.  In these cases, the only penalty is, ifrequested by banks, assets pledged as guarantee and just the loan agreementsthat were renegotiated (more than 80%) give the right to demand payment.  We concluded that there was no requirement toclassify these debts as current.

 

The Company was incompliance with its loan covenants at December 31, 2009. The Company’sloan agreements contain covenants or restrictive clauses, establishing maximumindebtedness and leverage levels as well as minimum coverage of outstandingamounts and the maintenance of minimum balances of receivables either in acurrent account or a collateral account. The Company renegotiated its covenantswith the creditors for all loans subject to call. In regard to the loan withBNDES (one of our shareholders), which does not have the right to early redeemthe loan, the Company may provide additional assets as collateral, providedthat the Bank makes such requirement.

 

The main conditionsinclude:

 

(i)         certain restrictions on the Company’scapacity to merge with or into other entities;

 

(ii)        certain restrictions on exchanges anddisposals of assets by the Company;

 

(iii)       certain restrictions on sale andexchanges of assets;

 

(iv)       maintenance, at the end of each quarter,of a ratio of (a) Adjusted EBITDA (for the last four quarters) plus cashposition, based on Brazilian GAAP balances, to (b) the total debt maturingduring the following four quarters, plus financial expenses to be paid duringthe following four quarters, greater than, for all quarter for 2009 and 2010,0.7 to 1.0, and thereafter in every subsequent quarter, 1.2 to 1.0;

 

(v)        maintenance, at the end of each quarter,of a level of net debt to Adjusted EBITDA (for the last four quarters), basedon Brazilian GAAP balances, from 6.75 to 1.0 in 2009 and with period reductionsto 3.0 to 1.0, in 2012 and thereafter;

 

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(vi)       subject to certain exceptions,restrictions on the creation of liens on assets of the Company;

 

(vii)      subject to certain exceptions,restrictions on the assumption of additional debt by the Company; and

 

(viii)     maintenance of a hedge policy approved bythe Board of Directors of the Company prohibiting hedging for speculativepurposes.

 

The main events ofdefault under the Export Credit Note include:

 

(i)         cross-default and cross-judgmentdefault, subject to an agreed minimum value of US$ 25.0;

 

(ii)        certain periods of resolution, breach ofany obligation under the Export Credit Note; and

 

(iii)       certain events of bankruptcy orinsolvency of the Company, its main subsidiaries or Veracel.

 

Our long-term borrowingscontain various covenants regarding compliance with certain financial ratiosand other restrictions.  At December 31,2009, the Company was in compliance with all covenants See Note 1 to theconsolidated financial statements and “Item 5. Operating and Financial Reviewand Prospects — Operating Results — Results of Operations — Year ended December 31,2009 compared to year ended December 31, 2008 - Equity in earnings(losses) of affiliates”.

 

***Capital expenditures***

 

During 2009, we investedU.S.$ 803 million in capital expenditure representing an increaseof 16% from the U.S.$ 692 million invested in 2008,and 68% higher than the amount of U.S.$ 477 millioninvested in 2007.  Of this amount, U.S.$ 504 million was spenton expansion projects (pulp mill in Três Lagoas and coater for special paper inPiracicaba), U.S.$ 201 million was spent on forestry assets (landacquisition, planting and forest maintenance), and the remaining was investedin the modernization and maintenance of our plants.

 

The table below setsforth a breakdown of our most significant capital expenditures for the periodsindicated:

 
| ** **                                                                                                                                                                                                        | ** ** | **For the years ended December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                                                                                                                                        | ** ** | **2009**                                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                                                                                                                                                        | ** ** | **(in U.S.$ millions)**              | ** ** |
| Expansion                                                                                                                                                                                                         |       | 504                                       |       | 391 |   | 67 |   |
| Forests (including land purchases)                                                                                                                                                                                |       | 201                                       |       | 222 |   | 216 |   |
| Improvements/modernization                                                                                                                                                                                        |       | 16                                        |       | 12 |   | 12 |   |
| Other (includes maintenance and information  technology)                                                                                                                                                          |       | 76                                        |       | 35 |   | 58 |   |
| Sub Total                                                                                                                                                                                                    |       | 797                                       |       | 660 |   | 353 |   |
| Fixed assets related to Três Lagoas expansion  purchased withproceeds of financial  income earned on trust fund deposits(see “Item 4A.  Information on Fibria — History and Development of Fibria) |       | 6                                         |       | 32 |   | 124 |   |
| Total                                                                                                                                                                                                             |       | 803                                       |       | 692 |   | 477 |   |

 

The Company may purchase,upon authorization of its Board of Directors, stock in the open market which,after purchase, will be held in treasury to be sold and/or cancelled.  The number of shares held in treasury may not,however, exceed 10% of the total outstanding and in circulation shares.

 

**C.****                                   ****Research anddevelopment, patents and licenses, etc.**

 

As an integrated producerof pulp and paper, we seek to gain a better understanding the entire productionprocess and obtain competitive advantages by continuous investments in researchand technological development. 

 

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By attempting to identifythe characteristics of both wood and pulp that are essential for the productionof high quality pulp and paper, we improve our processes and developinnovative, higher quality products. The research and development activitiesconducted within our research center are directed towards increasing theproductivity of our forests, improving the quality of the eucalyptus wood usedas our raw material, increasing the efficiency of our productive process andindustrial yields, and developing new, innovative higher quality products, in asustainable way. These efforts are conducted not only within our researchfacilities, but also in partnership with various universities, suppliers andprivate research institutes. Our total disbursements, both directly and indirectly,in research and development were U.S.$ 14.9 million, U.S.$ 6.4 million andU.S.$ 7.6 million during 2009, 2008 and 2007, respectively. The expenditures inresearch and development are consistent with the Company’s growth and itsongoing effort to maintain its competitiveness. This strategy has been enablingFibria to develop high quality sustainable forests, with lower costs andminimum environmental impact, while supplying the market with improved productsand reinforcing the Company’s long-term relationships with key customers.

 

*FibriaTechnology Center*

 

The main objective of theFibria Technology Center is to add value to the overall business. The portfolioof research projects involves activities ranging from the nurseries to thefinal products. Our forest technology is focused on wood quality and forestproductivity in such areas as genetic improvement, forest biotechnology, plantphysiology, soil and plant nutrition, silvicultural technology, forestprotection and environmental development.

 

In the last 40 years,improvements in forest technology, using advanced genetic techniques, have ledto expressive increases in the forest yield. Worthy of recent notice was thenew achievements in the tree improvement programme of new Eucalyptus species andtheir hybrids, aiming at obtaining a broader fiber platform, in terms of forestproductivity and wood quality for specific products.

 

In some of Fibria’sUnits, the soil monitoring process conducted in the last twenty years hasrevealed that fertility has been enhanced for most of the planted areas, due toapplication of improvements in nutritional management, especially since thelate 90s. Furthermore, the hydrologic studies performed in the last 15 years,and based upon superficial and underground water quantity and qualitymonitoring conducted in representative watersheds, continue to indicate thatthere are no changes in those water parameters which might be associated witheucalyptus plantations.

 

With the results obtainedfrom the studies and monitoring carried out in 2009, it has been possible toupdate Fibria’s biodiversity data, and notably the information about thebirdlife. More than 144,000 birds have been registered since 1989 — by means ofcapture, census, line-transect sampling and observations — classified among 67families and 605 distinct species. Approximately 15,500 birds have been banded,for the gathering of information about their continuance and movements withinthe Company’s areas.

 

Additionally, a newmanagement tool has been developed, based on environmental indicators and underlandscape ecology management concepts. Coined as the “Fibria’s Bioindex”, thisnew tool enables an optimized prioritization and monitoring of the actions offorest management, in our continuous search for better environmentalperformance.

 

Important contributionswere also noted through many sustainability related projects, in special theincreased recycle of industrial solid residues. Currently, approximately 80% ofthe residues generated in our operations at Aracruz Unit are being sustainablyrecycled to the forest plantations. In 2009, studies began in order to applythis technology to the Jacareí and Três Lagoas units.

 

We also maintain asignificant level of investment in the biotechnology program, involvingnational and international partnerships. The main goals of the biotechnologyprogram in 2009 were to improve forest and industrial productivity and reducetotal costs by producing: (1) better wood quality for industryapplications (wood density, fiber morphology and chemistry; (2) higheroperation yields (forest and industry); (3) greater raw materialhomogeneity Development of advanced tissue culture and new clonal propagationtechniques were also continued along 2009.

 

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With respect to the pulpprocess development, in 2009 our studies were focused on fiber quality andindustrial process improvement.  New technologieswere tested in the wood treatment, cooking and bleaching processes, togetherwith optimization of additives and other materials to improve pulp quality. Theportfolio of product development projects was dedicated to reinforce the searchfor alternatives that can result in the increase of BEK in the average paperfurnish, of different paper grades. To achieve this goal, various methodologieshave been developed to differentiate fiber properties, in joint studies withselected partners. The available alternatives today involve not only specialfiber engineering and differentiated pulp production processes, but also theuse of specific agents and different stock prep technologies in papermaking ,being offered to key-customers. Recent advances have allowed Fibria to extendits flexibility, in terms of availability of an optimized portfolio ofdedicated products.

 

It is also a keyresponsibility of the Technology Management a continuous assessment of newtrends and advances in the business scenarios and societal changes anddemands.  This process has contributed tosignificant internal decision points in the company, and has also detectedimportant alternatives that can lead to new products and markets. Particularlythe new discussions involving bioenergy, biofuels and alternative products frombiomass have received special attention.

 

**D.****                                   ****Trend Information**

 

The primary trends whichinfluence our sales and production and inventory levels are:  the patterns and cycles of pulp purchases bypaper producers, pulp and paper prices, the level of pulp inventory in thehands of pulp producers in the global market, global economic conditions andthe effect of currency fluctuations.

 

We continue to pursuegrowth opportunities to create value for our shareholders through businessexpansion, strong operational performance and profitability and/ortechnological and product improvements, always in the context of a long termstrategic focus.

 

For additionalinformation regarding trends in our business, see “Item 4B.  Business Overview — Our Strategies”, “Item 4B.Business Overview — Cyclical nature of world pulp prices” and “Item 5.Operating Results.”  For risks affectingour business, see “Item 3. Key Information — Risk Factors.”

 

**E.****                                     ****Off-Balance SheetArrangements**

 

We participate in anumber of off-balance sheet arrangements, principally relating to guaranteesand take or pay contracts.  We also havea number of swap transactions that are described in “Item 11. Quantitativeand Qualitative Disclosures about Market Risk.” All of these transactions are further described elsewhere in this annualreport.

 

**F.     Tabular Disclosure of ContractualObligations**

 

The following table anddiscussion provide additional disclosure regarding our material contractualobligations and commercial commitments as of December 31, 2009:

 
| **Contractual  Obligations**   | ** ** | **Total**                         | ** ** | **Less than 1  year** | ** ** | **1-3 years** | ** ** | **3-5 years** | ** ** | **More than 5  years** | ** ** |
|--------------------------------|------------|-----------------------------------|------------|-----------------------|------------|---------------|------------|---------------|------------|------------------------|------------|
| ** **                     | ** ** | **(in millions of U.S. dollars)** | ** ** |
| Total  debt commitments (1)    |       | 8,317                             |       | 2,270                 |       | 1,653         |       | 1,718         |       | 2,676                  |       |
| Interest  payable              |       | 65                                |       | 65                    |       | —        |       | —        |       | —                 |       |
| Capital  lease obligations (2) |       | 44                                |       | 10                    |       | 22            |       | 12            |       | —                 |       |
| Operating  leases (3)          |       | 265                               |       | 19                    |       | 46            |       | 44            |       | 156                    |       |
| Purchase  obligations (4)      |       | 5,036                             |       | 457                   |       | 611           |       | 378           |       | 3,590                  |       |
| Pension  contribution (5)      |       | 30                                |       | 6                     |       | 12            |       | 12            |       | —                 |       |
| Total                          |       | 13,757                            |       | 2,827                 |       | 2,344         |       | 2,164         |       | 6,422                  |       |

 

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(1)          Includes shortand long-term loans and financings and short and long-term payable to AracruzAcquisition shown in our consolidated financial statements, excluding interestpayable.

 

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(2)          Includes anyagreements with suppliers of our assets (including for the Jacareí project).

 

(3)          Includes landleases and wood supply (Note 17(j) to the consolidated financial statements).

 

(4)          Includestake-or-pay contracts.  We have long-term“take-or-pay” contracts with suppliers of energy, transportation, diesel fueland chemical products for periods from one year to 10 years for which thecontractual obligations are U.S.$ 77 million per year.  Additionally, we have a long-term “take-or-pay”contract with a supplier of pulp for 30 years. The contractual obligation in connection with this contract is U.S.$ 52million per year.

 

(5)          Representscontributions of U.S.$ 6.2 million per year.

 

Note: estimated interest expense for the purchaseobligations of approximately 6%.

 

The above table does notreflect swap transactions discussed in “Item 5. Operating and FinancialReview and Prospects — Off-Balance Sheet Arrangements” above.

 

# **ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**

#  

**A.****                                   ****Directors and SeniorManagement**

 

We are managed by a Boardof Directors (Conselho de Administração), and a board of executive officers(Diretoria). The address of the management of our company is Alameda Santos1357, 6th floor, São Paulo, State of São Paulo, Brazil.  We have a permanent *Conselho Fiscal*, or fiscal committee,which is composed of at least three and at most five members.

 

**Board ofDirectors**

 

Our board of directors isrequired to meet four times a year and on an extraordinary basis when corporateinterests so require.  The members of theboard of directors are appointed at general shareholders’ meetings and servefor two-year terms.  The board’sresponsibilities include determining our general business strategies, electingthe executive officers and supervising the management. The board of directorsis currently made up of the following members:

 
| **Name**                               | ** ** | **Member Since**        | ** ** | **Age** | ** ** | **Position** |
|----------------------------------------|------------|-------------------------|------------|---------|------------|--------------|
| José Luciano Duarte  Penido       |       | August 28,  2009   |       | 62      |       | Chairman     |
| Paulo Henrique de Oliveira Santos      |       | November 5, 2009   |       | 51      |       | Alternate    |
| João Carvalho de Miranda          |       | April 30, 2009     |       | 47      |       | Member       |
| Sérgio Duarte Pinheiro            |       | November 5,  2009  |       | 40      |       | Alternate    |
| Raul Calfat                            |       | August 24,  2009   |       | 57      |       | Member       |
| Gilberto Lara Nogueira                 |       | November 5,  2009  |       | 61      |       | Alternate    |
| Alexandre Silva  D’Ambrosio       |       | August 24,  2009   |       | 47      |       | Member       |
| José Luiz Braga                   |       | December 22,  2009 |       | 61      |       | Alternate    |
| Wang Wei Chang                         |       | August 24,  2009   |       | 63      |       | Member       |
| Samuel de Paula Matos                  |       | December 22,  2009 |       | 62      |       | Alternate    |
| Armando Mariante  Carvalho Junior      |       | November 5,  2009  |       | 61      |       | Member       |
| André Biazus                      |       | November 5,  2009  |       | 46      |       | Alternate    |
| Eduardo Rath Fingerl                   |       | November 5,  2009  |       | 57      |       | Member       |
| Patrícia Dias Fernandes           |       | November 5,  2009  |       | 33      |       | Alternate    |
| José Armando de Figueiredo Campos |       | December 22,  2009 |       | 61      |       | Member       |
| Antonio Luiz Pizarro Manso             |       | December 22,  2009 |       | 66      |       | Alternate    |
| Alexandre Gonçalves Silva         |       | December 22,  2009 |       | 65      |       | Member       |
| Mauricio Aquino Halewicz               |       | December 22,  2009 |       | 37      |       | Alternate    |

 

We present below a briefbiographical description of each member of our board of directors:

 

*JoséLuciano Duarte Penido*.  Mr. Penido has served as Chairman of our Board ofDirectors since August 28, 2009. Prior to his appointment as Chairman of our Board of Directors, he hadserved as our chief executive officer since January 5,2004.  Prior to January 2004, Mr. Penido served aspresident of Samarco Mineração S.A. for 

 

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elevenyears.  Penido has always kept a management focus on people andsustainability as a solid support for long term outstanding results. In hissocial initiative undertakings, Penido is counselor of the Ethos Institute -Enterprises & Social Responsibilty, Director of the Center ofIndustries of the State of Rio Grande do Sul and in 2010 became a member of theboard of the Council of Economic and Social Development of Bahia.   Mr. Penidohas a bachelor’s degree in Mining Engineering from the Universidade Federal deMinas Gerais.

 

*RaulCalfat*.  Mr. Calfat has served on our Board ofDirectors since August 24, 2009.  Mr. Calfathas also served as the general director of VID for all industrial businesses(including cement, zinc, nickel, long steel, orange juice, chemicals andenergy) since January 2006 and as the general director for the corporatearea since January 2004.  Inaddition, Mr. Calfat has been a member of the Board of Directors ofAracruz since July 16, 2004 and was elected Chairman of the Board ofDirectors of Aracruz on March 6, 2009. Mr. Calfat served as vicepresident of the Bracelpa from 1996 to 2004 and as president of the Pulp andPaper Association of São Paulo from 1993 to 1995.  Mr. Calfat previously served aspresident of our company and of Papel Simão, where he began his career as atrainee in 1973.  Mr. Calfatgraduated from FGV with a bachelor’s degree in Business Administration.  Mr. Calfat also completed the managementdevelopment program for senior executives at the International Institute forManagement Development (IMD) in Lausanne, Switzerland.

 

*AlexandreS. D’Ambrosio. *Mr. D’Ambrosio has served as amember of our Board of Directors since August 24, 2009.  Mr. D’Ambrosio is general counsel and amanaging director of VID.  Since June 2003,Mr. D’Ambrosio has served as chief legal officer of VPAR and has alsoserved as a member of the Board of Directors of Aracruz since April 2004. Prior to joining the Votorantim Group, Mr. D’Ambrosio served from 2001through 2003 as vice president for Legal and Corporate Affairs of GlobalVillage Telecom Ltda. — GVT in Brazil, and from 1999 through 2001 as generalcounsel of Telemig and Telenorte Celular S.A. in Brazil.  Mr. D’Ambrosiopreviously practiced corporate law in the United States from 1986 through 1996,as an associate and partner in major law firms in Washington, D.C. and New YorkCity.  Mr. D’Ambrosio is licensed both as a Brazilian and U.S. lawyerand member of the Ordem dos Advogados do Brasil (OAB-São Paulo), the Districtof Columbia Bar, and the Court of International Trade in New York.  Mr. D’Ambrosiograduated from the University of São Paulo (LL.B ‘84), from the Harvard LawSchool (LL.M ‘86) and from the National Law Center of George WashingtonUniversity (MCL ‘89).

 

*AlexandreGonçalves Silva.* Mr. Silvais a member of the Board of Directors of Fibria since December 22, 2009and he has served previously as President and Chief Exectuive Officer ofGeneral Electric do Brasil from 2001 to 2007. From 1989 to 2001 he has servedas President and Chief Executive Officer of GE CELMA. During his 40 years ofprofessional career Mr. Silva worked most of the time in various sectorsof aeronautical industry. Currently Mr. Silva serves as member of Alupar,Equatorial Energia, TAM, Fundições Tupy. Mr. Silva also serves as theChairman of the Board of AMCHAM since 2006 where he also served as a memberfrom 2004 to 2005 and Vice Chairman from 2005 to 2006.  Mr. Silva graduated withbachelor’s degree in Mechanical Engineering from Pontificia UniversidadeCatólica do Rio de Janeiro — PUC.

 

*JoãoCarvalho de Miranda. * Mr. Mirandahas served as a member and Vice-Chairman of our Board of Directors since April 30,2009.  Since March 2009, Mr. Carvalhode Miranda has also served as chief financial officer of VID.  Before joining the Votorantim Group in 2009, Mr. Carvalhode Miranda was the executive vice president of Global Banking at Banco CitibankS.A. in Brazil from 2006 until 2009.  Mr. Carvalhode Miranda was also the president of Citibank N.A. in Chile from 2004 to 2006 andcorporate bank head of Citibank, N.A. in Brazil from 1998 to 2004.  Prior to 1998, Mr. Carvalho de Mirandatook several positions at ING Barings and Aracruz.  Mr. Carvalho de Mirandais an economist who graduated from Pontifícia Universidade Católica do Rio deJaneiro and received a master’s degree in Business Administration fromInstituto de Pós-Graduação e Pesquisa em Administração of Universidade Federaldo Rio de Janeiro (COPPEAD). He hás also completed an extension course at the Wharton Business School,University of Pennsylvania.

 

*Jose Armando de Figueiredo Campos.*Mr. Campos is a member of the Boardof Directors of Fibria since December 22, 2009 and he has served as amember of ArcelorMittal Brasil S.A.’s Board of Directors since 2006, beingappointed as Chairman in April 2009. Mr. Campos has also served as amember of the Board of Directors of Banco do Estado do Espírito Santo S.A.(BANESTES) since June 2009. After a long career in Cia Vale do Rio 

 

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Doce, Mr. Campos wasVice President of Cia Siderúrgica de Tubarão — CST between 1992 and 1997 andChief Executive Officer until 2005. Prior to that Mr. Camposwas elected the President of Instituto Brasileiro de Siderurgia - IBS(2002-2005), Instituto LatinoAmericano do Ferro e do Aço — ILAFA (2002-2004)and President of Conselho Empresarial Brasileiro para o DesenvolvimentoSustentável — CEBDS. Mr. Camposgraduated with bachelor’s degree in Engineering from Universidade Federal doRio de Janeiro — UFRJ and received a mater’s degree in Industrial Engineeringfrom Escola de Minas de Ouro Preto (EMOP/UFOP) and holds a Master in BusinessAdministration degree from Fundação Dom Cabral/INSEAD.

 

*WangWei Chang*.  Mr. Chang has served as a member of ourBoard of Directors since August 24, 2009. Mr. Chang also serves as independent risk officer of the riskcommittee of VPAR since February 2009. In addition, Mr. Chang has beena member of the Board of Directors of Aracruz since March 6, 2009.  Mr. Chang previously served as the headof the financial planning and control unit and as controller at Banco ChaseManhattan S.A. in Brazil.  Mr. Changalso served as treasurer of Chase Manhattan Bank N.A. in Chile, and managingdirector of Chase Manhattan Bank, N.A. in São Paulo from September 1988until July 1995.  Mr. Changserved as vice president of Citibank, N.A. in Brazil and Hong Kong from May 1974until May 1986, and as vice president and chief financial officer ofPerdigão S.A. from July 1995 until June 2008. Mr. Chang is alsomember of the Senior Advisory Board and alternate member of the Board ofDirectors of Perdigão S.A.  Mr. Changgraduated with a bachelor’s degree in Electrical Engineering from EscolaPolitécnica de São Paulo in 1971 and a master’s degree in IndustrialEngineering from Pontifícia Universidade Católica do Rio de Janeiro in1973.  In addition, Mr. Chang hascompleted training seminars sponsored by Perdigão S.A., Banco Chase ManhattanS.A., Citibank N.A. and other institutions in Brazil, the United States, PuertoRico, Chile, Europe, Hong Kong, Japan and the Philippines related tomanagement, strategic planning, leadership training, finance, capital markets, financialcontrols, credit, marketing, real estate, trade finance, and sales.

 

*Armando Mariante de Carvalho Junior.*Mr. CarvalhoJunior is a member of the Board of Directors of Fibria since November 5,2009 and he has served as Vice-President of the BNDES since April 2006.Prior to being nominated as Vice-President of the BNDES, Mr. Carvalhoserved as an executive officer of the BNDES as from December 2004, beingresponsible, during such period, for industrial and foreign market matters. From March 2000to December 2004, Mr. Carvalho served as President of Inmetro (*Instituto Nacional de Metrologia, Normalização eQualidade Industrial*). Mr. Carvalho served as Superintendent Director ofFiname from February 1999 to March 2000. From 1985 through 1988, Mr. Carvalhoworked for the Food and Agriculture Organization of the United Nations. Mr. Carvalhograduated with a bachelor’s degree in Chemical Engineering from UniversidadeFederal do Rio de Janeiro — UFRJ and received a master’s degree in IndustrialEngineering from Pontificia Universidade Católica do Rio de Janeiro — PUC/RJ,and in Business Administration from the London Business School.

 

*EduardoRath Fingerl.*Mr. Fingerlis a member of the Board of Directors of Fibria since November 5, 2009 andhe has served as an executive officer of the BNDES since April 2006, beingcurrently responsible for capital markets and environmental matters. From July 1996to February 2000, Mr. Fingerl served as an executive officer of theBNDES, responsible for industrial operations, services and commerce matters. Mr. Fingerlserved as technical officer of the Brazilian Foundation for SustainableDevelopment (*Fundação Brasileira para oDesenvolvimento Sustentável*) from June 1992 to June 1993.From August 1989 to June 1992, Mr. Fingerl served as executiveofficer of Petroquímica da Bahia S.A. From May 1976 to August 1989, Mr. Fingelworked at the BNDES in various functions. Mr. Fingerl was member of theBoard of the New Club of Paris. He was also manager of Foreign Commerce Chamber(*Câmara de Comércio Exterior*) andmember of the Board of Entrepreneurs of Softex. Mr. Fingerl graduated withbachelor’s degree in Industrial Engineering from Universidade Federal do Rio deJaneiro — UFRJ and received a mater’s degree in Industrial Engineering fromInstituto de Pós-Graduação e Pesquisa em Administração of Universidade Federaldo Rio de Janeiro (COPPEAD).

 

***ALTERNATES***

 

*AndréBiazus*. Mr. Biazusis an alternate member of the Board of Directors of Fibria since November 5,2009 and is the Head of the Paper and Pulp Department of the BNDES since February 2008.Mr. Biazus was an interim member of the board of administration at Klabinin 2004. Prior to this, he held the position of operations manager in theaforementioned department from July 2001. Having begun his career atElebra Computadores S/A 

 

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(1986-1992), Mr. Biazushas been with the BNDES for 17 years. He has worked in the Administrative andSystems Department (1993-1995), in the Trade and Services Department(1996-1997), in the Automotive and Capital Goods Department (1998-1999) and wasan Advisor to the Deputy Managing Director of the Infrastructure Division(2000-2001). He graduated in Business Administration from the Cândido MendesUniversity (1986), and holds a Graduate Degree in Marketing from ESPM (1992),as well as an Executive MBA in Finance from the IBMEC Business School (1998).

 

*PatríciaDias Fernandes*.Ms Fernandes is an alternate member of the Board of Directors of Fibria since November 5th 2009. Shejoined the Industrial Area of BNDES in 2004 and currently she is the Manager ofBNDES’ Capital Markets, responsible for BNDESPAR portfolio management. She hadbeen an equity research analyst in Itaú Securities. Prior to 2004, she workedfor Petrobrás, Aerus and ABN-Amro Bank. She holds a bachelor degree and aMasters degree in Economics from Instituto de Economia da UFR, and an MBA fromCOPPEAD/UFRJ.

 

*AntonioLuiz Pizarro Manso*.Mr. Manso is an alternate member of the Board of Directors of Fibria sinceDecember 22, 2009, and he participates in the Audit Committee of theCompany. He had also been Vice President Finance and Investor Relations (CFO)of Embraer - Empresa Brasileira de Aeronautica SA from 1995 to 2008, from 1986to 1995 was Chief Financial Officer of Odebrecht Group companies in the area oftransport and Tenenge National Technical Engineering SA., from 1985 to 1986 wasManaging Director Financial companies in the transport of the Bozano Group,from 1981 to 1985 was Managing Director of the Empresa Brasileira de EngenhariaS.A.. From 1981 to 2008 he was responsible as CFO of various companies for:Investor Relations, Finance, Sales, Finance, Accounting, Planning, Risk &Asset Management. He participated in several boards of directors, such as thewholly owned subsidiaries and subsidiaries of Embraer in Brazil and abroad,including the relationship with the Chinese and Portuguese governments. Currentlyhe is a Partner responsible for Pizarro Manso Suporte a Negócios Ltda. He is aBoard Member of companies in Brazil such Itapoá Terminais Portuários S.A. andBanco Caixa Geral do Brazil SA. He degree in Mechanical Engineering from PUC inRio de Janeiro and graduated with an Executive MBA in Finance from IBMEC —Instituto Brasileiro de Mercado de Capitais.

 

*GilbertoLara Nogueira*. Mr. Nogueirais an alternate member of the Board of Directors of Fibria since November 2009.Previously, he was an alternate member of the Aracruz Celulose Board ofDirectors from April 2004 to January 2009, and a titular member untilNovember 2009. He worked for Rhodia SA as CEO of Rhodia Argentina -1990/92, Engineering Plastics Business Unit Director - 1992/96, Human ResourcesDirector for Latin America 1996/2001 and Human Resources Director for PolyamideBusiness in France - 2001/03. He joined Votorantim Participações in 2003 asHuman & Organizational Development Corporate Director. He holds abachelor degree in Mechanical Engineering by Escola de Engenharia Mauá and apost graduate degree in Business Administration from FGV.

 

*JoséLuiz Braga*. Mr. Bragais an alternate member of the Board of Directors of Fibria Celulose S.A. since December 2009and Aracruz’s General Counsel since September 1994.  Mr. Braga has also acted for almost 12years as the General Counsel to Multiplic Financial Group, a joint venturebetween Lloyds Bank Group and Multiplic Group. He holds a bachelor of Lawsdegree of Universidade Católica de Petrópolis Law School (RJ) and became amember of the Brazilian Bar (OAB) in 1972. Mr. Braga completed hisgraduation courses on corporate and financial law at Instituto de Direito deEmpresa da Universidade Cândido Mendes (RJ) and at Instituto de Estudos do Direitoda Economia in 1978 and 1983, respectively.

 

*MaurícioAquino Halewicz.* Mr. Halewicz is an alternate member of the Board of Directors of Fibria since December 2009.He had also been a member of the Board of Directors of Aracruz Celulose S.A.period of June to November 2009. He is the Controllership Director ofRede Energia S.A. since January 2009. He has been working in the financearea in the utility sector since April 1999. Prior to working in theutilities sector, Mr. Aquino worked at Ambev and as an auditor at KPMG. Hegraduated in Accounting from Universidade Federal do Rio Grande do Sul andholds a post graduate degree in Engineering Economics from UniversidadePresbiteriana Mackenzie.  He also holdsan MBA in Corporate Finance from FGV.

 

*Paulo Henrique de Oliveira Santos.**Mr. Santos* is an alternate member of the Board ofDirectors of Fibria since November 2009. He had also been a member of theBoard of Directors of Aracruz Celulose S.A. period of March to April 2009.He has structured the creation and is the CEO of Votorantim Novos Negóciossince 2000. 

 

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From 1997 to 2000 he wasChief Financial Officer of Votorantim Metais and one of those responsible forits restructuring. From 1995 to 1997 he worked in a number of privatizationprocesses, and in the CPFL case he also directed the initial process ofrestructuring. He was the CEO of Banco Votorantim between 1993 and 1995, andoperated in other banks in São Paulo and New York, in the Treasury andCorporate Finance areas. Also, he was Chief Financial Officer of Brasilpar, oneof the first Private Equity funds of Brazil. Paulo Henrique is an engineer whograduated from the Industrial Engineering University (FEI), with apost-graduate degree in Business Management from Getúlio Vargas Foundation(FGV). He has also taken the Specialization Course at Harvard Business School,OPM - Owner/President Management Program.

 

*SergioDuarte Pinheiro.*Mr Pinheiro is an alternate member of the Board of Directors of Fibria since November 2009.He had also been a member of the Board of Directors of Aracruz Celulose S.A.period of June 2008 to November 2009. He became Corporate PlanningOfficer of Votorantim Investimentos Industriais in May 2008. He was theHead of Stern Stewart Brazil from 1999 until 2008. Prior to 1999, he worked forBankBoston. Mr. Pinheiro graduated in Civil Engeneering from Escola deEngenharia Mauá, and holds a post graduate degree from IBMEC. He also holds anMBA in Finance from William E. Simon Graduate School of Business at theUniversity of Rochester.

 

*Samuelde Paula Matos*. Mr. Matosis an alternate member of the Board of Directors of Fibria since December 22,2009, and Chairman of the Audit Committee of the Company. He had also beenChairman of the Audit Committee of Votorantim Celulose e Papel S.A. from May 2007to November 2009. He acted as independent external auditor and businessconsultant since the beginning of his professional career in 1967 and was theCEO of Coopers & Lybrand in Brasil and after its merger with ArthurAndersen was appointed the COO of the new resulting entity and Member of itsExecutive Committee. From June 2002 to May 2004 acted was an auditpartner for Deloitte, Touche & Tohmatsu serving as a Member of itsPolicy Committee. He graduated in Economics from Faculdade de Economia eAdministração da USP and he also holds a bachelor degree in Accounting.

 

**Boardof Executive Officers**

 

The following executiveofficers were appointed by our Board of Directors. They are members of ourboard of executive officers and are our legal representatives. The board ofexecutive officers meets periodically to review production, and commercial andfinancial operations.  Our executiveofficers are as follows:

 
| **Name**                                 | ** ** | **Age** | ** ** | **Position**                                                                        |
|------------------------------------------|------------|---------|------------|-------------------------------------------------------------------------------------|
| Carlos Augusto Lira  Aguiar              |       | 63      |       | Chief Executive Officer  and Interim Treasury & Investor Relations Officer |
| Francisco Fernandes  Campos Valério |       | 61      |       | Industrial  Operations & Engineering                                       |
| Evandro César Camillo  Coura        |       | 50      |       | Controllership &  Risk Management                                          |
| João Felipe Carsalade               |       | 54      |       | Commercial &  International Logistics                                      |
| Marcelo Strufaldi  Castelli              |       | 45      |       | Paper, Planning,  Procurement, Forestry Operations and Technology                   |
| Miguel Pinto Caldas                      |       | 45      |       | Human and  Organizational Development                                               |

 

We present below a briefbiographical description of each executive officer that is not also member ofour board of directors:

 

*CarlosAugusto Lira Aguiar*.  Mr. Aguiar has served as our ChiefExecutive Officer since August 28, 2009. Mr. Aguiar has also served as president of Aracruz since April 1998.  Prior to becoming president of Aracruz, Mr. Aguiarserved as vice president from April 1993 to April 1998 and as anexecutive officer from 1985 to 1993. After joining Aracruz in 1981, Mr. Aguiarheld various managerial positions in Aracruz’s operations department.   Mr. Aguiar holds a bachelor’sdegree in Chemical Engineering and Industrial Management from the UniversidadeFederal do Ceará, Brazil.

 

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*FranciscoFernandes Campos Valério*.  Mr. Valério has served asour executive officer of Industrial Operations & Engineering since August 28,2009.  Mr. Valério joined ourcompany in January 1998.  He previously held senior positions atother pulp and paper companies, including, Bahia Sul, Aracruz, Suzano,Braskraft Florestal e Industrial and Olinkraft Celulose e Papel.  Mr. Valérioholds a bachelor’s degree in Mechanical Engineering from the UniversidadeFederal de Santa Catarina, Brazil.

 

*EvandroCésar Camillo Coura*.  Mr. Coura has served as our executiveofficer of Controllership & Risk Management since August 28,2009.  Mr. Coura has served as amember of the board of executive officers of Aracruz since November 2008and is one of Aracruz’s principal financial officers, responsible for internalcontrols, adherence to corporate rules and policies, and riskmanagement.  Mr. Coura previouslyserved as the chief executive officer of Grupo Rede, a Brazilian electricitydistribution and generation company, and as head of the Energy Department ofBNDES. Mr. Coura holds a bachelor’s degree in Electrical Engineering fromthe Instituto Militar de Engenharia, and a master’s degree in BusinessAdministration from Universidade Federal do Rio de Janeiro, Brazil.

 

*JoãoFelipe Carsalade*.Mr. Carsalade has served as our executive officer of Commercial &International Logistics since August 28, 2009.  Mr. Carsalade has also served as anofficer of Aracruz since September 1993. He joined Aracruz in 1976 and hasheld various managerial positions with the commercial department ofAracruz.  Mr. Carsaladeholds a bachelor’s degree in Business Administration from Faculdade de CiênciasPolíticas e Econômicas do Rio de Janeiro, Brazil.

 

*MarceloStrufaldi Castelli*.  Mr. Castelli has served as our executiveofficer of Paper, Planning, Procurement and Forestry Operations and Technologysince August 28, 2009.  Mr. Castellialso serves as the supply chain and strategy director of our company, where hehas served as member of the executive board since December 2006.  In addition, since joining our company in1997, Mr. Castelli held various positions, including recovery, utilitiesand environment manager, general manager of the Jacareí mill and associatedirector of operations.  Prior to that, Mr. Castelli worked atSuzano, Bahia Sul and Aracruz. Mr. Castelli holds a bachelor’s degree inMechanical Engineering from Universidade de Mogi das Cruzes and a degree inBusiness Administration from Faculdades Associadas de São Paulo (FASP).  Mr. Castelli also attended courses atIMD in Switzerland and holds a Master of Business Administration degree fromFundação Dom Cabral (FDC).

 

*MiguelPinto Caldas*.  Mr. Caldas has served as our executiveofficer of Human and Organizational Development since August 28,2009.  Prior to his appointment, Mr. Caldaswas a partner and a consultant for over 15 years with various companies,including Andersen Business Consulting, PricewaterhouseCoopers and Coopers &Lybrand.  Mr. Caldas has also held long-term academic positionsat Loyola University New Orleans and FGV.  Mr. Caldas holds abachelor’s degree in Business from Universidade de Brasilia, and a master’sdegree in Business Administration and Ph.D. in Organization and Human Resourcesfrom FGV.

 

**AuditCommittee**

 

NYSE rules requirethat listed companies have an audit committee that (i) is comprised of aminimum of three independent directors who are all financially literate, (ii) meetsthe SEC rules regarding audit committees for listed companies, (iii) hasat least one member who has accounting or financial management expertise and (iv) isgoverned by a written charter addressing the committee’s required purpose anddetailing its required responsibilities. Our audit committee, which, subject tocertain exceptions, is equivalent to a U.S. audit committee, was installed atthe meeting of our Board of Directors held on December 18, 2009. Itcomplies with all of such requirements and provides assistance to our Board ofDirectors in matters involving our accounting, internal controls, financialreporting and compliance. The audit committee recommends the appointment of ourindependent auditors to our Board of Directors and reviews the compensation of,and coordinates with, our independent auditors. The audit committee alsoevaluates the effectiveness of our internal financial and legal compliancecontrols. The audit committee is comprised of up to three members elected bythe Board of Directors for a term of office coincident with that of the Boardof Directors. The current members of our audit committee are Samuel de PaulaMatos, Antonio Luiz Pizarro Manso and Mauricio Aquino Halewicz. All members ofthe audit committee satisfy the audit committee membership independencerequirements established under rules of the SEC. The Board of Directorshas determined that Samuel de Paula Matos is an audit committee “financialexpert” within the meaning of the rules 

 

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adopted by the SECrelating to the disclosure of financial experts on audit committees in periodicfilings pursuant to the U.S. Securities Exchange Act.

 

The members of the AuditCommittee are as follows:

 
| **Name**                    | ** ** | **Member  Since**       | ** ** | **Age** | ** ** |
|-----------------------------|------------|-------------------------|------------|---------|------------|
| Samuel  de Paula Matos      |       | December 22,  2009 |       | 62      |       |
| Antonio  Luiz Pizarro Manso |       | December 22,  2009 |       | 65      |       |
| Mauricio  Aquino Halewicz   |       | December 22,  2009 |       | 37      |       |

 

As of December 31,2009, the members of our Audit Committee, on an individual basis and as agroup, directly own less than 1% of our common shares.

 

Our Audit Committee isgoverned by Internal Regulations (*RegimentoInterno*) approved by the Board of Directors in February 2010which sets forth rules with respect to duties and responsibilities of theCommittee, its structure and functioning, as well as rights and obligations ofits members.

 

**FiscalCommittee**

 

Although we are notrequired under the Brazilian Corporate Law to maintain a permanent *conselho fiscal* (fiscal committee), wehave done so.  Until late 2009 the fiscalcommittee acted as our audit committee. Under the Brazilian Corporate Law, the *conselhofiscal* is a corporate body independent of management and independentof a company’s external auditors.

 

Under the BrazilianCorporate Law, the *conselho fiscal*may not contain members who are members of the Board of Directors or theexecutive committee, or who are employees of Fibria or the Votorantim Group, ora spouse or relative of any member of our management.  In addition, the Brazilian Corporate Lawrequires that *conselho fiscal*members receive a remuneration at least 10% of the average amount paid to eachexecutive officer.  The BrazilianCorporate Law requires a *conselho fiscal*to be composed of a minimum of three and a maximum of five members and the samenumber of alternates.

 

Our fiscal committee ismade up of between three and five members who are elected at the annualshareholders’ meeting, for a one-year term. Under the Brazilian Corporate Law, a group of non-controllingshareholders that hold at least 10% of the voting shares have the right toelect separately one member of the fiscal committee.  Set forth below are the names, ages andpositions of the members of our fiscal committee and their respectivealternates, as of December 22, 2009, the date of the last shareholders’meeting.

 
| **Name**                                | ** ** | **Age** | ** ** | **Length of  Term**    | ** ** | **Year First  Elected** | ** ** | **Position** | ** ** |
|-----------------------------------------|------------|---------|------------|------------------------|------------|-------------------------|------------|--------------|------------|
| João Carlos Hopp                   |       | 79      |       | Until April 2010  |       | 2001                    |       | Member       |       |
| Geraldo Gianini                         |       | 58      |       | Until April 2010  |       | 2006                    |       | Alternate    |       |
| José Ecio Pereira  da Costa Junior |       | 58      |       | Until  April 2010 |       | 2009                    |       | Member       |       |
| Marcos de Bem Guazzelli                 |       | 40      |       | Until April 2010  |       | 2009                    |       | Alternate    |       |
| Sergio Ricardo  Lopes de Farias         |       | 45      |       | Until  April 2010 |       | 2009                    |       | Member       |       |
| Rudinei  dos Santos                     |       | 43      |       | Until  April 2010 |       | 2009                    |       | Alternate    |       |

 

Our *Conselho Fiscal* is governed by InternalRegulations (*Regimento Interno*)approved in February 2010 which sets forth rules with respect toduties and responsibilities of the Committee, its structure and functioning, aswell as rights and obligations of its members.

 

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**B.****                                   ****Compensation**

 

As of the year ended December 31,2009 the aggregate annual remuneration paid to our executive officers was U.S.$15 million.  Fibrias’s *conselho fiscal* members are entitled to receive individualmonthly remuneration equivalent to 10% of the average amount assigned to eachexecutive officer, not including benefits, representation allowance or profitsharing.

 

**C.****                                   ****Board Practices**

 

Our Board of Directorsgenerally meets whenever necessary, according to the company’s interest or whencalled by the Chairman or by the majority of the members of the Board ofDirectors.  Our Board of Directors isresponsible for, among other things, establishing our general business policiesand for electing our executive officers and supervising their management.  The board of executive officers meets periodicallyto review production, commercial and financial operations. Each of our Board ofDirectors and our Board of Executive Officers is governed by their respectiveInternal Regulations (*Regimento Interno*)both approved by the Board of Directors in February 2010 which set forth rules withrespect to duties and responsibilities of each Board, its structure andfunctioning, as well as rights and obligations of its members.

 

According to theBrazilian corporate law and to our by-laws, the members of the Board ofDirectors are elected by the holders of our common shares at the generalshareholders meeting.  Fibria’s membersof the Board of Directors serve two year terms. The terms of the members at December 31, 2009 expire on April 2011.

 

**D.****                                   ****Employees**

 

As of December 31,2009, we employed 5,045 people.  We usesubcontractors for many of our operations and for substantially all of thetransportation of wood, pulp and other raw materials.  These subcontractors employed 9,518 personsfor our business as of December 31, 2009. Approximately 77% of the workers in our forests are employed by thirdparties, predominantly in areas such as maintenance and security.  See “Item 4B. Information on Fibria —Business Overview — Raw Materials — Wood” and “Item 4B. Information on Fibria —Business Overview — Transportation.”  Weare in compliance with all local, state and federal worker health and safetyregulations.

 

Several unions representour employees and they are considered well organized institutions.  Annual Collective agreements related tonon-executive employees were renewed in 2009 for another year, resulting in abase salary increase of up to 6%, including administrative, industry and forestpersonnel.  The collective agreement ofthe Aracruz Unit is still being negotiated. We believe we have good relations with our employees.

 

In March 2000, webegan to participate in a Votorantim Group pension plan, which was madeavailable to all of our employees.  Formore detailed information, see “ — Defined Contribution Pension Plan” below.

 

In December 2005, weprovisioned for the costs of post-retirement benefits expected to be paid tocurrent, former or inactive employees upon retirement.  For more detailed information, see “—Post-retirement Benefit Plan” below.

 

**DefinedContribution Pension Plan**

 

In March 2000, webegan co-sponsoring a multi-employer defined contribution plan of theVotorantim Group which is available to all employees.  For employees below a certain income level wematch the employee’s contribution limited to 1.5% of the employee’scompensation.  For employees above thatincome level we match the employee’s contribution up to 6% of the employee’scompensation.  At our option we may alsomake additional contributions.  Ourcontributions vest in varying percentages depending on the employee’s years ofservice and will fully vest upon the employee’s retirement, death ordisability, provided the employee has at least one year of service.  Our contributions amounted to U.S.$ 3million in 2009, U.S.$ 2 million in 2008 and U.S.$ 5 million in 2007.

 

Aracruz joined ARUS —Fundação Aracruz de Seguridade Social, a private, not for profit, pension planoperating as a multi-sponsored fund.  In September 1998,the existing benefits plan was replaced by another plan that adopts the definedcontribution system for retirement (Arus Retirement Plan).  The Company is a sponsor of Arus RetirementPlan.  Aracruz’s conribution was U.S.$ 3million in 2009.  In the event of awithdrawal of the Arus 

 

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Retirement Plan sponsor,the sponsor’s commitment computed according to Resolution No. 06/88 istotally covered by the plan assets.

 

**Profit SharingPlan**

 

Pursuant to Brazilianfederal law, companies operating in Brazil are required to share profits withemployees beginning from fiscal year 1996. In 1996, we instituted a profit sharing plan for our employees in additionto providing health and life insurance, transportation, meals andtraining.  Pursuant to the program, eachemployee’s share of profits is linked to our operational and financialresults.  Employees are eligible toreceive a maximum payment of up to 1.8 monthly salaries payable in February ofthe following year.  Payment is grantedif defined goals set by management are achieved by the process or industrialunit in which the employee works and based on the individual performance of theemployee.  Several unions that representour employees have agreed to this profit sharing plan.

 

**Post-retirementBenefit Plan**

 

The Company has anactuarial liability that relates to its proportion of the costs of Sepaco, ahospital facility it shares with co-sponsors. Although the not-for-profit hospital is funded by multiple-employers, ithas no separate assets and its costs are apportioned among the sponsors basedon usage.  Contributions paid to thehospital in the year ended December 31, 2009, 2008 and 2007 amounted to,U.S.$ 2 million, U.S.$ 2 million and U.S.$ 3, million, respectively and theaccumulated post-retirement benefit obligation and accrued benefit cost (noplan assets) was U.S.$ 40 million at December 31, 2009, U.S.$ 26 millionat December 31, 2008 and U.S.$ 23 million at December 31, 2007.

 

Measurement ofobligations for the post-retirement benefits plan is calculated as of December 31,2009. Based on the report of our independent actuary, the accumulatedpost-retirement benefit obligation and accrued benefit cost (no plan assets)was U.S.$ 40 million.

 
| ** **                                 | ** ** | **Percentage** | ** ** |
|--------------------------------------------|------------|----------------|------------|
| ** **                                 | ** ** | **2009**       | ** ** | **2008** | ** ** |
| ** **                                 | ** ** | ** **     | ** ** |   | ** ** |
| Weighted-average  assumptions              |       |           |       |   |   |
| Discount  rate                             |       | 6.75           |       | 7.75 |   |
| Health  care cost trend on covered changes |       | 3.0            |       | 3.0 |   |

 
| ** **                                                 | ** ** | **2009**                     | ** ** | **2008** | ** ** |
|------------------------------------------------------------|------------|------------------------------|------------|----------|------------|
| ** **                                                 | ** ** | **(U.S.$ in millions)** | ** ** |
| Components  of net periodic benefit cost for 2009 and 2008 |       |                         |       |     |       |
| Interest  cost                                             |       | 3                            |       | 3        |       |
| Total  net periodic benefit cost (benefit)                 |       | 3                            |       | 3        |       |

 

It has been assumed, formeasurement purposes, that health care cost trends for 2009 will not beconsiderably different from 2008. Our actuaries are unable to project the direction and pattern of changesin both the assumed and ultimate trend rates, nor can they estimate when therates are expected to be achieved.

 

A one-percentage-pointchange in assumed health care cost trend rates would have had the following effectsin 2009 and 2008 (all other assumptions have been held constant):

 
| ** **                                     | ** ** | **One-percentage -********point decrease** | ** ** |
|------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                     | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **(U.S.$ in millions)**               | ** ** |
| Sensitivity  of retiree welfare results        |       |                                       |       |   |   |
| On  total service and interest cost components |       | (0.3                                       | )          | (0.3 | ) |
| On  post-retirement benefit obligation         |       | (3.0                                       | )          | (3.0 | ) |

 

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**Antitrust**

 

We were involved in two transactions that wereapproved under certain conditions by the Brazilian antitrust authorities, asdescribed below.

 

On December 2, 2004, we and Suzano submittedtogether to the Brazilian antitrust authorities the acquisition of 50% ofRipasa’s corporate capital each, filed under the Concentration Act No. 08012.010192/2004-77.On August 8, 2007, CADE approved the transaction under several conditions,which were mainly established in the Performance Commitment (Termo deCompromisso de Desempenho — TCD) that the parties had to enter into with CADE,according to which certain corporate governance requirements were establishedin Conpacel (the co-production plant), such as: (i) full access to theauthorities of documents and information exchanged between the parties as aresult of the joint control in Conpacel; (ii) full access to theauthorities of Conpacel’s production facilities; (iii) the commitment notto require exclusivity provisions in agreements with independent paperdistributors (cut size paper); and (iv) the commitment to present anannual report to CADE describing quantitative goals of Conpacel’s annualproduction and production division between the parties. The TCD alsoestablished the obligation to sell the brand “Ripax” to a third party, as wellas penalties for non-compliance with the commitment. The parties must attest tocompliance with such conditions on an annual basis (except for the sale of the “Ripax”brand) until the TCD’s expiration, which is June 8, 2012.

 

OnOctober 10, 2006, we submitted to the Brazilian antitrust authorities theasset exchange between Fibria and International Paper do Brasil Ltda.,concerning its Luiz Antonio forest, pulp and paper production facilities. On April 23,2008, CADE approved the transaction under certain conditions, principally theexecution of a TCD, which has the same the commitment not to requireexclusivity provisions in agreements with independent paper distributors (cutsize paper).  The parties must attest tocompliance with such conditions until the TCD’s expiration, which is April 23,2013.

 

InAugust 2008, we submitted the terms and conditions of the AracruzAcquisition for review by the antitrust authorities. The antitrust authoritieswill determine whether the transaction negatively impacts competitiveconditions in the markets in which we compete or adversely affects consumers inthese markets. The filing covers the successive acquisitions of equityinterests in Aracruz. The antitrust filing is currently under the analysis ofthe Secretariat of Economic Control of the Department of Finance and the finaldecision is expected to be issued at the end of 2010.

 

Thedetails of the Aracruz Acquisition were timely submitted to all applicableantitrust authorities in the jurisdictions where Fibria and Aracruz had amarket presence, i.e. Europe, the United States, Asia and Brazil. Each of theseauthorities fully approved this transaction before it was consummated.

 

**E.****                                     ****Share Ownership**

 

As of December 31,2009, the members of our Board of Directors and our officers, on an individualbasis and as a group, directly own less than 1% of our common shares.  For information on the beneficial ownershipby the Ermírio de Moraes family, see “Item 7. Major Shareholders andRelated Party Transactions — Major Shareholders.”

 

The following table liststhe amount of shares held directly by each individual member of our Board ofDirectors or executive officer and their representative percentage relative tothe total outstanding shares as of December 31, 2009:

 

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| ** **                               | ** ** | **Number of Common  Shares** | ** ** |
|------------------------------------------|------------|------------------------------|------------|
| **Board of Directors**                   |       |                         |       |
| Jose Luciano Penido                      |       | 2,001                        |       |
| Raul  Calfat                             |       | 70                           |       |
| Wang Wei Chang                           |       | 2                            |       |
| João  Carvalho Miranda              |       | 15                           |       |
| Alexandre  Silva D’Ambrosio         |       | 2                            |       |
| Armando  Mariante Carvalho Junior        |       | 1                            |       |
| Eduardo  Rath Fingerl                    |       | 616                          |       |
| José Armando de Figueiredo Campos   |       | 0                            |       |
| Alexandre  Gonçalves Silva          |       | 0                            |       |
| Mauricio Aquino Halewicz                 |       | 14                           |       |
| Sérgio Duarte Pinheiro              |       | 2                            |       |
| Paulo Henrique de Oliveira Santos        |       | 675                          |       |
| Gilberto Lara Nogueira                   |       | 1                            |       |
|                                     |       |                         |       |
| **E****xecutive Officers**               |       |                         |       |
| Carlos  Augusto Lira Aguiar              |       | 2,431                        |       |
| Evandro  César Camillo Coura        |       | 0                            |       |
| Francisco  Fernandes Campos Valério |       | 3,539                        |       |
| João  Felipe Carsalade              |       | 0                            |       |
| Marcelo  Strufaldi Castelli              |       | 0                            |       |
| Miguel  Pinto Caldas                     |       | 0                            |       |
| Total                                    |       | 9,369                        |       |

 

Source:  ItaúCustódia.

 

# **ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTYTRANSACTIONS**

#  

**A.****                                   ****Major Shareholders**

 

The following table setsforth the principal holders of common shares and their respective shareholdingsas of December 31, 2009:

 
| **Shareholders**                        | ** ** | **Common  Shares** | ** ** | **(%)** | ** ** |
|-----------------------------------------|------------|--------------------|------------|---------|------------|
|                                    |       |               |       |    |       |
| Votorantim Participações S.A. |       | 137,269,125        |       | 29.34   |       |
| BNDES Participações S.A.      |       | 157,028,557        |       | 33.56   |       |

 

The ultimate beneficialowner, in each case, of more than 5% of our common shares through intermediateholding companies is the Ermírio de Moraes family and BNDESPAR,respectively.  All holders of our commonstock have the same voting rights.

 

As a result of capitalsubscriptions that have occurred in 2009 the following table presents a summaryof these changes and the principal holders of common and preferred shares at December 31,2008 and 2009;

 

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| ** **                            | ** ** | **Balance  December 31, 2009** | ** ** | **Balance  December 31, 2008** | ** ** |
|---------------------------------------|------------|-------------------------------------|------------|-------------------------------------|------------|
| **Shareholders**                      | ** ** | **Number of  shares**               | ** ** | **% of total**                      | ** ** | **Number of  shares** | ** ** | **% of total** | ** ** |
| **Common Shares**                     |       |                                |       |                                |       |   |   |   |   |
| Votorantim Group                      |       | 137,269,125                         |       | 29.34                               | ** ** | 105,702,452 |   | 52.49 |   |
| BNDES Participações S.A.    |       | 157,028,557                         |       | 33.56                               | ** ** | — |   | — |   |
| Board, Directors and Fiscal committee |       | 9,369                               |       | 0.00                                |       | — |   | — |   |
| Public (Free Float)                   |       | 173,594,224                         |       | 37.10                               | ** ** | — |   | — |   |
| **Total Common**                      | ** ** | **467,934,646**                     | ** ** | **100.00**                          | ** ** | **105,702,452** | ** ** | **100.00** | ** ** |
| **Preferred Shares**                  |       |                                |       |                                |       |   |   |   |   |
| Votorantim Group                      |       | —                              |       | —                              |       | 677 |   | — |   |
| BNDES Participações S.A.    |       | —                              |       | —                              |       | 6,327,669 |   | 3.14 |   |
| Board, Directors and Fiscal committee |       | —                              |       | —                              |       | 3,005 |   | — |   |
| The Families, Safra Family and others |       | —                              |       | —                              |       | — |   | — |   |
| Public (Free Float)                   |       | —                              |       | —                              |       | 89,337,802 |   | 44.36 |   |
| **Total Preferred**                   | ** ** | **—**                          | ** ** | **—**                          | ** ** | **95,658,964** | ** ** | **47.51** | ** ** |
| **Total Common and Preferred**        | ** ** | **467,934,646**                     | ** ** | **100.00**                          | ** ** | **201,361,414** | ** ** | **100.00** | ** ** |

 

**B.****                                   ****Related-PartyTransactions**

 

We have engaged in anumber of transactions with related parties.

 

**Distributionsand Sales Outside of Brazil**

 

Beginning in 2006, all ofour exports are sold through VCP Overseas Holding KfT by VCP Overseas HoldingLimited, Budapest, the Switzerland branch of our international subsidiary. Inorder to facilitate access to our international customers and to theinternational financial markets, we have established a wholly-owned subsidiary,Fibria Trading International Ltd (former “Aracruz Trading International Ltd”),to perform and manage our exports to clients in Europe, Asia and in NorthAmerica.

 

**BancoVotorantim S.A.**

 

We have entered into anumber of financial transactions with or through Banco Votorantim, a financialinstitution controlled by the Votorantim Group and its affiliates.  At December 31, 2009, we hadU.S.$ 112 million (of a total of U.S.$ 2,270 million) in deposits andinvestments.

 

**Guarantees**

 

At December 31,2009, we guaranteed U.S.$ 245 million of debt of other members of theVotorantim Group which pertains to the aggregate amount of debt issued in theinternational capital markets.  In eachcase, the outstanding guarantee amount at December 31, 2009 pertains tothe amount of proceeds that were received by us and/or our subsidiaries on theissue date.  The remaining debt raisedwas received and also guaranteed by other members of the Votorantim Group.  The U.S.$ 245 million corresponding toFibria is made up of the following:

 

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| **Primary obligor**                                      | ** ** | **Obligations**                             | ** ** | **Issue Date**         | ** ** | **Outstanding  guarantee  amount at  December 31,  2009** | ** ** | **Date of  Expiration of  guarantee** | ** ** | **Beneficiary**              |
|----------------------------------------------------------|------------|---------------------------------------------|------------|------------------------|------------|----------------------------------------------------------------|------------|---------------------------------------|------------|------------------------------|
| Voto-Votorantim  Overseas Trading Operations III Limited |       | U.S.$ 300  million notes issuance |       | January 23,  2004 |       | U.S.$ 45  million                                         |       | January 23,  2014                |       | Noteholders and  the trustee |
| Voto-Votorantim  Overseas Trading Operations IV Limited  |       | U.S.$ 400  million notes issuance |       | June 24,  2005    |       | U.S.$ 200  million                                        |       | June 24,  2020                   |       | Noteholders and  the trustee |
| **Total**                                                |       |                                        |       |                   |       | U.S.$ 245 million                                         |       |                                  |       |                         |

 

Note:                   The guarantees provided by usare in favor of other companies of the Votorantim Group.

 

Each of the primary obligorslisted above are special purpose companies established with the sole purpose ofissuing debt.  As such, upon maturity ofthe debt issued, which is also the date of expiration of the guarantee, we willeither repay lenders or seek to refinance the maturing debt.

 

At December 31,2009, we have guaranteed to banks their collection of U.S.$ 91 million fromcertain customers related to sales of our products to these customers under ourVendor Program (see “Item 4B. Information on Fibria — Business Overview —Vendor Program”).

 

The BNDES loans aresecured by property, plant and equipment and a lien on certain land andpersonal guarantees of an owner of Hejoassu, our ultimate parent company.

 

We believe the othercompanies of the Votorantim Group, whose debt we guarantee, are creditworthyand we do not expect to be called on to make payments on our guarantees.  In addition, given our ability to obtainshort term financing, we do not believe that there is substantial risk ofilliquidity even if we are called upon to make payments under our guarantees,individually or in the aggregate.  See “Item 5.Operating and Financial Review and Prospects — Liquidity and Capital Resources —Commitments and Contingencies” for a summary of the guarantees we provided infavor of other companies of the Votorantim Group.  For additional information on our commitmentsand contingencies, see Note 15 to our audited consolidated financialstatements.

 

**Leasesof Forest Land**

 

At December 31,2009, we leased 194,264****hectaresof land, including 115,889 hectares of planted area, or approximately 20% ofthe land devoted to our forestry plantations. This leasing program began in 1972 by one of our predessor companies inthe state of São Paulo and has continued thereafter. The leases have differentforms as the regions have different negotiation traditions. Contracts arenormally signed for a period of 14-21 years and they all contemplate a periodicadjustment according to governmental inflation indexes. Values vary from regionto region in order to be competitive in comparison with other farm activities,it may be a percentage of the harvesting production or a fixed down payment.Payment frequency can also vary from monthly or yearly payments to post-harvesting operation, when the lease is a partnership model.

 

**BNDESPar**

 

We have entered into anumber of financing transactions with BNDES. At December 31, 2009 we had an aggregate of U.S.$ 805 million inoutstanding loans to BNDES denominated in *reais*that we borrowed to fund expansion and modernization projects.  The BNDES loans are secured by liens on land,equipment and property (including the Jacareí mill), and by personal guaranteesof an owner of Hejoassu, the ultimate parent of the Votorantim Group.  Our TJLP loans with BNDES bear interest ataround 2.76% per annum on the principal amount above the TJLP base rate (TJLPis a nominal long term interest rate that includes an inflation factor).  At December 

 

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31,2009,wehadanadditionalaggregateamountofU.S.$80millioninloanstoBNDESdenominatedin*reais*andbearinganinterestrateofaround7.67%peryearasadjustedbytheUMBNDESIndex.  TheUMBNDESIndexisaweightedaverageratebasedontheexchangerateofabasketofcurrencies,predominantlytheU.S.Dollar.During2009,theUMBNDESIndex’saverageratewas-25.66% per annum. At December 31, 2009, the TJLP was fixed at 6% and, during 2008averaged 6.25% per year (see Note 13 to our audited consolidated financialstatements).  As of December 31,2009, BNDES had lent approximately 12% of our consolidated indebtedness, and isexpected to loan significant funds in the future.  See “Item 5. Operating and Financial Reviewand Prospects —  Liquidity and CapitalResources — Debt BNDES” and Exhibits 4.11 and 4.12 to this annual report.

 

We have entered (as anintervening party) into an Investment Agreement between BNDESPar and VID.  VID and BNDESPar have agreed to enter into aform shareholders’ agreement of Fibria under which the approval of certainmatters will depend on the affirmative vote of BNDESPar.  See “Item 10C. Material Contracts —Shareholders’ Agreement of Fibria.”

 

For additionalinformation regarding related-party transactions, see “Item 5. Operatingand Financial Review and Prospects — Liquidity and Capital Resources” andNote 13 to our audited consolidated financial statements.

 

**C.    Interests of Experts and Counsel**

 

Not applicable.

 

# **ITEM 8.  FINANCIAL INFORMATION**

 

**A.****                                   ****Consolidated Statementsand Other Financial Information**

 

See “Item 3. KeyInformation — Selected Financial Data” and “Item 18. Financial Statements.”

 

***Commitments and contingencies***

 

We are subject tonumerous commitments and contingencies with respect to tax, labor and otherclaims.  See “Item 8. FinancialInformation — Consolidated Statements and Other Financial Information — LegalMatters,” and Note 17 to our audited consolidated financial statements anddiscussions on our critical accounting policies.

 

The significantcontractual obligations and commitments that affect our liquidity areshort-term debt, long term debt, take-or-pay contracts, leases and capitalexpenditures.

 

We are party to certainlegal proceedings in Brazil arising in the normal course of business, and havemade provisions when we believe that we can reasonably estimate probablelosses.  In connection with some of theseproceedings we have made deposits (included in other non-current assets) which willonly be released to us upon a judgment in our favor.  The provisions for tax and other litigationand the deposits are as follows:

 
| ** **    | ** ** | **2009**                    | ** ** | **2008**                    | ** ** |
|---------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **    | ** ** | **(In  millions of U.S.$)** | ** ** | **(In  millions of U.S.$)** | ** ** |
| ** **    | ** ** | **Deposits**                | ** ** | **Provisions**              | ** ** | **Deposits** | ** ** | **Provisions** | ** ** |
| Tax-related   |       | 196                         |       | 408                         |       | 127 |   | 135 |   |
| Labor-related |       | 19                          |       | 45                          |       | 3 |   | 20 |   |
| Civil-related |       | —                      |       | 4                           |       | — |   | 6 |   |
| Total         |       | 215                         |       | 457                         |       | 130 |   | 161 |   |

 

Fibria entered into Takeor Pay long-term agreements with suppliers of power, transport, diesel fuel andchemical products for the period of 1 to 10 years. Agreements determinetermination and suspension clauses of supply due to non-compliance withessential obligations. Contractual obligations assumed on December 31,2009 represent U.S.$ 353 million. Additionally, a Take or Pay long-term agreement was entered into in 2007related to 

 

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supply of pulp for 30years.  Commitment established by thisagreement in December 31, 2009 represents U.S.$ 52 million p.a.

 

**LegalMatters**

 

We are party to a numberof legal actions arising from our normal business activities. These includegeneral civil, tax and employee litigation and administrative and environmentalproceedings. Although the amount of any liability that could arise with respectto these actions cannot be accurately predicted, in our opinion, except asdescribed below, such actions, if decided adversely, would not, individually orin the aggregate, have a material adverse effect on our financial condition.

 

As of December 31,2009, we were party to various legal and administrative proceedings relating tolabor, civil, environmental and tax matters involving a total amount ofestimated probable and possible losses of U.S.$ 1,154 million. It is our policyto make provisions for legal contingencies where, based upon the judgment ofour legal advisors, the risk of loss is probable. As of December 31, 2009and December 31, 2008, we had recorded a provision in the amount of U.S.$457 million and U.S.$ 161 million, respectively, to cover contingencies forproceedings for which the risk of loss was deemed probable.  Moreover, as of December 31, 2009 and December 31,2008, we had also made judicial deposits in the amount of U.S.$ 215 million andof U.S.$ 130 million, respectively, related to these proceedings.

 

We believe that ourprovisions for legal proceedings are sufficient to meet probable and reasonablyestimable losses in the event of unfavorable court decisions and that theultimate outcome of these matters will not have a material effect on ourfinancial condition or results of operations. We cannot estimate the amount of all potential costs that we may incuror penalties that may be imposed on us other than those amounts for which wehave provisions.

 

***Tax Proceedings***

 

We have instituted anumber of legal proceedings in which we are seeking a refund or contesting theimposition of certain taxes.  The following is a description of someof our most significant judicial and administrative tax proceedings.

 

We are contesting inlocal federal courts changes in the rates and rules for the calculation ofPIS and COFINS determined by Law No. 9,718/98. In November 2001,Aracruz was granted a favorable judgment. After analyzing certain unfavorablelegal decisions on similar legal actions of other companies and theirimplications for Aracruz’s case at that time, Aracruz decided to cancel, on August 29,2003, part of the legal action, regarding the rate increase and changes to thetaxable revenue basis of these social contributions, and decided to pay theaccrued amount in installments according to a special installment taxcollection program called PAES, enacted by Law 10.684/2003. Notwithstanding,due to a judgment issued by the Brazilian Supreme Court in a similar legalaction, which considered the modification in the rules for the calculationof PIS and COFINS to be unconstitutional, the Company requested and was grantedinjunctive relief (*medida liminar*)allowing it not to pay the PAES installments related to such modification.Taking into account decisions of the Brazilian Supreme Court in regard to theunconstitutionality of such taxes that have been followed by otheradministrative and judicial courts, indicating that the jurisprudence on thematter is consolidated, as well as the revocation, in 2009, of Section 3,paragraph 1 of Law No. 9,718/98, the Company, based on the advice ofexternal legal counsel, reverted in September 2009 a provision withrespect to such legal actions which then equaled U.S.$ 92 million.

 

On September 10,2003, Aracruz obtained a preliminary court order giving it the right not to paythe Contribuição Social sobre o Lucro Líquido (CSLL), a Brazilian federalsocial contribution generated by export revenue from January 2002 as wellas the right to recognize the amounts of tax credits previously compensated inthis regard. Pending final determination, the Company has accrued a provisionof U.S.$ 145 million as of December 31, 2009.

 

The Company’s operationsare located within the geographic area of the ADENE, and the pulp and papersector is considered by the Brazilian government as a priority for thedevelopment of such geographic area. 

 

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Accordingly, during 2002,Aracruz applied for, and was awarded the right to, a reduction in income taxespayable on its operating profits. The tax benefit was authorized by the ADENEand subsequently confirmed by the Secretaria da Receita Federal, or SRF, theBrazilian federal revenue service in December 2002. On January 9,2004, Aracruz was notified by the ADENE of its decision to cancel theassessments (*laudos constitutivos*)that supported the fiscal benefits to which the Company had been entitled. Suchdecision resulted from a reexamination by the legal department of theMinistério da Integração Nacional, the Brazilian national integration ministry,which concluded that the geographical area where the Company is located wouldnot be within the geographical area of the fiscal incentive and, therefore, theCompany would no longer be entitled to such fiscal incentive.

 

During 2004 and 2005, theADENE issued several acts with the objective of annulling the tax benefit usedby Aracruz. Such acts were always challenged by Aracruz. Nevertheless, in December 2005Aracruz was notified by the SRF to pay the amount corresponding to the taxincentive it had recorded, plus interest, in the total amount of U.S.$82million. Aracruz presented its defense in January 2006 but its argumentshave not been accepted by the SRF. Aracruz appealed to the Federal TaxpayersCouncil and in November 2009 a decision on the meritswas issued to partiallyrecognize Aracruz’s right to the tax incentive, with respect to the amountsrecorded up to December 31, 2003.

 

Notwithstanding suchdecision, it is the management’s understanding, based on advice of externallegal counsel, that tax assessment shall be overruled as a whole, including theamounts already recorded until 2004 (U.S.$82 million on December 31,2004), since the tax incentive was recorded pursuant to strict legalrequirements and acts of SRF and the ADENE. Therefore, no provisions for losswere booked for the amounts of the benefits already recognized.The Company’smanagement also believes, based on external legal counsels’ opinions, that thecancellation of the tax incentive regarding future years (up to 2012 forFiberlines A and B and 2013 to Fiberline C of the Aracruz Unit) is illegal dueto the fact that the incentive was granted upon compliance of predeterminedconditions (implantation, expansion and modernization of industrial plants).Therefore, the Company has the vested right to use the tax incentive until thedate set forth under applicable law and in the acts issued by the ADENE.However, there is no assurance that the tax benefit will be updated or madeavailable in the future.

 

Notwithstanding theconfidence in the merits of its case, the Company, considering the factsoccurred during the years 2004 and 2005, which indicate the ADENE’s and the SRF’sinclination to cancel the tax incentive, decided to be conservative and ceasedto recognize the incentive in the calculation of income tax payable from 2005on and until a final Court decision has been granted.

 

In December 2007,two tax assessments in the amounts of U.S.$122.8 million and U.S.$520.8 millionwere issued by the SRF against our company, with respect to IRPJ and CSLL onthe income resulting from an equity adjustment for investments in offshorecompanies controlled by us during the period from 2002 to 2006. We consider theexpectation of loss under these assessments to be remote and accordingly haverecorded no provision with respect thereto.

 

We filed a declaratorylawsuit challenging the legality of the inclusion of the state value-added taxon sales and services, ICMS, on the calculation basis of the tax for socialsecurity financing (*Contribuição para oFinanciamento da Seguridade Social*), or COFINS, and also affirmingour right to offset the amounts we believe we overpaid. The amount involved insuch claims is U.S.$ 26.0 million.  Basedon the advice of our legal counsel, we made a provision for probable lossesarising from such lawsuit in the total amount of U.S.$ 11 million, which wedeposited with the court.

 

We filed lawsuits toaffirm the continuance of ICMS credits on raw material purchases for theproduction of paper. The Brazilian Constitution grants tax immunity for paperused in the production of books, newspapers and periodicals. We argue that suchimmunity should also apply in respect of raw materials used in the productionof the tax-free paper. The total amount under the claim is U.S.$ 56 million.Based on the advice of our legal counsel, we recorded a provision forcontingencies for probable losses in the total amount of U.S.$ 21 million,which we deposited with the court.

 

In October 2006, wereceived 32 notifications related to tax assessments issued by the governmentof the State of Espírito Santo, for an aggregate amount of U.S.$ 44 millionrelated to the alleged non-compliance of formal 

 

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ancillary obligations andinappropriate recording of ICMS credits from fixed assets and other goodsacquired for utilization in the process of pulp production. We paid the amountscorresponding to 15 of tax assessments and contested the remaining 17, whichamounted to U.S.$ 44 million. As of January 2009, we had been grantedfavorable administrative decisions in connection with the tax assessments beingcontested amounting to U.S.$ 6 million. In March 2008, the State ofEspírito Santo filed a lawsuit against us in connection with three of the taxassessments contested by us amounting to U.S.$ 34 million. Based on the opinionof our legal counsel, we believe our chances of success in the court proceedingare between possible and probable, and thus no provision has been recognized.In July 2009, taking advantage of the ICMS Tax Payment Incentive Program(Programa de Pagamento Incentivado de ICMS — PPI), a special payment programestablished by the State of Espírito Santo, we paid all the tax assessmentsissued by the revenue service of the State of Espírito Santo.

 

***Tax Amnesty and Refinancing Program (REFIS)***

 

InNovember 2009, we included several of our outstanding tax and socialsecurity claims in the Tax Amnesty and Refinancing Program (Programa deRecuperação Fiscal), or REFIS, a Brazilian government program which offersdiscounts on the payment of federal tax debts and penalties owed to theBrazilian Revenue Service (Receita Federal do Brasil), or RFB. As a conditionof submitting these assessments to REFIS, we withdrew our judicial challenge.We estimate that the total aggregate amount due to the RFB will be reduced fromU.S$139.1 million to U.S.$123.5 million, representing a discount of 60% onpenalties and 25% on interest included in the tax assessments, which we haveinitially decided to pay in 180 monthly installments. Pursuant to the terms ofthe REFIS, the RFB shall determine on a case-by-case basis the minimum amountof each of the installments to be paid by companies submitting their tax debtsto the program. Prior to such determination, our company is required to payU.S.$2,871.6 per month to benefit from REFIS. As of the date hereof, the RFBhad not determined the minimum amount of each of the installments to be paid byus.

 

***Labor Proceedings***

 

We are party toapproximately 3,700 legal actions relating primarily to labor claims by formeremployees. Such claims mainly relate to the effect of the variation in theinflation indexes (economic plans), on the 40% penalty applicable to theMandatory Fund for Unemployment Benefit (*Fundode Garantia por Tempo de Serviço—FGTS*),  or FGTS, and we have recorded a provision forlabor proceedings of U.S.$ 56 million. In March 2009 we settled pending claims filed by a workers unionbefore the 1st Labor Court of Jacareí seeking the payment of risk premiums andhealth hazard bonuses for Jacareí mill employees for an amount of U.S.$ 17million, payable in four installments during the course of 2010.

 

***Civil Proceedings***

 

Class Action

 

We are currently adefendant in litigation relating to derivative losses Aracruz incurred in thefourth quarter of 2008.  This litigationincludes a securities class action lawsuit filed in November 2008 againstAracruz and certain of its officers and directors in a U.S. federal courtpurportedly on behalf of persons who purchased Aracruz’s shares and AmericanDepositary Receipts (ADRs) between April 7 and October 2, 2008, whichlawsuit we are currently defending. The complaint asserts claims for allegedviolations of Section 10(b) of the Exchange Act and Rule 10b-5promulgated thereunder and Section 20(a) of the Exchange Act,alleging that we misrepresented or failed to disclose information in connectionwith, and losses arising from, certain derivative transactions into which wehad entered. The plaintiffs are seeking unspecified compensatory damages andexpense reimbursement.  On October 5,2009, the plaintiffs filed an amended complaint that narrowed the class ofplaintiffs to persons who purchased Aracruz’s ADRs between April 7 and October 2,2008.

 

Other Proceedings

 

During the ExtraordinaryGeneral Shareholders Meeting of Aracruz held on November 24, 2008, theshareholders of Aracruz decided that a derivative suit under Brazilian lawshould be filed against Mr. Isac Roffé Zagury, Aracruz’s former ChiefFinancial Officer, in order to declare him legally responsible for thesignificant losses incurred by Aracruz with derivatives transactions in 2008that had been allegedly executed without observing the limits set forth in Aracruz’sfinancial policy. This lawsuit was duly filled before the Court of the City ofRio de Janeiro on February 20, 2009.

 

The CVM instituted anadministrative proceeding related to Aracruz’s losses with derivativestransactions in 2008. CVM has requested us to provide information in connectionwith those transactions, and we have promptly complied with such request.Proceedings of such nature aim to define the ultimate responsibility ofdirectors, officers, members of the *conselho fiscal*(fiscal committee), independent auditors and shareholders involved with thesubject matter of the investigation, and normally do not materially affect therelated company.

 

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Land Disputes

 

In April andOctober, 2006 and in December 2009, the *InstitutoNacional de Colonização e Reforma Agrária*, or INCRA, the Brazilianinstitute for land reform, published Public Notes (*Editais*) informing that Technical Identification Reportsissued by commissions set up by the INCRA concluded that approximately 34,430hectares of land located in the Municipalities of Conceição da Barra and SãoMateus, in the State of Espírito Santo, are considered the territory of the *Comunidades Quilombolas de Linharinho, de São Jorge ede São Domingos* (Maroon Communities of Linharinho, São Jorge and SãoDomingos), comprising areas of 9,500 hectares, 13,070 hectares and 11,860hectares, respectively. From that total area, approximately 25,330 hectares arethe legitimate property and possession of us and of our subsidiary MucuriAgroflorestal S.A., being 8,500 hectares located in the area considered theterritory of the Linharinho community, 8,630 hectares located in the areaconsidered the territory of the São Jorge community and 8,200 hectares locatedin the area considered the territory of the São Domingos community. We havetimely presented our defense, challenging both Public Notes, and are confidentin the merits of our case.

 

For more information onour lawsuits, see Note 17 to our audited consolidated financialstatements.

 

**DividendPolicy and Dividends**

 

***General***

 

In order to determine theamounts available for dividend distribution, we are subject to the followingprocedures, established by the Brazilian corporate law.  We must allocate 5% of our annual net income,determined in accordance with the requirements of the Brazilian corporate lawand Brazilian GAAP, to a legal reserve until the legal reserve equals 20% ofour share capital as of the end of the most recent fiscal year.  However, we are not required to make anyallocations to our legal reserve in respect of any fiscal year in which suchreserve, when added to our other capital reserves, exceeds 30% of ourcapital.  The legal reserve may be usedonly to offset any accumulated deficit or to increase our share capital and maynot be distributed.  At December 31,2009, the legal reserve outstanding balance was U.S.$ 195 million .

 

According to theBrazilian corporate law, after allocation of any amounts to the legal reserve,we may, subject to shareholders’ approval, make allocations from the remainingbalance to a contingency reserve against future losses.

 

At the end of each fiscalyear, all shareholders are entitled to receive a mandatory dividend, also knownas the mandatory distribution.  For themandatory distribution, we must distribute at least 25% as determined underBrazilian GAAP of the net income after taxes, after deducting the accumulatedlosses and after deducting any amounts allocated to employee’s and managementparticipation, and as reduced or increased, as the case may be, by thefollowing amounts:

 

·                  the amount allocated to the legal reserve; and

 

·                  the amount allocated to the contingency reserve andany amount written off in respect of the contingency reserve accumulated inprevious fiscal years.

 

Under certaincircumstances, however, a Brazilian corporation is permitted to omit thepayment of the mandatory distribution. The Company’s administration consideredthat the mandatory distribution of dividends related to the year 2009 is notaligned with the Company’s financial condition and will propose at the GeneralShareholders’ Meeting to be held by April 30, 2010 to omit suchpayment.   See “Item 8.  Mandatory Distribution” and Note 19 to ouraudited consolidated financial statements.

 

Under the Braziliancorporate law, the amount by which the mandatory distribution exceeds the “realized”portion of net income for any particular year may be allocated to theunrealized income reserve and the mandatory distribution may be limited to the “realized”portion of net income.  The “realized”portion of net income is the amount by which “net income” exceeds the sum of (1) ournet positive results, if any, from the equity method of accounting for earningsand losses of our subsidiaries and certain affiliates, and (2) theprofits, gains or income obtained on transactions maturing after the end of thefollowing fiscal year.  As amountsallocated to the unrealized 

 

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income reserve arerealized in subsequent years, such amounts must be added to the dividendpayment relating to the year of realization.

 

The amounts available fordistribution are determined on the basis of financial statements prepared inaccordance with the requirements of the Brazilian corporate law.  In addition, amounts arising from taxincentive benefits or rebates are appropriated to a separate capital reserve inaccordance with the Brazilian corporate law. This investment incentive reserve is not normally available fordistribution, although it can be used to absorb losses under certaincircumstances, or be capitalized. Amounts appropriated to this reserve are not available for distributionas dividends.

 

The Brazilian corporatelaw permits a company to pay interim dividends out of preexisting andaccumulated profits for the preceding fiscal year or semester, based onfinancial statements approved by its shareholders.   We did not pay dividends in 2009 because therewere no profits earned through December 31, 2008..

 

Unappropriated retainedearnings, as reported in our U.S. GAAP financial statements, represent retainedearnings after appropriations specified in the Brazilian corporate law asdescribed in the third preceding paragraph above.  Unappropriated retained earnings in U.S. GAAPhave no relevant impact on U.S. investors since the distributable earnings arethose recorded in our financial statements prepared in accordance withBrazilian GAAP.  The appropriated reservebalances in the U.S. GAAP financial statements at the balance sheet datesreflect the underlying Brazilian statutory accounts translated at historicalexchange rates and do not reflect amounts available for distribution.

 

Brazilian law permits thepayment of dividends only in *reais*limited to the unappropriated retained earnings in our financial statementsprepared in accordance with Brazilian GAAP. At December 31, 2009, in our financial statements prepared inaccordance with Brazilian GAAP, we had unappropriated retained earnings —Reservefor Investments of R$ 1,202 million, equivalent to U.S.$ 690 million atthe exchange rate of December 31, 2009. Unappropriated retained earnings as reported in accordance withBrazilian GAAP may be used to make additional discretionary dividend payments,but we cannot assure you that we will make dividend payments out of theseUnappropriated retained earnings in the foreseeable future.  No dividend distribution can be made if anaccumulated deficit is reported in accordance with Brazilian GAAP, unless thenegative balance is eliminated by the reversal of other reserves.

 

***Mandatory distribution***

 

Under our by-laws, atleast 25% of our adjusted net income as determined under Brazilian GAAP for thepreceding fiscal year must be distributed as a mandatory annual dividend.  The dividend must be distributed within 60days of the annual shareholders’ meeting at which the distribution is approved,unless a shareholders’ resolution determines another date for distribution,which may not be later than the end of the fiscal year in which such dividendwas declared.   The mandatorydistribution is based on a percentage of adjusted net income, which may not belower than 25%, rather than a fixed monetary amount per share.  The Brazilian corporate law permits, however,a company to suspend the mandatory distribution of dividends if the Board ofDirectors reports to the shareholders’ meeting that the distribution would beincompatible with the financial condition of the company, subject to approvalby the shareholders’ meeting and review by the *conselhofiscal*.  The Board ofDirectors must file a justification for a dividend suspension with the CVMwithin five days of the date of the shareholders’ meeting.  Profits not distributed by virtue of thesuspension mentioned above must be attributed to a special reserve and, if notabsorbed by subsequent losses, must be paid as dividends as soon as thefinancial situation of the company permits such payments.  The rules regarding suspension apply tothe holders of ADSs.  The mandatorydistribution may also be limited to the “realized” portion of net income, asdescribed under “—General.”  The Company’sadministration considered that the mandatory distribution of dividends relatedto the year 2009 is not aligned with the Company’s financial condition and willpropose at the General Shareholders’ Meeting to be held by April 30, 2010to omit such payment. For further information on our dividend policy, see “DividendPolicy.”

 

***Payment of dividends***

 

We are required by theBrazilian corporate law to hold an annual shareholders’ meeting by April 30of each year at which, among other things, the shareholders have to decide onthe payment of our annual dividend. Under 

 

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the Brazilian corporatelaw, dividends are required to be paid within 60 days following the date thedividend was declared, unless a shareholders’ resolution sets forth another dateof payment, which must occur prior to the end of the fiscal year in which suchdividend was declared.  A shareholder hasa three-year period from the dividend payment date to claim dividends (orinterest payments as described under “—Additional payments on shareholders’equity”) in respect of its shares, after which we will have no liability forsuch payments.

 

We may prepare financialstatements semiannually or for shorter periods. Our Board of Directors may declare a distribution of dividends based onthe profits reported in semiannual financial statements.  The Board of Directors may also declare adistribution of interim dividends based on profits previously accumulated or inprofits reserve which are reported in such financial statements or in the lastannual financial statement approved by resolution taken at a shareholders’meeting.

 

In general, shareholderswho are not residents of Brazil must register their equity investment with theCentral Bank to have dividends, sales proceeds or other amounts with respect totheir shares eligible to be remitted outside of Brazil.  The common shares underlying the ADSs areheld in Brazil by Banco Itaú S.A., also known as the custodian, as agent forthe depositary, which is the registered owner on the records of the registrarfor our shares.  The current registrar isBanco Itaú S.A.  The depositary registersthe common shares underlying the ADSs with the Central Bank and, therefore, isable to have dividends, sales proceeds or other amounts with respect to the commonshares remitted outside Brazil.

 

Payments of cashdividends and distributions, if any, are made in Brazilian *Reais* to the custodian on behalfof the depositary, which then converts such proceeds into U.S. Dollars andcauses such U.S. Dollars to be delivered to the depositary for distribution toholders of ADSs.  In the event that thecustodian is unable to convert immediately the Brazilian currency received asdividends into U.S. Dollars, the amount of U.S. Dollars payable to holders ofADSs may be adversely affected by devaluations of the Brazilian currency thatoccur before the dividends are converted. Under the current Brazilian corporate law, dividends paid to persons whoare not Brazilian residents, including holders of ADSs, will not be subject toBrazilian withholding tax, except for dividends declared based on profitsgenerated prior to December 31, 1995, which will be subject to Brazilianwithholding income tax at varying tax rates. See “Item 10. Additional Information — Taxation — Certain Braziliantax consequences.”

 

In 2007 we paid dividendsin excess of the mandatory amount.  In2008 and 2009, no dividends were paid or accrued relating to 2007 and 2008operations as we incurred a loss as measured under Brazilian GAAP.

 

***Dividend policy***

 

The declaration of annualdividends, including dividends in excess of the mandatory distribution,requires approval by the vote of the majority of the holders of our commonstock present at a Shareholders’ Meeting and will depend on many factors.  These factors include our results ofoperations, financial condition, cash requirements, future prospects, ourcredit ratings, macroeconomic conditions and other factors deemed relevant byour shareholders.  Our shareholders havehistorically acted on these matters at the recommendation of our Board ofDirectors.  Within the context of our taxplanning, we may in the future determine that it is to our benefit todistribute interest attributed to capital.

 

In addition to thefactors described above and in view of the acquisition of Aracruz in 2009, theresulting increase of our level of indebtedness, the liability managementprogram and our long term business plan and as permitted by the applicablestatutes of Brazilian Corporate Law, our Board of Directors recommended that nodividends or interest attributable to capital be paid with respect to thereported results of 2009.

 

No dividends were paid incalendar year 2008 due to the economic conditions present at that time. Duringthe period of 2003 to 2007, the Company’s dividend policy, as approved by ourBoard of Directors for was to pay dividends and/or interest on equity based on60% of “free cash flow.”  “Free cash flow”is expected to be an amount equal to “EBITDA” minus “changes in workingcapital,” minus “income taxes” and minus “capital expenditures” and will bebased upon our financial statements prepared in accordance with the Braziliancorporate law, Brazilian GAAP and the rules and regulations of the CVM andBovespa.  “EBITDA” means operating incomebefore financial expenses (income) and gains (losses) from certain investmentsaccounted for by the equity method plus depreciation, amortization anddepletion; “changes in working capital” means the net cash provided by (or usedin) 

 

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the decrease (increase)of current assets and the increase (decrease) of current liabilities; “incometax” means the income tax and social contribution effectively paid by us and “capitalexpenditures” means the net cash used in our capital expenditures, in each caseas such items appear in the income statement and/or the statement of cash flowscontained in our year-end financial statements prepared in accordance with therequirements of the Brazilian corporate law. It is anticipated that, given the cyclical nature of our pulp and paperbusiness, distributions of dividends and/or interest on equity will be madeonce a year.

 

The declaration of annualdividends, including dividends in excess of the mandatory distribution, willcontinue to require approval by the majority of our common stockholders presentat a Shareholders’ Meeting and will continue to depend on many factors,including our results of operations, financial condition, cash requirements,future prospects, credit ratings, macroeconomic conditions and other factorsdeemed relevant by our shareholders and Board of Directors.  We may change or rescind our dividend policyat any time.

 

***Dividends***

 

The following table setsforth the dividends paid to holders of our capital stock since fiscal year2006.  The amounts in the table belowrelate to cash dividends declared, which differ from the dividends reported inU.S. Dollars in the statement of changes in shareholders’ equity in ourconsolidated financial statements due to translation effects recorded throughto the date of dividend payment:

 
| **First payment date** | ** ** | **Fiscal year** | ** ** | **Common shares**          | ** ** | **Preferred shares**          | ** ** | **Common shares(1)** | ** ** | **Preferred  shares(1)** | ** ** |
|------------------------|------------|-----------------|------------|----------------------------|------------|-------------------------------|------------|----------------------|------------|--------------------------|------------|
| ** **             | ** ** | ** **      | ** ** | **(in R$ per share)** | ** ** | **(in U.S.$ per share)** | ** ** |
| May 10, 2007 (2)  |       | 2006            |       | 1.4963                     |       | 1.6459                        |       | 0.7379               |       | 0.8117                   |       |
| May 10, 2008 (2)  |       | 2007            |       | 1.4863                     |       | 1.6349                        |       | 0.6360               |       | 0.7171                   |       |

 

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(1)          Based on declared cash amountin R$ translated to U.S. Dollars at the exchange rate on the first paymentdate.

 

(2)          Dividends distributed asInterest on Equity (ISE).  Amounts aregross of the 15% withholding tax.

 

On December 11,2007, we declared dividends (as interest attributable to capital) related to2007 fiscal year, in the gross amount of R$ 318 million (equivalent toU.S.$ 188 million), paid in May, 2008, after our annual shareholders’meeting (held April 30, 2008).  Thisamount represents approximately 30% of our net earnings for the year 2007 and3% yield.  Holders of our preferredshares had the right to receive a dividend per share of 10% more than that paidto the common shares. No dividends were paid in calendar year 2008 due to theeconomic conditions prevailing at that time. For the fiscal year 2009, ourBoard of Directors will recommend that no dividends or interest attributable tocapital be paid due to the factors described in “Dividend Policy”.

 

The devaluation of thereais impacts the amount available for distribution when measured in U.S.Dollars. Amounts reported as available for distribution in our statutoryaccounting records prepared under Brazilian GAAP will decrease or increase whenmeasured in U.S. Dollars as the reais depreciates or appreciates, respectively,against the U.S. Dollar. The devaluation of the reais results in net foreignexchange losses which are included in the statement of operations determinedunder Brazilian GAAP and which reduces the amount of unappropriated earningsavailable for distribution. Brazilian law permits the payment of dividends onlyin reais limited to the unappropriated retained earnings in our financialstatements prepared in accordance with Brazilian GAAP. At December 31,2009, we had US$ 70 in “Appropriated retained earnings” available for thepayment of dividends.

 

**B.****                                   ****Significant Changes**

 

No significant changes orevents have occurred after the close of the balance sheet date at December 31,2009, other than the events already described in this annual report.

 

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# **ITEM 9.  THE OFFER AND LISTING**

** **

**A.****                                   ****Offer and ListingDetails**

 

The ADSs are listed onthe New York Stock Exchange under the trading symbol “FBR.”  Our common shares trade on the São PauloStock Exchange under the symbol “FIBR3” (prior to November 18, 2009 wetraded under the symbol “VPC4”).  At December 31,2009, we had approximately 22,500 shareholders of record.

 

**MarketPrice Information**

 

The table below setsforth, for the periods indicated, the reported high and low closing sale pricesin nominal *reais* for eachpreferred share (until August 12, 2009) and common shares (from August 12,2009 on) on the São Paulo Stock Exchange. The table also sets forth, for the periods indicated, the reported highand low sales prices per ADS at the last day of each respective quarter.  See “Item 3. — Key Information —Selected Financial Data — Exchange Rates” for information with respect toexchange rates applicable during the periods set forth below:

 
| ** **                                   | ** ** | ** **      | ** ** | **Reais****per********Preferred Share (until  August 12, 2009,********Common Shares  thereafter)** | ** ** | **U.S.  Dollars********per ADS** | ** ** |
|----------------------------------------------|------------|-----------------|------------|---------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | ** **      | ** ** | **High**                                                                                                | ** ** | **Low**                          | ** ** | **High** | ** ** | **Low** | ** ** |
|                                         |       |            |       |                                                                                                    |       |                             |       |   |   |   |   |
| 2005:                                        |       | Annual          |       | 39.37                                                                                                   |       | 23.39                            |       | 15.69 |   | 10.61 |   |
|                                         |       |            |       |                                                                                                    |       |                             |       |   |   |   |   |
| 2006:                                        |       | Annual          |       | 44.30                                                                                                   |       | 27.20                            |       | 20.04 |   | 12.22 |   |
|                                         |       |            |       |                                                                                                    |       |                             |       |   |   |   |   |
| 2007                                         |       | Annual          |       | 59.18                                                                                                   |       | 36.19                            |       | 34.45 |   | 17.01 |   |
|                                         |       |            |       |                                                                                                    |       |                             |       |   |   |   |   |
| 2008:                                        |       | First  Quarter  |       | 57.31                                                                                                   |       | 43.79                            |       | 37.36 |   | 27.41 |   |
|                                         |       | Second  Quarter |       | 57.46                                                                                                   |       | 42.84                            |       | 38.38 |   | 29.32 |   |
|                                         |       | Third  Quarter  |       | 43.03                                                                                                   |       | 27.90                            |       | 29.73 |   | 15.32 |   |
|                                         |       | Fourth  Quarter |       | 28.80                                                                                                   |       | 11.80                            |       | 16.44 |   | 5.32 |   |
|                                         |       | Annual          |       | 57.46                                                                                                   |       | 11.80                            |       | 38.38 |   | 5.32 |   |
|                                         |       |            |       |                                                                                                    |       |                             |       |   |   |   |   |
| 2009:                                        |       | First  Quarter  |       | 19.75                                                                                                   |       | 8.51                             |       | 9.89 |   | 3.92 |   |
|                                         |       | Second  Quarter |       | 25.40                                                                                                   |       | 11.10                            |       | 13.84 |   | 5.41 |   |
|                                         |       | Third  Quarter  |       | 31.65                                                                                                   |       | 20.64                            |       | 17.15 |   | 11.46 |   |
|                                         |       | Fourth  Quarter |       | 39.77                                                                                                   |       | 23.80                            |       | 23.11 |   | 13.11 |   |
|                                         |       | Annual          |       | 39.77                                                                                                   |       | 8.51                             |       | 23.11 |   | 3.92 |   |
|                                         |       |            |       |                                                                                                    |       |                             |       |   |   |   |   |
| Share  Price for the most recent six months: |       |            |       |                                                                                                    |       |                             |       |   |   |
|                                         |       | October,  2009  |       | 30.30                                                                                                   |       | 24.20                            |       | 17.86 |   | 13.66 |   |
|                                         |       | November,  2009 |       | 30.11                                                                                                   |       | 23.80                            |       | 17.75 |   | 13.11 |   |
|                                         |       | December,  2009 |       | 39.77                                                                                                   |       | 30.50                            |       | 23.11 |   | 18.15 |   |
|                                         |       | January,  2010  |       | 40.80                                                                                                   |       | 33.20                            |       | 24.13 |   | 18.08 |   |
|                                         |       | February,  2010 |       | 37.35                                                                                                   |       | 32.59                            |       | 20.88 |   | 17.53 |   |
|                                         |       | March,  2010    |       | 40.50                                                                                                   |       | 33.35                            |       | 22.86 |   | 18.58 |   |

 

**B.****                                   ****Plan of Distribution**

 

Notapplicable.

 

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**C.****                                   ****Markets**

 

**Tradingon the São Paulo Stock Exchange**

 

Settlement oftransactions conducted on the São Paulo Stock Exchange is effected threebusiness days after the trade date. Delivery of, and payment for, shares is made through the facilities ofseparate clearinghouses for each exchange, which maintain accounts for memberbrokerage firms.  The seller isordinarily required to deliver the shares to the clearinghouse on the secondbusiness day following the trade date.  Theclearinghouse for the São Paulo Stock Exchange is *Companhia Brasileira de Liquidação e Custódia*, or CBLC.

 

In order to bettercontrol volatility, the São Paulo Stock Exchange has adopted a “circuit breaker”system pursuant to which trading sessions may be suspended for a period of 30minutes or one hour whenever the indices of these stock exchanges fall belowthe limits of 10% and 15%, respectively, in relation to the index registered inthe previous trading session.

 

The São Paulo StockExchange is less liquid than the New York Stock Exchange or other majorexchanges in the world.  At December 31,2009, the aggregate market capitalization of the 385 companies listed on theSão Paulo Stock Exchange was equivalent to approximately U.S.$ 1.3trillion, and the ten largest companies listed on the São Paulo Stock Exchangerepresented approximately 50% of the total market capitalization of all listedcompanies.  Although any of theoutstanding shares of a listed company may trade on a Brazilian stock exchange,in most cases fewer than half of the listed shares are actually available fortrading by the public, the remainder being held by small groups of controllingpersons, by governmental entities or by one principal shareholder.  On December 31, 2009, we accounted forapproximately 0.78% of the market capitalization of all listed companies on theSão Paulo Stock Exchange.

 

Trading on the São PauloStock Exchange by non-residents of Brazil is subject to certain limitationsunder Brazilian foreign investment and tax legislation See “Item 10.Additional Information — Taxation” and “Item 10. Additional Information —Exchange Controls.”

 

**Regulationof Brazilian Securities Markets**

 

The Brazilian securitiesmarkets are regulated by Law No. 6.835/76 and by the CVM, which hasauthority over stock exchanges and the securities markets generally, by the *Conselho Monetário Nacional*, the NationalMonetary Council, and by the Central Bank, which has, among others, licensingauthority over brokerage firms and regulates foreign investment and foreignexchange transactions.

 

Under the Braziliancorporate law, a corporation is either publicly-held (*companhia aberta*), such as we are, orclosely held (*companhia fechada*).  All publicly held companies, including us,are registered with the CVM and are subject to reporting requirements, in orderto be allowed to have their securities offered to the public and to be listedin a Brazilian stock exchange.  Ourcommon shares are traded on the São Paulo Stock Exchange but may be tradedprivately subject to certain limitations or on the Brazilian over-the-countermarket.  The Brazilian over-the-countermarket consists of direct trades in which a financial institution registeredwith the CVM serves as intermediary.

 

We have the option to askthat trading in securities on the São Paulo Stock Exchange be suspended inanticipation of a material announcement. Trading may also be suspended at the initiative of the São Paulo StockExchange or the CVM based on or due to a belief that a company has providedinadequate information regarding a material event or has provided inadequateresponses to the inquiries by the CVM or the São Paulo Stock Exchange, amongother reasons.

 

The Brazilian securitieslaw, the Brazilian corporate law and the regulations issued by the CVM, theNational Monetary Council and the Central Bank provide, among other things,disclosure requirements and restrictions on insider trading, price manipulationand protection of non-controlling shareholders. However, the Brazilian securities markets are not as highly regulatedand supervised as the U.S. securities markets or markets in some otherjurisdictions.

 

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**SãoPaulo Stock Exchange Corporate Governance Standards**

 

TheSão Paulo Stock Exchange has listing segments:

 

·      Corporate Governance Level 1;

 

·      Corporate Governance Level 2;and

 

·      The Novo Mercado (New Market)of the São Paulo Stock Exchange.

 

Theselisting segments have been designed for the trading of shares issued bycompanies that voluntarily undertake to abide by corporate governance practicesand disclosure requirements in addition to those already required under theBrazilian Corporation Law. The inclusion of a company in any of the newsegments requires adherence to a series of corporate governance rules. These rules aredesigned to increase shareholders’ rights and enhance the quality ofinformation provided by Brazilian corporations.

 

On November 14,2001, we agreed to comply with heightened corporate governance and disclosurerequirements established by the São Paulo Stock Exchange in order to qualifyfor a differentiated listing qualification as a company admitted to the “Level1 of Corporate Governance Requirements.”

 

Whenwe become a company subject to the rules of the Novo Mercado, we willagree, among other things, to: (i) maintain a share capital structurecomposed exclusively of common shares; (ii) ensure that shares representing25% of our total outstanding share capital are held by investors other than ourdirectors, executive officers and any controlling shareholders; (iii) adoptoffering procedures that favor widespread ownership of shares whenever making apublic offering; (iv) comply with minimum quarterly disclosure standards; (v) followstricter disclosure policies with respect to transactions involving oursecurities made by any controlling shareholders and our directors and executiveofficers; (vi) make a schedule of corporate events available to ourshareholders; (vii) offer tag-along rights to minority shareholders(meaning that, upon the acquisition of a controlling interest, the purchasermust also agree to purchase the shares of minority shareholders for the same pricepaid for the shares in the controlling stake); (viii) in the event of adelisting of shares, conduct a public tender offer for our common shares at aprice at least equal to the economic value determined pursuant to an appraisal;(ix) present an annual balance sheet prepared in accordance with, orreconciled to, U.S. GAAP or International Financial Reporting Standards; (x) establisha two-year term for all members of the board of directors; (xi) require that atleast 20% of our board of directors consist of independent directors; and (xii)submit to arbitration by the Market Arbitration Chamber (*Câmara deArbitragem do Mercado*) all controversies and disputes involving ourcompany, members of our Board of Directors, board of executive officers, *Conselho Fiscal* or shareholders relating to the application,validity, efficacy, interpretation, violation or effect of the Novo Mercadolisting agreement and regulations, our bylaws, the Brazilian Corporation Law orthe rules of the CMN, the Central Bank, the CVM or the Market ArbitrationChamber or other rules within the jurisdiction of the Market ArbitrationChamber.

 

Allmembers of our Board of Directors, our board of executive officers and our *Conselho Fiscal* intend to sign a management compliancestatement (Termo de Anuência dos Administradores) under which they takepersonal responsibility for compliance with the Novo Mercado listing agreement,the rules of the Market Arbitration Chamber and the regulations of theNovo Mercado.

 

**SignificantDifferences between our Corporate Governance Practices and NYSE CorporateGovernance Standards**

 

See “Item 16G. CorporateGovernance — Significant Differences between our Corporate Governance Practicesand NYSE Corporate Governance Standards.”

 

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**D.****                                   ****Selling Shareholders**

 

Not applicable.

 

**E.****                                     ****Dilution**

 

Not applicable.

 

**F.****                                     ****Expenses of the Issue**

 

Not applicable.

 

# **ITEM 10.  ADDITIONAL INFORMATION**

#  

**A.****                                   ****Share Capital**

 

Not applicable.

 

**B.****                                   ****Memorandum and Articlesof Association**

 

Our by-laws are filed as Exhibit 1to this annual report.  The informationotherwise contemplated by this Item has previously been reported in ourregistration statement on Form F-4 filed with the Commisson on October 28,2009 (Reg. No. 333-162703).  Thisdescription does not purport to be complete and is qualified in its entirety byreference to our Bylaws, the Brazilian Corporation Law and the rules andregulations of the CVM. When we complete our migration to the Novo Mercado, wewill also be subject to the rules of the Novo Mercado, which are filed herewithas Exhibit 2(a)(2).

 

**C.****                                   ****Material Contracts**

 

**Acquisitionof additional equity interest in Aracruz**

 

Fibria acquired anadditional equity interest in Aracruz, after execution of two share purchaseagreements (“SPAs”).  Upon the closing ofthe second SPA on April 29, 2009, Fibria owned approximately 84.09% ofAracruz’s voting capital.  See “Item 5.Operating and Financial Review and Prospects — Operating Results — RecentDevelopments”.

 

**Shareholders’Agreement of Fibria**

 

Under the terms of theInvestment Agreement entered into between BNDESPar, VID and ourselves (as anintervening party), VID and BNDESPar have entered into a shareholders’agreement of Fibria (See “Item 5. Operating and Financial Review and ProspectsOperating Results — Recent Developments”) under which the approval of certainmatters will depend on the affirmative vote of BNDESPar; including:

 

Effective immediately:

 

·                  Indebtedness incurred by the Company andits controlled companies;

 

·                  capital stock reduction;

 

·                  proposal of extrajudicial reorganizationplan, filing for judicial reorganization or bankruptcy, liquidation ordissolution;

 

·                  change in the preferences and advantagesof the preferred shares or creation of a new and more favored class of shares;

 

·                  reduction of mandatory dividend;

 

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·                  any proposal for distribution ofdividends or interest on equity;

 

·                  participation of the Company in groups ofcompanies, reduction in the level of listing with Bovespa or deregistration;

 

·                  any amendment to the Bylaws before theAdherence to the Novo Mercado;

 

Effective after Adherence to the Novo Mercado it willalso include:

 

·                  amendment to the articles of the Bylawsregarding the business purpose of the Company, *Conselho**Fiscal*, diluted control and maintenanceof the share base dilution;

 

·                  conversion, consolidation, split ormerger, including of shares;

 

·                  capital increase, issuance of anysecurity convertible into or exchangeable for shares;

 

·                  any transaction between the Companyand/or its controlled companies, on the one part, and any related parties, onthe other part, in an amount exceeding R$20 million per year;

 

·                  disposal of or encumbrance on permanentassets;

 

·                  proposal for creation of reserves, provisionsor for changing accounting criteria;

 

·                  the approval of annual budget;

 

·                  execution of agreements of any nature inan individual amount exceeding R$500 million;

 

·                  capital investments not provided for inthe business or budget plan approved by the Board of Directors;

 

·                  acquisition by the Company of materialinterest, as defined by applicable law, not provided for in the business orbudget plan approved by the Board of Directors of the Company;

 

·                  creation of encumbrances or guarantees toensure performance of third-party obligations;

 

·                  acquisition of any equity interest incompanies whose core business is not provided within the scope of the businesspurpose;

 

·                  reappraisal of assets resulting inpositive variation of the asset in an amount exceeding R$500 million.

 

**Agreementsfiled as Exhibits**

 

The representations,warranties and covenants made by us in any agreement that is filed as anexhibit to this report were made solely for the benefit of the parties to suchagreement, including, in some cases, for the purpose of allocating risk amongthe parties to such agreements, and should not be deemed to be arepresentation, warranty or covenant to others. Moreover, such representations, warranties or covenants were accurateonly as of the date when made. Accordingly, such representations, warranties and covenants should notbe relied on as accurately representing the current state of our affairs.

 

For additionalinformation on our material contracts, see “Item 5. Operating andFinancial Review and Prospects Liquidity and Capital Resources.”

 

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**D.    Exchange Controls**

 

There are no restrictionson ownership of our common shares by individuals or legal entities domiciledoutside Brazil.  However, the right toconvert dividend payments and proceeds from the sale of common shares intoforeign currency and to remit such amounts outside Brazil are subject toexchange control restrictions and foreign investment legislation whichgenerally require, among other things, obtaining an electronic registrationwith the Central Bank.

 

Under Resolution No. 2,689,foreign investors may invest in almost all financial assets and engage inalmost all transactions available in the Brazilian financial and capitalmarkets, provided that some requirements are fulfilled.  In accordance with Resolution No. 2,689,the definition of foreign investor includes individuals, legal entities, mutualfunds and other collective investment entities that are domiciled orheadquartered abroad.

 

Investors underResolution No. 2,689 who are not a Tax Haven Holder or a country that doesnot impose income tax or in which the maximum income tax rate is lower than20%, are entitled to favorable tax treatment. See “Material Tax Considerations—Material Brazilian Tax Considerations.”

 

Resolution No. 1,927provides for the issuance of depositary receipts in foreign markets in respectof shares of Brazilian issuers.  Anapplication was filed to have the ADSs approved by the Central Bank and the CVMunder Annex V, and we received final approval before the ADS Offering.

 

An electronicregistration, which replaced the amended Certificate of Registration, wasissued in the name of the depositary with respect to the ADSs and is maintainedby the Custodian on behalf of the Depositary. This electronic registration was carried on through the SISBACEN.  Pursuant to the electronic registration, theCustodian and the Depositary are able to convert dividends and otherdistributions with respect to the common shares represented by the ADSs intoforeign currency and remit the proceeds outside Brazil.  In the event that a holder of ADSs exchangesthe ADSs for common shares, the holder will be entitled to continue to rely onthe Depositary’s electronic registration for only five business days after theexchange.  Thereafter, a holder must seekto obtain its own electronic registration. Unless the common shares are held pursuant to Resolution No. 2,689by a duly registered investor or a holder of common shares who applies for andobtains a new electronic registration, that holder may not be able to obtainand remit abroad U.S. Dollars or other foreign currencies upon the disposition ofthe common shares, or distributions with respect thereto.  In addition, if the foreign investor residesin a tax haven jurisdiction or is not an investor registered pursuant toResolution No. 2,689, the investor will also be subject to less favorabletax treatment.

 

**PreemptiveRights**

 

Each of our shareholdershas a general preemptive right to subscribe for shares or convertiblesecurities in any capital increase, in proportion to its shareholding, except (i) inthe event of the grant and exercise of any stock option to acquire or subscribefor shares of our capital stock; and (ii) in the context of a capitalincrease derived from merger, merger of shares and/or spin-off implementedaccording to Brazilian Corporate Law.  Aminimum period of 30 days following the publication of notice of the issuanceof shares or convertible securities is allowed for exercise of the right, andthe right is negotiable.  However,according to our by-laws, our Board of Directors can eliminate this preemptiveright or reduce the 30-day period in case we issue debentures that areconvertible into shares, warrants (*bônus desubscrição*) or shares within the limits authorized by theby-laws:  (i) through a stockexchange or through a public offering or (ii) through an exchange of sharesin a public offering to acquire control of another publicly-held company.

 

Except as describedabove, in the event of a capital increase that would (i) maintain theproportion of capital represented by common and preferred shares, the holdersof common and preferred shares would have preemptive rights to subscribe to ournewly issued shares in proportion to their shareholdings in each class ofshares; (ii) modify the proportion of capital represented by common andpreferred shares, the holders of common and preferred shares would havepreemptive rights to subscribe to our newly issued common and preferred shares,respectively, in proportion to their shareholdings, and to the other class ofshares only to the extent necessary to prevent dilution of their interest intheir shares; and (iii) create a new class or type of shares, allshareholders have preemptive rights to subscribe to our newly issued shares ofsuch new class or type, in proportion to their shareholdings.  You may not be able to exercise the preemptiverights relating to the preferred shares underlying your ADSs unless aregistration statement under the Securities Act is effective with respect tothe shares to which 

 

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the rights relate or anexemption from the registration requirements of the Securities Act is availableand the ADS depositary determines to make the rights available to you.  See “Item 3. — Key Information — Risk Factors— Risks Relating to Our Common Shares and ADSs — You may not be able toexercise preemptive rights with respect to our common shares.”

 

**Rightof Withdrawal**

 

The Brazilian corporatelaw provides that, under certain circumstances, a shareholder has the right towithdraw its equity interest from the company and to receive payment for theportion of shareholders’ equity attributable to its equity interest.  Such right of withdrawal, may be exercised bya dissenting or non-voting shareholder, if a vote of at least 50% of votingshares authorizes us:

 

·                  to establish new shares or todisproportionately increase an existing class of preferred shares relative tothe other classes of shares, unless such action is provided for or authorizedby the by-laws (our by-laws currently authorize such action);

 

·                  to modify a preference, privilege orcondition of redemption or amortization conferred on one or more classes ofpreferred shares, or to create a new class with greater privileges than theexisting classes of preferred shares;

 

·                  to reduce the mandatory distribution ofdividends;

 

·                  to change our corporate purpose;

 

·                  to merge with another company (includingif we are merged into one of our controlling companies) or to consolidate,except as described in the fourth paragraph following this list;

 

·                  to transfer all of our shares to anothercompany or in order to make us a wholly owned subsidiary of such company, knownas an incorporação de ações, except as described in the fourth paragraphfollowing this list;

 

·                  to approve the acquisition of control ofanother company at a price which exceeds certain limits set forth in theBrazilian corporate law, except as described in the fourth paragraph followingthis list;

 

·                  to approve our participation in acentralized group of companies, as defined under the Brazilian corporate law,and subject to the conditions set forth therein, except as described in thefourth paragraph following this list; or

 

·                  to conduct a spin-off that results in (a) achange of our corporate purposes, except if the assets and liabilities of the spun-offcompany are contributed to a company that is engaged in substantially the sameactivities, (b) a reduction in the mandatory dividend or (c) anyparticipation in a centralized group of companies, as defined under Braziliancorporate law.

 

In addition, in the eventthat the entity resulting from a merger of shares, or *incorporação de ações*, a consolidation ora spin-off of a listed company fails to become a listed company within 120 daysof the shareholders’ meeting at which such decision was taken, the dissentingor non-voting shareholders may also exercise their withdrawal rights.

 

Only holders of sharesadversely affected by the changes mentioned in the first and second items abovemay withdraw their shares.  The right ofwithdrawal lapses 30 days after publication of the minutes of the relevantshareholders’ meeting.  In the first twocases mentioned above, however, the resolution is subject to confirmation bythe preferred shareholders, which must be obtained at a special meeting heldwithin one year.  In those cases, the 30day term is counted from the date the minutes of the special meeting arepublished.  We would be entitled toreconsider any action giving rise to appraisal rights within 10 days followingthe expiration of such rights if the withdrawal of shares of dissentingshareholders would jeopardize our financial stability.

 

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The Brazilian corporatelaw allows companies to redeem their shares at their economic value as setforth in the Brazilian corporate law, subject to certain requirements.  Because our by-laws currently do not providethat our shares be subject to withdrawal at their economic value, our shareswould be subject to withdrawal at their book value, determined on the basis ofthe last balance sheet approved by the shareholders.  If the shareholders’ meeting giving rise toappraisal rights occurs more than 60 days after the date of the last approvedbalance sheet, a shareholder may demand that its shares be valued on the basisof a new balance sheet that is of a date within 60 days of such shareholders’meeting.

 

Pursuant to the Braziliancorporate law, in events of consolidation, merger, *incorporação de ações*, participation in a group ofcompanies, and acquisition of control of another company, the right to withdrawdoes not apply if the shares meet certain tests relating to liquidity anddispersal of the type or class of shares in question on the market.  In these cases, shareholders will not beentitled to withdraw their shares if the shares are a component of a generalsecurities index in Brazil or abroad admitted to trading on the securities markets,as defined by the Brazilian Securities Commission, and the shares held bypersons unaffiliated with the controlling shareholder represent more than halfof the outstanding shares of the relevant type or class.

 

**E.****                                     ****Taxation**

 

*The following discussion contains a description of thematerial Brazilian and United States federal income tax consequences of thepurchase, ownership and disposition of preferred shares or ADSs but does notpurport to be a comprehensive description of all the tax considerations thatmay be relevant to these matters based upon the particular circumstances of aholder.*

 

This summary is basedupon tax laws of Brazil and the federal income tax laws of the United States asin effect on the date of this annual report*,*which are subject to change, possibly with retroactive effect, and to differinginterpretations.  You should consult your own tax advisors as to theBrazilian, United States or other tax consequences of the purchase, ownershipand disposition of common shares or ADSs, including, in particular, the effectof any U.S. federal estate, gift, or alternative minimum taxes, and non U.S.,state or local tax laws.

 

Although there ispresently no income tax treaty between Brazil and the United States, the taxauthorities of the two countries have had discussions that may culminate insuch a treaty.  No assurance can be given, however, as to whether or whena treaty will enter into force or how it will affect the U.S. holders of commonshares or ADSs.

 

For purposes of Braziliantaxation, there are two types of Non-Brazilian Holders of common shares orADSs: (a) Non-Brazilian Holders that are not resident or domiciled in atax haven jurisdiction (i.e., a country or location that does not impose incometax or where the maximum income tax rate is lower than 20% or where the internallegislation imposes restrictions to disclosure of shareholding composition orthe ownership of the investment), and that, in the case of holders of commonshares, are registered before the Central Bank and the CVM to invest in Brazilin accordance with Central Bank**ResolutionNo. 2.689; and (b) other Non-Brazilian Holders, which include any andall non-residents of Brazil who invest in equity securities of Braziliancompanies through any other means and all types of investors that are locatedin tax haven jurisdiction*s.* Theinvestors mentioned in item (a) above are subject to a favorable taxregime in Brazil, as described below.

 

**BrazilianTax Considerations**

 

The following discussionsummarizes the material Brazilian tax consequences of the acquisition, ownershipand disposition of our common shares or ADSs by a holder that is not domiciledin Brazil for purposes of Brazilian taxation and, in the case of common shares,which has registered its investment in such securities with the Central Bank asa U.S. Dollar investment (in each case, a Non-Brazilian Holder).

 

Central Bank Resolution No. 2.689permits foreign investors, defined to include individuals, legal entities,mutual funds and other collective investment entities, domiciled orheadquartered abroad may invest in almost all financial assets and to engage inalmost all transactions available in the Brazilian financial and capitalmarkets, 

 

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provided that certainlegal and regulatory requirements are fulfilled.  The foreign investors must: (a) appointat least one representative in Brazil with powers to perform actions relatingto the foreign investment; (b) complete the appropriate foreign investorregistration form; (c) register as a foreign investor with the Braziliansecurities commission; and (d) register the foreign investment with theCentral Bank.

 

Securities and otherfinancial assets held by foreign investors pursuant to Resolution No. 2.689must be registered or maintained in deposit accounts or under the custody of anentity duly licensed by the Central Bank or the CVM.  In addition, securities trading is restrictedto transactions carried out in the stock exchanges or organizedover-the-counter markets licensed by the CVM, except for transfers resultingfrom a corporate reorganization, occurring upon the death of an investor byoperation of law or will or as a consequence of the delisting of the relevantshares from a stock exchange and the cancellation of the registration with theCVM.

 

**Taxationof dividends**

 

As a result of taxlegislation adopted on December 26, 1995, dividends based on profitsgenerated after January 1, 1996, including dividends paid in kind, payableby us in respect of common shares, are exempt from withholding tax.  Stockdividends with respect to profits generated before January 1, 1996 are notsubject to Brazilian tax, provided that the stock is not redeemed by us or soldin Brazil within five years after distribution of such stock dividends. Dividends relating to profits generated prior to January 1, 1996 aresubject to Brazilian withholding tax at either the 15% or 25% rate, dependingon the year in which the profits were generated.

 

**Taxationof gains**

 

**Transactionsconducted outside of a Brazilian stock, future or commodity exchange (orsimilar entities)**

 

Non Brazilian holders aregenerally subject to income tax imposed at a rate of 15% on gains realized ondisposal or exchanges of common shares if the transaction is carried outoutside any Brazilian stock, future or commodities exchange (and also in caseof redemption of shares in a transaction occurring outside of a stockexchange), except for a Tax Haven Holder which, in this case, is subject toincome tax at a rate of 25%.  If thesegains are related to transactions conducted on the Brazilian over-the-countermarket with intermediation (or in case of transactions carried out on markets subjectto future liquidation), the withholding income tax of 0.005% of the grossproceeds shall also be applicable and can be offset against the eventual incometax due on the capital gains.

 

**Transactionsconducted within a Brazilian stock, future or commodity exchange (or similarentities):**

 

***Disposal of securities:***

 

****ADS’s:**

 

Gains realized outsideBrazil by a non Brazilian holder on the disposition of assets located in Brazilto another non-Brazilian holder were not subject to Brazilian tax through December 29,2003.** However, according to Law No. 10.833,enacted on that date, capital gains realized on the disposition of these assetsby a Non-Brazilian Holder are subject to taxation in Brazil (at a 15% or 25%rate, depending on the case), regardless of whether the sale or the dispositionis made by a Non-Brazilian Holder to another non-Brazilian resident or to aBrazilian resident.  At the present timeno definitive jurisprudence has been established with respect to this matter.  There are grounds to sustain that the gainsrealized by a Non-Brazilian Holder on the disposition of ADSs to anothernon-Brazilian resident are not taxed in Brazil, based on the argument that ADSswould not constitute assets located in Brazil for purposes of Law No. 10,833/03.  However, we cannot assure you how Braziliancourts would interpret the definition of assets located in Brazil in connectionwith the taxation of gains realized by a Non- Brazilian Holder on thedisposition of ADSs to another non-Brazilian resident.

 

As a result, gains on adisposition of ADSs by a Non-Brazilian Holder to Brazilian resident, or even toNon-Brazilian Holder in the event that courts determine that ADSs wouldconstitute assets located in Brazil, may be subject to income tax in Brazilaccording to the rules described above. It is important to clarify that, for purposes of 

 

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Brazilian taxation, theincome tax rules on gains related to disposition of common shares or ADSsvary depending on the domicile of the Non-Brazilian Holder, the form by whichsuch Non-Brazilian Holder has registered its investment before the Central Bankand/or how the disposition is carried out, as described below.

 

****Common Stock:**

 

With respect to thedisposition of common shares, as they are assets located in Brazil, theNon-Brazilian Holder will be subject to income tax on the gains assessed,following the rules described below, regardless of whether the dispositionis conducted in Brazil or with a Brazilian resident.  Gains assessed on the disposition of thecommon shares carried out on the Brazilian stock exchange (which, in principle,should also include the transactions carried out on the organizedover-the-counter market) are:

 

·                  Exempt from income tax, when assessed bya Non-Brazilian Holder that (1) has registered its investment in Brazilbefore the Central Bank under the rules of Resolution No. 2,689/00 (“2,689Holder”) and (2) is not a Tax Haven Holder; or

 

·                  Subject to income tax at a rate of 15% inany other case, including the gains assessed by a Non-Brazilian Holder that isnot a 2,689 Holder or is a Tax Haven Holder. In these cases, a withholding income tax of 0.005% shall also be applicableon the gross proceeds and can be offset with the eventual income tax due on thecapital gain.

 

**Exchangeof securities via deposit**

 

The deposit of commonshares in exchange for ADSs may be subject to Brazilian capital gain tax at therate of 15%, if the amount previously registered with the Central Bank as aforeign investment in the common shares is lower than (1) the averageprice per preferred share on a Brazilian stock exchange on which the greatestnumber of such shares were sold on the day of deposit; or (2) if no commonshares were sold on that day, the average price on the Brazilian stock exchangeon which the greatest number of common shares were sold in the 15 tradingsessions immediately preceding such deposit. In this case, the difference between the amount previously registeredand the average price of the common shares, calculated as above, shall beconsidered a capital gain (although there are grounds to challenge thistaxation).  On receipt of the underlyingcommon shares, the non Brazilian holder registered under Resolution No. 2,689will be entitled to register the U.S. Dollar value of such shares with theCentral Bank as described below in “—Registered Capital.”  However, if this non Brazilian holder doesnot register under Resolution No. 2,689, it will be subject to the lessfavorable tax treatment described below.

 

**Exerciseof preemptive rights**

 

Any exercise ofpreemptive rights relating to the common shares will not be subject toBrazilian taxation.  However, any gain onthe disposition or assignment of preemptive rights relating to common shares bya holder of common shares, or by the depositary on behalf of holders of theADSs, will be subject to Brazilian taxation at the same rate applicable to thesale or disposition of common shares.

 

**Interestattributed to capital**

 

Distribution of anotional interest charge attributed to capital in respect of the preferred orcommon shares as an alternative form of dividend payment to shareholders ordepositary agents who are either Brazilian residents or non-Brazilian residentsis subject to Brazilian withholding income tax at the rate of 15% (except forthose shareholders or beneficiaries resident in tax havens or low taxjurisdictions -see further discussion below).  Such payments, subject tocertain limitations, are deductible for Brazilian income tax and for socialcontribution purposes as long as the payment of a distribution of interest iscredited to a shareholder’s account and approved at our general meeting ofshareholders and is calculated by reference to the TJLP interest ratedetermined by the Central Bank from time to time and cannot exceed the greaterof:

 

* 50% of net income(after the deduction of social contribution on profits and before taking suchdistribution and the provision for income tax into account) for the period fromwhich the payment is being made; or

 

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* 50% of the sum ofretained profits and profit reserves that exist as of the beginning of theperiod from which the payment is being made.

 

Current Braziliancorporate law establishes that a notional interest charge attributed toshareholders’ equity can either be accounted for as part of the mandatorydividend or not.  In case the payment of such interest is accounted for aspart of the mandatory dividend, we would be required to pay an additionalamount to ensure that the net amount received by the shareholders, after theincome tax, is at least equal to the mandatory dividend.  The distributionof interest attributed to capital would be proposed by our Board of Directorsand subject to subsequent declaration by the shareholders at a general meeting.

 

**Beneficiariesresident or domiciled in tax havens or low tax jurisdictions**

 

Law No. 9.779/99,in effect as of January, 1999, states that, with the exception of certainprescribed circumstances, income derived from operations by a beneficiary,resident or domiciled in a country considered as a tax haven, is subject to withholdingincome tax at a rate of 25%.  Accordingly, if the distribution of interestattributed to capital is made to a beneficiary resident or domiciled in a taxhaven, the income tax rate applicable will be 25% instead of 15%.  A taxhaven jurisdiction is considered to be, for this purpose, any country orlocation, which does not impose income tax or imposes income tax at a maximumrate lower than 20% (there is also an interpretation according to which thedefinition of tax haven for this purpose also encompasses a country or locationwhere internal legislation imposes restrictions on the disclosure of theshareholding composition or beneficial owners of investments).

 

Currently, said countries/ location considered to be a tax haven are listed within the Brazilian taxregulation.

 

**OtherRelevant Brazilian taxes**

 

There are no Brazilianinheritance, gift or succession taxes applicable to the ownership, transfer ordisposition of common shares or ADSs by a non Brazilian holder.  However,some Brazilian states may impose gift and estate taxes on gifts made orinheritances bestowed by individuals or entities not resident or domiciledwithin such state to individuals or entities residing or domiciled within suchstate in Brazil.  There are no Brazilian stamp, issue, registration, orsimilar taxes or duties payable by holders of common shares or ADSs.

 

***Taxation of foreign exchange transactions(IOF/Câmbio)***

 

Pursuant to Decree Law6.306/07, the conversion into foreign currency or the conversion into Braziliancurrency of the proceeds received or remitted by a Brazilian entity from aforeign investment in the Brazilian securities market, including those inconnection with the investment by the Non-Brazilian Holder in the common sharesand ADSs may be subject to the Tax on Foreign Exchange Transaction (“IOF/Exchange).  Currently, for most exchange transactionsrelated to this type of investment, the rate of IOF/ Exchange is zero, howeverthe Minister of Finance has the legal power to increase at any time the rate toa maximum of 25%, but only on a prospective basis.

 

***Tax on bonds and securities transactions(IOF/ Financial securities)***

 

Pursuant to Decree Law6.306/0, the Tax on Bonds and Securities Transactions (the IOF/Financialsecurities) may be imposed on any transactions involving bonds and securities,even if these transactions are performed on Brazilian stock, futures orcommodities exchanges.  The applicable rate for variable incometransactions is currently 0%, but the Minister of Finance has the legal powerto increase at any time the rate to a maximum of 1.5% per day of thetransaction’s value, but only on a prospective basis.

 

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**Registeredcapital**

 

The amount of aninvestment in common shares held by a non-Brazilian holder who qualifies underResolution No. 2,689 and obtains registration with the CVM, or by thedepositary representing such holder, is eligible for registration with theCentral Bank; such registration (the amount registered is referred to asregistered capital) allows the remittance of foreign currency outside Brazil,converted at the commercial market rate, acquired with the proceeds ofdistributions on, and amounts realized with respect to dispositions of, suchcommon shares.  The registered capitalfor each preferred share purchased as part of the international offering, orpurchased in Brazil after that date, and deposited with the Depositary will beequal to its purchase price in U.S. Dollars. The registered capital for a preferred share that is withdrawn uponsurrender of an ADS will be the U.S. Dollar equivalent of (i) the averageprice of a preferred share on the Brazilian stock exchange on which thegreatest number of such shares was sold on the day of withdrawal, or (ii) ifno common shares were sold on that day, the average price on the Brazilianstock exchange on which the greatest number of common shares was sold in the15th trading session immediately preceding such withdrawal.  The U.S. Dollar value of the common shares isdetermined on the basis of the average commercial market rates quoted by theCentral Bank on such date (or, if the average price of common shares isdetermined under clause (ii) above, the average of such quoted rates onthe same 15 dates used to determine the average price of the common shares).

 

A non Brazilian holder ofcommon shares may experience delays in effecting such registration, which maydelay remittances abroad.  Such a delaymay adversely affect the amount in U.S. Dollars received by the non Brazilianholder.

 

**U.S.federal income tax considerations**

 

The following discussionsummarizes the principal U.S. federal income tax considerations relating to thepurchase, ownership and disposition of common shares or ADSs by a U.S. holder(as defined below) holding such common shares or ADSs as capital assets(generally, property held for investment). This summary is based upon the Internal Revenue Code of 1986, as amended(the “Code”), Treasury regulations, administrative pronouncements of the U.S.Internal Revenue Service (the “IRS”) and judicial decisions, all as in effecton the date hereof, and all of which are subject to change (possibly withretroactive effect) and to differing interpretations.  This summary does not describe anyimplications under state, local or non-U.S. tax law, or any aspect of U.S.federal tax law other than income taxation.

 

This summary does notpurport to address all the material U.S. federal income tax consequences thatmay be relevant to the U.S. holders of the common shares or ADSs, and does nottake into account the specific circumstances of any particular investors, someof which (such as tax-exempt entities, banks or other financial institutions,insurance companies, broker-dealers, traders in securities that elect to use amark-to-market method of accounting for their securities holdings, regulatedinvestment companies, real estate investment trusts, U.S. expatriates,investors liable for the alternative minimum tax, partnerships and otherpass-through entities, investors that own or are treated as owning 10% or moreof our voting stock, investors that hold the common shares or ADSs as part of astraddle, hedge, conversion or constructive sale transaction or otherintegrated transaction and U.S. holders (as defined below) whose functionalcurrency is not the U.S. dollar) may be subject to special tax rules.

 

As used below, a “U.S.holder” is a beneficial owner of common shares or ADSs that is, for U.S.federal income tax purposes:

 

(i)                                     an individual citizen or resident of theUnited States;

 

(ii)                                  a corporation (or entity taxable as acorporation) created or organized in or under the laws of the United States,any state thereof, or the District of Columbia;

 

(iii)                               an estate the income of which is subjectto U.S. federal income tax regardless of its source; or

 

(iv)                              a trust if (A) a court within theU.S. is able to exercise primary supervision over the administration of thetrust and one or more U.S. persons have the authority to control all 

 

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substantial decisions ofthe trust or (B) the trust has a valid election in effect under applicableTreasury regulations to be treated as a U.S. person.

 

If a partnership or otherentity taxable as a partnership holds common shares or ADSs, the tax treatmentof a partner will generally depend on the status of the partner and theactivities of the partnership.  Partnersof partnerships holding common shares or ADSs should consult their taxadvisors.

 

In general, for U.S.federal income tax purposes, holders of American Depositary Receipts evidencingADSs will be treated as the beneficial owners of the common shares representedby those ADSs.

 

**Taxationof Distributions**

 

In general, distributionswith respect to the common shares or ADSs, as described above under “BrazilianTax Considerations” will, to the extent made from our current or accumulatedearnings and profits, as determined under U.S. federal income tax principles,constitute dividends for U.S. federal income tax purposes.

 

If a distribution exceedsthe amount of our current and accumulated earnings and profits, as determinedunder U.S. federal income tax principles, it will be treated as a non-taxablereturn of capital to the extent of the U.S. holder’s tax basis in the commonshares or ADSs, and thereafter as capital gain. As used below, the term “dividend” means a distribution that constitutesa dividend for U.S. federal income tax purposes.

 

The gross amount of anydividends (including amounts withheld in respect of Brazilian taxes) paid withrespect to the common shares or ADSs generally will be subject to U.S. federalincome taxation as ordinary income and will not be eligible for the dividendsreceived deduction allowed to corporations. Dividends paid in Brazilian currency will be included in the grossincome of a U.S. holder in a U.S. dollar amount calculated by reference to theexchange rate in effect on the date the dividends are received by the U.S.holder, or in the case of dividends received in respect of ADSs, on the datethe dividends are received by the depositary or its agent, whether or not convertedinto U.S. dollars.  A U.S. holder willhave a tax basis in any distributed Brazilian currency equal to its U.S. dollaramount on the date of receipt, and any gain or loss recognized upon asubsequent disposition of such Brazilian currency generally will be foreigncurrency gain or loss that is treated as U.S. source ordinary income orloss.  If dividends paid in Braziliancurrency are converted into U.S. dollars on the day they are received by theU.S. holder or the depositary or its agent, as the case may be, U.S. holdersgenerally should not be required to recognize foreign currency gain or loss inrespect of the dividend income.  U.S.holders should consult their own tax advisors regarding the treatment of anyforeign currency gain or loss if any Brazilian currency received by the U.S.holder or the depositary or its agent is not converted into U.S. dollars on thedate of receipt.

 

Subject to certainexceptions for short-term and hedged positions, the U.S. dollar amount ofdividends received by an individual with respect to the ADSs will be subject totaxation at a maximum rate of 15% if the dividends represent “qualifieddividend income.”  Dividends paid on theADSs will be treated as qualified dividend income if (i) the ADSs arereadily tradable on an established securities market in the United States and (ii) wewere not in the year prior to the year in which the dividend was paid, and arenot in the year in which the dividend is paid, a passive foreign investmentcompany (“PFIC”).  The ADSs are listed onthe New York Stock Exchange, and should qualify as readily tradable on anestablished securities market in the United States so long as they are solisted.  However, no assurances can begiven that the ADSs will be or remain readily tradable.  Based on our audited financial statements aswell as relevant market and shareholder data, we believe that we were nottreated as a PFIC for U.S. federal income tax purposes with respect to our[2009] taxable year.  In addition, basedon our audited financial statements and current expectations regarding thevalue and nature of our assets, the sources and nature of our income, andrelevant market and shareholder data, we do not anticipate becoming a PFIC forour 2010 taxable year.  Because thesedeterminations are based on the nature of our income and assets from time totime, and involve the application of complex tax rules, no assurances can beprovided that we will not be considered a PFIC for the current (or any past orfuture tax year).

 

Based on existing guidance,it is not entirely clear whether dividends received with respect to the commonshares (to the extent not represented by ADSs) will be treated as qualifieddividend income, because the common shares are not themselves listed on a U.S.exchange.  In addition, the U.S. TreasuryDepartment has announced that the IRS is continuing to study procedurespursuant to which holders of ADSs or preferred stock and intermediaries 

 

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through whom suchsecurities are held will be able to determinate whether dividends are treatedas qualified dividends.  Because suchprocedures have not yet been issued, we are not certain that we will be able tocomply with them.  U.S. Holders of ADSsand common shares should consult their own tax advisors regarding theavailability of the reduced dividend tax rate in the light of their ownparticular circumstances.

 

Dividends paid by us generallywill constitute income from non-U.S. sources and will be subject to variousclassification and other limitations for U.S. foreign tax credit purposes.  Subject to generally applicable limitationsunder U.S. federal income tax law, Brazilian withholding tax imposed on suchdividends, if any, will be treated as a foreign income tax eligible for creditagainst a U.S. holder’s U.S. federal income tax liability (or at a U.S. holder’selection if it does not elect to claim a foreign tax credit for any foreigntaxes paid during the taxable year, all foreign income taxes paid may insteadbe deducted in computing such U.S. holder’s taxable income).  In general, special rules will apply tothe calculation of foreign tax credits in respect of dividend income that issubject to preferential rates of U.S. federal income tax.  U.S. holders should be aware that the IRS hasexpressed concern that parties to whom ADSs are transferred may be takingactions that are inconsistent with the claiming of foreign tax credits by U.S.holders of ADSs.  Accordingly, thediscussion above regarding the creditability of Brazilian withholding tax ondividends could be affected by future actions that may be taken by the IRS.

 

**Taxationof Capital Gain**

 

Deposits and withdrawalsof common shares by U.S. holders in exchange for ADSs will not result in therealization of gain or loss for U.S. federal income tax purposes.

 

In general, gain or loss,if any, realized by a U.S. holder upon a sale or other taxable disposition ofcommon shares or ADSs will be subject to U.S. federal income taxation ascapital gain or loss in an amount equal to the difference between the amountrealized on the sale or other taxable disposition and such U.S. holder’sadjusted tax basis in the common shares or ADSs.  Such capital gain or loss will be long-termcapital gain or loss if at the time of sale or other taxable disposition thecommon shares or ADSs have been held for more than one year.  Under current U.S. federal income tax law,net long-term capital gain of certain U.S. holders (including individuals) iseligible for taxation at preferential rates. The deductibility of capital losses is subject to certain limitationsunder the Code.  Gain, if any, realizedby a U.S. holder on the sale or other taxable disposition of common shares orADSs generally will be treated as U.S. source gain for U.S. foreign tax creditpurposes.  Consequently, if a Brazilianwithholding tax is imposed on the sale or disposition of common shares or ADSs,a U.S. holder that does not receive sufficient foreign source income from othersources may not be able to derive effective U.S. foreign tax credit benefits inrespect of such Brazilian withholding tax. Alternatively, a U.S. holder may take a deduction for all foreign incometaxes paid during the taxable year if it does not elect to claim a foreign taxcredit for any foreign taxes paid during the taxable year.  U.S. holders should consult their own taxadvisors regarding the application of the foreign tax credit rules totheir investment in, and disposition of, common shares or ADSs.

 

**PassiveForeign Investment Company Rules**

 

Based upon our currentand projected income, assets and activities, we do not expect the common sharesor ADSs to be considered shares of a PFIC for our current fiscal year or forfuture fiscal years.  However, because thedetermination of whether the common shares or ADSs constitute shares of a PFICwill be based upon the composition of our income and assets, and thecomposition of income and assets of entities in which we hold at least a 25%interest from time to time, and because there are uncertainties in theapplication of the relevant rules, there can be no assurance that the commonshares or ADSs will not be considered shares of a PFIC for any fiscalyear.  If the common shares or ADSs wereshares of a PFIC for any fiscal year, U.S. holders (including certain indirectU.S. holders) may be subject to adverse tax consequences, including thepossible imposition of an interest charge on gains or “excess distributions”allocable to prior years in the U.S. holder’s holding period during which wewere determined to be a PFIC.  If we aredeemed to be a PFIC for a taxable year, dividends on our common shares or ADSswould not be “qualified dividend income” subject to preferential rates of U.S.federal income taxation.  In addition, ifwe are a PFIC, U.S. Holders would generally be required to comply with annualreporting requirements. U.S. holders should consult their own tax advisorsregarding the application of the PFIC rules to the common shares or ADSs.

 

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**U.S.Backup Withholding and Information Reporting**

 

A U.S. holder of commonshares or ADSs may, under certain circumstances, be subjected to informationreporting and “backup withholding” with respect to certain payments to suchU.S. holder, such as dividends paid by our company or the proceeds of a sale orother taxable disposition of common shares or ADSs, unless such U.S. holder (i) isa corporation or comes within certain other exempt categories, and demonstratesthis fact when so required, or (ii) in the case of backup withholding,provides a correct taxpayer identification number, certifies that it is a U.S.person and that it is not subject to backup withholding, and otherwise complieswith applicable requirements of the backup withholding rules.  Backup withholding is not an additionaltax.  Any amount withheld under these rules willbe creditable against a U.S. holder’s U.S. federal income tax liability or maybe refunded, provided the requisite information is timely furnished to the IRS.

 

**F.     Dividends and Paying Agents**

 

Not applicable.

 

**G.    Statements by Experts**

 

Not applicable.

 

**H.    Documents on Display**

 

We are subject to theinformational requirements of the Securities Exchange Act of 1934, as amended,pursuant to which we file reports and other information with theCommission.  These materials, includingthis annual report and the accompanying exhibits, may be inspected and copiedat the Commission’s Public Reference Room at 100 F Street, N.E.,Washington, D.C.  20549-2521.  Copies of the materials may be obtained fromthe Public Reference Room of the Commission at 100 F Street, N.E.,Washington, D.C. 20549-2521 at prescribed rates.  The public may obtain information on theoperation of the Commission’s Public Reference Room by calling theCommission in the United States at 1 800 SEC-0330.  In addition, the SEC maintains an internetwebsite at www.sec.gov from which you can electronically access these materials.  Furthermore, material we filed can beinspected at the offices of the New York Stock Exchange at 20 Broad Street, NewYork, New York 10005, on which our ADSs are listed.

 

We also fileelectronically financial statements and other periodic reports with theCVM.  The CVM website is www.cvm.gov.br.

 

Copies of our annualreports on Form 20-F and accompanying documents and our by-laws will beavailable for inspection at our headquarters or our website atwww.fibria.com.br.  The information onour website is however, not incorporated by reference in, and shall not beconsidered a part of this annual report.

 

**I.      Subsidiary Information**

 

Not required.

 

# **ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURESABOUT MARKET RISK**

#  

We are exposed to variousmarket risks, including changes in foreign currency exchange rates and interestrates.  Market risk is the potential lossarising from adverse changes in market rates and prices, such as foreigncurrency exchange rates and interest rates.

 

**General**

 

We use cross-currency interestrate swap contracts in the market to reduce our foreign currency exposure andalso take into account the natural hedge provided by our exports in determiningour hedging needs.  We establish strictinternal policies with respect to our currency exposure positions and revisethese policies from time to time in response to new economic information on themacroeconomic environment in Brazil.  Theexposure to 

 

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foreign currency risk isguided by closely monitored policies.  Wealso invest in instruments linked to exchange variations.

 

We also usecross-currency interest rate swap contracts to mitigate the volatility offoreign exchange rate fluctuations on our U.S. Dollar-denominated debt.  The unrealized gains and losses on thesecontracts are recorded on our balance sheet as assets or liabilities and in ourstatement of income in “Foreign exchange gain (loss) and unrealized gain (loss)on swaps, net.”

 

These financialinstruments have been used extensively as part of a defined financial strategydesigned to optimize opportunities in the Brazilian foreign exchange andinterest rate markets.  Like many other Brazilianexporters, we have had access to U.S. Dollar-denominated sources of long-termfinancing in the form of export prepayments or credits.  Opportunities arise between the lowerinterest rates payable on the U.S. Dollar-denominated export credits and borrowings,the proceeds of which are invested in *Real*-denominated cash and cashequivalents and trading securities, which provide higher yields.

 

At present, we, alongwith other Brazilian companies, have limited sources of long-term financingdenominated in *reais*.  We believe we have access to a sufficientnumber of foreign-currency financing sources to meet our needs withoutresorting to more expensive *Real*-denominated financing.

 

Our foreign currency debtreflects a strategy to continue borrowing funds in U.S. Dollars, and to investthe proceeds in investments bearing higher interest rates in the Brazilianmarket.  We have succeeded in lengtheningthe average maturity of our debt over time. The percentage of our short-term debt (i.e., the debt, including thecurrent portion of long-term debt, maturing within 12 months) compared to ourtotal debt was 23% at December 31, 2007, 44% at December 31, 2008 and28% at December 31, 2009.

 

**Foreigncurrency risk**

 

Our foreign currencyexposure gives rise to market risks associated with exchange rate movementsagainst the U.S. Dollar.  Foreigncurrency-denominated liabilities include borrowings denominated mainly in U.S.Dollars.  Our sales outside of Brazil arelargely U.S. Dollar-denominated, while sales of pulp within Brazil aredenominated in *reais* but linkedto U.S. Dollar prices, working as a natural hedging for our currency exposure,with most of our operating costs being denominated in *reais*. Our export revenues, swap contracts and non deliverable forward transactionspartially mitigate the exposure arising from our U.S. Dollar-denominateddebt.  We evaluate the macroeconomicsituation and its impact on our financial position on a weekly basis. In December 2009our board approved a new financial policy which is very conservative andallowed exclusively for non-leveraged instruments.

 

We incurred most of thefollowing debt mainly to mitigate our risk in relation to the position of theinterest rate differentials between *Real*-denominated financialinstruments (cash and cash equivalents and trading securities) and our foreigncurrency export credits See “Item 5. Operating and Financial Review andProspects —  Liquidity and CapitalResources —  Capital Expenditures.”  We believe that, given our level of assetsand resources, we should have sufficient cash and sources of working capital tomeet our debt service.

 

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| ** **                           | ** ** | **December  31, 2009**  | ** ** | **% of the  total** | ** ** | **December  31, 2008**  | ** ** | **% of the  total** | ** ** |
|--------------------------------------|------------|-------------------------|------------|---------------------|------------|-------------------------|------------|---------------------|------------|
| ** **                           | ** ** | **(in U.S.$  million)** | ** ** | ** **          | ** ** | **(in U.S.$  million)** | ** ** | ** **          | ** ** |
| Denominated in US Dollars:           |       |                    |       |                |       |                    |       |                |       |
| Floating rate                        |       | 3,495                   |       | 55                  |       | 1,557                   |       | 75                  |       |
| Fixed rate                           |       | 1,685                   |       | 27                  |       | 275                     |       | 13                  |       |
| Total Debt denominated in US Dollars | ** ** | **5,180**               | ** ** | **82**              | ** ** | **1,832**               | ** ** | **88**              | ** ** |
|                                 |       |                    |       |                |       |                    |       |                |       |
| Denominated in Reais:                |       |                    |       |                |       |                    |       |                |       |
| Floating rate                        |       | 911                     |       | 14                  |       | 255                     |       | 12                  |       |
| Fixed rate                           |       | 213                     |       | 3                   |       | —                  |       | —              |       |
| Total Debt denominated in Reais      | ** ** | **1,125**               | ** ** | **17**              | ** ** | **255**                 | ** ** | **12**              | ** ** |
| **Total (1)**                        |       | 6,304                   |       | 100                 |       | 2,087                   |       | 100                 |       |

 

----

(1)  Does notconsider the amount due to Aracruz Acquisition.

 

We estimate that theforeign currency-denominated component of our paper costs does not exceed 20%of our total costs.  We areself-sufficient in pulp, the principal raw material used in producing paperproducts.  The energy, labor and otherdomestic components of our paper production costs are denominated in *reais* and, together with the cost of pulp,account for almost 90% of our paper costs. Although, in the long term, there is a clear correlation betweeninternational U.S. Dollar-denominated pulp prices, reflecting the internationalnature of this commodity, and the prices we are able to charge, fluctuations inexchange rate are not always immediately reflected in our domestic prices.  In the long term, when the international priceof pulp increases, the domestic price follows and our domestic sales in *reais* also increase.  In the short term, our domestic prices maydeviate from the international U.S. Dollar-denominated pulp prices.  Timing of the fluctuations in exchange rate reflectedin our prices may vary with the type of product, generally as follows:

 

·                  immediately for commodity products, such as pulp anduncoated wood-free paper;

 

·                  with a relatively short lag for coated papers, due tothe sale of imported products in the domestic market; and

 

·                  with some lag for other specialty papers with limitedexposure to external factors.

 

**Interestrate risk**

 

Our floating interestrate exposure is primarily subject to the variations of LIBOR as it relates toU.S. Dollar-denominated borrowings and to the variations of the TJLP, an annuallong-term interest rate that includes an inflation factor and is determinedquarterly by the Central Bank.  On December 31,2007, the TJLP was fixed at 6.25%, and during 2006 averaged 6.38% peryear.  On December 31, 2009 the TJLPwas fixed at 6%, and during 2008, averaged 6.50 % per year.  The interest rate on our cash and cashequivalents denominated in *reais*is based on the CDI rate, the benchmark interest rate set by the interbankmarket on a daily basis and during 2009 averaged 9.97% per year.

 

To determine the fairvalue of assets and liabilities, amounts were adjusted, when applicable, basedon market or contractual interest rate.

 

**DerivativeInstruments/NDFs/Options**

 

We primarily usederivatives to hedge our U.S. Dollar-denominated debt.  Because a large portion of our debt isdenominated in U.S. Dollars, we protect ourselves from the effects ofunfavorable exchange movements by entering into cross-currency interest rateswap contracts or Brazilian public bonds. See Note 16 to our audited 

 

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consolidated financialstatements for a discussion of the accounting policies for derivatives andother financial instruments.

 

At December 31,2009, derivatives held by the Company are as follows:

 

(i)    A conventional swap in which the Companyreceives Yen and pays Dollars, with a notional amount of U.S.$ 45 million andmaturity date at 2014.  This swap wascontracted to hedge the long-term loan denominated VOTO III from thefluctuation of these currencies.  As of December 31,2009, the fair value receivable was U.S. $4 million and at December 31,2008, was U.S. $3 million;

 

(ii)   A conventional swap in which the Companyreceives CDI and pays Dollars plus 5.985% per year, with a notional amount ofU.S.$37 million.  This swap wascontracted to reduce the loan’s cost and to adequate the Dollars outflow.  As of December 31, 2009, the fair valuereceivable was U.S.$5 million (nil at December 31, 2008);

 

(iii)  A swap with verification in which the Companyreceives LIBOR plus interest and pays 99.7% of CDI, with notional amount ofU.S.$ 50 million and maturity date at April 29, 2010.  This swap was contracted to hedge the exportcredit agreements.  As of December 31,2009, the fair value rpayable was U.S.$10 million and at December 31,2008, was a receivable of U.S.$ 3 million;

 

(iv)  Sale of Non-Deliverable Forwards (“NDF”) are over-the-countertransactions without physical delivery. It is related to a future purchase and/or sale of determined quantity ofcurrency, without initial disbursement, based on a notional amount and a strikeprice.  The notional amount was U.S.$272million and the maturity date is December 2010.  At the maturity date the result will be thedifference of the contracted rate and the maturity date rate, multiplied by thenotional amount.  As of December 31,2009, the sale average strike was U.S.$ 1.836, and the fair value receivablewas U.S.$8 million and at December 31, 2008, was a liability of U.S.$ 8;

 

(v)   Sale of CALL options.  It is related to a future sale of determinedquantity of currency, we (seller) received a premium in order to reduce thecost of debt.  The notional amount wasU.S.$90 million and the average strike price is 2.059 until May, 2010.  The fair value liability was U.S.$ 1 millionat December 31, 2009 and at December 31, 2008 was a liability ofU.S.$ 32 million; and

 

(vi)  A swap in which the Company receives LIBOR andpays fixed interest rate, with notional amount of U.S.$388 million and maturitydate up tol July, 2014.  This swap wascontracted to fix the cost of the underlying loan and reduce the financialrisk.  As of December 31, 2009, thefair value liability was U.S.$ 4 million and at December 31, 2008 was nil.

 

The following procedureswere adopted for the derivatives contract valuations at December 31, 2009:

 

(i)    Swaps - were evaluated by the future cashflow, considering the contractual rates up to maturity dates, discounted topresent value using the BM&F fixed rate curves;

 

(ii)   NDF - were evaluated by the difference of the asset estimated at each maturitydate by the vertices interpolation obtained from equivalent transactions atBM&F at December 31, 2008 and the contractual reference amount at thematurity date;

 

Our counterparties arefinancial institutions, including Banco Votorantim, a member of the VotorantimGroup.  Banco Votorantim is a commercialbanking institution and is subject to Central Bank regulations.  The rates that we negotiate with BancoVotorantim reflect those available in the current financial market.  Our treasury department also compares theserates to those offered by other banks before closing the deal in order toassure that we receive the most favorable terms and conditions available foreach transaction.

 

Derivative instrumentsare classified and demonstrated in the table below based on one of thefollowing categories:

 

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(i)    Level I - quoted prices (unadjusted) inactive markets for identical assets or liabilities that the reporting entityhas the ability to access at the measurement date.  An active market for the asset or liabilityis a market in which transactions for the asset or liability occur withsufficient frequency and volume to provide pricing information on an ongoingbasis.

 

(ii)   Level II - other than quoted prices includedwithin Level I that are observable for the asset or liability, either directlyor indirectly, such as: quoted prices for similar assets or liabilities inactive or not active markets and other than quoted prices that are observablefor the asset or liability (for example, interest rates and yield curvesobservable at commonly quoted intervals, volatilities, prepayment speeds, lossseverities, credit risks, and default rates). Determined adjustments to these inputs can be adopted to these inputs,based, for instance, on the volume and level of activity in the markets theinputs are observed.

 

(iii)  Level III - unobservable inputs for the assetor liability.  Unobservable inputs areused to measure fair value to the extent that observable inputs are notavailable and reflect the management’s assumptions about the assumptions thatmarket participants would use in pricing the asset or liability.  Unobservable inputs shall be developed basedon the best information available in the circumstances and are highly dependenton management’s judgment.

 
| ** **                                                               | ** ** | ** **   | ** ** | **At  December 31, 2009** | ** ** | **Year ended**                       | ** ** |
|--------------------------------------------------------------------------|------------|--------------|------------|--------------------------------|------------|--------------------------------------|------------|
| ** **                                                               | ** ** | **Notional** | ** ** | **Carrying**                   | ** ** | **Fair value at the reporting date** | ** ** | **December** | ** ** |
| ** **                                                               | ** ** | **amount**   | ** ** | **amount**                     | ** ** | **Level I**                          | ** ** | **Level II** | ** ** | **Level III** | ** ** | **31, 2009** | ** ** |
|                                                                     |       |         |       |                           |       |                                 |       |   |   |   |   |   |   |
| Unrealized gain (loss) from cross-currency interest  rate swaps, and NDF |       |         |       |                           |       | —                               |       |   |   |   |   |   |   |
| LIBOR x Fixed                                                            |       | 388          |       | (4                             | )          | —                               |       | 4 |   | — |   | (3 | ) |
| NDF                                                                      |       | 272          |       | 8                              |       | —                               |       | 8 |   | — |   | 2 |   |
| CDI x U.S.$ (Call’s NCE)                                       |       | 90           |       | 1                              |       | —                               |       | 1 |   | — |   | 35 |   |
| LIBOR x CDI                                                              |       | 50           |       | (10                            | )          | —                               |       | (10 | ) | — |   | (16 | ) |
| Yen x U.S.$                                                              |       | 45           |       | 4                              |       | —                               |       | 4 |   | — |   | — |   |
| CDI x U.S.$                                                              |       | 37           |       | 5                              |       | —                               |       | 5 |   | — |   | 13 |   |
| TJLP x U.S.$                                                             |       | —       |       | —                         |       | —                               |       | — |   | — |   | 63 |   |
| U.S.$ x CDI                                                         |       | —       |       | —                         |       |                                 |       | — |   |   |   | (40 | ) |
| LIBOR x U.S.$                                                            |       | —       |       | —                         |       |                                 |       | — |   |   |   | 29 |   |
| TARN                                                                     |       | —       |       | —                         |       | —                               |       | — |   | — |   | 21 |   |

 

# **ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITYSECURITIES**

#  

D.  Citibank, N.A., as depositary, has agreed toreimburse the Company for expenses it incurs that are related to theestablishment and maintenance of the ADS program.  The depositary has agreed to reimburse theCompany for its continuing and annual stock exchange listing fees.  It has also agreed to pay the standardout-of-pocket maintenance costs for the ADRs, and to reimburse the Companyannually for certain investor relations programs or special promotionalactivities.  In certain instances, thedepositary has agreed to provide additional payments to the Company based onany applicable performance indicators relating to the ADR facility.  There are limits on the amount of expensesfor which the depositary will reimburse the Company, but the amount ofreimbursement available to the Company is not necessarily tied to the amount offees the depositary collects from investors. During calendar year 2009 the depositary reimbursed the Company in theamount of U.S.$5 million.

 

The depositary collectsits fees for delivery and surrender of ADSs directly from investors depositingshares or surrendering ADSs for the purpose of withdrawal or fromintermediaries acting for them.  Thedepositary collects fees for making distributions to investors by deductingthose fees from the amounts distributed or by selling a portion ofdistributable property to pay the fees. The depositary may collect is annual fee for depositary services bydeduction from cash distributions or by directly billing investors or by chargingthe book-entry system accounts of participants acting for them.

 

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**PART II**

 

# **ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES ANDDELINQUENCIES**

#  

See discussion at “Item5.  Operating and Financial Review andProspects—B. Liquidity and Capital Resources—Covenants”.

 

# **ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OFSECURITY HOLDERS AND USE OF PROCEEDS**

#  

None.

 

# **ITEM 15.  CONTROLS AND PROCEDURES**

#  

*DisclosureControls and Procedures*:  Management, with theparticipation of our chief executive officer and our chief financial officer,after evaluating the effectiveness of our disclosure controls and procedures(as defined in the U.S. Securities Exchange Act of 1934 under Rules 13a-15(e))as of the end of the period covered by this annual report, has concluded that,as of that date, our disclosure controls and procedures were effective toprovide reasonable assurance that information required to be disclosed by us inthe reports we file or submit under the Exchange Act is recorded, processed,summarized and reported, within the time periods specified in the Commission’s rules andforms, and is accumulated and communicated to management, including our chiefexecutive officer and chief financial officer, to allow timely decisionsregarding required disclosure.

 

*Management’sReport on Internal Control over Financial Reporting*: Fibria’s management is responsible for establishing and maintainingeffective internal control over financial reporting as defined in Rules 13a-15(f) underthe Securities Exchange Act of 1934. Fibria’s internal control over financial reporting is a process designedto provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements.  Also, projectionsof any evaluation of effectiveness to future periods are subject to the riskthat controls may become inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

 

Management assessed theeffectiveness of Fibria’s internal control over financial reporting as of December 31,2008.  In making this assessment,management used the criteria set forth by the Committee of SponsoringOrganizations of the Treadway Commission in Internal Control—IntegratedFramework (COSO).  Based on thisassessment, management concluded that, as of December 31, 2009, Fibria’sinternal control over financial reporting is effective based on those criteria.

 

*Changesin internal controls*.  There was no change in our internal controlover financial reporting that occurred in the period covered by this annualreport that has materially affected, or is reasonably likely to materiallyaffect, our internal control over financial reporting.

 

*AttestationReport of the Registered Public Accounting Firm. *The effectiveness of our internal control overfinancial reporting as of December 31, 2009 has been audited byPricewaterhouseCoopers Auditores Independentes, an independent registeredpublic accounting firm, as stated in their attestation report which appearsherein.

 

# **ITEM16A.  AUDIT COMMITTEE FINANCIAL EXPERT**

#  

The Board of Directors ofthe Company has determined that Mr. Samuel Matos, a member of its Board ofDirectors and of its Audit Committee, is an audit committee financial expertwithin the meaning of Sarbanes-Oxley and related regulations.

 

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# **ITEM16B.  CODE OF ETHICS**

#  

Our Board of Directorshas adopted a code of ethics (“Code of Ethics”) that applies to all Fibria’semployees, including the members of our financial department, our chiefexecutive officer, our chief financial officer and our chief accountingofficer.  No waivers, either explicit orimplicit, of provisions of the Code of Ethics were granted to our chiefexecutive officer, chief financial officer or chief accounting officer in2009.  A copy of our Code of Ethics hasbeen filed as Exhibit 11.1 to this annual report.

 

Our Code of Ethicsaddresses, among others, the following topics:

 

·                  honest and ethical conduct, including the ethicalhandling of actual or apparent conflicts of interest between personal andprofessional relationships;

 

·                  full, fair, accurate, timely, and understandabledisclosure in reports and documents that we file with, or submit to, the SECand in other public communications made by us;

 

·                  compliance with applicable governmental laws, rules andregulations; and

 

·                  the prompt internal reporting of violations of thecode of the appropriate person or persons identified in the Code of Ethics.

 

# **ITEM16C.  PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

#  

The following table setsforth by category of service the total fees for services performed byPricewaterhouseCoopers Auditores Independentes during the fiscal years ended December 31,2009 and 2008.

 
| **Year  Ended December 31** | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------|------------|----------|------------|----------|------------|
| Audit  Fees                      |       | U.S.$    | 2,563      |     | U.S.$      | 622 |   |
| Tax  Fees                        |       | 434      |       | 276      |       |
| Audit-Related  Fees              |       | 977      |       | 109      |       |
| Total                            |       | U.S.$    | 3,973      |     | U.S.$      | 1,007 |   |

 

**AuditFees**

 

Audit fees in 2009 and2008 consisted of the aggregate fees billed by PricewaterhouseCoopers AuditoresIndependentes in connection with the integrated audit of our annual financialstatements, reviews of quarterly financial statements and statutory audits ofour subsidiaries and of our internal control over financial reporting as of December 31,2009, based on criteria established in Internal Control - Integrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

 

**TaxFees**

 

Tax fees in 2009 and 2008consisted of the aggregate fees billed by PricewaterhouseCoopers AuditoresIndependentes in connection with tax services related to the auditprocedures.  Includes fees charged inconnection with the review of the income tax returns of Fibria Celulose S.A.

 

**Audit-RelatedFees**

 

Audit-related fees in2009 consisted of the aggregate fees billed by PricewaterhouseCoopers AuditoresIndependentes in connection with the review of treasury controls and policiesto support the audit process and related to the bond offer and the Form F-4.  In 2008 consisted of the aggregate feesbilled by PricewaterhouseCoopers Auditores Independentes in connection with atentative registration statement on Form F-4 

 

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drafted in October 2008and related due diligence procedures, when Fibria first announced Aracruz’sacquisition process.

 

**Pre-ApprovalPolicies and Procedures**

 

Our Board of Directorsapproves, based on the recommendation of the Audit Committee, all audit,audit-related, tax and other services provided by PricewaterhouseCoopersAuditores Independentes.  Any servicesprovided by PricewaterhouseCoopers Auditores Independentes that are notspecifically included within the scope of the audit must be pre-approved by ourBoard of Directors in advance of any engagement.  Under the Sarbanes Oxley Act of 2002, auditcommittees are permitted to approve certain fees for audit-related, tax andother services pursuant to a *de minimis*exception prior to the completion of an audit engagement.  In 2009, 2008 and 2007 none of the fees paidto PricewaterhouseCoopers Auditores Independentes were approved pursuant to the*de minimis* exception.

 

# **ITEM16D.  EXEMPTIONS FROM THE LISTINGSTANDARDS FOR AUDIT COMMITTEES**

#  

Not applicable.

 

# **ITEM16E.  PURCHASES OF EQUITY SECURITIES BYTHE ISSUER AND AFFILIATED PURCHASERS**

#  

Treasury sharestransactions and additional paid-in capital:

 

(i)    On June 10, 2008 we repurchased2,784,091 of our own shares from CMT at an average price of U.S.$ 33.49 pershare (Note 4(a) to our consolidated financial statements).

 

(ii)   On July 14, 2008 we retired thesetreasury shares acquired reducing the corresponding balances of Additionalpaid-in capital and Retained earnings.

 

# **ITEM16F.  CHANGES IN REGISTRANT’S CERTIFYINGACCOUNTANT**

#  

Not applicable.

 

# **ITEM16G.  CORPORATE GOVERNANCE**

#  

**SignificantDifferences between our Corporate Governance Practices and NYSE CorporateGovernance Standards**

 

We are subject to theNYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us areconsiderably different than the standards applied to U.S. listed companies.  Under the NYSE rules, we are required onlyto: (i) have an audit committee or audit board, pursuant to an applicableexemption available to foreign private issuers, that meets certainrequirements, as discussed below, (ii) provide prompt certification by ourchief executive officer of any material non compliance with any corporategovernance rules, and (iii) provide a brief description of the significantdifferences between our corporate governance practices and the NYSE corporategovernance practice required to be followed by U.S. listed companies.  The discussion of the significant differencesbetween our corporate governance practices and those required of U.S. listedcompanies follows below.

 

***Majority of Independent Directors***

 

The NYSE rules requirethat a majority of the board must consist of independent directors.  Independence is defined by various criteria,including the absence of a material relationship between the director and thelisted company.  Brazilian law does nothave a similar requirement.  UnderBrazilian law, neither our Board of Directors nor our management is required totest the independence of directors before their election to the board.  However, both the Brazilian Corporate Law andthe CVM have established rules that require directors to meet certainqualification requirements and that address the compensation and duties andresponsibilities of, as well as the 

 

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restrictions applicableto, a company’s executive officers and directors.  Fibria does not have a majority ofindependent directors serving on its board of directors..

 

***Executive Sessions***

 

NYSE rules requirethat the non management directors must meet at regularly scheduled executivesessions without management.  TheBrazilian Corporate Law does not have a similar provision.  According to the Brazilian Corporate Law, upto one third of the members of the Board of Directors can be elected frommanagement.  In our case, none of themoccupies both an executive and director position.  The directors are not expressly empowered toserve as check on management and there is no requirement that our directorsmeet regularly without management.  As aresult, our directors do not typically meet in executive sessions.

 

***Nominating/Corporate Governance Committee***

 

NYSE rules requirethat listed companies have a Nominating/Corporate Governance Committee composedentirely of independent directors and governed by a written charter addressingthe committee’s required purpose and detailing its required responsibilities,which include, among other things, identifying and selecting qualified boardmember nominees and developing a set of corporate governance principlesapplicable to the company.  We are notrequired under applicable Brazilian law to have a NominatingCommittee/Corporate Governance Committee, and accordingly, to date, have notestablished such a committee.  Thedirectors are elected by our shareholders at a general shareholders’meeting.  Our corporate governancepractices are adopted by the entire board.

 

***Compensation Committee***

 

NYSE rules requirethat listed companies have a Compensation Committee composed entirely ofindependent directors and governed by a written charter addressing thecommittee’s required purpose and detailing its required responsibilities, whichinclude, among other things, reviewing corporate goals relevant to CEOcompensation, evaluating CEO performance and approving CEO compensation levelsand recommending to the board non CEO compensation, incentive compensation andequity based plans.  We are not requiredunder applicable Brazilian law to have a Compensation Committee.  Under the Brazilian Corporate Law, the totalamount available for compensation of our directors and executive officers andfor profit sharing payments to our executive officers is established by ourshareholders at the annual general meeting. The Board of Directors is then responsible for determining the individualcompensation and profit-sharing of each executive officer, as well as thecompensation of our board and committee members.  In making such determination, the boardreviews the performance of each executive officer and each of the goals theywere supposed to achieve during the year.

 

***Audit Committee***

 

Under NYSE Rule 303A.06and the requirements of Rule 10A-3 of the Securities and ExchangeCommission, domestic listed companies are required to have an audit committeeconsisting entirely of independent directors that otherwise complies with Rule 10A-3.In addition, the audit committee must have a written charter that addresses thematters outlined in NYSE Rule 303.A.06(c), has an internal audit functionand otherwise fulfills the requirements of the NYSE and Rule 10A-3. Thereis no requirement for an audit committee under Brazilian law and there arefeatures of Brazilian law that require adaptation of the independent auditcommittee rule to local practice, as permitted by NYSE Rule 303A.06and Rule 10A-3. As a foreign private issuer, Fibria is in compliance with Rule 303A.06and Rule 10A-3. Our audit committee, which is equivalent to a U.S. auditcommittee, was installed at the meeting of our Board of Directors held on December 18,2009. It complies with all of such requirements and provides assistance to ourboard of directors in matters involving our accounting, internal controls,financial reporting and compliance. The audit committee will recommend theappointment of our independent auditors to our board of directors and reviewthe compensation of, and coordinate with, our independent auditors. The auditcommittee also will evaluate the effectiveness of our internal financial andlegal compliance controls.

 

***Shareholder Approval of Equity CompensationPlans***

 

NYSE rules requirethat shareholders be given the opportunity to vote on all equity compensationplans and material revisions thereto, with limited exceptions.  Under the Brazilian Corporate Law,shareholders must approve 

 

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all stock optionplans.  In addition, any issuance of newshares that exceeds our authorized share capital is subject to shareholderapproval.  We have no equity compensationplans.

 

***Corporate Governance Guidelines***

 

NYSE rules requirethat listed companies adopt and disclose corporate governance guidelines.  We have not adopted any formal corporategovernance guidelines beyond those required by applicable Brazilian law.  We believe that the corporate governanceguidelines applicable to us under Brazilian corporate law are consistent withthe guidelines established by the NYSE.

 

***Code of Business Conduct and Ethics***

 

NYSE rules requirethat listed companies adopt and disclose a code of business conduct and ethicsfor directors, officers and employees, and promptly disclose any waivers of thecode for directors or executive officers. Applicable Brazilian law does not have a similar requirement.  However, we have amended our code of ethicsto comply with the requirements of the Sarbanes-Oxley Act and the NYSErules.  We believe our code, as amended,substantially addresses the matters required to be addressed by the NYSErules.  A copy of our Code of Ethics hasbeen filed as Exhibit 11.1 to this annual report.  For a further discussion of our Code ofEthics, see “Item 16B. — Code of Ethics.”

 

***Internal Audit Function***

 

NYSE rules requirethat listed companies maintain an internal audit function to provide managementand the audit committee with ongoing assessments of the company’s riskmanagement processes and system of internal control.  Brazilian law does not require that companiesmaintain an internal audit function. However, as a best practice, we maintain an internal auditfunction.  Our internal audit function isunder the supervision of the Chairman of the Board of Directors.

 

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**PART III**

 

# **ITEM 17.  FINANCIALSTATEMENTS**

#  

Not applicable.

 

# **ITEM 18.  FINANCIALSTATEMENTS**

#  

The following financial statements are filed as partof this annual report, together with the report of Independent RegisteredPublic Accounting Firm:

 
| Management’s Report on Internal Control Over Financial  Reporting                                                     |   | F-2    |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                       |   |   |
| Report of Independent Registered Public Accounting  Firm                                                                   |   | F-4    |
|                                                                                                                       |   |   |
| Consolidated Balance Sheets as of December 31,  2009 and 2008                                                         |   | F-7    |
|                                                                                                                       |   |   |
| Consolidated Statements of Operations for the years  ended December 31, 2009, 2008 and 2007                           |   | F-9    |
|                                                                                                                       |   |   |
| Consolidated Statements of Cash Flows for the years  ended December 31, 2009, 2008 and 2007                           |   | F-11   |
|                                                                                                                       |   |   |
| Consolidated Statements of Changes in Shareholders’  Equity for the years ended December 31, 2009, 2008 and 2007 |   | F-13   |
|                                                                                                                       |   |   |
| Notes to the Consolidated Financial Statements                                                                        |   | F-15   |

 

All schedules for which provision is made in theapplicable accounting regulations of the Commission are not required under therelated instructions or are inapplicable and therefore have been omitted.

 

# **ITEM 19.  EXHIBITS**

 
| **Exhibit********Number** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|---------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 1*****                    |       | English translation of the By-laws.                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2(a)(1)**                 |       | Form of Amended and Restated Deposit Agreement  dated as of August 12, 2009 among us, Citibank, N.A., as depositary, and  the Owners and Beneficial Owners of American Depositary Receipts, including  the form of American Depositary Receipts.                                                                                                                                                                                                              |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2(a)(2)#                  |       | Free translation of the Novo Mercado Listing Rules                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.(b)(1)***               |       | Indenture, dated January 23, 2004, among  Voto-Votorantim Overseas Trading Operations III Limited, as issuer, The Bank  of New York, as trustee, The Bank of New York, as transfer agent, paying  agent and registrar, The Bank of Tokyo-Mitsubishi Ltd., London Branch, as  principal paying agent, and Votorantim Participações S.A., Votorantim  Celulose e Papel S.A., Cimento Rio Branco S.A., and Companhia Níquel  Tocantins, as guarantors. |
|                      |       |                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| 2.(b)(2)****              |       | Indenture, dated June 24, 2005, among  Voto-Votorantim Overseas Trading Operations IV Limited, as issuer, The Bank  of New York, as trustee, The Bank of New York, as transfer agent, paying  agent and registrar, The Bank of Tokyo-Mitsubishi Ltd., London Branch, as  principal paying agent, and Votorantim Participações S.A., Votorantim  Celulose e Papel S.A., Cimento Rio                                                                       |

 

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|        |   | Branco S.A., and Companhia Níquel Tocantins, as  guarantors.                                                                                                                                                                                                                          |
|-------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                                                                                       |
| 2(b)(3)++++ |   | Indenture, dated October 30, 2009, among Fibria  Overseas Finance Ltd., as issuer, Votorantim Celulose e Papel S.A., as  guarantor, and Deutsche Bank Trust Company Americas, as trustee, registrar,  transfer agent and paying agent                                                 |
|        |   |                                                                                                                                                                                                                                                                                       |
| 2(b)(4)     |   | The Company agrees to furnish to the Commission upon  its request any instrument relating to long-term debt issued by the Company  or any subsidiary where the total amount of securities authorized under that  instrument does not exceed 10% of the Company’s consolidated assets. |
|        |   |                                                                                                                                                                                                                                                                                       |
| 3.1.+++     |   | Investment Agreement, dated January 19, 2009,  among us, VID, BNDESPar and VPar                                                                                                                                                                                                       |
|        |   |                                                                                                                                                                                                                                                                                       |
| 3.2#        |   | Form of Shareholders’ Agreement, dated  October 29, 2009, among us, VID, BNDESPar and VPar                                                                                                                                                                                  |
|        |   |                                                                                                                                                                                                                                                                                       |
| 4.1+        |   | Restated U.S.$ 223,000,000 Pre-Export Finance  Agreement as restated on 27 September, 2006 pursuant to a Restatement  Agreement dated 27 September, 2006 for Votorantim Celulose e Papel S.A. and  ABN AMRO Bank N.V.                                                                 |
|        |   |                                                                                                                                                                                                                                                                                       |
| 4.2+        |   | Exchange Agreement dated September 19, 2006 by  and between Votorantim Celulose e Papel S.A. and International Paper Investments  (Holland) B.V.                                                                                                                                 |
|        |   |                                                                                                                                                                                                                                                                                       |
| 4.3++       |   | Joint Venture Agreement dated May 8, 2007  between Votorantim Celulose e Papel S.A. and Ahlstrom Louveira Ltda.                                                                                                                                                                       |
|        |   |                                                                                                                                                                                                                                                                                       |
| 4.4++       |   | Strategic Business Agreement dated as of  August 6, 2007 between Oji Paper Co., Ltd. and Votorantim Celulose e  Papel S.A.                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                                                                       |
| 4.5+++      |   | Share Purchase Agreement, dated January 19,  2009, among us, the Families and VID.                                                                                                                                                                                                    |
|        |   |                                                                                                                                                                                                                                                                                       |
| 4.6+++      |   | Share Purchase Agreement, dated March 5, 2009,  among us, Joseph Yacoub Safra, Moise Yacoub Safra and VID.                                                                                                                                                                            |
|        |   |                                                                                                                                                                                                                                                                                       |
| 4.7+++      |   | Financing Agreement dated July, 2008 through credit  facility of R$108,000,000.00 and R$432,000,000.00 by and between the National  Bank of Economic and Social Development — BNDES, VCP                                                                                              |
|        |   |                                                                                                                                                                                                                                                                                       |
| 6#          |   | See Note 2(l) to our audited consolidated  financial statements for information explaining how earnings per share  information was calculated.                                                                                                                                   |
|        |   |                                                                                                                                                                                                                                                                                       |
| 8#          |   | See Note 2(c) to our audited consolidated  financial statements for information regarding our subsidiaries.                                                                                                                                                                      |
|        |   |                                                                                                                                                                                                                                                                                       |
| 11.1#       |   | English translation of Code of Ethics.                                                                                                                                                                                                                                                     |
|        |   |                                                                                                                                                                                                                                                                                       |
| 12.1#       |   | Rule 13a-14(a)/15(d)-14(a) Certificate of  Chief Executive Officer.                                                                                                                                                                                                              |
|        |   |                                                                                                                                                                                                                                                                                       |
| 12.2#       |   | Rule 13a-14(a)/15(d)-14(a) Certificate of  the Interim Treasury and Investor Relations Officer                                                                                                                                                                                   |
|        |   |                                                                                                                                                                                                                                                                                       |
| 12.3#       |   | Rule 13a-14(a)/15(d)-14(a)  Certificate of  the Officer for Control and Risk Management                                                                                                                                                                                          |
|        |   |                                                                                                                                                                                                                                                                                       |
| 13.1#       |   | Section 1350 Certification of Chief Executive  Officer.                                                                                                                                                                                                                               |
|        |   |                                                                                                                                                                                                                                                                                       |
| 13.2#       |   | Section 1350 Certification of the Interim  Treasury and Investor Relations Officer                                                                                                                                                                                                    |
|        |   |                                                                                                                                                                                                                                                                                       |
| 13.3#       |   | Section 1350 Certification of the Officer for  Control and Risk Management                                                                                                                                                                                                            |

 

----

| **     | Incorporated herein by  reference to our registration statement on Form F-6 filed on  June 24, 2009 (File No. 160187).                |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                 |
| ***    | Incorporated herein by  reference to our annual report on Form 20-F filed on June 30, 2004  (File No. 001-15018).                     |
|   |                                                                                                                                                 |
| ****   | Incorporated herein by  reference to our annual report on Form 20-F filed on June 29, 2006  (File No. 001-15018).                     |
|   |                                                                                                                                                 |
| *****  | Incorporated herein by  reference to our submission on From 6-K filed on October 23, 2009 (File  No. 001-15018).                           |
|   |                                                                                                                                                 |
| +      | Incorporated herein by  reference to our annual report on Form 20-F filed on February 1,  2007 (File No. 001-15018).                  |
|   |                                                                                                                                                 |
| ++     | Incorporated herein by  reference to our annual report on Form 20-F filed on January 31,  2008 (File No. 001-15018).                  |
|   |                                                                                                                                                 |
| +++    | Incorporated herein by  reference to our annual report on Form 20-F filed on June 30, 2009  (File No. 001-15018).                     |
|   |                                                                                                                                                 |
| ++++   | Incorporated herein by  reference to our filing on Amendment No. 1 to Form F-4 filed on  November 9, 2009 (File No. 333-162703). |
|   |                                                                                                                                                 |
| #      | Filed herewith.                                                                                                                                      |

 

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**SIGNATURES**

 

The registrant hereby certifies that it meets all ofthe requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.

 

 
|   | By:    | /s/ Carlos Augusto Lira  Aguiar       |
|--------|--------|---------------------------------------|
|   |   | Name:                                 | Carlos Augusto Lira Aguiar |
|   |   | Title:                                | Chief Executive Officer and Interim Treasury  and Investor Relations Officer |
|   |   |                                  |
|   |   | FIBRIA CELULOSE S.A.                  |
|   |   |                                  |
|   | By:    | /s/ Evandro César Camillo  Coura |
|   |   | Name:                                 | Evandro César Camillo Coura |
|   |   | Title:                                | Officer for Control and Risk Management |

 

 

Date:  April 30, 2010

 

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**Fibria Celulose S.A.**

**(formerly VotorantimCelulose e Papel S.A.)**

**Consolidated Financial Statements**

**as at December 31, 2009 and 2008,**

**and for the Three Years Ended**

**December 31, 2009**

**and Reports of Independent Registered**

**Public Accounting Firms**

 

**Indexto the Consolidated Financial Statements**

 
| ** **                                                             | **Page** |
|------------------------------------------------------------------------|----------|
| ** **                                                             |     |
| Management’s  Report on Internal Control Over Financial Reporting | F-2      |
| Reports of  Independent Registered Public Accounting Firms             | F-4      |
| Consolidated  Balance Sheets                                           | F-7      |
| Consolidated  Statements of Operations                                 | F-9      |
| Consolidated  Statements of Cash Flows                                 | F-11     |
| Consolidated  Statements of Changes in Shareholders’ Equity       | F-13     |
| Notes  to the Consolidated Financial Statements                        | F-15     |

 

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Table of Contents

 

**Management’s Report on InternalControl**

**over Financial Reporting**

 

1                                          The management of FibriaCelulose S.A. (formerly Votorantim Celulose e Papel S.A.) and subsidiaries (the“Company”) is responsible for establishing and maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting.

 

2                                          The Company’s internalcontrol over financial reporting is a process designed by, or under thesupervision of, the Company’s Audit Committee, principal executive andprincipal financial officers, and effected by the Company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with accounting principles generallyaccepted in the United States. The Company’s internal control overfinancial reporting includes those policies and procedures that (a) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the Company; (b) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with accounting principlesgenerally accepted in the United States, and that receipts and expenditures ofthe Company are being made only in accordance with authorizations of managementand directors of the Company; and (c) provide reasonable assuranceregarding prevention or timely detection of unauthorized acquisition, use, ordisposition of the Company’s assets that could have a material effect on theconsolidated financial statements.

 

3                                          Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect material misstatements on a timely basis. Therefore even those systemsdetermined to be effective can provide only reasonable assurance with respectto financial statement preparation and presentation. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

 

F-2

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4                                          The effectiveness of theCompany’s internal control over financial reporting as of December 31,2009, is based on the criteria established in Internal Control - IntegratedFramework issued by the Committee of Sponsoring Organizations of the TreadwayCommission (COSO). Based on that assessment, management has concluded that asof December 31, 2009 the Company’s internal control over financialreporting is effective.

 
| São Paulo, April 20, 2010 |   |                                  |
|-------------------------------------|--------|---------------------------------------|
|                                |   |                                  |
|                                |   |                                  |
| /s/ Carlos Augusto Lira  Aguiar     |   | /s/ Evandro César Camillo  Coura |
| Carlos Augusto Lira Aguiar          |   | Evandro César Camillo  Coura     |
| Chief Executive Officer             |   | Control and Risk  Management          |

 

F-3

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Table of Contents

 

**Report of Independent Registered**

**Public Accounting Firm**

 

To the Board of Directors and Shareholders

Fibria Celulose S.A.

(formerly VotorantimCelulose e Papel S.A.)

 

1                                          In our opinion, based on ouraudits and the report of other auditors, the accompanying consolidated balancesheets and the related consolidated statements of operations, of changes inshareholders’ equity and of cash flows present fairly, in all materialrespects, the financial position of Fibria Celulose S.A. and its subsidiariesat December 31, 2009 and December 31, 2008, and the results of theiroperations and their cash flows for each of the three years in the period endedDecember 31, 2009 in conformity with accounting principles generallyaccepted in the United States of America. Also in our opinion, the Companymaintained, in all material respects, effective internal control over financialreporting as of December 31, 2009, based on criteria established inInternal Control - Integrated Framework issued by the Committee of SponsoringOrganizations of the Treadway Commission (COSO).  The Company’s management is responsible forthese financial statements, for maintaining effective internal control overfinancial reporting and for its assessment of the effectiveness of internalcontrol over financial reporting, included in the accompanying Management’sReport on Internal Control over Financial Reporting. Our responsibility is toexpress opinions on these financial statements and on the Company’s internalcontrol over financial reporting based on our integrated audits. We did notaudit the financial statements of Aracruz Celulose S.A., an affiliate as of December 31, 2008, which statementsreflect an investment of US$ 135 million and for which the equity inearnings (losses) of affiliates, included in net income (loss), totaled a lossof US$ 153 million and income of US$ 52 million for the years ended December 31,2008 and 2007. The financial statements of Aracruz Celulose S.A. were auditedby other auditors whose report thereon has been furnished to us, and ouropinion on the financial statements expressed herein, insofar as it relates tothe amounts included for Aracruz Celulose S.A., is based solely on the reportof the other auditors. We conducted our audits in accordance with the standardsof the Public Company Accounting Oversight Board (United States).

 

2                                          Those standards require thatwe plan and perform the audits to obtain reasonable assurance about whether thefinancial statements are free of material misstatement and whether effectiveinternal control over financial reporting was maintained in all materialrespects. Our 

 

F-4

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audits of the financialstatements included examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements, assessing the accountingprinciples used and significant estimates made by management, and evaluatingthe overall financial statement presentation. Our audit of internal controlover financial reporting included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audits also includedperforming such other procedures as we considered necessary in thecircumstances. We believe that our audits and the report of other auditorsprovide a reasonable basis for our opinions.

 

3                                          A company’s internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and proceduresthat (i) pertain to the maintenance of records that, in reasonable detail,accurately and fairly reflect the transactions and dispositions of the assetsof the company; (ii) provide reasonable assurance that transactions arerecorded as necessary to permit preparation of financialstatements in accordance with generally accepted accounting principles, andthat receipts and expenditures of the company are being made only in accordancewith authorizations of management and directors of the company; and (iii) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use, or disposition of the company’s assets that could have amaterial effect on the financial statements.

 

4                                          Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with thepolicies or procedures may deteriorate.

 

São Paulo, April 20, 2010

 

 

/s/PricewaterhouseCoopers AuditoresIndependentes

 

F-5

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**Report of Independent Registered**

**Public Accounting Firm, on Consolidated**

**Financial Statements**

 

To the Board of Directorsand Stockholders of

AracruzCelulose S.A.

Aracruz- ES

 

We have audited theaccompanying consolidated balance sheet of Aracruz Celulose S.A. andsubsidiaries (the “Company”) as of December 31, 2008, and the relatedconsolidated statements of operations, changes in stockholders’ equity, andcash flows for each of the two years in the period ended December 31,2008. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audits provide a reasonable basisfor our opinion.

 

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of the Company as of December 31, 2008, and the resultsof its operations and cash flows for each of the two years in the period ended December 31,2008, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

 

/s/Deloitte Touche Tohmatsu Auditores Independentes

DeloitteTouche Tohmatsu Auditores Independentes

Riode Janeiro, Brazil

June 30, 2009

 

F-6

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Table of Contents

 

**FibriaCelulose S.A.**

 

**Consolidated Balance Sheets at December 31**

**Inmillions of U.S. dollars, except number of shares**

 
| ** **                            | ** ** | **Note** | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                            |       |     |       |     |       |     |       |
| **Assets**                            |       |     |       |     |       |     |       |
|                                  |       |     |       |     |       |     |       |
| Current assets                        |       |     |       |     |       |     |       |
| Cash and cash equivalents             |       |     |       | 365      |       | 280      |       |
| Trading securities                    |       |     |       | 1,812    |       | 43       |       |
| Held-to-maturity investments          |       | 6        |       | 55       |       | —   |       |
| Trade accounts receivable, net        |       | 7        |       | 1,006    |       | 151      |       |
| Inventories                           |       | 8        |       | 516      |       | 193      |       |
| Recoverable taxes                     |       |     |       | 206      |       | 73       |       |
| Deferred income tax                   |       | 5(b)     |       | —   |       | 43       |       |
| Other                                 |       |     |       | 127      |       | 32       |       |
|                                  |       |     |       |     |       |     |       |
|                                  |       |     |       | 4,087    |       | 815      |       |
|                                  |       |     |       |     |       |     |       |
| Non-current                           |       |     |       |     |       |     |       |
| Investment in affiliates              |       | 9        |       | 937      |       | 138      |       |
| Goodwill                              |       | 10       |       | 2,667    |       | 151      |       |
| Property, plant and equipment, net    |       | 11       |       | 9,271    |       | 3,866    |       |
| Intangible assets, net                |       |     |       | 401      |       | —   |       |
| Other assets                          |       |     |       |     |       |     |       |
| Held-to-maturity investments          |       | 6        |       | 38       |       | —   |       |
| Recoverable taxes                     |       |     |       | 104      |       | 105      |       |
| Accounts receivable - investment sold |       | 4(c)     |       | —   |       | 10       |       |
| Advances to suppliers                 |       |     |       | 327      |       | 7        |       |
| Judicial deposits                     |       | 17       |       | 215      |       | 130      |       |
| Other                                 |       |     |       | 37       |       | 8        |       |
|                                  |       |     |       |     |       |     |       |
|                                  |       |     |       | 721      |       | 260      |       |
|                                  |       |     |       |     |       |     |       |
| Total assets                          |       |     |       | 18,084   |       | 5,230    |       |

 

F-7

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| **Fibria  Celulose S.A.**                                 |            |
|-----------------------------------------------------------|-----------------|
|                                                      |            |
| **Consolidated  Balance Sheets at December 31**      |            |
| **In  millions of U.S. dollars, except number of shares** | **(continued)** |

 
| ** **                                                                                                                                                                     | ** ** | **Note** | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                                                                                                                                                     |       |     |       |     |       |     |       |
| **Liabilities and shareholders’ equity**                                                                                                                                  |       |     |       |     |       |     |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
| Current liabilities                                                                                                                                                            |       |     |       |     |       |     |       |
| Trade payables                                                                                                                                                                 |       |     |       | 545      |       | 65       |       |
| Short-term debt                                                                                                                                                                |       | 12       |       | 360      |       | 438      |       |
| Current portion of long-term debt                                                                                                                                              |       | 13       |       | 670      |       | 490      |       |
| Unrealized loss from cross-currency interest rate  swaps                                                                                                                       |       | 16       |       | —   |       | 97       |       |
| Payable - Aracruz acquisition                                                                                                                                                  |       | 14       |       | 1,315    |       | —   |       |
| Payroll, profit sharing and related charges                                                                                                                                    |       |     |       | 66       |       | 23       |       |
| Taxes on income and other taxes                                                                                                                                                |       |     |       | 24       |       | 5        |       |
| Other                                                                                                                                                                          |       |     |       | 37       |       | 34       |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
|                                                                                                                                                                           |       |     |       | 3,017    |       | 1,152    |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
| Non-current liabilities                                                                                                                                                        |       |     |       |     |       |     |       |
| Long-term debt                                                                                                                                                                 |       | 13       |       | 5,274    |       | 1,159    |       |
| Unrealized loss from cross-currency interest rate  swaps                                                                                                                       |       | 16       |       | —   |       | 3        |       |
| Payable - Aracruz acquisition                                                                                                                                                  |       | 14       |       | 807      |       | —   |       |
| Deferred income tax, net                                                                                                                                                       |       | 5(b)     |       | 560      |       | 204      |       |
| Accrued liabilities for legal proceedings                                                                                                                                      |       | 17       |       | 457      |       | 161      |       |
| Post-retirement benefits                                                                                                                                                       |       | 23       |       | 40       |       | 26       |       |
| Other                                                                                                                                                                          |       |     |       | 55       |       | —   |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
|                                                                                                                                                                           |       |     |       | 7,193    |       | 1,553    |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
| Commitments and contingencies                                                                                                                                                  |       | 17       |       |     |       |     |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
| Shareholders’ equity                                                                                                                                                      |       | 19       |       |     |       |     |       |
| Preferred shares (2008 - 280,000,000 no par value  shares authorized; 95,658,964 issued and outstanding)                                                                       |       |     |       | —   |       | 953      |       |
| Common shares, no par value, 529,624,961 shares  authorized, 467,934,646 shares issued and outstanding (2008 - 140,000,000  authorized and 105,702,452 issued and outstanding) |       |     |       | 2,787    |       | 1,053    |       |
| Additional paid-in capital                                                                                                                                                     |       |     |       | 2,750    |       | 35       |       |
| Appropriated retained earnings                                                                                                                                                 |       |     |       | 195      |       | 110      |       |
| Unappropriated retained earnings                                                                                                                                               |       |     |       | 1,555    |       | 1,215    |       |
| Accumulated other comprehensive income (deficit)                                                                                                                               |       |     |       |     |       |     |       |
| Cumulative translation adjustments                                                                                                                                             |       |     |       | 582      |       | (847     | )          |
| Post-retirement benefits                                                                                                                                                       |       | 23       |       | (14      | )          | 6        |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
| Equity attributable to shareholders of the Company                                                                                                                             |       |     |       | 7,855    |       | 2,525    |       |
| Equity attributable to non-controlling interest                                                                                                                                |       |     |       | 19       |       | —   |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
|                                                                                                                                                                           |       |     |       | 7,874    |       | 2,525    |       |
|                                                                                                                                                                           |       |     |       |     |       |     |       |
| Total liabilities and shareholders’ equity                                                                                                                                |       |     |       | 18,084   |       | 5,230    |       |

 

The accompanying notesare an integral part of the consolidated financial statements.

 

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| **Fibria Celulose S.A.**                                                          |   |
|-----------------------------------------------------------------------------------|--------|
|                                                                              |   |
| **Consolidated Statements of Operations**                                         |   |
| **Years  Ended December 31**                                                 |   |
| **In  millions of U.S. dollars, except number of shares and earnings per shares** |   |

 
| ** **                                                                                                 | ** ** | **Note** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| **Net operating revenue**                                                                                  |       |     |       |     |       |     |       |     |       |
| Domestic sales (net of sales taxes: 2009 - US$ 184;  2008 - US$ 223 and 2007 - US$ 226)     |       |     |       | 688      |       | 721      |       | 709      |       |
| Export sales (net of rebates: 2009 - US$ 125; 2008  and 2007 - US$ none)                         |       | 18(b)    |       | 2,112    |       | 645      |       | 624      |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
|                                                                                                       |       |     |       | 2,800    |       | 1,366    |       | 1,333    |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| **Operating costs and expenses**                                                                           |       |     |       |     |       |     |       |     |       |
| Cost of sales                                                                                              |       |     |       | 2,425    |       | 1,026    |       | 976      |       |
| Selling and marketing                                                                                      |       |     |       | 152      |       | 51       |       | 49       |       |
| General and administrative                                                                                 |       |     |       | 151      |       | 72       |       | 64       |       |
| Gain on remeasurement of original investment in  Aracruz                                                   |       | 4(e)     |       | (514     | )          | —   |       | —   |       |
| Gain on exchange of assets, net                                                                            |       | 4(b)     |       | —   |       | —   |       | (955     | )          |
| Other operating expenses, net                                                                              |       |     |       | 219      |       | 17       |       | 13       |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
|                                                                                                       |       |     |       | 2,433    |       | 1,166    |       | 147      |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| **Operating income**                                                                                       |       |     |       | 367      |       | 200      |       | 1,186    |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| **Non-operating income (expense)**                                                                         |       |     |       |     |       |     |       |     |       |
| Financial income                                                                                           |       | 21       |       | 501      |       | 149      |       | 236      |       |
| Financial expenses                                                                                         |       | 21       |       | (649     | )          | (227     | )          | (145     | )          |
| Foreign exchange gain (loss) and realized and  unrealized gain (loss) on swaps and trading securities, net |       |     |       | 1,055    |       | (593     | )          | 214      |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
|                                                                                                       |       |     |       | 907      |       | (671     | )          | 305      |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| **Income (loss) before taxes on income and equity  in affiliates**                                    |       |     |       | 1,274    |       | (471     | )          | 1,491    |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| Current income tax                                                                                         |       |     |       | 1        |       | (2       | )          | (35      | )          |
| Deferred income tax on asset exchange gain                                                                 |       |     |       | —   |       | —   |       | (327     | )          |
| Deferred income tax (expense) benefit                                                                      |       |     |       | (485     | )          | 200      |       | (21      | )          |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
|                                                                                                       |       | 5(a)     |       | (484     | )          | 198      |       | (383     | )          |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| **Income (loss) from continuing operations before  equity in earnings (losses) of affiliates**             |       |     |       | 790      |       | (273     | )          | 1,108    |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| Equity in earnings (losses) of affiliates                                                                  |       |     |       | 17       |       | (132     | )          | 113      |       |
|                                                                                                       |       |     |       |     |       |     |       |     |       |
| **Net income (loss) from continuing operations**                                                           |       |     |       | 807      |       | (405     | )          | 1,221    |       |

 

F-9

----

Tableof Contents

 
| **Fibria Celulose e Papel S.A.**                                                  |            |
|-----------------------------------------------------------------------------------|-----------------|
|                                                                              |            |
| **Consolidated  Statements of Operations**                                        |            |
| **Years  Ended December 31**                                                 |            |
| **In  millions of U.S. dollars, except number of shares and earnings per shares** | **(continued)** |

 
| ** **                                                         | ** ** | **Note** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                               |       |     |       |     |       |     |       |     |       |
| **Discontinued operations**                                        |       |     |       |     |       |     |       |     |       |
| Income from discontinued operations                                |       | 4(f)     |       | 56       |       | —   |       | —   |       |
| Income tax expense, net                                            |       | 4(f)     |       | (19      | )          | —   |       | —   |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Net income from discontinued operations**                        |       |     |       | 37       |       | —   |       | —   |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Consolidated net income (loss)**                                 |       |     |       | 844      |       | (405     | )          | 1,221    |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Less - net income attributable to  non-controlling interest**    |       |     |       | (331     | )          | —   |       | —   |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Net income (loss) attributable to shareholders  of the Company** |       |     |       | 513      |       | (405     | )          | 1,221    |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Net income applicable to preferred shares**                      |       |     |       | 393      |       | —   |       | 618      |       |
| **Net income (loss) applicable to common shares**                  |       |     |       | 120      |       | (405     | )          | 603      |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Net income (loss)**                                              |       |     |       | 513      |       | (405     | )          | 1,221    |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Basic and diluted earnings (loss) - in U.S.  dollars**           |       |     |       |     |       |     |       |     |       |
| Continuing operations                                              |       |     |       |     |       |     |       |     |       |
| Per preferred share or ADS                                         |       |     |       | 4.15     |       | —   |       | 6.28     |       |
| Per common share (2009, or ADS)                                    |       |     |       | 0.43     |       | (3.83    | )          | 5.71     |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Basic and diluted earnings - in U.S. dollars**                   |       |     |       |     |       |     |       |     |       |
| Discontinued operations                                            |       |     |       |     |       |     |       |     |       |
| Per preferred share                                                |       |     |       | 0.25     |       | —   |       | —   |       |
| Per common share or ADS                                            |       |     |       | 0.06     |       | —   |       | —   |       |
|                                                               |       |     |       |     |       |     |       |     |       |
| **Weighted average number of shares outstanding****(thousand)**    |       |     |       |     |       |     |       |     |       |
| Preferred or ADS                                                   |       |     |       | 89,406   |       | 96,888   |       | 98,444   |       |
| Common (2009, or ADS)                                              |       |     |       | 241,086  |       | 105,702  |       | 105,702  |       |

 

The accompanying notesare an integral part of the consolidated financial statements.

 

F-10

----

 

Tableof Contents

 

**FibriaCelulose S.A.**

 

**Consolidated Statements of Cash Flows**

**YearsEnded December 31**

**In millions of U.S. dollars**

 
| ** **                                                                          | ** ** | **Note**             | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|-------------------------------------------------------------------------------------|------------|----------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                                          | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash flows from operating  activities**                                           |       |                 |       |       |       |       |       |       |       |
| Net income (loss)                                                                   |       |                 |       | 844        |       | (405       | )          | 1,221      |       |
| Adjustments to reconcile  net income (loss) to cash from operations                 |       |                 |       |       |       |       |       |       |       |
| Depreciation, amortization  and depletion                                           |       |                 |       | 654        |       | 160        |       | 143        |       |
| Loss (gain) on disposal of  property, plant and equipment                           |       |                 |       | (2         | )          | 21         |       | 10         |       |
| Loss (gain) on sale of  investments                                                 |       | 4(a),(c),(d) and (f) |       | 90         |       | —     |       | (65        | )          |
| Gain on exchange of assets,  net of deferred tax of (US$ 338)                  |       | 4(b)                 |       | —     |       | —     |       | (651       | )          |
| Gain on remeasurement of  original investment in Aracruz                            |       | 4(e)                 |       | (514       | )          | —     |       | —     |       |
| Foreign exchange and  unrealized swap and trading securities(gains) losses, net     |       |                 |       | (1,055     | )          | 593        |       | (214       | )          |
| Deferred income tax                                                                 |       |                 |       | 485        |       | (200       | )          | 21         |       |
| Equity in losses (earnings)  of affiliates                                          |       |                 |       | (17        | )          | 132        |       | (113       | )          |
| Interest attributable to  capital and dividends received                            |       |                 |       | —     |       | 27         |       | 23         |       |
| Other                                                                               |       |                 |       | 376        |       | 88         |       | 23         |       |
| Decrease (increase) in  assets                                                      |       |                 |       |       |       |       |       |       |       |
| Trade accounts receivable                                                           |       |                 |       | (532       | )          | 14         |       | 36         |       |
| Inventories                                                                         |       |                 |       | (22        | )          | (7         | )          | 13         |       |
| Other assets                                                                        |       |                 |       | 305        |       | 18         |       | (95        | )          |
| Decrease in liabilities                                                             |       |                 |       | 524        |       | (53        | )          | (19        | )          |
|                                                                                |       |                 |       |       |       |       |       |       |       |
| **Net cash provided by operating  activities**                                      |       |                 |       | 1,136      |       | 388        |       | 333        |       |
|                                                                                |       |                 |       |       |       |       |       |       |       |
| **Cash flows from investing  activities**                                           |       |                 |       |       |       |       |       |       |       |
| Available for sale  securities                                                      |       |                 |       |       |       |       |       |       |       |
| Purchases                                                                           |       |                 |       | —     |       | (7         | )          | (823       | )          |
| Proceeds from sale and  maturities                                                  |       |                 |       | —     |       | 193        |       | 1,078      |       |
| Trading securities, net                                                             |       |                 |       | (1,739     | )          | (43        | )          | —     |       |
| Held-to-maturity  investments                                                       |       |                 |       | (79        | )          | —     |       | —     |       |
| Installments paid for  acquisition of Aracruz (net of cash received of US$ 60) |       | 4(e)                 |       | (635       | )          | —     |       | —     |       |
| Proceeds from sale of an  interest in an affiliate                                  |       | 4(a)                 |       | —     |       | 42         |       | 93         |       |
| Proceeds from sale of  discontinued business                                        |       | 4(f)                 |       | 1,272      |       | —     |       | —     |       |
| Acquisition of property,  plant and equipment                                       |       |                 |       | (803       | )          | (692       | )          | (477       | )          |
| Proceeds from sale of  property, plant and equipment                                |       |                 |       | 11         |       | —     |       | —     |       |
| Derivative transactions -  counterparty loans paid                                  |       |                 |       | (106       | )          | —     |       | —     |       |
| Cash and cash equivalents  received on exchange of assets                           |       |                 |       | —     |       | —     |       | (16        | )          |
|                                                                                |       |                 |       |       |       |       |       |       |       |
| **Net cash used in investing  activities**                                          |       |                 |       | (2,079     | )          | (507       | )          | (145       | )          |
|                                                                                |       |                 |       |       |       |       |       |       |       |
| **Cash flows from financing  activities**                                           |       |                 |       |       |       |       |       |       |       |
| Short-term debt                                                                     |       |                 |       |       |       |       |       |       |       |
| Borrowings                                                                          |       |                 |       | —     |       | 936        |       | 622        |       |
| Repayments                                                                          |       |                 |       | (2,457     | )          | (433       | )          | (709       | )          |
| Long-term debt                                                                      |       |                 |       |       |       |       |       |       |       |
| Third parties                                                                       |       |                 |       |       |       |       |       |       |       |
| Borrowings                                                                          |       |                 |       | 2,391      |       | 50         |       | 382        |       |
| Repayments                                                                          |       |                 |       | —     |       | (37        | )          | (240       | )          |
| Related parties                                                                     |       |                 |       |       |       |       |       |       |       |
| Borrowings                                                                          |       |                 |       | —     |       | 21         |       | 12         |       |
| Repayments                                                                          |       |                 |       | —     |       | (51        | )          | (44        | )          |
| Treasury shares                                                                     |       |                 |       |       |       |       |       |       |       |
| Acquisition and CMT  extra-judicial agreement                                       |       | 4(a)(i)              |       | —     |       | (182       | )          | —     |       |
| Capital increase                                                                    |       |                 |       | 1,307      |       | —     |       | —     |       |
| Interest attributable to  capital and dividends paid                                |       |                 |       | —     |       | (188       | )          | (136       | )          |
|                                                                                |       |                 |       |       |       |       |       |       |       |
| **Net cash provided by (used in)  financing activities**                            |       |                 |       | 1,241      |       | 116        |       | (113       | )          |

 

F-11

----

Tableof Contents

 
| **Fibria  Celulose S.A.**                  |            |
|--------------------------------------------|-----------------|
|                                       |            |
| **Consolidated  Statements of Cash Flows** |            |
| **Years  Ended December 31**          |            |
| **In  millions of U.S. dollars**           | **(continued)** |

 
| ** **                                                              | ** ** | **Note** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Effect of  exchange rate changes on cash and cash equivalents**       |       |     |       | (213     | )          | (282     | )          | 85       |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Net increase (decrease) in cash  and cash equivalents**               |       |     |       | 85       |       | (285     | )          | 160      |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Cash and cash equivalents at  beginning of year**                     |       |     |       | 280      |       | 565      |       | 405      |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Cash and cash equivalents at  end of year**                           |       |     |       | 365      |       | 280      |       | 565      |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Supplemental cash flow  information**                                 |       |     |       |     |       |     |       |     |       |
| Cash paid during the year  for                                          |       |     |       |     |       |     |       |     |       |
| Income tax                                                              |       |     |       | 1        |       | 1        |       | —   |       |
| Interest                                                                |       |     |       | 137      |       | 91       |       | 110      |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Supplemental non cash flow  information**                             |       |     |       |     |       |     |       |     |       |
| Amount payable for  acquisition of Aracruz                              |       |     |       | 2,122    |       | —   |       | —   |       |
| Exchange of shares with  BNDESPar for additional acquisition of Aracruz |       |     |       | 436      |       | —   |       | —   |       |
| Capital subscription from  the Families and the Safra family            |       |     |       | 81       |       | —   |       | —   |       |
| Acquisition of  non-controlling interest                                |       |     |       |     |       |     |       |     |       |
| Capital subscription from  non-controlling interest                     |       |     |       | 1,224    |       | —   |       | —   |       |
| Effect on Additional  paid-in capital, net of deferred tax              |       |     |       | 360      |       | —   |       | —   |       |
| Conversion of preferred  shares into common shares                      |       |     |       |     |       |     |       |     |       |
| Preferred shares cancelled                                              |       |     |       | (2,267   | )          | —   |       | —   |       |
| Common shares issued                                                    |       |     |       | 2,355    |       | —   |       | —   |       |
| Unappropriated retained  earning reduction                              |       |     |       | (88      | )          | —   |       | —   |       |
| Income tax offset with tax  credits                                     |       |     |       | 1        |       | 33       |       | 46       |       |
| Asset exchange                                                          |       | 4(b)     |       |     |       |     |       |     |       |
| Assets received (fair  value)                                           |       |     |       | —   |       | —   |       | 1,498    |       |
| Assets provided (book  value)                                           |       |     |       | —   |       | —   |       | 509      |       |

 

The accompanying notes are an integral part ofthe consolidated financial statements.

 

F-12

----

Tableof Contents

 

**FibriaCelulose S.A.**

 

**Consolidated Statements of Changes in**

**Shareholders’Equity**

**In millions of U.S. dollars, except number of shares**

 
| ** **                                                              | ** ** | **Note** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| **Preferred shares**                                                    |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                    |       |     |       | 953      |       | 953      |       | 953      |       |
| Capital increase in cash                                                |       | 4(e)     |       | 797      |       | —   |       | —   |       |
| Capital subscription from  BNDESPar                                     |       | 4(e)     |       | 436      |       | —   |       | —   |       |
| Capital subscription from  the Families and the Safra family            |       | 4(e)     |       | 81       |       | —   |       | —   |       |
| Conversion of preferred  shares into common shares                      |       | 4(e)     |       | (2,267   | )          | —   |       | —   |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| At end of year                                                          |       |     |       | —   |       | 953      |       | 953      |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Common shares**                                                       |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                    |       |     |       | 1,053    |       | 1,053    |       | 1,053    |       |
| Capital subscription from  non-controlling interest                     |       | 4(e)     |       | 1,224    |       | —   |       | —   |       |
| Capital increase in cash                                                |       | 4(e)     |       | 510      |       | —   |       | —   |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| At end of year                                                          |       |     |       | 2,787    |       | 1,053    |       | 1,053    |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Additional paid-in-capital**                                          |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                    |       |     |       | 35       |       | 35       |       | 35       |       |
| Conversion of preferred  shares into common shares                      |       |     |       | 2,355    |       | —   |       | —   |       |
| Effect of acquisition of  non-controlling interest, net of deferred tax |       |     |       | 360      |       | —   |       | —   |       |
| Gain on sale of treasury  shares                                        |       |     |       |     |       |     |       |     |       |
| Put option exercised by CMT                                             |       | 4(a)(i)  |       | —   |       | (44      | )          | —   |       |
| Shares retired                                                          |       | 4(a)(i)  |       | —   |       | 44       |       | —   |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| At end of year                                                          |       |     |       | 2,750    |       | 35       |       | 35       |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Treasury shares**                                                     |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                    |       |     |       | —   |       | (1       | )          | (1       | )          |
| Preferred shares sold (2008  - 28,900; 2007 - 3,098)                    |       |     |       | —   |       | 1        |       | —   |       |
| Put option exercised by CMT                                             |       | 4(a)(i)  |       | —   |       | (50      | )          | —   |       |
| Shares retired                                                          |       | 4(a)(i)  |       | —   |       | 50       |       | —   |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| At end of year                                                          |       |     |       | —   |       | —   |       | (1       | )          |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Appropriated retained earnings**                                      |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                    |       |     |       | 110      |       | 110      |       | 86       |       |
| Reserve for dividends  payable appropriated from retained earnings      |       |     |       | 70       |       | —   |       | —   |       |
| Transferred from  unappropriated retained earnings                      |       |     |       | 15       |       | —   |       | 24       |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| At end of year                                                          |       |     |       | 195      |       | 110      |       | 110      |       |
|                                                                    |       |     |       |     |       |     |       |     |       |
| **Unappropriated retained  earnings**                                   |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                    |       |     |       | 1,215    |       | 1,711    |       | 694      |       |
| Net income (loss)                                                       |       |     |       | 513      |       | (405     | )          | 1,221    |       |
| Transferred to appropriated  retained earnings                          |       |     |       | (85      | )          | —   |       | (24      | )          |
| Treasury shares retired                                                 |       | 4(a)(i)  |       | —   |       | (94      | )          | —   |       |
| Unclaimed dividends  forfeited                                          |       |     |       | —   |       | 3        |       | —   |       |
| Charge on conversion of  preferred shares into common shares            |       | 4(e)     |       | (88      | )          | —   |       | —   |       |
| Dividends and interest  attributed to capital                           |       |     |       |     |       |     |       |     |       |
| Preferred                                                               |       |     |       | —   |       | —   |       | (91      | )          |
| Common                                                                  |       |     |       | —   |       | —   |       | (89      | )          |
|                                                                    |       |     |       |     |       |     |       |     |       |
| At end of year                                                          |       |     |       | 1,555    |       | 1,215    |       | 1,711    |       |

 

F-13

----

Tableof Contents

 
| **Fibria  Celulose S.A.**                                 |            |
|-----------------------------------------------------------|-----------------|
|                                                      |            |
| **Consolidated  Statements of Changes in**                | ** **      |
| **Shareholders’  Equity**                            |            |
| **In  millions of U.S. dollars, except number of shares** | **(continued)** |

 
| ** **                                                                   | ** ** | **Note** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
|                                                                         |       |     |       |     |       |     |       |     |       |
| **Cumulative translation  adjustments**                                      |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                         |       |     |       | (847     | )          | 19       |       | (545     | )          |
| Translation gain (loss) for  the year                                        |       |     |       | 1,429    |       | (866     | )          | 564      |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| At end of year                                                               |       |     |       | 582      |       | (847     | )          | 19       |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| **Post-retirement benefits**                                                 |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                         |       |     |       | 6        |       | 3        |       | —   |       |
| Post-retirement benefits,  net of tax                                        |       |     |       | (20      | )          | 3        |       | 3        |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| At end of year                                                               |       |     |       | (14      | )          | 6        |       | 3        |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| **Non-controlling interest**                                                 |       |     |       |     |       |     |       |     |       |
| At beginning of year                                                         |       |     |       | —   |       | —   |       | —   |       |
| Acquisition of Aracruz                                                       |       |     |       | 874      |       | —   |       | —   |       |
| Acquisition of  Non-controlling interest                                     |       |     |       | (1,186   | )          | —   |       | —   |       |
| Net income for the year                                                      |       |     |       | 331      |       | —   |       | —   |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| At end of year                                                               |       |     |       | 19       |       | —   |       | —   |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| **Shareholders’ equity at end of  year**                                |       |     |       | 7,874    |       | 2,525    |       | 3,883    |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| **Comprehensive income (loss)  attributable to Company’s shareholders** |       |     |       |     |       |     |       |     |       |
| Net income (loss)                                                            |       |     |       | 513      |       | (405     | )          | 1,221    |       |
| Translation gain (loss) for  the year                                        |       |     |       | 869      |       | (866     | )          | 564      |       |
| Post-retirement benefits,  net of tax                                        |       |     |       | (20      | )          | 3        |       | 3        |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| **Comprehensive income (loss)  attributable to Company’s shareholders** |       |     |       | 1,362    |       | (1,268   | )          | 1,788    |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| **Comprehensive income  attributable to Non-controlling interest**           |       |     |       |     |       |     |       |     |       |
| Net income                                                                   |       |     |       | 331      |       | —   |       | —   |       |
| Translation gain for the  year                                               |       |     |       | 560      |       | —   |       | —   |       |
|                                                                         |       |     |       |     |       |     |       |     |       |
| **Comprehensive income  attributable to Non-controlling interest**           |       |     |       | 891      |       | —   |       | —   |       |

 

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

**1****            ****Operations**

 

**Business**

 

Fibria Celulose S.A. (formerly Votorantim Celulose ePapel S.A. - “VCP”) and its subsidiaries (the “Company”, “Fibria” or “we”) is alimited liability company constituted in accordance with the laws of theFederative Republic of Brazil and headquartered in São Paulo.

 

We produce eucalyptus pulp from our forestryoperations which we use in our own paper manufacturing facilities and sell theexcess in the domestic and foreign markets. Our business has experienced, andis likely to continue to experience, cycles relating to available industrycapacity and general, economic conditions. Our sales (volumes and prices) areaffected by these and other conditions which are all beyond our control. We area member of the Votorantim Group, which has other interests in Brazil andabroad, principally in cement, metallurgy, agribusiness, chemicals andfinancial services.

 

On January 21, 2009, VCP acquired an additional12.35% interest in the total share capital (28% of the voting capital) ofAracruz Celulose S.A. (“Aracruz”), increasing its voting interest to 56%.As a result of this purchase, we fully consolidated the assets, liabilities andresults of operations of Aracruz and its consolidated subsidiaries as from January 21,2009. In April 2009, VCP acquired an additional 12.35% interest in thetotal share capital (28% of the voting share capital) of Aracruz. On July 1,2009, VCP acquired a 1.34% interest in the total share capital of Aracruz(3.04% of voting share capital). On August 24, 2009, the shareholders ofthe respective companies approved a stock swap merger in which each remainingissued and outstanding common share of Aracruz was exchanged for 0.1347 of VCP’scommon shares and each remaining issued and outstanding preferred share ofAracruz was exchanged for 0.1347 of VCP’s common shares. Following the fullmerger of Aracruz into VCP, the surviving entity’s corporate name was changedto Fibria Celulose S.A., Aracruz ceased to exist and was deregistered from theU.S. Securities and Exchange Commission (“SEC”) (Note 4(e)).

 

On December 15, 2009, we sold our pulp andpaper mill located in the city of Guaíba and the timberlands associated withthis mill (the “Guaíba unit”) for US$ 1,430 (Note 4(f)).

 

On March 30, 2009, the Company’s Três Lagoasproduction unit, in the state of Mato Grosso do Sul, became operational.

 

On August 29, 2008, we sold our remaining 40%equity interest in Ahlstrom VCP Indústria de Papéis Especiais S.A. (“AhlstromVCP”) for US$ 42 (Note 4(d)).

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions ofU.S. dollars, unless otherwise stated**

 

On September 3, 2007, the Company contributed aportion of its Jacareí mill assets in exchange for a 40% interest in AhlstromVCP Indústria de Papéis Especiais S.A. (“Ahlstrom VCP”). Ahlstrom Corporation (“Ahlstrom”),contributed US$ 124 in cash in exchange for its 60% interest. On August 29,2008 the remaining 40% equity interest was sold to Ahlstrom for US$ 42(Note 4(d)).

 

On February 1, 2007 VCP and International PaperInvestments (Holland) B.V. (“International Paper”) exchanged industrial andforestry assets whereby VCP contributed a pulp and paper plant and timberlandsand received land, forests and a pulp mill under development (Note 4(b)).On June 25, 2007, VCP paid US$ 34 to International Paper for closingadjustments (Note 4(b)). The transaction was treated as a non cash exchange ofassets for accounting and tax purposes and generated no immediate taxconsequences in the companies’ operating environment.

 

Our common shares are traded on the Brazilian StockExchange (“BM&FBOVESPA”) under the symbol “FIBR3”. Our American DepositaryShares (“ADS”) are traded on the New York Stock Exchange (“NYSE”) under thesymbol “FBR”. At December 31, 2009, each ADS represents one of our commonshares (2008 - one of our preferred shares).

 

**2****                                       ****SignificantAccounting Policies**

 

**(a)****          ****Basisof presentation**

 

We have prepared our consolidated financialstatements in accordance with accounting principles generally accepted in theUnited States of America (“US GAAP”), which differ in certain respects from theaccounting principles applied by the Company in its financial statementsprepared in accordance with accounting practices generally accepted in Brazil (“BrazilianGAAP”) as filed with the Comissão de Valores Mobiliários (Brazilian SecuritiesCommission or “CVM”), or for other statutory purposes in Brazil.

 

**(b)****          ****Translationof financial statements**

 

Wetransact the majority of our business in Brazilian *reais*(“*real*”, “*reais*”or “R$”) and, therefore, have adopted the Brazilian *real*as the functional currency and have selected the United States dollar as ourreporting currency. Our affiliates located outside Brazil have elected the U.S.dollar as their functional currency until December 31, 2008. Following ouracquisition of the control and integration of the operations of Aracruz whichpreviously reported using the U.S. dollar as its functional currency, thefunctional currency for its business was 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

changedto the Brazilian *real*.

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions ofU.S. dollars, unless otherwise stated**

 

The U.S. dollar amounts for all years presented havebeen translated from *reais* amountsin accordance with the criteria set forth in Accounting Standard Codification (“ASC”)Topic 830, “Foreign Currency Matters” issued by the Financial AccountingStandards Board (“FASB”). Assets and liabilities are translated from thefunctional currency to the reporting currency using the official exchange ratesreported by the Brazilian Central Bank at the balance sheet date(December 31, 2009 -US$ 1.00 : R$ 1.7412 - December 31, 2008 - US$ 1.00 :R$ 2.3370 - December 31, 2007 - US$ 1.00 : R$ 1.7713).

 

Revenue, expenses and gains and losses aretranslated from the functional currency to the reporting currency using theweighted-average exchange rates for the year. Capital accounts are recorded athistorical exchange rates. Translation gains and losses are recorded in theCumulative Translation Adjustments account - “CTA” within shareholders’ equity.

 

**(c)****          ****Principlesof consolidation**

 

Our consolidated financial statements include theaccounts of Fibria and our directly and indirectly controlled subsidiaries.

 

The financial position and results of Aracruz andits subsidiaries are consolidated from January 21, 2009 upon theacquisition of control. The Fibria consolidated financial statements for theyear ended December 31, 2009 presents the indebtedness incurred to acquirethe Families’, the Safra family’s and the remaining common shareholders’interests including goodwill, assets acquired, liabilities assumed at fairvalue as determined by ASC 805 “Business Combination”. Accordingly, thefinancial statements as of December 31, 2009 are not fully comparable withprior periods presented (Note 4(e)).

 

The more significant subsidiaries are the following:Normus Empreendimentos e Participações Ltda. (“Normus”), Newark Financial Inc.(“Newark”), VCP North America Inc., VCP Overseas Holding KFT and VCP-MSCelulose Sul Mato-Grossense Ltda. (“VCP-MS”) all of which are wholly owned and,from January 21, 2009, Aracruz Trading S.A., Aracruz Celulose (USA) Inc.,Mucuri Agroflorestal S.A., Riocell Limited, Ara Pulp - Com. de Importação eExportação, Unipessoal Ltda. and Aracruz Trading International Commercial andServicing Limited Liability Company, the private investments funds Pulp andLyptus, in addition to Portocel - Terminal Especializado de Barra do RiachoS.A. (“Portocel”) which is 51% owned.

 

All significant intercompany accounts andtransactions, unrealized profits and intra-group profit distributions have beeneliminated on consolidation.

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

**(d)****          ****Cashand cash equivalents**

 

We consider all highly liquid investments with amaturity at acquisition of three months or less to be cash equivalents. Cashand cash equivalents are stated at cost plus accrued interest, and the balancesapproximate market values.

 

**(e)****          ****Inventories**

 

Inventories, including timber, are stated at averagecost of acquisition or production which is lower than market. We recordallowances for slow moving or obsolete inventories when deemed appropriate.

 

**(f)****           ****Investmentin affiliates and goodwill**

 

We own 50% of the voting and total shares of AsapirProdução Florestal e Comércio Ltda. (“Asapir”) and of VOTO - VotorantimOverseas Trading Operations IV Limited (“VOTO IV”). From September 3, 2007,we also owned 40% of the voting and total shares of Ahlstrom VCP, which wassold on August 29, 2008 (Note 4(d)). From January 21, 2009, followingthe acquisition of Aracruz, we own 50% and 33% of the voting and total sharesof Veracel Celulose S.A. (“Veracel”) and Aracruz Produtos de Madeira (“APM”),respectively, over which we have the ability to exercise significant influenceover operating and financial policies. These investees, which are incorporatedand domiciliated in Brazil, are accounted for using the equity method.

 

**(g)****          ****Recoverabilityof our long-lived assets and goodwill**

 

We review our property, plant and equipment forpossible impairment whenever events or changes in circumstances indicate thatthe carrying value of an asset or group of assets may not be recoverable on thebasis of undiscounted future cash flows. The reviews are carried out at thelowest level of groups of assets to which we are able to attribute identifiablelargely independent future cash flows. Asset groups are forestry projects orproduction facilities for paper and pulp. We adjust the net book value of theunderlying assets if the sum of the expected future cash flows is less thanbook value. These reviews to date have not indicated the need to recognize anyimpairment losses and have been performed following the criteria in ASC Topic360, “Property, Plant and Equipment”.

 

The Company evaluates the carrying value of goodwillannually and more frequently if events 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

occur or circumstances change that would more likelythan not reduce the fair value of the reporting unit below its carrying amount.Such circumstances could include, but are not limited 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

to: (i) a significant adverse change in legalfactors or in the business climate, (ii) unanticipated competition, or (iii) anadverse action or assessment by a regulator. When evaluating whether goodwillis impaired, the Company first compares the fair value of each reporting unitto its carrying value, including goodwill. Alternatively, the Company comparesthe fair value of the reporting unit to which the goodwill is assigned to thereporting unit’s carrying amount, including goodwill. The fair value of thereporting unit is estimated using a discounted cash flow approach. If thecarrying amount of the reporting unit exceeds its fair value, then the amountof the impairment loss must be measured. The impairment loss would becalculated by comparing the implied fair value of the reporting unit’s goodwillto its carrying amount. In calculating the implied fair value of the reportingunit’s goodwill, the fair value of the reporting unit is allocated to all ofthe other assets and liabilities of that unit based on their fair values. Theexcess of the fair value of a reporting unit over the amount assigned to itsother assets and liabilities is the implied fair value of goodwill. Animpairment loss would be recognized when the carrying amount of goodwillexceeds its implied fair value.

 

**(h)****          ****Property,Plant and Equipment**

 

Property, plant and equipment are stated at cost ofacquisition or construction, including interest during the period of construction.Expenditures which materially extend the useful lives of the existingfacilities and equipment are capitalized. We depreciate property, plant andequipment using the straight-line method at rates we consider to be compatiblewith the useful lives; in the case of VCP: principally ten years for furnitureand fixtures and five years for vehicles and capitalized software costs and 18years and three months for machinery and equipment; in the case of Aracruz: anaverage of 25 years for buildings, ten years for improvements and installationsand four to 25 years for machinery and equipment and other assets. Depletion offorests is computed using the units-of-production method, based on the volumeof timber harvested in each period. Capitalized costs are expensed using thestraight-line method. Costs related to the start-up of new facilities andre-structuring charges are expensed as incurred.

 

Forest development costs, primarily projectimplementation costs (preparation of soil, planting, pest control and clearingetc.) and on-going development costs are capitalized as incurred. As a resultof improvements in forest management techniques, including genetic improvementin trees, we harvest and replant our forests approximately every seven years.Capitalized costs are expensed at the time of each harvest.

 

We considered ASC Topic 410 “Assets Retirement andEnvironmental Obligations” in determining whether to record an asset retirementobligation for property, plant and equipment 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

and have concluded that no such adjustment wasrequired as we have no retirement obligation for which there are existing legalobligations and for which an obligation is unavoidable. The 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

Company does not have any long-lived assets that itexpects to abandon, or dispose of that would require an asset retirementobligation provision.

 

**(i)****           ****Incometaxes**

 

Brazilian taxes on income consist of federal incomeand social contribution taxes. There are no taxes levied by state or localauthorities on income in Brazil.

 

For the purposes of these financial statements, wehave applied ASC Topic 740 “Income Taxes” (“ASC Topic 740”), for all periodspresented. The effect of adjustments made to reflect the requirements of USGAAP as well as the differences between the tax bases of non-monetary assetshave been recognized as temporary differences for the purpose of recordingdeferred income taxes.

 

**(j)****           ****Revenuesand expenses**

 

We recognize revenue and associated costs of salesat the time our products are delivered to our customers which is when title andassociated risks pass to them. Revenue was recorded net of sales returns ofUS$ 10 in 2009 (US$ 9 in 2008 and US$ 8 in 2007). Our customersthat purchase on credit agree to payment terms that effectively include financecharges. The finance charge on each sale is the difference between the amountthe customer agrees to pay at the due date and the cash sale price. The financecharges are recognized over the payment period and are included in financialincome. Recognition of revenue for our two business segments and for domesticand export sales is based on the following principles:

 

(i)            Paper - domestic market - Sales are either in cashor credit terms (normally 30, 60, 90 days) or through our vendor program.Credit sales receivables are discounted to present values as our price list isdependent upon the length of credit granted. Revenue is recognized when thecustomer takes delivery of the product either upon delivery to the customer’scarrier (FOB) or premises (CIF). Sales through our vendor program are made tocertain of our pre-qualifying domestic customers (approximately 7% of accountsreceivable), and represented approximately 21% of our domestic sales in 2009(2008 - 31% and 2007 - 23%). Under the vendor program, the customer agreesto pay the bank and the bank in turn pays us on behalf of the customer for thepurchase price of the product. We guarantee full repayment of the loan forwhich the maximum allowable term for payment is generally 180 days, thoughin the case of a few customers, we extend the term to 240 days. The Companycharges the same price on vendor program sales as it does on cash-on-deliverysales. There is no embedded 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

charge for the guarantee.

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions ofU.S. dollars, unless otherwise stated**

 

(ii)           Paper - export market -Export orders are normally fulfilled from inventories maintained at our own orthird party warehouses located close to strategic markets. These sales arerecognized when products are delivered to the carrier and risks have passed tothe customer. CIF and FOB terms determine timing of revenue recognition.

 

(iii)          Pulp - domestic market -Sales are primarily under credit terms which do not exceed 30 days. Revenuerecognition is consistent with that applied to paper sales.

 

(iv)          Pulp - export market -Export orders are normally fulfilled from inventories maintained at our own orthird party warehouses located close to strategic markets. These sales arerecognized when products are delivered to the carrier and risks have passed tothe customer. Shipping and handling costs, when billed to customers in a salestransaction, are included in revenue and the related costs are charged to costof sales. These costs totaled US$ 336, US$ 92 and US$ 89 in2009, 2008 and 2007, respectively.

 

Annually, the Company considers the provisions ofASC Topic 460, “Guarantees”, and ASC Topic 605, “Revenue Recognition” (“ASCTopic 605”), in accounting for the vendor program. Guarantee income from thesearrangements is not significant and although ASC Topic 605 was considered inthe determination of how to account for a possible multiple deliverables, thesewere considered not to be material. The Company’s historical analysis indicatesthat the fair value of the guarantees is insignificant as the Company has notincurred significant losses in the past. The Company recognizes revenue foreach of the elements of the sale of the products when the customer takesdelivery and assumes risks of ownership (Note 17(j)).

 

**(k)****         ****Comprehensive Income (loss)**

 

We report comprehensive income (loss) in accordancewith ASC Topic 220, “Comprehensive Income”, and have elected to present this inthe Statement of changes in shareholders’ equity. In our case, comprehensiveincome (loss) comprises the results of operations, the translation adjustmentsincluded in the CTA component of shareholders’ equity and the post-retirementbenefits.

 

**(l)****           ****Earnings(loss) per Share**

 

Inconformity with ASC Topic 260, “Earnings per Share” (“ASC Topic 260”), we havepresented earnings per share, through the date of conversion of the preferredshares to common shares, for each class of shares, taking into account that thepreferred shares are entitled to a dividend 10% greater than that paid to thecommon shares. The computation has 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

beenmade as if the net income (loss) for each period will be fully distributed. 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

Consistent with ASC Topic 260, an entity wouldallocate losses to the preferred shares in periods of net loss if, based on thecontractual terms of the participating security, the preferred shares had notonly the right to participate in the earnings of the issuer, but also acontractual obligation to share in the losses. The Company’s preferred sharesdo not have a contractual obligation to share in the losses. Accordingly, theloss per share for the year ended December 31, 2008 was computed only forcommon shares.

 

Wemay also pay dividends in the form of interest attributed to capital inaccordance with our by-laws. At December 31, 2009 Company only has commonshares (Note 19).

 

Pursuant to ASC Topic 260-10-S99, “Earning perShares - SEC Materials”, following the exchange of preferred shares for commonshares, the excess of the fair value of the consideration transferred to theholders of the preferred stockholder over the carrying amount of the preferredstock in the balance sheet was subtracted from net income to arrive at netearnings available to common shareholders in the calculation of earnings pershare. For purposes of displaying earnings per share, the amount is treated ina manner similar to the treatment of dividends paid to the holders of thepreferred shares. The conceptual return or dividends, on preferred shares arededucted from net earnings to arrive at net earnings available to commonshareholders.

 

**(m)****         ****Use of estimates**

 

The preparation of financial statements requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesand the reported amounts of revenues and expenses. Estimates are used for, but notlimited to: accounting for allowance for doubtful accounts, inventory valuationallowances, selection of depreciable lives of assets, asset exchange, assetimpairments, tax valuation allowances, employee post-retirement benefits,uncertain tax positions, contingencies and other similar evaluations. Actualresults could differ from those estimates.

 

**(n)****          ****Employeebenefits and other related matters**

 

In2000 we launched a defined contribution plan which provides pension andpost-retirement benefits (Note 23). We also contribute to the Governmentpension, welfare and redundancy plans on behalf of our employees and thesecontributions are expensed as incurred. Most of our employees are members ofunions, with which we enter into collective-bargaining 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

arrangementsannually. The liability for future compensation for employee vacations isaccrued as earned. 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

We adopt ASC Topic 715, “Compensation - RetirementBenefits” (“ASC Topic 715”), which requires a provision for the costs ofpost-retirement benefits expected to be paid to current, former or inactiveemployees upon retirement. Expenses relating to benefits we provide to ourcurrent employees are expensed as incurred whereas those relating to retiredemployees (current as well as expected in the future) and their dependents areaccounted for in accordance with ASC Topic 715.

 

**(o)****        ****Environmental matters**

 

Our production facilities and forestry operationsare subject to a number of environmental risks which we seek to mitigate byapplying strict operating procedures and making investments in pollutioncontrol equipment and systems. Ongoing environmental compliance expendituresare expensed as incurred and new equipment and systems are capitalized. Webelieve that no provision for losses related to environmental matters iscurrently required based on prevailing laws and regulations in Brazil.

 

**(p)****          ****Held-to-maturityinvestment**

 

We consider debt securities as held-to-maturityinvestment when we intend and have the ability to hold the securities until thedue date. Held-to-maturity securities are carried at cost plus accrued incomewith is included in financial income in the statement of operations.

 

**(q)****          ****Restructuringexpenses**

 

A corporate restructuring was carried out during2008. Expenses relating primarily to employee terminations totaling US$ 4were recorded as “General and administrative expenses”.

 

**(r)****          ****Reclassifications**

 

Tobe consistent with the accounting classification previously adopted by Aracruz,during 2009 the Company changed the manner by which it classifies freightexpenses in the statement of operations (previously recorded in Selling andmarketing expenses and now classified as part of Cost of Sales). In common withmany Brazilian companies operating in the pulp export sector, the Companyconsiders freight to be part of the cost of delivering inventories to the pointof sale at which the customer takes title. As virtually all Aracruz’s sales areof pulp for the export market, this classification better reflects the natureof the costs. For the years ended December 31, 2008 and 2007, US$ 92 andUS$ 89 were reclassified from Selling and marketing expenses to Cost of sales,respectively.

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

**3****            ****RecentlyIssued Accounting Pronouncements**

 

The FASB recently issued a number of Statements ofFinancial Accounting Standards and interpretations; the standards andinterpretations described below have not had or are not expected to have amaterial impact on the financial position and results of operations of theCompany.

 

**(a)****          ****Accounting pronouncementsadopted**

 

In June 2009, the FASBissued ASC Topic105, Generally Accepted Accounting Principles. “The FASBAccounting Standards Codification and the Hierarchy of Generally AcceptedAccounting Principles - a replacement of FASB Statement No. 162” (“Codification”or “ASC Topic 105”). ASC Topic 105 is the sole source of authoritative GAAPrecognized by the FASB to be applied by nongovernmental entities. Rules andinterpretive releases of the SEC under authority of federal securities laws arealso sources of authoritative GAAP for SEC registrants. All othernon-grandfathered accounting literature is considered non-authoritative.Following the adoption of the Codification, the FASB will issue AccountingStandards Updates, which the FASB will not consider as authoritative in theirown right, but which will serve only to update the Codification, providebackground information about the guidance, and provide the bases forconclusions on the changes in the Codification. The new authoritativeguidance under ASC Topic 105, “Generally Accepted Accounting Principles” becameeffective for periods ending on or after September 15, 2009.

 

In December 2007, theFASB issued ASC Topic 805, “Business Combination” (“ASC Topic 805”), whichdefines the acquirer as the entity that obtains control of one or morebusinesses in the business combination and establishes the acquisition date asthe date that the acquirer achieves control. ASC Topic 805 did not define theacquirer, although it included guidance on identifying the acquirer, as doesthis Statement.

 

The result of applying thisstatement’s guidance on recognizing and measuring assets and liabilities in astep acquisition was to measure them at a blend of historical costs and fairvalues, a practice that provided less relevant, representationally faithful,and comparable information than the previous statement. In addition, thisstatement’s requirement to measure the non-controlling interest in the acquireeat fair value will result in recognizing the goodwill attributable to thenon-controlling interest in addition to that attributable to the acquirer,which improves the completeness of the resulting information and makes it morecomparable across entities. By applying the same method of accounting, theacquisition method, to all transactions and other events in which one entityobtains control over one or more other businesses, this statement improves thecomparability of the information about business 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S.dollars, unless otherwise stated**

 

combinations provided infinancial reports. This statement applies prospectively to business 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S.dollars, unless otherwise stated**

 

combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. The Company has appliedthis pronouncement on a prospective basis for each new business combinationeffective January 1, 2009 (Note 4(e)).

 

In December 2007, the FASB issued ASC Topic 810, “NoncontrollingInterests in Consolidated Financial Statements - an amendment of ARB no. 51” (“ASCTopic 810”), which clarifies that a non-controlling interest in a subsidiary isan ownership interest in the consolidated entity that should be reported asequity in the consolidated financial statements. This statement is effectivefor fiscal years, and interim periods within those fiscal years, beginning onor after December 15, 2008. Earlier adoption is prohibited. The presentationand disclosure requirements have been applied retrospectively for all periodspresented, as applicable.

In March 2008, the FASB issued ASC Topic 815, “Derivative andHedging” (“ASC Topic 815”). The new standard is intended to improve financialreporting about derivative instruments and hedging activities by requiringenhanced disclosures to enable investors to better understand their effects onan entity’s financial position, financial performance, and cash flows. It iseffective for financial statements issued for fiscal years and interim periodsbeginning after November 15, 2008, with early application encouraged. Therequired information is disclosed in Note 16.

 

In May 2009, the FASB issued ACS Topic 855, “Subsequent Events”.The objective of this Statement is to establish principles and requirements forsubsequent events. In particular, this Statement sets forth: (i) theperiod after the balance sheet date during which management of a reportingentity shall evaluate events or transactions that may occur for potentialrecognition or disclosure in the financial statements (ii) thecircumstances under which an entity shall recognize events or transactionsoccurring after the balance sheet date in its financial statements and (iii) thedisclosures that an entity shall make about events or transactions thatoccurred after the balance sheet date. The Company adopted this statementeffective June 30, 2009.

 

**(b)****          ****Accounting pronouncementsnot yet adopted**

 

InJune 2009, the FASB issued ASC Topic 860, “Transfers and Servicing”. Theobjective of this statement is to improve the relevance, representationalfaithfulness, and comparability of the information that a reporting entityprovides in its financial reports about a transfer of financial assets; the effectsof a transfer on its financial position, financial performance, and cash flows;and a transferor’s continuing involvement in transferred financial assets. This

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

statementmust be applied as of the beginning of each reporting entity’s first annualreporting period that begins after November 15, 2009, for interim periodswithin that first annual 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

reportingperiod and for interim and annual reporting periods thereafter. Earlierapplication is prohibited. This statement must be applied to transfersoccurring on or after the effective date. The Company does not expect theadoption to have a material impact on its consolidated financial position orresults of operations.

 

In June 2009, the FASB issued ASC Topic 810, “Consolidation”,“Amendments to FASB Interpretation No. 46”. The objective of thisstatement is to amend certain requirements of FASB Interpretation No. 46(revised December 2003), Consolidation of Variable Interest Entities, toimprove financial reporting by enterprises involved with variable interestentities and to provide more relevant and reliable information to users offinancial statements. This statement will be effective as of the beginning ofeach reporting entity’s first annual reporting period that begins after November 15,2009, for interim periods within that first annual reporting period, and forinterim and annual reporting periods thereafter. Earlier application isprohibited. The Company is currently assessing the impact of this statement onits consolidated financial statements.

 

**4****                                       ****Acquisitionor Sale of Affiliates**

 

**(a)****          ****TheRipasa transaction**

 

**(i)****           ****Acquisition**

 

In 2004 we signed an agreement to acquire aninterest in Ripasa S.A. Celulose e Papel (“Ripasa”) with its principalshareholder group through a venture we formed with Suzano Bahia Sul Papel eCelulose S.A. (“Suzano”). On March 31, 2005 the Company and Suzano eachcontributed US$ 275 as capital and formed Ripasa Participações S.A. (“Ripar”)in exchange for equal shareholder rights and responsibilities in that entity.

 

Pursuant to the agreement, the Company and Suzanoalso had a call option to acquire from the former principal shareholder ofRipasa (CMT Empreendimentos e Administração S.A. or “CMT”) additional commonshares representing 22.41% of the voting common shares and additional preferredshares that, in the aggregate, totaled 13.45% of the total capital of Ripasa.

 

As a result of the completion of a corporaterestructuring the put and call option agreements were modified to substitutethe Ripasa shares for shares of the Company and Suzano since the former Ripasaminority shareholders had exchanged their shares of Ripasa for shares of theCompany and Suzano. Accordingly, CMT had a put option that would require Fibriato 

 

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**Fibria Celulose S.A.**

 

**Notes to the Consolidated Financial Statements at December 31, 2009 and 2008, and for the Three Years Ended December 31, 2009**

**In millions of U.S. dollars, unless otherwise stated**

 

acquire 3,124,139 of its own non-voting preferredshares during a five-year period ending 

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

March 31, 2010 and we have a call option toacquire these same shares from CMT during a twelve-month period beginning March 31,2010 under the same terms, values and preceding conditions as the original calloption agreement for the *reais*equivalent of US$ 80 plus Brazilian market rate interest beginning from March 31,2005.

 

The Brazilian federal government anti-trustauthority approved the Ripasa acquisition in 2007.

 

In March 2008, CMT announced its intention to exerciseits put option related to 2,784,091 preferred shares of the Company. Pursuantto the exercise of such option by CMT, the Company and Suzano acquired sharesof their own capital, to be kept in treasury.

 

In June 2008, the CVM Board authorized the acquisitionof the shares contemplated in the Option of Purchase and Sale Agreement attheir then current market value without specific reference to the payment ofthe amount under the transaction. The Company and Suzano each acquired its ownshares from CMT at the then current market value of the shares for US$ 94,which was recorded directly in shareholders’ equity, under Treasury shares andas Additional paid-in capital, and executed an extra-judicial agreement withCMT, for the payment of US$ 88, recorded under “Financial expenses”, inconsideration for CMT’s waiver for any rights against the Company in regards tothe acquisition of the above mentioned shares and the Option Agreement. In July 2008the Company retired the 2,784,091 preferred shares which were held in treasurythereby reducing the corresponding amounts in “Additional paid-in capital” and “Treasuryshares” by charging “Retained earnings”.

 

Following the conversion of our preferred shares tocommon shares, 340,048 preferred shares were converted into 309,444 commonshares which remain encumbered and unavailable for the exercise of the option,under the Option of Purchase and Sale Agreement. At December 31, 2009,their contractually stipulated acquisition cost is the *reais*equivalent of US$ 23. However, until such time as the restrictions on thesale of these shares by CMT are lifted (item (iii) below), the Companybelieves the fair value of its obligation to meet the put option isinsignificant. Accordingly, no liability has been recorded in Fibria’sfinancial statements with respect to the option related to these shares.

 

**(ii)****                              ****Restructuring**

 

In 2005 Suzano and Ripasa agreed to allow CMT,representing 13.45% of Ripasa’s total capital, and the remaining minoritypreferred shareholders of Ripasa, representing 40.49% of its total capital, toexchange their common and preferred shares for shares of the Company andSuzano,. The restructuring plan involved two phases: (i) the merger ofRipasa into Ripar 

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

and (ii) the distribution of assets to theCompany and Suzano, in equal parts. In 2006, the Company and Suzano jointlybecame the sole owners of all Ripasa Ripar was liquidated by 

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

dissolution and its only assets, the shares inRipasa, were distributed equally to both the Company and Suzano. As a result,the Company became the direct holder of its 50% interest in Ripasa.

 

**(iii)****                          ****Valuationof the put/call options**

 

CMT owns Company preferred shares (now converted tocommons shares) that are still subject to encumbrances under a legal orderfiled by a government agency as collateral to a legal proceeding to which CMT isa party. The options are accounted for as derivative instruments pursuant toACS Topic 815, “Derivatives and Hedging”, which requires, among otherthings, that these instruments be initially recognized at their fair values asof May 2006 and subsequent fair value changes be recognized in thestatement of operations for the period.

 

In the event the restrictions on sale are lifted andthe option becomes exercisable, the Company will record the fair value of itsshares acquired directly in “Additional paid-in capital” in shareholders’equity and the difference in earnings of the period in which the restrictionsare lifted.

 

**(iv)****                             ****Dispositionof non-core assets**

 

In 2007 the Company and Suzano agreed to dispose ofcertain non core Ripasa assets, as follows: (i) the Company agreed to sellits interest in the in Embu unit to Suzano for US$ 20 generating a loss ofUS$ 12, including the write-off of goodwill; and (ii) to sell theCubatão and Limeira units to a third party in which both the Company and Suzanoreceived US$ 32, generating a loss to the Company of US$ 4, includingthe write-off of goodwill.

 

In 2008, the remaining Ripasa unsold assets, with abook value of US$ 29 were contributed as the start-up capital of Asapir, anewly incorporated Brazilian company.

 

**(v)****                                 ****TheRipasa Consortium - Conpacel**

 

The Company participates in a cost and productionsharing venture with Suzano which operates a pulp and paper plant in Americana,São Paulo. Under the various agreements, the members each have a 50% undividedinterests in assets, liabilities and operations of the venture. Fibria isentitled to 50% of the Consortium’s production beginning September 1,2008.

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

Brazilianlaw specifies that such consortium contracts do not constitute legal entities.Each of the legal entities party to a consortium contract is responsible onlyfor its contractually defined obligations. The bankruptcy of one of the legalentities does not impact the legal obligations

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

andrights of the other parties, the debts and assets of the bankrupt entity relateonly to that entity according to contractual conditions.

 

The Consortium contractdefines the obligations and responsibilities of each party; the rights torevenues, management of operations and accounting. The Consortium term is for30 years unless wound-up through deliberation of the parties, bankruptcy or settlement.

 

Each party has 50% of the specific assets,liabilities and costs, and each legal entity is obligated to make paymentsbased on the Consortium agreement. The payments made by the Company and Suzano,as well as the budget for capital expenditures, are defined by the independentGeneral Manager. The Company and Suzano agree to make payments in accordancewith the decisions of the independent General Manager.

 

As no separate legal entity exists, there is noconsolidation of a separate entity. As per ASC Topic 323, “Investments - EquityMethod and Joint Ventures”, Fibria accounts for its rights and obligationsaccording to its undivided interest as defined in the Consortium agreement, andrecords them as part of Company’s operations according to their nature.

 

The carrying value of 50% of Conpacel’s net assetsat August 31, 2008 which represents the undivided interest of the Companyis demonstrated below:

 
| Assets                                 |   |   |   |
|----------------------------------------|--------|--------|--------|
| Current  assets                        |   | 43     |   |
| Non-current  assets                    |   |   |   |
| Property,  plant and equipment at cost |   | 596    |   |
| Other  non-current assets              |   | 38     |   |
| Liabilities                            |   |   |   |
| Current  liabilities                   |   | (59    | )      |
| Non-current  liabilities               |   | (177   | )      |
|                                   |   |   |   |
| Net  assets                            |   | 441    |   |

 

**(b)****                                ****TheInternational Paper asset exchange**

 

In 2006, the Company entered into an ExchangeAgreement with International Paper to exchange industrial and forestry assetsbetween the two entities whereby the Company transferred to International Paperits pulp and paper plant located in Luiz Antonio and the plant’s relatedtimberlands. International Paper in turn, transferred to the Company assets 

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

used for the production of eucalyptus pulp,including: land, forests, and all rights related to an eucalyptus pulp milldevelopment and construction project with a fair value of US$ 1,150, 

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

located in Três Lagoas. The assets received by theCompany are held by its wholly-owned subsidiary VCP-MS.

 

As a result of this operation the Company recordedan initial gain on exchange of assets of US$ 989 and a deferred income taxliability of US$ 344. The deferred tax liability was recorded inrecognition that this non cash gain is a temporary difference under US GAAP.Pursuant to ASC Topic 845 “Nonmonetary Transactions”, the fair value of theassets surrendered was used when measuring the cost of an exchange transactionin order to determine the gain or loss to be recognized. Pursuant to anamendment to the agreement all financial income accruing from the funds whichwere placed in trust were applied, exclusively, to the project underconstruction.

 

In June 2007, pursuant to the ExchangeAgreement, the parties finalized adjustments that resulted in a cash disbursementby the Company to International Paper of US$ 34, reducing the total gainto US$ 955 and deferred income tax expense to US$ 327.

 

The net assets provided to International Paper, atbook value, and the net assets received from International Paper, at fairvalue, are summarized below:

 
| ** **                            | ** ** | **Net assets**   | ** ** | **Net assets**   | ** ** |
|---------------------------------------|------------|------------------|------------|------------------|------------|
| ** **                            | ** ** | **provided**     | ** ** | **received**     | ** ** |
| ** **                            | ** ** | **(Book value)** | ** ** | **(Fair value)** | ** ** |
|                                  |       |             |       |             |       |
| Current assets                        |       | 118              |       | 62               |       |
| Non-current assets                    |       | 7                |       | 6                |       |
| Property, plant and  equipment, net   |       | 406              |       | 1,527            |       |
|                                  |       |             |       |             |       |
| Total assets                          |       | 531              |       | 1,595            |       |
|                                  |       |             |       |             |       |
| Liabilities                           |       | (22              | )          | (97              | )          |
|                                  |       |             |       |             |       |
| Total shareholders’  equity      |       | 509              |       | 1,498            |       |
|                                  |       |             |       |             |       |
| Gain on exchange of  assets (pre-tax) |       |             |       | 989              |       |

 

The Três Lagoas projectbecame operational on March 31, 2009.

 

This transaction wasapproved by the Brazilian antitrust authorities, without any significantrestriction.

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

**(c)****                                ****TheMogi das Cruzes unit disposition**

 

In, 2007, the Company signed an agreement to sellits Mogi das Cruzes production unit for US$ 27, generating a gain ofUS$ 9 recorded as “Other operating (income) expenses, net”.

 

**(d)****                                ****TheAhlstrom VCP disposition**

 

In 2007, the Company sold 60% of the assets toAhlstrom Louveira Ltda., a Brazilian subsidiary of Ahlstrom, for US$ 48,generating a gain of US$ 15, net of tax of US$ 8, recorded in “Non-operatingincome”. The remaining 40% interest was sold to Ahlstrom in August 2008for US$ 42 in a single transaction.

 

**(e)****                                ****TheAracruz acquisition**

 

In 2001 we acquired a 28%interest in the voting capital and a 12.35% economic interest in AracruzCelulose S.A. (“Aracruz”), a limited liability company constituted inaccordance with the laws of the Federative Republic of Brazil and headquarteredin the state of Espírito Santo.

 

On January 21, 2009the Company acquired 28% of the voting capital (12.35% of the total capital) ofAracruz upon the purchase ofArapar S.A. (“Arapar”) and São Teófilo Representação e Particapações S.A. (“SãoTeófilo”), which were owned by members of the Lorentzen, Moreira Salles andAlmeida Braga families (the “Families”). Under the purchase agreement for theseshares, the purchase price is payable in six semi-annual installments, free ofinterest or indexation adjustments. The interest has been imputed based on 130%of the Brazilian Interbank Deposit Certificate (“CDI”). The first installmentof R$ 500 million (equivalent to US$ 212) was paid on that date.

 

At an Extraordinary General Meeting on February 6,2009, as consequence of the change of control described above, the shareholdersapproved the issue of 62,105,263 common shares and up to 161,789,474 preferredshares at a unit price of R$ 19.00 per share, via a private subscription,for a capital increase of up to R$ 4,254 million (equivalent ofUS$ 1,877 at the exchange rate of February 6, 2009). The capitalincrease occurred at various dates as described below:

 

Pursuant to thedeliberations at the February 6, 2009 Extraordinary General Meeting, thecapital increases ((i) and (ii) below) were made on April 29,2009 and (iii) through (v) were ratified on May 27, 2009 at anExtraordinary General Meeting on that date called specifically 

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

for this purpose:

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

(i)                  the Safra family subscribed 4,537,335 preferred shares for R$ 86million (equivalent of US$ 40 at the April 29, 2009 exchange rate);

 

(ii)               theFamilies subscribed 4,763,249 preferred shares for R$ 91 million(equivalent of US$ 41 at the April 29, 2009 exchange rate);

 

(iii)            VotorantimInvestimentos Industriais S.A. (“VID”), shareholder, exercised its pre-emptiveright to subscribed 62,105,263 common shares with a total value ofR$ 1,180 million (equivalent of US$ 255 at the January 21, 2009and US$ 255 at the March 27, 2009 exchange rates);

 

(iv)           BNDESPar,holder of 56,880,857 common shares of Aracruz, subscribed 43,588,699 preferredshares of VCP, utilizing its 12.49% common shares of Aracruz (or 5.51% of itstotal capital) for a total amount of R$ 864 million (equivalent ofUS$ 438 at the May 29, 2009 exchange rate); and

 

(v)              BNDESParwill guarantee the subscription and payment of up to 95,789,517 preferredshares and or the unsubscribed preferred shares of VCP up to R$ 1,820million (equivalent of US$ 507 at the March 30, 2009 and US$ 290at the April 29, 2009 exchange rates), requiring VID to transfer toBNDESPar, the preemptive right to subscribe to these preferred shares thatremain after the subscription.

 

On March 5, 2009, Messrs. JosephYacoub Safra and Moises Yacoub Safra (the “Safra” family) waived theirright-of-first refusal in relation to VCP’s proposal to acquire Aracruz sharesfrom the Families and announced their intention to exercise their tag alongright. Upon exercise of such tag along rights, VCP acquired the interest heldin Aracruz by the Safra family and, at the closing date of April 29, 2009,owned 84% of the voting capital of Aracruz (37.05% of the total capital). Thenominal amount of the total transaction was R$ 5,420 million (equivalent toUS$ 2,302, at the January 21, 2009 exchange rate) and its presentvalue at January 21, 2009 was approximately R$ 4,700 million (equivalentto US$ 1,996 at the January 21, 2009 exchange rate).

 

On April 30, 2009 the transaction was completedwith the Safra family and the first installment was paid in the amount ofR$ 500 million (equivalent to US$ 229). The remaining installmentsbased on the same terms and conditions agreed upon the sale by the Families,with the exception of the second installment, the maturity of which waspostponed from July 2009 to October 2010 by mutual agreement of theparties. As a result, this installment will bear interest of 105% of CDI fromits original due date until its maturity date (Note 14).

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

On July 1, 2009 the Company acquired commonshares from remaining non-controlling shareholders of Aracruz following theconclusion of a public tender offer. The terms and conditions of the tenderoffer and purchase price were the same as those of the Families and the Safrafamily. Payments of the first and second installments occurred on July 6,2009 in the amount of R$ 88 million (equivalent to US$ 46 at theexchange rate at that date) with the remaining installments of R$ 148million (equivalent to US$ 75 at the July 6, 2009 exchange rate) duethrough July 2011.

 

OnJuly 17, 2009, the Board of Directors of both VCP and Aracruz announcedtheir approval of a plan to exchange all of the outstanding preferred shares ofAracruz for common shares of VCP at the exchange ratio of one preferred shareof Aracruz to 0.1347 common share of VCP. This exchange ratio had beenpreviously examined and approved by the respective companies’ financialadvisors and independent advisory committee established specifically for thistask.

 

OnAugust 24, 2009, the Extraordinary General Meeting of VCP and Aracruzapproved the merger of the entire Aracruz capital stock by VCP, under the termsand conditions approved by the related Boards of Directors. The ExtraordinaryGeneral Meeting ratified the acquisition of the control of Aracruz, pursuant toArticle 256 of the Brazilian Corporate Law. Consequently, the last day inwhich Aracruz’s shares were traded on BM&FBOVESPA and on NYSE was November 17,2009. The Aracuz’s shares originally held in custody to Aracruz’s ADS migratedto the Company’s common share.

 

On November 5, 2009the Extraordinary General Meeting agreed to change the Company’s name to FibriaCelulose S.A. and authorize the officers to take any and all actions necessaryfor the Company to transfer its BMF&BOVESPA listing to the *Novo Mercado.*

 

On November 12, 2009, the Aracruz preferredshareholders exercised their appraisal rights exchanging their shares for theCompany’s common shares based on the approval of a plan to exchange all of theoutstanding preferred shares of Aracruz for common shares of VCP at theexchange ratio of one preferred share of Aracruz to 0.1347 common share of VCPannounced at July 17, 2009. This exchange ratio had been previouslyexamined and approved by the respective companies’ financial advisors andindependent advisory committee established specifically for this task and asconsequence the Company issued 77,770,294 new common shares, without par value,increasing its capital by US$ 1,224.

 

On December 22, 2009,Extraordinary General Meetings approved the merger of Aracruz, not increasingits capital, which was concluded at December 31, 2009.

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

Assets acquired, liabilitiesassumed and allocation of goodwill:

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

Under ASC Topic 805, the Company is required tore-measure previously held equity interests to fair value at the date of thecontrol acquisition (in this case, January 21, 2009), and record the gainor loss directly to the statement of operations. The gain recognized as aresult of remeasuring to fair value our original 12.35% economic interest inAracruz was recorded in “Operating income (expenses)”, net as summarized below:

 
| The  original Aracruz common shares - in thousands                                 |   | 127,506 |   |
|------------------------------------------------------------------------------------|--------|---------|--------|
| Quoted  price at January 21, 2009 (R$ 12.65 equivalent to US$ 5.45) |   | 5.45    |   |
|                                                                               |   |    |   |
| Fair  value of our initial investment in Aracruz                                   |   | 695     |   |
|                                                                               |   |    |   |
| Less  carrying amount                                                              |   |    |   |
| Investment  balance                                                                |   | (116    | )      |
| Goodwill  balance                                                                  |   | (19     | )      |
| Tax  effect on impairment provision of Aracruz investment                          |   | (46     | )      |
|                                                                               |   |    |   |
| Pre-tax  gain                                                                      |   | 514     |   |

 

Thefollowing table summarizes the consideration for the purchase of Aracruz andthe allocation of the assets acquired and liabilities assumed that wererecognized at the acquisition date, the fair value at the acquisition date ofthe non-controlling interest and the determination of goodwill:

 
| ** **                                                                                                                                                | ** ** | **At January  21, 2009** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|
|                                                                                                                                                      |       |                     |       |
| Purchase  price consideration                                                                                                                             |       |                     |       |
| Present  value of the amount to be paid for the Families and the Safra family (US$ 1,000 plus US$ 991, respectively)                            |       | 1,991                    |       |
| Fair  value of our original investment in Aracruz                                                                                                         |       | 695                      |       |
|                                                                                                                                                      |       |                     |       |
| Total  purchase price consideration                                                                                                                       |       | 2,686                    |       |
|                                                                                                                                                      |       |                     |       |
| Acquisition-related  costs (included in General and administrative expenses included in statement  of operations for period ended December 31, 2009) |       | 12                       |       |
|                                                                                                                                                      |       |                     |       |
| Identifiable  assets acquired and liabilities assumed                                                                                                     |       |                     |       |
| Short-term  financial assets                                                                                                                              |       | 426                      |       |
| Inventory                                                                                                                                                 |       | 270                      |       |
| Property,  plant and equipment                                                                                                                            |       | 3,726                    |       |
| Identified  intangible assets                                                                                                                             |       | 331                      |       |
| Other  assets                                                                                                                                             |       | 1,809                    |       |

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 
| ** **                                             | ** ** | **At January  21, 2009** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|
|                                                   |       |                     |       |
| Financial  liabilities                                 |       | (3,886                   | )          |
| Liability  arising from contingencies                  |       | (17                      | )          |
| Deferred  tax liability on step - up of net assets     |       | (573                     | )          |
| Other  liabilities                                     |       | (452                     | )          |
|                                                   |       |                     |       |
| Total  shareholders’ equity - 100%                |       | 1,634                    |       |
|                                                   |       |                     |       |
| Fair  value of the non-controlling interest in Aracruz |       | (874                     | )          |
| Goodwill                                               |       | 1,926                    |       |
|                                                   |       |                     |       |
| Total  purchase price consideration                    |       | 2,686                    |       |

 

The fair market values were determined by managementas supported by reports of independent financial advisors.

 

Asof December 31, 2009, there were no effects of measurement periodadjustments on the goodwill and on provision for contingencies. The Company hasconcluded the analysis of current issues and no adjustments were recorded afterthe acquisition date.

 

Thegoodwill of US$ 1,926 was assigned to Aracruz’s pulp segment. The deferredtax effects do not contemplate the possible effects of the tax deductibility ofgoodwill for Brazilian income tax purposes (R$ 2,312 million equivalent toUS$ 1,328 at January 21, 2009 exchange rate).

 

Thefair value of the non-controlling interest in Aracruz was determined byapplying the market approach, based on the quoted price at January 21,2009. The acquisitions of the non-controllinginterests were recorded based on fair values and the total amount ofUS$ 360 was credited to the “Additional paid in capital”.

 

The following table sets forth the components of theidentified intangibles assets acquired with finite lives, which are beingamortized over their estimated useful lives on a straight-line basis with noresidual value:

 
| ** **                      | ** ** | **Useful  lives**          | ** ** | **Fair value** | ** ** |
|---------------------------------|------------|----------------------------|------------|----------------|------------|
|                            |       |                       |       |           |       |
| Database                        |       | Ten years                  |       | 194            |       |
| Patents                         |       | Six years and three months |       | 55             |       |
| Chemical  supplier relationship |       | 16 years                   |       | 70             |       |
| Others  supplier relationships  |       | Four years and five months |       | 12             |       |
|                            |       |                       |       | 331            |       |

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

The fair value of identified intangible assetsacquired was determined using the income approach, which discounted expectedfuture cash flows to present value. The cash flows were discounted at a rate of8.55% p.a.

 

The following table summarizes the unauditedfinancial information related to the pro forma net operating revenue and lossof the combined entity (VCP and Aracruz) assuming the acquisition of Aracruzhad occurred on January 1, 2008, the investment was accounted for on aconsolidated basis and amortization of finite intangible assets had beeneffected. The pro forma of the result of operations for 2009 of the transactionwhich resulted in the consolidation as from January 21, 2009 is notpresented due to immateriality.

 
| ** **                                                                                  | ** ** | **Net  operating********revenue** | ** ** | **Loss  before  non-  controlling  interest** | ** ** |
|---------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                  | ** ** | **(Unaudited)**                   | ** ** | **(Unaudited)**                               | ** ** |
|                                                                                        |       |                              |       |                                          |       |
| Pro  forma from January 1, 2008 through December 31, 2008 of the  combined entity |       | 2,988                             |       | (1,595                                        | )          |

 

Theunaudited pro forma combined results of operations may not be indicative of theactual results that would have been generated had the acquisition occurred at January 1,2008.

 

The following demonstrates the net operating revenueand net income from Aracruz included in the Company’s statement of operationsfor the year ended December 31, 2009:

 
| ** **                                                | ** ** | **Net  operating********revenue** | ** ** | **Net income  before non-  controlling  interest and  discontinued  operations** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|----------------------------------------------------------------------------------|------------|
|                                                      |       |                              |       |                                                                             |       |
| From  January 1, 2009 through December 31, 2009 |       | 1,444                             |       | 473                                                                              |       |

 

**(f)****                                  ****Thedisposition of the Guaíba unit (discontinued operations)**

 

On December 15, 2009 the Company concluded thesale to Empresas CMPC S.A., a company based in Santiago, Chile, of the 100% ofthe assets encompassing industrial installations, land 

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

and forests that together are known as the GuaíbaUnit, located in the municipality of Guaíba

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

in the state of Rio Grande do Sul. The original saleconsideration of US$ 1,430 was reduced by US$ 20 for adjustments toleased assets (not impacting cash) and US$ 28 related to physical forestrymeasurements. The transaction generated a loss of US$ 90, recorded inOther operating (expense) income, net. This unit was a part of the Aracruzbusiness and was not consolidated in 2008 and 2007. The disposition of theGuaíba unit has been treated as a discontinued operation.

 

On December 15, 2009 the Company receivedUS$ 1,300 and in January 2010 received a further installment ofUS$ 80. The balance was received in the first quarter of 2010, afterconfirmation of the physical forest measurements.

 

**5****                                       ****IncomeTaxes**

 

Income taxes in Brazilinclude federal income tax and social contribution. The composite tax rate onadjusted taxable income is 34%. Taxes on income are based on adjusted taxableincome determined under Brazilian tax regulations. The Company is also subjectto tax in certain foreign jurisdictions.

 

**(a)****                                ****Incometax analysis**

 

The statutory rate applied to income before taxes isreconciled to income tax expense (benefit), as follows:

 
| ** **                                                        | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                              |       |     |       |     |       |     |       |
| Income  (loss) before taxes on income and discontinued operations |       | 1,291    |       | (471     | )          | 1,491    |       |
|                                                              |       |     |       |     |       |     |       |
| Income  tax benefit (expense) at statutory tax rate - 34%         |       | (439     | )          | 160      |       | (507     | )          |
|                                                              |       |     |       |     |       |     |       |
| Reconciliation  of statutory to effective rate                    |       |     |       |     |       |     |       |
| Benefit  from interest attributable to capital                    |       | —   |       | —   |       | 56       |       |
| Equity  in earnings (losses) of affiliates                        |       | 6        |       | (45      | )          | 39       |       |
| Differences  in foreign income tax rate                           |       | 4        |       | 67       |       | 23       |       |
| Other                                                             |       | (55      | )          | 16       |       | 6        |       |
|                                                              |       |     |       |     |       |     |       |
| Income  tax (expense) benefit                                     |       | (484     | )          | 198      |       | (383     | )          |

 

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** **

**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

**(b)****                                ****Analysisof deferred tax balances**

** **
| ** **                                                               | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                               | ** ** | **2009**              | ** ** | **2008** | ** ** |
|                                                                     |       |                  |       |   |   |
| Deferred  tax assets                                                     |       |                  |       |   |   |
| Temporary  differences                                                   |       | 447                   |       | 127 |   |
| Tax  loss carryforwards                                                  |       | 446                   |       | 104 |   |
| Tax  effects on impairment of Aracruz investment                         |       | —                |       | 46 |   |
| Others  adjustments                                                      |       | 35                    |       | 14 |   |
| Valuation  allowance                                                     |       | (272                  | )          | — |   |
|                                                                     |       |                  |       |   |   |
| Total  deferred tax assets                                               |       | 656                   |       | 291 |   |
|                                                                     |       |                  |       |   |   |
| Less  - current portion                                                  |       | —                |       | (43 | ) |
|                                                                     |       |                  |       |   |   |
| Total  deferred tax assets non-current portion                           |       | 656                   |       | 248 |   |
|                                                                     |       |                  |       |   |   |
| Deferred  tax liabilities                                                |       |                  |       |   |   |
| Temporary  differences                                                   |       | (281                  | )          | — |   |
| US  GAAP adjustments                                                     |       |                  |       |   |   |
| Gain  on exchange of assets (Note 4(b))                                  |       | (392                  | )          | (356 | ) |
| Tax  effect on fair value of property, plant and equipment               |       | (311                  | )          | — |   |
| Gain  on remeasurement of our original investment in Aracruz (Note 4(e)) |       | (232                  | )          | — |   |
| Other                                                                    |       | —                |       | (96 | ) |
|                                                                     |       |                  |       |   |   |
| Total  deferred tax liabilities                                          |       | (1,216                | )          | (452 | ) |
|                                                                     |       |                  |       |   |   |
| Net  deferred tax liabilities non-current portion                        |       | (560                  | )          | (204 | ) |

 

We recognize deferred tax assets and liabilitiesbased on the temporary differences between the financial statement carryingamounts and the tax basis of assets and liabilities. If we or one of oursubsidiaries operate at a loss or are unable to generate sufficient futuretaxable income, or if there is a material change in the actual effective taxrates or time period over which the underlying temporary differences becometaxable or deductible, we evaluate the need to establish a valuation allowanceagainst all or a significant portion of our deferred tax assets resulting in anincrease in our effective tax rate.

 

Netdeferred income tax assets include Brazilian net operating losses, which haveno expiration dates, and are available for offset against future taxableincome. Brazilian carryforward losses are available to offset up to 30% of annualincome before tax in any year, 

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

asdetermined in accordance with the Brazilian Corporation Law. Tax losses are notinflation-indexed.

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

Adeferred tax assets arising from Aracruz acquired temporary differences thatwill only be realized when the Company generates gains on certain derivativetransactions has been offset by a valuation allowance. The changes in thevaluation allowance during 2009 were as follows:

 
| ** **                                                  | ** ** | **December 31,  2009** | ** ** |
|-------------------------------------------------------------|------------|-----------------------------|------------|
|                                                        | ** ** | ** **                  |       |
| At beginning of the  year                                   |       | —                      |       |
|                                                        |       |                        |       |
| Valuation allowance  recognized upon acquisition of Aracruz |       | 213                         |       |
| Gain realized from on  derivative transactions              |       | (9                          | )          |
| Exchange loss for the  period                               |       | 68                          |       |
|                                                        |       |                        |       |
| At end of the year                                          |       | 272                         |       |

 

**6****                                        ****Held-to-maturityInvestments**

 
| ** **                                    | ** ** | **December** | ** ** | **December** | ** ** |
|-----------------------------------------------|------------|--------------|------------|--------------|------------|
| ** **                                    | ** ** | **31, 2009** | ** ** | **31, 2008** | ** ** |
|                                          |       |         |       |         |       |
| Bank Deposit Receipts  denominated in *reais* |       | 93           |       | —       |       |
|                                          |       |         |       |         |       |
| Less - current portion                        |       | (55          | )          | —       |       |
|                                          |       |         |       |         |       |
| Non - current portion                         |       | 38           |       | —       |       |

 

The Company holds investments in the originalamounts of US$ 24 with a short-term fixed rate of 9.25% p.a., equivalentto 101.2% of CDI, US$ 23 with a long-term fixed rate of 9.62% p.a.,maturing in July 2010, equivalent to 102.2% of CDI and US$ 32 at along-term fixed rate of 10.20% p.a. maturing in January and in July 2011.

 

Thisinvestment was deposited as a partial guarantee for the payment of the loansrelated to the acquisition of the additional common shares of Aracruz that wasconcluded on July 17, 2009 (Note 4(e)).

 

**7****                                       ****TradeAccounts Receivable**

 
| ** **                                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
|                                             |       |     |       |     |       |
| Export receivables,  denominated in U.S. dollars |       | 853      |       | 67       |       |
| Domestic receivables                             |       | 176      |       | 90       |       |
| Allowance for doubtful  accounts                 |       | (23      | )          | (6       | )          |
|                                             |       |     |       |     |       |
|                                             |       | 1,006    |       | 151      |       |

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

AtDecember 31, 2009 and 2008, no single customer represented more than 10%of our trade accounts receivable balance.

 

**8****                                       ****Inventories**

 
| ** **                    | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
|                          |       |     |       |     |       |
| Finished products             |       | 287      |       | 89       |       |
| Raw materials and  supplies   |       | 212      |       | 83       |       |
| Work in process               |       | 15       |       | 14       |       |
| Imports in transit and  other |       | 2        |       | 7        |       |
|                          |       |     |       |     |       |
|                          |       | 516      |       | 193      |       |

 

**9****                                       ****Investmentin Affiliates**

 
| ** ** | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|------------|------------|------------|------------|------------|------------|
|       | ** ** | ** ** | ** ** | ** ** | ** ** |
| Veracel    |       | 902        |       | —     |       |
| Asapir     |       | 14         |       | 11         |       |
| VOTO IV    |       | 12         |       | 11         |       |
| APM        |       | 9          |       | —     |       |
| Aracruz    |       | —     |       | 116        |       |
|       |       |       |       | ** ** |       |
|       |       | 937        |       | 138        |       |

 

**10****                                ****Goodwill**

 
| ** ** | ** ** | **December** | ** ** | **December** | ** ** |
|------------|------------|--------------|------------|--------------|------------|
| ** ** | ** ** | **31, 2009** | ** ** | **31, 2008** | ** ** |
| ** ** | ** ** | ** **   | ** ** | ** **   | ** ** |
| Aracruz    |       | 2,490        |       | 19           |       |
| Ripasa     |       | 177          |       | 132          |       |
|       |       |         |       |         |       |
|       |       | 2,667        |       | 151          |       |

 

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**Fibria Celulose S.A.**

** **

**Notes to the ConsolidatedFinancial Statements**

**at December 31, 2009 and 2008,and for the**

**Three Years Ended December 31,2009**

**In millions of U.S. dollars,unless otherwise stated**

 

The goodwill rollforward is as follows:

 
| ** **                                                                                                        | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                                                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| At beginning of the  year                                                                                         |       | 151        |       | 193        |       |
| Acquisition of Aracruz                                                                                            |       | 1,926      |       | —     |       |
| Initial goodwill of  Aracruz written off due to remeasurement of its investment upon  acquisition of control |       | (19        | )          | —     |       |
| Goodwill related to  sale of Guaíba unit                                                                     |       | (114       | )          | —     |       |
| Exchange gain (loss)  for the periods                                                                             |       | 723        |       | (42        | )          |
|                                                                                                              |       |       |       |       |       |
| At end of the year                                                                                                |       | 2,667      |       | 151        |       |

 

**11****                                ****Property,Plant and Equipment**

 
| ** **                              | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|
|                                    |       |     |       |     |       |
| Land                                    |       | 1,516    |       | 464      |       |
| Buildings                               |       | 628      |       | 183      |       |
| Machinery, equipment  and installations |       | 5,863    |       | 1,494    |       |
| Forests                                 |       | 1,943    |       | 738      |       |
| Other                                   |       | 565      |       | 201      |       |
| Construction in  progress               |       |     |       |     |       |
| VCP-MS (Note 4(b))                      |       | 288      |       | 1,396    |       |
| Other                                   |       | —   |       | 76       |       |
|                                    |       |     |       |     |       |
|                                    |       | 10,803   |       | 4,552    |       |
| Accumulated  depreciation and depletion |       | (1,532   | )          | (686     | )          |
|                                    |       |     |       |     |       |
|                                    |       | 9,271    |       | 3,866    |       |

 

**12****                                ****Short-termDebt**

 

Short-term debt represents commitments underrecourse provisions to honor export receivables transferred to banks accountedfor as secured borrowings (ACEs), bearing an annual average interest rate of4.4% at December 31, 2009 (2008 - 6.0%). Historically, we have notincurred significant losses in connection with such recourse provisions.

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**13****          ****Long-termDebt**

 
| ** **                                                                     | ** ** | **Interest rate December  31, 2009** | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------------------|------------|--------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                                     | ** ** | ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Third parties                                                                  |       |                                 |       |       |       |       |       |
| In  U.S. dollars                                                               |       |                                 |       |       |       |       |       |
| Export  credits and prepayments                                                |       | LIBOR + 4.94%                        |       | 2,953      |       | 1,065      |       |
| Fibria  Overseas Finance — Bond                                           |       | 9.375%                               |       | 1,018      |       | —     |       |
| Derivative  transactions - counterparty Loans                                  |       | 7.2%                                 |       | 501        |       | —     |       |
| Advances  against future export receipts and discounting (“ACC/ACE”) |       | 6.01%                                |       | 29         |       | —     |       |
| Fixed  rate notes                                                              |       | FX or 72% of CDI                     |       | —     |       | 50         |       |
| Leasing  agreements                                                            |       | LIBOR                                |       | 18         |       | 16         |       |
| Import  notes                                                                  |       | LIBOR + 3%                           |       | 4          |       | 8          |       |
|                                                                           |       |                                 |       |       |       |       |       |
| In  *reais*                                                                    |       |                                 |       |       |       |       |       |
| Export  credit notes                                                           |       | 94% of CDI                           |       | 305        |       | 113        |       |
| Rural  credit notes                                                            |       | 10.2%                                |       | 32         |       | —     |       |
| Leasing  agreements                                                            |       | 100% of CDI + 1%                     |       | 26         |       | 22         |       |
|                                                                           |       |                                 |       |       |       |       |       |
| Total third parties                                                            |       |                                 |       | 4,886      |       | 1,274      |       |
|                                                                           |       |                                 |       |       |       |       |       |
| Related parties                                                                |       |                                 |       |       |       |       |       |
| In  U.S. dollars                                                               |       |                                 |       |       |       |       |       |
| VOTO  III loan                                                                 |       | 4.2%                                 |       | 52         |       | 54         |       |
| VOTO  IV loan                                                                  |       | 8.5%                                 |       | 201        |       | 201        |       |
|                                                                           |       |                                 |       |       |       |       |       |
| In  *reais*                                                                    |       |                                 |       |       |       |       |       |
| Banco  Nacional de Desenvolvimento                                             |       |                                 |       |       |       |       |       |
| Econômico  e Social - BNDES                                               |       |                                 |       |       |       |       |       |
| TJLP                                                                           |       | TJLP + 2.5%                          |       | 725        |       | 102        |       |
| UMBNDES                                                                        |       | UMBNDES + 7.9%                       |       | 80         |       | 18         |       |
|                                                                           |       |                                 |       |       |       |       |       |
| Total related parties                                                          |       |                                 |       | 1,058      |       | 375        |       |
|                                                                           |       |                                 |       |       |       |       |       |
| Total debt                                                                     |       |                                 |       | 5,944      |       | 1,649      |       |
| Less: current portion                                                          |       |                                 |       | (670       | )          | (490       | )          |
|                                                                           |       |                                 |       |       |       |       |       |
| Long-term portion                                                              |       |                                 |       | 5,274      |       | 1,159      |       |

 

·    LIBOR (London InterbankOffered Rate) at December 31, 2009 was 0.4% p.a. (2008 - 1.75%).

 

·    TJLP (“Taxa de juros de longoprazo”) a long-term interest rate fixed quarterly by the Brazilian CentralBank. At December 31, 2009, the TJLP was 6.0% p.a. (2008 - 6.50%).

 

·    The UMBNDES is a weightedaverage rate based on the exchange rates in a basket of currencies,predominantly U.S. dollars, held by BNDES.

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

·    CDI (Interbank DepositCertificate) at December 31, 2009 was 9.9% p.a. (2008 - 13.6%).

 

**(a)****          ****Exportcredits and prepayments**

 

On December 31, 2009, the Company borrowedUS$ 1,175 through prepayment export lines from various banks, beingUS$ 750 at LIBOR plus 4.25% p.a., which matures within five years, with athree-year grace period, and US$ 425 at LIBOR plus 4% p.a., which matureswithin seven years, with a five-year grace period.

 

OnSeptember 30, 2009, the Company entered into a loan agreement withFINNVERA (Finnish Development Agency intended to fund companies committed tosustainability programs) in the amount of US$ 182 at LIBOR plus 3.325%p.a., which matures in eight and one half years.

 

In July 2009, Company entered into an exportcredit agreement with Credit Suisse bank in the amount of US$ 54, bearinginterest rates of 100% CDI plus 1% p.a., which matures in July 2012.

 

In September 2008, the Company recorded its50% share of the Consortium loans in the total amount of US$ 83, at thatdate, comprising contracts for export prepayment of US$ 73 and importfinancing of US$ 10, which mature in 2012.

 

In May 2008, the Company signed an exportprepayment contract with Nordea Bank AB for the aggregate amount of US$ 50at LIBOR plus 0.68% p.a. Payments are due through 2012 in installments to matchexport shipments. The financings are guaranteed by export contracts.

 

InApril 2008, the Company signed a bridge loan with ABN AMRO Bank NA in anaggregate amount of US$ 200 at LIBOR plus 2% p.a. The financing matured onSeptember 26, 2008 and was guaranteed by a security interest in financialassets. The maturity date was renegotiated and deferred to March 24, 2010,indexed to LIBOR plus 5% p.a.

 

InJune 2007, the Company signed an export prepayment contract with BancoBilbao Vizcaya Argentaria for US$ 100 at LIBOR plus 0.38% p.a. Paymentsare due through 2015 in installments to match export shipments. Thefinancings are guaranteed by export contracts. During the second quarter of2009, the rate was renegotiated to LIBOR + 4.65% p.a.

 

In September 2006, the Company signed an ExportPrepayment Facility Agreement with a pool of banks (ABN Amro Bank, BancoSantander Central Hispano and Banco Bradesco) in an aggregate amount ofUS$ 550 at LIBOR plus 0.57% p.a. Payments are due from 2007 through 

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

2014 in installments to match export shipments. Thefinancings are guaranteed by export contracts. During the second quarter of 2009, the rate was renegotiated to LIBOR +4.75% p.a.

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millionsof U.S. dollars, unless otherwise stated**

 

InJuly 2006, our wholly-owned subsidiary VCP Overseas Holding KFT, signed anExport Prepayment Agreement with a syndicate of banks in an aggregate amount ofUS$ 375 at LIBOR plus 0.57% p.a. Payments are due from 2007 through 2014in installments to match export shipments. During the second quarter of 2009,the rate was renegotiated to LIBOR + 4.75% p.a.

 

**(b)****          ****FibriaOverseas Finance - Bond**

 

On October 30, 2009,the Company through its international subsidiary Fibria Overseas Finance Ltd.raised a US$ 1,000 9.375% p.a. Bond due in 2019. The proceeds were usedfor debt repayments.

 

**(c)****          ****Derivativetransactions counterparty loans**

 

On May 13, 2009, the following terms andconditions announced on January 19, 2009, were confirmed:

 

·    Total amortization period ofnine years with a possibility of reduction to seven years depending on Aracruz’soperating performance and the occurrence of certain liquidity events;

 

·    Amortization in semiannualinstallments starting on June 30, 2009 and then, from 2010, on a quarterlybasis;

 

·    Interest at three-monthLIBOR plus an initial spread of 3.5% p.a. increased by semiannual charges of0.25% p.a. beginning in 2010, resulting in a weighted average rate of LIBOR +4.6% p.a.;

 

·    Collateral guarantees onrural and industrial assets of the Barra do Riacho unit, in the state ofEspírito Santo; and

 

·    Pledge of 28% of Aracruz’scommon shares.

 

At December 31, 2009, the principal of the debt resulting from thereversal of the derivative positions totaled US$ 501 and is due by AracruzTrading International Ltd. with maturities from 2015 through 2016.

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**(d)****          ****Leasingagreements**

 

In December 2009, theCompany renegotiated the terms and amounts of its financial leases with BancoSociété Générale, originally contracted in September 2008 for theacquisition of machinery used for felling and harvesting trees. At December 31,2009, the outstanding amount was US$ 18, which matures in 2013.

 

On December 31, 2008,the Company recorded its 50% share of the Consortium pulp machine leasingliabilities. At December 31, 2009, the outstanding amount was US$ 26,which matures in 2014.

 

**(e)****          ****Exportcredit notes and Rural credit notes**

 

The Company has severalborrowing agreements with Banco do Brasil S.A. The agreements outstanding at December 31,2009 are summarized as follows:

 

·    On December 31, 2009,VCP-MS borrowed R$ 73 million (equivalent to US$ 42) from theConstitutional Fund for the Financing of the Midwest Region (a fundadministered by the Federal government to encourage development of the region,where the Três Lagoas pulp mill is located). Monthly payments of principal andinterest, at 8.5% per annum, are due beginning in July 2010 through December 2017.

 

·    In July 2009, theCompany executed an agro-industrial credit agreement totaling R$ 137million (equivalent to US$ 69) maturing in 488 days at 11.25% p.a.;

 

·    In June 2009, VCP-MSexecuted a Rural Credit Bill (“NCR”) totaling R$ 42 million (equivalent toUS$ 22) maturing in August 2010 at 10.22% p.a.;

 

·    In June 2009, theCompany executed an Export Credit Bill (“NCE”) totaling R$ 73 million(equivalent to US$ 37) maturing in August 2010 at 11.25% p.a.; and

 

·    In October 2008, theCompany executed a NCE totaling R$ 100 million (equivalent to US$ 46)maturing in April 2010 and with an interest rate of 100% of the CDI plus2.88% p.a.

 

**(f)****           ****VOTOIII loan**

 

In 2004, Votorantim Participações S.A. (“VPAR”), our ultimatecontrolling shareholder formed VOTO III, a company based in the Cayman Islands,for the sole purpose of raising funds. VOTO III issued US$ 300, 7.875% p.a.Bonds due 2014 in the international market. The 

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

Company received 15% of thetotal amount issued or US$ 45 for which we are the guarantors.

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**(g)****          ****VOTO IVloan**

 

In 2005, VOTO IV, a jointsubsidiary with VPAR, issued US$ 400, 7.75% p.a.Fixed Rate Notes due 2020 in the international market. The Company received 50%of the total amount issued or US$ 200 for which we are the guarantors.

 

**(h)****          ****BNDES**

 

**Wehave consummated several borrowing agreements with the BNDES (one of ourshareholders), with interest accruing in part based on the BNDES basket ofcurrencies plus 7.9% p.a. (outstanding balance at December 31, 2009 - US$80) and in part on the TJLP plus 2.5% p.a. (outstanding balance at December 31,2009 - US$ 725), and the amortization period ranging from 2010 through 2016.**

** **

**(i)****           ****Covenants**

 

The Company’s loanagreements contain covenants or restrictive clauses, establishing maximumindebtedness and leverage levels as well as minimum coverage of outstandingamounts and the maintenance of minimum balances of receivables either in acurrent account or a collateral account. The Company renegotiated its covenantswith the creditors for all loans subject to call. In regard to the loan withBNDES (one of our shareholders), which does not have the right to early redeemthe loan, the Company may provide additional assets as collateral, providedthat the Bank makes such requirement.

 

The main conditions include:

 

(i)         certainrestrictions on the Company’s capacity to merge with or into other entities;

 

(ii)        certainrestrictions on exchanges and disposals of assets by the Company;

 

(iii)       certainrestrictions on sale and exchanges of assets;

 

(iv)       maintenance,at the end of each quarter, of a ratio of (a) Adjusted EBITDA (for thelast four quarters) plus cash position, based on Brazilian GAAP balances, to (b) thetotal debt maturing during the following four quarters, plus financial expensesto be paid during the following four quarters, greater than, for all quarterfor 2009 and 2010, 0.7 to 1.0, and thereafter in every subsequent quarter, 1.2to 1.0;

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

(v)        maintenance,at the end of each quarter, of a level of net debt to Adjusted EBITDA (for thelast four quarters), based on Brazilian GAAP balances, from 6.75 to 1.0 in 2009and with period reductions to 3.0 to 1.0, in 2012 and thereafter;

 

(vi)      subjectto certain exceptions, restrictions on the creation of liens on assets of theCompany;

 

(vii)     subjectto certain exceptions, restrictions on the assumption of additional debt by theCompany; and

 

(viii)    maintenanceof a hedge policy approved by the Board of Directors of the Company prohibitinghedging for speculative purposes.

 

The main events ofdefault under the Export Credits include:

 

(i)         cross-defaultand cross-judgment default, subject to an agreed minimum value of US$ 50.0;

 

(ii)        certainperiods of resolution, breach of any obligation under the Export Credits; and

 

(iii)      certainevents of bankruptcy or insolvency of the Company, its main subsidiaries orVeracel.

 

The Company was incompliance with its loan covenants at December 31, 2009.

 

**(j)****           ****Long-termdebt maturities**

 

At December 31, 2009, the long-term debtportion matures as follows:

 
| 2011       |   | 340    |   |
|------------|--------|--------|--------|
| 2012       |   | 528    |   |
| 2013       |   | 773    |   |
| 2014       |   | 957    |   |
| Thereafter |   | 2,676  |   |
|       |   |   |   |
|       |   | 5,274  |   |

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**14****                                ****Payable- Aracruz acquisition**

 

The Company issued Notes payable and executed anirrevocable and binding purchase agreement, in connection with the acquisitionof Aracruz (Notes 4(e)). The Notes, denominated in *reais*,bear neither interest nor indexation charges and are due in semi-annualinstallments, except as noted below, in January and July of eachyear:

 
| ** **                                                                                                               | ** ** | **Millions of  reais** | ** ** | **Millions of  U.S. dollars** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------------|------------|
| ** **                                                                                                               | ** ** | ** **             | ** ** | ** **                    | ** ** |
| Present value of total  obligation at January 2009 (discounted by 130% of CDI) - the Families  and the Safra family |       | 4,688                  |       | 2,692                         |       |
| Present value of total  obligation at January 2009 (discounted by 130% of CDI) - remaining  common shareholders     |       | 237                    |       | 136                           |       |
| Amount paid                                                                                                              |       | (1,688                 | )          | (969                          | )          |
| Present value accretion  adjustment                                                                                      |       | 458                    |       | 263                           |       |
|                                                                                                                     |       |                   |       |                          |       |
| Balance at  December 31, 2009                                                                                       |       | 3,695                  |       | 2,122                         |       |
|                                                                                                                     |       |                   |       |                          |       |
| Remaining installments  due in                                                                                           |       |                   |       |                          |       |
| January 2010                                                                                                        |       | 1,008                  |       | 579                           |       |
| June 2010                                                                                                           |       | 900                    |       | 517                           |       |
| October 2010                                                                                                        |       | 382                    |       | 219                           |       |
| January 2011                                                                                                        |       | 809                    |       | 465                           |       |
| July 2011                                                                                                           |       | 596                    |       | 342                           |       |
|                                                                                                                     |       |                   |       |                          |       |
|                                                                                                                     |       | 3,695                  |       | 2,122                         |       |

 

**15****                                ****RelatedParties**

 

Balances and transactions with related parties areas follows:

 
| ** **                                                        | ** ** | **Nature and business**                                                             | ** ** | ** ** | ** ** | ** ** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                                        | ** ** | **purpose of transactions**                                                         | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|                                                              |       |                                                                                |       |       |       |       |       |
| Cash  and cash equivalents                                        |       | Surplus cash funds invested with Banco Votorantim  S.A.                             |       | 112        |       | 40         |       |
|                                                              |       |                                                                                |       |       |       |       |       |
| Unrealized  gain (losses) from cross-currency interest rate swaps |       | Arising from swap contract transactions in which  the Banco Votorantim S.A. acts as |       | 1          |       | (7         | )          |

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 
| ** **                           | ** ** | **Nature and business**           | ** ** | ** ** | ** ** | ** ** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|------------|------------|------------|------------|
| ** **                           | ** ** | **purpose of transactions**       | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|                                 |       |                              |       |       |       |       |       |
|                                 |       | counter-party                     |       |       |       |       |       |
|                                 |       |                              |       |       |       |       |       |
| Long-term  loans                     |       | Loans from related parties        |       |       |       |       |       |
| Votorantim  Group                    |       |                              |       |       |       |       |       |
| VOTO  III                            |       |                              |       | 52         |       | 54         |       |
| VOTO  IV                             |       |                              |       | 201        |       | 201        |       |
| BNDES  and its subsidiary            |       |                              |       |       |       |       |       |
| BNDESpar  (shareholder)              |       |                              |       | 805        |       | 120        |       |
|                                 |       |                              |       |       |       |       |       |
| Trade  payables from related parties |       | Purchases of wood, pulp and paper |       |       |       |       |       |
| Asapir                               |       |                              |       | 8          |       | 5          |       |
| Veracel                              |       |                              |       | 8          |       | —     |       |

 

Revenue, income and expenses from transactions withrelated parties were as follows:

 
| ** **                                                           | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                 |       |     |       |     |       |     |       |
| Purchases  from Veracel                                              |       | 197      |       | —   |       | —   |       |
| Purchases  from Ripasa (*)                                           |       | —   |       | 180      |       | 213      |       |
| Purchases from Votener Votorantim  Comercializadora de Energia Ltda. |       | 4        |       | 15       |       | 9        |       |
| Purchases  from Anfreixo S.A.                                        |       | 3        |       | 6        |       | 8        |       |
| Purchases from Companhia Nitro Química  Brasileira              |       | 3        |       | —   |       | —   |       |
| Purchases from TIVIT Tecnologia da Informação  S.A.        |       | 2        |       | —   |       | —   |       |
| Purchases from Indústria de Papéis Pedra  Branca           |       | 1        |       | —   |       | —   |       |
| Services  paid to Votorantim Investimentos Industriais S.A.     |       | 10       |       | —   |       | —   |       |
| Financial  income                                                    |       | 73       |       | 28       |       | 34       |       |
| Financial  expenses                                                  |       | 26       |       | 181      |       | 4        |       |

 

----

(*)Through August 31, 2008; from September 1, 2008 Ripasa began tooperate as a Consortium.

 

Financial income arises from investments made infinancial instruments issued by Banco Votorantim S.A.; financial expensesrepresent mainly losses on cross-currency interest rate swaps based on theirrespective fair values and related to the loans with BNDES and its subsidiary.

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**16****                                ****FinancialInstruments**

 

Fibria is exposed to various market risks, includingchanges in foreign currency rates and interest rates. Market risk is thepotential loss arising from adverse changes in market rates 

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

and prices, such as foreign currency exchange ratesand interest rates. The majority of the Company’s sales revenue is denominatedin U.S. dollars while more than half of its costs are incurred in *reais*. Our sales outside of Brazil are largely U.S.dollar-denominated, while sales of pulp within Brazil are denominated in *reais* but based on U.S. dollar prices with most of ouroperating costs being denominated in *reais*. Ourforeign currency exposure gives rise to market risks associated with exchangerate movements against the U.S. dollar. Foreign currency-denominatedliabilities include borrowings denominated mainly in U.S. dollars.

 

Our floating interest rateexposure is primarily subject to the variations of LIBOR as it relates to U.S.dollar - denominated borrowings and to the variations of the TJLP as it relatesto *Real*denominated borrowings. Thecurrency gap is a characteristic of Fibria’s business. Additionally, theCompany decided to contract most of its debt transactions in U.S. dollar as thenatural hedge provided by our exports mitigates part of the exposure. Withinthis context, the derivatives are contracted in order to hedge the cash flowagainst *reais* appreciation, interest ratevariation (LIBOR) and cellulose prices.

 

**(a)****                                ****Management’spolicy for financial derivatives instruments**

 

In December 18, 2009, the Board of Directorsapproved the Market Risk Management Policy and the Cash Management Policy. Theuse of derivatives is supported by these policies.

 

The Market Risk Management Policy determines thatall derivative contracts must have an underlying asset or a liability linked tothe operational cash flow, commodity or debt transactions. Accordingly, theCompany only executes hedging transactions when it is exposed to risks. Therisk mitigation transactions take into account a variety of products andcounterparties.

 

With respect to limits, the policy determines:

 

(i)                   currency risk - maximumlimits are determined to be balances up to 12 months. Finance Committeeapproval is required for contract over 12 months and under 24 months; andcontracts over 24 months require Board of Directors’ approval;

 

(ii)                interest rate risk - thepolicy allows hedge contracts with maturities compatible to the debt instrumentand determines that 25% of the total debt must be in fixed rates denominated in*reais*; and

 

(iii)             other risks, including pulp- requires Finance Committee approval for contracts up to 12 

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

months and which representsless than 10% of the projected annual EBITDA; all other conditions requiresBoard of Directors approval. 

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

Fibria’s risk exposure considers estimated futurecash flows, including the operational cash flow, debts, investments and foreignexchange derivatives. The net exposure is as follows:

 
| **Month**           | ** ** | **Estimated  inflow  (expressed in  millions of********US dollars)** | ** ** | **Estimated  in  (out) flow  indexed  to reais  (expressed  in millions  of reais)** | ** ** | **Estimated  net  in(out)flow********indexed********to dollars  (expressed in  millions of********US dollars)** | ** ** |
|---------------------|------------|----------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|
| ** **          | ** ** | **(unaudited)**                                                      | ** ** | **(unaudited)**                                                                      | ** ** | **(unaudited)**                                                                                                 | ** ** |
|                |       |                                                                 |       |                                                                                 |       |                                                                                                            |       |
| January 2010   |       | 174                                                                  |       | (949                                                                                 | )          | (145                                                                                                            | )          |
| February 2010  |       | 83                                                                   |       | 60                                                                                   |       | (97                                                                                                             | )          |
| March 2010     |       | 153                                                                  |       | 37                                                                                   |       | (85                                                                                                             | )          |
| April 2010     |       | 162                                                                  |       | 64                                                                                   |       | (58                                                                                                             | )          |
| May 2010       |       | 122                                                                  |       | 49                                                                                   |       | (91                                                                                                             | )          |
| June 2010      |       | 163                                                                  |       | (974                                                                                 | )          | (53                                                                                                             | )          |
| July 2010      |       | 123                                                                  |       | 37                                                                                   |       | (40                                                                                                             | )          |
| August 2010    |       | 149                                                                  |       | (102                                                                                 | )          | (61                                                                                                             | )          |
| September 2010 |       | 30                                                                   |       | 3                                                                                    |       | (11                                                                                                             | )          |
| October 2010   |       | 121                                                                  |       | (396                                                                                 | )          | (74                                                                                                             | )          |
| November 2010  |       | 202                                                                  |       | 4.892                                                                                |       | (42                                                                                                             | )          |
| December 2010  |       | 222                                                                  |       | (140                                                                                 | )          | (28                                                                                                             | )          |

 

We use cross-currency interest rate swap contractsin the market to reduce our foreign currency exposure and also take intoaccount the natural hedge provided by our exports in determining our hedgingneeds. We also invest in instruments linked to exchange variations.

 

Weuse cross-currency interest rate swap contracts to mitigate the volatility offoreign exchange rate fluctuations on our U.S. dollar - denominated debt. Theunrealized gains and losses on these contracts are recorded on our balancesheet as assets or liabilities and in our statement of operations in “Foreignexchange gain (loss) and realized and unrealized gain (loss) on swaps, net”.

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**(b)****                                ****Fairvalue of derivative contracts, criteria for evaluation and measurement,methods, and significant assumptions used to determine the fair value**

 

The estimates of fair value of our derivatives contractcan be different from the mark-to-market value that represents the estimatedvalues for early redemption. These differences are 

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

associated to market conditions (liquidity, spreads,and other) as well as counterparty commercial and risk management strategies.

 

The methods for computing the fair value of thederivative financial instruments utilized by the Company for derivativestransactions were based on the use of methodologies commonly used in themarket. Below is a summary of the methodologies for determining the fair valueof each derivative:

 

·            Swaps - were measured basedon the future cash flows, considering the contractual rates up to maturity dates,discounted to present value using the BM&FBOVESPA fixed rate yield curves.

 

·            European Options - weremeasured by the application of the Black -Scholes Model, which considers U.S.dollar spot rates, Brazilian and international interest rates and implicitvolatility obtained from Bloomberg within similar contractual optioncharacteristics such as exercise prices and maturity dates.

 

·            Non-Deliverable Forwards(NDFs) - were measured by the difference between the asset estimated at eachmaturity date from similar transactions on the BM&FBOVESPA at year end andthe contractual reference amount at the maturity date.

 
| ** **                                                              | ** ** | ** **   | ** ** | **December 31,  2009** | ** ** | **Year ended**                        | ** ** |
|-------------------------------------------------------------------------|------------|--------------|------------|-----------------------------|------------|---------------------------------------|------------|
| ** **                                                              | ** ** | **Notional** | ** ** | **Carrying**                | ** ** | **Fair value at the  reporting date** | ** ** | **December** | ** ** |
| ** **                                                              | ** ** | **amount**   | ** ** | **amount**                  | ** ** | **Level I**                           | ** ** | **Level II** | ** ** | **Level III** | ** ** | **31, 2009** | ** ** |
|                                                                    |       |         |       |                        |       |                                  |       |   |   |   |   |   |   |
| Unrealized  gain (loss) from cross-currency interest rate swaps and NDF |       |         |       |                        |       |                                  |       |   |   |   |   |   |   |
| LIBOR  x Fixed                                                          |       | 388          |       | (4                          | )          | —                                |       | (4 | ) | — |   | (3 | ) |
| NDF                                                                     |       | 272          |       | 8                           |       | —                                |       | 8 |   | — |   | 2 |   |
| CDI  x US$ (Call’s NCE)                                       |       | 90           |       | 1                           |       | —                                |       | 1 |   | — |   | 35 |   |
| LIBOR  x CDI                                                            |       | 50           |       | (10                         | )          | —                                |       | (10 | ) | — |   | (16 | ) |
| Yen  x US$                                                         |       | 45           |       | 4                           |       | —                                |       | 4 |   | — |   | — |   |
| CDI  x US$                                                         |       | 37           |       | 5                           |       | —                                |       | 5 |   | — |   | 13 |   |
| TJLP  x US$                                                             |       | —       |       | —                      |       | —                                |       | — |   | — |   | 63 |   |
| US$ x CDI                                                          |       | —       |       | —                      |       | —                                |       | — |   | — |   | (40 | ) |
| LIBOR  x US$                                                            |       | —       |       | —                      |       | —                                |       | — |   | — |   | 29 |   |
| Target  Forwards (“TARN”)                                     |       | —       |       | —                      |       | —                                |       | — |   | — |   | 21 |   |

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 
| ** **                                                                   | ** ** | ** **   | ** ** | **December 31,  2008** | ** ** | **Year ended**                        | ** ** |
|------------------------------------------------------------------------------|------------|--------------|------------|-----------------------------|------------|---------------------------------------|------------|
| ** **                                                                   | ** ** | **Notional** | ** ** | **Carrying**                | ** ** | **Fair value at the  reporting date** | ** ** | **December** | ** ** |
| ** **                                                                   | ** ** | **amount**   | ** ** | **amount**                  | ** ** | **Level I**                           | ** ** | **Level II** | ** ** | **Level III** | ** ** | **31, 2008** | ** ** |
|                                                                         |       |         |       |                        |       |                                  |       |   |   |   |   |   |   |
| Unrealized  gain (loss) from cross-currency interest rate swaps,TARN and NDF |       |         |       |                        |       |                                  |       |   |   |   |   |   |   |
| TARN                                                                         |       | 126          |       | (68                         | )          | —                                |       | (68 | ) | — |   | (100 | ) |
| NDF                                                                          |       | 24           |       | (8                          | )          | —                                |       | (8 | ) | — |   | (64 | ) |
| CDI  x US$ (Call’s NCE)                                            |       | 50           |       | (32                         | )          | —                                |       | (32 | ) | — |   | (57 | ) |
| LIBOR  x CDI                                                                 |       | 50           |       | 3                           |       | —                                |       | 3 |   | — |   | 31 |   |
| Yen  x US$                                                              |       | 45           |       | 3                           |       | —                                |       | 3 |   | — |   | 6 |   |
| US$ x CDI                                                               |       | 100          |       | 2                           |       | —                                |       | 2 |   | — |   | 2 |   |
| US$ /CDI x CDI                                                          |       | 6            |       | —                      |       | —                                |       | — |   | — |   | — |   |

 

At December 31, 2009 and 2008 there were nohedge transactions outstanding for commodities exposure.

 

The effects of the recognition of the derivativesare recorded on “Financial income” or “Financial expenses”.

 

Our counterparties are financial institutions,including Banco Votorantim S.A., a jointly-controlled bank of the Votorantimgroup. The rates that we negotiate with Banco Votorantim S.A. reflect thoseavailable in the current financial market. Our treasury department alsocompares these rates to those offered by other banks in order to assure that wereceive the most favorable terms and conditions available for each transaction.

 

Derivative financial instruments held by the Companyare as follows:

 

(i)                                     A conventionalswap in which the Company receives yen and pays U.S. dollars, with a notionalamount of US$ 45 and maturity date of 2014. This swap was contracted tomitigate currency risks from the VOTO III loan. As of December 31, 2009,the fair value receivable is US$ 4 (2008 - US$ 3).

 

(ii)                                  A conventionalswap in which the Company receives the CDI rate and pays U.S. dollars with anotional amount of US$ 37 (2008 - US$ 50). This swap was contractedto reduce the loan cost and to match cash outflow of Portocel. As of December 31,2009, the fair value receivable is US$ 5 (2008 - nil).

 

(iii)                               A swap in whichthe Company receives LIBOR plus interest and pays a fixed rate of 2.10% to3.09%, with a notional amount of US$ 388 and maturity on July 7,2014. This 

 

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**FibriaCelulose S.A.**

** **

**Notes tothe Consolidated Financial Statements**

**at December31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

swap was contracted tomitigate risks from debt contracts in LIBOR. As of December 31, 2009, thefair value liability is US$ 4 (2008 - nil). 

 

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** **

**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

(iv)                              A swap in whichthe Company receives LIBOR plus interest and pays 99.9% of the CDI, with anotional amount of US$ 50 and maturity on March 29, 2010. This swapwas contracted to support a debt transaction indexed to LIBOR that was canceleddue to market conditions. The derivative was maintained to mitigate risks fromthe export credit agreements. As of December 31, 2009, the fair valuepayable is US$ 10 (2008 - receivable of US$ 3).

 

(v)                                 Sale of NDFfrom over-the counter transactions without physical delivery. NDFs relate to afuture purchase and/or sale of a fixed currency amount, without initialdisbursement, based on a notional amount and a strike price. As of December 31,2009 the notional amount is US$ 272 and the last maturity date is January 2011.At the maturity date the gain/loss will be the difference between thecontracted rate and the maturity date rate, multiplied by the notional amount.As of December 31, 2009 the fair value receivable is US$ 8 (2008 -liability of US$ 8).

 

(vi)                              Sale ofEuropean Calls from over-the counter transactions for U.S. dollar to hedge aportion of the export sales against currency variation. As of December 31,2009 the notional amount is US$ 90 and the last maturity date is May 3,2010. As of December 31, 2009 the fair value liability is US$ 1 (2008- payable of US$ 32).

 

Additionally, for 2008, there were a further twotransactions, one related to a conventional swap in which the Company receivesU.S. dollars and pays CDI rate and the other related to TARN, with a fair valueliability of US$ 68.

 

**(c)****                                ****Fairvalue of other financial instruments**

 

To determine the fair value of assets andliabilities, amounts were adjusted, when applicable, based on market orcontractual interest rate.

 

Derivative instruments are classified anddemonstrated in the table below based on one of the following categories:

 

·             Level I - quoted prices(unadjusted) in active markets for identical assets or liabilities that thereporting entity has the ability to access at the measurement date. An activemarket for the asset or liability is a market in which transactions for theasset or liability occur with sufficient frequency and volume to providepricing information on an ongoing basis.

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**Three YearsEnded December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

·             Level II - other than quotedprices included within Level I that are observable for the asset or liability,either directly or indirectly, such as: quoted prices for similar assets orliabilities in 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

active or not active marketsand other than quoted prices that are observable for the asset or liability(for example, interest rates and yield curves observable at commonly quotedintervals, volatilities, prepayment speeds, loss severities, credit risks, anddefault rates). Determined adjustments to these inputs can be adapted to theseinputs, based, for instance, on the volume and level of activity in the marketsthe inputs are observed.

 

·             Level III - unobservableinputs for the asset or liability. Unobservable inputs are used to measure fairvalue to the extent that observable inputs are not available and reflect themanagement’s assumptions about the assumptions that market participants woulduse in pricing the asset or liability. Unobservable inputs shall be developedbased on the best information available in the circumstances and are highlydependent on management’s judgment.

 

Thefair value of other financial instruments and investments are as follows:

 
| ** **                                                         | ** ** | **December 31, 2009** | ** ** | **December 31, 2008** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------|------------|----------------------------|------------|
| ** **                                                         | ** ** | **Carrying   amount**      | ** ** | **Fair Value**             | ** ** | **Carrying   amount** | ** ** | **Fair Value** | ** ** |
|                                                               |       |                       |       |                       |       |   |   |   |   |
| Cash  and cash equivalents                                         |       | 365                        |       | 365                        |       | 280 |   | 280 |   |
| Trading  securities                                                |       | 1,812                      |       | 1,812                      |       | 43 |   | 43 |   |
| Held-to-maturity  investments - current                            |       | 55                         |       | 55                         |       | — |   | — |   |
| Held-to-maturity  investments - non-current                        |       | 38                         |       | 38                         |       | — |   | — |   |
| Investment  in Veracel                                             |       | 902                        |       | 902                        |       | — |   | — |   |
| Investment  in Aracruz                                             |       | —                     |       | —                     |       | 135 |   | 217 |   |
| Short-term  debt, including current portion of long-term debt |       | 1,030                      |       | 1,591                      |       | 928 |   | 856 |   |
| Long-term  debt                                                    |       | 5,274                      |       | 8,144                      |       | 1,159 |   | 1,114 |   |

 

**(d)****                                 ****Liquidityrisk**

 

Fibria defined its liquidity policy in order tomaintain cash and cash equivalent that correspond at a minimum to the nextthree months of cash outflows. The derivatives were contracted over the counterand do not require additional collateral.

 

**17****                                ****Commitmentsand Contingencies**

 

We are party to certain legal proceedings in Brazilarising in the normal course of business, and have made provisions when webelieve that we can reasonably estimate probable losses. In connection withsome of these proceedings we have made deposits (in “Other assets”) 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

which will only be released to us upon a final anddefinitive judgment in our favor. Such provisions for tax and other litigationand the corresponding deposits are as follows:

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 
| ** **    | ** ** | **2009**     | ** ** | **2008**       | ** ** |
|---------------|------------|--------------|------------|----------------|------------|
| ** **    | ** ** | **Deposits** | ** ** | **Provisions** | ** ** | **Deposits** | ** ** | **Provisions** | ** ** |
|          |       |         |       |           |       |   |   |   |   |
| Tax-related   |       | 196          |       | 408            |       | 127 |   | 135 |   |
| Labor-related |       | 19           |       | 45             |       | 3 |   | 20 |   |
| Civil-related |       | —       |       | 4              |       | — |   | 6 |   |
|          |       |         |       |           |       |   |   |   |   |
|          |       | 215          |       | 457            |       | 130 |   | 161 |   |

 

The changes to the provision account were asfollows:

 
| ** **                              | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                    |       |     |       |     |       |     |       |
| At  beginning of the year               |       | 161      |       | 197      |       | 152      |       |
| Provisions  for new legal proceedings   |       | 14       |       | —   |       | 21       |       |
| Legal  proceedings provisions - Aracruz |       | 247      |       | —   |       | —   |       |
| Reversal                                |       | (122     | )          | (8       | )          | —   |       |
| Consortium  - Conpacel                  |       | —   |       | 16       |       | —   |       |
| Translation  adjustment                 |       | 157      |       | (44      | )          | 24       |       |
|                                    |       |     |       |     |       |     |       |
| At  end of the year                     |       | 457      |       | 161      |       | 197      |       |

 

**(a)****                                ****SummerPlan**

 

The Company challengedits right to deduct the indexation adjustment in its income tax computationcorresponding to the variation of the Consumer Price Index in January 1989.  At December 31, 2009 the provision wasUS$ 5.

 

**(b)****                                ****Taxeson revenue (PIS and COFINS)**

 

Aracruz obtained a courtinjunction against the widening of the range of revenues on which such taxesare allegedly payable. The injunction also covered the increase of the COFINStax rate introduced by Law No. 9718/98, on the grounds ofunconstitutionality. A favorable decision was issued in November 2001.However, due to unfavorable court decisions at the time for other taxpayers insimilar lawsuits, on August 29, 2003 Aracruz decided to partially withdrawthe lawsuit filed. It then chose to enroll in the PAES program - a specialextended-term amnesty and installment program for payments of the liabilityintroduced by Law No. 10684/03.

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

There have, however, sincebeen decisions rendered by the Brazilian Federal Supreme Court (STF), whichruled that the change in the basis for calculation of the PIS and COFINS is 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

unconstitutional.Consequently, despite having withdrawn its original lawsuit, Aracruz filed fora restraining order to assure its right not to pay the PAES installmentsrelating to such modification, and the petition was granted. In February 2009,the Brazilian Superior Court of Justice (STJ) handed down its decision in favorof Aracruz determining that the decision of the Second District Federal Courtbe overturned, which had approved the above cited partial withdrawal of thelawsuit originally filed.

 

In September 2009,based on the article 79 of Law No. 11941/09, which revoked the expandedrange of revenues and on the advice of its external legal counsel, the Companyreversed provisions of US$ 92 to “Financial income”.

 

**(c)****                                ****Socialcontribution - not chargeable on export revenues**

 

On March 31, 2004, Company received injunctionthat guarantees the right to not pay social contribution incurring on exportincomes, with retroactive effects since January 2004. In April 2007,due to unfavorable legal judgment, a legal deposit of US$ 21 was performed,plus update of US$ 6 due to interest variation. Total amount of contingency wasduly provisioned. Company has an outstanding legal discussion about thismatter.

 

In 2003, Aracruz obtained a restraining order thatgave it the right to not pay social contribution on export revenues, as well asassuring it of the right to utilize for offset against other tax payables suchtaxes which had been paid on export revenues in the past. The amounts of suchtax which had been overpaid, were indexed using the SELIC interest rate, andtotaled US$ 146 as of December 31, 2009. The Company is awaiting adecision on the appeal filed by the Brazilian federal government.

 

**(d)****                                ****Class Action**

 

InNovember 2008, a securities class action lawsuit was filed against Aracruzand certain of its current and former officers and directors in a U.S. Federalcourt purportedly on behalf of persons who purchased Aracruz’s shares and ADSbetween April 7 and October 2, 2008, which lawsuit Aracruz isdefending. The complaint claims alleged violations of Section 10(b) ofthe Securities Exchange Act and Rule 10b-5 promulgated thereunder and Section 20(a) ofthe Securities Exchange Act, alleging that Aracruz represented or failed todisclose information in connection with, and losses arising from, certainderivative transactions to which Aracruz had entered into. The plaintiffs areseeking unspecified compensatory damages and expense reimbursement. Due to theunpredictability of the likelihood of an unfavorable outcome and the lack ofelements to estimate the amount or range of potential loss, no provision hasbeen 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

recognized.

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

**(e)****                                ****Taxincentive - ADENE**

 

Aracruz has operations located within the regionaldevelopment area of ADENE which recognizes the pulp and paper as a sector.Aracruz requested and was granted by the Brazilian Federal Revenue Service in December 2002the right to benefit from reductions in corporate income tax. The tax incentiveof US$ 82 was recognized for the periods up to and including 2004. In 2004Aracruz was notified by the Liquidator of the former Superintendência deDesenvolvimento do Nordeste (“SUDENE”) of its decision to revoke the fiscalbenefits previously granted to Aracruz based on an opinion of the Legal Counselto the National Integration Ministry on the definition of the geographical areaeligible for the recognition of such benefits. In December 2005 Aracruzwas notified by the Brazilian Federal Revenue Service to pay the amountcorresponding to the tax incentive it had recorded, plus interest, in the totalamount of US$ 121. Aracruz appealed the assessment and as a resultUS$ 27 remains under administrative discussion.

 

The likelihood of an unfavorable outcome in relationto the tax benefits already utilized through 2003 is assessed as remote bymanagement and its legal counsel. As regards the tax benefits already utilizedin 2004 and 2005, the likelihood of an unfavorable outcome is assessed aspossible and, as a result, no provision has been recognized.

 

**(f)**                                   **Assessmentfor total utilization of tax loss carryfowards**

 

In 2005, Aracruz was assessed for offsetting 100% of taxable income in2000 and 2001 with income tax loss carryforwards. The assessment also coveredthe full offset, in 2000, of the tax losses generated under the BEFIEX (exportincentive) program over the period in which it waseligible to enjoy the benefits of thatprogram. The Company challenged the assessment at the first administrativelevel but the claims against the Company were upheld. The Company appealed thisdecision and in June 2008 obtained a favorable decision from the BrazilianFinance Ministry’s Board of Tax Appeals (CCMF), which unanimously ruled thatthe assessments levied by the tax authorities were groundless.

 

As a consequence of the decision, theCompany, on the advice of its external legal counsel, assessed that thelikelihood of loss regarding such contingency is remote.

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

**(g)****                               ****Creditsfor income taxes - partial approval**

 

TheCompany has three legal proceedings for approval of income tax credits with theBrazilian Internal Revenue Service, referring to 1997, 1999 and 2000, totalingUS$ 72, though only US$ 48 was approved. The Company appealed and itsclaims are awaiting final decisions.

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

Onthe advice of its external legal counsel, the Company has not made provisionsfor these cases and considers loss to be possible.

 

**(h)****                               ****Taxrecovery program**

 

In November 2009, the Company elected to jointhe Brazilian Tax Amnesty and Refinancing Program, established by Law 11941/09and Provisional Measure 470/2009, to finance its tax liabilities through aspecial payment and installment system for tax and social security obligations.

 

**(i)****      ****Labor**

 

The Company has approximately 3,700 laborlawsuits filed by former employees and third parties, whose pleas relate toseverance pay, health and safety premiums, overtime, “in itinere” hours(overtime while in commuter transportation), indemnities for material and moraldamages, as well as 566 civil lawsuits, most of which are indemnity claims fromformer employees or third parties due to alleged occupational illnesses andlabor incidents. The Company has insurance policies for general civil liabilitythat cover, within the limits fixed in the policy, possible unfavorable rulingsfor material damages related to indemnity claims.

 

**(j)****      ****Commitments**

 

We do not maintain insurance for our forests;rather, our policy is to self-insure against fire, disease and other risks toour forests. We have taken measures to mitigate these risks, but any lossesfrom damage outside of our control would be for our own account.

 

Weprovide guarantees to banks, not in excess of 180 days, although in exceptionalcases, this is extended to 240 days, which finance sales to certain of ourselected customers. We recognize revenue on these sales at the time ourproducts are delivered which is the time we transfer title to our customers.Under the vendor program we are the secondary obligor to the bank and monitorthe amount due from the customer to the bank. We periodically review theadequacy of our allowance for estimated losses and adjust our allowanceaccordingly. At December 31, 2009, customer guarantees provided by ustotaled US$ 91, including interest (US$ 112 at December 31, 2008and US$ 127 at December 31, 2007). Our guarantees are usually securedby the personal guarantee of the customer’s owner.

 

The vendor guarantee does not expose the Company toany greater risk or net obligation than a sale in installments. In the case ofa installment sale, revenue is recorded on shipment, and a receivable iscreated. If the customer does not pay the receivable, then the Company wouldestablish a doubtful accounts allowance if it considered loss to be probable.In a vendor 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 

financed sale, the Company records revenue onshipment and receives full payment from the bank. If the customer does not paythe bank within the specified time period, the Company 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

would have to satisfy its guarantee to the bank. TheCompany would, at that time, charge the obligation to selling expenses if itconsidered the loss to be probable. The Company would then look to the customerfor payment on the sale. The Company’s losses from guarantees honored to-datehave been negligible.

 

We lease timberlands under operating leases fromthird parties as a source for raw material for our products. The leases, mostof which commenced in 1991, are typically for a term of 21 years. Leasepayments, equal to 30% of the market value of the timber harvested on theproperty, are payable aftereach harvest. We guarantee to the lessor a minimum harvest payment. Paymentsunder these operating leases were US$ 32 in 2009, US$ 13 in 2008 andin 2007. At December 31, 2009, minimum lease payments duein 2010 total US$ 19.

 

At December 31, 2009, future minimum operatinglease payments were as follows:

 
| 2010       |   | 19     |   |
|------------|--------|--------|--------|
| 2011       |   | 23     |   |
| 2012       |   | 23     |   |
| 2013       |   | 22     |   |
| 2014       |   | 22     |   |
| Thereafter |   | 156    |   |
|       |   |   |   |
|       |   | 265    |   |

 

Wehave commitments for capital expenditures amounting to US$ 716 at December 31, 2009.

 

The Company entered into Take or Pay long-termagreements with suppliers of power, transport, diesel fuel and chemicalproducts for the period of one to ten years. Supply agreements have terminationand suspension clauses regulating non-compliance. Contractual obligations at December 31,2009 total US$ 77. Additionally, a Take or Pay long-term agreement wasentered into in 2007 related to supply of pulp for 30 years. Commitmentestablished by this agreement at December 31, 2009 total US$ 52 p.a.

 

In March 2005, Aracruz entered into a PulpSupply and Purchase Agreement with Veracel pursuant to which Aracruz has agreedto buy 50% of the annual output of pulp from the Veracel mill. This agreementcame into force in May 2005, and will be in effect for as long as theVeracel Shareholders’ Agreement is effective.

 

Asummary of guarantees issued to other companies of the Votorantim Group is asfollows:

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 
| **Primary** | ** ** | ** **            | ** ** | ** **                  | ** ** | **Outstanding  guarantee amount** | ** ** |
|-------------|------------|-----------------------|------------|-----------------------------|------------|-----------------------------------|------------|
| **Obligor** | ** ** | **Obligations**       | ** ** | **Beneficiary**             | ** ** | **2009**                          | ** ** | **2008** | ** ** |
|        |       |                  |       |                        |       |                              |       |   |   |
| VOTO  III   |       | US$300 notes issuance |       | Noteholders and the trustee |       | 45                                |       | 45 |   |
| VOTO  IV    |       | US$400 notes issuance |       | Noteholders and the trustee |       | 200                               |       | 200 |   |

 

**18****                                ****SegmentInformation**

 

**(a)****                               ****Segmentinformation**

 

The following information about segments is basedupon information used by our senior management to assess the performance of ouroperating segments and decide on the allocation of resources. This approach isrequired by ASC Topic 280, “Segment reporting”, and has been applied for allperiods presented. Our paper and pulp operations are based solely in Brazil.Intersegment revenues are accounted for at amounts which approximate those thatwould be obtained in a sale to third parties.

 

The accounting policies underlying the financialinformation provided for the segments are based on Brazilian GAAP. We evaluatesegment performance information generated from the statutory accountingrecords, except for the effects of our former affiliates, Ripasa and AhlstromVCP through August 2008 which are proportionally consolidated in ourBrazilian GAAP financial statements but are not included in information used byour senior management to assess the performance of our segments. The localcurrency information related to statement of operations data has beentranslated to U.S. dollars, for convenience purposes, at the average rateof each year presented. The information as at the balance sheet dates has beentranslated at the respective year-end exchange rates.

 
| ** **                                | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                      |       |     |       |     |       |     |       |
| Net  operating revenue - Brazilian GAAP   |       |     |       |     |       |     |       |
| Pulp                                      |       | 2,394    |       | 771      |       | 653      |       |
| Paper                                     |       | 581      |       | 602      |       | 691      |       |
| Other  (services)                         |       | 26       |       | —   |       | —   |       |
|                                      |       |     |       |     |       |     |       |
|                                      |       | 3,001    |       | 1,373    |       | 1,344    |       |
|                                      |       |     |       |     |       |     |       |
| Reconciling  item to US GAAP              |       |     |       |     |       |     |       |
| Guaíba’s  net operating revenue |       |     |       |     |       |     |       |
| Pulp                                      |       | (147     | )          | —   |       | —   |       |

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 
| ** **                                                             | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                                   |       |     |       |     |       |     |       |
| Paper                                                                  |       | (48      | )          | —   |       | —   |       |
| Other  adjustments                                                     |       |     |       |     |       |     |       |
| Pulp                                                                   |       | (1       | )          | (2       | )          | (2       | )          |
| Paper                                                                  |       | (5       | )          | (5       | )          | (9       | )          |
|                                                                   |       |     |       |     |       |     |       |
| Total  net operating revenue - US GAAP                                 |       | 2,800    |       | 1,366    |       | 1,333    |       |
|                                                                   |       |     |       |     |       |     |       |
| Intersegment  sales of pulp to paper segment                           |       | 53       |       | 18       |       | 43       |       |
|                                                                   |       |     |       |     |       |     |       |
| Net  operating revenue before intersegment saleseliminations - US GAAP |       | 2,853    |       | 1,384    |       | 1,376    |       |
|                                                                   |       |     |       |     |       |     |       |
| Depreciation  and depletion expense - Brazilian GAAP                   |       |     |       |     |       |     |       |
| Pulp                                                                   |       | 581      |       | 132      |       | 136      |       |
| Paper                                                                  |       | 43       |       | 37       |       | 12       |       |
|                                                                   |       |     |       |     |       |     |       |
| Reconciling  items to US GAAP                                          |       |     |       |     |       |     |       |
| Pulp                                                                   |       | 28       |       | (8       | )          | (4       | )          |
| Paper                                                                  |       | 2        |       | (1       | )          | (1       | )          |
|                                                                   |       |     |       |     |       |     |       |
| Depreciation  and depletion expense - US GAAP                          |       | 654      |       | 160      |       | 143      |       |

 

There are certain differences between themethodologies we use to determine the operating profit shown in the followingtable and operating profit reported in our US GAAP statement of operations. Forsegment reporting purposes we deferred start-up costs of new facilities andamortize them against operating profit over the subsequent ten years. Weallocate depreciation to segments based on property, plant and equipmentamounts which have been indexed for inflation, rather than the historical *reais* amounts.

 

These differences are reconciled as follows:

 
| ** **                                 | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                       |       |     |       |     |       |     |       |
| Segment  operating income - Brazilian GAAP |       |     |       |     |       |     |       |
| Pulp                                       |       | 69       |       | 145      |       | 143      |       |
| Paper                                      |       | 17       |       | 65       |       | 103      |       |
| Other  (services)                          |       | 26       |       | —   |       | —   |       |
|                                       |       |     |       |     |       |     |       |
| Operating  income under Brazilian GAAP     |       | 112      |       | 210      |       | 246      |       |
|                                       |       |     |       |     |       |     |       |
| Reconciling  items to US GAAP              |       |     |       |     |       |     |       |
| Depreciation  and amortization expense     |       |     |       |     |       |     |       |
| Pulp                                       |       | (286     | )          | —   |       | 1        |       |
| Paper                                      |       | —   |       | —   |       | 1        |       |

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**In millions of U.S. dollars,unless otherwise stated**

 
| ** **                                                    | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                          |       |     |       |     |       |     |       |
| Other  adjustments                                            |       |     |       |     |       |     |       |
| Pulp                                                          |       | (1       | )          | (2       | )          | (4       | )          |
| Paper                                                         |       | (5       | )          | (8       | )          | (13      | )          |
| Gain  on remeasurement of original investment in Aracruz, net |       | 514      |       | —   |       | —   |       |
| Guaíba  write off                                        |       | (52      | )          | —   |       | —   |       |
| Veracel  operating income                                     |       | 28       |       | —   |       | —   |       |
| Other  operating income adjustments                           |       | 57       |       | —   |       | —   |       |
| Gain  on exchange of assets, net                              |       | —   |       | —   |       | 955      |       |
|                                                          |       |     |       |     |       |     |       |
| Total  pulp                                                   |       | (218     | )          | 143      |       | 142      |       |
| Total  paper                                                  |       | 12       |       | 57       |       | 89       |       |
| Total  other (services)                                       |       | 26       |       | —   |       | —   |       |
| Gain  on remeasurement of original investment in Aracruz, net |       | 514      |       | —   |       | —   |       |
| Guaíba’s  write off                                 |       | (52      | )          | —   |       | —   |       |
| Veracel’s  operating income                              |       | 28       |       | —   |       | —   |       |
| Other  operating income adjustments                           |       | 57       |       | —   |       | —   |       |
| Gain  on exchange of assets, net                              |       | —   |       | —   |       | 955      |       |
|                                                          |       |     |       |     |       |     |       |
| Operating  income - US GAAP                                   |       | 367      |       | 200      |       | 1,186    |       |
|                                                          |       |     |       |     |       |     |       |
| Segment  property, plant and equipment                        |       |     |       |     |       |     |       |
| Pulp                                                          |       | 8,800    |       | 4,000    |       | 3,364    |       |
| Paper                                                         |       | 662      |       | 597      |       | 495      |       |
|                                                          |       |     |       |     |       |     |       |
| Total  segment assets per Brazilian GAAP                      |       | 9,462    |       | 4,597    |       | 3,859    |       |
|                                                          |       |     |       |     |       |     |       |
| Reconciling  items to US GAAP                                 |       |     |       |     |       |     |       |
| Pulp                                                          |       | (178     | )          | (560     | )          | 50       |       |
| Paper                                                         |       | (13      | )          | (171     | )          | 7        |       |
|                                                          |       |     |       |     |       |     |       |
| Total  pulp                                                   |       | 8,622    |       | 3,440    |       | 3,414    |       |
| Total  paper                                                  |       | 649      |       | 426      |       | 502      |       |
|                                                          |       |     |       |     |       |     |       |
| Property,  plant and equipment - US GAAP                      |       | 9,271    |       | 3,866    |       | 3,916    |       |
|                                                          |       |     |       |     |       |     |       |
| Capital  expenditures per Brazilian GAAP                      |       |     |       |     |       |     |       |
| Pulp                                                          |       | 741      |       | 634      |       | 420      |       |
| Paper                                                         |       | 56       |       | 55       |       | 51       |       |
|                                                          |       |     |       |     |       |     |       |
| Reconciling  items to US GAAP                                 |       |     |       |     |       |     |       |
| Capitalized  interest — Pulp                             |       | 6        |       | 3        |       | 6        |       |
|                                                          |       |     |       |     |       |     |       |
| Total  pulp                                                   |       | 747      |       | 637      |       | 426      |       |
| Total  paper                                                  |       | 56       |       | 55       |       | 51       |       |
|                                                          |       |     |       |     |       |     |       |
| Capital  expenditures - US GAAP                               |       | 803      |       | 692      |       | 477      |       |

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**(b)****                                ****Exportsales by region**

 

The sales by geographic area are determined based onthe location of the customers.

 
| ** **                        | ** ** | **2009**  | ** ** | **2008** | ** ** | **2007**  | ** ** |
|-----------------------------------|------------|-----------|------------|----------|------------|-----------|------------|
| ** **                        | ** ** | **Paper** | ** ** | **Pulp** | ** ** | **Paper** | ** ** | **Pulp** | ** ** | **Paper** | ** ** | **Pulp** | ** ** |
|                              |       |      |       |     |       |      |       |   |   |   |   |   |   |
| Middle  East and Asia             |       | —    |       | 849      |       | —    |       | 183 |   | — |   | 141 |   |
| Europe                            |       | 6         |       | 683      |       | 6         |       | 359 |   | 14 |   | 342 |   |
| North  America                    |       | 19        |       | 517      |       | 11        |       | 57 |   | 20 |   | 52 |   |
| South  America, other than Brazil |       | 17        |       | 21       |       | 26        |       | 1 |   | 54 |   | 1 |   |
| Africa                            |       | —    |       | —   |       | —    |       | 2 |   | — |   | — |   |
|                              |       |      |       |     |       |      |       |   |   |   |   |   |   |
|                              |       | 42        |       | 2,070    |       | 43        |       | 602 |   | 88 |   | 536 |   |

 

**19****                                ****Shareholders’Equity**

 

**(a)****                                ****Capital**

 

At December 31, 2009,capital was represented by 467,934,646 common issued and outstanding shareswithout par value (529,624,961 authorized shares). The main changes in capitalwere described in Note 4(e).

 

At the May 30, 2009Extraordinary General Meeting, 244,347,953 preferred shares issued by theCompany were approved for conversion into common shares in the proportion ofone preferred share for each 0.91 of common share. Consequently, the preferredshare capital was reduced to zero against an increase in “Additional paid-incapital”, in the amount of US$ 2,355 and the difference between thepreferred share amount and the fair value of the common share was recorded in “Unappropriatedretained earnings”, in the total amount of US$ 88.

 

**(b)****                                ****Dividends**

 

Our by-laws require that we pay a dividend to ourcommon (and previously to our preferred shareholders) of at least 25% of ourannual net distributable income determined in accordance with BrazilianCorporate Law. In accordance with Fibria’s dividend policy, Fibria is committedto pay dividends and/or interest attributable to capital based on 60% of its “freeoperating cash flow”. Free operating cash flow is expected to be an amountequal to net income, as adjusted by the sum of (a) non-cash items such asdepreciation, amortization, unrealized foreign exchange gains (losses) andequity gain (loss) of affiliate, and (b) net financial income 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

(expense) and income and social contribution taxeseffectively paid, and reduced by (c) the sum of changes in working capitalrequired in the business and capital expenditures. The 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

computation is based upon Fibria’s financialstatements prepared in accordance with Brazilian GAAP.

 

The devaluation of the *reais*impacts the amount available for distribution when measured in U.S. dollars.Amounts reported as available for distribution in our statutory accountingrecords prepared under Brazilian GAAP will decrease or increase when measuredin U.S. dollars as the *reais*depreciates or appreciates, respectively, against the U.S. dollar. Thedevaluation of the *reais* resultsin net foreign exchange losses which are included in the statement ofoperations determined under Brazilian GAAP and which reduces the amount ofunappropriated earnings available for distribution. Brazilian law permits thepayment of dividends only in *reais* limitedto the unappropriated retained earnings in our financial statements prepared inaccordance with Brazilian GAAP. At December 31, 2009, we had US$ 70in “Appropriated retained earnings” available for the payment of dividends.

 

**(c)****                                ****Appropriatedretained earnings**

 

In accordance with the Brazilian Corporate Law andour by-laws we are required to make annual appropriations to certain reserves(Appropriated retained earnings). These comprise mainly (a) 5% of the netincome (loss) in our statutory accounts which must be transferred to a legalreserve until such reserve reaches 20% of our share capital and (b) appropriationto an investment incentive reserve of an amount equal to income tax abatementsrelated to income generated from investments in certain underdeveloped regionsof Brazil. The legal and investment incentives reserves cannot be used todistribute dividends to our shareholders.

 

Brazilian companies are permitted to pay limitedamounts of interest attributable to capital to shareholders and treat such paymentsas an expense for Brazilian income and social contribution tax purposes. Thisnotional interest distribution is treated for accounting purposes as adeduction from shareholders’ equity in a manner similar to a dividend. Interestattributable to capital is treated as a dividend for purposes of the mandatorydividend payable. A 15% tax is withheld and paid by upon credit of theinterest.

 

**(d)****                                ****Treasuryshares acquisition and retirement**

 

On June 10, 2008 Fibria repurchased 2,784,091of its own preferred shares from CMT at an average price of US$ 33.49 pershare (Note 4(a)). On July 14, 2008 Fibria retired these treasury sharesreducing the corresponding balances of “Additional paid-in capital” and “Retainedearnings”.

 

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Table of Contents

 

**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**20****                                ****Concentrationof Credit Risk**

 

We are potentially subject to credit risk withrespect to our cash equivalents, available for sales securities, tradereceivables, guarantees provided to banks which finance our customers, andderivative contracts. We limit our risk associated with cash equivalents andavailable for sales securities by placing our investments with highly ratedfinancial institutions and we only take out derivative contracts with financiallysound counter-parties. With respect to trade receivables and guarantees,provided to banks financing our customers, we perform initial and ongoingcredit evaluations of our customers and, when deemed necessary, obtaincollateral or letters of credit to protect our interests. Additionally, most ofour export sales to the US, Europe and Asia are secured by letters of credit.We establish an allowance for doubtful accounts against receivables we believewill not be fully collected.

 

**21****                                ****FinancialIncome and Financial Expense**

 
| ** **                                              | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |     |       |
| Financial  income                                       |       |     |       |     |       |     |       |
| Interest  income on cash equivalents                    |       | 382      |       | 68       |       | 27       |       |
| Reversal  of contingency provision                      |       | 92       |       | 8        |       | —   |       |
| Present  value adjustment                               |       | 6        |       | 7        |       | 12       |       |
| Interest  income on construction trust fund (Note 4(b)) |       | —   |       | 32       |       | 124      |       |
| Gain  on available for sale securities                  |       | —   |       | —   |       | 42       |       |
| Other  (including taxes)                                |       | 21       |       | 34       |       | 31       |       |
|                                                    |       |     |       |     |       |     |       |
|                                                    |       | 501      |       | 149      |       | 236      |       |
|                                                    |       |     |       |     |       |     |       |
| Financial  expenses                                     |       |     |       |     |       |     |       |
| Interest  and charges on *real* debt                    |       | (315     | )          | (19      | )          | (14      | )          |
| Interest  and charges on U.S. dollar debt               |       | (202     | )          | (67      | )          | (65      | )          |
| Indexation  and interest charges on contingencies       |       | (4       | )          | (2       | )          | (20      | )          |
| CMT  payment (Note 4(a)(i))                             |       | —   |       | (88      | )          | —   |       |
| Tax  on checking accounts - CPMF                        |       | —   |       | —   |       | (12      | )          |
| Other                                                   |       | (128     | )          | (51      | )          | (34      | )          |
|                                                    |       |     |       |     |       |     |       |
|                                                    |       | (649     | )          | (227     | )          | (145     | )          |

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

**22****                                ****LiabilitiesAssociated with Unrecognized Tax Benefits**

 

The Company records the financial statement effectsof an income tax and social contribution tax position when it is more likelythan not, based on the technical merits, that it will be sustained uponexamination. A tax position that meets the more-likely-than-not recognitionthreshold is measured and recorded as the largest amount of tax benefit that isgreater than 50% likely of being realized upon ultimate settlement with ataxing authority. Previously recognized tax positions are derecognized in thefirst period in which it is no longer more likely than not that the taxposition will be sustained. The benefit associated with previously unrecognizedtax positions are generally recognized in the first period in which themore-likely-than-not threshold is met at the reporting date, the tax matter isultimately settled through negotiation or litigation or when the relatedstatute of limitations for the relevant taxing authority to examine andchallenge the tax position has expired. The recognition, derecognition andmeasurement of tax positions are based on management’s best judgment given thefacts, circumstances and information available at the reporting date.

 

Differences between a tax position taken or expectedto be taken in the Company’s tax returns and the amount of benefit recognizedand measured in the financial statements result in unrecognized tax benefits,which are recorded in the balance sheet as either a liability for unrecognizedtax benefits or reductions to recorded tax assets, as applicable. Interest andpenalties are accrued with respect to unrecognized tax benefits in accordancewith the legislation of the respective taxing jurisdictions, which arerecognized as a component of interest expense.

 

Asof December 31, 2009, we have not recorded any amounts for uncertainty inincome taxes.

 

Fibria Celulose S.A. and certain of its subsidiariesfile income tax returns in Brazil and other foreign federal and statejurisdictions. Brazilian income taxreturns are normally subject to audit for five years.

 

**23****                                ****RetirementBenefits**

 

**(a)****                               ****Definedcontribution plan**

 

In 2000 we began co-sponsoring a multi-employerdefined contribution plan of the Votorantim Group which is available to all ofour employees. For employees below a certain income level we match the employee’scontribution limited to 1.5% of the employee’s compensation. For 

 

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Tableof Contents

 

**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

employees above that income level we match theemployee’s contribution up to 6% of the 

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

employee’s compensation. At our option we may alsomake additional contributions. Our contributions vest in varying percentagesdepending on the employee’s years of service and will fully vest upon theemployee’s retirement, death or disability, provided the employee has at leastone year of service. Our contributions were US$ 3 in 2009, US$ 2in 2008 and US$ 5 in 2007.

 

Aracruz joined ARUS - Fundação Aracruz de SeguridadeSocial, a private, not for profit, pension plan operating as a multi-sponsoredfund. In September 1998, the existing benefits plan was replaced byanother plan that adopts the defined contribution system for retirement (ArusRetirement Plan). The Company is a sponsor of Arus Retirement Plan. Aracruz’scontribution was US$ 3 in 2009. In the event of a withdrawal of the ArusRetirement Plan sponsor, the sponsor’s commitment computed according toResolution No. 06/88 is totally covered by the plan assets.

 

**(b)****                                ****Post-retirementbenefits**

 

The Company has an actuarial liability that relatesto its proportion of the costs of Sepaco, a hospital facility it shares withco-sponsors. Although the not-for-profit hospital is funded bymultiple-employers, it has no separate assets and its costs are apportionedamong the sponsors based on usage. Contributions paid to the hospital in theyear ended December 31, 2009, 2008 and 2007 amounted to, US$ 2,US$ 2 and US$ 3, respectively and the accumulated post-retirementbenefit obligation and accrued benefit cost (no plan assets) was US$ 40 atDecember 31, 2009, US$ 26 at December 31, 2008 andUS$ 23 at December 31, 2007.

 

Measurementof obligations for the post-retirement benefits plan is calculated as of December 31, 2009.Based on the report of our independent actuary, the accumulated post-retirementbenefit obligation and accrued benefit cost (no plan assets) was US$ 40.

 
| ** **                                                 | ** ** | **2009**   | ** ** | **2008** | ** ** |
|------------------------------------------------------------|------------|------------|------------|----------|------------|
| ** **                                                 | ** ** | ** ** | ** ** |     | ** ** |
| Weighted-average  assumptions                              |       |       |       |     |       |
| Discount rate                                              |       | 6.75       | %          | 7.75     | %          |
| Health care cost trend on  covered changes                 |       | 3.0        | %          | 3.0      | %          |
|                                                       |       |       |       |     |       |
| Components of net periodic  benefit cost for 2010 and 2009 |       |       |       |     |       |
| Interest cost                                              |       | 3          |       | 3        |       |
| Total net periodic benefit  cost (benefit)                 |       | 3          |       | 3        |       |

 

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**FibriaCelulose S.A.**

 

**Notes tothe Consolidated Financial Statements**

**atDecember 31, 2009 and 2008, and for the**

**ThreeYears Ended December 31, 2009**

**Inmillions of U.S. dollars, unless otherwise stated**

 

It has been assumed, for measurement purposes, thathealth care cost trends for 2010 will not be considerably differentfrom 2009. Our actuaries are unable to project the direction and patternof changes in both the assumed and ultimate trend rates, nor can they estimatewhen the rates are expected to be achieved.

 

A one-percentage-pointchange in assumed health care cost trend rates would have had the followingeffects in 2009 and 2008 (all other assumptions have been held constant):

** **
| ** **                                     | ** ** | **One-percentage-  point decrease** | ** ** |
|------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                     | ** ** | **2009**                            | ** ** | **2008** | ** ** |
|                                           |       |                                |       |   |   |
| Sensitivity  of retiree welfare results        |       |                                |       |   |   |
| On  total service and interest cost components |       | (0.3                                | )          | (0.3 | ) |
| On  post-retirement benefit obligation         |       | (3.0                                | )          | (3.0 | ) |

 

*          *          *

 

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