----

**UNITED STATES SECURITIES AND EXCHANGE COMMISSION****WASHINGTON, D.C.  20549**

**FORM 20-F**

| o      | **REGISTRATION   STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE   ACT OF 1934**                                        |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| **OR** |
| x      | **ANNUAL   REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF   1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005** |
| **OR** |
| o      | **TRANSITION   REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF   1934**                                              |
| **OR** |
| o      | **SHELL   COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT   OF 1934**                                                |

**Commission file number 1-15018**

| **Votorantim   Celulose e Papel S.A.**                     |
|------------------------------------------------------------|
| *(Exact name of Registrant as specified in its   charter)* |
|                                                       |
| **Votorantim Pulp and Paper Inc.**                         |
| *(Translation of Registrant’s name into English)*     |
|                                                       |
| **Federative   Republic of Brazil**                        |
| *(Jurisdiction of incorporation or   organization)*        |
|                                                       |
| **Alameda Santos, 1357, 6th   floor**                      |
| **01419-908, São Paulo, SP, Brazil**                  |
| *(Address of principal executive offices)*                 |
|                                                       |
|                                                            |

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

|   | **Title of each class:**                      |  | **Name of each exchange on which registered:** |
|--------|-----------------------------------------------|--|------------------------------------------------|
|   | **Preferred Shares, without par value**       |  | **New   York Stock Exchange***                 |
|   | **American Depositary Shares (as evidenced**  |  | **New   York Stock Exchange**                  |
|   | **by American Depositary Receipts), each**    |  |                                           |
|   | **representing one share of Preferred Stock** |  |                                           |

|   |
|---|
| * | Not for trading purposes but only in connection with   the registration on the New York Stock Exchange of American Depositary Shares   representing those preferred shares |

|                                                                                                                               |
|-------------------------------------------------------------------------------------------------------------------------------|
| Securities   registered or to be registered pursuant to Section 12(g) of the Act:                                        |
| None                                                                                                                          |
|                                                                                                                          |
|                                                                                                                               |
| Securities   for which there is a reporting obligation pursuant to Section 15(d) of   the Act:                           |
| None                                                                                                                          |
|                                                                                                                          |
|                                                                                                                               |
| The number of   outstanding shares of each class of stock of Votorantim Celulose e Papel S.A.   as of December 31, 2005. |
|                                                                                                                          |

| **105,702,452** |  | **Shares of Common Stock**    |
|-----------------|--|-------------------------------|
| **85,911,046**  |  | **Shares of Preferred Stock** |

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

| Yes  o | No  x |
|------------------|-----------------|

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

| Yes  o | No  x |
|------------------|-----------------|

     Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

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

| Yes  x | No  o |
|------------------|-----------------|

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

|   | Large   Accelerated Filer | o | Accelerated   Filer | **x** | Non-accelerated   Filer | o |
|--------|---------------------------|---|---------------------|-------|-------------------------|---|

     Indicate by check mark which financial statement item the registrant has elected to follow.

|   | Item   17 | o | Item   18 | **x** |   |
|--------|-----------|---|-----------|-------|--------|

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

| Yes  o | No  x |
|------------------|-----------------|

----

**TABLE OF CONTENTS**

|                                                                                          |   | **Page** |
|-----------------------------------------------------------------------------------------------|--------|----------|
|                                                                                          |   |          |
| PART   I                                                                                      |   |     |
|                                                                                          |   |     |
| ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                           |   | 3        |
|                                                                                          |   |     |
| ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE                                         |   | 3        |
|                                                                                          |   |     |
| ITEM 3.  KEY INFORMATION                                                                 |   | 3        |
|                                                                                          |   |     |
| ITEM 4.  INFORMATION ON VCP                                                              |   | 14       |
|                                                                                          |   |     |
| ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS                                    |   | 44       |
|                                                                                          |   |     |
| ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES                                      |   | 68       |
|                                                                                          |   |     |
| ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                               |   | 74       |
|                                                                                          |   |     |
| ITEM 8.  FINANCIAL INFORMATION                                                           |   | 77       |
|                                                                                          |   |     |
| ITEM 9.  THE OFFER AND LISTING                                                           |   | 81       |
|                                                                                          |   |     |
| ITEM 10.  ADDITIONAL INFORMATION                                                         |   | 86       |
|                                                                                          |   |     |
| ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES   ABOUT MARKET RISK                   |   | 96       |
|                                                                                          |   |     |
| ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN   EQUITY SECURITIES                       |   | 100      |
|                                                                                          |   |     |
| PART   II                                                                                     |   |     |
|                                                                                          |   |     |
| ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND   DELINQUENCIES                              |   | 100      |
|                                                                                          |   |     |
| ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF   SECURITY HOLDERS AND USE OF PROCEEDS |   | 100      |
|                                                                                          |   |     |
| ITEM 15.  CONTROLS AND PROCEDURES                                                        |   | 100      |
|                                                                                          |   |     |
| ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT                                              |   | 101      |
|                                                                                          |   |     |
| ITEM 16B.  CODE OF ETHICS                                                                |   | 101      |
|                                                                                          |   |     |
| ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES                                        |   | 101      |
|                                                                                          |   |     |
| PART   III                                                                                    |   |     |
|                                                                                          |   |     |
| ITEM 17.  FINANCIAL STATEMENTS                                                           |   | 103      |
|                                                                                          |   |     |
| ITEM 18.  FINANCIAL STATEMENTS                                                           |   | 103      |
|                                                                                          |   |     |
| ITEM 19.  EXHIBITS                                                                       |   | 103      |

i

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**INTRODUCTION**

          All references in this annual report to:

|   | • | “VCP,” “we,” “our” and “us” are to Votorantim   Celulose e Papel S.A. and its consolidated subsidiaries (unless the context otherwise   requires);                                                                                                                                                                                                                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “Votorantim group” are to the group of companies,   including VCP, controlled by the Ermírio de Moraes family;                                                                                                                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “Votorantim Participações S.A.”, or “VPAR”, is our   immediate parent company and the holding company of the Votorantim Group,   controls three areas of the business: Votorantim Industrial, Votorantim   Finance and Votorantim New Businesses, each of them containing one or more   business units;                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “BNDESPAR” are to BNDES Participações S.A. –   BNDESPAR, a wholly owned subsidiary of BNDES, the Brazilian economic and   social development bank owned by the Brazilian federal government;                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “Nova” are to Nova HPI Participações Ltda., a   company of the Votorantim group;                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “the Ermírio de Moraes family” are to the families   of Antonio Ermírio de Moraes, Ermírio Pereira de Moraes, Maria Helena de   Moraes Scripilliti and José Ermírio de Moraes (in memoriam);                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | the “Brazilian government” are to the federal   government of the Federative Republic of Brazil;                                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “*real*,” “*reais*” or “R$“   are to Brazilian *reais*, the official currency of Brazil;                                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “US$,” “dollars” or “U.S. dollars” are to United   States dollars;                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “ton” are to one metric ton (1,000 kilograms).  One kilogram equals approximately 2.2   pounds;                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “BEKP” are to bleached eucalyptus kraft pulp;                                                                                                                                                                                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “ADSs” are to our American Depositary Shares, each   one of our *ações preferenciais*, or preferred shares;                                                                                                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “CVM” are to the *Comissão de Valores Mobiliários*, the   Brazilian securities commission;                                                                                                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “Brazilian GAAP” are to accounting practices adopted   in Brazil, which are based on Brazilian corporate law (Law No. 6,404 of   December 15, 1976, as amended by Law No. 10,303 of October 1, 2001, as   amended), the rules and regulations of the CVM, and the accounting standards   issued by the *Instituto dos Auditores Independentes do Brasil*, the   Brazilian Institute of Independent Accountants, or IBRACON; and |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | “Commission” are to the Securities and Exchange   Commission.                                                                                                                                                                                                                                                                                                                                                                   |

          As used in this annual report, one hectare equals approximately 2.471 acres and one kilometer equals approximately 0.621 miles.  References in this annual report to nominal production capacity or production capacity mean annual projected capacity for which the facility was designed, with the facility operating under optimal conditions, 24 hours a day, for 365 days a year and subject to reductions in rates of production for scheduled maintenance only.  Actual production capacity will vary depending on operating conditions, the grades of pulp or paper produced and other factors.

1

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          The commercial selling rate is used in this annual report rather than the noon buying rate in New York City as reported by the Federal Reserve Bank of New York because the noon buying rate was not consistently reported for *reais* during the periods shown in this annual report.  See “Item 3—Key Information—Selected Financial Data—Exchange Rates” for information regarding exchange rates applicable to the Brazilian currency since 2000.

          We have prepared our consolidated financial statements included in this annual report in conformity with generally accepted accounting principles in the United States, or U.S. GAAP.  Our reporting currency in this annual report for all periods is the U.S. dollar.

          We make statements in this annual report about our competitive position and market share in, and the market size of, the pulp and paper industry.  We have made these statements on the basis of statistics and other information from third-party sources that we believe are reliable.  We derive this third-party information principally from reports published by BRACELPA — *Associação Brasileira de Celulose e Papel* (the Brazilian Association of Pulp and Paper), and Valois Vision, which is a monthly report on the pulp markets.  Although we have no reason to believe that any of this information or these reports are inaccurate in any material respect, we have not independently verified the competitive position, market share, market size or market growth data provided by third parties or by industry or general publications.  

**FORWARD-LOOKING STATEMENTS**

          This annual report includes forward-looking statements, principally in “Item 3D—Key Information—Risk Factors,” “Item 4B—Information on VCP—Business Overview” and “Item 5—Operating and Financial Review and Prospects.”  We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business.  These forward-looking statements are subject to risks, uncertainties and assumptions, including, among other things:

|   | • | general economic, political and business conditions,   both in Brazil and in our principal export markets;                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                    |
|   | • | changes in market prices, customer preferences,   competitive conditions and general level of demand for our products;                                                                  |
|   |   |                                                                                                                                                                                    |
|   | • | our management’s expectations and estimates   concerning future financial performance, financing plans and the effects of   competition;                                           |
|   |   |                                                                                                                                                                                    |
|   | • | our level of debt;                                                                                                                                                                      |
|   |   |                                                                                                                                                                                    |
|   | • | anticipated trends in the pulp and paper industry,   including changes in capacity and industry price movements;                                                                        |
|   |   |                                                                                                                                                                                    |
|   | • | our capital expenditure plans;                                                                                                                                                          |
|   |   |                                                                                                                                                                                    |
|   | • | changes in currency exchange rates;                                                                                                                                                     |
|   |   |                                                                                                                                                                                    |
|   | • | our ability to produce and deliver our products on a   timely basis;                                                                                                                    |
|   |   |                                                                                                                                                                                    |
|   | • | existing and future governmental regulation,   including environmental laws, tariffs on pulp and paper imports and import   tax policies in Brazil;                                     |
|   |   |                                                                                                                                                                                    |
|   | • | our ability to successfully undertake or complete   expansion projects and to manage the engineering, construction and regulatory   challenges and costs involved in such projects; and |
|   |   |                                                                                                                                                                                    |
|   | • | other risk factors as set forth under   “Item 3D—Key Information—Risk Factors.”                                                                                |

          The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements.  We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise.  In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur.  Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

2

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**PART I**

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

          Not applicable.

**ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE**

          Not applicable.

**ITEM 3.  KEY INFORMATION**

**A.  Selected Financial Data**

          We maintain our books and records in *reais*, which are the basis for our statutory financial statements prepared as prescribed under Law No. 6,404/76, as amended, known as the Brazilian corporate law, and used to determine income taxes and mandatory minimum dividend calculations.  The statutory financial statements (not included in this annual report) are prepared in accordance with accounting practices adopted in Brazil, or Brazilian GAAP, which are based on the Brazilian corporate law, the rules and regulations of the CVM, and the accounting standards issued by the *Instituto dos Auditores Independentes do Brasil*, the Brazilian Institute of Independent Accountants, or IBRACON.  We have also prepared consolidated balance sheets at December 31, 2005 and 2004 and the related consolidated statements of income, cash flows and changes in shareholders’ equity for the years endedDecember 31, 2005, 2004 and 2003, all stated in U.S. dollars in accordance with U.S. GAAP.  Our U.S. GAAP financial statements are included in this annual report.  The selected financial information at and for the years ended December 31, 2005, 2004, 2003 and 2002 are derived from our U.S. GAAP financial statements audited by PricewaterhouseCoopers Auditores Independentes, São Paulo, Brazil.  The selected financial information at and for the year ended December 31, 2001 is derived from our U.S. GAAP financial statements audited by Ernst & Young Auditores Independentes S.S., São Paulo, Brazil.

          The following table presents a summary of our selected financial data at the dates and for each of the periods indicated.  You should read the following information together with our financial statements, including the notes thereto, included elsewhere in this annual report.

3

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|                                                                                                       |   | **For the   Years Ended December 31,**                       |               |
|------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------|--------------------|
|                                                                                                       |   |                                                              |               |
|                                                                                                       |   | **2005**                                                     |               | **2004** |   | **2003** |   | **2002** |   | **2001** |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
|                                                                                                       |   | **(U.S.   dollars in millions, unless otherwise indicated)** |               |
| **STATEMENT OF INCOME DATA**                                                                               |   |                                                         |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Net operating revenue:**                                                                                 |   |                                                         |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Domestic sales                                                                                             |   | US$                                                          | 564                |   | US$ | 512 |   | US$ | 443 |   | US$ | 410 |   | US$ | 443 |   |
| Export sales                                                                                               |   |                                                         | 566                |   |   | 498 |   |   | 373 |   |   | 199 |   |   | 211 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Total net sales                                                                                            |   |                                                         | 1,130              |   |   | 1,010 |   |   | 816 |   |   | 609 |   |   | 654 |   |
| **Operating costs and expenses:**                                                                          |   |                                                         |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cost of sales                                                                                              |   |                                                         | 654                |   |   | 518 |   |   | 421 |   |   | 329 |   |   | 344 |   |
| Selling, marketing, general   and administrative                                                           |   |                                                         | 193                |   |   | 161 |   |   | 115 |   |   | 88 |   |   | 88 |   |
| Other operating expenses   (income), net                                                                   |   |                                                         | 36                 |   |   | 6 |   |   | 12 |   |   | 15 |   |   | 5 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Total                                                                                                      |   |                                                         | 883                |   |   | 685 |   |   | 548 |   |   | 432 |   |   | 437 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| **Operating profit**                                                                                       |   |                                                         | 247                |   |   | 325 |   |   | 268 |   |   | 177 |   |   | 217 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| **Non-operating income (expenses):**                                                                       |   |                                                         |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Financial income   (expenses), net                                                                         |   |                                                         | (40                | ) |   | (29 | ) |   | (6 | ) |   | 14 |   |   | 32 |   |
| Foreign exchange gain   (losses), net                                                                      |   |                                                         | (5                 | ) |   | 12 |   |   | (14 | ) |   | (11 | ) |   | (8 | ) |
| Total                                                                                                      |   |                                                         | (45                | ) |   | (17 | ) |   | (20 | ) |   | 3 |   |   | 24 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| **Income before income tax, equity in results of affiliates   and cumulative effect of accounting change** |   |                                                         | 202                |   |   | 308 |   |   | 248 |   |   | 180 |   |   | 241 |   |
| Income tax (expense)   benefit                                                                             |   |                                                         | 8                  |   |   | (36 | ) |   | (23 | ) |   | 10 |   |   | (59 | ) |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| **Income before equity in results of affiliates and   cumulative effect of accounting change**             |   |                                                         | 210                |   |   | 272 |   |   | 225 |   |   | 190 |   |   | 182 |   |
| Equity in earnings (losses)   of affiliates                                                                |   |                                                         | 54                 |   |   | 31 |   |   | 19 |   |   | (121 | ) |   | —   |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Income before cumulative   effect of accounting change                                                     |   |                                                         | 264                |   |   | 303 |   |   | 244 |   |   | 69 |   |   | 182 |   |
| Cumulative effect of   accounting change, net of tax                                                       |   |                                                         | —   |   |   | —   |   |   | —   |   |   | —   |   |   | 10 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| **Net income**                                                                                             |   | US$                                                          | 264                |   | US$ | 303 |   | US$ | 244 |   | US$ | 69 |   | US$ | 192 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Net income applicable to   preferred stock                                                                 |   | US$                                                          | 124                |   | US$ | 143 |   | US$ | 115 |   | US$ | 32 |   | US$ | 90 |   |
| Net income applicable to   common stock                                                                    |   |                                                         | 140                |   |   | 160 |   |   | 129 |   |   | 37 |   |   | 102 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| **Net income**                                                                                             |   | US$                                                          | 264                |   | US$ | 303 |   | US$ | 244 |   | US$ | 69 |   | US$ | 192 |   |
|                                                                                                       |   |                                                              |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| **Basic earnings per share (in U.S. dollars):(1)**                                                         |   |                                                         |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                                                                                                  |   | US$                                                          | 1.46               |   | US$ | 1.67 |   | US$ | 1.34 |   | US$ | 0.38 |   | US$ | 1.05 |   |
| Common                                                                                                     |   |                                                         | 1.33               |   |   | 1.51 |   |   | 1.22 |   |   | 0.35 |   |   | 0.96 |   |
| **Weighted average number of shares outstanding (in   thousands):**                                        |   |                                                         |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                                                                                                  |   |                                                         | 85,451             |   |   | 85,773 |   |   | 85,510 |   |   | 85,107 |   |   | 85,734 |   |
| Common                                                                                                     |   |                                                         | 105,702            |   |   | 105,702 |   |   | 105,702 |   |   | 105,702 |   |   | 105,702 |   |
| **Dividends per share (in U.S. dollars):(2)**                                                              |   |                                                         |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Preferred                                                                                                  |   | US$                                                          | 0.45               |   | US$ | 0.58 |   | US$ | 0.22 |   | US$ | 0.19 |   | US$ | 0.20 |   |
| Common                                                                                                     |   |                                                         | 0.41               |   |   | 0.52 |   |   | 0.20 |   |   | 0.17 |   |   | 0.19 |   |

4

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|                                                  |   | **As at   December 31,**                                 |               |
|-------------------------------------------------------|--------|----------------------------------------------------------|--------------------|
|                                                  |   |                                                          |               |
|                                                  |   | **2005**                                                 |               | **2004** |   | **2003** |   | **2002** |   | **2001** |   |
|                                                  |   |                                                          |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
|                                                  |   | **(U.S.   dollars in millions)**                         |               |
| **BALANCE SHEET DATA**                                |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash and cash equivalents                             |   | US$                                                      | 261                |   | US$ | 151 |   | US$ | 290 |   | US$ | 90 |   | US$ | 172 |   |
| Held-to-maturity   investments(3)                     |   |                                                     | —   |   |   | 278 |   |   | 303 |   |   | 320 |   |   | 364 |   |
| Property, plant and   equipment, net                  |   |                                                     | 1,758              |   |   | 1,443 |   |   | 1,202 |   |   | 907 |   |   | 1,100 |   |
| Investment in affiliates,   including goodwill        |   |                                                     | 596                |   |   | 249 |   |   | 245 |   |   | 218 |   |   | 216 |   |
| Total assets                                          |   |                                                     | 3,731              |   |   | 2,644 |   |   | 2,468 |   |   | 1,918 |   |   | 2,321 |   |
| Short-term debt(4)                                    |   |                                                     | 132                |   |   | 79 |   |   | 48 |   |   | 66 |   |   | 69 |   |
| Long-term debt, including   current portion           |   |                                                     | 1,364              |   |   | 866 |   |   | 1,098 |   |   | 973 |   |   | 973 |   |
| Shareholders’ equity                             |   |                                                     | 1,737              |   |   | 1,498 |   |   | 1,185 |   |   | 767 |   |   | 1,107 |   |
|                                                  |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | **For the   Years Ended December 31,**                   |               |
|                                                  |   |                                                          |               |
|                                                  |   | **2005**                                                 |               | **2004** |   | **2003** |   | **2002** |   | **2001** |   |
|                                                  |   |                                                          |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
|                                                  |   | **(U.S.   dollars in millions, except for percentages)** |               |
| **OTHER FINANCIAL DATA**                              |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Gross margin                                          |   |                                                     | 42.1               | % |   | 48.7 | % |   | 48.4 | % |   | 46.0 | % |   | 47.4 | % |
| Operating margin                                      |   |                                                     | 21.9               | % |   | 32.2 | % |   | 32.8 | % |   | 29.1 | % |   | 33.2 | % |
| Capital expenditures(5)                               |   |                                                     | 247                |   |   | 218 |   |   | 165 |   |   | 317 |   |   | 309 |   |
| Acquisition of interest in   equity affiliate(6)      |   |                                                     | 275                |   |   | —   |   |   | —   |   |   | —   |   |   | 370 |   |
| Goodwill impairment in   investee(7)                  |   |                                                     | —   |   |   | —   |   |   | —   |   |   | 136 |   |   | —   |   |
| Depreciation and depletion                            |   |                                                     | 117                |   |   | 89 |   |   | 72 |   |   | 51 |   |   | 52 |   |
| Cash flow provided by (used   in):                    |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating   activities                                |   |                                                     | 223                |   |   | 255 |   |   | 238 |   |   | 185 |   |   | 234 |   |
| Investing   activities                                |   |                                                     | (615               | ) |   | (148 | ) |   | (97 | ) |   | (260 | ) |   | (1,002 | ) |
| Financing   activities                                |   |                                                     | 505                |   |   | (258 | ) |   | 39 |   |   | 36 |   |   | 525 |   |
|                                                  |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                  |   | **For the   Years Ended December 31,**                   |               |
|                                                  |   |                                                          |               |
|                                                  |   | **2005**                                                 |               | **2004** |   | **2003** |   | **2002** |   | **2001** |   |
|                                                  |   |                                                          |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| **OPERATIONAL DATA**                                  |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number of employees (at   year end)                   |   |                                                     | 3,620              |   |   | 3,624 |   |   | 3,702 |   |   | 3,848 |   |   | 3,767 |   |
| Nominal production capacity   (thousand metric tons): |   |                                                     |               |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Pulp                                                  |   |                                                     | 1,400              |   |   | 1,400 |   |   | 1,150 |   |   | 850 |   |   | 800 |   |
| Paper                                                 |   |                                                     | 635                |   |   | 610 |   |   | 580 |   |   | 580 |   |   | 580 |   |
| Sales volumes (thousand metric   tons):               |   |                                                     | 1,493              |   |   | 1,459 |   |   | 1,175 |   |   | 906 |   |   | 913 |   |
| Domestic market:                                      |   |                                                     | 506                |   |   | 515 |   |   | 477 |   |   | 521 |   |   | 522 |   |
| Market   pulp                                         |   |                                                     | 80                 |   |   | 80 |   |   | 77 |   |   | 82 |   |   | 85 |   |
| Paper                                                 |   |                                                     | 426                |   |   | 435 |   |   | 400 |   |   | 439 |   |   | 437 |   |
| Printing   and writing                                |   |                                                     | 331                |   |   | 338 |   |   | 313 |   |   | 353 |   |   | 357 |   |
| Other   specialty papers(8)                           |   |                                                     | 95                 |   |   | 97 |   |   | 87 |   |   | 86 |   |   | 80 |   |
| International market:                                 |   |                                                     | 987                |   |   | 944 |   |   | 698 |   |   | 385 |   |   | 391 |   |
| Market   pulp                                         |   |                                                     | 787                |   |   | 764 |   |   | 530 |   |   | 253 |   |   | 258 |   |
| Paper                                                 |   |                                                     | 200                |   |   | 180 |   |   | 168 |   |   | 132 |   |   | 133 |   |

|   |     |
|--------|-----|
|   | (1) | Based on the weighted   average number of shares outstanding for each period.  Following the reverse stock split of our   shares and ADSs on October 18, 2004, we have retroactively adjusted all   shares and ADS data to reflect the reverse split.  For additional information on earnings per share, see   Note 2(k) to our consolidated financial statements and “Item   5A—Operating Results.” |
|   | (2) | Dividends paid per shares   in U.S. dollars.  Dividends per share   were adjusted to reflect the reverse stock split that occurred in October   2004. |
|   | (3) | Includes current and non-current portions. |
|   | (4) | Excludes current portion of long-term debt. |
|   | (5) | Represents cash expenditures for acquisition of   property, plant and equipment, excluding the investment in Aracruz Celulose   S.A. |
|   | (6) | Includes the excess of the cost of investment in   Aracruz Celulose S.A. (2001) of US$155 million over the underlying fair value   of net assets on the acquisition of a 12.35% interest in the total capital of   Aracruz Celulose S.A. Consistent with Statement of Financial Accounting   Standard (SFAS) No. 142 “Goodwill and Other Intangible Assets,” this excess   has not been amortized.  Includes the   acquisition cost of investment of 23.03% indirect interest in Ripasa S/A   Celulose e Papel (2005) for a total amount of US$275 million. |
|   | (7) | Pursuant to Accounting Principles Board Opinion No.   18, “The Equity Method of Accounting for Investment in Common Stock,” we   reduced the carrying value of our investment in Aracruz Celulose S.A. to   quoted market value at December 31, 2002.    This impairment provision of US$136 million (gross of deferred income   tax effects of US$46 million) was charged directly to income (“Equity loss of   investee”). |
|   | (8) | 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, such as label papers, finish foil, soap wrapping   papers, etc. |

5

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**Exchange Rates**

          On March 4, 2005, the National Monetary Council (CMN) of the Brazilian Central Bank issued resolutions 3265 and 3266 setting forth important modifications to the Brazilian exchange market.  Changes turned the Brazilian exchange market into a more flexible one and, consequently, made the Brazilian market more competitive.  The main changes set forth by the two resolutions can be summarized as follows: 

          Both Brazilian foreign exchange markets, the floating rate exchange market (Mercado de Câmbio de Taxas Flutuantes) and free rate exchange market (Mercado de Câmbio de Taxas Livres), were unified into a unique exchange market.  The free rate exchange market was used mainly for import and export transactions and foreign investment, while the floating rate exchange market was mainly used for transfers of funds from or to Brazil.  

          Most trade and financial foreign-exchange transactions, including transactions relating to the purchase or sale of preferred shares or the payment of dividends with respect to preferred shares or ADSs, were carried out on the commercial market at the applicable commercial market rate.  Purchase of foreign currencies in the commercial market could only be carried out through a Brazilian bank authorized to buy and sell currency in that market.  In both markets, rates are freely negotiated but could be strongly influenced by intervention by the Brazilian Central Bank, or the Central Bank.

          In 2001 and 2002, the *real* depreciated by 16% and 34%, respectively, against the U.S. dollar.  In 2003, 2004 and 2005 the *real*appreciated 22%, 9% and 13%, respectively against the US dollar.  Resolution No. 3,265 by the National Monetary Council, dated March 4, 2005, consolidated the foreign exchange markets into one single exchange market, effective as of March 14, 2005.  According to this Resolution, all foreign exchange transactions must be carried out through institutions authorized to operate in the consolidated market and are subjected to registration with the Central Bank’s electronic registration system.  Foreign exchange rates continue to be freely negotiated.  As of June 21, 2006, the commercial market rate for purchasing U.S. dollars was R$ 2.2378 to US$ 1.00.  We cannot assure you that the *real* will not devalue or appreciatesubstantially in the near future.  See “Item 5—Operating and Financial Review and Prospects—Overview—Brazilian Economic Environment.”

          The following table shows the commercial selling rate for U.S. dollars for the periods and dates indicated.  

|                        |   | **Exchange   Rate of *Reais*   per US$ 1.00** |   |
|-----------------------------|--------|-----------------------------------------------|--------|
|                        |   |                                               |   |
| **Year Ended December 31,** |   | **Low**                                       |   | **High** |   | **Average(1)** |   | **Period-end** |   |
|                             |   |                                               |        |   |  |  |   |  |  |   |  |  |   |
| 2001                        |   |                                          | 1.9357 |   |   | 2.8007 |   |   | 2.3523 |   |   | 2.3204 |   |
| 2002                        |   |                                          | 2.2709 |   |   | 3.9552 |   |   | 2.9203 |   |   | 3.5333 |   |
| 2003                        |   |                                          | 2.8219 |   |   | 3.6623 |   |   | 3.0775 |   |   | 2.8892 |   |
| 2004                        |   |                                          | 2.6544 |   |   | 3.2051 |   |   | 2.9263 |   |   | 2.6544 |   |
| 2005                        |   |                                          | 2.1633 |   |   | 2.7621 |   |   | 2.4357 |   |   | 2.3407 |   |

| **Exchange Rate of *Reais*per US$1.00 - Month Ended** |   | **Low** |   | **High** |   |
|-------------------------------------------------------|--------|---------|--------|----------|--------|
|                                                       |   |         |        |     |        |  |   |
| December 31, 2005                                     |   |    | 2.1800 |     |   | 2.3735 |   |
| January 31, 2006                                      |   |    | 2.2116 |     |   | 2.3407 |   |
| February 28, 2006                                     |   |    | 2.1182 |     |   | 2.2217 |   |
| March 31, 2006                                        |   |    | 2.1067 |     |   | 2.2238 |   |
| April 30, 2006                                        |   |    | 2.0892 |     |   | 2.1542 |   |
| May 31, 2006                                          |   |    | 2.0586 |     |   | 2.3711 |   |
| June 21, 2006                                         |   |    | 2.2378 |     |   | 2.3018 |   |

|   |                               |
|--------|-------------------------------|
|   | Source:    Central Bank. |
|   | (1)                           | Represents the daily average exchange rate during   each of the relevant periods. |

**B.  Capitalization and Indebtedness**

          Not applicable.

6

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**C.  Reasons for the Offer and Use of Proceeds**

          Not applicable.

**D.  Risk Factors**

          We are subject to various risks resulting from changing competitive, economic, political and social conditions that could harm our business, results of operations or financial condition.  The risks described below are not the only ones we face.

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

***          The market prices for our products are cyclical***.  

          The prices we are able to obtain for our products depend on prevailing world prices for market pulp and paper.  World prices have historically been cyclical and subject to significant fluctuations over short periods of time depending on a number of factors, including: 

|   | • | worldwide demand for pulp and paper products;                   |
|--------|--------|-----------------------------------------------------------------|
|   |   |                                                            |
|   | • | worldwide production capacity and inventories;                  |
|   |   |                                                            |
|   | • | the strategies adopted by major pulp and paper   producers; and |
|   |   |                                                            |
|   | • | the availability of substitutes for our products.               |

All of these factors are beyond our control.  After reaching a peak of approximately US$ 700 per ton in the second half of 2000, market pulp prices began to fall in 2001 due primarily to a significant drop in demand and a slowdown of the U.S. economy.  After stabilizing in the third quarter of 2002, prices fell in the fourth quarter of 2002 because seasonal factors resulted in higher inventories.  Due to seasonal factors, in the beginning of the third quarter of 2003, prices declined again to US$ 530 per ton in the United States, US$ 490 per ton in Europe and US$ 450 per ton in Asia.  In January 2004, due to a reduction in purchase volumes at the end of 2003, bleached eucalyptus kraft pulp, or BEKP, prices declined to US$ 440 per ton in Asia, US$ 490 in Europe and US$ 525 in the United States.  However, in the first quarter of 2004, demand for pulp increased, especially in Europe and Asia, which caused an increase in prices in all regionsthat quarter.  In April 2004, market pulp price was US$ 530 per ton in Asia, US$ 565 in the United States and US$ 550 in Europe.  However, markets were more resistant to new price increases, due to high inventory levels in China and resistance to paper price increases in Europe.  These conditions led to successive reductions in pulp prices over the third quarter of the year, closing at US$ 450 per ton in Asia, US$ 490 per ton in Europe and US$ 555 per ton in the United States.  As demand improved, international pulp prices began to increase in November of 2004 and in January, March and April of 2005, reaching US$ 570 per ton in Asia, US$ 600 per ton in Europe and US$ 635 per ton in the United States.  These prices remained stable during the second half of 2005, except in Asia where the price fell by US$ 30 in the second half of the year.  The price of paper products, although less volatile than the price of pulp, experiences fluctuations in response to global demand andproduction and fluctuations in pulp prices.  During 2005 paper prices in the European and North American markets had not increased to match the increases in pulp prices since the fourth quarter of 2004.  Therefore, margins in paper prices have continued to be low in those markets.  The first quarter of 2006 was marked by capacity adjustments and shut-downs, combined with a continuous expansion in global demand, which improved the international scenario, even during the northern-hemisphere winter, bringing prospects of new price increases.  In February, eucalyptus pulp prices went up by US$ 19 per ton in all regions.  In May we increased our price in the Asian markets to US$ 590 per ton.  The capacity adjustments also occurred on the paper side, and in the first half of 2006 we saw paper prices increasing for several grades in the United States and Europe.

          It is possible that the market prices for pulp and paper will decline in the future, or that there will not be sufficient demand for our products to enable us to operate our production facilities in an economical manner.  

7

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***          A demand slowdown in China may adversely affect our exports***.  

          China has been an increasingly important market to us since the expansion of our pulp exports in 2002. According to the Pulp and Paper Products Council (PPPC) the market pulp demand in China grew to 6.3 million tons in 2005, a 4.5% increase over 2004, and represented 13.5% of the world pulp demand in 2005, compared to approximately 2% in 1995.  China represents approximately 14% of our total export volume and 10% of our total sales volume.  There is no assurance that demand by China for pulp will sustain its current pace of growth in the future or that China will continue to constitute a significant part of our exports.

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

          The pulp and paper industry is highly competitive.  Competitive features within the industry include the following: 

|   | • | in the domestic paper market, we face competition   from larger international companies that have greater ability to support   strategic expenditures directed to increase market share; and |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                         |
|   | • | in the international pulp and paper markets, we   compete with larger competitors that have greater financial strength and   higher production capacities.                                   |

          Traditionally, imports of pulp and paper have not provided substantial competition for us in Brazil due to, among other factors, logistical costs, tariff rates and exchange rates on those products.  If the Brazilian government decreases import tariffs, we may face a sudden increase in competition in the domestic market by foreign producers.  

          In addition, most markets are served by several suppliers, often from different countries.  Many factors influence our competitive position, including mill efficiency and operating rates and the availability, quality and cost of wood, energy, water, chemicals and labor, and exchange rate fluctuations.  See “ Item 3D—Risks Relating to Brazil-- Exchange rate instability may adversely affect our financial condition and results of operations and the market price of our preferred shares and ADSs.”  Some of our competitors have greater financial and marketing resources, larger customer bases and greater breadth of product offerings than we do.  If we are unable to remain competitive with these producers in the future, our market share may be adversely affected.  In addition, downward pressure on the prices of pulp and paper by our competitors may affect ourprofitability.  

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

          As part of our strategy to increase our international market share and improve our competitiveness through greater economies of scale, we may expand one or more of our production facilities.  The expansion of a production facility involves various risks.  These risks include engineering, construction, regulatory and other significant challenges that may delay or prevent the successful operation of the project or significantly increase our costs.  Our ability to complete successfully any expansion project on time is also subject to financing and other risks.  

          We may be adversely affected because: 

|   | • | we may not be able to complete any expansion project   on time or within  budget;                                |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                  |
|   | • | our new or modified facilities may not operate at   designed capacity or may cost more to operate than we expect; and |
|   |   |                                                                                                                  |
|   | • | we may not be able to sell our additional production   at attractive prices.                                          |

8

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***          We may be adversely affected by the imposition and enforcement of more stringent environmental regulations that would require us to spend additional funds***.  

          We are subject to stringent environmental laws and regulations in Brazil governing air emissions, effluent discharges, solid wastes, odor and reforestation, and we require permits from governmental agencies for certain of our operations.  Changes in these laws and regulations could adversely affect us.  If we violate or fail to comply with these laws, regulations and permits, we could be fined or otherwise sanctioned by regulators or our permits could be revoked, and our ability to operate could be suspended or otherwise adversely affected.  In addition, noncompliance with these laws, regulations and permits could result in criminal sanctions for us and for our employees.  We could also be responsible for related environmental remediation costs, which could be substantial.  

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

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

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

          Our insurance may be insufficient to cover losses that we might incur.  We have comprehensive insurance with leading insurers to cover damages to our mills caused by fire, general third-party liability for accidents and operational risks and international and domestic transportation.  However, we do not maintain insurance coverage against fire, disease and other risks to our forests.  In each of the past three years, forest fires have not resulted in material damages of our total planted area.  The occurrence of losses or other damages not covered by insurance or that exceed our insurance limits could result in significant unexpected additional costs.  

          ***If we are unable to manage potential problems and risks related to acquisitions and alliances, our business and growth prospects may suffer***.  ***Some of our competitors may be better positioned to acquire other pulp and paper businesses.***

          We may, as part of our business strategy, acquire other businesses in Brazil or elsewhere or enter into alliances.  Our management is unable to predict whether or when any prospective acquisitions or alliances will occur, or the likelihood of a material transaction being completed on favorable terms and conditions.  Our ability to continue to expand successfully through acquisitions or alliances depends on many factors, including our ability to identify acquisitions and negotiate, finance and close transactions.  Even if we complete future acquisitions: 

|   | • | we could fail to successfully integrate the   operations, services and products of any acquired company;  |
|--------|--------|-----------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                      |
|   | • | we could fail to select the best partners or fail to   effectively plan and manage any alliance strategy; |
|   |   |                                                                                                      |
|   | • | the acquisitions could increase our costs;                                                                |
|   |   |                                                                                                      |
|   | • | our management’s attention could be diverted from   other business concerns; and                     |
|   |   |                                                                                                      |
|   | • | we could lose key employees of the acquired company.                                                      |

          Our failure to integrate new businesses or manage new alliances successfully could adversely affect our business and financial performance.  Furthermore, the world pulp and paper industry is undergoing consolidation, and many companies compete for acquisition and alliance opportunities in our industry.  Some of our competitors have greater financial and other resources than we do.  This may reduce the likelihood that we will be successful in completing acquisitions and alliances necessary for the expansion of our business.  In addition, any major acquisition we consider may be subject to regulatory approval.  We may not be successful in obtaining required regulatory approvals on a timely basis or at all.  See “Item 4A—Information on VCP—History and Development of VCP.”

9

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***          We are controlled by a defined group of individuals who have the power to control all our subsidiaries and us***.  

          We are controlled by the Ermírio de Moraes family, which indirectly controls all of our outstanding common voting shares.  Consequently, our controlling shareholders have the power to control us and all of our subsidiaries, including the power to: 

|   | • | elect our directors; and                                                                                                                                                                                              |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                  |
|   | • | determine the outcome of any action requiring   shareholder approval, including transactions with related parties, corporate   reorganizations and dispositions and the timing and payment of any future   dividends. |

          We engage in, and expect from time to time in the future to engage in, commercial and financial transactions with our controlling shareholders or their affiliates.  Commercial and financial transactions between our affiliates and us create the potential for, or could result in, conflicts of interests.  For a discussion of certain related party transactions, see “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions.”

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

          We rely on third parties for the technology that we use to make some of our value-added paper products.  For example, Oji Paper of Japan has granted us the right to use its technology to manufacture and sell certain thermal papers in Brazil and to sell these products in some other countries.  If a third-party licensor of technology that we use refused to continue licensing its technology to us, our results of operations could be adversely affected.

***          Various other risks could have a material adverse effect on our financial results***.  

          Our operations are subject to various other risks affecting our forests and manufacturing processes, including fire, drought, disease, climate changes, strikes, post closings, shipping costs, electrical failures and factory explosions, which could have a material adverse effect on our financial results.  

**Risks Relating to Brazil**

***          Brazilian economic and political conditions and perceptions of these conditions in the international market have a direct impact on our business and the market price of our preferred shares and ADSs***.  

           Our operations are conducted in Brazil, and in 2005 we sold approximately 34% of our products in terms of volume to Brazilian customers.  Accordingly, our financial conditions and results of operations are substantially dependent on economic conditions in Brazil.  Brazil’s gross domestic product grew by 0.5% in 2003, 4.9% in 2004 and 2.3% in 2005.  We cannot assure you that gross domestic product will increase or remain stable in the future.  Future developments in the Brazilian economy may affect Brazil’s growth rates and, consequently, the consumption of pulp and paper.  As a result, these developments could impair our business strategies, financial condition or results of operations.  

          In the past, the Brazilian government has intervened in the Brazilian economy and occasionally made drastic changes in policy.  The Brazilian government’s actions to control inflation and effect other policies have included wage and price controls, currency devaluations, capital controls, and limits on imports.  Our business, financial condition and results of operations may be adversely affected by changes in government policies as well as general economic factors, including:

|   | • | currency fluctuations; |
|--------|--------|------------------------|
|   |   |                   |
|   | • | inflation;             |

10

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|   | • | price instability;                                                                      |
|--------|--------|-----------------------------------------------------------------------------------------|
|   |   |                                                                                    |
|   | • | energy policy;                                                                          |
|   |   |                                                                                    |
|   | • | interest rates;                                                                         |
|   |   |                                                                                    |
|   | • | tax policy; and                                                                         |
|   |   |                                                                                    |
|   | • | other political, diplomatic, social and economic   developments in or affecting Brazil. |

          Historically, the political scenario has influenced the performance of the Brazilian economy.  In the past, political crises have affected the confidence of investors and the general public, which resulted in economic deceleration and affected the trading prices of common shares issued by companies listed on the stock exchange.  At the end of 2002, Brazil elected a new president from the Workers’ Party, Luis Inácio Lula da Silva, known as Lula.  In the period leading up to and following President Lula’s election, there was substantial uncertainty regarding the policies that the new government would pursue, including the potential implementation of macroeconomic policies that differed significantly from those of the prior administration.  This uncertainty resulted in a loss of confidence in the Brazilian capital markets and a 34% devaluation of the *real* in2002.  In 2003, the *real* appreciated 22% against the U.S. dollar and an additional 9% and 13% in 2004 and 2005, respectively.  In addition, in October 2006, elections will be held in all states of Brazil and at the federal level to elect new state governors and a new president.  It is impossible to foresee the possible outcome of these elections, or how the new president’s policies would affect the Brazilian economy or our business.  We cannot predict whether the government will continue its current policies or will pursue different policies, whether these new policies, if implemented, will be effective, and how investors and the capital markets will react to them.  Any substantial negative reaction to the policies of the Brazilian government could adversely affect our business, financial condition, results of operations or prospects and the market price of our preferred shares and ADSs.

***          Inflation and certain governmental measures to combat inflation may contribute significantly to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets***.  

          Brazil has, in the past, experienced extremely high rates of inflation.  More recently, according to the *Índice Geral de Preços-Disponibilidade Interna*, or IGP-DI, a general price inflation index, the Brazilian general price inflation rates were 8%, 12% and 1% in 2003, 2004 and 2005, respectively.  Inflation itself and certain governmental measures to combat inflation in the past have had significant negative effects on the Brazilian economy.  Our cash costs and operating expenses are substantially all in *reais* and tend to increase with Brazilian inflation because our suppliers and providers generally increase prices to reflect the depreciation of the value of the currency.  If the rate of Brazilian inflation increases more rapidly than any rate of appreciation of the U.S. dollar, then, as expressed in U.S. dollars, our operating expenses may increase and(assuming constant U.S. dollar sales prices) our profit margins decrease.  In addition, high inflation generally leads to higher domestic interest rates, and, as a result, our costs of *real-*denominated debt may increase.  See “Item 5—Operating and Financial Review and Prospects—Overview—Brazilian Economic Environment.”

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

          Because a significant portion of our revenues and assets is denominated in *reais*and we have U.S. dollar-denominated debt and other liabilities, we may be adversely affected by any future devaluations of the *real* against the U.S. dollar.  The Brazilian currency has been devalued periodically during the last four decades.  See “Item 3—Key Information—Selected Financial Data—Exchange Rates.”

          Our production costs and operating expenses are substantially all in *reais* and will generally decrease, as expressed in U.S. dollars, as a result of any devaluation of the *real*.  If the rate of Brazilian inflation increases more rapidly than the rate of appreciation of the U.S. dollar against the *real*, then, as expressed in U.S. dollars, our operating expenses may increase and (assuming constant U.S. dollar sales prices) our profit margins decrease.  In addition, any significant devaluation of the *real* may produce exchange losses on unhedged debt denominated in foreign currency.

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          During 2001, the *real* experienced a period of significant devaluation, due in part to the economic and political uncertainties in Argentina, the global economic slowdown and the energy crisis in Brazil.  In 2001, the depreciation of the *real* relative to the U.S. dollar totaled 16%.  In 2002, the *real* depreciated 34% relative to the U.S. dollar, due in part to the continued economic and political uncertainties in emerging markets and the global economic slowdown.  In 2003 the *real* appreciated 22% against the U.S. dollar due to the positive results in Brazilian trade balance, which generated a record in excess of exports sales over imports, in addition to an increase in the confidence of the international markets, as compared to the period prior to the presidential elections.  In 2004 the *real* appreciated an additional 9% against U.S. dollar due to thepositive results in the Brazilian trade balance, positive finance inflow (due to high interest rate), lower external vulnerability and the weakness of the U.S. dollar against other currencies.  For the same reasons, we witnessed another 13% appreciation of the *real* against the U.S. dollar during 2005.

          The Central Bank has intervened occasionally to control unstable movements in the foreign exchange rate.  We cannot predict whether the Central Bank will continue to let the *real* float freely.  Accordingly, it is not possible to predict what impact the Brazilian government’s exchange rate policies may have on us.  We cannot assure you that the Brazilian government will not in the future impose a band within which the *real*/U.S. dollar exchange rate could fluctuate or set a fixed exchange rate, nor can we predict what impact such an event might have on our financial condition or results of operations.

          Devaluations of the *real* relative to the U.S. dollar also create additional inflationary pressures in Brazil that may negatively affect us.  They generally curtail access to foreign financial markets and may require government intervention, including recessionary governmental policies.  See “—Inflation and certain governmental measures to combat inflation may contribute significantly to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets.”  Devaluations also reduce the U.S. dollar value of distributions and dividends on our ADSs and the market price of our preferred shares and ADSs.

***          Developments in other markets may adversely affect the market price of our preferred shares and ADSs***.  

          The market for securities backed by Brazilian companies is influenced by economic and market conditions in Brazil and, to varying degrees, market conditions in other Latin American and emerging market countries.  Although economic conditions in such countries may differ significantly from economic conditions in Brazil, the reaction of investors to developments in these other countries may have an adverse effect on the market value of securities of Brazilian issuers.  Developments or conditions in other emerging market countries have at times significantly affected the availability of credit in the Brazilian economy and resulted in considerable outflows of funds and declines in the amount of foreign currency invested in Brazil.  Crises in other emerging market countries may hamper investor enthusiasm for securities of Brazilian issuers, including ours.  This could adversely affect thetrading price of the ADSs and our preferred shares and could also make it difficult for us to access the capital markets and finance our operations in the future on acceptable terms, or at all.

          In addition, recent speculation about future increases in U.S. interest rates has created volatility in the emerging markets.  Future increases in U.S. interest rates may adversely affect the market price of our preferred shares and ADSs.

**Risks Relating to Our Preferred Shares and ADSs**

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

          You may be adversely affected if the Brazilian government imposes restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and, as it has done in the past, on the conversion of the *real*into foreign currencies.  These restrictions could hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of preferred 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 will not take this type of or similar measures in the future.  Holders of our ADSs could be adversely affected by delays in, or a refusal to grant, any required governmental approval for conversion of *real* payments and remittances abroad in respect of the preferred shares, including the preferred shares underlying the ADSs.  In such a case, our ADS depositarywill distribute *reais* or hold the *reais* it cannot convert for the account of the ADS holders who have not been paid.  

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***          Exchanging ADSs for the underlying preferred shares may have unfavorable consequences.***

          The Brazilian custodian for the preferred shares must obtain an electronic certificate of registration from the Central Bank to remit U.S. dollars abroad for payments of dividends, any other cash distributions, or upon the disposition of the preferred shares and sales proceeds related thereto.  If you decide to exchange your ADSs for the underlying preferred shares, you will be entitled to continue to rely, for five business days from the date of exchange, on the ADS depositary’s electronic certificate of registration.  Thereafter, you may not be able to obtain and remit U.S. dollars or other foreign currencies outside Brazil upon the disposition of the preferred shares, or distributions relating to the preferred shares, and you will generally be subject to less favorable tax treatment on gains with respect to the preferred shares, unless you obtain your own electronic certificate ofregistration with the Central Bank, under Resolution No. 2,689 of January 26, 2000 of the National Monetary Council, which entitles foreign investors to buy and sell on the Brazilian stock exchanges.  If you attempt to obtain your own electronic certificate of registration, you may incur expenses or suffer significant delays in the application process.  Obtaining an electronic certificate of registration involves generating significant documentation, including completing and filing various electronic forms with the Central Bank and the CVM.  In order to complete this process, the investor will need to appoint at least one representative in Brazil with powers to perform certain actions relating to the foreign investment and will usually need to have a consultant or an attorney who has expertise in Central Bank and CVM regulations.  These expenses or delays could adversely impact your ability to receive dividends or distributions relating to the preferred shares or the return ofyour capital in a timely manner.  If you decide to exchange your preferred shares back into ADSs once you have registered your investment in the preferred shares, you may deposit your preferred shares with the custodian and rely on the ADS depositary’s electronic certificate of registration, subject to certain conditions.  We cannot assure you that the ADS depositary’s electronic certificate of registration or any certificate of foreign capital registration obtained by you may not be affected by future legislative or other regulatory changes, or that additional restrictions applicable to you, the disposition of the underlying preferred shares or the repatriation of the proceeds from disposition could not be imposed in the future.  See “Item 8—Financial Information—Dividend Policy and Dividends—Payment of dividends.”

***          The relative volatility and illiquidity of the Brazilian securities markets may adversely affect holders of our preferred shares or ADSs.***

          Investments in securities, such as the preferred shares or the ADSs, of issuers from emerging market countries, including Brazil, involve a higher degree of risk than investing in securities of issuers from more developed countries.  

          The Brazilian securities market is substantially smaller, less liquid, more concentrated and more volatile than major securities markets in the United States.  Accordingly, the ability of the holders to sell the preferred shares underlying the ADSs at a price and time at which holders wish to do so may be substantially limited.  The São Paulo Stock Exchange (*Bolsa de Valores de São Paulo*), or BOVESPA, the main Brazilian stock exchange, had a market capitalization of approximately US$ 655 billion as of April 28, 2006, and an average daily trading volume of approximately US$ 420 million and US$ 667 million in 2004 and 2005, respectively.  In comparison, the New York Stock Exchange had a market capitalization of US$ 14.3 trillion as of April 28, 2006, and an average daily trading volume of approximately US$ 46.1 billion and US$ 56.1 billion for 2004 and 2005,respectively.

          There is also significantly greater concentration in the Brazilian securities market than in major securities markets in the United States.  The ten largest companies in terms of market capitalization represented approximately 52% of the aggregate market capitalization of BOVESPA as of April 28, 2006.  The top ten stocks in terms of trading volume accounted for approximately 54.9% and 46.6% of all shares traded on BOVESPA, in  April 2005 and April 2006, respectively.

***          Because we are subject to specific rules and regulations as a Brazilian company, holders of our preferred shares or ADSs have fewer and less well defined shareholders’ rights than investors in U.S. companies.***

          Our corporate affairs are governed by our by-laws and the Brazilian corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as Delaware or New York, or in certain other jurisdictions outside Brazil.  In addition, your rights or the rights of holders of the preferred shares under the Brazilian corporate law to protect your interests relative to actions taken by our board of directors or the holders of common shares may be fewer and less well defined than under the laws of other jurisdictions outside Brazil.  

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          Although Brazilian law imposes restrictions on insider trading and price manipulation, the Brazilian securities markets are not as highly regulated and supervised as the securities markets in the United States or certain other jurisdictions.  In addition, rules and policies against self-dealing and regarding the preservation of shareholder interests may be less well developed and enforced in Brazil than in the United States, potentially disadvantaging holders of our preferred shares and ADSs.  When compared to Delaware general corporation law, the Brazilian corporate law and practice have less detailed and less well established rules and judicial precedents relating to the review of management decisions under duty of care and duty of loyalty standards in the context of corporate restructurings, transactions with related parties and sale-of-business transactions.  In addition, shareholdersmust hold 5% of the outstanding share capital of a corporation to have standing to bring shareholders’ derivative suits, and shareholders ordinarily do not have standing to bring a class action.  

          Also, in accordance with Brazilian corporate law and our by-laws, holders of our preferred shares, and therefore of our ADSs, are not entitled to vote at meetings of our shareholders except in limited circumstances.  See “Item 10—Additional Information—Memorandum and Articles of Association.”

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

          You may not be able to exercise the preemptive rights relating to the preferred shares underlying your ADSs unless a registration statement under the Securities Act of 1933, as amended, or the Securities Act, is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available and the ADS depositary determines to make the rights available to you.  We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement.  Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the ADS depositary or, if the preemptive rights cannot be sold, the rights will be allowed to lapse.  See “Item 10—AdditionalInformation—Exchange Controls—Preemptive Rights.”

**ITEM 4.  INFORMATION ON VCP**

**A.  History and Development of VCP**

          We are incorporated under the laws of the Federative Republic of Brazil under the name Votorantim Celulose e Papel S.A., as a corporation with unlimited duration.  We have the legal status of a *sociedade por ações,*or a stock corporation, operating under the Brazilian corporate law.  Our principal executive offices are located at Alameda Santos, 1357, 6th floor, 01419-908, São Paulo, SP, Brazil (telephone:  55-11-2138-4168/4261/4287).  Our agent for service of process in the United States is CT Corporation, 111 Eighth Avenue, New York, New York 10011.

          Currently, our industrial facilities consist of two integrated pulp and paper mills, Jacareí and Luiz Antônio, and two facilities exclusively dedicated to paper production, Piracicaba and Mogi das Cruzes, all located in the state of São Paulo.  At December 31, 2005, our installed capacity was 1,400,000 tons per year of pulp and 635,000 tons per year of coated, uncoated and specialty papers.  Approximately 68% of our paper sales volume and 9% of our pulp sales volume are sold to the domestic market.

          We also have a paper distribution division, KSR, with an extensive product line, including graphic papers and products.  We have an automated, modern warehouse system that permits efficient distribution and that is supported by a specialized transportation fleet for deliveries throughout Brazil.

          Our activities began in 1988 when the Votorantim group purchased Celpav Celulose e Papel Ltda*.*, or Celpav, a pulp and paper producer based in the state of São Paulo.  We began production in 1991 after expanding and modernizing our facilities.  In September 1992, the Votorantim group purchased Indústrias de Papel Simão S.A., or Papel Simão.  In 1995, Celpav became a subsidiary of Papel Simão, and Papel Simão changed its name to Votorantim Celulose e Papel S.A.  We later transferred our operating assets to Celpav and, in July 1999, Celpav was merged into VCP.

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          In 1991, our annual capacity was 350,000 tons per year of pulp and 280,000 tons per year of paper.  With the acquisition of Papel Simão, the Votorantim group added 220,000 tons of pulp and 250,000 tons of paper to the annual pulp and paper production capacity, respectively.  Following the acquisition of Papel Simão, the Votorantim group’s combined pulp and paper operations constituted the third largest in Brazil in terms of sales.  We further increased our pulp production capacity by 230,000 tons in 1996 with the addition of a new pulp production line at the Jacareí mill.  We also added a new coater in 1996 at the Piracicaba mill, which increased our annual production capacity of thermal and carbonless paper to 40,000 tons per year and further production optimizations in 2001 raised the production capacity by 50,000 tons of pulp per year.  Our annual productioncapacity of coated paper increased to 175,000 tons per year with the addition of a new coater at the Jacareí mill in 1997 and the addition of a new on-line coater at the Piracicaba mill in 1998.  As a result of these additions and other optimization projects, our paper production capacity reached 635,000 tons per year in 2005.

**          **On December 29, 1999, we sold our 51% stake in Indústria de Papel de Salto Ltda., or Salto, to Arjo Wiggins Participações e Comércio Ltda., a subsidiary of Arjo Wiggins S.A., a French company, for a cash payment of US$ 23 million.  Salto produced security, industrial and other specialty papers, including paper used for bank notes, checks, identification cards, vouchers and bibles.  Under the terms of the sale agreement, we are obligated to indemnify Arjo Wiggins against certain losses in excess of amounts recorded.  In December 2004 we amended the agreement in which we were obligated to indemnify Arjo Wiggins.  The obligations are now limited to US$ 6 million.  We guarantee these obligations with a letter of guarantee in the amount of US$ 6 million through 2007.  To date, we have not paid any amounts under this indemnification provision, andwe believe any amounts paid will not be significant.  We realized a gain of US$ 13 million on this sale.

**          **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 that time, we sold 2,047,648 ADSs and certain of our shareholders sold the remaining 5,872,352 ADSs.  Concurrently, 440,000,000 preferred shares were sold in Brazil.

          On August 14, 2000, our board of directors approved the Jacareí expansion, which has expanded the pulp production capacity at our Jacareí mill by approximately 570,000 metric tons, raising our total current annual installed capacity from 850,000 in 2002 to 1.40 million metric tons per year in 2005.  The Jacareí expansion project included reforestation projects, which were completed at the same time as the Jacareí expansion.  We had invested a total of US$ 495 million in the Jacareí expansion.  The government-owned development bank, Banco Nacional de Desenvolvimento Econômico e Social—BNDES, or BNDES, financed part of our investment in the Jacareí expansion.  See “Item 4—Information on VCP—Property, Plant and Equipment—Expansions.”  

          On October 3, 2001, we purchased 28.0% of the voting shares (representing 12.35% of the total capital) of Aracruz Celulose S.A., or Aracruz, from the Mondi Group, for approximately US$ 370 million.  Aracruz is a Brazilian pulp exporter whose ADSs trade on the New York Stock Exchange under the symbol “ARA.”  We acquired our interest in Aracruz in order to increase our exposure to the international pulp market, and we accounted for this investment under the equity method.  We financed this acquisition with a bridge loan in the amount of US$ 370 million in 2001, which was refinanced in May 2002 with a US$ 380 million syndicated loan and fully paid in 2005.  See “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources—Debt.”  Our acquisition of 28% of Aracruz’s voting shares was unconditionally approved by theConselho Administrativo de Defesa Econômica, known as CADE, the Brazilian antitrust regulator, on November 25, 2003.  We reduced the book value of our investment in Aracruz to market price value at December 31, 2002.  The impairment provision of US$ 136 million was determined based on the market price of US$ 18.56 for the Aracruz ADRs on December 31, 2002, and it was charged directly to income.  On May 24, 2006, the market price for the Aracruz ADRs was US$ 47.48.

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          We do not expect to have significant operational involvement at Aracruz at this time.  A subsidiary of ours became a party to the Aracruz shareholders’ agreement, along with BNDESPAR, the Lorentzen Group and the Safra Group.  Under the shareholders’ agreement, our subsidiary is entitled to and has appointed three directors to the Aracruz board of directors, which currently consists of ten directors.  The shareholders’ agreement, which expires on May 11, 2008, provides that the maximum number of shares of voting stock of Aracruz to be held by any party to the shareholders’ agreement may not exceed 28% of the total outstanding shares of voting stock of Aracruz.  In addition, the shareholders’ agreement requires that each person or entity who acquires shares of voting stock of Aracruz from any of the parties to the shareholders’ agreement become a party tosuch agreement.  

          On December 1, 2001, VCP Exportadora e Participações S.A., or VCP Exportadora, indirectly acquired VCP North America Inc., incorporated in Delaware, United States, or VCP North America, and VCP Trading N.V. incorporated in Curaçao, or VCP Trading, from Votorantim International Holding N.V., for US$ 50,000 and US$ 30,000, respectively, for the purpose of centralizing our commercial operations in VCP Exportadora.  

**          **In January 2002, we incorporated VCP Florestal, which assumed all of the assets and liabilities relating to our forestry operations.  In March 2002, we incorporated VCP Overseas Holding KfT, or Overseas Holding, our wholly owned subsidiary incorporated in Hungary.  In June 2002, we incorporated St. Helen Holding III, B.V., located in Curaçao.

          In February 2003, Arapar S.A. and Lorentzen Empreendimentos S.A., collectively Grupo Lorentzen, on the one hand, and SODEPA, on the other hand, as shareholders of Aracruz, entered into an agreement pursuant to which each party agreed not to sell its shareholding in Aracruz without the consent of the other.

          As of December 31, 2003, we had a 50% stake in each of Voto-Votorantim I and Voto-Votorantim II.  We also had three wholly owned subsidiaries, VCP Terminais Portuários S.A., VCP Exportadora and VCP Florestal.  In April 2001, we incorporated VCP Exportadora as a wholly owned subsidiary, and in the fall of 2001 we incorporated Newark, which was used to acquire our interest in Aracruz.  

          In November 2004, we signed an agreement with Suzano Bahia Sul Papel e Celulose S.A., or Suzano, for the acquisition of the common and preferred stock of Ripasa S.A. Celulose e Papel, or Ripasa.  On March 31, 2005, we finalized the acquisition, through a 50% joint venture, of 77.59% (our interest – 38.795%) indirect interest in the voting capital and 46.06% (our interest – 23.03%) indirect interest in the total capital of Ripasa, for US$ 275 million.  A purchase option was also signed for the option to purchase 37,449,084 common shares and 12,388,719 preferred shares, totaling 22.41% of the voting stock and 13.45% of the total stock, to be exercised within six years, for a total amount of US$ 160 million.

          On January 26, 2005, in an Extraordinary General Meeting, our shareholders determined that VCP Florestal be merged into us to achieve cost reductions and increased business synergies between the two companies.  VCP Florestal was dissolved as a result of the merger and we succeeded it with respect to all rights and obligations thereof.  There was no increase in our capital stock as a result of the merger as we owned all the shares of VCP Florestal.

          On July 20, 2005, VCP and Suzano announced a corporate restructuring to be implemented in Ripasa, which would allow that company’s minority shareholders (around 1,300 shareholders) to migrate to VCP and Suzano in the following proportions (based on independent valuations):  each Ripasa preferred share would correspond to 0.0627 VCP preferred shares plus 0.1450 Suzano class “A” preferred shares, and each Ripasa common share would correspond to 0.0627 VCP preferred shares plus 0.1450 Suzano common shares.  This restructuring was examined by the CVM, which imposed no obstacles or restrictions on its realization; however, the restructuring was suspended by judicial decision.  Given the potentially lengthy period of time needed to reach a favorable outcome and the fact that the synergies generated by the acquisition of Ripasa are not being fully realized, on April 26, 2006, VCPand Suzano, in order to settle the judicial action and implement the restructuring, entered into an agreement with the group of Ripasa’s preferred shareholders, who had brought the action to block the acquisition.  Once the terms of the agreement are implemented and the restructuring is concluded,   Ripasa’s minority shareholders will receive shares of VCP and Suzano plus a complementary amount in cash equivalent to R$ 1.0538 for each Ripasa preferred share in their possession on the date of registration. The purchase of Ripasa is being analyzed by Brazilian antitrust authorities and is subject to their review and approval.  See “Competition” for more details about the Ripasa transaction.

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          In November 2005, we announced the beginning of the social and environmental licensing process for the implementation of a bleached eucalyptus pulp factory to be built in Rio Grande do Sul.  If implemented, this unit will occupy an area of approximately 450 to 500 hectares, located in the region of Rio Grande-Pelotas-Arroio Grande.  Overall investment in the factory and in the forest base is estimated at US$ 1.3 billion, and the expected annual volume is one million tons of pulp. We expect that an environmental licensing study will be completed in 2007.  The basic engineering and the technical proposals will be developed in 2008 and 2009, when the project will be approved by our board of directors.  

          In February 2006, we announced that Standard & Poor’s Ratings Services (S&P) assigned its ‘BBB-’ foreign and local currency global scale corporate credit ratings to VCP, an investment grade rating category.  According to S&P, the outlook is stable for VCP, which reflects the assumptions that VCP will improve its financial performance by 2006 based on the recovery of the domestic paper sector; will continue to adopt a prudent financial policy, presenting comfortable levels of cash holdings; and will start to show debt de-leverage at the same pace as its debt amortization, depending on future investment opportunities.

          In April 2006, for administrative and economic reasons, we merged VCP Exportadora e Participações S.A., VCP’s wholly owned subsidiary, into us and assumed all of the assets and liabilities relating to its export operations.

**Capital Expenditures**

          Our capital expenditures totaled US$ 247 million in 2005, US$ 218 million in 2004 and US$ 165 million in 2003.  The increase in capital expenditures from 2003 to 2005 was mainly due to large investment in a new forest reserve (land acquisition and plantation) in Rio Grande do Sul State, in the south of Brazil.  

          Although currently we do not have specific capital expenditure plans for future expansion projects, besides the new forest in the south of Brazil and debottlenecking of Jacareí Mill, we believe that the consolidation of our participation in Ripasa as a production unit, with 50% of volumes being sold by VCP, the corresponding synergies and our prior investments in our own facilities will allow us to continue to grow and continue to undertake our business plan.

          The table below sets forth a breakdown of our most significant capital expenditures for the periods indicated:

|                                                      |   | **For the   years ended December 31,** |   |
|-----------------------------------------------------------|--------|----------------------------------------|--------|
|                                                      |   |                                        |   |
|                                                      |   | **2005**                               |   | **2004** |   | **2003** |   |
|                                                      |   |                                        |        |   |  |  |   |  |  |   |
|                                                      |   | **(in US$   millions)**                |   |
| Expansion                                                 |   | US$                                    | 32     |   | US$ | 27 |   | US$ | 33 |   |
| Forests (includes land   purchase)                        |   |                                   | 131    |   |   | 112 |   |   | 65 |   |
| Improvements/modernization                                |   |                                   | 35     |   |   | 33 |   |   | 23 |   |
| Other (includes maintenance   and information technology) |   |                                   | 49     |   |   | 46 |   |   | 44 |   |
|                                                      |   |                                        |        |   |  |  |   |  |  |   |
| Total                                                     |   | US$                                    | 247    |   | US$ | 218 |   | US$ | 165 |   |
|                                                      |   |                                        |        |   |  |  |   |  |  |   |

          As part of our capital investment program for 2006, we intend to invest US$ 65 million in land acquisition and planting in Rio Grande do Sul, continuing our strategy of building a forest base in the south of Brazil and US$ 46 million for the debottlenecking of the Jacareí mill, that is expected to increase by 150,000 tons the pulp capacity of the mill over the 2005 to 2007 period.  We are also in the process of purchasing more land for forestry plants to reduce our dependence on raw materials from third parties.  The following table shows the estimated breakdown of planned capital expenditures during 2006, which is expected to be financed by cash generated from operations and by existing cash:

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|                                                      |   | **US$ in   millions** |   |
|-----------------------------------------------------------|--------|-----------------------|--------|
|                                                      |   |                       |        |   |
| Expansion projects                                        |   | $                     | 46     |   |
| Forests (includes land   purchase)                        |   |                  | 118    |   |
| Improvements/modernization                                |   |                  | 27     |   |
| Other (includes maintenance   and information technology) |   |                  | 34     |   |
|                                                      |   |                       |        |   |
| Total                                                     |   | $                     | 225    |   |
|                                                      |   |                       |        |   |

**B.       Business Overview**

          We are one of the largest pulp and paper products companies in Brazil and the leading Brazilian producer of wood-free printing and writing papers and specialty papers in terms of net sales and total assets, according to Bracelpa.  We produce eucalyptus pulp, which is a high-quality variety of hardwood pulp.  In 2004 and 2005, we sold approximately 61% and 63%, respectively, of our pulp production to third parties, and we use the remainder internally to manufacture a wide range of printing and writing paper products, including coated and uncoated printing and writing papers, thermal papers, carbonless papers and other specialty papers.  Exports account for more than half of our 2005 revenues.  In 2004 and 2005, we sold approximately 65% and 66%, respectively, of our pulp and paper tonnage outside of Brazil.

**Operations**

          Our total sales volume was 1,175,003 tons in 2003, 1,459,079 in 2004 and 1,492,527 tons in 2005.  Our net revenues were US$ 816 million in 2003, US$ 1,010 million in 2004 and US$ 1,130 million in 2005.

          In 2005, 34% of the volume and 50% of total sales were derived from the domestic market compared to 35% and 51%, respectively, in 2004 and 41% and 54%, respectively, in 2003.  In the pulp market, the domestic market accounted for 9% of the sales volume and 8% of the revenues derived from pulp in 2005.  In the paper market, the domestic market accounted for 68% of the sales volume and for 76% of the revenues derived from paper in 2005.  The table below sets forth the percentages of our net revenues in 2005, 2004 and 2003 that correspond to the domestic and export markets and the breakdown by product of our net revenues:

|                 |   | **2005** |   | **2004** |   | **2003** |   |
|----------------------|--------|----------|--------|----------|--------|----------|--------|
|                 |   |          |        |     |        |          |   |  |  |   |
| **Sales by market**  |   |     |   |     |   |     |   |   |   |   |
| Domestic             |   |     | 50     | %        |   | 51       | %      |   | 54 | % |
| Export               |   |     | 50     | %        |   | 49       | %      |   | 46 | % |
| **Sales by product** |   |     |   |     |   |     |   |   |   |   |
| Market   Pulp        |   |     | 39     | %        |   | 38       | %      |   | 34 | % |
| Paper                |   |     | 61     | %        |   | 62       | %      |   | 66 | % |

          In 2005, we produced 1,378,000 tons of eucalyptus pulp compared to 1,347,000 tons in 2004 and 1,166,100 tons in 2003.  In 2005, we sold 866,951 tons of this production as market pulp to third-party producers and we used the remainder to manufacture paper products.  Our production and related U.S. dollar-based exports of pulp also increased during 2005.  We sold US$ 275 million in 2003, US$ 385 million in 2004 and US$ 439 million in 2005.  The increase in our market pulp revenues from 2003 to 2005 was mainly due to the learning curve process of the new pulp line.

          In 2005, our sales volume of paper products increased to 625,576 tons from 614,648 tons in 2004.  This increase in sales is mainly explained by higher efficiency of production.  For the same reason, in 2004, our sales volume of paper products increased to 614,648 tons from 568,103 tons in 2003.  Uncoated and coated printing and writing paper sales accounted for 73% of our total paper products revenues in 2005 and 74% of our total paper products revenues in 2004.  The remainder of our revenues from paper products in 2005 and 2004 were made up of sales of special and chemical (thermal and carbonless) paper, accounting for 27% in 2005 and 26% in 2004 of paper sales.  Our printing and writing papers are used for a variety of business supplies, including notebooks, books, continuous forms, labels, brochures and magazines.  Our estimated market share in Brazil in 2005, based ondata from Bracelpa, was 33% (or 43% when adding 50% of Ripasa’s share) for coated papers, 24% (33% when including Ripasa’s share) for uncoated cut-size papers and 17% (24% when including Ripasa’s share) for uncoated offset papers.  We sold 32% of our total printing and writing paper sales volume outside of Brazil in 2005 (29% in 2004).

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**Our Ownership Structure**

          We are part of the Votorantim group, one of the largest privately held Brazilian groups of companies.  The Votorantim group was founded in 1918 by Senator José Ermírio de Moraes and is controlled by the Ermírio de Moraes family.  The three core businesses of the Votorantim group are cement, aluminum and pulp and paper.  The Votorantim group is also involved in other industries, including metallurgy, financial services, chemicals and agribusiness.  In 2005, pulp and paper accounted for approximately 18% of the Votorantim group’s net revenues as measured under Brazilian GAAP.  The following chart shows our ownership structure as of December 31, 2005: 

          

|                                                                                                                                                                                                                                                                                                  |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1          Our   immediate parent company is Votorantim Participações S.A., or VPAR, which in   turn is ultimately controlled by Hejoassu Administração Ltda., which is   controlled by the Ermírio de Moraes family. |

**Our Business Strategy**

          We intend to be one of the leaders in the pulp and paper industry, building on our competitive strengths with the aid of the Votorantim Management System (SGV – Sistema de Gestão Votorantim) in order to create sustainable value to our shareholders.  The principal components of our strategy are to: 

|   | • | be an important player in the international pulp   market, leveraging the structural competitive advantages in Brazil;                                                                        |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                          |
|   | • | have presence in the global reprographic paper   market;                                                                                                                                      |
|   |   |                                                                                                                                                                                          |
|   | • | consolidate our leadership position in the growing   regional market for wood-free printing, writing, copying and specialty   papers;                                                         |
|   |   |                                                                                                                                                                                          |
|   | • | expand our production capacity through both mill   expansion and strategic acquisitions, alliances and joint ventures to meet   increased demand in both the domestic and export markets; and |
|   |   |                                                                                                                                                                                          |
|   | • | achieve sales of 4 million tons per year of market   pulp and 2 million tons per year of printing and writing papers by 2020.                                                                 |

19

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**          ***Expand our presence in the international pulp market*

          We intend to take advantage of our competitive strengths to increase our market share in the international pulp market.  In 2005, we sold approximately 91% of our market pulp tonnage outside of Brazil (91% in 2004), compared to 2% in 1996 when we began exporting.  The high forest yields due to climate and soil conditions in Brazil, the short harvest cycle, the high technology, productivity and sustainability of our forest operations and our use of cloning methods are important competitive advantages over producers in many other countries, and allow us to play an active and competitive role in the global pulp market.  Our investment in Aracruz and the Jacareí expansion reinforce our presence in the international pulp market.  Our investment in a new forest base in the South of Brazil is the source for future organic growth in the pulp business.  

*          Maintain our leadership position in the growing regional market for coated, thermal and carbonless papers*

          We are currently a market leader for value-added papers, such as coated papers, in Brazil.  We are also one of the market leaders for uncoated printing and writing paper in Brazil.  We expect domestic demand to grow along with the expected growth in the economy of Brazil over the next few years.  In order to consolidate our market position, we focus on long-term relationships with our customers by seeking to increase our understanding of our customers and their industries and to tailor our products to their specific needs.  Our investment in Ripasa strengthens our presence in the domestic coated and uncoated market.

*          Continue to shift our paper sales mix toward higher margin products*

          We believe that an improved product mix with more value-added products can increase operating margins even if average paper prices do not improve significantly.  In addition, these products are subject to less cyclical price variations.  Therefore, we seek to increase our production of value-added paper products, such as coated, thermal, carbonless and other specialty papers; our sales of these papers increased to approximately 50% of our net paper sales in 2005, from approximately 33% in 1997.  We are producing higher margin products to replace products that Brazilian consumers previously had to import, such as labels for beer and soft drinks.

          We have developed our production facilities for thermal and carbonless papers through a licensing arrangement with a leading producer in the area of chemical papers, Oji Paper, which allows us to benefit from Oji Paper’s technology.  We expect to continue to benefit from an increase in domestic demand, as well as to gain market share from imports of coated and specialty papers, which have become less competitive due principally to the continuous devaluation of the *real* from January 1999 through 2002.  Continuing a trend that initiated in 2003, in 2004 and 2005, we estimate that we lost approximately 7% of our coated paper domestic market share mainly to imports, which became more competitive as the *real* appreciated against the U.S. dollar.  We plan to take advantage of the opportunity to recover our market share when the *real* depreciates or stabilizes against theU.S. dollar.  We also will continue to work closely with our customers to develop new products.

*          Increase operating efficiencies*

          We intend to remain a low-cost producer of pulp and paper by continuing our ongoing program to increase operating efficiencies and reduce operating costs per unit.  We intend to continue to:

|   | • | focus on reducing wood costs through increased   eucalyptus yields and reduced harvesting costs;                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                               |
|   | • | focus on improving the efficiency of our operations   through investment in harvesting equipment, production facilities and   advanced information technology; and |
|   |   |                                                                                                                                                               |
|   | • | improve information flow to facilitate   decision-making.                                                                                                          |

20

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*          Continue to develop state-of-the-art technology in the forest area*

          Technological research and improvement has made it possible to attain productivity records, together with less impact on the environment.  In the forest area, the gain in competitiveness is a result of the adoption of modern forestry practices and an intense research program.  Wood production per hectare reached 45-50 cubic meters, compared to 30 cubic meters recorded in 1987.  We use the most modern technology for planting, harvesting, storing and transporting with a completely mechanized system.  The genetic improvement of eucalyptus trees allowed for the plantings of clones of selected trees, resulting in higher productivity.  Today, 95% of planting is done with cloned seedlings. We have achieved speed, better seedling use and quality thanks to a pioneering procedure of multiplication of clones. 

**          ***Expand our forest and mill production capacity through both expansion and strategic acquisitions to meet increased demand in both the domestic and export markets*

          We intend to further increase our production capacity through both the expansion of existing facilities (including the Jacareí expansion) and strategic acquisitions.

          We are also investing in a new forest base in the south of Brazil, preparing fiber supply for future growth.  Between 1996 and 2005, the average annual rate of paper consumption in Brazil increased by 5.5%1.  In recent years, there has been a marked increase in paper consumption in Brazil.  We believe that demand for pulp and paper in the domestic and export markets will continue to grow over time.  We increased our pulp production capacity through our expansion project at our Jacareí mill to a production capacity of 1.4 million tons annually.  We expect to reach 1.5 million tons of pulp capacity after 2006, when the debottlenecking at the new line in Jacareí mill is completed.  We also closely monitor developments in the Brazilian and global pulp and paper industry.  We continue to pursue growth opportunities tocreate value for our shareholders through strategic acquisitions, alliances and joint ventures and we intend to participate in the continuing consolidation among pulp and paper producers, both domestically and internationally.

**Our Products**

          We produce a variety of pulp and paper products.  We produce pulp both for sale (market pulp) and for use in our paper production.  We sell hardwood bleached market pulp, both to the Brazilian domestic market and to the export market outside Brazil.  We produce coated and uncoated printing and writing paper and other specialty/chemical papers.  Within the printing and writing paper category, we produce cut-size, folio-size, and rolled products.  The following table sets forth the breakdown of our sales revenues for the periods indicated:

|                          |   | **Years   ended December 31,** |   |
|-------------------------------|--------|--------------------------------|--------|
|                          |   |                                |   |
|                          |   | **2005**                       |   | **2004** |   | **2003** |   |
|                          |   |                                |        |   |  |  |   |  |  |   |
| Market Pulp                   |   |                           | 39     | % |   | 38 | % |   | 34 | % |
| Paper:                        |   |                           |   |   |   |   |   |   |   |   |
| Uncoated   (P&W/Cut Size) |   |                           | 31     | % |   | 33 | % |   | 37 | % |
| Coated                        |   |                           | 14     | % |   | 12 | % |   | 13 | % |
| Specialty   / Chemical papers |   |                           | 16     | % |   | 17 | % |   | 16 | % |

**Pulp**

***          Production***

          The following table sets forth our total hardwood pulp production, total Brazilian hardwood pulp production, and our hardwood pulp production as a percentage of total Brazilian pulp production for the periods indicated:

|                          |
|--------------------------|
| 1 Source:  BRACELPA |

21

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|                                                                        |   | **Years   ended December 31,** |      |
|-----------------------------------------------------------------------------|--------|--------------------------------|-----------|
|                                                                        |   |                                |      |
|                                                                        |   | **2005**                       |      | **2004** |   | **2003** |   |
|                                                                        |   |                                |           |   |  |  |   |  |  |   |
| VCP’s production (in tons)                                             |   |                           | 1,372,000 |   |   | 1,346,840 |   |   | 1,166,100 |   |
| Total Brazilian production   (in tons)                                      |   |                           | 8,093,529 |   |   | 7,612,426 |   |   | 7,098,339 |   |
| VCP’s production as   percentage of total Brazilian    production |   |                           | 17.0      | % |   | 17.7 | % |   | 16.4 | % |

|                                                                                                                              |
|------------------------------------------------------------------------------------------------------------------------------|
| Sources:  Bracelpa and VCP.  Figures for Brazilian production changed due to updated reports released by Bracelpa. |

***          Sales***

          In 2005, we sold 866,951 tons of bleached pulp as market pulp to third parties in the domestic market and outside of Brazil.  We had a 14% share of the Brazilian domestic market for bleached hardwood pulp in 2005.  In recent years, however, we have sought to increase our sales of market pulp outside of Brazil.  In 2005, approximately 91% of our market pulp sales volume was to customers located outside of Brazil.  The following table sets forth our net sales of pulp to the export market by geographic region for the periods indicated:

|                     |   | **Year ended   December 31,** |               |
|--------------------------|--------|-------------------------------|--------------------|
|                     |   |                               |               |
|                     |   | **2005**                      |               | **2004** |   | **2003** |   |
|                     |   |                               |               |  |   |  |   |
|                     |   | **Tons**                      |               | **% of Total** |   | **Tons** |   | **% of Total** |   | **Tons** |   | **% of Total** |   |
|                     |   |                               |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
| North America            |   |                          | 75,987             |   |   | 9.7 |   |   | 85,544 |   |   | 11.2 |   |   | 85,566 |   |   | 16.1 |   |
| Latin America            |   |                          | 1,608              |   |   | 0.2 |   |   | 3,044 |   |   | 0.4 |   |   | —   |   |   | —   |   |
| Europe                   |   |                          | 474,484            |   |   | 60.3 |   |   | 347,371 |   |   | 45.4 |   |   | 238,978 |   |   | 45.1 |   |
| Asia/Middle East/Oceania |   |                          | 234,865            |   |   | 29.8 |   |   | 328,404 |   |   | 43.0 |   |   | 205,065 |   |   | 38.7 |   |
| Africa                   |   |                          | —   |   |   | —   |   |   | —   |   |   | —   |   |   | 339 |   |   | 0.1 |   |
|                     |   |                               |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Total   Exports          |   |                          | 786,944            |   |   | 100.0 |   |   | 764,363 |   |   | 100.0 |   |   | 529,948 |   |   | 100.0 |   |
|                     |   |                               |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |

          In 2005 Santher was our largest domestic customer of pulp, followed by Arjo Wiggins and IBEMA.  Georgia Pacific, APP China, M-Real and PKS were our largest customers of pulp outside of Brazil.

          Demand for our pulp has generally exceeded our production capacity even during cyclical downturns of the pulp industry, and, according to a study conducted in April 2006 by Hawkins Wright, an independent international consulting firm, the projected average demand growth in the world for bleached eucalyptus kraft pulp, or BEKP, is 6.8% per year from 2005 to 2010 (and 1.1% per year for the total white pulp demand), while the total white pulp capacity (including BEKP) projected average growth is 2.2% per year in the same period.

          We have long-term sales contracts with substantially all of our customers in the domestic and the export markets.  These contracts generally provide for the sale of our market pulp at prices we announce each month.  These prices may vary among the different geographic areas where our customers are located.  Usually the price arrangements under our long-term contracts are consistent with prices for our other sales within the same region and follow the established list price of BEKP announced by major global pulp producers.  The sales contracts provide for early termination in the event of a material breach, the insolvency of one of the parties or force majeure events of extended duration.

**Paper**

          Our paper products can be divided into three major categories:

|   | • | uncoated printing and writing papers;              |
|--------|--------|----------------------------------------------------|
|   |   |                                               |
|   | • | coated printing and writing papers; and            |
|   |   |                                               |
|   | • | carbonless and thermal and other specialty papers. |

22

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          The production and sale of uncoated printing and writing papers is our major line of paper business, accounting for approximately 51% of our total net paper sales and 90% of our paper exports in 2005 and 64% of our total net paper sales and 93% of our paper exports in 2004.  The following table provides a brief description of our principal paper products and lists the facilities where they are produced:

| **Product**                         |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                        |   | **Facility**                   |
|-------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|
|                                     |   |                                                                                                                                                                                                                                                                                                                                                                                                        |   |                                |
| Coated printing and writing paper   |   | Coated woodfree paper used for labels, self-adhesive,   flexible packaging markets and publishing sector (magazine, book and   catalogue) inserts brochures and other publications; pioneer line of coated   cut-size paper for small/home office market designed for printing of   high-resolution and high-quality images; coated paper to be used on labels   for plastic PET soft drink packaging. |   | Jacareí Piracicaba        |
|                                |   |                                                                                                                                                                                                                                                                                                                                                                                                   |   |                           |
| 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.                                                                                                                                                                                                                          |   | Luiz Antônio Jacareí |
|                                |   |                                                                                                                                                                                                                                                                                                                                                                                                   |   |                           |
| 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                     |
|                                |   |                                                                                                                                                                                                                                                                                                                                                                                                   |   |                           |
| Other specialty papers              |   | Our specialty papers include art paper for   catalogues, folders, letters, envelopes, etc.                                                                                                                                                                                                                                                                                                             |   | Mogi das Cruzes                |

|                    |
|--------------------|
| Source:  VCP. |

**Production**

          Production of paper is a multi-stage process, which begins with the production of its principal raw material, pulp, from wood.  Throughout the production process from wood to paper, various pulp and paper products are produced that may be converted by us into value-added products or sold.

          We employ advanced, automated harvesting equipment in our forests.  On easily accessible terrain, the harvesting process involves a feller-buncher that cuts and gathers a number of trees and lays them in bundles in the forest.  Branches are removed by advanced equipment.  A skidder then carries the trees to a track area, where a log cutter removes the tops, cuts the trees into logs and loads the logs on trucks for transportation to the mill.  On difficult terrain, a harvester cuts, de-limbs and debarks the trees, then cuts them into logs and stacks them in bundles in the forest.  A forwarder carries the bundles to a loading area, where a loader loads the logs on trucks for transportation to the mill.  Recently, we acquired a simulator to train harvest equipment operators, which lowers the number of hours dedicated to employee training, in addition to reducingequipment-operating time.

          The logs are transported by truck from the forests.  The logs are then taken by conveyor belt to be debarked and chipped.  The chips are sent to digesters, where they are mixed with chemicals and cooked under pressure.  During this process, lignin and resins are removed from the wood.  The removed lignin is used as fuel for the pulp mill.

          In 2001, we introduced a new, more efficient production process whereby wood chips for the production of pulp are produced at plantation sites using portable chipping equipment.  With these new chipping machines, we are able to carry out chipping in the forest and thereby improve tree utilization and reduce noise levels at the mill.  In addition, forest residues are returned directly to the plantation soil, contributing to the recycling of nutrients.  Approximately 30% of the wood required for the Jacareí mill is supplied in the form of chips directly from the forest.

23

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          The unbleached pulp is then sent through the oxygen delignification process and the chemical bleaching process.  The cellulose fibers are screened, pressed and dried.  The dried pulp is cut into sheets and baled, resulting in market pulp.  In recent years, pulp customers, particularly in Europe, have preferred pulp that is bleached with little or no chlorine compounds due to environmental concerns relating to the bleaching process.  All of the phases in the pulp production process that have reduced amounts of chlorine create effluents, which are sent to an effluent treatment station, where approximately 90% of the organic charge is removed.

          To produce printing and writing paper, we use 100% short-fiber eucalyptus bleached pulp.  Once in the paper mill, the pulp is sent to refiners, which increases the level of resistance of the fibers for the production of specific grades of paper.  Certain materials are then added to the refined pulp to strengthen and improve the quality of the paper.  These additives include synthetic sizing and precipitated calcium carbonate (the alkaline process).  The mixture is pumped to the paper machine where the paper is pressed and dried.  Finally, the resulting paper is sent to be finished in accordance with client specifications.

          The following table sets forth our paper production, total Brazilian paper production, and our total paper production as a percentage of total Brazilian production for the periods indicated:

|                                                                |   | **Year ended   December 31,** |      |
|---------------------------------------------------------------------|--------|-------------------------------|-----------|
|                                                                |   |                               |      |
|                                                                |   | **2005**                      |      | **2004** |   | **2003** |   |
|                                                                |   |                               |           |   |  |  |   |  |  |   |
| VCP’s production (in tons)                                     |   |                          | 676,000   |   |   | 660,740 |   |   | 672,953 |   |
| Total Brazilian paper and   paperboard production (in tons)         |   |                          | 8,597,716 |   |   | 8,452,411 |   |   | 7,811,137 |   |
| VCP’s production as   percentage of total Brazilian production |   |                          | 7.9       | % |   | 7.8 | % |   | 8.6 | % |

|                                                                                                                          |
|--------------------------------------------------------------------------------------------------------------------------|
| Sources:    Bracelpa and VCP.  Changes in   figures for 2003 and 2004 are due to report updates from Bracelpa. |

*          Printing and Writing Paper*.  According to Bracelpa, in 2005, we were Brazil’s third largest producer of uncoated offset paper and second largest producer of uncoated cut-size paper, and we ranked first in coated paper production.  During 2005, we produced 595,000 tons of printing and writing paper consisting of approximately 451,000 tons of uncoated and 144,000 tons of coated paper.  Our coated paper is used for a variety of purposes, including labels, inserts, brochures and magazine covers.  Uses for our uncoated paper include notebooks, books and continuous forms.  We produce coated and uncoated paper in reels and sheets and in cut-size paper.  We currently have estimated domestic market shares of 33%, 17% and 24% in the coated, uncoated (offset) and cut-size printing and writing markets, respectively.

          The following table sets forth our printing and writing paper production, total Brazilian printing and writing paper production and our production as a percentage of Brazilian production of such products for the periods indicated:

|                                            |   | **Year ended   December 31,** |      |
|-------------------------------------------------|--------|-------------------------------|-----------|
|                                            |   |                               |      |
|                                            |   | **2005**                      |      | **2004** |   | **2003** |   |
|                                            |   |                               |           |   |  |  |   |  |  |   |
| VCP’s production (in tons)                 |   |                          | 595,000   |   |   | 576,687 |   |   | 603,122 |   |
| Uncoated   paper (in tons)                      |   |                          | 451,000   |   |   | 444,052 |   |   | 488,787 |   |
| Coated   paper (in tons)                        |   |                          | 144,000   |   |   | 132,635 |   |   | 114,335 |   |
| Total Brazilian production   (in tons)          |   |                          | 2,414,014 |   |   | 2,364,565 |   |   | 2,273,201 |   |
| VCP’s percentage of   Brazilian production |   |                          | 24.6      | % |   | 24.4 | % |   | 26.5 | % |

|                                    |
|------------------------------------|
| Sources:    Bracelpa and VCP. |

24

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*          Carbonless and Thermal Papers*.  In 2005, we manufactured 60,000 tons of carbonless and thermal paper at our Piracicaba production facility.  We produce carbonless and thermal paper in reels and sheets for use as facsimile and medical paper as well as supermarket receipts, banking and commercial automation paper, bar code paper, toll tickets and commercial invoices.

          In addition, we have a technology transfer agreement with Oji Paper pursuant to which Oji Paper agreed to share secret formulae, processes, technical information and know-how developed by it for thermal paper.  The agreement also grants us an exclusive, non-assignable license to manufacture and sell certain thermal papers in Brazil and a non-exclusive, non-assignable license to sell such products in Latin America, Africa and the Middle East.    

*          Other Specialty Papers*.  We are one of the largest producers of specialty papers in Latin America.  In 2005, we produced 21,000 tons of other specialty papers from our Mogi das Cruzes facility, including art papers for catalogues, folders, letters and envelopes and finish foil for the furniture industry.

          The following table sets forth our carbonless, thermal and other specialty paper production, Brazilian carbonless, thermal and other specialty paper production as a total and our total production as a percentage of the total Brazilian production of such products for the periods indicated:

|                                                           |   | **Year ended   December 31,** |   |
|----------------------------------------------------------------|--------|-------------------------------|--------|
|                                                           |   |                               |   |
|                                                           |   | **2005**                      |   | **2004** |   | **2003** |   |
|                                                           |   |                               |        |   |  |  |   |  |  |   |
| VCP’s carbonless and   thermal paper production (in tons) |   |                          | 60,000 |   |   | 61,798 |   |   | 56,379 |   |
| VCP’s other specialty paper   production (in tons)        |   |                          | 21,000 |   |   | 22,264 |   |   | 13,452 |   |
|                                                           |   |                               |        |   |  |  |   |  |  |   |
| Total (in tons)                                                |   |                          | 81,000 |   |   | 84,062 |   |   | 69,831 |   |
|                                                           |   |                               |        |   |  |  |   |  |  |   |

|                        |
|------------------------|
| Sources:** **VCP. |

**Sales**

          We sell our paper products around the world.  The following table sets forth our net sales of paper to the export market by geographic region for the periods indicated:

|                            |   | **2005** |    | **2004**       |   | **2003** |   |
|---------------------------------|--------|----------|---------|----------------|--------|----------|--------|
|                            |   |          |    |                |   |          |   |
|                            |   | **Tons** |    | **% of Total** |   | **Tons** |   | **% of Total** |   | **Tons** |   | **% of Total** |   |
|                            |   |          |         |           |        |          |   |  |  |   |  |  |   |  |  |   |  |  |   |
| North   America                 |   |     | 66,551  |           |   | 33.3%    |   |   | 62,726 |   |   | 34.9% |   |   | 56,088 |   |   | 33.3% |   |
| Latin America(1)                |   |     | 53,767  |           |   | 26.9     |   |   | 43,756 |   |   | 24.4 |   |   | 32,251 |   |   | 19.2 |   |
| Europe                          |   |     | 61,173  |           |   | 30.7     |   |   | 53,889 |   |   | 30.0 |   |   | 47,469 |   |   | 28.2 |   |
| Middle   East/Asia/Africa/Other |   |     | 18,216  |           |   | 9.1      |   |   | 19,158 |   |   | 10.7 |   |   | 32,404 |   |   | 19.3 |   |
|                            |   |          |         |           |        |          |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Total Exports                   |   |     | 199,707 |           |   | 100.0    | %      |   | 179,529 |   |   | 100.0 | % |   | 168,212 |   |   | 100.0 | % |
|                            |   |          |         |           |        |          |   |  |  |   |  |  |   |  |  |   |  |  |   |

|                               |
|-------------------------------|
| (1)    Excluding Brazil. |

25

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          The following table sets forth our domestic sales of specialty, carbonless and thermal paper, Brazilian specialty, carbonless and thermal paper sales, and our sales as a percentage of Brazilian sales for such products for the periods indicated:

|                                                      |   | **Year ended   December 31,** |   |
|-----------------------------------------------------------|--------|-------------------------------|--------|
|                                                      |   |                               |   |
|                                                      |   | **2005**                      |   | **2004** |   | **2003** |   |
|                                                      |   |                               |        |   |  |  |   |  |  |   |
| VCP’s carbonless and   thermal paper sales (in tons) |   |                          | 60,669 |   |   | 62,076 |   |   | 57,961 |   |
| VCP’s other specialty paper   sales(1) (in tons)     |   |                          | 33,765 |   |   | 34,868 |   |   | 28,905 |   |
|                                                      |   |                               |        |   |  |  |   |  |  |   |
| Total (in tons)                                           |   |                          | 94,434 |   |   | 96,944 |   |   | 86,866 |   |
|                                                      |   |                               |        |   |  |  |   |  |  |   |

|                       |
|-----------------------|
| (1)                   | Includes sales of third-party products by KSR and   sales of specialty papers produced at the Mogi das Cruzes mill. |
| Source: ** **VCP |

          Printing and writing paper represents the largest category of paper exports from Brazil.  In 2004 and 2005, we exported 179,438 tons and 199,424 tons, respectively, of printing and writing paper, which primarily consisted of uncoated paper.

          The following table sets forth our exports and domestic sales of coated and uncoated papers for the periods indicated:

|                                         |   | **Year ended   December 31,** |      |
|----------------------------------------------|--------|-------------------------------|-----------|
|                                         |   |                               |      |
|                                         |   | **2005**                      |      | **2004** |   | **2003** |   |
|                                         |   |                               |           |   |  |  |   |  |  |   |
| VCP’s exports (in tons)                 |   |                          | 199,424   |   |   | 179,438 |   |   | 167,663 |   |
| Brazilian exports (in tons)                  |   |                          | 903,527   |   |   | 766,878 |   |   | 765,015 |   |
| VCP’s percentage of Brazilian   exports |   |                          | 22.1      | % |   | 23.4 | % |   | 21.9 | % |
| VCP’s domestic sales (in   tons)        |   |                          | 331,434   |   |   | 338,175 |   |   | 313,024 |   |
| Brazilian market (in tons)                   |   |                          | 1,496,003 |   |   | 1,568,887 |   |   | 1,420,189 |   |
| VCP’s percentage of   Brazilian market  |   |                          | 22.2      | % |   | 21.6 | % |   | 22.0 | % |

|                                    |
|------------------------------------|
| Sources:    Bracelpa and VCP. |

          The customer base for our paper products is very diversified.  None of our customers individually accounted for more than 10% of our domestic or international sales of paper products in 2005.

**Raw Materials**

***          Wood***

          Our pulp production is 100% based on bleached eucalyptus hardwood grown in sustainable forest plantations.  We use modern technologies that enable us to obtain high product quality in producing ECF pulp and VCF pulp.

          We rely exclusively on eucalyptus trees to meet our pulpwood requirements.  Eucalyptus trees in Brazil are among the fastest growing trees in the world.  High technology, climate and soil conditions in Brazil allow for eucalyptus tree harvest rotations of approximately seven years as compared to harvest rotations of approximately 10 to 12 years in Chile and up to 25 years in the United States.  The optimal time to harvest our trees is approximately seven years from the time of planting.  

***          Energy and chemicals***

          We use several sources to generate thermal and electrical energy for the pulp and paper production process, including biomass derived from wood debarking, chip screening rejects, fuel oil, natural gas and black liquor.  By producing electricity internally, we realize substantial savings compared to purchasing electrical energy in the open market.  In 2005, we generated approximately 59% of our energy requirements for the pulp and paper production process internally, of which 89% is from renewable fuels, such as biomass and black liquor, and 11% is from non-renewable fuels, such as fossil fuels (oil and gas).  Recovery boilers recycle substantially all of the chemicals used in the pulp production process.  We believe that our sources of supply will allow us to maintain a cost advantage in these areas for the foreseeable future.

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          In 2005 we purchased approximately 41% (34% in 2004) of our energy requirements from concessionaires, including CPFL—Companhia Paulista de Força e Luz (for the Luiz Antônio and Piracicaba facilities), Bandeirante (for the Jacareí and Mogi das Cruzes facilities) and Eletropaulo (for our headquarters), as well as from fuel oil and natural gas suppliers.  The increase in 2005 was due to a three month maintenance overhaul of a generator at the Luiz Antonio mill.  Approximately 37.7% of the voting shares of CPFL are indirectly owned by VBC, a joint venture that is 33% owned by VPAR, our indirect shareholder.  In 2006, we will start-up a new combined cycle gas turbine and heat recovery boiler in the Jacareí mill, and consequently will reduce the global percentage of our purchased electrical energy from 41% to around 25%.  We believe that the new gas turbine systemwill improve our already low dependence on external supplies of energy.  We believe our secure sources of supply will allow us to maintain a cost advantage in these areas for the foreseeable future.

          The pulp production process traditionally involved the use of elementary chlorine.  In recent years, demand for pulp that is bleached with little or no chlorine has grown significantly because of concerns over possible carcinogenic effects of chlorinated organic compounds released in water.  This pulp in which no elementary chlorine is used in its bleaching, is known as elementary chlorine-free pulp, or ECF.  It uses chlorine dioxide instead.  As a result, we only produce ECF pulp.  Our bleaching sequences are based mostly on oxygen compounds, such as oxygen, ozone and hydrogen peroxide, which are more environmentally friendly.  In addition, we have developed a bleaching process referred to as Votorantim chlorine-free, or VCF pulp, which utilizes a smaller amount of chlorine dioxide than the ECF process.  In 2005, 100% of our pulp was produced withoutthe use of elementary chlorine.

          At December 31, 2005, we had long-term “take-or-pay” contracts with suppliers of chemical products for periods from 1 to 13 years.  Our contractual obligations in connection with such contracts are US$ 35 million per year.  See note 14(d) to our financial statements.

          In June 2005, we established a contingency plan to minimize the risk of a reduction in the natural gas supply from Bolivia, given the political turbulence in that country.  The natural gas consumption represents approximately 6.5% of our energy requirements.  The contingency plan assumes that up to 65% of our natural gas needs would be rationed.  The plan involves the proportional transition of our energy needs from natural gas to fuel oil.  This is possible given the flexible energy sources.  The replacement of natural gas by fuel oil would imply an increase in the consumption of fuel oil in the Jacareí and Piracicaba mills; however the impact on costs would not be material, representing less than 1% of our operating costs.  In 2005, approximately 49% of the natural gas’ apparent consumption in Brazil was supplied by imports from Bolivia.  Our needs ofnatural gas are fully supplied by Comgás (Companhia de Gás de São Paulo).  Comgás participates in a committee created together with the Federal government to identify risks and alternatives to minimize the impact of any natural gas rationing of Brazil’s industry.  

***          Water***

          We presently require about 40 cubic meters of water per ton of pulp.  The costs of obtaining our water were not a significant component of our total cost of raw materials in 2005.  We get our water from several rivers in the state of São Paulo, Brazil, including the Paraíba do Sul, Piracicaba, Mogi Guaçu and Tietê.  We believe our average water supplies are currently adequate and that our water consumption per ton is very low; particular in the Jacareí mill (32 cubic meters per ton) because of that facility’s use of more modern technology.

          Beginning in 2003, the Brazilian government imposed tariffs on the industrial use of river water.  For the Paraíba do Sul River, which is located near the Jacareí mill, the levying of tariffs related to water consumption started in the beginning of 2003.  From our experience to date, the imposition of such tariffs has not had a significant impact on our production costs.  The levying of tariffs for water consumption from the Piracicaba River may begin in 2006 or early next year.  For the other rivers from which we use water, the imposition of tariffs is unlikely to start before 2007.

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**Transportation**

          We use trucks that are owned and operated by independent contractors to transport wood from our forests to our production facilities.  Our forests are located an average distance of 287 kilometers from our pulp mills.  We also use trucks owned and operated by third parties to transport finished pulp and paper products from our facilities to our customers in Brazil and other regions in Latin America or to the port of Santos.  Santos is located on the coast of the state of São Paulo approximately 380 kilometers from the Luiz Antônio mill and 150 kilometers from the Jacareí mill.

          In 1998, we obtained a concession from the state government of São Paulo to operate a terminal and a warehouse in Santos under a renewable ten-year operational lease agreement with CODESP, which is the government-owned corporation that owns and operates the port.  This lease was non-cancelable during the initial period and is set to expire in 2007.  In September 2003, an amendment to the agreement renewed it for another ten years from September 2007 to September 2017.  The terminal has facilitated the growth of our exports because it allows us to load vessels with pulp directly from our terminal, thereby significantly reducing freight and handling costs.  Our yearly expense for this has been approximately US$ 0.1 million, and future annual lease payments under the CODESP lease will also be approximately US$ 0.1 million per year.  There is no contingent rent under thecontract.  In addition, in 2001, we rented another warehouse at the terminal in Santos in anticipation of future increases of our pulp exports as a result of the Jacareí expansion.  This expanded our total warehouse area in Santos to 12,520 square meters from 9,550 square meters, and our total warehouse volume capacity in Santos increased to 38,000 tons from 28,000 tons.

          In December 2002, we signed a contract with MRS Logística S.A., or MRS, a private railway concession, in order to invest in a private railway from the Jacareí plant to the port of Santos to transport pulp to the port from the mill.  In March 2005, we signed another contract with MRS to transport wood to our Jacareí mill and also approved an investment to construct a railway terminal to receive this wood in the Jacareí plant.  The new wood terminal has been operational since October 2005 and has granted a relevant reduction on VCP’s wood transportation costs.  As part of our agreement with MRS in 2002 MRS was responsible for the reconstruction of the 27-kilometer railway and the investment in dedicated railway wagons, while we were responsible for the construction of the building of terminals inside the Jacareí plant and at the port of Santos.  Totalinvestment was approximately US$ 9.4 million and we were responsible for 50% of the costs incurred, which has been disbursed.  The pulp transportation agreement also requires the transportation of a minimum tonnage, equivalent to US$ 7.4 million per year, over a ten-year period.  For the wood transportation agreement, the minimum tonnage requirement is equivalent to US$ 1.3 million per year, starting in 2006.  In 2005, we shipped 800,000 tons of pulp and 30,000 tons of wood through MRS and paid US$ 8.4 million to MRS.  

          In 2003, we hired logistic operators for inbound and outbound products for the plants in Jacareí and Luiz Antônio.  These services were outsourced to TNT Logistics and Wilson & Sons operators.  Two logistics operators (Wilson Sons and TNT) were contracted to handle all the operational activities, from receiving the raw material to delivering the product to the final customer.  This has resulted in lower costs, gains of scale, lower investment in infrastructure and greater specialization in providing services to clients.  For the wood sector, a multi-model solution combines rail and road transport to deliver forestry products to the industrial units.  Through an agreement with MRS Logística, the pulp is transported by train from the Jacareí unit to the port of Santos.  This cuts logistical costs by 25% compared with road transport.  We operateour own terminal in the port of Santos which also cuts costs and brings flexibility in exporting.  For paper exports, a system of loading the products which are already in pallets ensures the integrity of the product, dispenses with the need for containers and makes the sales process more flexible since there is no need to wait for ships to become available or be completely loaded.  Another logistical advantage comes from KSR, a paper distribution unit which is the leader in the sector in Brazil.  KSR plays a strategic role by reaching all regions of Brazil and servicing clients in areas such as printing, editorial, stationery, copying, small business, converters (forms, notebooks), newspaper and public bodies.  KSR has 27 affiliates and an automated storage system which results in a fast service, supported by a specialist fleet which can make deliveries throughout Brazil.

          We are also developing multimodal wood shipment projects (which include transportation by train and trucks), which we named Door to Door, in a partnership with ALL – América Latina Logística, or ALL, which was implemented in September 2003 to bring wood from Guaíba (Rio Grande do Sul) to São Paulo.  We invested US$ 0.3 million in this project to adapt railway wagons to load wood.  

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**Marketing and distribution**

          We sell our pulp and paper products in both the domestic and export markets.  In 2004 and 2005, approximately 91% and 92%, respectively, of our sales volume of market pulp and 29% and 32%, respectively, of our sales volume of paper products were made outside of Brazil.  Our internal sales staff consists of 67 employees operating throughout Brazil.  In addition, 285 employees (including 100 independent sales agents) are assigned to KSR, which is our paper distributor.

          Through KSR and our internal sales staff, we focus on developing close, long-term customer relationships by meeting the customer’s specific requirements.  We constantly seek to increase our understanding of our customers and their industries and to tailor our products to their specific needs.  See “Item 5 – Operating and Financial Review and Prospects—Research and development, patents and licenses, etc.” for a detailed description of our technology upgrades in the area of customer relationships.

          In 2002, we completed the implementation of a new management information technology system.  This system uses an SAP database to monitor in real time our business performance in conjunction with certain external industry indicators.  We believe that this system has enabled our management to identify financial risks and measure operational performance against our strategic objectives.

          In addition, we have created several online portals for the distribution of our products and we participate in the industry portal, Pakprint, together with Indústrias Klabin de Celulose e Papel S.A., or Klabin, International Paper, Suzano/Bahia Sul and Ripasa, which allows customers to purchase our products and track their orders via an online marketplace.

***          Pulp***

          Our internal sales staff handles substantially all of our domestic market pulp sales.  We sell pulp to other Brazilian paper producers, including Fábrica de Papel Santa Therezinha S.A. (a company specialized in production of tissue and special paper) and Arjo Wiggins Ltda. (the largest producer of security and fine papers).  In addition, due to the expansion of the Jacareí facility, we are selling substantially more market pulp abroad.  In order to distribute and market this additional market pulp, we operate our own terminal at the port of Santos, and we have contracted with local agents abroad to sell this market pulp in the international market.  The delivery of pulp is done through proper equipment and logistics, providing high productivity in all stages of the process.

          In April 2001, we incorporated VCP Exportadora, a wholly owned subsidiary, which was formed to ensure that we are well positioned in the global market for the production of pulp and uncoated copying paper, and that we maintain our position as a leader for coated paper in our regional market.  In addition to being an important component of our growth, VCP Exportadora and its subsidiaries play an important role in establishing direct relationships with our customers worldwide.  We also expect to incorporate or use subsidiaries abroad that will provide better access to our international customers and their international financial markets and will act as vehicles for future acquisitions outside Brazil.  Currently, our pulp and paper products are distributed overseas through VCP Overseas; Newark Financial Inc., or Newark, a wholly owned subsidiary of VCP Exportadora; VCP North America and VCPTrading.  In April 2006, for administrative and economic reasons, we merged VCP Exportadora e Participações S.A., VCP’s wholly owned subsidiary, into us and assumed all of the assets and liabilities relating to its export operations.

          ***Paper***

          In 2005, approximately 68% of paper sales volume and 76% of our net revenues derived from paper came from the domestic market compared to 71% and 77%, respectively, in 2004.  We sell 16% of our paper products through KSR.  Domestically, KSR’s distribution network consists of 26 branches, which are strategically located with warehouses used for storage purposes, and a workforce composed of 100 independent sales agents.  In 2005, KSR was the segment leader in paper distribution in Brazil, with a market share of approximately 17% of the distribution sales.  Through KSR, we sell our paper products to approximately 18,000 customers, including small printers, stationery stores and industrial companies throughout Brazil, as well as the Brazilian government.  

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KSR also sells the products of other paper companies in areas where they do not compete with us, in both the export and domestic markets.  As a result, we are able to offer a wide range of complementary products, with prompt delivery.  In 2005, through KSR we had net revenues of US$ 112 million, representing 21% (US$ 95 million and 15%, respectively, in 2004) of our total consolidated paper sales in the domestic market.

          Sales of our products to our domestic customers are for cash, credit or through a program called the vendor program.  For purposes of this annual report, we have referred to our credit sales as the “non-vendor program.”

          The vendor program is available to some of our domestic customers, and approximately 22% of our domestic sales in 2005 were made by this method.  Under the vendor program, the customer agrees to pay the bank and the bank in turn pays us on behalf of the customer for the purchase price of the product.  We, as the vendor, act as a guarantor under the arrangement with the bank so that the customer can take advantage of lower interest costs.  The lower interest rate is a result of the bank typically looking to us, and not our individual customers, as the primary support for the credit risk.  The vendor program is a means by which the bank essentially finances customers’ purchases.

          A customer applying for the vendor program must first be approved by us.  If we determine that the customer is creditworthy, the customer enters into a standard-form agreement with the bank that is providing the financing, which is guaranteed by us.  The bank then forwards to us an amount of money equal to the purchase price of the products sold.  The standard-form agreement into which the customer enters with a bank specifies loan repayment terms that are generally more favorable than prevailing market rates because the customer receives the benefit of our financial strength through our guarantee.  We guarantee full repayment of the loan and, in the event of a customer default, the bank charges our cash account for the principal amount of the loan, plus interest, 15 days after the due date of the loan.  We closely monitor the collection of these amounts and are advised by thebank once amounts have been settled.  If we are called upon to settle the obligation with the bank, we pursue the customer through legal proceedings for final settlement of amounts due to us.  The accounting and management controls exercised over these “receivables” are no different from our systems in place to monitor our direct receivables due from direct sales customers.  We consider this vendor program to be an important component of our sales and marketing efforts and believe that the favorable credit terms we are able to offer our customers give us an additional competitive advantage.

          Additional tax benefits arise under this facility because the interest charged by the bank to the customer is not subject to the sales taxes that would otherwise accrue had we incorporated the finance charges into the sales value and billed the amount directly to our customer.

          Prior to October 1999, all of our customers that had good credit were allowed to purchase inventory on credit using either the vendor program or our payment terms.  We reviewed the customers’ payment history to determine how much credit we would extend to each customer, but, generally, the program was available to any customer that had an available credit limit and a good payment history with us.  Sales made under the vendor program were on the same terms as the cash price offered to that customer.  It was typically up to the customer to decide whether to pay cash, use the vendor program, or agree to the payment terms established by us.

          Under the terms of our vendor program, the maximum allowable term for payment is generally 180 days, though in the case of a few customers, we extend the term to 360 days.  The terms of the vendor program depend on the customer’s credit rating, which is based on our own internal credit review.

          We estimate that for 2003, 2004 and 2005, an average of approximately 2% of our total number of regular domestic customers (approximately 22%, 21% and 22%, respectively, of total domestic sales value) obtained our guarantee for their loans.  At December 31, 2005, we had 46 customers, but only 15 of them were active, under the vendor program, with the average amount per customer based on our vendor program exposure at US$ 9 million.  Our vendor program exposure was US$ 51 million at December 31, 2003, US$ 71 million at December 31, 2004 and US$ 57 million at December 31, 2005.

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          In October 1999, as part of our credit risk policies, we introduced more stringent credit risk criteria for the selection of customers to which we sell through the “vendor program.”  The selection criteria were established based on an internal credit score ranking (general and financial credit risk evaluation criteria).  Once we receive a sales order, we contact one of five banks with which we operate, and the bank arranges the terms and conditions of payment with the customer.  Since the implementation of this policy, we have reduced the customers to which we extend the vendor program from approximately 200 customers to approximately 50 customers.  This reduction was made due to the decline in bank charges and interest spreads (charged to customers by the banks) in Brazil and the resulting decrease in bank financing costs available directly to our customers.

          Historically, amounts of guarantees we have paid, net of amounts recovered from customers, have been negligible.  In 2005, 2004 and 2003, we recovered 100% of the amounts we paid under guarantees.  

          Our customers who make purchases using credit agree to payment terms that effectively include finance charges.  The finance charge on each sale is the difference between the amount the customer agrees to pay at the due date and the cash sales price.  The finance charges are recognized over the payment period and are included in financial income.

          We retain the same risk of loss on customer accounts under the vendor program that we do under our own non-vendor program.  To mitigate this risk, we continuously monitor the receivables under both programs and periodically update our assessment of each customer.  In addition, we continuously evaluate both vendor program receivables and our receivables for collectibility.

**Competition**

          The international markets for pulp and paper products are highly competitive and involve a large number of producers worldwide.  As an integrated pulp and paper producer, we compete not only with other integrated pulp and paper producers but also with companies that produce only pulp or paper.  Many of these producers have greater financial resources than we do.  Our production levels have been, and will continue to be small by comparison to overall world pulp and paper production, and the prices for our products will depend on prevailing world prices and other factors.

          According to Hawkins Wright (an “Outlook for Market Pulp” published in April 2006), at December 31, 2005, world market pulp capacity reached 51.5 million tons per year.  During 2005, capacity increased by 1.2 million tons per year, of which 0.4 million tons per year constituted bleached hardwood kraft pulp, mainly because of two hardwood mills in North America that were integrated to paper, representing an overall reduction of 785,000 tons of hardwood pulp.

          Based on 2005 net revenues of Brazilian pulp and/or paper producers, we were the second largest Brazilian producer, behind Aracruz.  In the domestic market, with respect to market pulp, we had the second largest Brazilian market share in terms of volume, with 14%, behind Lwarcel Celulose e Papel S.A., with 20%.

          According to Bracelpa, with respect to writing and printing uncoated paper, we were the third largest Brazilian producer in 2005 in terms of volume, producing more than Ripasa, but less than International Paper and Suzano/Bahia Sul.  In addition, in 2005, we were the leader in Brazil in the production of certain specialty papers and carbonless and thermal paper.  We had a leadership position in 2005 in coated paper in Brazil with a 33% market share followed by Ripasa and Suzano with a 20% market share.  Our main competitors in carbonless and thermal paper are located outside Brazil.

          On July 2, 2003, Aracruz announced the purchase of all shares of capital stock of Riocell S.A., or Riocell, from Klabin S.A. and Klabin do Paraná Produtos Florestais Ltda.  The Riocell mill is located in the state of Rio Grande do Sul.  Riocell produces bleached eucalyptus kraft pulp.  

          Aracruz and Stora Enso announced the start-up of their Veracel joint venture in May 2005 and full capacity was reached before year-end.  Bahia Sul announced that it would build a new 950,000 tons per year BEKP line, which would begin in the second half of 2007.

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          In November 2004, we signed an agreement with Suzano Bahia Sul Papel e Celulose S.A., or Suzano, for the acquisition of all of the common and preferred stock of  Ripasa.  On March 31, 2005, we finalized the acquisition, through a 50% joint venture, of 77.59% (our interest – 38.795%) indirect interest in the voting capital and 46.06% (our interest – 23.03%) indirect interest in the total capital of Ripasa, by the amount of US$ 278 million.  A purchase option was also signed for the sale of 37,449,084 common shares and 12,388,719 preferred shares, totaling 22.41% of the voting stock and 13.45% of the total stock, to be exercised within six years, for a total amount of US$ 160.31 million.  Following a restructuring of Ripasa, the remaining minority shareholders of Ripasa are expected to be issued a tender offer to exchange their shares for shares of VCP and Suzano. 

          The purchase of Ripasa is being analyzed by Brazilian antitrust authorities and is subject to their review and approval. The acquisition of the controlling stake in Ripasa by us and Suzano was completed on March 31, 2005.  Under the terms of the acquisition

|   | • | 129,676,966 common shares and 41,050,819 preferred   shares of Ripasa were acquired and paid for on March 31, 2005, representing   77.59% of the voting stock and 46.06% of the total stock, and                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                              |
|   | • | 37,449,084 common shares and 12,388,719 preferred   shares of Ripasa are to be acquired by purchase and sale options to be   exercised within six years, representing 22.41% of the voting stock and 13.45%   of the total stock. |

          On July 20, 2005, VCP and Suzano announced a reestructuring plan for Ripasa, including a delisting of Ripasa through a share exchange by VCP’s and Suzano preferred shares.  Each of Ripasa’s preferred shares will correspond to 0.0072 VCP preferred shares and to 0.0167 Suzano class “A” preferred shares.  The reasons for the restructuring are: (i) to permit Ripasa’s current minority shareholders to hold VCP and Suzano shares, which were more liquid than those of Ripasa; and (ii) to allow future reorganization of Ripasa, which will permit cost reductions, operational gains, enhanced competitiveness and economies of scale for the companies.  

          The restructuring plan was analyzed and approved by the CVM; however, certain minority shareholders filed a judicial action to suspended the process.  On April 26, 2006, VCP and Suzano entered into a judicial agreement with a group of Ripasa’s preferred shareholders, with the aim of settling  the claims challenging  Ripasa’s corporate restructuring,  and implementing the restructuring, once the conditions in the agreement were met.  

          Once the conditions of the agreement are met (including suspension of the ongoing legal procedures relating to the restructuring, and the absence of any decision, judicial or administrative, that prevents or hinders the restructuring, or renders it inadvisable) and the restructuring concluded, which is expected to occur in July 2006, VCP and Suzano will pay the group of minority shareholders R$ 1.0538 for each Ripasa preferred share held by them (corresponding to an additional US$ 38 million cash disbursement by VCP).  VCP’s capital increased, in 2006, by R$ 573,629.83 from R$ 2,478,582,123.76 to R$ 3,052,211,393.59, upon the issuance of 12,532,009 preferred shares with no par value.  The acquisition of the share control in Ripasa and its future transformation into a production unit is still under analysis by the Brazilian antitrust authorities.  

          For additional information on the Ripasa acquisition, see note 4 to the financial statements.

**Environmental policies**

          As part of our commitment to sustainable development, we plan to develop one of the largest forested areas in the state of São Paulo with approximately 210,000 hectares located near our industrial plants, of which approximately 40% has been preserved as native forest and/or set aside for environmental recovery.  In partnership with various universities, we conduct research and monitor the fauna and flora of the region.  By the end of 2005, VCP owned a forest area of 285,000 hectares (including the ones in the State of São Paulo), of which 43% are preserved as conservation areas with native forests.  For conservation areas, environmental planning may adopt the following options: Planting and recovery of native species; recovery by means of natural regeneration; soil recomposition and others.

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          Since 2001, we have implemented a new integrated policy for quality of the environment, health and safety, based on the following principles:

|   | • | to fulfill the needs and expectations of investors,   customers, suppliers, professionals, communities and other parties involved   in our business;                           |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                           |
|   | • | to operate responsibly and in compliance with laws,   regulations and corporate commitments;                                                                                   |
|   |   |                                                                                                                                                                           |
|   | • | to ensure the integrity, qualification and career   development of our employees; and                                                                                          |
|   |   |                                                                                                                                                                           |
|   | • | to provide continuous improvement in management   systems and processes, including the prevention and reduction of wastes, accidents   and adverse impacts on the environment. |

          We use technologies that process and bleach pulp and paper wood pulp with ozone, which minimizes water consumption and reduces effluents and organic chlorine compounds.

          We have an electronic system that monitors and coordinates all our environmental activities to facilitate operational control, management of environmental risks and compliance with legal requirements at the Jacareí plant.

          We obtained an ISO 14001 (environmental) certification for the forestry area and for the industrial area of the Jacareí mill on January 2004.  The Luiz Antônio industrial unit was ISO 14001 certified for quality environmental management standards in 2005.  All integrated industries, forestry areas in São Paulo and the port terminal of Santos are certified as conforming to international standards.

**Brazilian environmental regulation and investments**

          The federal constitution assigns to the federal government, the states, the federal district and the municipalities the responsibility for environmental protection and preservation of the Brazilian fauna and flora.  However, the authority to enact laws and issue regulations with respect to environmental protection is granted jointly to the legislative branches of the federal government, the states and the federal district.  The municipalities may only issue regulations with respect to matters of local interest or to supplement federal and state laws.  The state agency for pollution control in the state of São Paulo is CETESB—*Companhia de Tecnologia de Saneamento Ambiental*, or CETESB.  Pursuant to the pollution control laws of the state of São Paulo, as enforced by CETESB, the installation, construction or expansion, as well as the operation, of industrialequipment likely to cause pollution must be licensed by CETESB.

          A renewablelicensing system was introduced in São Paulo in December 2002, according towhich previously issued licenses shall be renewed upon CETESB’sconvocation.  .  The new licenses issued by CETESB under this systemshall be valid for periods of up to six years for installation licenses and tenyears for environmental licenses.  The use of efficient environmentalmanagement systems and the practice of environmental auditing are taken intoaccount by CETESB in granting longer validity terms for licenses. Our operationsare subject to various environmental laws and regulations issued by theseauthorities, including those relating to air emissions, effluent discharges,solid waste disposal, odor and reforestation.  During 2003, 2004 and 2005,our capital expenditures relating to environmental matters were approximatelyUS$ 20 million, US$ 7 million and US$ 23 million, respectively.  Capitalexpenditures were allocated to environmental projects and expenses.  Wecannot assure you, however, that the implementation of more stringentenvironmental regulations in the future will not require significant capital orother expenditures.  For a description of certain legal matters relating toenvironment regulation, see “Item 8—FinancialInformation—Consolidated Statements and Other FinancialInformation—Legal Matters.”

          In Brazil, individuals or legal entities that violate environmental laws can be punished by criminal sanctions that range from fines to imprisonment, in the case of individuals, or dissolution, in the case of legal entities.  In addition, administrative sanctions that can be imposed include, among others:

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|   | • | fines;                                                                                           |
|--------|--------|--------------------------------------------------------------------------------------------------|
|   |   |                                                                                             |
|   | • | partial or total suspension of activities;                                                       |
|   |   |                                                                                             |
|   | • | forfeiture or restriction of tax incentives or   benefits; and                                   |
|   |   |                                                                                             |
|   | • | forfeiture or suspension of participation in credit   lines with official credit establishments. |

          In addition to criminal and administrative sanctions, pursuant to Brazilian environmental laws, the violator must also repair the damage that was caused to the environment and/or indemnify third parties, regardless of the existence of actual fault.

          We have received a number of administrative warnings in the past five years for isolated violations of the maximum levels for emissions or effluents, including odors.  The largest payment we have made individually was related to a solid residue release that occurred on September 10, 2005, when an industrial embankment burst at the Jacareí unit and non-dangerous residues (class 2A) covered part of a road and a stream, causing reversible damage to the environment.  VCP took all necessary measures to reduce the damage to the environment and community.  VCP acted in a transparent manner by immediately notifying CETESB and other government agencies of the incident, as well as issuing a press release.  VCP was fined R$ 77,000 (or approximately US$ 32,000) by the government.  We developed a project to recover the industrial embankment and to reduce the damage to theenvironment,  representing an investment cost of approximately US$ 9 million, of which US$ 3 million were disbursed in 2005.

**          Environmental indicators**

          Our operating and production processes utilize natural resources and generate liquid effluents, residual wastes and air emissions which may adversely affect the environment.

          ***Liquideffluents***

          Water is critical to the process of manufacturing pulp and paper.  We obtain water from the rivers that flow adjacent to our mills.  After the water has been used in the manufacturing process, we pass the effluents through mechanical and biological treatments before returning them to the rivers.  We also have emergency lagoons and tanks that enable us to avoid releasing untreated effluents into the rivers in the event of a problem with our effluent process.  Effluent characteristics are monitored constantly through chemical, physical and biological analyses.  We also have a spill control system to avoid disturbances in the wastewater treatment plant.

          Each of our units uses a two-stage process to treat the effluents generated during the production process.  During the first stage, solids such as fibers, clay and carbonates are removed from the effluents.  During the second stage, these solids undergo a biological treatment in which suspended and dissolved materials are broken down through the action of microorganisms.  We hired a third party to evaluate the quality of the effluents generated during the production process and with the results of these analyses, we implement actions to minimize the generation of effluents and maximize the reutilization in the process.  Our industrial units are developing alternatives that seek to reduce the consumption of water and the generation of effluents by optimizing the production process and increasing the reuse and recirculation of water.  In Jacareí mill, the closing circuitproject reached a water reutilization rate of 85%.  In 2001, we completed construction of a new effluent treatment system at the Jacareí mill and completed an upgrade of the effluent treatment system at the Luiz Antônio facility.  For a description of the imposition of tariffs on river water use, see “—Raw materials—Water” above.

***          Solid wastes***

          We have identified productive uses for a portion of the solid waste generated during our pulp and paper production processes and have adopted the following programs for handling and disposal of such solid waste residue:

|   | • | co-processing with ceramic manufacturing companies   (Piracicaba and Jacareí mills); |
|--------|--------|-------------------------------------------------------------------------------------------|
|   |   |                                                                                      |
|   | • | licensed landfills (Jacareí and Mogi das Cruzes   mills); and                        |
|   |   |                                                                                      |
|   | • | use in forests as soil correction agents (Luiz   Antônio mill).                      |

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          With respect to the co-processing activities at our Piracicaba and Jacareí facilities, we use industrial residue as the raw material to manufacture bricks.  Currently, the facility’s solid waste residue is being recycled and used in ceramic factories around the city.  We are presently reevaluating alternatives for the recycling of organic residue for energy purposes, and we are installing selective waste collection and recycling systems for the common areas at the Mogi das Cruzes mill.  We started using these selective waste collections and recycling systems at the Jacareí facility in 2001 and the Piracicaba and Luiz Antônio facilities in 2002.

          The remainder of solid waste is either sold to third parties for use in their production processes or disposed of in sanitary landfills.  The small amount of hazardous waste generated at our facilities is collected, treated and disposed of in accordance with the requirements of Brazilian law.

***          Atmospheric emissions***

          As a byproduct of production, certain compounds and particulate emissions are released into the atmosphere.  In order to control these emissions, the sources of these emissions are fitted with control equipment such as electrostatic precipitators, multi-cyclones and gas scrubbers, which minimize or remove certain particles and compounds from the emissions.  In order to control odor emissions, our Jacareí and Luiz Antônio mills use an efficient system for collection and incineration of odoriferous, diluted and concentrated gases and are outfitted with an alternative gas scrubber removal system to be used when incineration is not possible.  In addition, the auxiliary boilers, which previously burned fuel oil, were adapted to burn natural gas in 2001.  The expansion of the Jacareí facility included similar equipment and processes to control emissions.

***          Forest preservation***

          All our wood comes from tree plantations rather than native forests.  The land we manage is generally not of high enough quality to be used for other forms of agriculture.  Our cultivation program seeks to preserve the health of our forests, and Brazilian law requires that at least 20% of our land either be covered with native forests or cultivated with indigenous species of trees rather than eucalyptus or pine.

***          Forestry Certification System***

          In October 2002, VCP received ISO 9001/2000 and ISO 14001 certifications for forests located in Capão Bonito and Jacareí regions.  In February 2004, Luiz Antônio Mill received the ISO certification.  In 2003, VCP Florestal started the process for the FSC Certification.  The process should take from 18 to 24 months, taking into account that the overhaul occurred in February 2005.  VCP Florestal aims to have around 30% to 40% of the pulpwood production certified.

***          Natural resources***

          Since the 1990s, we have been harvesting eucalyptus through uniform micro-propagated seedlings from carefully selected trees.  The characteristics of the seedlings we select are matched to different growing regions and our products.  This method allows us to (1) greatly increase forestry productivity, (2) comply with environmental regulations, and (3) contribute to carbon reduction in the atmosphere.

          Pursuant to the Brazilian Forestry Code (Law No. 4,771 of September 15, 1965), we set aside a portion of our forests for preservation, conservation and environmental recovery.  These areas consist of either native forests or riparian buffer zones, or are maintained to satisfy specific ecological interests.  We also invest in environmental studies, together with domestic and international universities, research centers and renowned consultants, in order to improve the environmental conditions of our plantations, and ensure that we protect the native fauna in the areas in which we operate.  We created a program designed to protect and preserve the fauna of areas with distinctive environmental aspects.  This program has been implemented at Fazenda São Sebastião do Ribeirão Grande, a large private native forest in the Vale do Paraíba region, and at Várzea doJenipapo in the Ribeirão Preto region.

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**          Insurance**

          We maintain insurance policies for our mills against fire, lightning and explosion by any cause up to US$ 176 million and electrical damages up to US$ 451,000.  We renewed this insurance on December 1, 2005.  However, we do not maintain insurance against fire, disease and other risks to our forests.  We have taken steps to prevent fires from occurring at our forests, including the maintenance of fire observation towers, a fleet of fire engines and teams of fire-fighting personnel, which we believe are safe and cost-effective methods of fire prevention.  Given the natural protection afforded by the dispersion of our forests, we do not believe that insuring our forests would be cost-effective.  We do not make provisions for risks of loss from fire and other casualties.  We expense for the necessary amount when the damage is incurred.  We have not suffered a material lossfrom either fire or disease in the forests that we harvest.  

**Overview of the Pulp and Paper Industry**

***          Pulp Industry Overview***

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

          There are two types of wood pulp that can be produced.  Hardwood pulp is produced using hardwood trees, such as eucalyptus, aspen, birch and acacia.  Pulp made from hardwood, such as eucalyptus, has short fibers and is generally better suited to manufacturing coated and uncoated printing and writing papers, tissue and coated packaging boards.  Short fibers are the best type for the manufacture of wood-free paper with good printability, smoothness, brightness and uniformity.  Softwood pulp is produced using softwood trees, such as pines and fir.  Pulp made from softwoods has long fibers and is generally used in manufacturing papers that require durability and strength, such as kraftliner, and those requiring high opacity, such as newsprint and directory papers.  We produce only hardwood pulp from planted eucalyptus trees.

          The pulp manufacturing process may determine a pulp’s suitability for particular end uses.  Mechanical pulp refers to pulp processed to leave in some lignin and other organic materials holding the wood fibers together.  Chemical pulp refers to pulp made using chemical processes to dissolve the lignin.  Among the various chemical processes for chemical pulp, the most common is the kraft process, which we use to produce our pulp.  The kraft process helps to maintain the inherent strength of the wood fibers and thus produces a pulp that is especially well suited for manufacturing printing and writing papers, specialty papers and tissue.

          Bleached pulp is used for a variety of purposes, including printing and writing papers, specialty papers and tissue.  Unbleached pulp is brown in color and is used in the production of wrapping paper, corrugated containers and other paper and cardboard materials.  Many companies, including us, have been using the ECF methods in their production of bleached pulp.  ECF is a bleaching process that does not utilize elementary chlorine and chlorine chemical compounds, respectively.  These two processes have been developed in part to eliminate any possible carcinogenic effects attributed to the dioxins that are produced during the bleaching process and released in the water.

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

          Eucalyptus is one of many types of hardwood used to make pulp.  We believe that for certain uses eucalyptus pulp is superior because of the greater consistency in the quality of its fibers and because it can improve paper’s opacity, formation and printability.  Eucalyptus pulp has gained wide acceptance among producers of printing and writing papers in Europe and among producers of tissue papers in North America because of its softness and absorbency.  In addition, eucalyptus trees generally grow straighter and have fewer branches than most other hardwood trees.  This allows for dense growth, easy harvesting and decreased need for pruning.

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***          Paper Industry Overview***

          There are six major groups of paper products produced by the paper industry:

|   | • | newsprint paper, used to print newspaper;                                                                                                               |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                    |
|   | • | printing and writing papers, used for a broad 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 kraft paper,   containerboard (corrugated paper and linerboard) and liquid packaging board;                               |
|   |   |                                                                                                                                                    |
|   | • | cardboard; and                                                                                                                                          |
|   |   |                                                                                                                                                    |
|   | • | specialty papers.                                                                                                                                       |

          We produce printing and writing papers, specialty papers, and thermal and carbonless paper, a subcategory of specialty papers.

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

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

          The market for paper has a large number of producers and consumers and more product differentiation than the market for pulp.  Prices for paper are cyclical but are less volatile than pulp prices.  The prices for paper and paperboard have historically followed the trends of pulp prices.

          The key factors that drive paper prices are overall economic activity, capacity expansion and fluctuations in current exchange rates.  In the second half of 1994, the international paper market tightened dramatically as accelerated economic growth in the United States and end user inventory restocking pushed demand higher despite limited capacity expansion.  This tightening in the international market eased over the last several months of 1995, particularly for the commodity grades.  In 1996, paper became readily available and prices started to decrease, and continued to decrease through the first quarter of 1999.  Thereafter, prices for our various grades of paper have improved, reaching a peak in the first half of 2001.  Thereafter, international paper prices started to decrease again but not as strongly as pulp prices decreased, due to a more consolidated and less volatilemarket.

           In 2003 and in 2005, Brazilian paper companies increased their export volumes in order to compensate the demand reduction in the domestic market. The scenario for 2004 was quite different.  In 2004, the Brazilian economy presented a significant recovery, ending the year with an increase in GDP of 4.9%, causing the Brazilian paper sector to present an increase in sales.  Regarding the international market, although the appreciation of the *real* of approximately 9% in 2004 and 13% in 2005 impacted our revenues, the volume sold increased due to a good economic environment, especially for the North American and European markets.  After suffering some years at low price levels, international paper prices start a recovery in the first half of 2006, with price increases being announced in February, April and June 2006, in both North America and Europe.    

37

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          Although it is possible that market prices for paper will further decline in the future, or that there will not be sufficient demand for our products to enable us to operate our production facilities in an economical manner, we have been minimizing these risks by shifting our focus towards higher value-added products and by achieving a better sales mix.  We are also developing the flexibility to be able to allocate sales between domestic and export markets.  We plan to continue to increase our productivity significantly and to further increase our productivity through the modernization of our industrial plants and through improvements in our product mix.  

**The Brazilian pulp and paper industry**

          Brazil is predominantly a tropical country, with approximately 90% of its territory located north of the Tropic of Capricorn.  As a result, in most regions of Brazil, the soil and climate are very favorable to forest growth.  In Brazil, eucalyptus trees have short growing cycles of approximately seven years, compared to 10 to 12 years for 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.

          Brazil’s high technology and natural advantages in forestry make it one of the world’s lowest-cost producers of pulp, and in the last 20 years Brazil has become an important pulp exporter.  As one of the world’s lowest-cost producers of pulp, Brazilian pulp producers are able to weather more favorably than other producers through periods of low pulp demand.  This shorter maturing period also enables Brazilian producers to expedite the process of genetically improving the Eucalyptus species utilized.  In this manner, the Brazilian Eucalyptus is one of the pulping trees species that have evolved more rapidly and consistently over recent years, resulting in significant improvements in its productivity.

          Capitalizing on its advantages in pulp production, Brazil has developed a diversified paper industry with modern technology and a potential for growth in both the domestic and export markets.  In recent years, there has been a marked increase in paper consumption in Brazil, which is an important indicator of the economic development of a country.  Between 1994 and 2005, the average annual rate of paper consumption increased by approximately 4% per year, reaching 7.3 million tons in 2005, according to Bracelpa.  We believe that there is growth potential for domestic consumption, because per capita consumption is still low in comparison with developed countries.  Per capita consumption of paper is estimated at 39.5 kilos per year, according to PPI, a news and information provider for the pulp, paper, converting forest products and allied industries.  

          According to preliminary data from PPI, in 2005, Brazil was the eleventh largest paper producer and the seventh largest pulp producer in the world.  Brazilian pulp and paper companies have made large investments over the last ten years in order to compete more effectively and on a larger scale with traditional pulp suppliers in the international market.  In addition, technological development in the paper industry has been supported by the research efforts of major producers and by financing from BNDES.  

          Consolidation in the Brazilian pulp and paper industry is currently under way.  The table below shows the market participation of the five largest producers in terms of sales for the years indicated: 

|                              |   | **Year ended   December 31,** |     |
|-----------------------------------|--------|-------------------------------|----------|
|                              |   |                               |     |
|                              |   | **2005**                      |     | **2004** |   | **2003** |   | **2002** |   | **2001** |   | **2000** |   |
|                              |   |                               |          |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
|                              |   | **(in   thousands tons)**     |     |
| Brazilian pulp production (1)     |   |                          | 10,126.2 |   |   | 9,620.1 |   |   | 9,104.2 |   |   | 8,011.5 |   |   | 7,412.0 |   |   | 7,463.3 |   |
| Brazilian paper production        |   |                          | 8,597.7  |   |   | 8,452.4 |   |   | 7,811.1 |   |   | 7,661.2 |   |   | 7,437.8 |   |   | 7,187.8 |   |
| Total pulp and paper   production |   |                          | 18,723.9 |   |   | 18,072.5 |   |   | 16,915.3 |   |   | 15,672.7 |   |   | 14,743.8 |   |   | 14,651.1 |   |
| Total five top producers          |   |                          | NA       |   |   | 10,987.2 |   |   | 10,547.0 |   |   | 9,810.7 |   |   | 9,125.0 |   |   | 8,099.9 |   |
| % Top five                        |   |                          | NA       |   |   | 60.8 | % |   | 62.4 | % |   | 62.6 | % |   | 61.9 | % |   | 55.3 | % |

|                                                                                                                          |
|--------------------------------------------------------------------------------------------------------------------------|
| (1)  Pulp   numbers represent pulp volume produced.                                                                 |
| Source:    Bracelpa.  As of June 24, 2006,   Bracelpa has not released figures for the five largest producers. |

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

**Cyclical nature of world pulp prices**

          World pulp prices are cyclical because demand for paper depends heavily on general economic conditions and because production capacity adjusts slowly to changes in demand.  From 1985 to mid-1989, market prices for bleached hardwood kraft pulp rose steadily.  Beginning in 1989, the recession in North America, Europe and Japan, combined with the start-up of a number of new or expanded pulp facilities, contributed to depressed prices that continued through 1993.  This decline in world pulp prices to the lowest levels in 20 years (on an inflation-adjusted basis) forced a number of pulp producers out of the market.  However, international demand began to recover in late 1993, with a corresponding increase in prices.

          In 1995, the international paper industry was in the second year of what is believed to be the strongest market upturn in its history.  A substantial portion of the industry reported record earnings levels in 1995 due to strong demand and surging prices.  Virtually all of the industry’s major grades were at, or near, record price levels as a result of tight supply and intense cost pressures (particularly for non-integrated paper producers that purchase pulp and, to a lesser extent, for non-integrated pulp producers that purchase fiber).

          The key supply-side factor during the 1995 upturn was an abnormally low rate of capacity expansion, a consequence of the industry’s poor performance during the 1989-1993 downcycle.  This low rate of capacity expansion led to a rapid tightening of markets that, in turn, caused the prices to increase sharply.

          By the last quarter of 1995, however, the international paper market began to show signs of strain.  Some of the reasons for this slackening were a slowdown in economic growth, particularly in the United States, more readily available supplies of certain grades of paper, due to improved mill productivity and the start-up of new machines, and a deceleration in end-user inventory building.  By January 1996, pulp prices were falling and continued to fall through the first quarter of 1999.  In the second quarter of 1999, international pulp prices began to rise and continued to rise throughout 2000.  After reaching a peak of around US$ 700 per ton in the second half of 2000, market pulp prices started to fall through the third quarter of 2001 primarily due to (1) inventory accumulation, (2) variations in the European Union unified currency, which raised the cost of pulp for the productionof printing and writing papers and (3) the scheduled production downtime by Canadian producers, followed by that of U.S. manufacturers to combat growing inventory and maintain price levels.  At the beginning of 2001, Brazilian manufacturers, including us, slowed pulp production in response to the drop in demand and slowdown of the economy and to maintain a balance between supply and demand.  

          During the second half of 2001, market pulp prices were around US$ 400 per ton.  In the fourth quarter of 2001, the market pulp prices began to increase as a result of the industry-wide decline in inventory as several producers scheduled production downtime in order to reduce growing inventory and maintain price levels.  

          The average price for bleached eucalyptus kraft pulp, or BEKP, in 2002 was US$ 458 per ton (CIF North Europe).  Prices increased in the second quarter of 2002 and reached their highest level, US$ 510 per ton, in the third quarter of 2002.  The average price for BEKP in the fourth quarter of 2002 was US$ 470 per ton.  Pulp inventories also influenced prices with Norscan inventories totaling 1,339 thousand tons in June 2002, which was their lowest level since September 2000.

          In the beginning of 2003, prices started to increase primarily due to bad weather conditions in the southern part of the United States, which affected market pulp production and to production, curtailment in Asia caused by technical problems.  The average price for BEKP for the year ended December 31, 2003 was US$ 507 per ton.  

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          The pulp BEKP average price for the year 2004 was US$ 518 per ton.  China played an important role in 2004.  In the beginning of the year the international pulp consumption was greater than expected, especially from China, where pulp was needed for new plants, causing price increases throughout all regions during the first half of the year.  In the second semester of the year, the trend of pulp prices changed.  China took advantage of the combination of high initial inventories, accumulated in the first half of the year, and the seasonal low period to reduce its purchase volumes and resist rebuilding of inventories.  Also, European markets resistance to paper price increases, pressured by the appreciation of the euro in relation to the U.S. dollar, which reduced margins of these producers’ exports.  These conditions led to successive reductions in pulp prices over thethird quarter of the year, closing at US$ 450 per ton in Asia, US$ 490 per ton in Europe and US$ 555 per ton in the United States.  As demand improved, international pulp prices began to increase in November of 2004 and in January, March and April of 2005, reaching US$ 570 per ton in Asia, US$ 600 per ton in Europe and US$ 635 per ton in the United States.  These prices remained stable during the second half of 2005, except in Asia where the price declined US$ 30 in the second half of the year.  The price of paper products, although less volatile than the price of pulp, experiences fluctuations in response to global demand and production and fluctuations in pulp prices.  During 2005 paper prices in the European and North American markets had not increased to match the increases in pulp prices, since the fourth quarter of 2004.  Therefore, margins for paper prices have continued to be low in those markets.  The first quarter of 2006 was marked by capacity adjustments andshut-downs, combined with a continuous expansion in global demand, which improved the international scenario, even during the northern-hemisphere winter, bringing prospects of new price increases.  In February, eucalyptus pulp prices went up by US$ 20 per ton in all regions.  In April we increased our price in the Asian markets to US$ 590 per ton.  The capacity adjustments also occurred on the paper side, and in the first half of 2006 we saw paper prices increasing for several grades in the United States and Europe.

          The following table sets forth the estimated cash production costs per ton of bleached hardwood kraft market pulp pre-sold in Northern Europe, Brazil and the United States for the third quarter of 2005, for producers in the regions indicated.  Cash production costs are total production costs less depreciation and depletion and does not include any transportation costs.  Amounts have been expressed on a per ton basis in U.S. dollars, with local currencies translated at prevailing exchange rates.  Particular producers may have production costs significantly above or below regional averages.  

| **BHKP operating costs, Q3 2005** |   | **Cash   production    costs (per ton)** |                                                         |
|-----------------------------------|--------|------------------------------------------|--------------------------------------------------------------|
|                                   |   |                                          |                                                         |
| Indonesia                         |   |                                     | US$         171 |   |
| Brazil                            |   |                                     | 200                                                          |   |
| Chile                             |   |                                     | 272                                                          |   |
| Portugal                          |   |                                     | 340                                                          |   |
| Finland                           |   |                                     | 347                                                          |   |
| Spain                             |   |                                     | 351                                                          |   |
| Sweden                            |   |                                     | 351                                                          |   |
| France/Belgium                    |   |                                     | 365                                                          |   |
| Southern U.S.                     |   |                                     | 369                                                          |   |
| Eastern Canada                    |   |                                     | 410                                                          |   |
|                              |   |                                     |                                                         |   |
|                                   |
| Source:  Hawkins Wright.     |   |                                     |                                                         |   |

**C.      Organizational Structure**

          Our operations are conducted by Votorantim Celulose e Papel S.A. as the controlling and principal operating company.  We are a member of the Votorantim group, which has other interests in Brazil and abroad, principally in cement, metallurgy, agribusiness, chemicals and financial services.  In 2005, consolidated net sales of the Votorantim group reached approximately US$ 7.8 billion (US$ 6.3 billion in 2004) based on Brazilian GAAP, data translated to U.S. dollars at year end exchange rates, of which 18% (18% in 2004) represented pulp and paper activities.  Net consolidated sales include the industrial units of the Votorantim group, as well as Votorantim Finanças, which includes Banco Votorantim.  Our immediate parent company is VPAR, which in turn is controlled by Hejoassu Administração S.A.  Hejoassu is the formed by the Board Members of the Votorantim Group. It is composed by family members, responsible for the main decisions and business strategies.  Hejoassu is controlled by the Ermírio de Moraes family.  See “Item 4—Information on VCP—Business Overview—Our Ownership Structure.”

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          On March 1, 2002, we incorporated VCP Overseas, our wholly owned subsidiary incorporated in Hungary.  In June 2002, we incorporated St. Helen Holding III, B.V., located in Curaçao.

          As of December 31, 2002, we had a 50% stake in Voto-Votorantim Overseas Trading Operations N.V. and three wholly owned subsidiaries, VCP Terminais Portuários S.A., VCP Exportadora and VCP Florestal.  In April 2001, we incorporated VCP Exportadora as a wholly owned subsidiary, and in the fall of 2001 we incorporated Newark, which was used to acquire our interest in Aracruz.

          In order to facilitate access to our international customers and to the international financial markets, we have established two subsidiaries of Newark, VCP Trading and VCP North America, to manage our exports to clients in Europe and in North America, respectively, until 2005.  As of January 2006 we have been performing the total export sales from VCP Overseas Holding Kft.

          In November 2004, we signed an agreement with Suzano Bahia Sul Papel e Celulose S.A., or Suzano, for the acquisition of all of the common and preferred stock of Ripasa S.A. Celulose e Papel, or Ripasa.  On March 31, 2005, we finalized the acquisition, through a 50% joint venture, of 77.59% (our interest – 38.795%) indirect interest in the voting capital and 46.06% (our interest – 23.03%) indirect interest in the total capital of Ripasa, by the amount of US$ 275 million.  A purchase option was also signed for the sale of 37,449,084 common shares and 12,388,719 preferred shares, totaling 22.41% of the voting stock and 13.45% of the total stock, to be exercised within six years, for a total amount of US$ 160.31 million.

          On January 26, 2005, in an Extraordinary General Meeting, our shareholders decided that VCP Florestal would merge into us to achieve cost reductions and increased business synergies between the two companies.  VCP Florestal was dissolved as a result of the merger and we succeeded it with respect to all rights and obligations thereof.  There was no increase in our capital stock as a result of the merger, due to the fact that we owned all the shares of VCP Florestal.

          On June 24, 2005 Voto-Votorantim IV, a wholly-owned subsidiary of VPAR, issued US$ 400 million, 7.75% Fixed Rate Notes due 2020 in the international capital market, under Rule 144A and Regulation S of the U.S. Securities Act of 1933.  VCP is a guarantor of 50% of the debt issued by Voto-Votorantim IV and in turn received US$ 200 million of the proceeds.  On September 6, 2005, we acquired a 50% interest in Voto-Votorantim IV and together with VPAR we are the guarantors for this operation.  Of the proceeds of US$ 200 million, US$ 125 million was used by St. Helen III to repay the debt incurred with Voto-Votorantim II.

          In April 2006, for administrative and economic reasons, we merged VCP Exportadora e Participações S.A., VCP’s 100% subsidiary, into us and assumed all of the assets and liabilities relating to our export operations.

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The chart below shows our economic structure as of April 30, 2006 (% of totalcapital):

**D.       Property, Plant and Equipment**

          All of our production facilities are located in the state of São Paulo.  We have forests in the State of São Paulo and timberlands in the State of Rio Grande do Sul which have been acquired since 2004.  The state of São Paulo accounts for more than 33% of Brazil’s gross domestic product, and is home to most of the domestic consumers of pulp and paper products.  In 2005, our forests (including purchased wood) were located an average of 287 kilometers from our pulp mills, and our facilities are located an average of 200 kilometers from Santos, which is the port facility that we use for most of our exporting activities.  The relatively short distance between our forests, our plants and most of our domestic customers results in relatively low transportation costs.

          We own and operate two mills that produce both pulp and paper and two mills that produce only paper.  At December 31, 2005, our aggregate nominal pulp production capacity was 1,435,000 tons per year and our nominal paper production capacity was 645,000 tons per year.  The following table sets forth the distance between our forests and our mills, the distance of these mills to the port of Santos, and the nominal capacity of each mill at December 31, 2005:

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| **Facility**      |   | **Pulp/Paper** |   | **Distance   from    forest (pulp) or   pulp mill (paper)** |   | **Distance   from    port of Santos** |   | **Pulp/Paper      capacity    (tons/year)** |   | **Major   products**                                                                        |
|-------------------|--------|----------------|--------|-------------------------------------------------------------|--------|---------------------------------------|--------|---------------------------------------------|--------|---------------------------------------------------------------------------------------------|
|                   |   |                |   |                                                             |   |                                       |   |                                             |   |                                                                                             |
| Jacareí      |   | Pulp/Paper     |   | 350 km                                                      |   | 150 km                                |   | 1,050,000/185,000                           |   | Uncoated printing and writing paper; coated printing   and writing paper                    |
|              |   |           |   |                                                        |   |                                  |   |                                        |   |                                                                                        |
| Luiz Antônio |   | Pulp/Paper     |   | 116 km                                                      |   | 380 km                                |   | 385,000/350,000                             |   | Uncoated printing and writing paper; offset, copier,   laser printing and inkjet paper      |
|              |   |           |   |                                                        |   |                                  |   |                                        |   |                                                                                        |
| Piracicaba        |   | Paper          |   | 150 km                                                      |   | 200 km                                |   | 170,000                                     |   | Thermal and carbonless paper; coated printing and   writing paper                           |
|              |   |           |   |                                                        |   |                                  |   |                                        |   |                                                                                        |
| Mogi das Cruzes   |   | Paper          |   | 50 km                                                       |   | 100 km                                |   | 20,000                                      |   | Label paper; finish foil; soap wrapping board; light   cardboard and other specialty papers |

|                    |
|--------------------|
| Source:  VCP. |

***Eucalyptus forests***

          We obtain a majority of our wood from approximately 209,000 hectares of land located in the state of São Paulo.  We own approximately 63% of this land, with the remaining 37% leased from third parties, of which 51% are other companies of the Votorantim group.  See “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions—Leases of Forest Land.”  While we have enough wood to satisfy our requirements, from time to time and when the terms are attractive, we purchase wood from unrelated third parties for use in our paper and pulp mills.  In the year ended December 31, 2005, we consumed approximately 66% of our own wood and 34% of our wood from those third parties.  

          At December 31, 2005, we owned or leased approximately 450 different tracts of forests for cultivation, making our wood supplies relatively dispersed.  Our forests are located an average of 287 kilometers from our pulp mills.  In order to reduce the average distance from our forests to our mills, we did not renew the leases of forests that were relatively far from our mills and, instead, have purchased forests that are closer to our mills.  Brazilian law requires that at least 20% of the land we own either remains uncultivated or planted with indigenous species of vegetation.  Of our own forests, approximately 62% consists of planted eucalyptus forest, approximately 34% is reserved for preservation and the remainder is used for other activities.  

          Our strategic goal to guarantee fiber supply and ensure VCP’s long-term growth also includes the raising of a new forest area in the state of Rio Grande do Sul, currently with 76,000 hectares.  Growth in this region is driven by the availability of land at attractive costs, the proximity to Northern Uruguay (wood availability) and also the proximity to Rio Grande port, which will allow us the creation of an export platform.  The forestry productivity in this new area is similar to São Paulo forests and some other qualities of the region are the qualified labor force, the inter-modal transportation options and the favorable political, social and environmental conditions.  

          While the dispersion of our woodland entails some additional costs, we believe that it significantly reduces the risks of fire and disease.  We also seek to minimize fire risk by maintaining a system of fire observation towers and a fleet of 13 fire engines, all of which are manned by members of our fire-fighting teams.  Given the natural protection afforded by the dispersion of our forests, we do not believe that insuring our forests would be cost-effective.  We therefore assume all risks of loss from fire and other casualties.  In addition, we annually treat certain of our forests to prevent tree destruction by ants.  We have never suffered a material loss from either fire or disease in forests that we harvest.

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          As part of our reforestation efforts, in 2005, we planted approximately 22,700 hectares of eucalyptus in order to supply our wood requirements to produce pulp and also energy to supply Luiz Antônio and Jacareí mills.  The forests used to supply the Luiz Antônio mill typically yield between 40 and 45 cubic meters of pulpwood per hectare per year, while forests supplying the Jacareí mill generally yield between 45 and 50 cubic meters of pulpwood per hectare per year.  At seven years old, the normal time to harvest, these trees normally have an average productivity of 280 to 315 cubic meters of woodchip per hectare per year in Luis Antônio and 315 to 350 cubic meters per hectare per year in Jacareí.  These levels of productivity reflect the excellent climate conditions for growing eucalyptus trees in São Paulo State, with ample amounts of both sun andrain.  

          In 2005 we grew approximately 47 million seedlings at our nurseries, all of which were planted in our forests or supplied to the tree-farm project.  To develop our eucalyptus forests, we select seedlings after strict testing, which are denominated as clones and enter into the production process.  We operate three nurseries for seedling production.  We use both seeds and seedlings cloned from rooted cuttings, a method also known as “vegetative propagation,” to carry out the planting of our eucalyptus trees.  Vegetative propagation results in trees with wood fibers that are extremely homogeneous and permits the propagation of trees with the most favorable genetic characteristics for pulp production.  These characteristics include fast growth rate, good quality of wood fibers, resistance to disease and “self-pruning” trees with fewer branches.  Greatertree standardization provided by cloning also allows for increased mechanization in tree felling and transportation, and makes it easier to adjust equipment and machinery to topographical conditions.  Nowadays, almost 100% of the seedlings used by VCP are obtained through the “vegetative propagation” method.  

          We began to review concepts on community relations and the common good, as part of our contribution to social and economic development.  For example, we invited our neighbors in the state of Rio Grande do Sul to participate in a project in which we have already planted 23,000 hectares of eucalyptus.  We also launched the Forestry Savings program, an innovative way of cooperation and social inclusion involving our neighbors in the countryside.

**Expansions**

          We expect to spend approximately US$ 78 million in debottlenecking projects of which US$ 32 million were already disbursed in 2005 and US$ 46 million are expected to be disbursed in 2006.  This investment will further expand our annual pulp capacity by over 150,000 tons during the 2006-2007 period.  Simultaneously, we have been investing in the acquisition of land and eucalyptus plantations in the state of São Paulo, in the region surrounding our plant, and in forest reserves in the south of the state of Rio Grande do Sul in order to decrease our dependence on raw materials from third parties.  The project in the South also includes the construction of an industrial facility at the beginning of the next decade, for which socio-environmental licensing procedures have already begun.

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

          None.

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

          You should read the following discussion in conjunction with our audited consolidated financial statements and accompanying notes and other financial information included elsewhere in this annual report, and in conjunction with the financial information included under “Item 3A—Key Information—Selected Financial Data.”  This section contains forward-looking statements that involve risks and uncertainties.  Our actual results may differ materially from those discussed in the forward-looking statements as a result of various factors, including, without limitation, those set forth in “Item 3D—Key Information—Risk Factors” and the matters set forth in this annual report generally.

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**Overview**

          We produce pulp and paper products in Brazil, including wood-free printing and writing papers and specialty papers.  

*          Pulp*.  We produce bleached eucalyptus pulp, part of which we sell domestically and internationally and the remainder of which we use for our paper business.  

*          Paper*.  We produce paper for the domestic and international markets.  As part of our strategy for paper products, we have continued to increase the proportion of our sales of value-added products, such as coated, thermal and carbonless and other specialty papers, and to remain as a leading market share producer of these value-added paper products in the domestic market.  The percentage of our net sales of these value-added products in relation to our total net sales for paper in the Brazilian market was 45% in 2003, 47% in 2004 and 49% for 2005.  In 2003, we continued to increase exports of uncoated papers despite the appreciation of the *real* against the U.S. dollar because the weak domestic market conditions lowered domestic demand and shifted our sales to the export market.  In 2004, with the recovery of the domestic economy, we directed our sales volume growth tothe domestic market.  In 2003, we estimate that we lost approximately 3% of our coated paper domestic market share mainly to imports which became more competitive as the *real* appreciated against the U.S. dollar.  In 2004, the better scenario in the local market allowed us to increase our coated paper sales, but we lost market share due to the competition with imported products, as a consequence of the weaker foreign exchange rate.  In 2005, we continued to increase exports of uncoated papers despite the appreciation of the *real* against the U.S. dollar because the weak domestic market conditions lowered domestic demand and shifted our sales to the export market.  Our sales of paper outside Brazil as a percentage of our total sales of paper in terms of volume were 30% in 2003, 29% in 2004 and 32% for 2005.  While we increased our sales of coated papers in the last two years, we lost market share to imports in the coated paper domestic market in 2004 and in 2005, asthe *real* appreciated during that years.  We intend to take advantage of the opportunity to recover our market share if the *real* depreciates or stabilizes against the U.S. dollar.  

          We have sought to increase the proportion of our production of value-added paper products, which have higher margins, using various strategies:  (1) in the domestic market, we are focusing our efforts on the increase of the proportion of our product mix devoted to coated, chemical and specialty papers, targeting specific segments of the market; and (2) in the export market, we increased sales of uncoated papers, especially cut-size.  We have increased our total volume of pulp sales due to the completion of the Jacareí expansion.  And we will increase even more during the 2006-2007 period due to the additional volume from the debottlenecking of this new line.  Since the new production line started up in December 2002, we have benefited from our ability to produce larger volumes of pulp at fixed costs that have not grown proportionally and from lower transportation costs relativeto other producers.  See “Item 4—Information on VCP—Business Overview—Our Business Strategy.”  We have also responded to the increased demand in the international market by increasing our U.S. dollar-denominated pulp exports.

          The following table shows a breakdown of our total exports in 2004 and in 2005 in terms of volume by geographic location:

|              |   | **Year ended   December 31, 2005** |   | **Year ended   December 31, 2004** |   |
|-------------------|--------|------------------------------------|--------|------------------------------------|--------|
|              |   |                                    |   |                                    |   |
|              |   | **Pulp**                           |   | **Paper**                          |   | **Pulp** |   | **Paper** |   |
|              |   |                                    |   |                                    |   |  |   |  |   |
|              |   | **Thousands    of Tons**           |   | **% of    Total**                  |   | **Thousands    of Tons** |   | **% of    Total** |   | **Thousands    of Tons** |   | **% of    Total** |   | **Thousands    of Tons** |   | **% of    Total** |   |
|              |   |                                    |        |                               |        |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |  |  |   |
| North America     |   |                               | 76.0   |                               |   | 10 | % |   | 66.5 |   |   | 33 | % |   | 85.5 |   |   | 11 | % |   | 62.7 |   |   | 35 | % |
| Latin America (1) |   |                               | 1.6    |                               |   | —   |   |   | 53.8 |   |   | 27 | % |   | 3.0 |   |   | —   |   |   | 43.8 |   |   | 24 | % |
| Europe            |   |                               | 474.5  |                               |   | 60 | % |   | 61.2 |   |   | 31 | % |   | 347.4 |   |   | 46 | % |   | 53.9 |   |   | 30 | % |
| Asia and Africa   |   |                               | 234.9  |                               |   | 30 | % |   | 18.2 |   |   | 9 | % |   | 328.4 |   |   | 43 | % |   | 19.1 |   |   | 11 | % |
| Total Exports     |   |                               | 787.0  |                               |   | 100 | % |   | 199.7 |   |   | 100 | % |   | 764.3 |   |   | 100 | % |   | 179.5 |   |   | 100 | % |

|     |
|-----|
| (1) | Excluding Brazil. |

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**Prices**

          All references to prices relate to average prices determined by dividing the net sales by the corresponding tonnage.

*          Pulp*.  Our pulp operations are affected by prevailing world market prices for pulp, the amount of pulp produced and sold worldwide, and the pulp requirements of our paper business.  The prices that we are able to obtain for our pulp depend upon prevailing world market prices, which historically have been cyclical and subject to significant fluctuations over relatively short periods of time.  The price of pulp is quoted in U.S. dollars.  Domestic sales of pulp are denominated in *reais*; however, as export sales, they generally reflect the international price of pulp, which is denominated in U.S. dollars.  In the first quarter of 2003, severe weather conditions reduced harvesting in the United States and resulted in reduced pulp production.  This factor, along with strong demand in China, reduced inventories and caused prices in the first quarter of 2003 to climbto US$ 570 per ton in the United States, US$ 540 per ton in Europe and US$ 510 per ton in Asia.  Due to seasonal factors, pulp prices declined moderately in the second half of 2003 to US$ 550 per ton in the United States, US$ 510 per ton in Europe and US$ 470 per ton in Asia by December 2003.  Pulp prices averaged US$ 507 per ton in 2003.  In the beginning of 2004, international pulp consumption was greater than expected, especially from China, where pulp was needed for new plants, causing price increases throughout all regions during the first half of the year.  At March 31, 2004, prices reached US$ 500 in Asia, US$ 520 in Europe and US$ 545 in the United States, and US$ 530, US$ 550 and US$ 585 respectively in June.  In the second semester of the year, the trend of pulp prices changed.  China took advantage of the combination of high initial inventories, accumulated in the first half of the year, and the seasonal low period to reduce its purchase volumes and resistrebuilding of inventories.  Also, European markets resist to paper prices increases.  The average price of pulp in 2004 was US$ 518 per ton.  As demand improved, international pulp prices began to increase in November 2004 and in January, March and April 2005, reaching US$ 570 per ton in Asia, US$ 600 per ton in Europe and US$ 635 per ton in the  United States.  These prices remained stable during the second half of 2005, except in Asia where the price declined US$ 30 in the second half of the year.  The first quarter of 2006 was marked by capacity adjustments and shutdowns, combined with a continuous expansion in global demand, which improved the international scenario, even during the northern-hemisphere winter, bringing prospects of new price increases.  In February, eucalyptus pulp prices went up by US$ 20 per ton in all regions.  In April, we increased our price in the Asian markets to US$ 590 per ton.  The capacity adjustments also occurred in thepaper side, and in the first half of 2006 we saw paper prices increasing for several grades in the United States and Europe.

          The average C&F (Cost and Freight) price per ton for our export sales of bleached eucalyptus market pulp over the last several years was US$ 579 in 2000, US$ 382 in 2001, US$ 389 in 2002, US$ 456 in 2003, US$ 462 per ton in 2004, and US$ 511 per ton in 2005.  In the first quarter of 2006, the average C&F price increased to US$ 526 per ton.

*          Paper*.  Our paper operations are affected primarily by demand for paper in Brazil and by Brazilian economic conditions and, to a lesser extent, international paper prices.  Prices for printing and writing papers are generally linked to international prices.  In the second half of 2002, the devaluation of the *real* and the resulting increase in export volumes, especially for cut-size paper, created a shortage of paper in the domestic market and average prices increased by approximately 35% in *reais*, which partially offset the significant devaluation of the *real*.  In 2003, the *real*appreciated 22% against the U.S. dollar, but domestic paper prices remained fairly stable, resulting in higher prices in U.S. dollars.  In 2004, the *real*appreciated 9% against the U.S. dollar and the domestic market improved with the expectation of lower interestrates in Brazil, combined with a better scenario in the international markets.  As a result, domestic paper average prices increased an average of 8% in U.S. dollars, in 2004 compared to 2003.  In 2005, the *real*appreciated 13% against the U.S. dollar but the domestic market was weaker than expected, and this was combined with a weaker scenario in the international markets.  However, domestic average prices were almost stable in *reais*.  As a result, domestic paper average prices increased an average of 13% in U.S. dollars in 2005, as compared to 2004.  The price of paper products, although less volatile than the price of pulp, experiences fluctuations in response to global demand and production and fluctuations in pulp prices.  During 2005 paper prices in the European and North American markets had not increased to match the increases in pulp prices, since the fourth quarter of 2004.  Therefore, margins for paper prices have continued to be low in thosemarkets. The first quarter of 2006 was marked by capacity adjustments and shutdowns, combined with a continuous expansion in global demand, which also improved the international scenario for paper.  In February and April 2006, international paper prices for cut-size papers increased in both the United States and Europe.  This improvement in international scenario for paper brought prospects of future new price increases.  

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          In response to the cyclical nature of the paper market, we have increased our production of value-added paper products, such as coated, thermal, carbonless and other specialty papers, which are less sensitive to cyclical price variations, and we have increased our export capacities to offset eventual weaker demand in the domestic market.

**Costs and operating expenses**

          Our principal costs of production are incurred in *reais* and consist of raw materials (primarily wood and chemicals), labor and depreciation.  In 2005 our cost has increased significantly in U.S. dollars as a result of the appreciation of the *real*, pressuring our margins.  Our business is capital intensive and a portion of our costs is fixed.  We seek to maintain high capacity utilization rates to benefit from economies of scale and production efficiencies resulting from the operation of large, efficient production facilities and machines.  As a percentage of net sales, selling and marketing expenses were 10% in 2003, 12% in 2004 and 12% in 2005.  The increase of 5% in the export volumes and higher freight costs in 2005 has not resulted in proportionally higher selling and marketing expenses because they were offset by other cost savings.  We generally pay up to10% of the FOB price to export and shipping agents, which varies by geographic region and responsibilities.  General and administrative expenses as a percentage of net sales were 4% each in 2003 and 2004, and 5% in 2005.  In the first quarter of 2006, the *real* continued to appreciate against the U.S. dollar, but VCP increased its margins through reduction of fixed and variable costs and improvement of market conditions.

**Financial income**

          We derive financial income from several sources, including interest on cash and cash equivalents.  Since January 1, 2001, we have derived financial income from accessing low-cost foreign-currency financing and investing the proceeds in higher-yielding Brazilian financial instruments.  The unrealized gains from cross-currency interest-rate swap contracts are recorded at fair market value on our balance sheet as an asset and in our statement of income as “Foreign exchange gain (loss) and unrealized gain (loss) on swaps, net.”  We enter into these arrangements to reduce our exposure resulting from a possible devaluation of the *real*in relation to the U.S. dollar because a high proportion of our debt is denominated in U.S. dollars.  See “—Brazilian economic environment” and “—Liquidity and capital resources—Debt.”

**Financial expenses**

          We incur financial expenses from several sources, including short-term debt and long-term debt.  We principally seek long-term financing to fund our projects, which are generally of a long-term nature.  Short-term debt is comprised of U.S. dollar-denominated working capital from commercial banks and short-term secured loans.  Long-term debt consists of both U.S. dollar, mainly due to pre-payment export loans, and *real*-denominated debt, borrowed from BNDES.  We have consistently derived profits from arbitrage when we borrow funds in U.S. dollar-denominated liabilities and invest amounts in *real*-denominated assets despite the hedging costs involved, but we do not incur such debt in order to gain from that arbitrage.  Additionally we consider the natural hedging from the funds of exports when deciding to incur such arbitrage.  We provide no assurance that suchfavorable results will be earned in the future or that we will continue with these arbitrage transactions.  See “—Liquidity and capital resources.”

**Discussion on critical accounting policies**

          Critical accounting policies are those that are important both to the portrayal of our financial condition and results and that require our management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.  As the number of variables and assumptions affecting the possible future resolution of the uncertainties increase, those judgments become even more subjective and complex.  In order to provide an understanding about how our management forms its judgments about future events, including the variables and assumptions underlying the estimates, and the sensitivity of those judgments to different circumstances, we have identified the following critical accounting policies:

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|   |   |                                             |
|--------|--------|--------------------------------------------------|
|   | • | revenue recognition and accounts receivable;     |
|   |   |                                             |
|   | • | impairment of investments and intangible assets; |
|   |   |                                             |
|   | • | forest development costs and impairment tests;   |
|   |   |                                             |
|   | • | deferred taxes;                                  |
|   |   |                                             |
|   | • | tax contingencies; and                           |
|   |   |                                             |
|   | • | employee benefits and other related matters.     |

***          Revenue recognition and accounts receivable***

          We recognize revenue and associated costs of sales at the time our products are delivered to our customers or when title and associated risks pass to our customers.  Revenue is recorded net of sales returns of US$ 7 million in 2005 (US$ 6 million in 2004 and US$ 8 million in 2003).  Our customers that purchase on credit agree to payment terms that effectively include finance charges.  The finance charge on each sale is the difference between the amount the customer agrees to pay at the due date and the cash sale price.  The finance charges are recognized over the payment period and are included in financial income.  Recognition of revenue for our two segments and for domestic and export sales is based on the following principles:

          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 to present values as our price list is dependent on the length of credit granted.  Revenue is recognized when the customer takes delivery of the product either upon delivery to the customer’s carrier (Incoterms FOB) or premises (Incoterms CIF).  Sales through our vendor program are made to certain of our pre-qualifying domestic customers, and represented approximately 22% of our domestic sales in 2005 (2004 - 21%; 2003 - 22%).  Under the vendor program, the customer agrees to pay the bank and the bank in turn pays us on behalf of the customer for the purchase price of the product.  We guarantee full repayment of the loan for which the maximum allowable term for payment is generally 180 days, though inthe case of a few customers, we extend the term to 360 days.

          We estimate that for 2005, 2004 and 2003, an average of approximately 2% of our total number of regular domestic customers (approximately 22%, 21% and 22%, respectively, of total domestic sales value) obtained our guarantee for their loans.

          Paper - export market: export orders are normally met by our own or third-party warehouses located close to strategic markets.  These sales are recognized when products are delivered to the carrier and risks have passed to the customer, that is, the Company delivers the goods, cleared for export to the carrier nominated by the buyer at the named place.  Incoterms CIF and Incoterms FOB terms determine timing of revenue recognition.

          Pulp - domestic market: in 2005 none of our customers qualified for sales through our vendor program (2004 - none; 2003 - one), credit terms of up to 270 days were extended by the bank.  Remaining sales are primarily under credit terms which do not exceed 30 days.  Revenue recognition is consistent with that applied to paper sales.

          Pulp - export market: all export orders are normally satisfied by own or third party warehouses located close to strategic markets.  These sales are recognized when products are delivered to the carrier and risks have passed to the customer.  Exports to Asia are on a cost and freight basis with a named port of destination.

          We recognize revenue and associated costs of sales at the time our products are delivered to our customers or when title and the associated risks pass to our customers.

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*          Discounting of short-term receivables and interest income*

          Our customers that purchase on credit agree to payment terms that effectively include finance charges.  The finance charge on each sale is the difference between the amount the customer agrees to pay at the due date and the cash sale price at date of sale.  The finance charges are recognized over the payment period and are included in financial income, and accounts receivable from these transactions, including short-term receivables, are discounted to present value.

          *Vendor program*

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

          Under the vendor program, (1) the bank finances the customers’ purchases (by making a payment to us on behalf of the customers in cash equal to the amount of the purchase price payable by the customers) and (2) we issue separate guarantees in which we guarantee payment to the bank in the event that the relevant customer fails to pay the bank.  No separate fee is received by us for the guarantee. The risk of the vendor program is exactly the same as the direct sale.

          Under the vendor program, a separate note agreement exists between the bank and the customer, and the customer is considered to be the primary obligor under that note agreement.  Under our guarantee contract with the bank, we are considered a secondary obligor of a specified percentage of the amount (in some cases up to the full amount) that the bank finances for the customer.  Although the “receivables” are payable by our customers directly to the banks under the vendor financing program, we closely monitor the collection of these amounts and are advised by the bank once amounts have been settled.  In the event of a default by a customer under the vendor-financing program with the banks, the bank will charge, pursuant to the guarantee, our checking account established with the bank in the amount of the default.  Accordingly, during the period of the guarantee, we assess anycontingent liabilities that may arise from the guarantee.

          Under the vendor program, we recognize revenue as the goods are delivered to our customers or when title and associated risks pass to our customers.

          *Allowance for doubtful accounts*

          The allowance for doubtful accounts is recorded in an amount we consider sufficient to cover any probable losses on realization of our accounts receivable from our customers and is included under selling expenses; no adjustment is made to net sales revenue.  Our accounting policy for establishing the allowance for doubtful accounts reserve is summarized as follows:

|   | • | all overdue invoices over R$100,000 (equivalent to   US$42,722 at the December 31, 2005 exchange rate) are individually analyzed   by our accounting department, in connection with the legal, collection and   credit departments, in order to measure the amount of the probable expected   losses, and, consequently, to determine the allowance for doubtful accounts   to be recorded; and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                            |
|   | • | overdue invoices of less than R$100,000 are reviewed   by our collection and credit department in order to identify probable losses   to be recorded based on our knowledge of the customer’s credit history and   current situation.                                                                                                                                                      |

***          Impairment of investments and intangible assets***

          We acquired 28.0% of the voting capital and 12.0% of the total capital of Aracruz on October 3, 2001, for US$ 370 million, generating goodwill on our portion of the underlying fair value of the net assets of US$ 155 million.  Financial Accounting Standards Board Statement, or SFAS No. 142, “Goodwill and Other Intangible Assets,” was applied in connection with our acquisition, and no amortization of the goodwill generated as a result of this acquisition has been recorded.

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          Accounting Principles Board Opinion No. 18, “The Equity Method of Accounting for Investment in Common Stock,” requires us to determine if, among other factors, a decrease in market value is other than a temporary impairment.  As the quoted market price of the investee’s publicly traded stock during 2002 was consistently quoted below book value, a one-off impairment provision was recorded in 2002 based on the market price of US$ 18.56 for the Aracruz ADRs on December 31, 2002.  The impairment charge of US$ 136 million (gross of deferred income tax effects of US$ 46 million) was taken directly as a charge to income (“Equity loss of investee”).  The deferred tax effect of US$ 34 million is included in “Deferred income tax benefit.”  At May 24, 2006, the Aracruz ADR was quoted at US$ 47.48. Considering the market price for the Aracruz ADR today, therewould be no impairment provision since it is above the acquisition price of approximately US$29 per ADR of Aracruz.

          ***Forest development costs***

          Forest development costs, primarily project implementation costs (preparation of soil, planting, pest control and clearing, etc.) and similar ongoing development costs are capitalized as incurred.  Until December 31, 2000, forests were normally harvested three times over a 21-year period, and we amortized 60% of accumulated costs at the time of the first harvest, 26% of accumulated costs through the second harvest plus 65% of costs incurred since the first harvest, and the remaining costs at the time of the third harvest.  As a result of improvements in forest management techniques, including genetic improvement in trees, beginning on January 1, 2001, we now harvest and replant our forests approximately every seven years and capitalized costs are expensed at the time of each harvest.  Depletion of forests is computed on the unit-of-production method, based on the volume of timber harvestedin each period.  Software costs capitalized are amortized on a straight-line basis over five years.

          ***Deferred taxes***

          We recognize deferred tax assets and liabilities based on the temporary differences between the financial statement carrying amounts and the tax basis of assets and liabilities.  If we or one of our subsidiaries operate at a loss or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or time period within which the underlying temporary differences become taxable or deductible, we evaluate the need to establish a valuation allowance against all or a significant portion of our deferred tax assets resulting in an increase in our effective tax rate.  Due to our enrollment in the REFIS program (*Programa de Recuperação Fiscal*), a Brazilian tax recovery program, we could elect annually for each year from 2001 to 2004 to calculate and pay our income taxes either based on the provisions of REFIS (an estimated taxbasis which is based on net sales for the year adjusted by financial income and other income) or actual pre-tax income.  We opted to be taxed under the REFIS basis until 2004.  From 2005 on, we have been taxed again on the basis of taxable income.   

          ***Tax contingencies***

          We are currently involved in certain tax proceedings and have filed claims to avoid payment of taxes that we do not believe are due.  When tax obligations are clearly established by current legislation, even though we are contesting the tax and may not have settled amounts allegedly due, we fully provide for the obligation and related charges.  As discussed in note 14 to our audited consolidated financial statements at and for the year ended December 31, 2005, in the case of tax assessments or other contingent liabilities, we have accrued our estimate of the costs for the resolution of these claims when we consider loss of our claim to be probable.  The tax contingencies and obligations which are being disputed relate primarily to value-added sales and excise taxes, taxes on revenue, social security contributions, income tax and tax on bank account transactions.  These estimates havebeen developed in consultation with outside legal counsel handling our defense in these matters and were based upon an analysis of potential results.

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

          In March 2000 we launched a defined contribution plan which provides pension and post-retirement benefits.  We also contribute to the Government pension, welfare and redundancy plans on behalf of our employees and these contributions are expensed as incurred.  Most of our employees are members of unions, with which we enter into collective-bargaining arrangements annually.  The liability for future compensation for employee vacations is accrued as earned. 

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          We have adopted SFAS 106, “Employers’ Accounting for Post-retirement Benefits Other than Pensions,” which requires a provision for the costs of post-retirement benefits expected to be paid to current, former or inactive employees upon retirement.  Expenses relating to benefits we provide to our current employees are expensed as incurred whereas those relating to retired employees (current as well as expected in the future) and their dependents are accounted for in accordance with SFAS 106.

**Brazilian economic environment**

          Our results of operations and financial condition, as reported in our financial statements, have been affected by the rate of Brazilian inflation and the rate of devaluation of the Brazilian currency against the U.S. dollar.

*          Effects of inflation and impact of the Real Plan*.  Since the introduction of the *real*as the Brazilian currency in July 1994, inflation was controlled until January 1999, when it increased due to the devaluation of the *real*.  During periods of high inflation, such as those prior to the introduction of the *real*(when inflation rates reached approximately 80% a month in March 1990), real wages in Brazilian currency tended to fall because salaries typically did not increase at the same rate as inflation.  The effect was a progressive decline in purchasing power of wage earners.  The reduction and stabilization of inflation following the implementation of the Real Plan resulted in increased spending on consumer goods (including paper), higher real income growth, increased consumer confidence and the increased availability of credit.  It also resulted inrelatively higher labor costs.

          The table below shows the Brazilian general price inflation (according to the IGP-DI), devaluation of the *real*against the U.S. dollar and the period-end exchange rate and average exchange rates for the periods shown: 

|                                                         |   | **Year ended   December 31,** |   |
|--------------------------------------------------------------|--------|-------------------------------|--------|
|                                                         |   |                               |   |
|                                                         |   | **2005**                      |   | **2004** |   | **2003** |   | **2002** |   | **2001** |   |
|                                                         |   |                               |        |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Inflation (IGP-DI)                                           |   |                          | 1      | % |   | 12 | % |   | 8 | % |   | 26 | % |   | 10 | % |
| Devaluation (appreciation)   of the *real*   vs. U.S. dollar |   |                          | (13    | )% |   | (9 | )% |   | (22 | )% |   | 34 | % |   | 16 | % |
| Year/period-end exchange   rate—US$1.00(1)              |   | R$                            | 2.34   |   | R$ | 2.65 |   | R$ | 2.89 |   | R$ | 3.53 |   | R$ | 2.32 |   |
| Average (daily-weighted)   exchange rate(1) US$1.00          |   | R$                            | 2.44   |   | R$ | 2.93 |   | R$ | 3.08 |   | R$ | 2.92 |   | R$ | 2.35 |   |

|     |
|-----|
| (1) | The average (daily) exchange rate is the sum of the   closing exchange rates at the end of each business day divided by the number   of business days in the period. |

*          Effects of exchange rate variation and inflation on our financial condition and results of operations*.  The devaluation of the *real*has had and will continue to have multiple effects on our results of operations.  Our statements of operations expressed in *reais*are translated to U.S. dollars at the average rate for the relevant period.  The amount in U.S. dollars for the relevant period in the statements of operations will be reduced at the same rate as the *real*has devalued in relation to the U.S. dollar over the period to which it is being compared.

          Although we present our financial statements in U.S. dollars, our functional currency is the *real*.  The devaluation has had the following additional effects on our results of operations:

|   | • | the translation effects of our U.S. dollar   transactions (cash, cash equivalents, held-to-maturity investments, loans and   the unrealized gains and losses from cross-currency interest rate swap   contracts, among others) are recorded in our statements of income.  In 2003, we recorded a US$14 million net   foreign exchange loss.  In 2004, we   recorded a net foreign exchange gain of US$12 million.  In 2005, we recorded a net foreign   exchange loss of US$5 million. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

51

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|   | • | our non-monetary assets, primarily inventories and   property, plant and equipment, are translated to U.S. dollars at the   period-end exchange rates.  Any depreciation   of the *real*against the U.S. dollar will be reflected as a charge directly to   shareholders’ equity, including the decrease in book value of property, plant   and equipment in *reais*when translated to U.S.   dollars.  These currency translation   effects are beyond our management’s control.    Accordingly, in our statement of changes in shareholders’ equity for   2003, we recorded a translation gain of US$206 million directly to   shareholder’s equity, without affecting net income, reflecting the 22%   appreciation of the *real*against the U.S. dollar.  In 2004, we recorded a translation gain of   US$114 million to reflect the 9% appreciation of the *real*against the U.S.   dollar.  In 2005, we recorded a   translation gainof US$180 million to reflect the 13% appreciation of the *real*   against U.S. dollar. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

          Additionally, inflation and exchange rate variations have had, and may continue to have, effects on our financial condition and results of operations.  One significant effect of inflation and exchange rate variations on us concerns our costs and operating expenses.  Our cash costs (i.e., costs other than depreciation and depletion) and operating expenses are substantially all in *reais*and tend to increase with Brazilian inflation because our suppliers and service providers generally increase prices to reflect Brazilian inflation.  As expressed in U.S. dollars, however, these increases are typically offset at least in part by the effect of the appreciation of the U.S. dollar against the *real*.  If the rate of Brazilian inflation increases more rapidly than the rate of appreciation of the U.S. dollar, then, as expressed in U.S. dollars, our costs and operating expenses mayincrease, and (assuming constant U.S. dollar sales prices) our profit margins decrease.  If the rate of appreciation of the U.S. dollar exceeds the rate of Brazilian inflation, then, as expressed in U.S. dollars, our costs and operating expenses may decrease and (assuming constant U.S. dollar sales prices) our profit margins increase.

          The exchange rate variations have had the following additional effects on our results of operations:

|   | • | The 22% appreciation of the *real* in 2003 caused our   production costs to increase when expressed in U.S. dollars.  However, although the exchange rate at   December 31, 2003 reflected an appreciation of the *real* against the U.S.   dollar when compared to December 31, 2002, the average exchange rate for 2003   when compared to 2002 presented a devaluation of the *real* against the U.S.   dollar.  This had a positive impact on   our export margins as most of our operating costs are denominated in *reais*.  Exports represented 46% of our total net   revenues in 2003. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | • | In 2004, the Brazilian currency appreciated 9% in   relation to the U.S. dollar, causing a increase in our production costs when   expressed in U.S. dollars and also negatively impacted our exports, which   represented 49% of our total net revenues in that year.                                                                                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | • | In 2005, the Brazilian currency appreciated a   further 13% in relation to the U.S. dollar, causing an additional increase in   our production costs when expressed in U.S. dollars and also negatively   impacted our exports, which represented 50% of our total net revenues in that   year.                                                                                                                                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | • | Because the price of pulp in Brazil traditionally   has followed the international price of pulp in U.S. dollars, the price in *reais*increases   for sales to the domestic market when the *real*devalues against the U.S. dollar,   and decreases when the *real* appreciates against the U.S.   dollar, reducing revenues.                                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   | • | Because our costs and operating expenses are   generally in *reais*, the devaluation had the effect of decreasing these   costs when reported in U.S. dollars in 2001 and 2002, while in 2003, 2004 and   in 2005 the appreciation of the *real* resulted in the increase of these   costs when reported in U.S. dollars.                                                                                                                                                                                                                                                                                      |

          The devaluation of the *real*impacts the amount of dividends or interest on equity available for distribution to our shareholders when measured in U.S. dollars.  Amounts of dividends or interest on equity reported as available for distribution in our statutory accounting records prepared under Brazilian GAAP will decrease or increase when measured in U.S. dollars as the *real*depreciates or appreciates, respectively, against the U.S. dollar.  In addition, the devaluation of the *real*creates foreign exchange gains and losses, which are included in the results of operations determined under Brazilian GAAP and which affect the amount of unappropriated earnings available for distribution.  In 2005 on a consolidated basis, we and our subsidiaries recorded under Brazilian GAAP foreign exchange and monetary gains (including gains from foreign currency swaps) of R$ 327 million(equivalent to US$ 140 million) compared to gains of R$ 190 million (equivalent to US$ 65 million) in 2004 and gains of R$ 25 million in 2003 (equivalent to US$ 9 million).  On December 3, 2003 we changed our dividend policy.  For further information on the new policy, see “—Dividend Policy.”

52

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          We have entered into financial instruments to mitigate the effects of foreign exchange variations on our U.S. dollar-denominated debt.  We believe entering into these financial instruments partially protected our net assets from the significant devaluations of the *real*in 1999 and 2002.  We entered into cross-currency interest rate swap contracts to offset losses generated by our U.S. dollar-denominated loans.  These contracts have protected us from the significant losses that would otherwise have been charged to income at the time of the devaluation.  Although our debt totaled US$ 1,042.4 million at December 31, 2002 (94% of which was U.S. dollar-denominated), we recorded a net foreign exchange loss of US$ 11 million in 2002 (1%) while the *real*devalued by 34%.  In 2003, we recorded a net foreign exchange loss of US$ 14 million, which mainly resulted from exchangerate transactions.  In 2004, we recorded a net foreign exchange gain of US$ 12 million.  In 2005, we recorded a net foreign exchange loss of US$ 5 million.  See “—Liquidity and Capital Resources—Capital Expenditures.”

*          Effects of International Crises on the Brazilian Economy*.  International crises have adversely impacted the Brazilian economy from time to time.  For example, the 1997 Asian crisis and the 1998 Russian crisis contributed to the need for the Central Bank to devalue the *real*in the beginning of 1999.  In 2000, Brazilian financial markets were negatively affected by volatility on the U.S. Nasdaq markets and the decline in value in the technology sector.  In 2001, the Brazilian economy was negatively affected by the country’s energy crisis, the Argentine political and economic crisis and the terrorist attacks in the United States on September 11, 2001.  In 2002, the Brazilian economy was negatively affected by uncertainties caused by the country’s elections, the political and economic uncertainties in other emerging markets and the threat of war inIraq.  In 2003, due to the macroeconomic situation and political and economic measures of the new Brazilian government, the financial market has been more confident in Brazil’s economic performance, reflected by a considerable decline in Brazil’s sovereign risk and the appreciation of *real*against the U.S. dollar.  In 2004, Brazil’s economic and political environment was more stable than in 2003, which lead to significant increase in the country’s GDP and a positive impact in the financial market.  The appreciation of the euro against the U.S. dollar also benefited Brazilian paper producers in the European printing and writing paper markets.  In 2005, although Brazil’s economic growth was not strong, we faced a stable global economic environment and surplus of external accounts, which led to a positive impact in the financial market, reducing the country’s sovereign risk and strengthening the *real*against the U.S. dollar. 

**A.     Operating Results**

**Recent Developments - First Quarter 2006 Results**

          On April 13, 2006, we announced our unaudited interim financial results for the first quarter of 2006.   Paper sales in the domestic market were 8% higher than the same period of 2005.  Export volumes of paper also increased 8% when compared to the first quarter of 2005, while total pulp sales increased 9%, due to higher production volumes. Shut-downs of pulp and paper mills worldwide were greater than expected, which caused an increase in international prices of these products.   

**          **Net revenue increased 20%, while sales volumes increased 9% when compared to the same period in 2005 due to a 12% increase in exports and a 3% increase in sales in the domestic market.  Overall we sold 380,000 tons, a record for a first quarter of the year.  The percentage of revenues from the paper business increased to 61% from 59% of total sales year-on-year, and the revenues from the pulp business were accordingly 39%, down from 41% in the first quarter of 2005.  This change was mainly due to higher paper prices, also positively affected by the appreciation of the *real*.  

53

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          Net income was US$ 92 million in the first quarter of 2006, compared to US$ 61 million in the same period in 2005.  Our results improved principally because of fixed and variable cost savings in our operations, despite the strengthening of the local currency.

          Capital expenditures were US$ 62 million in the first quarter of 2005, of which US$ 29 million was invested in forestry (land acquisition, planting and forest maintenance), compared to US$ 36 million in the same period in 2005, of which US$ 20 million were invested in forestry (land acquisition, planting and forest maintenance).

          Given the potentially lengthy period of time needed to reach a favorable judicial outcome and the fact that the synergies generated by the acquisition of Ripasa were not being fully taken advantage of, on April 26, 2006, VCP and Suzano, aiming to remove the judicial barriers and implement the Ripasa restructuring plan, entered into an agreement with a group of Ripasa’s preferred shareholders, representing all the shareholders who questioned the operation.  Once the terms of the agreement are implemented and the restructuring is concluded, Ripasa’s minority shareholders will receive shares of VCP and Suzano plus a complementary amount in cash equivalent to R$ 1.0538 for each Ripasa preferred share in their possession on the date of registration.  See “Item 4--Competition” for more details about the Ripasa transaction.

**Results of operations**

          The following table sets forth certain items derived from our statements of income for the periods indicated:

|                                  |   | **Year ended   December 31,** |   |
|---------------------------------------|--------|-------------------------------|--------|
|                                  |   |                               |   |
|                                  |   | **2005**                      |   | **2004** |   | **2003** |   |
|                                  |   |                               |        |   |  |  |   |  |  |   |
|                                  |   | **(US$ in   millions)**       |   |
| Net sales                             |   | US$                           | 1,130  |   | US$ | 1,010 |   | US$ | 816 |   |
| Cost of sales                         |   |                          | (654   | ) |   | (518 | ) |   | (421 | ) |
|                                  |   |                               |        |   |  |  |   |  |  |   |
| Gross   profit                        |   |                          | 476    |   |   | 492 |   |   | 395 |   |
| Selling and marketing   expenses      |   |                          | (138   | ) |   | (121 | ) |   | (82 | ) |
| General and administrative   expenses |   |                          | (55    | ) |   | (40 | ) |   | (33 | ) |
| Other operating expenses,   net       |   |                          | (36    | ) |   | (6 | ) |   | (12 | ) |
|                                  |   |                               |        |   |  |  |   |  |  |   |
| Operating   profit                    |   | US$                           | 247    |   | US$ | 325 |   | US$ | 268 |   |
|                                  |   |                               |        |   |  |  |   |  |  |   |

          The following table sets forth certain items derived from our statements of income as a percentage of net sales for the years indicated (certain totals may not add due to rounding):

|                                                                         |   | **Year ended   December 31,** |               |
|------------------------------------------------------------------------------|--------|-------------------------------|--------------------|
|                                                                         |   |                               |               |
|                                                                         |   | **2005**                      |               | **2004** |   | **2003** |   |
|                                                                         |   |                               |                    |   |  |  |   |  |  |   |
| Net sales                                                                    |   |                          | 100                | % |   | 100 | % |   | 100 | % |
| Cost of sales                                                                |   |                          | (58                | ) |   | (51 | ) |   | (52 | ) |
|                                                                         |   |                               |                    |   |  |  |   |  |  |   |
| Gross   margin                                                               |   |                          | 42                 |   |   | 49 |   |   | 48 |   |
| Selling and marketing   expenses                                             |   |                          | (12                | ) |   | (12 | ) |   | (10 | ) |
| General and administrative   expenses and other operating expense, net       |   |                          | (8                 | ) |   | (5 | ) |   | (4 | ) |
|                                                                         |   |                               |                    |   |  |  |   |  |  |   |
| Operating   profit                                                           |   |                          | 22                 |   |   | 32 |   |   | 33 |   |
| Financial income                                                             |   |                          | 7                  |   |   | 4 |   |   | 8 |   |
| Financial expenses                                                           |   |                          | (11                | ) |   | (7 | ) |   | (9 | ) |
| Foreign exchange gains   (losses) and unrealized gains (losses) on swap, net |   |                          | —   |   |   | 1 |   |   | (2 | ) |
| Income tax benefit   (expenses)                                              |   |                          | 1                  |   |   | (4 | ) |   | (3 | ) |
| Equity in earnings of   affiliates                                           |   |                          | 5                  |   |   | 3 |   |   | 2 |   |
| Net   income                                                                 |   |                          | 23                 | % |   | 30 | % |   | 30 | % |
|                                                                         |   |                               |                    |   |  |  |   |  |  |   |

54

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          We operate in two business segments:  pulp and paper, which together account for 100% of our sales.  The following table sets forth, by reportable segment, our net sales as determined in accordance with U.S. GAAP:

|                                    |   | **Year ended   December 31,** |      |
|-----------------------------------------|--------|-------------------------------|-----------|
|                                    |   |                               |      |
|                                    |   | **2005**                      |      | **2004** |   | **2003** |   |
|                                    |   |                               |           |   |  |  |   |  |  |   |
| **Pulp:**                               |   |                          |      |   |   |   |   |   |   |   |
| Volumes (in tons)                       |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   |                          | 80,007    |   |   | 80,068 |   |   | 76,952 |   |
| Export                                  |   |                          | 786,944   |   |   | 764,363 |   |   | 529,948 |   |
| Total                                   |   |                          | 866,951   |   |   | 844,431 |   |   | 606,900 |   |
| Average prices (U.S.   dollars per ton) |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   | US$                           | 464       |   | US$ | 423 |   | US$ | 440 |   |
| Export                                  |   |                          | 511       |   |   | 462 |   |   | 456 |   |
| Net sales (in thousands of   US$)       |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   |                          | 37,107    |   |   | 33,866 |   |   | 33,826 |   |
| Export                                  |   |                          | 402,372   |   |   | 353,143 |   |   | 241,607 |   |
|                                    |   |                               |           |   |  |  |   |  |  |   |
| Total                                   |   | US$                           | 439,479   |   | US$ | 387,009 |   | US$ | 275,433 |   |
| **Paper:**                              |   |                          |      |   |   |   |   |   |   |   |
| Volumes (in tons)                       |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   |                          |      |   |   |   |   |   |   |   |
| Uncoated   printing and writing         |   |                          | 207,919   |   |   | 224,778 |   |   | 206,499 |   |
| Coated   printing and writing           |   |                          | 123,515   |   |   | 113,397 |   |   | 106,525 |   |
| Chemical   / Special                    |   |                          | 94,434    |   |   | 96,944 |   |   | 86,866 |   |
| Export                                  |   |                          |      |   |   |   |   |   |   |   |
| Uncoated   printing and writing         |   |                          | 179,563   |   |   | 166,163 |   |   | 163,902 |   |
| Coated   printing and writing           |   |                          | 19,861    |   |   | 13,275 |   |   | 3,761 |   |
| Chemical   / Special                    |   |                          | 284       |   |   | 91 |   |   | 550 |   |
|                                    |   |                               |           |   |  |  |   |  |  |   |
| Total                                   |   |                          | 625,576   |   |   | 614,648 |   |   | 568,103 |   |
| Average prices (in US$per   ton)        |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   |                          | 1,238     |   |   | 1,098 |   |   | 1,022 |   |
| Export                                  |   |                          | 818       |   |   | 808 |   |   | 783 |   |
| Net sales (in thousands of   US$)       |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   | US$                           | 527,386   |   | US$ | 477,767 |   | US$ | 408,548 |   |
| Export                                  |   |                          | 163,392   |   |   | 145,054 |   |   | 131,765 |   |
| Total                                   |   | US$                           | 690,778   |   | US$ | 622,821 |   | US$ | 540,313 |   |
| **Combined:**                           |   |                          |      |   |   |   |   |   |   |   |
| Volumes (in tons)                       |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   |                          | 505,875   |   |   | 515,187 |   |   | 476,842 |   |
| Export                                  |   |                          | 986,652   |   |   | 943,892 |   |   | 698,161 |   |
| Total                                   |   |                          | 1,492,527 |   |   | 1,459,079 |   |   | 1,175,003 |   |
| Average prices (in US$per   ton)        |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   | US$                           | 1,116     |   | US$ | 993 |   | US$ | 928 |   |
| Export                                  |   |                          | 573       |   |   | 528 |   |   | 535 |   |
| Net sales (in thousands of   US$)       |   |                          |      |   |   |   |   |   |   |   |
| Domestic                                |   |                          | 564,493   |   |   | 511,633 |   |   | 442,374 |   |
| Export                                  |   |                          | 565,764   |   |   | 498,197 |   |   | 373,372 |   |
|                                    |   |                               |           |   |  |  |   |  |  |   |
| Total                                   |   | US$                           | 1,130,257 |   | US$ | 1,009,830 |   | US$ | 815,746 |   |

55

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**Year ended December 31, 2005 compared to year ended December 31, 2004**

***          Introduction***

          The average exchange rate for 2005 was R$ 2.44 to US$ 1.00 compared to R$ 2.93 to US$ 1.00 for 2004.  In 2005, we faced favorable market conditions for pulp because of non-recurring factors, such as a hurricane in Sweden, an environment-related shutdown in Chile and a strike in Finland combined with continuous global demand.  These factors led to increasing international pulp prices, driven by low inventories.  On the paper side, we have seen a weak domestic market and had to increase our exports even in a low exchange rate scenario combined with low international prices.  

***          Net sales***

          Net sales increased by 12% to US$ 1,130 million in 2005 from US$ 1,010 million in 2004, with an increase in both sales and prices of all products, especially in the export market.  This increase was primarily attributable to higher efficiency in production of both pulp and paper reflecting in higher sales volume.  Sales volume increased by 2% to 1,492,527 tons in 2005 from 1,459,079 tons in 2004.  Approximately 50% of our net sales in 2005 were made in the domestic market compared to 51% in the same period in 2004.  This reduction is due to an increase of PIS/COFINS tax (from 3.65% on revenues to 9.25% on revenues net costs and expenses, on a value added basis) for sales in the local market, thus decreasing our net domestic revenues.  This effect was partially offset by higher prices in local sales.  Our revenue mix in 2005 was 61% for paper and 39% for pulp compared to 62%and 38%, respectively, in 2004.

*          Pulp*.  In the pulp segment, sales volume increased by 3% to 866,951 tons in 2005 from 844,431 tons in 2004.  The increase in volume was due to greater market pulp production as a result of higher efficiency at the Jacareí mill and also due to good market conditions.  Net sales attributable to pulp increased by 13% to US$ 439 million in 2005 from US$ 387 million in 2004.  This increase was due to the additional production volume and to the 11% higher average prices of pulp in the international market.  Pulp exports constituted 92% and 91% of revenues and sales volume, respectively, of pulp in 2005 compared to 91% in the same period in 2004, for both revenues and sales volume.

          In the domestic market, the volume of pulp sold remained stable in 2005 (80,000 tons) compared to the same period in 2004.  Revenues from domestic pulp sales as a percentage of total pulp net revenues increased by 9% in 2005 to US$ 37 million from US$ 34 million in 2004.  This increase was mainly due to higher domestic prices in U.S. dollars in the local market, the prices of which follow international markets.

*          Paper*.  In the paper segment, total volumes increased by 2%, driven by higher export volumes that grew 11%.  Domestic sales volumes decreased by 2% in 2005 compared to 2004, mainly due to lower market demand primarily of uncoated printing and writing papers, which was affected by a reduced demand from educational programs and lower exports from notebook producers.  Net sales attributable to paper increased by 11% to US$ 691 million in 2005, from US$ 623 million in 2004, mainly due to a 9% increase in the average price of paper.  The domestic market accounted for 76% of paper revenues in 2005 compared to 77% in 2004, also affected by the PIS/COFINS tax increase.

          In 2005, we increased export volumes in order to offset the lower demand in the local markets for uncoated papers.  In 2005, domestic prices in *reais* decreased by only 1% compared to 2004. When we exclude the negative effect of PIS/COFINS tax increase, domestic sales attributable to coated papers increased 20% in US dollar terms and 9% in volume.  The increase of coated and special paper exports reflected higher demand  from the  Mercosur market..

***          Cost of sales***

          Cost of sales increased by 26% to US$ 654 million in 2005 from US$ 518 million in 2004.  This increase was mostly due to the negative impact of a stronger *real* on our costs denominated in *reais*, increases in cost of some specific raw materials, labor and oil and higher production volumes.  These variations were partially offset by productivity gains and some cost savings.  The increase in labor costs was due to wage increases under our collective bargaining agreements negotiated in October 2004 and October 2005.  For the same reasons, the cost per unit sold increased by 23% in 2005 as compared to 2004.  

56

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          Our gross margin decreased to 42% in 2005 compared to 49% in 2004 mainly due to the increase in the cost per unit sold, partially offset by higher average prices.

          ***Selling and marketing expenses***

          Sales expenses increased by 14% to US$ 138 million in 2005, equivalent to 12% of net revenue, compared to US$ 121 million in 2004, also equivalent to 12% of net revenue.  This increase resulted mainly from higher volumes of exported products and an increase in our selling expenses denominated in local currency, negatively affected by the appreciation of the *real*.

          ***General and administrative expenses***

          General and administrative expenses increased by 38% to US$ 55 million in 2005 from US$ 40 million in 2004.  The increase was mainly attributable to the negative effect of the appreciation of the *real* on our expenses denominated in local currency, in addition to increases in wages and third-party contracts.  As a percentage of net sales, general and administrative expenses increased from 4% in 2004 to 5% in 2005.

          ***Operating profit***

          Operating profit decreased by 24% to US$ 247 million in 2005 from US$ 325 million in 2004.  This decrease was primarily due to higher production costs in U.S. dollars and higher sales, general and administrative expenses, partially offset by higher average prices, productivity gains and cost reductions.  

*          Pulp (including intersegment transactions at market values)*.  Operating profit attributable to pulp decreased by 18% to US$ 147 million in 2005 from US$ 180 million in 2004.  This decrease was primarily due to higher production costs in U.S. dollars, partially offset by an 11% increase in pulp average price and 3% higher volumes.

*          Paper (including intersegment transactions at market values)*.  Operating profit attributable to paper decreased by 31% to US$ 100 million in 2005 from US$ 145 million in 2004.  This decrease was primarily due to higher production costs in U.S. dollars, partially offset by a 9% increase in the average price of paper average and 2% higher volumes.

          ***Financial income***

          Financial income increased by 98% to US$ 79 million in 2005 from US$ 40 million in 2004.  The increase is primarily due to treasury operations and the positive effect of the appreciation of the *real*on loans denominated in foreign currency.  We use derivative instruments to mitigate the effects of volatility of interest rates on U.S. dollar-denominated borrowings (principally export credits) and local interest rates available on *real*-denominated investments and recorded an increased gain in 2005 on these transactions compared with 2004.  The amount we earned from these transactions was recorded as financial income.

          ***Financial expenses***

          Financial expenses increased to US$ 119 million in 2005 from US$ 69 million in 2004.  The increase was primarily due to higher indebtedness derived from the funds raised for the acquisition of Ripasa and higher international interest rates (principally LIBOR).  The increase was partially offset by new loans with lower spread over LIBOR.

57

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          ***Foreign exchange gains (losses) and unrealized gains (losses) on swap, net***

          Foreign exchange losses amounted US$ 5 million in 2005 from gains of US$ 12 million in 2004.  This result was primarily due to the appreciation of the *real* against the U.S*.*dollar and the fair-value adjustments on swap contracts.  The gains (losses) recorded on foreign-currency based transactions, which are mainly U.S*.*dollar-denominated debt or gains (losses) from cross-currency interest rate swap contracts, are translated to U.S*.*dollars and reported in our statement of income.

          ***Income tax expense***

          In 2005, we recorded an income tax benefit of US$ 8 million compared to an income tax expense of US$ 36 million in 2004.  The effective tax rate decreased from 12% in 2004 to (4)% in 2005.  This decrease primarily arose from the deductibility of a charge for interest attributed to capital (a tax deductible distribution similar to a dividend) and difference in foreign income tax rates.    

          ***Equity in earnings of affiliates***

          The equity in earnings of affiliates increased to US$ 54 million in 2005 from US$ 31 million in 2004.  This increase was primarily due to higher results on our investments in Aracruz Celulose S.A*.*and the acquisition of 23% stake in Ripasa Celulose e Papel S.A. on March 31, 2005.

          ***Net income***

          As a result of the foregoing, net income decreased by 13% to US$ 264 million in 2005 compared to US$ 303 million in 2004.

**Year ended December 31, 2004 compared to year ended December 31, 2003**

          ***Introduction***

          The average exchange rate for 2004 was R$ 2.93 to US$ 1.00 compared to R$ 3.08 to US$ 1.00 for 2003.  In 2004, favorable market conditions, such as the growth of the economy in the United States, Europe and other major economies, combined with an increasing Brazilian market that resulted in higher domestic sales volume and a more stable foreign exchange rate.  These factors coincided with a recovery in international pulp prices, driven by low inventories.  Due to these favorable conditions, we were able to improve our presence in the domestic market and to supply our long-term international customers.  

          ***Net sales***

          Net sales increased by 24% to US$ 1,010 million in 2004 from US$ 816 million in the same period in 2003 with an increase in both sales and prices of all products, especially in the export market.  This increase was primarily attributable to higher production of pulp due to the full capacity operation of the Jacareí mill.  Sales volume increased by 24% to 1,459,079 tons in 2004 from 1,175,003 tons in the same period in 2003.  Approximately 51% of our net sales in 2004 were made in the domestic market compared to 54% in the same period in 2003.  Our revenue mix in 2004 was 62% paper and 38% pulp compared to 66% and 34%, respectively, in the same period in 2003.

*          Pulp*.  In the pulp segment, sale volumes increased by 39% to 844,431 tons in 2004 from 606,900 tons in 2003.  The increase in volume was due to increased market pulp production as a result of the use of full production capacity with the end of the learning curve at the Jacareí project and also due to good market conditions.  Net sales attributable to pulp increased by 41% to US$ 387 million in 2004 from US$ 275 million in 2003.  This increase was due to the additional production volume and to the 1% higher average prices of pulp in the international market.  Pulp exports constituted 91% of revenues and sales volume, respectively, of pulp in 2004 compared to 88% in the same period in 2003, for both revenues and sales volume.

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          In the domestic market, the volume of pulp sold remained stable in 2004 (80,000 tons) compared to 2003.  Revenues from domestic pulp sales as a percentage of total pulp net revenues decreased to 9% in 2004 from 12% in 2003.  This decrease was mainly due to a higher demand in the international markets.

*          Paper*.  In the paper segment, domestic sales volumes increased by 9% in 2004 compared to the same period in 2003, mainly due to better market demand, primarily of coated and uncoated printing and writing papers.  Net sales attributable to paper increased by 15% to US$ 623 million in 2004 from US$ 540 million in 2003, mainly due to a 6% increase in the average price of paper.  The domestic market accounted for 77% of paper revenues in 2004 compared to 76% in 2003.

          In 2004, we focused in the domestic market in order to take advantage of the better demand given the local economic growth.  In 2004, domestic prices in *reais* increased by 1% compared to the same period in 2003.  Net sales attributable to cut size paper increased 24% in volume.  However, prices decreased 5% due to competition in this segment.  The increase of coated and special paper exports resulted from a higher sales participation on Mercosur.

          ***Cost of sales***

          Cost of sales increased by 23% to US$ 518 million in 2004 from US$ 421 million in the same period in 2003.  This increase was mostly due to higher costs of wood, labor and raw materials, in addition to the negative impact of a lower exchange rate on our costs denominated in *reais*.  The increase in the cost of wood was due to the greater distance from the forests to our mills, increased purchases of wood from third parties and, to a lesser extent, to the higher costs of transportation as a result of higher fuel costs.  The increase in labor costs was due to wage increases under our collective bargaining agreements negotiated in October 2003 and October 2004.  The cost per unit sold decreased by 1% in 2004 as compared to the same period in 2003.  This decrease was due to an increase of pulp in the mix of products (with a lower unit cost of production) and productivity gains,which fully offset the higher costs mentioned above.

           Our gross margin increased to 49% in 2004 compared to 48% in 2003 mainly due to the increase in the sale prices in the domestic market and lower cost per unit sold.

          ***Selling and marketing expenses***

          Sales expenses increased by 48% to US$ 121 million in 2004, equivalent to 12% of net revenues, compared to US$ 82 million in 2003.  This increase resulted mainly from higher volumes of exported products, resulting in higher international freight and other costs related to exports.

          ***General and administrative expenses***

          General and administrative expenses increased by 21% to US$ 40 million in 2004 from US$ 33 million in 2003.  The increase was attributable to higher wages and third-party contracts.  Expenses were significantly impacted by the effect of a lower exchange rate since most of our expenses were denominated in *reais*.  As a percentage of net sales, general and administrative expenses remained stable at 4% in 2004.

          ***Operating profit***

          Operating profit increased by 21% to US$ 325 million in 2004 from US$ 268 million in 2003.  This increase was primarily due to higher average prices, higher volumes of exported products and lower cost per unit, partially offset by higher sales, general and administrative expenses.  

*          Pulp (including intersegment transactions at market values)*.  Operating profit attributable to pulp increased by 28% to US$ 180 million in 2004 from US$ 140 million in 2003.  This increase was primarily due to a 1% increase in pulp sale prices, a 39% increase in volumes and productivity gains.

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*          Paper (including intersegment transactions at market values)*.  Operating profit attributable to paper increased by 13% to US$ 145 million in 2004 from US$ 128 million in 2003.  This increase was primarily due to a 7% increase in paper sale prices in U.S. dollars, and an 8% increase in volumes.  

          ***Financial income***

          Financial income decreased by 38% to US$ 40 million in 2004 from US$ 65 million in 2003.  The decrease is primarily due to a provision for COFINS tax on financial income, which had not been recorded in 2003.  We use derivative instruments to mitigate the effects of volatility of interest rates on dollar-denominated borrowings (principally export credits) and local interest rates available on *real*-denominated investments and recorded an increased gain in 2004 on these transactions compared with 2003.  The amount we earned from these transactions was recorded as financial income.

          ***Financial expenses***

          Financial expenses decreased to US$ 69 million in 2004 from US$ 71 million in 2003.  The decrease was primarily due to the renegotiation of the pre-payment and the extension of the duration of debt from 2 to 3.49 years.  

          ***Foreign exchange gains (losses) and unrealized gains (losses) on swap, net***

          Foreign exchange gains amounted US$ 12 million in 2004 from losses of US$ 14 million in  2003.  This result was primarily due to the appreciation of the *real* against the U.S. dollar and the fair-value adjustments on swap contracts.  The gains recorded on foreign-currency based transactions, which are mainly U.S. dollar-denominated debt or gains from cross-currency interest rate swap contracts, are translated to U.S. dollars and reported in our statement of income.

          ***Income tax expense***

          In 2004, we recorded an income tax expense of US$ 36 million compared to an income tax expense of US$ 23 million in 2003.  The effective tax rate increased from 9% in 2003 to 12% in 2004.  This increase primarily arose from the tax on the interest on equity distributed by Aracruz and the tax on the mark-to-market gains from the cross-currency interest rate swaps contracts.   

          ***Equity in earnings of affiliates***

          The equity in earnings of affiliates increased to US$ 31 million in 2004 from US$ 19 million in 2003.  This increase was primarily due to higher results on our investments in Aracruz Celulose S.A.

          ***Net income***

          As a result of the foregoing, net income increased by 24% to US$ 303 million in 2004 compared to US$ 244 million in the same period in 2003.

**B.     Liquidity and Capital Resources**

**Liquidity**

          Our principal sources of liquidity have historically been represented by cash generated from operations and short-term and long-term borrowings.  We believe these sources will continue to be adequate to meet our currently anticipated use of funds, which include working capital, investment in capital expenditures, debt repayment and dividend payments.

          We have historically made capital investments in order to, among other things, increase our production and modernize our facilities.  We also review acquisition and investment opportunities.  We may fund these investments through internally generated funds, the issuance of debt or equity or a combination of these methods.  

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          At December 31, 2005, our cash and cash equivalents (which exclude investments held to maturity, available for sale securities and unrealized gains from swaps) increased to US$ 261 million primarily due to the cash generated in our operation and the increase in long-term loans.  These sources were partially offset by the payment for the acquisition of a 23% stake in Ripasa, capital investments made, particularly in forestry assets, as well as the increase in working capital due to higher level of sales in 2005. Cash and cash equivalents of US$ 151 million in 2004 was reduced primarily due to the payment of interim dividends, capital investments made as well as the increase in working capital.  

          At December 31, 2005, we had approximately US$ 576 million (of a total of US$ 707 million) in deposits and investments with our affiliate, Banco Votorantim S.A., and US$ 54 million (of a total of US$ 77 million) in unrealized loss from cross-currency interest rate swap contracts with Banco Votorantim S.A. See “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions” and note 12 to our financial statements.

          At December 31, 2004, our cash, cash equivalents and held-to-maturity investments (current portion) were US$ 220 million, of which US$ 213 million were denominated in U.S. dollars and the remainder in *reais*.  At December 31, 2005, our cash, cash equivalents and available for sale securities (current portion) were US$ 707 million, of which US$ 155 million were denominated in U.S. dollars and the remainder in *reais*.

          At December 31, 2004, our balance sheet presented a working capital balance of US$ 114 million.  At December 31, 2005, our balance sheet presented a working capital balance of US$ 719 million.  We do not expect to have any difficulty in meeting our short-term obligations.

**          Sources of funds**

          Operating activities provided net cash flows of US$ 223 million in 2005 compared to US$ 255 million in 2004 and US$ 238 million in 2003.  

          Financing activities, which include short-term and long-term secured and unsecured borrowings and debt repayments, generated net cash flows of US$ 505 million in 2005, compared to negative net cash flows of US$ 258 million generated in 2004 and net cash flows of US$ 39 million in 2003.  

          At December 31, 2003, our debt was US$ 1,146 million (of which US$ 479 million had short-term maturities) representing an increase of US$ 107 million over the debt recorded at December 31, 2002.  At December 31, 2004 our debt was US$ 945 million.  The long-term position amounted to 60% in 2004 compared to 58% in 2003.  Approximately 83% of the debt was denominated in foreign currencies.  At December 31, 2004, we had net debt (total long- and short-term financing less cash position and held-to-maturity investments) of US$ 469 million compared to net debt of US$ 502 million at December 31, 2003, as a result of strong cash generation during the period partially offset by disbursements for the expansion of the plant.

          At December 31, 2005 our debt was US$ 1,496 million.  The long-term position amounted to 86% in 2005 compared to 60% in 2004.  Approximately 88% of the debt was denominated in foreign currencies.  At December 31, 2005, we had net debt (total long- and short-term financing less cash position and held-to-maturity or available for sale investments) of US$ 866 million compared to net debt of US$ 469 million at December 31, 2004, as a result of the payment for the acquisition of a 23% stake in Ripasa, capital investments made, particularly in forestry assets, as well as the increase in working capital.  These investments were partially offset by the cash generation during the period.  

          In 2003 and 2004, we continued to try to maintain a low exposure to U.S. dollar liabilities.  At December 31, 2003, our net exposure to U.S. dollar liabilities was a negative amount of US$ 47 million.  At December 31, 2004, our net exposure to U.S. dollar liabilities was US$ 8 million, which means that our assets in foreign currency were lower than our liabilities because we were underhedged.  In 2005, taking advantage of the decreasing Brazil’s Sovereign Risk and exchange rate, we changed our hedge policy and increase our exposure limit to foreign currency liabilities up to 10 months of exports.  At December 31, 2005, our net exposure to U.S. dollar liabilities was US$ 273 million.

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***Uses of funds***

          Investing activities, including production capacity increases in Jacareí and Luiz Antônio mills, the development of forestry assets (land acquisition, planting and forest maintenance) and other capital expenditures consumed net cash flows of US$ 97 million in 2003, US$ 148 million in 2004 and US$ 615 million in 2005.  The increase in 2005 is mainly explained by the acquisition of a 23% stake in Ripasa (US$ 275 million) and the purchase of available for sale securities (US$ 110 million).

          Our significant uses of cash included the repayment of our debt totaling US$ 428 million in 2003 and US$ 588 million in 2004.  In 2005, repayment of debt totaled US$ 363 million.

***Debt***

           At December 31, 2005, our total debt was US$ 1,496 million, consisting of US$ 211 million in short-term debt (14% of total debt), including the current portion of long-term debt and represented an increase of US$ 551 million on the debt recorded at December 31, 2004.  At December 31, 2004, our total debt was US$ 945 million, consisting of US$ 376 million in short-term debt (40% of total debt), including the current portion of long-term debt and represented a decrease of US$ 201 million on the debt recorded at December 31, 2003.  

          Most of our U.S. dollar-denominated borrowings are either advances made in respect of our export sales or international bank loans, which have lower interest rates compared to domestic financings.  For our expansion projects, we also use long-term financing in *reais* from BNDES.  At December 31, 2005, our total long-term financing with BNDES was US$ 185 million, US$ 26 million higher than the amount at December 31, 2004.

          In October 2001, Newark Financial Inc., or Newark, a wholly owned subsidiary of VCP Exportadora e Participações S.A., or VCP Exportadora, our wholly owned subsidiary, received a bridge financing for US$ 370 million to finance the acquisition of our stake in Aracruz.  On May 23, 2002, VCP Trading and VCP North America entered into a US$ 380 million credit agreement with ABN Amro Bank N.V., as administrative agent, The Bank of New York, as collateral agent, and a syndicate of banks, with an original maturity in May 2005.  All of the proceeds from the credit agreement were advanced to Newark (US$ 304 million by VCP Trading and US$ 76 million by VCP North America) as a prepayment trade financing between Newark, VCP Trading and VCP North America.  Newark used the proceeds from these advances to pay in full the 2001 bridge financing and to make certain payments in connection withthe credit agreement.  The obligations of VCP Trading and VCP North America under the credit agreement were guaranteed directly or indirectly by Newark, VCP Exportadora and us.  As a guarantor under this credit agreement, we were subject to a number of material covenants including, among others: limitations on our ability to incur debt; limitations on the existence of liens on our properties; limitations on transactions with related parties, which generally must be on terms no less favorable than those that could be obtained in a comparable arm’s-length transaction; and maintenance of certain financial ratios.  The loans under the credit agreement were secured by liens on certain collateral, including receivables arising under agreements entered into by Newark, VCP Trading or VCP North America with its respective customers for the sales of certain products.  The loan was fully repaid in May 2005.

          On June 25, 2003, VCP and VPAR jointly formed the Voto-Votorantim Overseas Trading Operations II Limited, based in Cayman Islands, known as Voto-Votorantim II, with the sole purpose of raising funds.  On July 28, 2003, Voto-Votorantim II issued US$ 250 million 5.75% notes due 2005, which were jointly and severally guaranteed by us, VPAR and Cimento Rio Branco S.A., also a member of the Votorantim group, with our guarantee obligation limited to 50% of the outstanding amount of the notes.  Of this amount, Voto-Votorantim II advanced US$ 125 million, which was guaranteed by VCP and VCP Exportadora, to St. Helen III and such proceeds were used to prepay, in part, the US$ 203 million loan from ABN AMRO Bank.  On July 28, 2003, the credit agreement was amended to reflect the new terms of the financing pursuant to which the new amount outstanding with ABN AMRO Bank was reduced to US$ 78million, and as of September 2003, at a fixed rate of 4.25% per year for a period of one year and with the option to renew for another year thereafter.  The loan was fully repaid by St. Helen III to Voto-Votorantim II on June 27, 2005, with the proceeds of the notes issued by Voto-Votorantim IV described below.

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          The indentures for each issue of notes by Voto-Votorantim I and Voto-Votorantim II, respectively, contained a number of material covenants, among others:  limitations on our ability to incur debt; limitations on the existence of liens on our properties; limitations on transactions with related parties, which generally must be on terms no less favorable than those that could be obtained in a comparable arm’s-length transaction; and maintenance of certain financial ratios.

          On January 23, 2004, Voto-Votorantim Overseas Trading Operations III Limited, or Voto-Votorantim III, a Cayman Islands limited liability company and a wholly owned subsidiary of VPAR, issued US$ 300 of 7.875% Notes due 2014 in the international capital markets.  Under the terms of the indenture, we are a guarantor of the notes for an amount of up to 15% of the outstanding amount of the notes, which corresponds to the total amount received by us under the indenture.

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

|   | • | limitations on our ability to incur debt;                                                                                                                                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                     |
|   | • | limitations on the existence 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 be   obtained in comparable arm’s-length transactions. |

          We act as guarantor, together with other members of the Votorantim group, for up to US$ 150 million of obligations of Votorantrade N.V. under a US$ 300 million export finance agreement between VCP Exportadora and Votorantrade N.V., as borrower, dated as of November 29, 2001.  As part of an amendment executed on April 26, 2004, VCP Trading N.V. assumed half of the US$ 300 million debt that was previously held by Votorantrade N.V.  However, VCP Exportadora and VCP’s financial obligations under such agreement were not amended. This export financing matures in November 2006.  

          Our long-term debt also consists of export credits and import credits with a number of financial institutions.  The lines of credit with respect to export credits generally mature within 24 to 60 months.  Upon shipment, the export credits are associated with that specific, identifiable shipment.  The export credits are repaid with the proceeds of the export receipts from the specific shipment.  At December 31, 2005, the outstanding amount of export credits was US$ 936 million.  The export credits bear annual interest of LIBOR plus 1.49%, for an effective rate of 5.95%.  At December 31, 2005, there was no outstanding amount of import credits.  We have also entered into various pre-export agreements.  See notes 11(a) and 11(b) to our financial statements.

          On June 24, 2005 Voto-Votorantim Overseas Trading Operations IV Limited, or Voto-Votorantim IV, a wholly owned subsidiary of Votorantim Participações, issued US$ 400 million of 7.75% Notes due 2020 that were placed with investors in North America, Europe, Asia and Latin America.  VCP is a guarantor of 50% of the 7.75% Notes due 2020 and in turn received US$ 200 million of the proceeds.

          The indenture for the issue of notes by Voto-Votorantim IV contains a number of covenants including, among others:

|   | • | limitations on our ability to incur debt;                                                                                                                                                |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                     |
|   | • | limitations on the existence 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 be   obtained in comparable arm’s-length transactions. |

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          On June 27, 2005, the US$ 200 million corresponding to VCP’s guarantee and proceeds was used to repay noteholders of Voto-Votorantim I, for half of the US$ 400 million issue that matured on June 2, 2005 and also guaranteed 50% by VCP.  The remaining US$ 200 million of Voto-Votorantim I was repaid by other members of the Votorantim group.

          As of June 28, 2005, Voto-Votorantim I and Voto-Votorantim II investors were fully repaid and VCP’s outstanding guarantees from international capital markets issues by Voto-Votanrtim III and Voto-Votorantim IV were as follows:

| **Primary obligor / Issue date**        |   | **Obligations**                 |   | **Outstanding      guarantee amount    at December 31, 2005** |   | **Date of   Expiration    of guarantee** |   | **Beneficiary**             |   |
|-----------------------------------------|--------|---------------------------------|--------|---------------------------------------------------------------|--------|------------------------------------------|--------|-----------------------------|--------|
|                                         |   |                                 |   |                                                               |   |                                          |   |                             |   |
| Voto-Votorantim III   /January 23, 2004 |   | US$300 million notes   issuance |   | US$      45   million           |   | January 23, 2014                         |   | Noteholders and the trustee |   |
| Voto-Votorantim IV / June   24, 2005    |   | US$400 million notes   issuance |   | US$   200   million                            |   | June 24, 2020                            |   | Noteholders and the trustee |   |
|                                    |   |                            |   |                                                               |   |                                     |   |                        |   |
| **Total**                               |   |                            |   | US$   245   million                            |   |                                     |   |                        |   |
|                                    |   |                            |   |                                                               |   |                                     |   |                        |   |

          Note: The guarantees provided by us are in favor of VCP only

          BNDES, the parent of BNDESPAR, one of our principal shareholders, has been an important source of debt financing.  At December 31, 2005, the BNDES loans amounted to US$ 185 million related to the capacity increase projects, all of which was 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.  Our loans with BNDES bear interest at 3.0% to 4.5% per annum on the principal amount and are indexed using either the *Taxa de Juros de Longo Prazo*, or TJLP, a nominal long-term interest rate that includes an inflation factor.  Part of the loan is indexed by the UMBNDES which is a weighted average exchange variation on a basket of currencies, predominantly U.S. dollars, held by BNDES.  At December 31, 2005, the TJLP was fixedat 9.75% per year, and during 2005 averaged 9.75% per year.  In the first quarter of 2006 the TJLP was reduced to 9% per year and in the second quarter of 2006 to 8.15% per year.  

          At December 31, 2005, the amount of our short-term debt (including current portion of our long-term debt) was US$ 211 million.  At December 31, 2005, the amount of maturities of our long-term debt excluding current portion was as follows:  

| **Year**            |   | **Amount**              |   |
|---------------------|--------|-------------------------|--------|
|                     |   |                         |        |   |
|                |   | **(US$ in   millions)** |   |
| 2007                |   |                    | 39     |   |
| 2008                |   |                    | 97     |   |
| 2009                |   |                    | 198    |   |
| 2010                |   |                    | 501    |   |
| 2011 and thereafter |   |                    | 450    |   |
|                |   |                         |        |   |
| Total               |   |                    | 1,285  |   |
|                |   |                         |        |   |

          At December 31, 2005, all of our short-term debt related to trade financing was secured.  At December 31, 2005, the outstanding amount of that short-term debt was US$ 132 million, with a weighted average interest rate of 4.6%, compared to US$ 79 million at December 31, 2004, with a weighted average interest rate of 2.4%.

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***Capital expenditures***

          During 2005, we invested US$ 247 million in capital expenditures, representing an increase of 13% from the US$ 218 million invested in 2004, and 50% higher than the amount invested in 2003 of US$ 165 million.  Of this amount, US$ 131 million was spent on forestry assets (land acquisition, planting and forest maintenance), and the remaining US$ 116 million was invested in the expansion, modernization and sustaining of our plants.  

***Commitments and contingencies***

          We are subject to numerous commitments and contingencies with respect to tax, labor and other claims.  See “Item 8—Financial Information—Consolidated Statements and Other Financial Information—Legal Matters,” and note 14 to our audited consolidated financial statements and discussions on our critical accounting policies.

          The significant contractual obligations and commitments that affect our liquidity are short-term debt, long-term debt, take-or-pay contracts, leases and capital expenditures.

          At December 31, 2005, we had made provisions in the amount of US$ 172 million, for civil, labor and tax legal proceedings, in long-term liabilities, compared to US$ 104 million in 2004.  We have made judicial escrow deposits under the custodianship of a court held under our name (included in “Other assets—other” in our balance sheet) in the amount of US$ 87 million at December 31, 2005 for certain proceedings.  The position of such provisions for tax and other litigation and deposits is as follows:

|              |   | **2005**     |   | **2004**       |   |
|-------------------|--------|--------------|--------|----------------|--------|
|              |   |              |   |                |   |
|              |   | **Deposits** |   | **Provisions** |   | **Deposits** |   | **Provisions** |   |
|              |   |              |        |           |        |  |   |  |  |   |  |  |   |
| **Tax-related**   |   |         | **83** |           |   | **157** |   |   | **24** |   |   | **93** |   |
| **Civil-related** |   |         |   |           |   | **4** |   |   |   |   |   | **4** |   |
| **Labor-related** |   |         | **4**  |           |   | **11** |   |   | **2** |   |   | **7** |   |
| **Total**         |   | **87**       |   | **172**        |   | **26** |   | **104** |   |
|              |   |              |   |                |   |  |   |  |   |

          We are one of the guarantors, together with other companies of the Votorantim group, of the US$ 300 million notes issued by Voto-Votorantim III and the US$ 400 million issued by Voto-Votorantim IV.  At December 31, 2005, we had loans outstanding totaling US$ 245 million.  For additional information on our commitments and contingencies, see “Item 7—Major Shareholders and Related Party Transactions—Related Party Transactions” and note 14 to our audited consolidated financial statements.

          The following is a summary of the guarantees provided by us in favor of other companies of the Votorantim group:  

| **Primary obligor** |   | **Obligations**                 |   | **Outstanding      guarantee amount    at December 31, 2005** |   | **Date of   Expiration    of guarantee** |   | **Beneficiary**             |   |
|---------------------|--------|---------------------------------|--------|---------------------------------------------------------------|--------|------------------------------------------|--------|-----------------------------|--------|
|                     |   |                                 |   |                                                               |   |                                          |   |                             |   |
| Voto-Votorantim III |   | US$300 million notes   issuance |   | US$     45   million                 |   | January 23, 2014                         |   | Noteholders and the trustee |   |
| Voto-Votorantim IV  |   | US$400 million notes   issuance |   | US$   200   million                            |   | June 24, 2020                            |   | Noteholders and the trustee |   |
|                |   |                            |   |                                                               |   |                                     |   |                        |   |
| **Total**           |   |                            |   | US$  245   million                                  |   |                                     |   |                        |   |
|                |   |                            |   |                                                               |   |                                     |   |                        |   |

          Note: The guarantees provided by us are in favor of VCP only

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          We estimate that, for 2003, 2004 and 2005, an average of approximately 2% of our total number of regular domestic customers (approximately 22%, 21% and 22% respectively, of total domestic sales value) obtained our guarantee for their loans.  At December 31, 2003, 2004 and 2005 we had 11, 11 and 15 customers, respectively, under the vendor program with the average amount per customer based on our vendor program exposure at US$ 4million, US$ 4 million and US$ 9 million, respectively. Our vendor program exposure was US$ 51 million at December 31, 2003, US$ 71 million at December 31, 2004 and US$ 57 million at December 31, 2005.  See “Item 4—Information on VCP—Marketing and Distribution—Paper.”

***Buyback programs***

          We carried over 1,177,000 preferred shares bought from the 2000 buyback program up to February 2002, when we began selling these shares.  We sold 1,177,000 preferred shares in 2002 and 2003 at the weighted average selling price of R$ 25.28 per share.  The minimum price was R$ 17.35 per share and the maximum price was R$ 32.24 per share.  At December 31, 2002, treasury shares totaled 721,500 preferred shares, respectively.  From September 30, 2003, we sold most of our treasury shares and at December 31, 2003, treasury shares totaled 7,900 preferred shares.  At December 31, 2004, treasury shares totaled 157,200 preferred shares.

          On May 13, 2004, our board of directors authorized a buyback program of our shares in the open market, which, after purchase, would be held in treasury to be sold and/or cancelled.  The maximum amount of shares to be purchased was 1,716,000.  This buyback program terminated on May 13, 2005.  

          On May 17, 2005, our board of directors authorized a buyback program of our shares in the open market, which, after purchase, would be held in treasury to be sold and/or cancelled.  The maximum amount of shares to be purchased was 8,000,000, an amount below the legal limit of 10% of the total outstanding shares.  This buyback program terminated on May 16, 2006.  We have not renewed the program; however, our board of directors could authorize a new buyback program whenever they believe it is necessary.  In this last program, VCP purchased 1,050,700 shares from the market with an average price of R$ 28.21 per share or approximately US$ 13 per share.  On May 17, 2006 we held 1,081,500 shares in treasury.

          In December 2004, VCP made a reverse split in order to bring the unit value of their quotations to a more appropriate level from the market’s perspective, as well as to facilitate any transactions involving such Shares.  Previously only blocks of 1,000 shares were negotiable on the São Paulo Stock Exchange (Bovespa).  The reverse split also adjusted the ADR ratio to 1:1, i.e. one ADR is now equivalent to one preferred share.

***Reverse Stock Split***

          On October 18, 2004, the extraordinary general meeting approved the reverse stock split of our shares, under the terms of article 12 of Law no 6,404/76, at the ratio of 200 shares for one share of the respective type.

          In December 2004 the reverse stock split converted our 38,322,699,553 shares, with no par value, representing our entire subscribed capital into 191,613,498 shares, of which 105,702,452 are shares of common stock and 85,911,046 are shares of preferred stock.

          Our ADSs traded at the New York Stock Exchange, within the period stipulated for the adjustment of holdings, split at the ratio of one ADS to two point five ADSs; and the ratio of the ADS changed to one ADR to one preferred share.

          For additional information on our debt, see notes 10 and 11 to our financial statements.

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

          During 2005, 2004 and 2003, we spent approximately US$ 1 million per year on research and development.  We direct research and development activities towards increasing eucalyptus wood and quality yields, making our production more efficient, developing new products and improving the quality of our products.  We maintain close links with various universities and private research institutes.  As an integrated producer of pulp and paper, we have sought to gain an even better understanding of the whole production process.  We attempt to identify the characteristics of both wood and pulp that are essential for the production of high quality paper.

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          Capital expenditures in research and development are integrated in all of the phases of the production process through pioneering initiatives.  Through these initiatives, we started production of whiter and better quality alkaline paper produced from 100% hardwood fiber, adopted micro-cuttings for cloning selected trees to produce rooted cuttings, and developed new products for the market.  Currently, we are the only manufacturer in Brazil of high-resolution coated papers designed for labels for inkjet printing and coated paper that is resistant to humidity.  Our research and development are aimed at satisfying market demand for quality products appropriate for specific applications.

          We participate in two eucalyptus genome projects. FORESTs, which is sponsored by the Eucalyptus Genome Consortium, a consortium of Brazilian pulp, paper and wood product companies, and FAPESP (The State of São Paulo Research Foundation).  The Eucalyptus Genome Project seeks to (i) develop the eucalyptus genetic sequence (the results of the partial sequencing already made results in 130,000 ESTs - Expressed Sequence Tags), (ii) identify the genes responsible for patterns in wood quality, drought and disease resistance and nutrient absorption, and (iii) create tools for marker assisted selection.  FORESTs, which started in May 2000, has a budget of approximately US$ 3.5 million and will take place over a period of approximately five years.  We have committed to fund approximately 30% of this amount for the project.  The consortium will own the results of the project, and we areentitled to full access to the technology resulting from the project.  The FORESTs project is in its intermediate phase.  In May 2003, Ripasa, Suzano Bahia/Sul, Duratex and us, the four companies investing in this project, began selecting researchers interested in presenting proposals for the second and last phase of the project.  The project has consumed US$ 1million, but will be finalized at the cost of US$ 3.2 million.  We cannot assure if or when we are going to have economic return on the project.

          We are participating in another project, the GENOLYPTUS Project, which recently began with the support of the Brazilian Ministry of Science and Technology.  The project involves seven universities, three Embrapa centers and 12 major forest-based companies.  The funding for the project comes from the government (70%) and the consortium of forestry companies (30%).  The focus of the GENOLYPTUS project is to generate a suite of experimental resources and genomic tools to discover, map, validate and further investigate genes of economic importance in species of eucalyptus.  The main objective of the project is to translate this knowledge to improved forest tree breeding and production technologies.  Embrapa started the second stage of Genolyptus Project in November 2004.  The program formed the world’s largest genome data bank about eucalyptus.  In June 2005, Embrapatransferred copies of the genomic data bank to the companies.  The objective is that companies develop improved genetic varieties based on this data.  The project involves investments of US$ 3 million, US$ 2 million of which was invested by the Ministry of Science and Technology.  The other US$ 1 million will be invested by the consortium.  The third stage of the project will last until 2007 with the objective of mapping the eucalyptus gene.  

          We also contribute to research activity by Allelyx, a company of the Votorantim group, which is studying the CSDV (citrus sudden death virus) in order to obtain a modified plant that would resist this virus.

**D.     Trend Information**

          The primary trends which influence our sales and production and inventory levels are:  the patterns and cycles of pulp purchases by paper producers, pulp and paper prices, the level of pulp inventory in the hands of pulp producers in the global market, global economic conditions and the effect of currency fluctuations.

          We continue to pursue growth opportunities to create value for our shareholders through business expansion, strong operational performance and profitability and/or technological and product improvements, always in the context of a long-term strategic focus.  

          For additional information regarding trends in our business, see “Item 4B.  Business—Our Business Strategy” and “Item 5A - Operating Results.”  For risks affecting our business, see “Item 3D - Risk Factors.”

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**E.       Off-Balance Sheet Arrangements**

          We participate in a number of off-balance sheet arrangements, principally relating to guarantees and take or pay contracts.  We also have a number of swap transactions that are described in “Item 11.  Quantitative and Qualitative Disclosures about Market Risk.”  All of these transactions are further described elsewhere in this annual report.

**F.       Tabular Disclosure of Contractual Obligations**

          The following table and discussion provide additional disclosure regarding our material contractual obligations and commercial commitments as of December 31, 2005. 

| **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)      |   |                                | 1,483  |                    |   | 198           |   |          | 136                |                     |   | 699 |   |   | 450 |   |
| Interest payable                |   |                                | 13     |                    |   | 13            |   |          | —   |                     |   | —   |   |   | —   |   |
| Capital lease obligations   (2) |   |                                | 48     |                    |   | 43            |   |          | 5                  |                     |   | —   |   |   | —   |   |
| Operating leases (3)            |   |                                | 12     |                    |   | 2             |   |          | 4                  |                     |   | 4 |   |   | 2 |   |
| Purchase obligations (4)        |   |                                | 418    |                    |   | 80            |   |          | 132                |                     |   | 78 |   |   | 128 |   |
| Pension contribution            |   |                                | 14     |                    |   | 2             |   |          | 4                  |                     |   | 5 |   |   | 3 |   |
| Total                           |   |                                | 1,988  |                    |   | 338           |   |          | 281                |                     |   | 786 |   |   | 583 |   |

|     |
|-----|
| (1) | Includes loans and financings shown in our financial   statements, less interest payable. |
| (2) | Includes any agreements with suppliers of our assets   (including for the Jacareí project). |
| (3) | Includes land leases and wood supply. |
| (4) | Includes take-or-pay contracts. |

          The above table does not reflect contractual commitments discussed in “Item 5E - Off-Balance Sheet Arrangements” above.

**ITEM 6.  DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES**

**A.  Directors and Senior Management**

          We are managed by our *Conselho de Administração*, or board of directors, composed of at least three and at most ten members, and our *Diretoria*, or board of officers, composed of at least three and at most ten members (each an executive officer).  From our general shareholders’ meeting at April 20, 2005 we had a permanent *Conselho Fiscal*, or fiscal committee, which is composed of at least three and at most five members.

**Board of Directors**

          According to our by-laws, our board of directors is required to meet at least three times a year and when called by the chairman or by the majority of members of the board of directors.  Our board of directors met thirteen times during 2005 (three ordinary and ten extraordinary meetings).  Our board of directors is responsible for, among other things, establishing our general business policies and for electing our executive officers and supervising their management.  The board of executive officers meets periodically to review production, commercial and financial operations.

          According to our by-laws, the members of the board of directors are elected by the holders of our common shares at the general meeting of shareholders.  Members of the board of directors serve two-year terms.  The terms of the current members, elected at our shareholders’ general meeting on April 20, 2005, expire in 2007.

          Pursuant to Brazilian corporate law, shareholders of publicly traded companies such as us that together hold preferred shares representing at least 10% of our total share capital for at least three months are entitled to appoint one member of our board of directors as long as no multiple voting procedure has been requested.  Until 2005, the board members that may be elected by holders of preferred shares shall be chosen from a list of three names drawn up by our controlling shareholder.  The holders of our preferred shares have not yet elected any member of our board of directors.

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          Set forth below are the name, age and position of each member of our board of directors elected at our shareholders’ general meeting on April 20, 2005:

| **Name**                                            |   | **Age** |   | **Position**  |
|-----------------------------------------------------|--------|---------|--------|---------------|
|                                                     |   |         |   |               |
| José Roberto Ermírio de   Moraes(1)       |   | 48      |   | Chairman      |
| Fábio Ermírio de Moraes(2)                |   | 44      |   | Vice-Chairman |
| Carlos Ermírio de Moraes(3)                    |   | 50      |   | Member        |
| Clóvis Ermírio de Moraes   Scripilliti(4) |   | 47      |   | Member        |
| José Luciano Duarte Penido                     |   | 58      |   | Member        |

|     |
|-----|
| (1) | José Roberto Ermírio de Moraes is the son of José   Ermírio de Moraes Filho, who passed away in 2001. |
| (2) | Fábio Ermírio de Moraes is the son of Ermírio   Pereira de Moraes, who was once a board member.  He is also the cousin of José Roberto Ermírio de Moraes. |
| (3) | Carlos Ermírio de Moraes is the son of Antonio   Ermírio de Moraes, who was once a board member.  He is also the cousin of José Roberto Ermírio de Moraes. |
| (4) | Clóvis Ermírio de Moraes Scripilliti is the son of   Clovis Scripilliti, who passed away in 2000.    He is also the cousin of José Roberto Ermírio de Moraes. |

**Board of Executive Officers**

          Our executive officers are responsible for our day-to-day management.  The executive officers have individual responsibilities established by our by-laws and by the board of directors and are independent from the Ermírio de Moraes family, our ultimate controlling shareholders.  The executive officers are elected by the board of directors for one-year terms, although any executive officer may be removed by the board of directors before the expiration of his term.  The current term of all our executive officers ends on April 30, 2007.   

          Set forth below are the name, age and position of each of our executive officers elected on April 28, 2006:

| **Name**                                 |   | **Age** |   | **Position**                                               |
|------------------------------------------|--------|---------|--------|------------------------------------------------------------|
|                                          |   |         |   |                                                            |
| José Luciano Duarte Penido          |   | 58      |   | President & Chief Executive Officer                    |
| Francisco Fernandes Campos Valério  |   | 58      |   | Technical & Industrial Officer                         |
| Luiz Carlos Ganzerli                     |   | 58      |   | Human Resource & Organizational Development   Officer  |
| Sérgio Marnio Gandra Vaz            |   | 62      |   | Paper Business Officer                                     |
| Valdir Roque                             |   | 55      |   | Chief Financial Officer & Investor Relations   Officer |
| José Maria de Arruda Mendes   Filho |   | 52      |   | Forest Operations Officer                                  |
| Antonio Sergio Pinzan de   Almeida       |   | 44      |   | Pulp Business Officer                                      |
|                                     |   |    |   |                                                       |

**Biographical Information**

*          José Roberto Ermírio de Moraes*.  Mr. José Roberto Ermírio de Moraes has been the chairman of our board of directors since 1992 and was our president from 1992 to April 26, 2002. He is the Chief Executive Officer of Votorantim Industrial and member of Executive Committee of Votorantim Group, and he has a B.A. in Metallurgy Engineering from the Armando Alvares Penteado Foundation College in São Paulo, Brazil.  

*          Fábio Ermírio de Moraes*.  Mr. Fábio Ermírio de Moraes is a mechanical engineer and has been working for the Votorantim Group since 1985.  Chairman of the Board of Directors of Votorantim Cimentos, Director Vice-President of Votorantim Industrial and Member of the Executive Committee of Votorantim Group.

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*          Carlos Ermírio de Moraes*.  Mr. Carlos Ermírio de Moraes has been working for the Votorantim Group since 1983.  He is the President of the Board of Directors of CPFL (Cia. Paulista de Força e Luz) and a member of the Board of Directors of VBC Energia S/A (Votorantim, Bradesco and Camargo Energia).  

*          Clóvis Ermírio de Moraes Scripilliti*.  Mr. Scripilliti has served as a member of our board of directors since 2000.  He is the President of Family Council and a member of the Executive Committee of Votorantim Group.  He studied Metallurgy Engineering at Mackenzie University in São Paulo, Brazil.  

*          José Luciano Duarte Penido*.  Mr. Penido has served as our chief executive officer since January 5, 2004.  Prior to that, he was the president of Samarco Mineração S.A. for eleven years.  He is also the vice-president of the Minas Gerais Industry Federation, where he directs the Enterprise Citizenship Council.  He has a degree in mining engineering from the Federal University of Minas Gerais.

*          Francisco Fernandes Campos Valério*.  Mr. Valério joined us in January 1998.  He previously worked in senior positions at Bahia Sul, Aracruz, Suzano, Braskraft Florestal e Industrial and Olinkraft Celulose e Papel.  He holds a B.A.  in Mechanical Engineering from the Universidade Federal de Santa Catarina, Brazil.  

*          Luiz Carlos Ganzerli*.  Mr. Ganzerli was first elected an executive officer in February 2000.  He previously held positions in the human resources and organizational development departments at Roche Químicos e Farmacêuticos from 1999 to 2000 and Alpargatas Santista Textil S.A. from 1994 to 1999.  He holds a B.A.  in Business Administration from Mogi das Cruzes University, Brazil.  

*          Sérgio Marnio Gandra Vaz*.  Mr. Vaz has been our business director since 1992.  He previously held positions in the sales and marketing areas of Unilever Brasil from 1970 to 1988.  In 1988, he was the commercial director at Indústrias de Papel Simão S.A. and KSR Comércio e Indústria de Papel S.A., both bought by VCP in 1992.  He holds a B.A.  in Business Administration from FEA, the Administration and Economics College of the University of São Paulo, Brazil, and has taken specialization courses in Managing Marketing at IMD International, Switzerland and at Dynamic Global Market at the Kellogg School/Northwestern University, United States.  

*          Antonio Sérgio Pinzan de Almeida*.  Mr. Almeida joined the company in 1990, as a Sales Manager in the paper division. In 1996 Mr. Almeida has structured the pulp business, and has been responding for this business since the beginning of its activities. He has been working in Trading Companies and Industries for more than twenty years, always focused in the international markets and holds a B.A. in Business Administration from FASP, Brazil and Master Business Administration from FEA/USP, Universidade de São Paulo, Brazil.

*          Valdir Roque*.  Mr. Roque has been our chief financial officer and our Investor Relations director since 1994.  He previously worked at Monsanto do Brasil S.A. as Treasurer, and at General Electric and Ford.  He has completed postgraduate courses in Business Administration at the Getúlio Vargas Foundation in São Paulo, Brazil, holds a B.A.  in Economics from the Catholic Pontifice University in São Paulo, Brazil and has taken specialized courses in financial management at the Stanford Business School, California in the United States and IMD in Lausanne, Switzerland.  

          *José Maria de Arruda Mendes Filho. * Mr. Mendes is a forest engineer and has been working for the Votorantim Group since 1982, when he started at Companhia de Cimento Portland Itaú.  He joined VCP in 1988 to develop the forest area of the company and to supply the pulp mills.  He has a degree in forest engineering from ESALQ/USP, Universidade de São Paulo, Brazil, and also a master degree from USP. He has been VCP’s forest operations’ director since August 2004.

**Fiscal Committee**

          Under the Brazilian Corporate Law, the *Conselho Fiscal* (Fiscal Committee) is a corporate body independent of management and a company’s external auditors.  In the past, a Conselho Fiscal was not typically equivalent to or comparable with a U.S*.* audit committee; its primary responsibility had been to monitor management’s activities, review the financial statements, and report its findings to the shareholders.  However, pursuant to an exemption under the SEC rules regarding the audit committees of listed companies, a foreign private issuer is not required to have a separate audit committee composed of independent directors if it has a board of auditors established and selected pursuant to home country legal or listing provisions expressly requiring or permitting such a board and such board meets certain requirements.  

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Pursuant to this exemption, our *Conselho Fiscal* exercises the required duties and responsibilities of a U.S. audit committee to the extent permissible under Brazilian Corporate Law.  To comply with the SEC rules, the board of auditors meets the following standards:  it is separate from the full board, its members are not elected by management, no executive officer is a member, and Brazilian law sets forth standards for the independence of the members.  In addition, in order to qualify for the exemption, the board of auditors, to the extent permitted by Brazilian law (as discussed further below):  

|   | a.     | is responsible for the appointment, retention,   compensation and oversight of the external auditors (including the resolution   of disagreements between management and the external auditors regarding   financial reporting);                                                                                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                        |
|   | b.     | is responsible for establishing procedures for the   receipt, retention and treatment of complaints regarding accounting, internal   accounting controls or auditing matters, and procedures for the confidential,   anonymous submission by employees of concerns regarding questionable accounting   or auditing matters; |
|   |   |                                                                                                                                                                                                                                                                                                                        |
|   | c.     | has the authority to engage independent counsel and   other advisors as it determines necessary to carry out its duties; and                                                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                        |
|   | d.     | receives appropriate funding from the company for   payment of compensation to the external auditors, for any advisors and   ordinary administrative expenses.                                                                                                                                                              |

          As a foreign private issuer, we decided to modify our *Conselho Fiscal* to comply with the exemption requirements.  Our Board of Directors approved the delegation to the *Conselho Fiscal* of certain additional responsibilities and the *Conselho Fiscal* and the Board of Directors adopted an additional charter that delegates to the *Conselho Fiscal* the duties and responsibilities of a U.S. audit committee to the extent permitted under Brazilian Corporate Law.  Because Brazilian Corporate Law does not permit the Board of Directors to delegate responsibility for the appointment, retention and compensation of the external auditors and does not provide the board or the *Conselho Fiscal* with the authority to resolve disagreements between management and the external auditors regarding financial reporting, the *Conselho Fiscal* cannot fulfill these functions. Therefore, in addition to its oversight responsibilities, the *Conselho Fiscal* may only make recommendations to the Board of Directors with respect to the appointment, retention and compensation of the external auditors, and with regard to resolution of disagreements between management and the external auditors, the *Conselho Fiscal* may only make recommendations to management and the board.

          Under the Brazilian Corporate Law, the *Conselho Fiscal* may not contain members who are members of the Board of Directors or the executive committee, or who are employees of VCP or the Votorantim group, or a spouse or relative of any member of our management.  In addition, the Brazilian Corporate Law requires that *Conselho Fiscal* members receive a remuneration at least 10% of the average amount paid to each executive officer.  The Brazilian Corporate Law requires a *Conselho Fiscal* to be composed of a minimum of three and a maximum of five members and their respective alternates.

          Our *Conselho Fiscal* is composed of three members who are elected at the annual shareholders’ meeting, with terms lasting until the next annual shareholders’ meeting after their election.  Under the Brazilian Corporate Law, holders of preferred shares have the right to elect separately one member of the *Conselho Fiscal*.  Also, under the Brazilian Corporate Law, minority groups of shareholders that hold at least 10% of the voting shares also have the right to elect separately one member of the *Conselho Fiscal*.  In any event, however, the common shareholders have the right to elect the majority of the members of the *Conselho Fiscal*.  Set forth below are the names, ages and positions of the members of our *Conselho Fiscal* and their respective alternates, as of April 28, 2006, the date of the last annual shareholders’ meeting. 

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| **Name**                    |   | **Age** |   | **Length of   Term** |   | **Year First   Elected** |   | **Position** |
|-----------------------------|--------|---------|--------|----------------------|--------|--------------------------|--------|--------------|
|                             |   |         |   |                      |   |                          |   |              |
| João Carlos Hopp       |   | 76      |   | one year             |   | 2001                     |   | Member       |
| Geraldo Gianini             |   | 55      |   | one year             |   | 2006                     |   | Alternate    |
| Miguel Roberto Gherrize (1) |   | 67      |   | one year             |   | 2005                     |   | Member       |
| Sérgio Seidiyu Yatabe  |   | 50      |   | one year             |   | 2005                     |   | Alternate    |
| José Carlos de Brito   |   | 67      |   | one year             |   | 2005                     |   | Member       |
| Antonio Arena Neto          |   | 64      |   | one year             |   | 2005                     |   | Alternate    |

|     |
|-----|
| (1) | Miguel Roberto Gherrize is   the audit committee financial expert. |

**B.  Compensation**

          According to our by-laws, our directors do not receive any compensation.  As of the year ended December 31, 2005, the aggregate compensation, including cash and benefits-in-kind, paid to our executive officers (a total of seven persons at the time) was approximately R$ 4.5 million (corresponding to US$ 1.8 million).

**C.  Board Practices**

          Our board of directors generally meets three times a year and when called by the chairman or by the majority of the members of the board of directors.  Our board of directors met thirteen times during 2005.  Our board of directors is responsible for, among other things, establishing our general business policies and for electing our executive officers and supervising their management.  The board of executive officers meets periodically to review production, commercial and financial operations.

          According to our by-laws, the members of the board of directors are elected by the holders of our common shares at the general meeting of shareholders.  Members of the board of directors serve two-year terms.  The terms of the current members expire on April 30, 2007.

**D.  Employees**

          As of December 31, 2005, we employed 3,620 persons.  We use subcontractors for many of our forestry operations and for substantially all of the transportation of wood, pulp and other raw materials.  These subcontractors employed 5,014 persons for our business as of December 31, 2005.  Approximately 85% of the workers in our forests are employed by third parties, predominantly in areas such as maintenance and security.  See “Item 4—Information on VCP—Business Overview—Raw Materials—Wood” and “Item 4—Information on VCP—Business Overview—Transportation.”  We are in compliance with all local, state and federal worker health and safety regulations.

          Several unions represent our employees and we consider the unions to be well organized.  Collective bargaining agreements relating to forest workers were renewed in 2005 and expire in November 2006.  Collective bargaining agreements relating to other employees that expired in September 2005 were renewed for another year, with the employees receiving a 7% pay increase and a R$ 700.00 advance for employees hired before September 30, 2005.  We are currently engaged in negotiations to renew the agreements for another year.  Since 1989, we have experienced four labor strikes, all of which affected the pulp and paper industry generally and lasted an average of three days.  We believe we have good relationships with our employees.

          In March 2000, we began to participate in a Votorantim group pension plan, which was made available to all of our employees.  For more detailed information, see “—Defined Contribution Pension Plan” below.

          In December 2005 we provisioned for the costs of post-retirement benefits expected to be paid to current, former or inactive employees upon retirement. For more detailed information, see “—Post-retirement Benefit Plan” below.

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**Defined Contribution Pension Plan**

          In March 2000 we began co-sponsoring a multi-employer defined contribution plan of the Votorantim Group which is available to all of our employees.  For employees below a certain income level we match the employee’s contribution limited to 1.5% of the employee’s compensation.  For employees above that income level we match the employee’s contribution up to 6% of the employee’s compensation.  At our option we may also make additional contributions.  Our contributions vest in varying percentages depending on the employee’s years of service and will fully vest upon the employee’s retirement, death or disability, provided the employee has at least one year of service.  Our contributions were US$ 2 million in 2005.

**Profit Sharing Plan**

          Pursuant to Brazilian federal law, companies operating in Brazil are required to share profits with employees beginning from fiscal year 1996.  In 1996, we instituted a profit sharing plan for our employees in addition to providing health and life insurance, transportation, meals and training.  Pursuant to the program, each employee’s share of profits is linked to our operational and financial results.  Employees are eligible to receive payment of up to one month’s salary payable in February of each year.  Part of the profit sharing payment relating to the income for that year is advanced in August.  Payment is granted if defined goals set by management are achieved by the process or industrial unit in which the employee works and based on the individual performance of the employee.  Several unions that represent our employees have agreed to this profit sharingplan.

**Post-retirement Benefit Plan**

          The actuarial liability relates to our proportion of the costs of a hospital facility we share with co-sponsors. Although the not-for-profit hospital is funded by multiple-employers, it has no separate assets and costs are apportioned among the sponsors based on usage.  No liability had been recorded prior to 2005.  Contributions paid to the hospital in the year ended December 31, 2005 and 2004 amounted to US$ 1 million.

          Based on the report of our independent actuary, the accumulated post-retirement benefit obligation and accrued benefit cost (no plan assets) was US$ 21 million.

|                                                   |   | **Percentage** |   |
|--------------------------------------------------------|--------|----------------|--------|
|                                                   |   |                |   |
| Weighted-average   assumptions as of December 31, 2005 |   |           |   |   |
| Discount rate                                          |   |           | 8.5    |   |
| Health care cost trend on   covered changes            |   |           | 3.0    |   |
|                                                   |   | **US$**        |   |
|                                                   |   |                |   |
| Components of net periodic   benefit cost for 2006     |   |           |   |   |
| Interest cost                                          |   |           | 2      |   |
|                                                   |   |                |        |   |
| Total net periodic benefit   cost (benefit)            |   |           | 2      |   |
|                                                   |   |                |        |   |

          It has been assumed, for measurement purposes, that health care cost trends for 2006 will not be considerably different from 2005.  Our actuaries are unable to project the direction and pattern of changes in the assumed trend rates, the ultimate trend rates, nor can they estimate when the rates are expected to be achieved.  A one-percentage-point change in assumed health care cost trend rates would have the following effects in 2005 (all other assumptions have been held constant):

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|                                            |   | **One-percentage-   point increase** |   | **One-percentage   -point decrease** |   |
|-------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
|                                            |   |                                      |   |                                      |   |
| Sensitivity   of retiree welfare results        |   |                                 |   |                                 |   |   |   |
| On   total service and interest cost components |   |                                 | 0.3    |                                 |   | (0.3 | ) |
| On   post-retirement benefit obligation         |   |                                 | 2.0    |                                 |   | (2.0 | ) |

**E.  Share Ownership**

          As of December 31, 2005, the members of our board of directors and our officers, on an individual basis and as a group, directly own less than 1% of our preferred shares and none of our common shares.  For information on the beneficial ownership by the Ermírio de Moraes family, see “Item 7—Major Shareholders and Related Party Transactions—Major Shareholders.”  The following table lists the amount of shares held directly by each individual member of our board of directors or executive officer and their representative percentage relative to the total outstanding shares as of April 30, 2006: 

|                                             |   | **Common**              |   | **Preferred**                                             |   |
|--------------------------------------------------|--------|-------------------------|--------|-----------------------------------------------------------|--------|
|                                             |   |                         |   |                                                           |   |
|                                             |   | **Number of    Shares** |   | **Percentage   of    the Total    Outstanding    Shares** |   | **Number of    Shares** |   | **Percentage   of    the Total    Outstanding    Shares** |   |
|                                             |   |                         |        |                                                      |        |  |   |  |  |   |  |  |   |
| **Board of Directors**                           |   |                    |   |                                                      |   |   |   |   |   |   |   |   |   |
| José   Roberto Ermírio de Moraes       |   |                    | 0      |                                                      |   | 0 | % |   | 1 |   |   | 0 | % |
| Fábio Ermírio de   Moraes              |   |                    | 0      |                                                      |   | 0 | % |   | 1 |   |   | 0 | % |
| Clóvis   Ermírio de Moraes Scripilliti |   |                    | 0      |                                                      |   | 0 | % |   | 1 |   |   | 0 | % |
| Carlos Ermírio de Moraes                    |   |                    | 0      |                                                      |   | 0 | % |   | 1 |   |   | 0 | % |
| José Luciano Penido (*)                     |   |                    | 0      |                                                      |   | 0 | % |   | 1(* | ) |   | 0 | % |
| **Executive Officers**                           |   |                    |   |                                                      |   |   |   |   |   |   |   |   |   |
| José Luciano Penido(*)                      |   |                    | 0      |                                                      |   | 0 | % |   | 1(* | ) |   | 0 | % |
| Francisco Fernandes Campos   Valério        |   |                    | 0      |                                                      |   | 0 | % |   | 3,000 |   |   | 0 | % |
| Luiz Carlos Ganzerli                             |   |                    | 0      |                                                      |   | 0 | % |   | 0 |   |   | 0 | % |
| Sérgio Marnio Gandra Vaz                    |   |                    | 0      |                                                      |   | 0 | % |   | 18 |   |   | 0 | % |
| Valdir Roque                                     |   |                    | 0      |                                                      |   | 0 | % |   | 0 |   |   | 0 | % |
| José   Maria de Arruda Mendes Filho...      |   |                    | 0      |                                                      |   | 0 | % |   | 15 |   |   | 0 | % |
| Antônio   Sérgio Pinzan de Almeida...  |   |                    | 0      |                                                      |   | 0 | % |   | 0 |   |   | 0 | % |
| Total                                            |   |                    | 0      |                                                      |   | 0 | % |   | 3,038 |   |   | 0 | % |

|                                                                                                                                                           |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------|
| Source: Itaú Custódia.                                                                                                                          |
| (*)  Mr.  José Luciano Penido is part of both the   Board of Directors and Executive Officers and he owns only 1 preferred share   of VCP. |

**ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

**A.  Major Shareholders**

          The following table sets forth the principal holders of common and preferred shares and their respective shareholdings as of April 30, 2006: 

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|                                    |   | **Common**                                       |        | **Preferred** |   | **Total**  |   |
|-----------------------------------------|--------|--------------------------------------------------|-------------|---------------|--------|------------|--------|
|                                    |   |                                                  |        |               |   |            |   |
| **Shareholders**                        |   | **Shares**                                       |        | **(%)**       |   | **Shares** |   | **(%)** |   | **Shares** |   | **(%)** |   |
|                                         |   |                                                  |             |          |        |            |   |  |  |   |  |  |   |  |  |   |  |  |   |
|                                    |   | **(in   million of shares, except percentages)** |        |
| Votorantim Participações S.A. |   |                                             | 94,022,846  |          |   | 88.95      |   |   | 3 |   |   | 0 |   |   | 94,022,849 |   |   | 49.07 |   |
| Nova HPI Participações Ltda.  |   |                                             | 11,679,604  |          |   | 11.05      |   |   | 0 |   |   | 0 |   |   | 11,679,604 |   |   | 6.10 |   |
| Total Votorantim group                  |   |                                             | 105,702,450 |          |   | 100.00     | %      |   | 3 |   |   |   |   |   | 105,702,453 |   |   | 55.17 |   |
| BNDES Participações S.A.      |   |                                             | 0           |          |   | 0          |   |   | 6,576,539 |   |   | 7.66 |   |   | 6,576,539 |   |   | 3.43 |   |
| Treasury Stock                          |   |                                             | 2           |          |   | 0          |   |   | 1,081,499 |   |   | 1.26 |   |   | 1,081,501 |   |   | 0.56 |   |
| Public (Free Float)                     |   |                                             | 0           |          |   | 0          |   |   | 78,253,005 |   |   | 91.09 |   |   | 78,253,005 |   |   | 40.84 |   |
|                                    |   |                                                  |             |          |        |            |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Total                                   |   |                                             | 105,702,452 |          |   | 100.00     | %      |   | 85,911,046 |   |   | 100.00 | % |   | 191,613,498 |   |   | 100.00 | % |
|                                    |   |                                                  |             |          |        |            |   |  |  |   |  |  |   |  |  |   |  |  |   |

          The ultimate beneficial owner, in each case, of more than 5% of our common shares through intermediate holdings companies is the Ermírio de Moraes family who, in the aggregate, beneficially owns 100% of our voting common shares.  The Ermírio de Moraes family does not own any of our preferred shares.  All holders of our voting common shares have the same voting rights.  Each of our directors, other than José Luciano Duarte Penido  has material beneficial interests in trust holdings.

**B.  Related-Party Transactions**

          We have engaged in a number of transactions with related parties.  

**Distributions and Sales Outside of Brazil**

          In 2002 and 2003, we sold approximately 56% and 17%, respectively, of our exports through Votorantrade, a member of the Votorantim group engaged in the sale and distribution of certain of the Votorantim group’s products, with offices in various locations throughout the world.  In 2004 and 2005, all of our exports were sold through VCP Overseas Holding KfT by VCP Trading and VCP North America.  From 2006 on, all of our exports are sold through VCP Overseas Holding KfT by VCP Overseas Holding Limited, Budapest, the Switzerland branch of our international subsidiary.

**Banco Votorantim S.A.**

          We have entered into a number of financial transactions with or through Banco Votorantim S.A., or Banco Votorantim, a financial institution controlled by the Votorantim group and its affiliates.  At December 31, 2005 we had approximately US$ 576 million (of a total of US$ 707 million) in deposits and available-for-sale securities with Banco Votorantim and US$ 54 million in unrealized losses from cross-currency interest rate swap contracts with Banco Votorantim.  

**Votocel**

          In January 2004, we entered into a service contract with Votocel pursuant to which we provide Votocel information technology and human resources services for a fee of R$ 2.4 million per year.  The term of the contract is one year, renewable annually on terms to be negotiated by Votocel and us at the time of renewal.  On May 31, 2005, we renewed this contract until December 31, 2005, adding a value of US$ 1.8 million.  We believe that this service contract is on terms that are fair and reasonable to us.  In 2005, Votorantim Group sold 100% of Votocel to a third party and since then it is not a related party any more.  

**Guarantees**

          At December 31, 2005, we guaranteed US$ 245 million of debt of other members of the Votorantim group which pertains to the aggregate amount of debt issued in the international capital markets.  In each case, the Outstanding guarantee amount at December 31, 2005 pertains to the amount of proceeds that were received by us and/or our subsidiaries on the issue date.  The remaining debt raised was received and also guaranteed by other members of the Votorantim group.  The US$ 245 million corresponding to VCP is made up of the following; 

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| **Primary obligor**                                      |   | **Obligations**               |   | **Issue Date**   |   | **Outstanding         guarantee amount         at December 31, 2005** |   | **Date of Expiration         of guarantee** |   | **Beneficiary**             |   |
|----------------------------------------------------------|--------|-------------------------------|--------|------------------|--------|-----------------------------------------------------------------------|--------|---------------------------------------------|--------|-----------------------------|--------|
|                                                          |   |                               |   |                  |   |                                                                       |   |                                             |   |                             |   |
| Voto-Votorantim Overseas Trading Operations III Limited. |   | US$300 million notes issuance |   | January 23, 2004 |   | US$     45 million                           |   | January 23, 2014                            |   | Noteholders and the trustee |   |
| Voto-Votorantim Overseas Trading Operations IV Limited.  |   | US$400 million notes issuance |   | June 24, 2005    |   | US$   200 million                                      |   | June 24, 2020                               |   | Noteholders and the trustee |   |
|                                                     |   |                          |   |             |   |                                                                       |   |                                        |   |                        |   |
| **Total**                                                |   |                          |   |             |   | US$   245 million                                      |   |                                        |   |                        |   |
|                                                     |   |                          |   |             |   |                                                                       |   |                                        |   |                        |   |

Note: The guarantees provided by us are in favor of VCP only

          Each of the primary obligors listed above are special purpose companies established with the sole purpose of issuing debt.  As such, upon maturity of the debt issued, which is also the date of expiration of the guarantee, we will either repay lenders or seek to refinance the maturing debt.

          The BNDES loans are secured by property, plant and equipment and a lien on certain land and personal guarantees of an owner of Hejoassu, our ultimate parent company.

          We believe the other companies of the Votorantim group, whose debt we guarantee, are creditworthy and we do not expect to be called on to make payments on our guarantees.  In addition, given our ability to obtain short-term financing, we do not believe that there is substantial risk of illiquidity 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 in favor of other companies of the Votorantim group.  For additional information on our commitments and contingencies, see note 14 to our audited consolidated financial statements.

**Leases of Forest Land**

          At December 31, 2005, we leased approximately 77,700 hectares of forestland, or approximately 63% of the land devoted to our forestry operations.  Approximately 26,000 hectares of the planted area are leased from other companies of the Votorantim group (other than our subsidiaries).  The leases, most of which commenced in 1991, are typically for a term of 21 years, which covers approximately three harvest cycles.  The lease payments are equivalent to 30% of the market prices of the wood produced on the property and are payable after each harvest, based on market prices.  

**BNDESPAR**

          A shareholder of our preferred shares, BNDESPAR is a wholly owned subsidiary of BNDES, the Brazilian economic development bank owned by the Brazilian federal government.  We have entered into a number of financing transactions with BNDES.  At December 31, 2005, we had an aggregate of US$ 185 million in outstanding 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 guarantees of an owner of Hejoassu, the ultimate parent of the Votorantim group.  Our loans with BNDES bear interest at 3% per annum on the principal amount and are indexed using the TJLP, a nominal long-term interest rate that includes an inflation factor.  US$ 27 million bear an interest rate of 12.86% (the UMBNDES Index).  The UMBNDESIndex is a weighted average rate based on the exchange rate of a basket of currencies, predominantly the U.S. dollar, held by BNDES.  At December 31, 2005, the TJLP was fixed at 9.75%, and during 2005 averaged 9.75% per year.  See notes 11 and 12 to our consolidated financial statements.    

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          For additional information regarding related-party transactions, see “Item 5 – Operating and Financial Review and Prospects – Liquidity and Capital Resources” and note 12 to our consolidated financial statements.

**C.  Interests of Experts and Counsel**

          Not applicable.  

**ITEM 8.  FINANCIAL INFORMATION**

          Our consolidated financial statements include the accounts of VCP and our directly and indirectly controlled subsidiaries: VCP Exportadora e Participações S.A. (“VEP”), VCP Florestal Ltda. (merged into VCP on January 1, 2005), St. Helen Holding III B.V., Normus Emprendimentos e Participações Ltda., Newark, VCP Overseas Holding KFT, VCP North America Inc. and VCP Trading N.V. (Netherlands Antilles), all of which are wholly owned.  Significant intercompany accounts and transactions have been eliminated in the consolidation.  The 12.35% owned equity investee, Aracruz Celulose S.A., in which we acquired our interest during 2001 (Note 4) and our 50-percent-owned equity investees, Voto-Votorantim Overseas Trading Operations N.V., Voto-Votorantim Overseas Trading Operations II Limited and Voto-Votorantim Overseas Trading Operations IV Limited respectively, areaccounted for using the equity method.  

          On March 31, 2005, Ripasa Participações S.A. (“Ripar”), a joint venture in which we own 50%, acquired a 46.06% interest in the total capital and 77.59% interest in the voting capital of Ripasa S.A. Celulose e Papel (“Ripasa”), a Brazilian pulp and paper producer.  We account for our interest in Ripar using the equity method of accounting.

**A.  Consolidated Statements and Other Financial Information**

          See “Item 3—Key Information—Selected Financial Data” and “Item 18—Financial Statements.”

**Legal Matters**

          We are party to administrative proceedings and lawsuits that are incidental to the normal course of our business.  These include general civil, tax and employee litigation and administrative proceedings.  At December 31, 2005, we were defendants in 1,237 labor lawsuits filed by our former employees and former employees of our subcontractors and 380 civil proceedings.  We believe that we will prevail in the majority of these lawsuits, and do not consider that, if decided against us, these proceedings individually or in the aggregate will have a material adverse effect on us or on our financial condition.  At December 31, 2005, our provisions for legal proceedings were  US$ 172 million, of which US$ 157 million related to tax disputes and approximately US$ 15 million related to civil and labor proceedings.  We believe that our provisions for legal proceedings are sufficient tomeet probable and reasonably estimable losses in the event of unfavorable court decisions and that the ultimate outcome of these matters will not have a material effect on our financial condition or results of operations.  We cannot estimate the amount of all potential costs that we may incur or penalties that may be imposed on us other than those amounts for which we have provisions.

          On May 22, 2002, we (along with many other Brazilian companies) received a notice from the Central Bank requesting that we provide information regarding our remittances abroad to certain exporters of equipment imported by us.  We responded to the Central Bank within the 30-day period with the information that was requested.  In spite of this, the Central Bank issued a fine in the amount of US$ 14 million.  We presented our defense to the Central Bank to refute the payment of the fine, and we succeeded in the first hearing in 2005, but this lawsuit remains subject to appeal.  We believe that our chances of success are high because we have the documents necessary to prove the transactions.

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          We have instituted a number of legal proceedings in which we are seeking a refund or contesting the imposition of certain taxes.  For example, in 1999, we filed a lawsuit challenging the 1% increase in the COFINS tax rate (from 2% to 3%), a tax on revenues.  Although we have obtained a legal injunction, based on advice from our legal counsel and reflecting rulings by the Federal Supreme Court, we accrued US$ 55 million relating to this claim, from 2002 through 2004.  In December 2005 we made a judicial deposit of US$ 55 million following an unfavorable decision of the Supreme Court.  During 2005, we recorded an additional US$ 21 million related to the 1% increase in the COFINS tax rate.  

          In addition, we are party to certain lawsuits and administrative proceedings before various courts and governmental agencies with respect to certain other tax liabilities arising in the ordinary course of our business.  We cannot assure you that we will be successful in obtaining the right to these tax credits or in contesting the imposition of these taxes.  

          For more information on our lawsuits, see note 14 to our audited consolidated financial statements.

**Dividend Policy and Dividends**

***          General***

          In order to determine the amounts available for dividend distribution, we are subject to the following procedures, 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 law, to a legal reserve until the legal reserve equals 20% of our share capital as of the end of the most recent fiscal year.  However, we are not required to make any allocations to our legal reserve in respect of any fiscal year in which such reserve, when added to our other capital reserves, exceeds 30% of our capital.  The legal reserve may be used only to offset any accumulated deficit or to increase our share capital and may not be distributed.  At December 31, 2005, the legal reserve outstanding balance was R$ 175 million, equivalent to US$ 75 million at the December 31, 2005 exchange rate.

          According to the Brazilian corporate law, after allocation of any amounts to the legal reserve, we may, subject to shareholders’ approval, make allocations from the remaining balance to a contingency reserve against future losses.

          At the end of each fiscal year, all shareholders are entitled to receive a mandatory dividend, also known as the mandatory distribution.  For the mandatory distribution, we must distribute at least 25% of the net income after taxes, after deducting the accumulated losses and after deducting any amounts allocated to employee’s and management participation, and as reduced or increased, as the case may be, by the following amounts:

|   | • | the amount allocated to the legal reserve; and                                                                                                             |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                       |
|   | • | the amount allocated to the contingency reserve and   any amount written off in respect of the contingency reserve accumulated in   previous fiscal years. |

          Under the Brazilian corporate law, the amount by which the mandatory distribution exceeds the “realized” portion of net income for any particular year may be allocated to the unrealized 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) our net positive results, if any, from the equity method of accounting for earnings and losses of our subsidiaries and certain affiliates, and (2) the profits, gains or income obtained on transactions maturing after the end of the following fiscal year.  As amounts allocated to the unrealized income reserve are realized in subsequent years, such amounts must be added to the dividend payment relating to the year of realization.

          The amounts available for distribution are determined on the basis of financial statements prepared in accordance with the requirements of the Brazilian corporate law.  In addition, amounts arising from tax incentive benefits or rebates are appropriated to a separate capital reserve in accordance with the Brazilian corporate law.  This investment incentive reserve is not normally available for distribution, although it can be used to absorb losses under certain circumstances, or be capitalized.  Amounts appropriated to this reserve are not available for distribution as dividends.

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          The Brazilian corporate law permits a company to pay interim dividends out of preexisting and accumulated profits for the preceding fiscal year or semester, based on financial statements approved by its shareholders.  The dividends we paid in 2005 relate to profits accounted up to December 31, 2004.

          Unappropriated retained earnings, as reported in our U.S. GAAP financial statements, represent retained earnings after appropriations specified in the Brazilian corporate law as described in the fourth paragraph under “—General.”  Unappropriated retained earnings in U.S. GAAP have no relevant impact on U.S. investors since the distributable earnings are those recorded in our books in accordance with Brazilian GAAP.  The appropriated reserve balances in the U.S. GAAP financial statements at the balance sheet dates reflect the underlying Brazilian statutory accounts translated at historical exchange rates.  The unappropriated retained earnings balance in the U.S. GAAP financial statements does not reflect amounts available for distribution.  At December 31, 2005, in our legal books prepared in accordance with Brazilian GAAP, we had unappropriated retained earnings (sum ofthe accounts Reserve for Accumulated Financial Results (*Reserva de Resultados Acumulados*) and Reserve for Retained Earnings (*Reserva  de Lucros*)) of R$ 1,469 million, equivalent to US$ 628 million at the exchange rate at December 31, 2005.  We had unappropriated retained earnings of US$ 461 million at December 31, 2004 and US$ 559 million at December 31, 2003 at the exchange rate at the referred dates.  Unappropriated retained earnings as reported in accordance with Brazilian GAAP may be used to make additional discretionary dividend payments, but we cannot assure you that we will make dividend payments out of these unappropriated retained earnings in the foreseeable future.  No dividend distribution can be made if an accumulated deficit is reported in accordance with Brazilian GAAP, unless the negative balance is reversed by releasing other reserves.

          The devaluation of the *real* impacts the amount available for distribution when measured in U.S. dollars.  Amounts reported as available for distribution in our statutory accounting records prepared under Brazilian GAAP will decrease or increase when measured in U.S. dollars as the *real* depreciates or appreciates, respectively, against the U.S. dollar.  In addition, the devaluation of the *real* creates foreign exchange gains and losses that are included in the results of operations determined under Brazilian GAAP and which affect the amount of unappropriated earnings available for distribution.  At December 31, 2005, on a consolidated basis, we and our subsidiaries recorded under Brazilian GAAP foreign exchange losses and monetary variation (including gains from foreign currency swap contracts and excluding Aracruz’s foreign exchange gain on equity) of R$ 116,999million (equivalent to US$ 50 million at the average exchange rate for 2005).

          ***Mandatory distribution***

          Under our by-laws, at least 25% of our adjusted net income for the preceding fiscal year must be distributed as a mandatory annual dividend.  The dividend must be distributed within 60 days 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 dividend was declared.  Pursuant to our by-laws, holders of preferred shares are not entitled to a fixed or minimum dividend, but have the right to receive dividend payments per share that are 10% greater than those paid to holders of common shares.  The mandatory distribution is based on a percentage of adjusted net income, which may not be lower than 25%, rather than a fixed monetary amount per share.  The Brazilian corporate law permits, however, a public company tosuspend the mandatory distribution of dividends if the board of directors reports to the shareholders’ meeting that the distribution would be incompatible with the financial condition of the company, subject to approval by the shareholders’ meeting and review by the *Conselho Fiscal*.  The board of directors must file a justification for a dividend suspension with the CVM within five days of the date of the shareholders’ meeting.  Profits not distributed by virtue of the suspension mentioned above must be attributed to a special reserve and, if not absorbed by subsequent losses, must be paid as dividends as soon as the financial situation of the company permits such payments.  The rules regarding suspension apply to the holders of preferred shares and, consequently, to the holders of ADSs.  The mandatory distribution may also be limited to the “realized” portion of net income, as described under “—General.”  On December 3, 2003 wechanged our dividend policy.  For further information on the new policy, see “Dividend Policy.”

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          ***Payment of dividends***

          We are required by the Brazilian corporate law to hold an annual shareholders’ meeting by April 30 of each year at which, among other things, the shareholders have to decide on the payment of our annual dividend.  Under the Brazilian corporate law, dividends are required to be paid within 60 days following the date the dividend was declared, unless a shareholders’ resolution sets forth another date of payment, which must occur prior to the end of the fiscal year in which such dividend was declared.  A shareholder has a three-year period from the dividend payment date to claim dividends (or interest payments as described under “—Additional payments on shareholders’ equity”) in respect of its shares, after which we will have no liability for such payments.

          We may prepare financial statements semiannually or for shorter periods.  Our board of directors may declare a distribution of dividends based on the profits reported in semiannual financial statements.  The board of directors may also declare a distribution of interim dividends based on profits previously accumulated or in profits reserve which are reported in such financial statements or in the last annual financial statement approved by resolution taken at a shareholders’ meeting.

          In general, shareholders who are not residents of Brazil must register their equity investment with the Central Bank to have dividends, sales proceeds or other amounts with respect to their shares eligible to be remitted outside of Brazil.  The preferred shares underlying the ADSs are held in Brazil by Banco Itaú S.A., also known as the custodian, as agent for the depositary, which is the registered owner on the records of the registrar for our shares.  The current registrar is Banco Itaú S.A.  The depositary registers the preferred shares underlying the ADSs with the Central Bank and, therefore, is able to have dividends, sales proceeds or other amounts with respect to the preferred shares remitted outside Brazil.

          Payments of cash dividends and distributions, if any, are made in Brazilian *reais*to the custodian on behalf of the depositary, which then converts such proceeds into U.S. dollars and causes such U.S. dollars to be delivered to the depositary for distribution to holders of ADSs.  In the event that the custodian is unable to convert immediately the Brazilian currency received as dividends into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Brazilian currency that occur before the dividends are converted.  Under the current Brazilian corporate law, dividends paid to persons who are not Brazilian residents, including holders of ADSs, will not be subject to Brazilian withholding tax, except for dividends declared based on profits generated prior to December 31, 1995, which will be subject to Brazilian withholding incometax at varying tax rates.  See “Item 10—Additional Information—Taxation—Certain Brazilian tax consequences.”

          ***Dividend policy***

          The declaration of annual dividends, including dividends in excess of the mandatory distribution, requires approval by the vote of the majority of the holders of our common stock and will depend on many factors.  These factors include our results of operations, financial condition, cash requirements, future prospects, our credit ratings, macroeconomic conditions and other factors deemed relevant by our shareholders.  Our shareholders have historically acted on these matters at the recommendation of our board of directors.  Within the context of our tax planning, we may in the future determine that it is to our benefit to distribute interest attributed to shareholders’ equity.

          On December 3, 2003, our board of directors approved a change in our dividend policy.  Under the new policy, we intend to pay dividends and/or interest on equity based on 60% of “free cash flow.”  “Free cash flow” is expected to be an amount equal to “EBITDA” minus “changes in working capital,” minus “income taxes” and minus “capital expenditures” and will be based upon our financial statements prepared in accordance with the Brazilian corporate law, Brazilian GAAP and the rules and regulations of the CVM and Bovespa.  “EBITDA” means operating profit before financial expenses (income) and gains (losses) from certain investments accounted for by the equity method plus depreciation, amortization and depletion; “changes in working capital” means the net cash provided by (or used in) the decrease (increase) ofcurrent assets and the increase (decrease) of current liabilities; “income tax” means the income tax and social contribution effectively paid by us and “capital expenditures” means the net cash used in our capital expenditures, in each case as such items appear in the income statement and/or the statement of cash flows contained in our year-end financial statements prepared in accordance with the requirements of the Brazilian corporate law.

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          The new policy went into effect in 2004 and will apply to any future distribution of dividends and/or interest on equity, as well as to any distribution related to the 2003 fiscal year.  It is anticipated that, given the cyclical nature of our pulp and paper business, distributions of dividends and/or interest on equity will be made once a year.

          The declaration of annual dividends, including dividends in excess of the mandatory distribution, will continue to require approval by the majority of our common stockholders 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 factors deemed relevant by our shareholders and board of directors.  We may change or rescind our dividend policy at any time.

          ***Dividends***

          The following table sets forth the dividends paid to holders of our capital stock since fiscal year 2001. The amounts in the table below relate to cash dividends declared, which differ from the dividends reported in U.S. dollars in the statement of changes in shareholders’ equity in our consolidated financial statements due to translation effects recorded through to 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 US$   per share)** |                    |
| June 21, 2002          |   |              | 2001   |                 |                    | 0.4614                  |                     |                    | 0.5075 |                       |   | 0.1621 |   |   | 0.1783 |   |
| June 20, 2003          |   |              | 2002   |                 |                    | 0.5711                  |                     |                    | 0.6282 |                       |   | 0.1977 |   |   | 0.2174 |   |
| May 10, 2004           |   |              | 2003   |                 |                    | 1.1928                  |                     |                    | 1.3121 |                       |   | 0.3798 |   |   | 0.4177 |   |
| November 5, 2004       |   |              | 2004   |                 |                    | 0.3999                  |                     |                    | 0.4399 |                       |   | 0.1419 |   |   | 0.1561 |   |
| May 13, 2005           |   |              | 2004   |                 |                    | 0.2080                  |                     |                    | 0.2280 |                       |   | 0.0842 |   |   | 0.0923 |   |
| May 10, 2006 (2)       |   |              | 2005   |                 |                    | 1.4069                  |                     |                    | 1.5476 |                       |   | 0.6834 |   |   | 0.7518 |   |

|        |
|--------|
| (1)    | Based on declared cash amount in R$translated to   U.S. dollars at the exchange rate on the first payment date. |
|   |   |
| (2)    | Dividends distributed as Interest on Equity   (ISE).  Amounts are gross of the 15%   withholding tax. |

          The dividends we paid amounted to US$ 40 million in 2003, US$ 104 million in 2004 and US$ 88 million in 2005.

          At our annual shareholders’ general meeting held on April 28, 2006, our shareholders approved the payment of dividends in the amount of approximately R$ 280 million (approximately US$ 136 million), which represented approximately 54% of adjusted net income in *reais* for the year 2005, in accordance with the Brazilian corporate law.  Holders of our preferred shares have the right to receive a dividend per share of 10% more than that paid to the common shares.

**B.  Significant Changes**

          No significant changes or events have occurred after the close of the balance sheet date at December 31, 2005, other than the events already described in this annual report.  See “Item 4A—Information on VCP—History and development of VCP—Competition” for more details on the corporate restructuring of Ripasa. 

          For a summary of our announced unaudited financial results for the first quarter of 2006, see “Item 5A.  Operation Results—Recent Developments.”

**ITEM 9.  THE OFFER AND LISTING**

**A.  Offer and Listing Details**

          Before the offering of 7,920,000 ADSs, on April 13, 2000, or the ADS Offering, there was no active public market for the ADSs.  The ADSs are listed on the New York Stock Exchange under the trading symbol “VCP.”  Our preferred shares trade on the São Paulo Stock Exchange under the symbol “VCPA4” (prior to December 3, 1999 we traded under the symbol “PSIM4”).  At April 30, 2006, we had approximately 5,945 shareholders of record.   

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**Market Price Information**

          The table below sets forth, for the periods indicated, the reported high and low closing sale prices in nominal *reais*for each preferred shares on the São Paulo Stock Exchange.  The table also sets forth, for the periods indicated, the reported high and low sales prices per ADS assuming that ADSs had been outstanding on such dates and translated into U.S. dollars, as from the second quarter of 2000, at the commercial market rate for the sale of U.S. dollars at the last day of each respective quarter.  See “Item 3—Key Information—Selected Financial Data—Exchange Rates” for information with respect to exchange rates applicable during the periods set forth below: 

|                                          |   |           |   | ***Reais*****per Preferred Share** |   | **U.S.   dollars per ADS** |   |
|-----------------------------------------------|--------|----------------|--------|------------------------------------|--------|----------------------------|--------|
|                                          |   |           |   |                                    |   |                            |   |
|                                          |   |           |   | **High**                           |   | **Low**                    |   | **High** |   | **Low** |   |
|                                          |   |           |   |                                    |   |                            |   |  |   |  |   |
| 2000:                                         |   |           |   |                               |   |                       |   |   |   |   |   |
|                                          |   | Annual         |   | 17.00                              |   | 9.80                       |   | 9.30 |   | 5.03 |   |
| 2001:                                         |   |           |   |                               |   |                       |   |   |   |   |   |
|                                          |   | Annual         |   | 17.30                              |   | 10.00                      |   | 7.10 |   | 4.50 |   |
| 2002:                                         |   |           |   |                               |   |                       |   |   |   |   |   |
|                                          |   | Annual         |   | 24.44                              |   | 15.00                      |   | 8.45 |   | 5.00 |   |
| 2003:                                         |   |           |   |                               |   |                       |   |   |   |   |   |
|                                          |   | First Quarter  |   | 27.08                              |   | 23.20                      |   | 7.88 |   | 6.40 |   |
|                                          |   | Second Quarter |   | 26.00                              |   | 19.20                      |   | 8.20 |   | 6.53 |   |
|                                          |   | Third Quarter  |   | 32.40                              |   | 21.80                      |   | 11.16 |   | 7.68 |   |
|                                          |   | Fourth Quarter |   | 36.78                              |   | 28.78                      |   | 12.82 |   | 9.76 |   |
|                                          |   | Annual         |   | 36.78                              |   | 19.20                      |   | 12.82 |   | 6.40 |   |
| 2004:                                         |   | First Quarter  |   | 41.00                              |   | 33.00                      |   | 14.26 |   | 11.55 |   |
|                                          |   | Second Quarter |   | 42.00                              |   | 33.20                      |   | 14.49 |   | 10.72 |   |
|                                          |   | Third Quarter  |   | 44.00                              |   | 38.00                      |   | 15.02 |   | 12.53 |   |
|                                          |   | Fourth Quarter |   | 43.53                              |   | 36.02                      |   | 16.55 |   | 12.66 |   |
|                                          |   | Annual         |   | 44.00                              |   | 33.00                      |   | 16.55 |   | 10.72 |   |
| 2005:                                         |   | First Quarter  |   | 39.37                              |   | 31.55                      |   | 15.69 |   | 12.72 |   |
|                                          |   | Second Quarter |   | 32.28                              |   | 25.38                      |   | 13.30 |   | 10.61 |   |
|                                          |   | Third Quarter  |   | 28.54                              |   | 24.71                      |   | 13.40 |   | 11.10 |   |
|                                          |   | Fourth Quarter |   | 29.00                              |   | 23.39                      |   | 13.55 |   | 11.40 |   |
|                                          |   | Annual         |   | 39.37                              |   | 23.39                      |   | 15.69 |   | 10.61 |   |
| Share price for the most   recent six months: |   |           |   |                               |   |                       |   |   |   |
|                                          |   | December 2005  |   | 29.00                              |   | 25.55                      |   | 12.75 |   | 11.75 |   |
|                                          |   | January 2006   |   | 28.90                              |   | 27.45                      |   | 12.78 |   | 12.22 |   |
|                                          |   | February 2006  |   | 32.50                              |   | 27.20                      |   | 15.27 |   | 12.38 |   |
|                                          |   | March 2006     |   | 35.01                              |   | 30.33                      |   | 16.18 |   | 14.25 |   |
|                                          |   | April 2006     |   | 34.79                              |   | 32.51                      |   | 16.56 |   | 15.20 |   |
|                                          |   | May 2006       |   | 36.56                              |   | 30.80                      |   | 17.58 |   | 13.28. |   |

          On May 23, 2006, the last reported closing sale price for the preferred shares on the São Paulo Stock Exchange was R$ 31.27 per preferred share, equivalent to US$ 13.66 per ADS translated at the exchange rate of R$ 2.29 per US$ 1.00, the commercial market rate on that date.

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          On April 13, 2000, we issued preferred shares in the form of ADSs issued by Citibank N.A., as depositary, and became a registered company with the Commission and were listed on the New York Stock Exchange.  Our offering raised US$ 118.8 million (before underwriting discounts and commissions), we received US$ 29.8 million (before expenses) and the selling shareholders received US$ 85.4 million (before expenses).  On April 30, 2002, the CVM approved The Bank of New York as our replacement depositary bank.  On May 17, 2002, the Commission declared effective the Form F-6 filed in connection with the change of depositary.

          On December 12, 2003 BNDESPAR and certain Votorantim companies completed a secondary global offering of 9,217,318 ADSs (or its equivalent in preferred shares).  On December 19, 2003, BNDESPAR sold an additional 1,127,148 ADSs (or its equivalent in preferred shares) pursuant to an overallotment option granted to the underwriters.  We did not receive any proceeds from that offering.

**B.  Plan of Distribution**

          Not applicable.

**C.  Markets**

**Trading on the São Paulo Stock Exchange**

          Settlement of transactions conducted on the São Paulo Stock Exchange is effected three business days after the trade date.  Delivery of, and payment for, shares is made through the facilities of separate clearinghouses for each exchange, which maintain accounts for member brokerage firms.  The seller is ordinarily required to deliver the shares to the clearinghouse on the second business day following the trade date.  The clearinghouse for the São Paulo Stock Exchange is *Companhia Brasileira de Liquidação e Custódia*, or CBLC.  

          In order to better control volatility, the São Paulo Stock Exchange has adopted a “circuit breaker” system pursuant to which trading sessions may be suspended for a period of 30 minutes or one hour whenever the indices of these stock exchanges fall below the limits of 10% and 15%, respectively, in relation to the index registered in the previous trading session.  

          The São Paulo Stock Exchange is less liquid than the New York Stock Exchange or other major exchanges in the world.  At April 28, 2006, the aggregate market capitalization of the 339 companies listed on the São Paulo Stock Exchange was equivalent to approximately US$ 655 billion, and the ten largest companies listed on the São Paulo Stock Exchange represented approximately 52% of the total market capitalization of all listed companies.  Although any of the outstanding 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 for trading by the public, the remainder being held by small groups of controlling persons, by governmental entities or by one principal shareholder.  On April 28, 2006, we accounted for approximately 0.5% of the market capitalization of all listed companies on theSão Paulo Stock Exchange.  

          Trading on the São Paulo Stock Exchange by non-residents of Brazil is subject to certain limitations under Brazilian foreign investment and tax legislation.  See  “Item 10—Additional Information—Memorandum and Articles of Association” and “Item 10—Additional Information—Exchange Controls.”

**Regulation of Brazilian Securities Markets **

          The Brazilian securities markets are regulated by the CVM, which has authority over stock exchanges and the securities markets generally, by the *Conselho Monetário Nacional*, the National Monetary Council, and by the Central Bank, which has, among others, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.  

          Under the Brazilian corporate law, a corporation is either public (*companhia aberta*), such as we are, or closely held (*companhia fechada*).  All publicly held companies, including us, are registered with the CVM and are subject to reporting requirements, in order to be allowed to have their securities offered to the public and to be listed in a Brazilian stock exchange.  Our preferred shares are traded on the São Paulo Stock Exchange but may be traded privately subject to certain limitations or on the Brazilian over-the-counter market.  The Brazilian over-the-counter market consists of direct trades in which a financial institution registered with the CVM serves as intermediary.  

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          We have the option to ask that trading in securities on the São Paulo Stock Exchange be suspended in anticipation of a material announcement.  Trading may also be suspended at the initiative of the São Paulo Stock Exchange or the CVM based on or due to a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to the inquiries by the CVM or the São Paulo Stock Exchange, among other reasons.  

          The Brazilian securities law, the Brazilian corporate law and the regulations issued by the CVM, the National Monetary Council and the Central Bank provide, among other things, disclosure requirements and restrictions on insider trading, price manipulation and protection of minority shareholders.  However, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or markets in some other jurisdictions.

**Differentiated Levels of Corporate Governance**

          On November 14, 2001, we agreed to comply with heightened corporate governance and disclosure requirements established by the São Paulo Stock Exchange in order to qualify for a differentiated listing qualification as a company admitted to the “Level 1 of Corporate Governance Requirements.” 

          To become a Level 1 company, an issuer must agree to (i) ensure that shares of the issuer representing 25% of its total capital are effectively available for trading; (ii) adopt offering procedures that favor widespread ownership of shares whenever making a public offering; (iii) comply with minimum quarterly disclosure standards; (iv) follow stricter disclosure policies with respect to transactions made by controlling shareholders, directors and officers involving securities issued by the issuer; (v) disclose any existing shareholders’ agreements and stock option plans; and (vi) make a schedule of corporate events available to the shareholders.

**Significant Differences between our Corporate Governance Practices and NYSE Corporate Governance Standards**

          We are subject to the NYSE corporate governance listing standards.  As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies.  Under the NYSE rules, we are required only to:  (i) have an audit committee or audit board, pursuant to an applicable exemption available to foreign private issuers, that meets certain requirements, as discussed below, (ii) provide prompt certification by our chief executive officer of any material non-compliance with any corporate governance rules, and (iii) provide a brief description of the significant differences between our corporate governance practices and the NYSE corporate governance practice required to be followed by U.S. listed companies.  The discussion of the significant differences between our corporate governance practices and those required of U.S. listedcompanies follows below.

***Majority of Independent Directors***

          The NYSE rules require that 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 the listed company.  Brazilian law does not have a similar requirement.  Under Brazilian law, neither our board of directors nor our management is required to test the independence of directors before their election to the board.  However, both the Brazilian Corporate Law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors.  While our directors meet the qualification requirements of the Brazilian Corporate Law and the CVM, we do not believe that our directors wouldbe considered independent under the NYSE test for director independence.

          The Brazilian Corporate Law and our bylaws require that our directors be elected by our shareholders at a general shareholders’ meeting.  All of our directors are elected by, and represent, our controlling shareholders.

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***Executive Sessions***

          NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management.  The Brazilian Corporate Law does not have a similar provision.  According to the Brazilian Corporate Law, up to one-third of the members of the board of directors can be elected from management.  No member of our executive committee serves as a director.  The directors are not expressly empowered to serve as check on management and there is no requirement that our directors meet regularly without management.  As a result, our directors do not typically meet in executive sessions.  

***Nominating/Corporate Governance Committee***

          NYSE rules require that listed companies have a Nominating/Corporate Governance Committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company.  We are not required under applicable Brazilian law to have a Nominating Committee/Corporate Governance Committee, and accordingly, to date, have not established such a committee.  The directors are elected by our shareholders at a general shareholders’ meeting.  Our corporate governance practices are adopted by the entire board.    

***Compensation Committee***

**          **NYSE rules require that listed companies have a Compensation Committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to CEO compensation, evaluating CEO performance and approving CEO compensation levels and recommending to the board non-CEO compensation, incentive-compensation and equity-based plans.  We are not required under applicable Brazilian law to have a Compensation Committee.  Under the Brazilian Corporate Law, the total amount available for compensation of our directors and executive officers and for profit-sharing payments to our executive officers is established by our shareholders at the annual general meeting.  The board of directors is then responsible for determining theindividual compensation and profit-sharing of each executive officer, as well as the compensation of our board and committee members.  In making such determination, the board reviews the performance of each executive officer and each of the goals they were supposed to achieve during the year.

***Audit Committee***

NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities.  However, as a foreign private issuer, we need only to comply with the requirement that the audit committee, or audit board in our case, meet the SEC rules regarding audit committees for listed companies.  The Brazilian Corporate Law requires companies to have a non-permanent Conselho Fiscal composed of three to five members who are elected at the general shareholders’ meeting.  The Conselho Fiscal operates independently from management and from a company’s external auditors.  Its mainfunction is to monitor the activities of management, examine the financial statements of each fiscal year and provide a formal report to our shareholders.  

          We have a permanent Conselho Fiscal that consists of three members and three alternates.  The members of our Conselho Fiscal are all financially literate and one member has accounting expertise that qualifies him as an audit committee financial expert.  In order to comply with the exemption requirements that allow our Conselho Fiscal to act as an audit committee pursuant to SEC rules, our Board of Directors approved the delegation to the Conselho Fiscal of certain additional responsibilities and the Conselho Fiscal and the Board of Directors adopted an additional charter that delegates to the Conselho Fiscal the duties and responsibilities of a U.S. audit committee to the extent permitted under Brazilian Corporate Law.  For a further discussion of our Conselho Fiscal, see “Item 6C.  Board Practices—Conselho Fiscal.”  

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***Shareholder Approval of Equity Compensation Plans***

          NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions.  Under the Brazilian Corporate Law, shareholders must approve all stock option plans.  In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval.  We have no equity compensation plans.

***Corporate Governance Guidelines***

          NYSE rules require that listed companies adopt and disclose corporate governance guidelines.  We have not adopted any formal corporate governance guidelines beyond those required by applicable Brazilian law.  We believe that the corporate governance guidelines applicable to us under Brazilian corporate law are consistent with the guidelines established by the NYSE.  

***Code of Business Conduct and Ethics***

          NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers.  Applicable Brazilian law does not have a similar requirement.  However, we have recently amended our code of ethics to comply with the requirements of the Sarbanes-Oxley Act and the NYSE rules.  We believe our code, as amended, substantially addresses the matters required to be addressed by the NYSE rules.  A copy of our Code of Ethics has been filed as Exhibit 11.1 to this annual report.  For a further discussion of our Code of Ethics, see “Item 16B – Code of Ethics.”

***Internal Audit Function***

          NYSE rules require that listed companies maintain an internal audit function to provide management and the audit committee with ongoing assessments of the company’s risk management processes and system of internal control.  Brazilian law does not require that companies maintain an internal audit function.  However, as a best practice, we maintain an internal audit function, which is co-assisted by Deloitte Touche Tohmatsu in an outsourced partnership.  Our internal audit function is under the supervision of the Chief Executive Officer, assuring the necessary independence and competence to assess the design of our internal control over financial reporting, as well as to test its effectiveness as required by Section 404 of the Sarbanes-Oxley Act of 2002.

**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 Articles of Association**

          Our by-laws are filed as Exhibit 1 to this annual report.

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**C.  Material Contracts**

**Shareholders’ Agreement of Aracruz Celulose S.A.**

          A subsidiary of ours became a party to the Aracruz shareholders’ agreement, along with BNDESPAR, the Lorentzen Group and the Safra Group.  Under the shareholders’ agreement, our subsidiary will be entitled to appoint three directors to the Aracruz’s board, which currently consists of ten directors.  The shareholders’ agreement, which expires in 2008, provides that the maximum number of shares of voting stock of Aracruz to be held by any party to the shareholders’ agreement may not exceed 28% of the total outstanding shares of voting stock.  In addition, the shareholders’ agreement requires that each person or entity who acquires shares of voting stock of Aracruz from any of the parties to the shareholders’ agreement become a party to such agreement.

          On February 7, 2003, the Lorentzen Group and the Safra Group announced the signing of an agreement in which the Lorentzen Group and the Safra Group agreed that, until the termination of the existing Aracruz shareholders’ agreement, a sale by either party of its voting interest in Aracruz must be approved by the other party.  This new agreement provides that (i) neither party may take any action or omit to take any action which results in the extension or renewal of the existing shareholders’ agreement, and (ii) after May 11, 2008 (the date of termination of the existing shareholders’ agreement), (A) the sale by either party shall be subject to rights of first refusal by the other party and to “tag-along” rights (the right of a party to the agreement to sell on a *pro rata* basis its shares if another party is selling shares) and (B) in the event of a sale by either ofthem to a third party, the purchaser must adhere to the provisions of the new agreement.  

**Technology Transfer Agreements**

          We entered into a technology transfer agreement with Oji Paper pursuant to which Oji Paper agreed to share secret formulae, processes, technical information and know-how developed by it for thermal and carbonless paper.  The agreement also granted us an exclusive, non-assignable license to manufacture and sell certain carbonless and thermal papers in Brazil and a non-exclusive, non-assignable license to sell such products in Latin America, Africa and the Middle East.  Oji Paper receives quarterly royalties based on net sales.  The sum of the quarterly royalties in each of the years ended December 31, 2003 and 2004 was approximately US$ 1.3 million in each year.  In 2005, this amount was reduced to less than US$ 1.0 million because the technology transfer agreement expired in October 2004, and we have renewed it, but only for the thermal papers.

          For additional information on our material contracts, see “Item 5—Operating and Financial Review and Prospects—Liquidity and Capital Resources.”

**D.  Exchange Controls**

          There are no restrictions on ownership of our common shares or preferred shares by individuals or legal entities domiciled outside Brazil.  However, the right to convert dividend payments and proceeds from the sale of common shares or preferred shares into foreign currency and to remit such amounts outside Brazil are subject to exchange control restrictions and foreign investment legislation which generally require, among other things, obtaining an electronic registration with the Central Bank.

          Under Resolution No. 2,689, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that some requirements are fulfilled.  In accordance with Resolution No. 2,689, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities that are domiciled or headquartered abroad.

          Investors under Resolution No. 2,689 who do not reside in a “tax haven,” or a country that does not impose income tax or in which the maximum income tax rate is lower than 20%, are entitled to favorable tax treatment.  See “—Taxation—Certain Brazilian Tax Consequences.”

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          Resolution No. 1,927 provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers.  An application was filed to have the ADSs approved by the Central Bank and the CVM under Annex V, and we received final approval before the ADS Offering.

          An electronic registration, which replaced the amended Certificate of Registration, was issued in the name of the depositary with respect to the ADSs and is maintained by the Custodian on behalf of the Depositary.  This electronic registration was carried on through the SISBACEN.  Pursuant to the electronic registration, the Custodian and the Depositary are able to convert dividends and other distributions with respect to the preferred shares represented by the ADSs into foreign currency and remit the proceeds outside Brazil.  In the event that a holder of ADSs exchanges the ADSs for preferred shares, the holder will be entitled to continue to rely on the Depositary’s electronic registration for only five business days after the exchange.  Thereafter, a holder must seek to obtain its own electronic registration.  Unless the preferred shares are held pursuant to Resolution No.2,689 by a duly registered investor or a holder of preferred shares who applies for and obtains a new electronic registration, that holder may not be able to obtain and remit abroad U.S. dollars or other foreign currencies upon the disposition of the preferred shares, or distributions with respect thereto.  In addition, if the foreign investor resides in a tax haven jurisdiction or is not an investor registered pursuant to Resolution No. 2,689, the investor will also be subject to less favorable tax treatment.

**Preemptive Rights**

          Each of our shareholders has a general preemptive right to subscribe for shares or convertible securities in any capital increase, in proportion to its shareholding, except in the event of the grant and exercise of any option to acquire shares of our capital stock.  A minimum period of 30 days following the publication of notice of the issuance of shares or convertible securities is allowed for exercise of the right, and the right is negotiable.  However, according to our by-laws, our board of directors can eliminate this preemptive right or reduce the 30-day period in case we issue debentures that are convertible into shares or shares within the limits authorized by the by-laws:  (i) through a stock exchange or through a public offering or (ii) through an exchange of shares in a public offering to acquire control of another company.  

          In the event of a capital increase that would maintain or increase the proportion of capital represented by preferred shares, the holders of preferred shares, except as described above, would have preemptive rights to subscribe to our newly issued preferred shares.  You may not be able to exercise the preemptive rights relating to the preferred shares underlying your ADSs unless a registration statement under the Securities Act is effective with respect to the shares to which the rights relate or an exemption from the registration requirements of the Securities Act is available and the ADS depositary determines to make the rights available to you.  In the event of a capital increase that would reduce the proportion of capital represented by preferred shares, the holders of the preferred shares, except as described above, would have preemptive rights to subscribe for preferred shares inproportion to their shareholdings, and for common shares, only to the extent necessary to prevent dilution of their interest in their shares.  See “Item 3—Key Information—Risk Factors—Risks Relating to Our Preferred Shares and ADSs—You may not be able to exercise preemptive rights with respect to our preferred shares.”

**Right of Withdrawal**

          The Brazilian corporate law provides that, under certain circumstances, a shareholder has the right to withdraw its equity interest from the company and to receive payment for the portion of shareholders’ equity attributable to its equity interest.  Such right of withdrawal may be exercised by a dissenting or non-voting shareholder, including any holder of preferred shares, if a vote of at least 50% of voting shares authorizes us: 

|   | • | to establish new classes of preferred shares or to   disproportionately increase an existing class of preferred shares relative to   the other classes of shares, unless such action is provided for or authorized   by the by-laws (our by-laws currently authorize such action); |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                               |
|   | • | to modify a preference, privilege or condition of   redemption or amortization conferred on one or more classes of preferred   shares, or to create a new class with greater privileges than the existing   classes of preferred shares;                                           |

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|   | • | to reduce the mandatory distribution of dividends;                                                                                                                                                                                                                                                                                                                                        |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | to change our corporate purpose;                                                                                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | to merge with another company (including if we are   merged into one of our controlling companies) or to consolidate;                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | to transfer all of our shares to another company or   in order to make us a wholly owned subsidiary of such company, known as an *incorporação   de ações*;                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | to approve the acquisition of control of another   company at a price which exceeds certain limits set forth in the Brazilian   corporate law;                                                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | to approve our participation in a centralized group   of companies, as defined under the Brazilian corporate law, and subject to   the conditions set forth therein; or                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
|   | • | to conduct a spin-off that results in (a) a change   of our corporate purposes, except if the assets and liabilities of the   spun-off company are contributed to a company that is engaged in   substantially the same activities, (b) a reduction in the mandatory dividend   or (c) any participation in a centralized group of companies, as defined   under Brazilian corporate law. |

          In addition, in the event that the entity resulting from a merger, or *incorporação de ações,*a consolidation or a spin-off of a listed company fails to become a listed company within 120 days of the shareholders’ meeting at which such decision was taken, the dissenting or non-voting shareholders may also exercise their withdrawal.  

          Only holders of shares adversely affected by the changes mentioned in the first and second items above may withdraw their shares.  The right of withdrawal lapses 30 days after publication of the minutes of the relevant shareholders’ meeting.  In the first two cases mentioned above, however, the resolution is subject to confirmation by the preferred shareholders, which must be obtained at a special meeting held within one year.  In those cases, the 30-day term is counted from the date the minutes of the special meeting are published.  We would be entitled to reconsider any action giving rise to withdrawal rights within 10 days following the expiration of such rights if the withdrawal of shares of dissenting shareholders would jeopardize our financial stability.  

          The Brazilian corporate law allows companies to redeem their shares at their economic value as set forth in the Brazilian corporate law, subject to certain requirements.  Because our by-laws currently do not provide that our shares be subject to withdrawal at their economic value, our shares would be subject to withdrawal at their book value, determined on the basis of the last balance sheet approved by the shareholders.  If the shareholders’ meeting giving rise to withdrawal rights occurs more than 60 days after the date of the last approved balance sheet, a shareholder may demand that its shares be valued on the basis of a new balance sheet that is of a date within 60 days of such shareholders’ meeting.  

          According to the Brazilian corporate law, in events of consolidation, merger, *incorporação de ações,*participation in a group of companies, and acquisition of control of another company, the right to withdraw does not apply if the shares meet certain tests relating to liquidity and dispersal of the type or class of shares in question on the market.  In these cases, shareholders will not be entitled to withdraw their shares if the shares are a component of a general stock index in Brazil or abroad, as defined by the Brazilian securities commission, and the shares held by persons unaffiliated with the controlling shareholder represent more than half of the outstanding shares of the relevant type or class.

**E.  Taxation**

*          The followingdiscussion contains a description of the material Brazilian and United Statesfederal income tax consequences of the purchase, ownership and disposition ofpreferred shares or ADSs but does not purport to be a comprehensive descriptionof all the tax considerations that may be relevant to these matters based uponthe particular circumstances of a holder.*

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          This summary is based upon tax laws of Brazil and the United States as in effect on the date of this prospectus, which are subject to change, possibly with retroactive effect, and to differing interpretations.  You should consult your own tax advisors as to the Brazilian, United States or other tax consequences of the purchase, ownership and disposition of preferred shares or ADSs, including, in particular, the effect of any U.S. federal estate, gift, or alternative minimum taxes, and non-U.S., state or local tax laws.

          Although there is presently no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty.  No assurance can be given, however, as to whether or when a treaty will enter into force or how it will affect the U.S. holders of preferred shares or ADSs.

**Certain Brazilian tax consequences**

          The following discussion, subject to the limitations therein, summarizes certain Brazilian tax consequences of the acquisition, ownership and disposition of preferred shares or ADSs, as the case may be, by a holder that is not domiciled in Brazil for purposes of Brazilian taxation, or by a holder of preferred shares with an investment in preferred shares registered with the Central Bank as a U.S. dollar investment (in each case, a “non-Brazilian holder”).  It is based on Brazilian law as currently in effect, and, therefore, any change in such law may change the consequences described below.  Each non-Brazilian holder should consult his or her own tax adviser concerning the Brazilian tax consequences of an investment in preferred shares or ADSs.

**Taxation of dividends**

          As a result of tax legislation adopted on December 26, 1995, dividends based on profits generated after January 1, 1996, including dividends paid in kind, payable by us in respect of preferred shares, are exempt from withholding income tax.  Stock dividends with respect to profits generated before January 1, 1996 are not subject to Brazilian tax, provided that the stock is not redeemed by us or sold in Brazil within five years after distribution of such stock dividends.  Dividends relating to profits generated prior to January 1, 1996 may be subject to Brazilian withholding income tax at varying rates, depending on the year the profits were generated.

**Taxation of gains**

          Gains realized outside Brazil by a non-Brazilian holder on the disposition of ADSs to another non-Brazilian holder are not subject to Brazilian tax.  According to Provisional Measure No. 135 Enacted on October 30, 2003, which came into force on January 1, 2004, the disposition of assets located in Brazil by a non-Brazilian holder may become subject to taxation in Brazil.  Although we believe that the ADSs do not fall within the definition of assets located in Brazil for the purposes of Provisional Measure No. 135, considering the general and unclear scope of Provisional Measure No. 135 and the lack of a judicial court ruling in respect thereto we are unable to predict whether our belief will ultimately prevail in the Brazilian courts.

          The withdrawal of ADSs in exchange for preferred shares is not subject to Brazilian tax.  The deposit of preferred shares in exchange for ADSs may be subject to Brazilian capital gain tax at the rate of 15%, if the amount previously registered with the Central Bank as a foreign investment in the preferred shares is lower than (1) the average price per preferred share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of deposit; or (2) if no preferred shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of preferred shares were sold in the 15 trading sessions immediately preceding such deposit.  In this case, the difference between the amount previously registered and the average price of the preferred shares, calculated as above, shall be considered a capital gain.  On receiptof the underlying preferred shares, the non-Brazilian holder registered under Resolution No. 2,689 will be entitled to register the U.S. dollar value of such shares with the Central Bank as described below in “— Registered Capital.”  However, if this non-Brazilian holder does not register under Resolution No. 2,689, it will be subject to the less favorable tax treatment described below.

          Non-Brazilian holders are generally subject to income tax imposed at a rate of 15% on gains realized on sales or exchanges of preferred shares if the transaction is carried out outside any Brazilian stock, future or commodities exchange.  Gains realized by a non-Brazilian holder upon the redemption of preferred shares will be treated as gain from the disposition of such preferred shares occurring outside of a stock exchange and will accordingly be subject to tax at a rate of 15%.

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          Non-Brazilian holders are subject to income tax, at a rate of 20%, on gains realized on sales or exchanges in Brazil of preferred shares that occur on the Brazilian stock exchanges, unless such a sale is made by a non-Brazilian holder who is not a resident in a “tax haven” (as described below) and (1) such sale is made within five business days of the withdrawal of the preferred shares in exchange for ADSs and the proceeds thereof are remitted abroad within such five-day period, or (2) such sale is made under Resolution No. 2,689 by registered non-Brazilian holders who obtain registration with the CVM.  In these two last cases, the gains realized are exempt from income tax.  The gain realized from transactions on the Bovespa is the difference between the amount in Brazilian currency realized on the sale or exchange and the acquisition cost, measured in Brazilian currency,without any correction for inflation, of the shares sold.  The gain realized as a result of a transaction that occurs other than on the Bovespa is the positive difference between the amount realized on the sale or exchange and the acquisition cost of the preferred shares, both values in *reais*; there are grounds, however, to hold that the gain realized should be calculated based on the foreign currency amount registered with the Central Bank, such foreign currency amount to be translated into Brazilian currency at the commercial market rate.  There is no assurance that the current preferential treatment for holders of ADSs and non-Brazilian holders of preferred shares under Resolution No. 2,689 will continue in the future or that it will not be changed in the future.

          Any exercise of preemptive rights relating to the preferred shares will not be subject to Brazilian taxation.  Any gain on the sale or assignment of preemptive rights relating to the preferred shares by a holder of preferred shares, or by the depositary on behalf of holders of the ADSs, will be subject to Brazilian taxation at the same rate applicable to the sale or disposition of preferred shares.

**Interest attributed to shareholders’ equity**

          Distribution of a notional interest charge attributed to shareholders’ equity in respect of the preferred or common shares as an alternative form of payment to shareholders who are either Brazilian residents or non-Brazilian residents, including holders of ADSs, is subject to Brazilian withholding income tax at the rate of 15%.  Such payments, subject to certain limitations, are deductible for Brazilian income tax and for social contribution purposes as long as the payment of a distribution of interest is credited to a shareholder’s account and approved at our general meeting of shareholders.  Current Brazilian corporate law establishes that a notional interest charge attributed to shareholders’ equity can either be accounted for as part of the mandatory dividend or not.  In case the payment of such interest is accounted for as part of the mandatory dividend, we would berequired to pay an additional amount to ensure that the net amount received by the shareholders, after the income tax, is at least equal to the mandatory dividend.  The distribution of interest attributed to shareholders’ equity would be proposed by our board of directors and subject to subsequent declaration by the shareholders at a general meeting.

**Beneficiaries resident or domiciled in tax havens or low tax jurisdictions**

          Law No. 9,779/99, in effect as of January 1, 1999, states that, with the exception of certain prescribed circumstances, income derived from operations by a beneficiary, resident or domiciled in a country considered as a tax haven, is subject to withholding income tax at a rate of 25%.  Accordingly, if the distribution of interest attributed to shareholders’ equity is made to a beneficiary resident or domiciled in a tax haven, the income tax rate applicable will be 25% instead of 15%.  Capital gains for gains realized are not subject to this 25% tax even if the beneficiary is a resident in a tax haven.  A tax haven jurisdiction is considered to be any country or location, (i) which does not impose income tax or imposes income tax at a maximum rate lower than 20% or (ii) where internal legislation imposes restrictions on the disclosure of the shareholding composition or ownership ofinvestments.

**Other Brazilian taxes**

          There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposition of preferred shares or ADSs by a non-Brazilian holder.  However, some Brazilian states may impose gift and estate taxes on gifts made or inheritances bestowed by individuals or entities not resident or domiciled within such state to individuals or entities residing or domiciled within such state in Brazil.  There are no Brazilian stamp, issue, registration, or similar taxes or duties payable by holders of preferred shares or ADSs.

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**          *Tax on bank account transactions (CPMF)***

          As a general rule, financial transactions or CPMF tax is imposed on any removal of funds from accounts at banks.  Transactions by the depositary or by holders of preferred shares that involve the transfer of Brazilian currency through Brazilian financial institutions will be subject to the CPMF tax.  When non-Brazilian holders transfer the proceeds from the sale or assignment of preferred shares by an exchange transaction, the CPMF tax is imposed on the amount to be remitted abroad in Brazilian *reais*.  The responsibility for the collection of the CPMF tax is borne by the financial institution that carries out the relevant financial transaction.  The CPMF tax is generally imposed on bank account debits at a current rate of 0.38%.  President Luis Inácio Lula da Silva has sent over to the Brazilian Congress a Proposal for Constitutional Amendment (PEC) No. 41 of 2003 aspart of the Brazilian Tax Reform.  According to such proposal, the assessment of CPMF was extended to December 31, 2007 at a 0.38% rate.  In the event we perform any exchange transaction in connection with ADSs or preferred shares, we will be responsible for collecting the CPMF tax.

**          *Taxation of foreign exchange transactions (IOF/Câmbio)***

          Pursuant to Decree No. 2,219 of May 2, 1997, *IOF/Câmbio* may be imposed upon the conversion of Brazilian currency into a foreign currency (*e.g.*, for purposes of paying dividends and interest) and on the conversion of foreign currency into Brazilian currency.  Except under specific circumstances, there is no current IOF tax on such conversions, but the Minister of Finance has the legal power to increase the rate to a maximum of 25% at any time, but only in relation to future transactions.

**          *Tax on bonds and securities transactions (IOF/Títulos)***

          Law No. 8,894/94 created the Tax on Bonds and Securities Transactions (the *IOF/Títulos*), which may be imposed on any transactions involving bonds and securities, even if these transactions are performed on Brazilian stock, futures or commodities exchanges.  The applicable rate for these transactions is currently 0%, although the executive branch may increase the rate up to 1.5% per day, but only with respect to futures transactions.

***          Social Contribution Tax (COFINS and PIS)***

          The Federal government enacted law No. 10,833/03, which created the non-cumulative COFINS, which came into effect in February 2004.  The COFINS tax previously charged at a flat rate of 3.0% on revenues was increased to 7.6% on revenues less certain costs and expenses on a value-added basis.  Similarly, the PIS tax was increased from a flat rate of 0.65% on revenues to 1.65% on revenues less certain costs and expenses on a value-added.  These new value-added taxes allowed for certain credits in the basis of calculation such as raw materials, services and certain finance expenses.  Sales of investments (shares and fixed assets) are not considered in the calculation of these taxes.

**Registered capital**

          The amount of an investment in preferred shares held by a non-Brazilian holder who qualifies under Resolution No. 2,689 and obtains registration with the CVM, or by the depositary representing such holder, is eligible for registration with the Central Bank; such registration (the amount registered is referred to as registered capital) allows the remittance of foreign currency outside Brazil, converted at the commercial market rate, acquired with the proceeds of distributions on, and amounts realized with respect to dispositions of, such preferred shares.  The registered capital for each preferred share purchased as part of the international offering, or purchased in Brazil after that date, and deposited with the Depositary will be equal to its purchase price in U.S. dollars.  The registered capital for a preferred share that is withdrawn upon surrender of an ADS will be the U.S. dollarequivalent of (i) the average price of a preferred share on the Brazilian stock exchange on which the greatest number of such shares was sold on the day of withdrawal, or (ii) if no preferred shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of preferred shares was sold in the 15th trading session immediately preceding such withdrawal.  The U.S. dollar value of the preferred shares is determined on the basis of the average commercial market rates quoted by the Central Bank on such date (or, if the average price of preferred shares is determined under clause (ii) above, the average of such quoted rates on the same 15 dates used to determine the average price of the preferred shares).

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          A non-Brazilian holder of preferred shares may experience delays in effecting such registration, which may delay remittances abroad.  Such a delay may adversely affect the amount in U.S. dollars received by the non-Brazilian holder.

**U.S. federal income tax consequences**

          The followingdiscussion summarizes the principal U.S. federal income taxconsiderations relating to the purchase, ownership and disposition of preferredshares or ADSs by a U.S. holder (as defined below) holding such preferred sharesor ADSs as capital assets (generally, property held for investment).  Thissummary is based upon the Internal Revenue Code of 1986, as amended (the“Code”), Treasury regulations, administrative pronouncements of theU.S. Internal Revenue Service (the “IRS”) and judicialdecisions, all as in effect on the date hereof, and all of which are subject tochange (possibly with retroactive effect) and to differinginterpretations.  This summary does not describe any implications understate, local or non-U.S. tax law, or any aspect of U.S. federal tax law otherthan income taxation.

          This summary does not purport to address all the material federal income tax consequences that may be relevant to the U.S. holders of the preferred shares or ADSs, and does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks or other financial institutions,insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, U.S. expatriates, investors liable for the alternative minimum tax, partnerships and other pass-through entities, investors that own or are treated as owning 10% or more of our votingstock, investors that hold the preferred shares or ADSs as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction and U.S. holders (as defined below) whose functional currency 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 preferred shares or ADSs that is, for U.S. federal income tax purposes:

|   | (i)    | an   individual citizen or resident of the United States;                                                                                                                                                                                                                                                                                                                 |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
|   | (ii)   | a corporation (or entity taxable as a corporation) created or organized in orunder the laws of the United States, any state thereof, or the District ofColumbia;                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
|   | (iii)  | an estate   the income of which is subject to U.S. federal incometax regardless of its source; or                                                                                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                      |
|   | (iv)   | a   trust if (A) a court within the United States is able to exercise primary supervision over   the administration of the trust and one or moreUnited States persons have the authority to control all substantial decisions of the trustor (B) the trust has a valid   election in effect under applicable U.S. Treasury   Regulationsto be   treated as a U.S. person. |

          If a partnership or other entity taxable as a partnership holds preferred shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership.  Partners of partnerships holding preferred shares or ADSs should consult their tax advisors.

          In general, for U.S. federal income tax purposes, holders of American Depositary Receipts evidencing ADSs will be treated as the beneficial owners of the preferred shares represented by those ADSs.

**Taxation of Distributions**

          In general, distributions with respect to the preferred shares or ADSs (which likely would include distributions of interest on shareholders’ equity, as described above under “– Certain Brazilian tax consequences – Interest attributed to shareholders’ equity”) will, to the extent made from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, constitute dividends for U.S. federal income tax purposes.  

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          If a distribution exceeds the amount of our current and accumulated earnings and profits, as so determined, it will be treated as a non-taxable return of capital to the extent of the U.S. holder’s tax basis in the preferred shares or ADSs, and thereafter as capital gain.  As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes.  

          The gross amount of any dividends (including amounts withheld in respect of Brazilian taxes) paid with respect to the preferred shares or ADSs generally will be subject to U.S. federal income taxation as ordinary income and will not be eligible for the dividends received deduction allowed to corporations. Dividends paid in Brazilian currency will be included in the gross income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on thedate the dividends are received by the U.S. holder, or in the case of dividends received in respect of ADSs, on the date the dividends are received by the depositary or its agent, whether or not converted into U.S. dollars.  A U.S. holder will have a tax basis in any distributed Brazilian currency equal to its U.S. dollar amount on the date of receipt, and any gain or loss recognized upon a subsequent disposition of such Brazilian currency generally will be foreign currency gain or loss that is treated as U.S. source ordinary income or loss. If dividends paid in Brazilian currency are converted into U.S. dollars on the day they are received by the U.S. holder or the depositary or its agent, as the case may be, U.S. holders generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisors regarding the treatment of any foreign 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 the date of receipt.

          Subject to certain exceptions for short-term and hedged positions, the U.S. dollar amount of dividends received by an individual with respect to the ADSs will be subject to taxation at a maximum rate of 15% if the dividends represent “qualified dividend income.”  Dividends paid on the ADSs will be treated as qualified dividend income if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a passive foreign investment company (“PFIC”).  The ADSs are listed on the New York Stock Exchange, and should qualify as readily tradable on an established securities market in the United States so long as they are so listed.  However, no assurances can be given that the ADSs will be or remain readilytradable.  Based on our audited financial statements as well as relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2005 taxable year.  In addition, based on the our audited financial statements and current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2006 taxable year.  Because these determinations are based on the nature of our income and assets from time to time, and involve the application of complex tax rules, no assurances can be provided that we will not be considered a PFIC for the current (or any past or future tax year).

          Based on existing guidance, it is not entirely clear whether dividends received with respect to the preferred shares (to the extent not represented by ADSs) will be treated as qualified dividend income, because the preferred shares are not themselves listed on a U.S. exchange.  In addition, the U.S. Treasury Department has announced its intention to promulgate rules pursuant to which holders of ADSs or preferred stock and intermediaries though whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends.  Because such procedures have not yet been issued, we are not certain that we will be able to comply with them.  U.S. Holders of ADSs and preferred shares should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particularcircumstances.

        Dividends paid by us generally will constitute income from non-U.S. sources and will be subject to various classification and other limitations for U.S. foreign tax credit purposes.  Subject to generally applicable limitations under U.S. federal income tax law, Brazilian withholding tax imposed on such dividends, if any, will be treated as a foreign income tax eligible for credit against a U.S. holder’s U.S. federal income tax liability (or at a U.S. holder’s electionif it does not elect to claim a foreign tax credit for any foreign taxes paid during the taxable year, all foreign income taxes paid may instead be deducted in computing such U.S. holder’s taxable income).  In general, special rules will apply to the calculation of foreign tax credits in respect of dividend income that is subject to preferential rates of U.S. federal income tax.  U.S. holders should be aware that the IRS has expressed concern that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holders of ADSs. Accordingly, the discussion above regarding the creditability of Brazilian withholding tax on dividends could be affected by future actions that may be taken by the IRS.

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**Taxation of Capital Gain**

          Deposits and withdrawals of preferred shares by U.S. holders in exchange for ADSs will not result in the realization 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 of preferred shares or ADSs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the amount realized on the sale or other taxable disposition and such U.S. holder’s adjusted tax basis in the preferred shares or ADSs.  Such capital gain or loss will be long-term capital gain or loss if at the time of sale or other taxable disposition the preferred 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) is eligible for taxation at preferential rates.  The deductibility of capital losses is subject to certain limitations under the Code.  Gain, if any, realized by a U.S. holder on the sale or other disposition of preferred shares or ADSs generally will be treated as U.S. source gain for U.S. foreign tax credit purposes.  Consequently, if a Brazilian withholding tax is imposed on the sale or disposition of preferred shares,a U.S. holder that does not receive sufficient foreign source income from other sources may not be able to derive effective U.S. foreign tax credit benefits in respect of such Brazilian withholding tax. Alternatively, a U.S. holder may take a deduction for all foreign income taxes paid during the taxable year if it does not elect to claim a foreign tax credit for any foreign taxes paid during the taxable year.  U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of, preferred shares or ADSs.

**Passive Foreign Investment Company Rules**

          Based upon ourcurrent and projected income, assets and activities, we do not expect thepreferred shares or ADSs to be considered shares of a PFIC for our current fiscal year or for future fiscal years.  However, because the determination of whether the preferred shares or ADSs constitute shares of a PFIC will be based upon the composition of our income and assets, and entities in which we hold at least a 25% interest, from time to time, and because there are uncertainties in the application of the relevant rules, there can be no assurance that the preferred shares or ADSs will not be considered shares of a PFIC for any fiscal year.  If the preferred shares or ADSs were shares of a PFIC for any fiscal year, U.S. holders (including certain indirect U.S. holders) may be subject to adverse tax consequences, including the possible imposition of an interest charge on gains or “excess distributions” allocable to prior years in the U.S. holder’s holding period during which we were determined to be a PFIC.  If we are deemed to be a PFIC for a taxable year,dividends on our ADSs would not be “qualified dividend income” subject to preferential rates of U.S. federal income taxation.  U.S. holders should consult their own tax advisors regarding the application of the PFIC rules to the preferred shares or ADSs.

**U.S. Backup Withholding and Information Reporting**

          A U.S. holder ofpreferred shares or ADSs may, under certain circumstances, be subjected toinformation reporting and “backup withholding” with respect to certainpayments to such U.S. holder, such as dividends  paid by our company or theproceeds of a sale of preferred shares or ADSs, unless such U.S. holder (i) is acorporation or comes within certain other exempt categories, and demonstratesthis fact when so required, or (ii), in the case of backup withholding, providesa correct taxpayer identification number, certifies that it is a U.S. person andthat it is not subject to backup withholding, and otherwise complies withapplicable requirements of the backup withholding rules.  Backupwithholding is not an additional tax.  Any amount withheld under theserules will be creditable against a U.S. holder’s U.S. federal incometax liability, provided the requisite information is timely furnished to theIRS.

**F.  Dividends and Paying Agents**

          Not applicable.

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**G.  Statements by Experts**

          Not applicable.

**H.  Documents on Display**

          We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended, pursuant to which we file reports and other information with the Commission.  These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the Commission’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.  20549.  Copies of the materials may be obtained from the Public Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.  The public may obtain information on the operation of the Commission’s Public Reference Room by calling the Commission in the United States at 1-800-SEC-0330.  In addition, material we filed can be inspected at the offices of the New York Stock Exchange at 20 Broad Street, New York, New York 10005, on which our ADSs arelisted.

          We also file electronically financial statements and other periodic reports with the CVM.  The CVM website is www.cvm.gov.br.

          Copies of our annual reports on Form 20-F and accompanying documents and our by-laws will be available for inspection at our headquarters or our website at www.vcp.com.br.  The information on our website is not part of this annual report.

**I.  Subsidiary Information**

          Not required.

**ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

          We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates.  Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates and interest rates.

**General**

          We use cross-currency interest rate swap contracts in the market to reduce our foreign currency exposure and also take into account the natural hedge provided by our exports in determining our hedging needs.  We establish strict internal policies with respect to our currency exposure positions and revise these policies from time to time in response to new economic information on the macroeconomic environment in Brazil.  The exposure to foreign currency risk is guided by closely monitored policies.  We also invest in instruments linked to exchange variations.

          We also use cross-currency interest rate swap contracts to mitigate the volatility of foreign exchange rate fluctuations on our U.S. dollar-denominated debt.  The unrealized gains and losses on these contracts are recorded on our balance sheet as assets or liabilities and in our statement of income in “Foreign exchange gains (losses) and unrealized gains (losses) on swaps, net.”

          These financial instruments have been used extensively as part of a defined financial strategy designed to optimize opportunities in the Brazilian foreign exchange and interest rate markets.  Like many other Brazilian exporters, we have had access to U.S. dollar-denominated sources of long-term financing in the form of export prepayments or credits.  Opportunities arise between the lower interest rates payable on the U.S. dollar-denominated export credits and borrowings, the proceeds of which are invested in *real*-denominated cash, cash equivalents and held-to-maturity investments, which provide higher yields.

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          At present, we, along with other Brazilian companies, have limited sources of long-term financing denominated in *reais*.  We believe we have access to a sufficient number of foreign-currency financing sources to meet our needs without resorting to more expensive *real*-denominated financing.

          Our foreign currency debt reflects a strategy to continue raising funds in U.S. dollars, and to invest the proceeds in investments bearing higher interest rates in the Brazilian market.  We succeeded in lengthening the average maturity of our debt over time.  The percentage of our short-term debt (i.e., the debt, including the current portion of long-term debt, maturing within 12 months) compared to our total debt was 40% at December 31, 2004 and 14% at December 31, 2005.

**Foreign currency risk**

          Our foreign currency exposure gives rise to market risks associated with exchange rate movements against the U.S. dollar.  Foreign currency-denominated liabilities as of December 31, 2004 included borrowings denominated mainly in U.S. dollars.  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 our operating costs being denominated in *reais*.  Our export revenues and cross-currency interest rate swap contracts partially mitigate the exposure arising from our U.S. dollar-denominated debt.  We evaluate the macroeconomic situation and its impact on our financial position on a weekly basis.

          The specific foreign currency risks which have caused us to enter into swap contracts to protect ourselves against a possible devaluation of the *real* were associated with the exposures generated by our U.S. dollar-denominated (short- and long-term) debt.  The contracts mitigate these risks by committing the counterparties and ourselves to positions in foreign currency, thereby offsetting, to the extent of these contracts, the effects of currency fluctuations on our foreign currency debts.  The management of our net exposure position takes into account a number of current and projected economic factors and market conditions.  At December 31, 2004 and 2005, the notional amounts of our outstanding foreign currency swap contracts were US$ 259 million and US$ 609 million, respectively, and their fair values were US$ 47 million and US$ 77 million (reversal), respectively.  Theweighted average pay rates on our outstanding foreign currency swap contracts are floating rate-based on the *Certificado de Depósito Interbancário*, or CDI.  The fair values of our cross-currency interest rate swap contracts were estimated based on quoted market prices of comparable contracts.  The table below provides information on our debt outstanding as of December 31, 2005.  The amounts have been translated into U.S. dollars based on the exchange rate prevailing on December 31, 2005, as determined by the Central Bank (R$ 2.3407 for US$ 1.00), as of December 31, 2005.

|                                                               |   | **Expected maturity date** |   |
|--------------------------------------------------------------------|--------|----------------------------|--------|
|                                                               |   |                            |   |
| **(US$ in millions)**                                              |   | **2006**                   |   | **2007** |   | **2008** |   | **After 2008** |   | **Total** |   |
|                                                                    |   |                            |        |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Short-term   debt:                                                 |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| *Reais*                                                            |   |                       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S. dollars                                                       |   |                       | 132    |   |   |   |   |   |   |   |   |   |   |   | **132** |   |
| Total short-term debt (includingcurrent portion of long-term debt) |   |                       | 132    |   |   |   |   |   |   |   |   |   |   |   | **132** |   |
| *Reais*                                                            |   |                       | 34     |   |   | 33 |   |   | 33 |   |   | 57 |   |   | **157** |   |
| U.S. dollars                                                       |   |                       | 45     |   |   | 6 |   |   | 64 |   |   | 1,092 |   |   | **1,207** |   |
| Total long-term debt                                               |   |                       | 79     |   |   | 39 |   |   | 97 |   |   | 1,149 |   |   | **1,364** |   |
| Total                                                              |   |                       | 211    |   |   | 39 |   |   | 97 |   |   | 1,149 |   |   | **1,496** |   |

          We incurred most of this debt mainly to mitigate our risk in relation to the position of the interest rate differentials between *real*-denominated financial instruments (cash and cash equivalents and held-to-maturity investments) and our foreign currency export credits and to finance the acquisition of Ripasa in a venture with Suzano Bahia Sul Celulose e Papel.  See “Item 5—Operating and Financial Review and Prospects—Liquidity and capital resources—Capital expenditures.”  We believe that, given our level of assets and resources, we should have sufficient cash and sources of working capital to meet our debt service.

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          On December 31, 2005, the carrying value of our U.S. dollar-denominated short-term debt was US$ 132 million and our U.S. dollar- and *real*-denominated long-term debt, including the current portion, was US$ 1,364 million.

          We estimate that the foreign currency-denominated component of our paper costs does not exceed 10% of our total costs.  We are self-sufficient in pulp, the principal raw material used in producing paper products.  The energy, labor and other domestic 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 between international U.S. dollar-denominated pulp prices, reflecting the international nature of this commodity, and the prices we are able to charge, fluctuations in exchange rate are not always immediately reflected in our domestic prices.  In the long term, when the international price of pulp increases, the domestic price follows and our domestic sales in *reais* also increase.  In the short term, our domestic pricesmay deviate from the international U.S. dollar-denominated pulp prices.  Timing of the fluctuations in exchange rate reflected in our prices may vary with the type of product, generally as follows:

|   | • | immediately for commodity products, such as pulp and   uncoated wood-free paper;                                  |
|--------|--------|-------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                              |
|   | • | with a relatively short lag for coated papers, due   to the sale of imported products in the domestic market; and |
|   |   |                                                                                                              |
|   | • | with some lag for other specialty papers with   limited exposure to external factors.                             |

          The percentage of our debt subject to fixed and floating interest rates is as follows:

|                                                              |   | **As of   December 31,** |   |
|-------------------------------------------------------------------|--------|--------------------------|--------|
|                                                              |   |                          |   |
|                                                              |   | **2005**                 |   | **2004** |   |
|                                                              |   |                          |        |   |  |  |   |
| Floating rate debt:                                               |   |                     |   |   |   |   |   |
| •     Denominated   in U.S. dollars |   |                     | 86     | % |   | 85 | % |
| •     Denominated   in *reais*      |   |                     | 3      | % |   | 4 | % |
|                                                              |   |                          |        |   |  |  |   |
| Subtotal                                                          |   |                     | 89     | % |   | 89 | % |
| Fixed rate debt:                                                  |   |                     |   |   |   |   |   |
| •     Denominated   in U.S. dollars |   |                     | 11     | % |   | 11 | % |
| Subtotal                                                          |   |                     | 11     | % |   | 11 | % |
|                                                              |   |                          |        |   |  |  |   |
| Total                                                             |   |                     | 100    | % |   | 100 | % |
|                                                              |   |                          |        |   |  |  |   |

          Our cross-currency interest rate swap contracts are effected to mitigate the potential foreign currency exchange losses which would be generated by our U.S. dollar-denominated liabilities in the event of a devaluation.  We make our export sales in U.S. dollars, which helps us to mitigate potential losses in the event of a devaluation.

**Interest rate risk**

          Our floating interest rate exposure is primarily subject to the variations of LIBOR as it relates to U.S. dollar-denominated borrowings and to the variations of the TJLP, an annual long-term interest rate that includes an inflation factor and is determined quarterly by the Central Bank.  On December 31, 2004, the TJLP was fixed at 9.75%, and during 2004 averaged 11% per year.  On December 31, 2005, the TJLP was fixed at 9.75%, and during 2005 averaged 9.75% per year.  The interest rate on our cash, cash equivalents and held-to-maturity investments denominated in *reais* is based on the CDI rate, the benchmark interest rate set by the interbank market on a daily basis.

98

----

          The table below provides information about our significant interest rate-sensitive instruments.  For variable interest rate debt, the rate presented is the weighted average rate calculated as of December 31, 2005.

|                                                               |   | **2006**                 |               | **2007** |   | **2008**           |   | **After 2008** |               | **Total** |   | **Fair value(1)**  |   |
|--------------------------------------------------------------------|--------|--------------------------|--------------------|----------|--------|--------------------|--------|----------------|--------------------|-----------|--------|--------------------|--------|
|                                                               |   |                          |                    |     |        |                    |   |                |                    |      |        |                    |   |  |  |   |  |  |   |
|                                                               |   | **(U.S.$in   millions)** |               |
| **Assets:**                                                        |   |                     |               |     |   |               |   |           |               |      |   |               |   |   |   |   |   |   |   |
| Cash and cash equivalents   denominated in reais                   |   |                     | 223                |     |   | —   |   |           | —   |      |   | —   |   |   | 223 |   |   | 223 |   |
| Cash and cash equivalents   denominated in U.S. dollars            |   |                     | 38                 |     |   | —   |   |           | —   |      |   | —   |   |   | 38 |   |   | 38 |   |
| Available-for-sales   investments denominated in reais             |   |                     | 207                |     |   | 54                 |   |           | —   |      |   | —   |   |   | 261 |   |   | 261 |   |
| Available-for-sales   investments denominated in U.S. dollars      |   |                     | 30                 |     |   | —   |   |           | 155                |      |   | —   |   |   | 185 |   |   | 185 |   |
| Total cash, cash   equivalents and available-for-sales investments |   |                     | 498                |     |   | 54                 |   |           | 155                |      |   | —   |   |   | 707 |   |   | 707 |   |
| **Liabilities:**                                                   |   |                     |               |     |   |               |   |           |               |      |   |               |   |   |   |   |   |   |   |
| Short-term debt:                                                   |   |                     |               |     |   |               |   |           |               |      |   |               |   |   |   |   |   |   |   |
| Floating   rate, denominated in U.S. dollars                       |   |                     | 132                |     |   | —   |   |           | —   |      |   | —   |   |   | 132 |   |   | 132 |   |
| Floating   rate, denominated in *reais*                            |   |                     |               |     |   |               |   |           |               |      |   |               |   |   | —   |   |   | —   |   |
| Total   short-term debt                                            |   |                     | 132                |     |   | —   |   |           | —   |      |   | —   |   |   | 132 |   |   | 132 |   |
| Long-term debt:                                                    |   |                     |               |     |   |               |   |           |               |      |   |               |   |   |   |   |   |   |   |
| Floating   rate, denominated in U.S. dollars                       |   |                     | —   |     |   | —   |   |           | —   |      |   | —   |   |   | —   |   |   | 7 |   |
| Fixed   rate, denominated in U.S. dollars                          |   |                     | 46                 |     |   | 6                  |   |           | 64                 |      |   | 1,092              |   |   | 1,207 |   |   | 1,207 |   |
| Floating   rate, denominated in *reais*                            |   |                     | 33                 |     |   | 33                 |   |           | 33                 |      |   | 57                 |   |   | 157 |   |   | 157 |   |
| Total   long-term debt                                             |   |                     | 79                 |     |   | 39                 |   |           | 97                 |      |   | 1,149              |   |   | 1,364 |   |   | 1,371 |   |
| Total debt                                                         |   |                     | 211                |     |   | 39                 |   |           | 97                 |      |   | 1,149              |   |   | 1,496 |   |   | 1,503 |   |

|        |
|--------|
| (1)    | The methodology used to determine the fair value   included in the table above is described in note 13 to our audited   consolidated financial statements. |
|   |   |
| (2)    | Held-to-maturity or   Available-for-sale investments. |

**Cross-currency interest rate swaps**

          We primarily use derivatives to hedge our U.S. dollar-denominated debt.  Because a large portion of our debt is denominated in U.S. dollars, we protect ourselves from the effects of unfavorable exchange movements by entering into cross-currency interest rate swap contracts or Brazilian public bonds.  See note 13 to our audited consolidated financial statements for a discussion of the accounting policies for derivatives and other financial instruments.

99

----

          Our counterparties are financial institutions, including Banco Votorantim, a member of the Votorantim group.  Banco Votorantim is a commercial banking institution and is subject to Central Bank regulations.  The rates that we negotiate with Banco Votorantim generally reflect those available in the current financial market.  Our treasury department also compares these rates to those offered by other banks before closing the deal in order to assure that we receive the most favorable terms and conditions available for each transaction.

          At December 31, 2005, almost all swap transactions were conducted with Banco Votorantim and refer to *reais*-to-U.S. dollar swap contracts.  Our swap activities are contracted specifically to fulfill our needs.  See note 12 to our audited consolidated financial statements.

          The table below provides information about our cross-currency interest rate swap contracts: 

|                                                            |   | **As of December 31, 2005**  |   |
|-----------------------------------------------------------------|--------|------------------------------|--------|
|                                                            |   |                              |   |
|                                                            |   | **Expected   maturity date** |   |   |   |   |   |   |   |   |   |
|                                                            |   |                              |   |   |   |   |   |   |   |   |   |
| **Cross-currency interest rate swap contracts notional amount** |   | **2006**                     |   | **2007** |   | **2008** |   | **After    2008** |   | **Total** |   | **Fair Value      of assets    (liabilities)(1)** |   | **Average    paying rate    in *reais*** |   | **Average receiving    rate** |   |
|                                                                 |   |                              |   |  |   |  |   |  |   |  |   |  |   |  |   |  |   |
| U.S. dollars to *reais*                                         |   | 350                          |   | 150 |   | 19 |   | —   |   | 519 |   | (71 | ) | 100%   of Brazilian Interbank Interest Rate |   | 11.3%   per year |   |
| Yen   to U.S. dollars                                           |   | —             |   | —   |   | —   |   | 45 |   | 45 |   | (6 | ) | 4.25%   per year |   | 7.92%   per year |   |
| Total                                                           |   | 350                          |   | 150 |   | 19 |   | 45 |   | 564 |   | (77 | ) |   |   |   |   |

|     |
|-----|
| (1) | The methodology used to determine the fair value   included in the table above is described in note 13 to our audited   consolidated financial statements. |

**ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES**

          Not applicable.

**PART II**

**ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES**

          None.

**ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS**

          None.

**ITEM 15.  CONTROLS AND PROCEDURES**

          Management, with the participation 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 to provide reasonable assurance that information required to be disclosed by us in the 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 and forms, and is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

100

----

          There was no change in our internal control over financial reporting that occurred in the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

**ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT**

          On April 27, 2005 we determined that Miguel Roberto Gherrize is our “audit committee financial expert,” serving on our *Conselho Fiscal*.  Mr. Gherrize is independent, as required by rules of the New York Stock Exchange.  

**ITEM 16B.  CODE OF ETHICS**

          Our board of directors has adopted a code of ethics that applies to the members of our financial department, including our chief executive officer, our chief financial officer and our chief accounting officer.  No waivers, either explicit or implicit, of provisions of the code of ethics were granted to our chief executive officer, chief financial officer or chief accounting officer in 2005.  A copy of our Code of Ethics has been filed as Exhibit 11.1 to this annual report.

          Our code of ethics addresses, among others, the following topics:

|   | • | honest and ethical conduct, including the ethical   handling of actual or apparent conflicts of interest between personal and   professional relationships;                      |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                             |
|   | • | full, fair, accurate, timely, and understandable   disclosure in reports and documents that we file with, or submit to, the SEC   and in other public communications made by us; |
|   |   |                                                                                                                                                                             |
|   | • | compliance with applicable governmental laws, rules   and regulations; and                                                                                                       |
|   |   |                                                                                                                                                                             |
|   | • | the prompt internal reporting of violations of the   code of the appropriate person or persons identified in the code.                                                           |

**ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES**

          The following table sets forth by category of service the total fees for services performed by PricewaterhouseCoopers Auditores Independentes during the fiscal years ended December 31, 2005, 2004 and December 31, 2003.

|                    |   | **Year Ended December 31,**        |               |
|-------------------------|--------|------------------------------------|--------------------|
|                    |   |                                    |               |
|                    |   | **2005**                           |               | **2004** |   | **2003** |   |
|                    |   |                                    |                    |   |  |  |   |  |  |   |
|                    |   | **(in thousands of U.S. dollars)** |               |
| Audit   Fees            |   | US$                                | 285                |   | US$ | 246 |   | US$ | 107 |   |
| Audit-Related   Fees(1) |   |                               | 5                  |   |   | 29 |   |   | 199 |   |
| All   Other Fees        |   |                               | —   |   |   | 74 |   |   | 5 |   |
| Total                   |   | US$                                | 290                |   | US$ | 349 |   | US$ | 311 |   |

|     |
|-----|
| (1) | Includes fees charged in connection with the review   of the income tax returns of Votorantim Celulose e Papel S.A. |

101

----

**Audit Fees**

          Audit fees in 2005, 2004 and 2003 consisted of the aggregate fees billed by PricewaterhouseCoopers Auditores Independentes in connection with the audit of our annual financial statements and reviews of quarterly financial statements and statutory audits of our subsidiaries.  

**Audit-Related Fees**

          Audit-related fees in 2005, 2004 and 2003 consisted of the aggregate fees billed by PricewaterhouseCoopers Auditores Independentes in connection with analysis of compliance by us of Sarbanes-Oxley provisions and services related to audits performed in connection with public offerings of our shares.  

**Tax Fees**

          We did not pay any tax fees in 2005, 2004 and 2003. 

**All Other Fees**

          The aggregate of all other fees, other than those described above billed by PricewaterhouseCoopers Auditores Independentes in 2004 and 2003 were related to risk management advice and analysis or review of business plan or planning processes (but not design or implementation thereof or performance of management functions).  

**Pre-Approval Policies and Procedures**

          Our Board of Directors approves all audit, audit-related, tax and other services provided by PricewaterhouseCoopers Auditores Independentes.  Any services provided by PricewaterhouseCoopers Auditores Independentes that are not specifically included within the scope of the audit must be pre-approved by our board of directors in advance of any engagement.  Under the Sarbanes-Oxley Act of 2002, audit committees are permitted to approve certain fees for audit-related, tax and other services pursuant to a *de minimis* exception prior to the completion of an audit engagement.  In 2005, 2004 and 2003 none of the fees paid to PricewaterhouseCoopers Auditores Independentes were approved pursuant to the *de minimis*exception.

| **ITEM 16D.** | **EXEMPTIONS FROM THE LISTING   STANDARDS FOR AUDIT COMMITTEES** |
|---------------|------------------------------------------------------------------|

          Under the listed company audit committee rules of the NYSE and the SEC, effective July 31, 2005, we had to comply with Exchange Act Rule 10A-3, which requires that we either establish an audit committee composed of members of the Board of Directors that meets specified requirements or designate and empower our Conselho Fiscal to perform the role of the audit committee in reliance on the exemption set forth in Exchange Act Rule 10A-3(c)(3).  In our assessment, our Conselho Fiscal is able to act independently in performing the responsibilities of an audit committee under the Sarbanes-Oxley Act of 2002 and to satisfy the other requirements of Exchange Act Rule 10A-3.  For a further discussion of our Conselho Fiscal and the audit committee exemption, see “Item 6C.  Board Practices—Conselho Fiscal.”

| **ITEM 16E.** | **PURCHASES OF EQUITY SECURITIES BY   THE ISSUER AND AFFILIATED PURCHASERS** |
|---------------|------------------------------------------------------------------------------|

          In 2005, we sold 126,400 preferred shares held in treasury in the market for a total amount of US$ 1 million, and we repurchased 1,050,700 preferred shares at a total cost of US$ 12 million to be held in treasury and sold and/or cancelled at a future date.  At December 31, 2005 a total of 1,081,500 preferred shares were held in treasury.

102

----

**PART III**

**ITEM 17.  FINANCIAL STATEMENTS**

          Not applicable.

**ITEM 18.  FINANCIAL STATEMENTS**

          The following financial statements are filed as part of this annual report, together with the report of Independent Registered Public Accounting Firm:

| Report of Independent Registered Public Accounting   Firm                                                                   |   | F-2    |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                        |   |   |
| Consolidated Balance Sheets as of December 31,   2005 and 2004                                                         |   | F-3    |
|                                                                                                                        |   |   |
| Consolidated Statements of Income for the years   ended December 31, 2005, 2004 and 2003                               |   | F-5    |
|                                                                                                                        |   |   |
| Consolidated Statements of Cash Flows for the years   ended December 31, 2005, 2004 and 2003                           |   | F-7    |
|                                                                                                                        |   |   |
| Consolidated Statements of Changes in Shareholders’   Equity for the years ended December 31, 2005, 2004 and 2003 |   | F-9    |
|                                                                                                                        |   |   |
| Notes to Consolidated Financial Statements                                                                                  |   | F-11   |

          Aracruz - Report of Independent Registered Public Accounting Firm

          All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are inapplicable and therefore have been omitted.

**ITEM 19.  EXHIBITS **

| **Exhibit   Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|----------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                      |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| 1*                   |   | English   translation of the By-laws.                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2**                  |   | Form of   Amended and Restated Deposit Agreement among us, The Bank of New York, as   depositary, and the Owners and Beneficial Owners of American Depositary   Receipts, including the form of American Depositary Receipts.                                                                                                                                                                                                                                            |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.4***               |   | 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. |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 2.5+                 |   | 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 Branco S.A., and   Companhia Níquel Tocantins, as guarantors.     |
|                 |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3.3****              |   | Terms of   Adhesion to the Shareholders’ Agreement of Aracruz Celulose S.A., dated   November 1, 2001.                                                                                                                                                                                                                                                                                                                                                              |

103

----

| 4.1+    |   | US$ 102,000,000   Export Prepayment Agreement dated as of May 12, 2004 among VCP Exportadora e   Participações Ltda, Votorantim Celulose e Papel S.A. - VCP, VCP Trading N.V.,   ABN AMRO Bank N.V., and Banco Santander Central Hispano, London Branch. |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                               |
| 4.2+    |   | US$ 123,000,000   Offshore Facility Agreement dated as of July 5, 2004 among VCP Trading N.V.,   Votorantim Celulose e Papel S.A. – VCP, ABN AMRO Bank N.V., and Banco   Bradesco.                                                                            |
|    |   |                                                                                                                                                                                                                                                               |
| 4.3+    |   | US$ 50,000,000   Export Prepayment Agreement dated as of March 29, 2005 by and between   Votorantim Celulose e Papel S.A. – VCP and ABN AMRO Bank N.V.                                                                                                        |
|    |   |                                                                                                                                                                                                                                                               |
| 4.4+    |   | US$ 100,000,000   Export Prepayment Agreement dated as of July 22, 2005 among Votorantim   Celulose e Papel S.A. - VCP, VCP Exportadora e Participações Ltda, VCP   Trading N.V. and Banco Santander Central Hispano, London Branch.                     |
|    |   |                                                                                                                                                                                                                                                               |
| 6+      |   | See Note   2(m) to our financial statements for information explaining how earnings per   share information was calculated.                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                               |
| 8+      |   | See Note 2(h)   to our 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 Chief Financial Officer.                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                               |
| 13.1+   |   | Section 1350   Certification of Chief Executive Officer.                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                               |
| 13.2+   |   | Section 1350   Certification of Chief Financial Officer.                                                                                                                                                                                                           |

|      |
|------|
| *    | Incorporated   herein by reference to our annual report on Form 20-F filed on June 30, 2005   (File No. 001-15018). |
| **   | Incorporated   herein by reference to our registration statement on Form F–6 filed on March   25, 2002 (File No. 333-84964). |
| ***  | 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 May 21, 2002   (File No. 001-15018). |
| +    | Filed   herewith. |

104

----

**SIGNATURES**

     The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf. 

|   | VOTORANTIM   CELULOSE E PAPEL S.A. |
|--------|------------------------------------|
|   |                               |   |
|   |                               |   |
|   | By:                                | /s/ Valdir Roque |
|   |                               |  |
|   | Name:                              | Valdir Roque |
|   | Title:                             | Chief Financial Officer |
|   |                               |   |
|   |                               |   |
|   | By:                                | /s/   José Luciano Duarte Penido |
|   |                               |  |
|   | Name:                              | José Luciano Duarte Penido |
|   | Title:                             | Chief Executive Officer |

Date: June  29, 2006 

105

----

**Votorantim Celulose  e Papel S.A.****Consolidated Financial Statements  as at December 31, 2005 and 2004,  and for the Three Years Ended  December 31, 2005  and Report of Independent Registered  Public Accounting Firm**

----

|                                                              | **Page** |
|-------------------------------------------------------------------|----------|
|                                                              |          |
| **Index to Consolidated Financial   Statements**                  |     |
|                                                              |     |
| Report   of Independent Registered Public Accounting Firm         | F-2      |
| Consolidated   Balance Sheet                                      | F-3      |
| Consolidated   Statements of Income                               | F-5      |
| Consolidated   Statements of Cash Flows                           | F-7      |
| Consolidated   Statements of Changes in Shareholders’ Equity | F-9      |
| Notes   to the Consolidated Financial Statements                  | F-11     |

----

**Report of Independent Registered  Public Accounting Firm**

To the Board of Directors and Shareholders Votorantim Celulose e Papel S.A.

In our opinion, based on our audits and the report of other auditors, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Votorantim Celulose e Papel S.A. and its subsidiaries at December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements as at and for the year ended December 31, 2005 and 2004, of Aracruz Celulose S.A., an affiliate, the investment in which totaled US$ 262 million andUS$ 243 million respectively and for which the equity in earnings of affiliate, included in net income, totaled US$ 42 million and US$ 28 million for the years then ended. Those statements were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Aracruz Celulose S.A., is based solely on the report of the other auditors. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statementpresentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

| São   Paulo, January 17, 2006               |
|--------------------------------------------------|
|                                             |
|                                             |
| PricewaterhouseCoopers   Auditores Independentes |

F - 2

----

| **Votorantim   Celulose e Papel S.A.**                     |
|------------------------------------------------------------|
|                                                       |
| **Consolidated Balance Sheets at   December 31**           |
| **In millions of U.S. dollars,   except number of shares** |
|                                                            |

|                                                       |   | **2005** |               | **2004** |   |
|------------------------------------------------------------|--------|----------|--------------------|----------|--------|
|                                                       |   |          |                    |     |        |  |   |
| **Assets**                                                 |   |     |               |     |   |   |   |
| Current   assets                                           |   |     |               |     |   |   |   |
| Cash and cash equivalents                                  |   |     | 261                |     |   | 151 |   |
| Held-to-maturity securities                                |   |     | —   |     |   | 69 |   |
| Available for sale securities                              |   |     | 446                |     |   | —   |   |
| Trade accounts receivable, net                             |   |     | 212                |     |   | 175 |   |
| Inventories                                                |   |     | 157                |     |   | 130 |   |
| Recoverable taxes                                          |   |     | 57                 |     |   | 49 |   |
| Deferred income tax                                        |   |     | 7                  |     |   | —   |   |
| Other                                                      |   |     | 24                 |     |   | 13 |   |
|                                                       |   |          |                    |     |        |  |   |
|                                                       |   |     | 1,164              |     |   | 587 |   |
|                                                       |   |          |                    |     |        |  |   |
| Investment   in affiliates, including goodwill             |   |     | 596                |     |   | 249 |   |
| Property,   plant and equipment, net                       |   |     | 1,758              |     |   | 1,443 |   |
| Other   assets                                             |   |     |               |     |   |   |   |
| Held-to-maturity securities                                |   |     | —   |     |   | 209 |   |
| Unrealized gains from cross currency interest   rate swaps |   |     | —   |     |   | 47 |   |
| Recoverable taxes                                          |   |     | 31                 |     |   | 32 |   |
| Deferred income tax                                        |   |     | 89                 |     |   | 43 |   |
| Judicial deposits                                          |   |     | 87                 |     |   | 26 |   |
| Other                                                      |   |     | 6                  |     |   | 8 |   |
|                                                       |   |          |                    |     |        |  |   |
|                                                       |   |     | 213                |     |   | 365 |   |
|                                                       |   |          |                    |     |        |  |   |
|                                                       |   |     | 3,731              |     |   | 2,644 |   |
|                                                       |   |          |                    |     |        |  |   |

F - 3

----

| **Votorantim   Celulose e Papel S.A.**                     |            |
|------------------------------------------------------------|-----------------|
|                                                       |            |
| **Consolidated Balance Sheets at   December 31**           |            |
| **In millions of U.S. dollars,   except number of shares** | **(continued)** |
|                                                            |

|                                                                                                      |   | **2005** |               | **2004** |   |
|-----------------------------------------------------------------------------------------------------------|--------|----------|--------------------|----------|--------|
|                                                                                                      |   |          |                    |     |        |  |   |
| **Liabilities and shareholders’   equity**                                                           |   |     |               |     |   |   |   |
| Current   liabilities                                                                                     |   |     |               |     |   |   |   |
| Trade payables                                                                                            |   |     | 64                 |     |   | 45 |   |
| Short-term debt                                                                                           |   |     | 132                |     |   | 79 |   |
| Current portion of long-term debt                                                                         |   |     | 79                 |     |   | 297 |   |
| Unrealized loss from currency interest rate swaps                                                         |   |     | 6                  |     |   | —   |   |
| Payroll, profit sharing and related charges                                                               |   |     | 20                 |     |   | 15 |   |
| Income taxes                                                                                              |   |     | —   |     |   | 18 |   |
| Taxes payables                                                                                            |   |     | 21                 |     |   | 8 |   |
| Interest attributable to capital payable                                                                  |   |     | 103                |     |   | —   |   |
| Other                                                                                                     |   |     | 20                 |     |   | 11 |   |
|                                                                                                      |   |          |                    |     |        |  |   |
|                                                                                                      |   |     | 445                |     |   | 473 |   |
|                                                                                                      |   |          |                    |     |        |  |   |
| Long-term   liabilities                                                                                   |   |     |               |     |   |   |   |
| Long-term debt                                                                                            |   |     | 1,285              |     |   | 569 |   |
| Unrealized loss from currency interest rate swaps                                                         |   |     | 71                 |     |   | —   |   |
| Accrued liabilities for legal proceedings                                                                 |   |     | 172                |     |   | 104 |   |
| Post-retirement benefits                                                                                  |   |     | 21                 |     |   | —   |   |
|                                                                                                      |   |          |                    |     |        |  |   |
|                                                                                                      |   |     | 1,549              |     |   | 673 |   |
|                                                                                                      |   |          |                    |     |        |  |   |
| Commitments   and contingencies (Note 14)                                                                 |   |     |               |     |   |   |   |
| Shareholders’   equity                                                                               |   |     |               |     |   |   |   |
| Preferred shares, no par value, 280,000,000   shares authorized, 85,911,046 shares issued and outstanding |   |     | 785                |     |   | 785 |   |
| Common shares, no par value, 140,000,000 shares   authorized, 105,702,452 shares issued and outstanding   |   |     | 1,053              |     |   | 1,053 |   |
| Additional paid-in capital                                                                                |   |     | 29                 |     |   | 29 |   |
| Treasury shares, at cost, 2005 - 1,081,500   preferred shares; 2004 - 157,200 preferred shares            |   |     | (13                | )        |   | (2 | ) |
| Appropriated retained earnings                                                                            |   |     | 72                 |     |   | 60 |   |
| Unappropriated retained earnings                                                                          |   |     | 487                |     |   | 440 |   |
| Accumulated other comprehensive deficit                                                                   |   |     |               |     |   |   |   |
| Cumulative translation adjustments                                                                        |   |     | (687               | )        |   | (867 | ) |
| Net unrealized gains on available for sale   securities                                                   |   |     | 11                 |     |   | —   |   |
|                                                                                                      |   |          |                    |     |        |  |   |
|                                                                                                      |   |     | 1,737              |     |   | 1,498 |   |
|                                                                                                      |   |          |                    |     |        |  |   |
|                                                                                                      |   |     | 3,731              |     |   | 2,644 |   |
|                                                                                                      |   |          |                    |     |        |  |   |

The accompanying notes are an integral part of the consolidated financial statements.

F - 4

----

| **Votorantim Celulose e Papel S.A.**                       |
|------------------------------------------------------------|
|                                                       |
| **Consolidated Statements of Income**                      |
| **In millions of U.S. dollars, except   number of shares** |
|                                                            |

|                                                                                          |   | **2005** |   | **2004** |   | **2003** |   |
|-----------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| **Net operating revenue**                                                                     |   |     |   |     |   |     |   |   |   |   |
| Domestic sales (net of sales taxes: 2005 -   US$183;  2004 - US$119 and 2003 -   US$123) |   |     | 564    |     |   | 512      |   |   | 443 |   |
| Export sales (including related party sales: 2003   - US$58)                                  |   |     | 566    |     |   | 498      |   |   | 373 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
|                                                                                          |   |     | 1,130  |     |   | 1,010    |   |   | 816 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| **Operating costs and expenses**                                                              |   |     |   |     |   |     |   |   |   |   |
| Cost of sales                                                                                 |   |     | 654    |     |   | 518      |   |   | 421 |   |
| Selling and marketing                                                                         |   |     | 138    |     |   | 121      |   |   | 82 |   |
| General and administrative                                                                    |   |     | 55     |     |   | 40       |   |   | 33 |   |
| Other operating expenses, net                                                                 |   |     | 36     |     |   | 6        |   |   | 12 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
|                                                                                          |   |     | 883    |     |   | 685      |   |   | 548 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| **Operating income**                                                                          |   |     | 247    |     |   | 325      |   |   | 268 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| **Non-operating income (expense)**                                                            |   |     |   |     |   |     |   |   |   |   |
| Financial income                                                                              |   |     | 79     |     |   | 40       |   |   | 65 |   |
| Financial expense                                                                             |   |     | (119   | )        |   | (69      | )      |   | (71 | ) |
| Foreign exchange gain (loss) and unrealized gain   (loss) on swaps, net                       |   |     | (5     | )        |   | 12       |   |   | (14 | ) |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
|                                                                                          |   |     | (45    | )        |   | (17      | )      |   | (20 | ) |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| **Income before taxes on income   and equity in affiliates**                                  |   |     | 202    |     |   | 308      |   |   | 248 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| Current income tax expense                                                                    |   |     |   |     |   |     |   |   |   |   |
| Domestic                                                                                      |   |     | (45    | )        |   | (47      | )      |   | (37 | ) |
| Foreign                                                                                       |   |     | (6     | )        |   | (6       | )      |   | (3 | ) |
| Deferred income tax benefit                                                                   |   |     | 59     |     |   | 17       |   |   | 17 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| **Income before equity in   affiliates**                                                      |   |     | 210    |     |   | 272      |   |   | 225 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| Equity in earnings of affiliates                                                              |   |     | 54     |     |   | 31       |   |   | 19 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |
| **Net income**                                                                                |   |     | 264    |     |   | 303      |   |   | 244 |   |
|                                                                                          |   |          |        |     |        |          |   |  |  |   |

F - 5

----

| **Votorantim   Celulose e Papel S.A.**                     |            |
|------------------------------------------------------------|-----------------|
|                                                       |            |
| **Consolidated Statements of Income**                      |            |
| **In millions of U.S. dollars, except   number of shares** | **(continued)** |
|                                                            |

|                                                       |   | **2005** |    | **2004** |   | **2003** |   |
|------------------------------------------------------------|--------|----------|---------|----------|--------|----------|--------|
|                                                       |   |          |         |     |        |          |   |  |  |   |
| Net   income applicable to preferred shares                |   |     | 124     |     |   | 143      |   |   | 115 |   |
| Net   income applicable to common shares                   |   |     | 140     |     |   | 160      |   |   | 129 |   |
|                                                       |   |          |         |     |        |          |   |  |  |   |
| Net   income                                               |   |     | 264     |     |   | 303      |   |   | 244 |   |
|                                                       |   |          |         |     |        |          |   |  |  |   |
| Basic   and diluted earnings - in U.S. dollars             |   |     |    |     |   |     |   |   |   |   |
| Per preferred share or ADS                                 |   |     | 1.46    |     |   | 1.67     |   |   | 1.34 |   |
| Per common share                                           |   |     | 1.33    |     |   | 1.51     |   |   | 1.22 |   |
| Weighted   average number of shares outstanding (thousand) |   |     |    |     |   |     |   |   |   |   |
| Preferred                                                  |   |     | 85,451  |     |   | 85,773   |   |   | 85,510 |   |
| Common                                                     |   |     | 105,702 |     |   | 105,702  |   |   | 105,702 |   |

The accompanying notes are an integral part of the consolidated financial statements.

F - 6

----

| **Votorantim Celulose e Papel S.A.**        |
|---------------------------------------------|
|                                        |
| **Consolidated Statements of Cash   Flows** |
| **In millions of U.S. dollars**             |
|                                             |

|                                                                                      |   | **2005** |   | **2004** |   | **2003**           |   |
|-------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|--------------------|--------|
|                                                                                      |   |          |        |     |        |                    |   |  |  |   |
| **Cash flows from operating   activities**                                                |   |     |   |     |   |               |   |   |   |   |
| Net income                                                                                |   |     | 264    |     |   | 303                |   |   | 244 |   |
| Adjustments to reconcile net income to cash   provided by operating activities            |   |     |   |     |   |               |   |   |   |   |
| Foreign exchange (gain) loss and unrealized (gain)loss on swaps, net                      |   |     | 5      |     |   | (12                | )      |   | 14 |   |
| Equity in earning of affiliates                                                           |   |     | (54    | )        |   | (31                | )      |   | (19 | ) |
| Deferred income tax                                                                       |   |     | (59    | )        |   | (17                | )      |   | (17 | ) |
| Depreciation and depletion                                                                |   |     | 117    |     |   | 89                 |   |   | 72 |   |
| Loss on disposal of property, plant and equipment                                         |   |     | 9      |     |   | 5                  |   |   | 7 |   |
| Decrease (increase) in assets                                                             |   |     |   |     |   |               |   |   |   |   |
| Trade accounts receivable                                                                 |   |     | (4     | )        |   | (17                | )      |   | 5 |   |
| Inventories                                                                               |   |     | (6     | )        |   | (21                | )      |   | (28 | ) |
| Other assets                                                                              |   |     | (38    | )        |   | (15                | )      |   | (3 | ) |
| Decrease in liabilities                                                                   |   |     | (11    | )        |   | (29                | )      |   | (37 | ) |
|                                                                                      |   |          |        |     |        |                    |   |  |  |   |
| **Net cash provided by operating   activities**                                           |   |     | 223    |     |   | 255                |   |   | 238 |   |
|                                                                                      |   |          |        |     |        |                    |   |  |  |   |
| **Cash flows from investing   activities**                                                |   |     |   |     |   |               |   |   |   |   |
| Held-to-maturity securities purchased, net of   proceeds on sale                          |   |     | 6      |     |   | 48                 |   |   | 55 |   |
| Available for sale securities purchased, net of   proceeds on sale and matured securities |   |     | (110   | )        |   | —   |   |   | —   |   |
| Acquisition of an interest in affiliate (Note 4   (a))                                    |   |     | (275   | )        |   | —   |   |   | —   |   |
| Interest attributable to capital and dividends   received                                 |   |     | 11     |     |   | 22                 |   |   | 13 |   |
| Acquisition of property, plant and equipment                                              |   |     | (247   | )        |   | (218               | )      |   | (165 | ) |
|                                                                                      |   |          |        |     |        |                    |   |  |  |   |
| **Net cash used in investing   activities**                                               |   |     | (615   | )        |   | (148               | )      |   | (97 | ) |
|                                                                                      |   |          |        |     |        |                    |   |  |  |   |
| **Cash flows from financing   activities**                                                |   |     |   |     |   |               |   |   |   |   |
| Short-term debt                                                                           |   |     | 55     |     |   | 42                 |   |   | (23 | ) |
| Long-term debt                                                                            |   |     |   |     |   |               |   |   |   |   |
| Third parties                                                                             |   |     |   |     |   |               |   |   |   |   |
| Borrowings                                                                                |   |     | 869    |     |   | 347                |   |   | 364 |   |
| Repayments                                                                                |   |     | (324   | )        |   | (558               | )      |   | (420 | ) |
| Related parties                                                                           |   |     |   |     |   |               |   |   |   |   |
| Borrowings                                                                                |   |     | 43     |     |   | 46                 |   |   | 163 |   |
| Repayments                                                                                |   |     | (39    | )        |   | (30                | )      |   | (8 | ) |
| Treasury shares                                                                           |   |     |   |     |   |               |   |   |   |   |
| Acquisition                                                                               |   |     | (12    | )        |   | (2                 | )      |   | —   |   |
| Sales                                                                                     |   |     | 1      |     |   | 1                  |   |   | 3 |   |
| Dividends paid                                                                            |   |     | (88    | )        |   | (104               | )      |   | (40 | ) |
|                                                                                      |   |          |        |     |        |                    |   |  |  |   |
| **Net cash provided by (used in)   financing activities**                                 |   |     | 505    |     |   | (258               | )      |   | 39 |   |
|                                                                                      |   |          |        |     |        |                    |   |  |  |   |

F - 7

----

| **Votorantim   Celulose e Papel S.A.**      |            |
|---------------------------------------------|-----------------|
|                                        |            |
| **Consolidated Statements of Cash   Flows** |            |
| **In millions of U.S. dollars**             | **(continued)** |
|                                             |

|                                                                 |   | **2005** |               | **2004** |   | **2003**           |   |
|----------------------------------------------------------------------|--------|----------|--------------------|----------|--------|--------------------|--------|
|                                                                 |   |          |                    |     |        |                    |   |  |  |   |
| **Effect of exchange rate changes   on cash and cash equivalents**   |   |     | (3                 | )        |   | 12                 |   |   | 20 |   |
|                                                                 |   |          |                    |     |        |                    |   |  |  |   |
| **Net increase (decrease) in cash   and cash equivalents**           |   |     | 110                |     |   | (139               | )      |   | 200 |   |
|                                                                 |   |          |                    |     |        |                    |   |  |  |   |
| **Cash and cash equivalents at   beginning of year**                 |   |     | 151                |     |   | 290                |   |   | 90 |   |
|                                                                 |   |          |                    |     |        |                    |   |  |  |   |
| **Cash and cash equivalents at end   of year**                       |   |     | 261                |     |   | 151                |   |   | 290 |   |
|                                                                 |   |          |                    |     |        |                    |   |  |  |   |
| **Supplemental cash flow   information**                             |   |     |               |     |   |               |   |   |   |   |
| Cash paid during the year for                                        |   |     |               |     |   |               |   |   |   |   |
| Income tax                                                           |   |     | 43                 |     |   | 34                 |   |   | 31 |   |
| Interest                                                             |   |     | 65                 |     |   | 61                 |   |   | 59 |   |
| Non-cash   transactions                                              |   |     |               |     |   |               |   |   |   |   |
| Acquisition of property, plant and equipment   financed by suppliers |   |     | —   |     |   | —   |   |   | 2 |   |

The accompanying notes are an integral part of the consolidated financial statements.

F - 8

----

| **Votorantim Celulose e Papel S.A.**                             |
|------------------------------------------------------------------|
|                                                             |
| **Consolidated Statements of Changes   in Shareholders' Equity** |
| **In millions of U.S. dollars, except   number of shares**       |
|                                                                  |

|                                                                        |   | **2005** |               | **2004** |   | **2003**           |   |
|-----------------------------------------------------------------------------|--------|----------|--------------------|----------|--------|--------------------|--------|
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Preferred shares**                                                        |   |     |               |     |   |               |   |   |   |   |
| At beginning of year                                                        |   |     | 785                |     |   | 553                |   |   | 553 |   |
| Transferred from unappropriated retained earnings                           |   |     | —   |     |   | 232                |   |   | —   |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| At end of year                                                              |   |     | 785                |     |   | 785                |   |   | 553 |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Common shares**                                                           |   |     |               |     |   |               |   |   |   |   |
| At beginning and end of year                                                |   |     | 1,053              |     |   | 767                |   |   | 767 |   |
| Transferred from unappropriated retained earnings                           |   |     | —   |     |   | 286                |   |   | —   |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| At end of year                                                              |   |     | 1,053              |     |   | 1,053              |   |   | 767 |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Additional paid-in-capital**                                              |   |     |               |     |   |               |   |   |   |   |
| At beginning of year                                                        |   |     | 29                 |     |   | 29                 |   |   | 24 |   |
| Gain on sale of treasury shares                                             |   |     | —   |     |   | —   |   |   | 5 |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| At end of year                                                              |   |     | 29                 |     |   | 29                 |   |   | 29 |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Treasury shares**                                                         |   |     |               |     |   |               |   |   |   |   |
| At beginning of year                                                        |   |     | (2                 | )        |   | (1                 | )      |   | (4 | ) |
| Preferred shares sold (2005 - 126,400; 2004 -   114,500 and 2003 - 713,600) |   |     | 1                  |     |   | 1                  |   |   | 3 |   |
| Preferred shares purchased (2005 - 1,050,700;   2004 - 263,800)             |   |     | (12                | )        |   | (2                 | )      |   | —   |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| At end of year                                                              |   |     | (13                | )        |   | (2                 | )      |   | (1 | ) |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Appropriated retained earnings**                                          |   |     |               |     |   |               |   |   |   |   |
| At beginning of year                                                        |   |     | 60                 |     |   | 46                 |   |   | 31 |   |
| Transferred from unappropriated retained earnings                           |   |     | 12                 |     |   | 14                 |   |   | 15 |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| At end of year                                                              |   |     | 72                 |     |   | 60                 |   |   | 46 |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Unappropriated retained earnings**                                        |   |     |               |     |   |               |   |   |   |   |
| At beginning of year                                                        |   |     | 440                |     |   | 773                |   |   | 584 |   |
| Net income                                                                  |   |     | 264                |     |   | 303                |   |   | 244 |   |
| Transferred to preferred shares                                             |   |     | —   |     |   | (232               | )      |   | —   |   |
| Transferred to common shares                                                |   |     | —   |     |   | (286               | )      |   | —   |   |
| Transferred to appropriated retained earnings                               |   |     | (12                | )        |   | (14                | )      |   | (15 | ) |
| Dividends and interest attributed to capital                                |   |     |               |     |   |               |   |   |   |   |
| Preferred                                                                   |   |     | (97                | )        |   | (49                | )      |   | (19 | ) |
| Common                                                                      |   |     | (108               | )        |   | (55                | )      |   | (21 | ) |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |
| At end of year                                                              |   |     | 487                |     |   | 440                |   |   | 773 |   |
|                                                                        |   |          |                    |     |        |                    |   |  |  |   |

F - 9

----

| **Votorantim   Celulose e Papel S.A.**                           |            |
|------------------------------------------------------------------|-----------------|
|                                                             |            |
| **Consolidated Statements of Changes   in Shareholders' Equity** |            |
| **In millions of U.S. dollars, except   number of shares**       | **(continued)** |
|                                                                  |

|                                                        |   | **2005** |               | **2004** |   | **2003**           |   |
|-------------------------------------------------------------|--------|----------|--------------------|----------|--------|--------------------|--------|
|                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Cumulative translation   adjustments**                    |   |     |               |     |   |               |   |   |   |   |
| At beginning of year                                        |   |     | (867               | )        |   | (981               | )      |   | (1,187 | ) |
| Gain for the year                                           |   |     | 180                |     |   | 114                |   |   | 206 |   |
|                                                        |   |          |                    |     |        |                    |   |  |  |   |
| At end of year                                              |   |     | (687               | )        |   | (867               | )      |   | (981 | ) |
|                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Net unrealized gains on   available for sale securities** |   |     |               |     |   |               |   |   |   |   |
| At beginning of year (2004 and 2003 in   affiliates)        |   |     | —   |     |   | (1                 | )      |   | (1 | ) |
| Transferred to results of operations (retained   earnings)  |   |     | —   |     |   | 1                  |   |   | —   |   |
| Gain for the year, net of tax of US$6                       |   |     | 11                 |     |   | —   |   |   | —   |   |
|                                                        |   |          |                    |     |        |                    |   |  |  |   |
| At end of year                                              |   |     | 11                 |     |   | —   |   |   | (1 | ) |
|                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Shareholders’ equity at end of   year**              |   |     | 1,737              |     |   | 1,498              |   |   | 1,185 |   |
|                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Comprehensive income**                                    |   |     |               |     |   |               |   |   |   |   |
| Net income                                                  |   |     | 264                |     |   | 303                |   |   | 244 |   |
| Unrealized gains on available for sale securities           |   |     | 11                 |     |   | —   |   |   | —   |   |
| Translation adjustments                                     |   |     | 180                |     |   | 114                |   |   | 206 |   |
|                                                        |   |          |                    |     |        |                    |   |  |  |   |
| **Comprehensive income**                                    |   |     | 455                |     |   | 417                |   |   | 450 |   |
|                                                        |   |          |                    |     |        |                    |   |  |  |   |

The accompanying notes are an integral part of the consolidated financial statements.

F - 10

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **1**   | **Operations**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    | Votorantim   Celulose e Papel S.A. and its subsidiaries (the “Company”, “VCP” or “we”) is   a limited liability company constituted in accordance with the laws of the   Federative Republic of Brazil and headquartered in the state of São Paulo.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    | We   produce eucalyptus pulp which we use in our own integrated paper manufacturing   facilities or, to a lesser extent, sell in the domestic and foreign markets.   We also have forestry operations which produce the pulp wood required for our   production. Our business has experienced, and is likely to continue to   experience, cycles relating to available industry capacity and general   industry economic conditions. Our sales (volumes and prices) are affected by   such conditions which are beyond our control. We are a member of the   Votorantim Group, which has other interests in Brazil and abroad, principally   in cement, metallurgy, agribusiness, chemicals and financial services.                                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    | Our   preferred shares are traded on the São Paulo Stock Exchange under the symbol   “VCPA4.” Our American Depositary Shares (“ADSs”) are traded on the New York Stock   Exchange under the symbol “VCP”. Each ADS represents one of our preferred   shares.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **2**   | **Significant Accounting Policies**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **(a)** | **Basis of presentation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    | The   financial statements have been prepared in accordance with accounting   principles generally accepted in the United States of America (“US GAAP”),   which differ in certain respects from the accounting principles applied by   the Company in its financial statements prepared in accordance with   accounting practices generally accepted in Brazil (“Brazilian GAAP”) as filed   with the Comissão de Valores Mobiliários (Brazilian Securities Commission or   “CVM”), or for other statutory purposes in Brazil.                                                                                                                                                                                                                                           |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **(b)** | **Translation of financial   statements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    | We   transact the majority of our business in Brazilian Reais (R$) and, therefore,   have adopted the Brazilian Real as the functional currency and have selected   the United States dollar as our reporting currency. The U.S. dollar amounts   for all years presented have been translated from Reais amounts in accordance   with the criteria set forth in Statement of Financial Accounting Standards   (“SFAS”) 52, “Foreign Currency Translation”. Assets and liabilities are   translated from the functional currency to the reporting currency using the   official exchange rates reported by the Brazilian Central Bank at the balance   sheet date (December 31, 2005 - US$1.00 : R$2.3407; December 31, 2004 -   US$1.00 : R$2.6544; December 31, 2003 - US$1.00 : R$2.8892). |

F - 11

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|    | Revenue,   expenses and gains and losses are translated from the functional currency to   the reporting currency using the monthly weighted-average exchange rates for   the year. Capital accounts are recorded at historical exchange rates.   Translation gains and losses are recorded in the Cumulative Translation   Adjustments account (“CTA”) in shareholders’ equity.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **(c)** | **Principles of consolidation**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | Our   consolidated financial statements include the accounts of VCP and our   directly and indirectly controlled subsidiaries: VCP Exportadora e   Participações Ltda. (“VEP”), VCP Florestal Ltda. (merged into VCP on January   1, 2005), St. Helen Holding III B.V., Normus Emprendimentos e Participações   Ltda., Newark Financial Inc. (“Newark”), VCP Overseas Holding KFT, VCP North   America Inc. (United States) and VCP Trading N.V. (Netherlands Antilles), all   of which are wholly owned. Significant intercompany accounts and transactions   have been eliminated in the consolidation. The 12.35% owned equity investee,   Aracruz Celulose S.A. (“Aracruz”), in which we acquired our interest during   2001 and our 50% owned equity investees, Voto - Votorantim Overseas Trading   Operations N.V. (“VOTO”), Voto - Votorantim Overseas Trading Operations II   Limited. (“VOTO II”) and Voto - Votorantim OverseasTrading Operations IV   Limited. (“VOTO IV”) respectively, are accounted for using the equity method. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | On   March 31, 2005, Ripasa Participações S.A. (“Ripar”) a joint venture in which   we own 50%, acquired a 46.06% interest in the total capital and 77.59%   interest in the voting capital of Ripasa S.A. Celulose e Papel (“Ripasa”), a   Brazilian pulp and paper producer. We account for our interest in Ripar using   the equity method of accounting.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **(d)** | **Cash and cash equivalents**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | We   consider all highly liquid investments with a maturity at acquisition of   three months or less to be cash equivalents.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **(e)** | **Available for sale securities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | We   consider debt securities as available for sale securities when we intend to   sell the securities before its maturity. Available for sale securities are   presented based on quoted market prices and the unrealized gain or loss, net   of taxes, is recorded in shareholders’ equity until the maturity or sale   date, when the gain or loss is transferred to the financial income in the   statement of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **(f)** | **Held-to-maturity investments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    | We   consider debt securities as held-to-maturity when we intend and have the   ability to hold the securities to maturity. Held-to-maturity securities are   carried at cost plus accrued income which is included in financial income in   the statement of income.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

F - 12

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **(g)** | **Inventories**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Inventories,   including timber, are stated at average acquisition or production cost, which   is lower than market.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **(h)** | **Investment in affiliates,   including goodwill**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Investments   in affiliates in which we have the ability to exercise significant influence   over the operating and financial policies are accounted for under the equity   method.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Goodwill   as well as other intangible assets with indefinite lives is tested annually   for impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **(i)** | **Property, plant and equipment**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Property,   plant and equipment are stated at cost of acquisition or construction,   including interest during the construction period. Expenditures which   materially extend the useful lives of the existing facilities and equipment   are capitalized. We depreciate property, plant and equipment using the   straight-line method at rates we judge to be compatible with the useful   lives, principally 25 years for plant and equipment, 10 years for furniture   and fixtures and five years for vehicles. Depletion of forests is computed on   the unit-of-production method, based on the volume of timber harvested in   each period. Software costs capitalized are amortized on a straight-line   basis over five years. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Forest   development costs, primarily project implementation costs (preparation of   soil, planting, pest control and clearing etc.) and on-going development   costs are capitalized as incurred. As a result of improvements in forest   management techniques, including genetic improvement in trees, we harvest and   replant our forests approximately every seven years. Capitalized costs are   expensed at the time of each harvest.                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | We   review our property, plant and equipment for possible impairment whenever   events or changes in circumstances indicate that the carrying value of an   asset or group of assets may not be recoverable on the basis of undiscounted   future cash flows. The reviews are carried out at the lowest level of groups   of assets to which we are able to attribute identifiable future cash flows.   Asset groups are forestry projects or production facilities for paper and   pulp. We adjust the net book value of the underlying assets if the sum of the   expected future cash flows is less than book value. These reviews to date   have not indicated the need to recognize any impairment.                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **(j)** | **Income taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Brazilian   taxes on income consist of federal income and social contribution taxes, the   latter being a federal tax based on adjusted taxable income determined under   Brazilian tax regulations. There are no taxes levied by state or local   authorities on income in Brazil.                                                                                                                                                                                                                                                                                                                                                                                                                                                       |

F - 13

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|    | For   the purposes of these financial statements, we have applied SFAS 109   “Accounting for Income Taxes”, for all periods presented. The effect of   adjustments made to reflect the requirements of US GAAP as well as the   differences between the tax basis of non-monetary assets have been recognized   as temporary differences for the purpose of recording deferred income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | Current   and non-current deferred tax assets and liabilities are presented separately.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| **(k)** | **Revenues and expenses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | We   recognize revenue and associated costs of sales at the time our products are   delivered to our customers or when title and associated risks pass to our   customers. Revenue is recorded net of sales returns of US$7 in 2005 (US$6 in   2004 and US$8 in 2003). Our customers that purchase on credit agree to   payment terms that effectively include finance charges. The finance charge on   each sale is the difference between the amount the customer agrees to pay at   the due date and the cash sale price. The finance charges are recognized over   the payment period and are included in financial income. Recognition of   revenue for our two segments and for domestic and export sales is based on   the following principles:                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | **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 to present values as   our price list is dependent on the length of credit granted. Revenue is   recognized when the customer takes delivery of the product either upon   delivery to the customer’s carrier (FOB) or premises (CIF). Sales through our   vendor program are made to certain of our pre-qualifying domestic customers,   and represented approximately 22% of our domestic sales in 2005 (2004 - 21%;   2003 - 22%). Under the vendor program, the customer agrees to pay the bank   and the bank in turn pays us on behalf of the customer for the purchase price   of the product. We guarantee full repayment of the loan for which the maximum   allowable term for payment is generally 180 days, though in the case of a few   customers, we extend the term to 360 days. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | We   estimate that for 2005, 2004 and 2003, an average of approximately 2% of our   total number of regular domestic customers (approximately 22%, 21% and 22%,   respectively, of total domestic sales value) obtained our guarantee for their   loans.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | **Paper - export market**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|    | Export   orders are normally met by own or third party warehouses located close to strategic   markets. These sales are recognized when products are delivered to the   carrier and risks have passed to the customer, that is, the Company delivers   the goods, cleared for export to the carrier nominated by the buyer at the   named place. CIF and FOB terms determine timing of revenue recognition.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

F - 14

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|    | **Pulp - domestic market**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | In   2005 none of our customers qualified for sales through our vendor program   (2004 - none; 2003 - one), credit terms of up to 270 days were extended by   the bank. Remaining sales are primarily under credit terms which do not   exceed 30 days. Revenue recognition is consistent with that applied to paper   sales.                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | **Pulp - export market**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | All   export orders are normally satisfied by own or third party warehouses located   close to strategic markets. These sales are recognized when products are   delivered to the carrier and risks have passed to the customer. Exports to   Asia are on a cost and freight basis with a named port of destination.                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | Research   and development expenses are charged to expense as incurred and totaled   approximately US$1 in each of 2005, 2004 and 2003. Start-up expenses of new   facilities and restructuring charges are also directly expensed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | Shipping   and handling costs are charged to selling and marketing expenses and totaled   approximately US$75, US$76 and US$52 in 2005, 2004 and 2003, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **(l)** | **Comprehensive income**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | We   report comprehensive income in accordance with SFAS 130, “Reporting   Comprehensive Income”, and have elected to present this in the Statement of   changes in shareholders’ equity. In our case, comprehensive income comprises   the results of our operations, the translation adjustments included in the   CTA component of shareholders’ equity and the changes in the fair value of   available for sale securities.                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **(m)** | **Earnings per share**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | In   conformity with SFAS 128, “Earnings per Share”, we have presented earnings   per share for each class of shares, taking into account that the preferred   shares are entitled to a dividend 10% greater than that paid to the common   shares. The computation has been made as if the net income for each period   will be fully distributed. Earnings may be capitalized or otherwise   appropriated; consequently such earnings would no longer be available as   dividends. Therefore, there is no assurance that preferred shareholders will   receive a 10% premium on undistributed earnings. We may also pay dividends   through interest attributed to capital in accordance with our by-laws. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | Following   the reverse stock split of our shares and ADSs on October 18, 2004 (Note 16),   we retroactively adjusted all shares and ADS data to take account of the   reverse split.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

F - 15

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **(n)** | **Use of estimates**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    | The   preparation of financial statements requires management to make estimates and   assumptions that affect the reported amounts of assets and liabilities and   disclosure of contingent assets and liabilities and the reported amounts of   revenues and expenses.  Estimates are used for, but not limited to:   accounting for allowance for doubtful accounts, selection of depreciable   lives of assets, asset impairments, tax valuation allowances, contingencies   and other similar evaluations. Actual results could differ from those   estimates. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **(o)** | **Employee benefits and other   related matters**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    | In   March 2000 we launched a defined contribution plan which provides pension and   post-retirement benefits (Note 19). We also contribute to the Government   pension, welfare and redundancy plans on behalf of our employees and these   contributions are expensed as incurred. Most of our employees are members of   unions, with which we enter into collective-bargaining arrangements annually.   The liability for future compensation for employee vacations is accrued as   earned.                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    | We   adopt SFAS 106, “Employers’ Accounting for Post-retirement Benefits Other   than Pensions”, which requires a provision for the costs of post-retirement   benefits expected to be paid to current, former or inactive employees upon   retirement. Expenses relating to benefits we provide to our current employees   are expensed as incurred whereas those relating to retired employees (current   as well as expected in the future) and their dependents are accounted for in   accordance with SFAS 106.                                     |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **(p)** | **Environmental matters**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    | Our   production facilities and forestry operations are subject to a number of   environmental risks which we seek to mitigate by strict operating procedures   and investments in pollution control equipment and systems. Ongoing   environmental compliance expenditures are expensed as incurred and new   equipment and systems are capitalized. We believe that no provision for   losses related to environmental matters is currently required based on   prevailing laws and regulations in Brazil.                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| **3**   | **Recently Issued Accounting   Pronouncements**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    | The   Financial Accounting Standards Board (“FASB”) recently issued a number of   Statements of Financial Accounting Standards and interpretations; neither of   the standards or interpretations described below had or are expected to have   a material impact on the financial position and results of operations of the   Company.                                                                                                                                                                                                                       |

F - 16

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| (a)    | In   November 2004, the FASB issued SFAS 151, Inventory Costs an amendment of ARB   43, Chapter 4, which addresses inventory pricing. This statement clarifies   the accounting for abnormal amounts of idle facility expenses, freight,   handling costs, and spoilage. Under previous guidance, paragraph 5 of ARB 43,   items such as idle facility expense, excessive spoilage, double freight, and   rehandling costs that are considered to be “so abnormal” are treated as   current period charges. This statement requires that those items be   recognized as current-period charges regardless of whether they meet the   criterion of “so abnormal.” In addition, this Statement requires that   allocation of fixed production overheads to the costs of conversion be based   on the normal capacity of the production facilities. The provisions of this   Statement shall be effective prospectively for inventory costs incurred   during fiscal years beginning after June15, 2005. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (b)    | In   December 2004, the FASB issued SFAS 153, “Exchanges of Nonmonetary Assets -   an amendment of APB 29”, to eliminate the exception for nonmonetary exchanges   of similar productive assets and replaces it with a general exception for   exchanges of nonmonetary assets that do not have commercial substance. SFAS   153 is effective for nonmonetary assets exchanges occurring in fiscal periods   beginning after June 15, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (c)    | In   March 2005, the FASB issued FASB Interpretation 47, “Accounting for   Conditional Asset Retirement Obligations”.  This statement requires   companies to recognize a liability for the fair value of a legal obligation   to perform asset retirement obligations that are conditional on a future   event if the amount can be reasonably estimated.  This statement becomes   effective on December 31, 2005.  Management has previously evaluated the   application of FASB Statement 143 to its operations and concluded that no   material effects would be expected.  Management will consider this   Interpretation from 2005 in the event a conditional asset retirement   obligation arises.                                                                                                                                                                                                                                                                                  |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (d)    | In   June 2005, the FASB issued SFAS 154, “Accounting Changes and Error   Corrections, a replacement of APB 20 and FASB Statement 3”.  SFAS 154   requires retrospective application to financial statements of prior periods   for changes in accounting principles as if such principles had always been   used. The cumulative effect of the change is reflected in the carrying   value of assets and liabilities as of the first period presented and the   offsetting adjustments are recorded to opening retained earnings. This   statement is effective January 1, 2006. The Company will apply this statement   as of January 1, 2006 as such changes in accounting principles occur.                                                                                                                                                                                                                                                                                                       |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| (e)    | In   July 2005, the FASB issued FSP no. APB 18-1, “Accounting By an Investor for   Its Proportionate Share of Accumulated Other Comprehensive Income of an   Investee Accounted for Under The Equity Method in Accordance with APB Opinion   18 Upon a Loss of Significant Influence”, which requires that when equity   method accounting ceases upon the loss of significant influence of an   investee, the investor’s proportionate share of the investee’s other   comprehensive income should be offset against the carrying value of the   investment. To the extent this results in a negative carrying value, the   investor should adjust the carrying value to zero and record the residual   balance through earnings. The Company will apply this Statement in the fiscal   period beginning January 1, 2006 as the need arises.                                                                                                                                                         |

F - 17

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| (f)     | In November 2005, the   FASB issued FSP FAS 115-1, “The Meaning of Other-Than-Temporary Impairment   and Its Application to Certain Investments”, which outlines a three-step   model for identifying investment impairments in debt and equity securities   within the scope of Statement 115 and cost-method investments. The three steps   involve (i) determining whether the investment is impaired, (ii) evaluating   whether the impairment is other-than- temporary, and (iii) if the   impairment is other-than-temporary, recognizing an impairment loss. The FSP   carries forward the disclosure requirements of issue 03-1, “The Meaning of   Other-Than-Temporary Impairment and Its Application to Certain Investments.”   The Company will begin applying this guidance as of January 1, 2006 as   circumstances arise. |
|---------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **4**   | **Acquisition of Affiliates**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **(a)** | **Ripasa**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    | On   November 10, 2004, we signed an agreement to acquire an interest in Ripasa   through a venture with Suzano Bahia Sul Papel e Celulose S.A. (“Suzano”). The   agreement was consummated on March 31, 2005 when Ripar was constituted by VCP   and Suzano upon each contributing US$275 in exchange for equal shareholder   rights and responsibilities, including equal direct and indirect holdings in   the capital of Ripasa. On March 31, 2005, Ripar acquired and paid for   129,676,966 common shares and 41,050,819 preferred shares of Ripasa,   representing 77.59% of the voting share capital and 46.06% of the total   stock, the reais equivalent, at that date, of US$550.                                                                                                                                                           |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    | Pursuant   to the November 10, 2004 agreement, VCP and Suzano have a call option to   acquire 37,449,084 common shares and 12,388,719 preferred shares of Ripasa,   representing 22.41% of the voting stock and 13.45% of the total stock for a   twelve-month period starting on the fifth anniversary of the closing date,   for the reais equivalent, at that date, of US$160 plus interest. The   shareholders of Ripasa who are party to the agreement have a put option which   may require Ripar to acquire all their common and preferred shares during a   period of five years from the closing date. The shareholder agreement between   VCP and Suzano provides for certain rights of first refusal in relation to   their respective interest in Ripar.                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    | On   July 20, 2005, the Boards of Directors of VCP, Suzano and Ripasa, approved   the corporate restructuring that would allow Ripasa’s minority shareholders   to exchange their interests in Ripasa for VCP and Suzano stock, in equal   parts. The restructuring involves two phases: (i) the merger of Ripasa into   Ripar and (ii) the distribution of assets to VCP and Suzano, in equal parts.   The restructuring will be submitted for approval at the general meetings of   the respective companies. At the completion of the restructuring, Ripasa’s   minority shareholders will become shareholders in VCP and Suzano, in   accordance with the Protocol and Justification of Share Merger and   Distribution (“Protocol”) that VCP, Suzano, Ripasa and Ripar executed on July   20, 2005.                                     |

F - 18

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|    | This   transaction is being analyzed by Brazilian antitrust authorities and is   subject to their review and approval.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | On   August 29, 2005, the Extraordinary General Meeting of Ripasa, which had been   called to discuss the proposal, was suspended through an injunction without   any decisions having been taken. The companies are pursuing legal measures to   assure the shareholders meeting is reconvened, as soon as possible, with the   objective of implementing the restructuring program.                                                                                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | Our   share of the distributable retained earnings of Ripasa is restricted to the   equivalent of US$9 at December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| **(b)** | **Aracruz**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | On   October 3, 2001, Newark acquired 127,506,457 common shares of Aracruz,   representing 28.00% of the voting share capital and 12.35% of the total stock   of Aracruz, for US$370, when we became a member of the controlling group of   Aracruz, together with the Lorentzen and Safra Group, (each member owning 28%   of the voting shares and with three seats on the board of directors), and   BNDESPAR (with 12.5% of the voting shares and one seat on the board of   directors). The excess of the cost of our investment in Aracruz over our   portion of the underlying fair value of the net assets amounted to US$155. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    | Aracruz’s   condensed balance sheet and statement of operations at December 31 are as   follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

|                                                                                 |   | **2005** |   | **2004** |   |
|--------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                                                 |   |          |        |     |        |  |   |
| Currents   assets                                                                    |   |     | 1,095  |     |   | 833 |   |
| Property,   plant, and equipment, investments in affiliated company and other assets |   |     | 2,669  |     |   | 2,697 |   |
| Current   liabilities                                                                |   |     | 485    |     |   | 275 |   |
| Long-term   debt (long-term portion)                                                 |   |     | 1,010  |     |   | 1,223 |   |
| Other   long-term liabilities                                                        |   |     | 304    |     |   | 218 |   |
| Shareholders’   equity                                                          |   |     | 1,965  |     |   | 1,814 |   |
| Net   sales                                                                          |   |     | 1,345  |     |   | 1,167 |   |
| Operating   income                                                                   |   |     | 447    |     |   | 357 |   |
| Net   income                                                                         |   |     | 341    |     |   | 227 |   |

|   | Our   share of the distributable retained earnings of Aracruz is restricted to the   equivalent of US$35 at December 31, 2005. Dividends and interest attributable   to capital received from Aracruz during 2005, totaled US$11 (2004 totaled   US$22). |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

F - 19

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|    | A   goodwill impairment provision was determined based on the market price of   US$18.56 for the Aracruz ADRs on December 31, 2002, of US$136 (gross of   deferred income tax effects of US$46) and was charged directly to income. The   deferred tax effect is included in “Deferred income tax benefit”. At   December 31, 2005, Aracruz ADSs traded at US$40.01.                                                                                                       |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **5**   | **Income Taxes**                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Income   taxes in Brazil include federal income tax and social contribution. The   composite tax rate on adjusted taxable income is 34%. From 2001 to 2004 we   elected to calculate and pay our income taxes based on the provisions of   REFIS (an estimated tax basis which is based on a percentage of net sales   adjusted by financial income and other income). As from 2005, taxes on income   are based on adjusted taxable income determined under Brazilian tax   regulations. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **(a)** | **Income tax analysis**                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | The   statutory rate applied to income before taxes is reconciled to income tax   expense as follows:                                                                                                                                                                                                                                                                                                                                                                                     |

|                                                                     |   | **2005** |               | **2004** |   | **2003**           |   |
|--------------------------------------------------------------------------|--------|----------|--------------------|----------|--------|--------------------|--------|
|                                                                     |   |          |                    |     |        |                    |   |  |  |   |
| Income   before income taxes                                             |   |     | 202                |     |   | 308                |   |   | 248 |   |
|                                                                     |   |          |                    |     |        |                    |   |  |  |   |
| Income   tax expense at statutory tax rate - 34%                         |   |     | (69                | )        |   | (105               | )      |   | (84 | ) |
| Reconciliation   of statutory to effective rate                          |   |     |               |     |   |               |   |   |   |   |
| Effect of REFIS election                                                 |   |     | —   |     |   | 69                 |   |   | 61 |   |
| Benefit from interest attributable to capital                            |   |     | 42                 |     |   | —   |   |   | —   |   |
| Difference in foreign income tax rates and other   permanent differences |   |     | 35                 |     |   | —   |   |   | —   |   |
|                                                                     |   |          |                    |     |        |                    |   |  |  |   |
| Income   tax (expense) benefit                                           |   |     | 8                  |     |   | (36                | )      |   | (23 | ) |
|                                                                     |   |          |                    |     |        |                    |   |  |  |   |

F - 20

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **(b)** | **Analysis of deferred tax   balances** |
|---------|-----------------------------------------|

|                                                              |   | **2005** |               | **2004** |   |
|-------------------------------------------------------------------|--------|----------|--------------------|----------|--------|
|                                                              |   |          |                    |     |        |  |   |
| Deferred   tax assets                                             |   |     |               |     |   |   |   |
| Tax loss carryforwards                                            |   |     | 7                  |     |   | 13 |   |
| Tax effects on impairment of Aracruz (Note 4 (b))                 |   |     | 46                 |     |   | 46 |   |
| Cross currency interest rate swap contracts                       |   |     | 30                 |     |   | —   |   |
| Post-retirement benefits                                          |   |     | 7                  |     |   | —   |   |
| Provisions                                                        |   |     | 28                 |     |   | 7 |   |
| Others                                                            |   |     | 1                  |     |   | 1 |   |
|                                                              |   |          |                    |     |        |  |   |
| Total   deferred tax assets                                       |   |     | 119                |     |   | 67 |   |
|                                                              |   |          |                    |     |        |  |   |
| Deferred   tax liabilities                                        |   |     |               |     |   |   |   |
| Accelerated depreciation and US GAAP adjustments                  |   |     | (17                | )        |   | (17 | ) |
| Cross currency interest rate swap contracts                       |   |     | —   |     |   | (7 | ) |
| Tax effect on unrealized gains on available for   sale securities |   |     | (6                 | )        |   | —   |   |
|                                                              |   |          |                    |     |        |  |   |
| Total   deferred tax liabilities                                  |   |     | (23                | )        |   | (24 | ) |
|                                                              |   |          |                    |     |        |  |   |
| Net   deferred tax assets                                         |   |     | 96                 |     |   | 43 |   |
| Less:   current portion                                           |   |     | (7                 | )        |   | —   |   |
|                                                              |   |          |                    |     |        |  |   |
| Non-current   portion                                             |   |     | 89                 |     |   | 43 |   |
|                                                              |   |          |                    |     |        |  |   |

|   | We   recognize deferred tax assets and liabilities based on the temporary   differences between the financial statement carrying amounts and the tax   basis of assets and liabilities. If we or one of our subsidiaries operate at   a loss or are unable to generate sufficient future taxable income, or if   there is a material change in the actual effective tax rates or time period   over which the underlying temporary differences become taxable or deductible,   we evaluate the need to establish a valuation allowance against all or a   significant portion of our deferred tax assets resulting in an increase in   our effective tax rate. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

F - 21

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **6** | **Securities** |
|-------|----------------|

|                              |   | **Available   for sale** |               | **Held-to-maturity** |   |
|-----------------------------------|--------|--------------------------|--------------------|----------------------|--------|
|                              |   |                          |                    |                 |        |  |   |
|                              |   | **2005**                 |               | **2004**             |   |
|                              |   |                          |                    |                 |        |  |   |
| In   reais                        |   |                     |               |                 |   |   |   |
| Securities                        |   |                     | 207                |                 |   | —   |   |
| Foreign Government Bonds          |   |                     | 54                 |                 |   | 41 |   |
| Credit linked notes               |   |                     | 30                 |                 |   | —   |   |
| In   U.S. dollars                 |   |                     |               |                 |   |   |   |
| Brazilian Government Bonds        |   |                     | 155                |                 |   | 223 |   |
| VOTO III                          |   |                     | —   |                 |   | 14 |   |
|                              |   |                          |                    |                 |        |  |   |
| Total   - current and non-current |   |                     | 446                |                 |   | 278 |   |
|                              |   |                          |                    |                 |        |  |   |

| **Maturity periods**        |   | **2005** |   |
|-----------------------------|--------|----------|--------|
|                             |   |          |        |   |
| Due   in less than one year |   |     | 237    |   |
| Due   in one to five years  |   |     | 209    |   |
|                        |   |          |        |   |
|                        |   |     | 446    |   |
|                        |   |          |        |   |

|   | Due   to requirements to fund future investments in our operations and the   acquisition shares of Ripasa, we reviewed the classification of the entire   security portfolio classified as held-to-maturity in the second quarter of   2005. At the time we invested in these securities, and in each reporting   period through that date, our intention had been to hold them through   maturity. As a result of our review, we reclassified the full portfolio to   the ‘available for sale’. Upon the transfer, securities were adjusted to   their fair values and the difference between the carrying amounts of the   securities at the date of transfer and their fair value as of such date was   recognized, net of the related tax effects, in “Net unrealized gains on   available for sale securities” directly in shareholders’ equity. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

F - 22

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **7** | **Trade Accounts Receivable** |
|-------|-------------------------------|

|                                              |   | **2005** |   | **2004** |   |
|---------------------------------------------------|--------|----------|--------|----------|--------|
|                                              |   |          |        |     |        |  |   |
| Domestic   receivables                            |   |     | 124    |     |   | 101 |   |
| Export   receivables, denominated in U.S. dollars |   |     | 95     |     |   | 79 |   |
| Allowance   for doubtful accounts                 |   |     | (7     | )        |   | (5 | ) |
|                                              |   |          |        |     |        |  |   |
|                                              |   |     | 212    |     |   | 175 |   |
|                                              |   |          |        |     |        |  |   |

|   | No   single customer represented more than 10% of our trade accounts receivables   balance or net sales. |
|--------|----------------------------------------------------------------------------------------------------------|
|   |                                                                                                     |
| **8**  | **Inventories**                                                                                          |

|                           |   | **2005** |   | **2004** |   |
|--------------------------------|--------|----------|--------|----------|--------|
|                           |   |          |        |     |        |  |   |
| Finished   products            |   |     | 64     |     |   | 57 |   |
| Work   in process              |   |     | 8      |     |   | 7 |   |
| Raw   materials and supplies   |   |     | 82     |     |   | 63 |   |
| Imports   in transit and other |   |     | 3      |     |   | 3 |   |
|                           |   |          |        |     |        |  |   |
|                           |   |     | 157    |     |   | 130 |   |
|                           |   |          |        |     |        |  |   |

| **9** | **Property, Plant and Equipment** |
|-------|-----------------------------------|

|                                     |   | **2005** |   | **2004** |   |
|------------------------------------------|--------|----------|--------|----------|--------|
|                                     |   |          |        |     |        |  |   |
| Land                                     |   |     | 155    |     |   | 114 |   |
| Buildings                                |   |     | 138    |     |   | 113 |   |
| Machinery,   equipment and installations |   |     | 1,393  |     |   | 1,136 |   |
| Forests                                  |   |     | 315    |     |   | 272 |   |
| Other                                    |   |     | 174    |     |   | 156 |   |
| Construction   in progress               |   |     | 93     |     |   | 78 |   |
|                                     |   |          |        |     |        |  |   |
|                                     |   |     | 2,268  |     |   | 1,869 |   |
| Accumulated   depreciation and depletion |   |     | (510   | )        |   | (426 | ) |
|                                     |   |          |        |     |        |  |   |
|                                     |   |     | 1,758  |     |   | 1,443 |   |
|                                     |   |          |        |     |        |  |   |

|   | Interest   capitalized on construction in progress in each of the periods was: 2005 -   US$5; 2004 - US$4 and 2003 - US$7. |
|--------|---------------------------------------------------------------------------------------------------------------------------------|

F - 23

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **10** | **Short-term Debt**                                                                                                                                                                                                                                                                                                                                            |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                           |
|   | Short-term   debt represents commitments under recourse provisions to honor export   receivables transferred to banks accounted for as secured borrowings (ACEs),   bearing an annual average interest rate of 4.6% at December 31, 2005 (2004 -   2.4%). Historically, we have not incurred significant losses in connection   with such recourse provisions. |
|   |                                                                                                                                                                                                                                                                                                                                                           |
| **11** | **Long-term Debt**                                                                                                                                                                                                                                                                                                                                             |

|                                                                            |   | **Interest   rate    December 31,    2005** |   | **2005** |   | **2004**           |   |
|---------------------------------------------------------------------------------|--------|---------------------------------------------|--------|----------|--------|--------------------|--------|
|                                                                            |   |                                             |        |     |        |                    |   |  |  |   |
| Third   parties                                                                 |   |                                        |   |     |   |               |   |   |   |   |
| In   U.S. dollars                                                               |   |                                        |   |     |   |               |   |   |   |   |
| Export credits (prepayment)                                                     |   |                                        | 5.95   |     |   | 936                |   |   | 444 |   |
| Syndicated bank loan                                                            |   |                                        |   |     |   | —   |   |   | 88 |   |
| Others                                                                          |   |                                        |   |     |   | 1                  |   |   | 3 |   |
|                                                                            |   |                                        |   |     |        |                    |   |  |  |   |
| Total   third parties                                                           |   |                                        |   |     |   | 937                |   |   | 535 |   |
|                                                                            |   |                                        |   |     |        |                    |   |  |  |   |
| Related   parties                                                               |   |                                        |   |     |   |               |   |   |   |   |
| In   U.S. dollars                                                               |   |                                        |   |     |   |               |   |   |   |   |
| VOTO II loan                                                                    |   |                                        |   |     |   | —   |   |   | 125 |   |
| VOTO III loan                                                                   |   |                                        | 7.88   |     |   | 41                 |   |   | 47 |   |
| VOTO IV loan                                                                    |   |                                        | 7.75   |     |   | 201                |   |   | —   |   |
| In   reais                                                                      |   |                                        |   |     |   |               |   |   |   |   |
| Banco Nacional de Desenvolvimento Econômico e   Social (“BNDES”) |   |                                        |   |     |   |               |   |   |   |   |
| TJLP                                                                            |   |                                        | 13.11  |     |   | 158                |   |   | 132 |   |
| UMBNDES                                                                         |   |                                        | 12.86  |     |   | 27                 |   |   | 27 |   |
|                                                                            |   |                                        |   |     |        |                    |   |  |  |   |
| Total   related parties                                                         |   |                                        |   |     |   | 427                |   |   | 331 |   |
|                                                                            |   |                                        |   |     |        |                    |   |  |  |   |
| Total   debt                                                                    |   |                                        |   |     |   | 1,364              |   |   | 866 |   |
|                                                                            |   |                                        |   |     |        |                    |   |  |  |   |
| Less:   current portion                                                         |   |                                        |   |     |   | (79                | )      |   | (297 | ) |
|                                                                            |   |                                        |   |     |        |                    |   |  |  |   |
| Long-term   portion                                                             |   |                                        |   |     |   | 1,285              |   |   | 569 |   |
|                                                                            |   |                                        |   |     |        |                    |   |  |  |   |

|   | • | LIBOR   (London Interbank Offered Rate) at December 31, 2005 was 4.63% p.a. (2004 -   2.78%).                                                                                           |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                    |
|   | • | TJLP   (“Taxa de juros de longo prazo”), a long-term interest rate fixed quarterly   by the Brazilian Central Bank. At December 31, 2005 and 2004, the TJLP was   9.75% p. a. |

F - 24

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|   | • | The   UMBNDES is a weighted average exchange variation on basket of currencies,   predominantly U.S. dollars, held by BNDES. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------|

| **(a)** | **Export credits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | In   July 2005, we signed an Export Prepayment contract with Banco Santander   Central Hispano London Branch for US$100 at LIBOR plus 1.58%. Payments are   due through 2012 in instalments to match export shipments. The financings are   guaranteed by export contracts                                                                                                                                                                                                                                                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | In   May 2005, we signed an Export Prepayment contract with ING Bank N.V. and   Bayerishe Hypo und Vercinsbank for US$50 at LIBOR plus 1.5% and US$100 at   LIBOR plus 1.49%, respectively. Payments are due through 2012 in installments   to match export shipments. The financings are guaranteed by export contracts.                                                                                                                                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | In   March 2005, we signed an Export Prepayment Agreement with a pool of banks in   the aggregate amount of US$300 at LIBOR plus 1.63%. Payments are due through   2012 in installment to match export shipments. We utilized US$275 to finance   the acquisition of our investment in Ripasa and the financings are guaranteed   by export contracts by the borrowers, VCP and VEP. VCP is the primary obligor   and has unconditionally and irrevocably agreed that if payments are not made,   VCP will pay the lenders, which are ABN Amro Bank, Banco Santander Central Hispano   and BNP Paribás, such outstanding amounts at the due date.                                      |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | In   May and July 2004, we signed an Export Prepayment Agreement and an Offshore   Facility Agreement with a pool of banks in the aggregate amount of US$350 at   LIBOR plus 2.00% due through 2011 in installments to match export shipments.   The funds were released in 2004. The financings are guaranteed by export   contracts by the borrowers, which are VEP and VCP Trading N.V. VCP is the   primary obligor and has unconditionally and irrevocably, agreed that if the   borrowers fail to make any payments, we will pay to the lenders, which are   ABN Amro Bank N.V., Banco Santander Central Hispano and Banco Bradesco S.A.,   such outstanding amounts at the due date. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **(b)** | **Syndicated bank loan**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    | In   October 2001, our wholly owned subsidiary VEP, through its wholly owned   subsidiary Newark, received a bridge financing of US$370 to finance the   acquisition of our interest in Aracruz. In May 2002, Newark raised US$380 in   a credit agreement with ABN AMRO Bank N.V, which it used to pay in full the   bridge financing and to make certain payments in connection with the credit   agreement. The loan was fully repaid in May 2005.                                                                                                                                                                                                                                       |

F - 25

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **(c)** | **VOTO II loan**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In   July 2003, together with Votorantim Participações (“VPAR”), our ultimate   controlling shareholder, we jointly formed VOTO II, a 50% owned affiliated   company based in the Cayman Islands, for the sole purpose of raising funds.   VOTO II issued US$250, 5.75% Bonds due in June 2005 in the international   market, under Regulation S and on-lent US$125 to each of St. Helen III (our   consolidated subsidiary) and St. Helen II (owned by VPAR). Together with VPAR   and Cimento Rio Branco S.A., a company also under common control of our   shareholder VPAR, we are the guarantors for this operation. The loan was   fully repaid by St. Helen III to VOTO II on June 27, 2005 with the proceeds   of the loan from VOTO IV described below. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **(d)** | **VOTO III Loan**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | In   January 2004, VPAR formed VOTO III, a company based in the Cayman Islands,   for the sole purpose of raising funds. VOTO III issued US$300, 7.875% Bonds   due 2014 in the international market. We received 15% of the total amount   issued or US$45 for which we are the guarantors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **(e)** | **VOTO IV loan**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | On   June 24, 2005 VOTO IV, a wholly-owned subsidiary of VPAR, issued US$400,   7.75% Fixed Rate Notes due 2020 in the international market, under Rule 144A   and Regulation S. VCP is a guarantor of 50% of the debt issued by VOTO IV and   in turn received US$200 of the proceeds. On September 6, 2005, we acquired a   50% interests in VOTO IV and together with VPAR we are the guarantors for   this operation. From the proceeds of US$200, US$125 was used by St. Helen III   to repay the debt incurred with VOTO II.                                                                                                                                                                                                                                                   |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **(f)** | **BNDES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | On   May 20, 2005, we signed a financing agreement with BNDES for a total   equivalent to US$93 for the purpose of financing acquisition of timberlands.   Part of the loan, equivalent to US$79, bears interest at TJLP plus 4.5% per   annum. The remaining balance is indexed to the UMBNDES plus 4.5% per annum   and carries annual interest of 12.64%. This financing will mature in July   2015. VCP has drawn down US$42 to date.                                                                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **(g)** | **Other guarantees**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | The   BNDES loans are secured by property, plant and equipment and a lien on   certain land and personal guarantees of an owner of VPAR.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| **(h)** | **Long-term debt maturities**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|    | At   December 31, 2005, the long-term position of long-term debt maturities is as   follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

F - 26

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| 2007         |   |   | 39    |   |
|--------------|--------|--------|-------|--------|
| 2008         |   |   | 97    |   |
| 2009         |   |   | 198   |   |
| 2010         |   |   | 501   |   |
| After   2011 |   |   | 450   |   |
|         |   |        |       |   |
|         |   |   | 1,285 |   |
|         |   |        |       |   |

| **(i)** | **Covenants**                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | We   are subject to a number of material affirmative and negative covenants   including, among others: limitations on our ability to incur debt;   limitations on the existence of liens on our properties; limitations on   transactions with related parties, which generally must be on terms no less   favorable than those that could be obtained in a comparable arm’s-length transaction;   and maintenance of certain financial ratios calculated based on Brazilian   GAAP. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| **12**  | **Related Parties**                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|    | Balances   and transactions with related parties are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                          |

|                                                                                                         |   | **Nature and business    purpose of transactions**                                                         |   | **2005** |   | **2004** |   |
|--------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
|                                                                                                         |   |                                                                                                            |   |          |   |          |   |
| Cash,   cash equivalents and held-to- maturity investments                                                   |   | Surplus   cash funds invested with Group financial institutions                                            |   |     |   |     |   |
| Votorantim Group                                                                                             |   |                                                                                                       |   |     |   |     |   |
| Banco Votorantim S.A.                                                                                        |   |                                                                                                       |   | 576      |   | 336      |   |
| VOTO III bonds                                                                                               |   |                                                                                                       |   | -        |   | 14       |   |
| Unrealized   gains (losses) from cross currency interest rate swaps Votorantim Group Banco   Votorantim S.A. |   | Arising   from swap contract transactions in which the Group financial institution acts   as counter-party |   | (54      | )      | 27       |   |
| Long-term   loans from related parties Votorantim Group                                                      |   | Loans   from related parties                                                                               |   |     |   |     |   |
| VOTO II                                                                                                      |   |                                                                                                       |   | -        |   | 125      |   |
| VOTO III                                                                                                     |   |                                                                                                       |   | 41       |   | 47       |   |
| VOTO IV                                                                                                      |   |                                                                                                       |   | 201      |   | -        |   |
| BNDES (shareholder)                                                                                          |   |                                                                                                       |   | 185      |   | 159      |   |
| Suppliers from related partiesRipasa                                                                         |   | Purchases   of wood, pulp and paper                                                                        |   | 12       |   | -        |   |

F - 27

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|   | Revenue,   income and expenses from transactions with related parties were as follows: |
|--------|----------------------------------------------------------------------------------------|

|                   |   | **2005** |               | **2004** |   | **2003**           |   |
|------------------------|--------|----------|--------------------|----------|--------|--------------------|--------|
|                   |   |          |                    |     |        |                    |   |  |  |   |
| Export   sales revenue |   |     | —   |     |   | —   |   |   | 65 |   |
| Financial   income     |   |     | 52                 |     |   | 35                 |   |   | 17 |   |
| Financial   expenses   |   |     | 115                |     |   | 53                 |   |   | 51 |   |

|   | Export   sales revenue primarily relates to sales made to Votorantrade N.V.; financial   income arises from loans made to related parties and investments made in   Banco Votorantim S.A.; and financial expenses represent mainly losses on   cross currency interest rate swaps, including their respective fair values.                                                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| **13** | **Financial Instruments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | We   primarily use cross currency interest rate swap contracts and Brazilian   Government bonds indexed to the U.S. dollar to hedge our U.S. dollar   denominated debt. By entering into these contracts or purchasing Brazilian   Government bonds, we partially protect ourselves from the effects of   unfavorable exchange movements. Accordingly, if the Real devalues against the   U.S. dollar and results in a foreign exchange loss, we are at least in part   protected by an offsetting gain from the swap contracts. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | We   used the following methods and assumptions in estimating the fair value   disclosures of our financial instruments:                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Held-to-maturity   investments: the fair value of our held-to-maturity investments were   estimated based on market rates for securities with similar terms and   maturities. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|   | •                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           | Long-term   and short-term debt: the fair values of our long-term debt were estimated   based on available quoted rates for loans of substantially similar terms and   maturities. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|   | The   fair values of our cross currency interest rate swap contracts were estimated   based on quoted market prices of comparable contracts. At December 31, 2005   and 2004 the notional amounts of our outstanding cross currency interest rate   swap contracts were US$564 and US$259, respectively and their fair values of   US$34 and US$55, respectively. The actual cash settlements on the contracts   occur at times specified in each agreement.                                                                     |

F - 28

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|   | The   carrying amounts and fair values of our financial instruments at December 31   were as follows: |
|--------|-------------------------------------------------------------------------------------------------------|

|                                                                                                 |   | **2005**              |               | **2004**         |   |
|------------------------------------------------------------------------------------------------------|--------|-----------------------|--------------------|------------------|--------|
|                                                                                                 |   |                       |               |                  |   |
|                                                                                                 |   | **Carrying   amount** |               | **Fair   value** |   | **Carrying   amount** |   | **Fair   value** |   |
|                                                                                                 |   |                       |                    |             |        |  |   |  |  |   |  |  |   |
| Cash   and cash equivalents                                                                          |   |                  | 261                |             |   | 261 |   |   | 151 |   |   | 151 |   |
| Held-to-maturity   securities                                                                        |   |                  |               |             |   |   |   |   |   |   |   |   |   |
| VOTO III bonds                                                                                       |   |                  | —   |             |   | —   |   |   | 14 |   |   | 15 |   |
| Brazilian Government Bonds denominated in U.S.   dollars                                             |   |                  | —   |             |   | —   |   |   | 223 |   |   | 313 |   |
| Foreign Government Bonds denominated in reais                                                        |   |                  | —   |             |   | —   |   |   | 41 |   |   | 41 |   |
| Available   for sale securities                                                                      |   |                  |               |             |   |   |   |   |   |   |   |   |   |
| Securities tradable                                                                                  |   |                  | 207                |             |   | 207 |   |   | —   |   |   | —   |   |
| Brazilian Government Bonds denominated in U.S.   dollars                                             |   |                  | 155                |             |   | 155 |   |   | —   |   |   | —   |   |
| Credit linked notes                                                                                  |   |                  | 30                 |             |   | 30 |   |   | —   |   |   | —   |   |
| Foreign Government Bonds denominated in reais                                                        |   |                  | 54                 |             |   | 54 |   |   | —   |   |   | —   |   |
| Unrealized   gains (losses) from cross currency   interest rate swaps currency   interest rate swaps |   |                  | (77                | )                |   | (77 | ) |   | 47 |   |   | 47 |   |
| Short-term   debt                                                                                    |   |                  | 132                |             |   | 132 |   |   | 79 |   |   | 79 |   |
| Long-term   debt                                                                                     |   |                  | 1,364              |             |   | 1,371 |   |   | 866 |   |   | 873 |   |

| **14** | **Commitments and Contingencies**                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|   | We   are party to certain legal proceedings in Brazil arising in the normal course   of business, and have made provisions when we believe that we can reasonably   estimate probable losses. In connection with some of these proceedings we   have made deposits (in “Other assets”) which will only be released to us upon   a judgment in our favor. The position of such provisions for tax and other   litigation and deposits is as follows: |

|          |   | **2005**     |               | **2004**       |   |
|---------------|--------|--------------|--------------------|----------------|--------|
|          |   |              |               |                |   |
|          |   | **Deposits** |               | **Provisions** |   | **Deposits** |   | **Provisions** |   |
|          |   |              |                    |           |        |  |   |  |  |   |  |  |   |
| Tax-related   |   |         | 83                 |           |   | 157 |   |   | 24 |   |   | 93 |   |
| Labor-related |   |         | 4                  |           |   | 11 |   |   | 2 |   |   | 7 |   |
| Civil-related |   |         | —   |           |   | 4 |   |   | —   |   |   | 4 |   |
|          |   |              |                    |           |        |  |   |  |  |   |  |  |   |
|          |   |         | 87                 |           |   | 172 |   |   | 26 |   |   | 104 |   |
|          |   |              |                    |           |        |  |   |  |  |   |  |  |   |

F - 29

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|   | The   activity in our provision account was as follows: |
|--------|---------------------------------------------------------|

|                                 |   | **2005** |               | **2004** |   | **2003** |   |
|--------------------------------------|--------|----------|--------------------|----------|--------|----------|--------|
|                                 |   |          |                    |     |        |          |   |  |  |   |
| At   beginning of year               |   |     | 104                |     |   | 56       |   |   | 27 |   |
| Provisions for new legal proceedings |   |     | 54                 |     |   | 45       |   |   | 23 |   |
| Translation adjustment               |   |     | 14                 |     |   | 5        |   |   | 6 |   |
| Amounts paid to settle litigation    |   |     | —   |     |   | (2       | )      |   | —   |   |
|                                 |   |          |                    |     |        |          |   |  |  |   |
| At   end of year                     |   |     | 172                |     |   | 104      |   |   | 56 |   |
|                                 |   |          |                    |     |        |          |   |  |  |   |

| **(a)** | **Tax-related**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|---------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | In   1999, we filed a lawsuit challenging the 1% increase in the COFINS tax rate   (from 2% to 3%), a tax on revenues. Although we have obtained a legal   injunction, based on advice from our legal counsel and reflecting rulings by   the Federal Supreme Court, we accrued US$55 relating to this claim, from 2002   through 2004. In December 2005 we made a judicial deposit of US$55 following   an unfavorable decision of the Supreme Court. During 2005, we recorded an   additional US$21 related to the 1% increase in the COFINS tax rate. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | During   2002, we filed a lawsuit challenging the inclusion of the ICMS (Value-added   sales tax) in the computation basis for the COFINS tax, relating the period   from 1996 to 2003, as well as our deductibility of recoverable ICMS   originated from raw material used for tax exempt paper products. We have   accrued and deposited US$ 26 relating to this claim.                                                                                                                                                                                    |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | In   1996, we filed a judicial claim to assure our right to the deductibility of   inflation-indexed depreciation (an uplift of 70%) arising from a   government economic stabilization program in January 1989. We obtained a   favorable decision enabling the partial deduction of an uplift of 43%. Based   on advice from our legal counsel, we have accrued US$ 7 relating to this   claim.                                                                                                                                                        |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **(b)** | **Other unprovided possible losses**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | VCP   is party to a substantial number of other legal proceedings in the normal   course of its business involving possible risk of loss, in addition to the   lawsuits and administrative proceedings discussed above.                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | Management   does not believe that such legal proceedings will, individually or in the   aggregate, have a material adverse affect on our business, results of   operations or financial condition, and therefore, no provisions have been   recorded based on management’s assessment of the probability of loss.                                                                                                                                                                                                                                       |

F - 30

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|   | These   possible losses, at December 31, are as follows: |
|--------|----------------------------------------------------------|

|          |   | **2005** |   | **2004** |   |
|---------------|--------|----------|--------|----------|--------|
|          |   |          |        |     |        |  |   |
| Tax-related   |   |     | 112    |     |   | 21 |   |
| Civil-related |   |     | 13     |     |   | 11 |   |
| Labor-related |   |     | 11     |     |   | 8 |   |
|          |   |          |        |     |        |  |   |
|          |   |     | 136    |     |   | 40 |   |
|          |   |          |        |     |        |  |   |

| **(c)** | **Sale of affiliate**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    | In   1999, we sold our 51% interest in Indústria de Papel de Salto Ltda. Under the   terms of the sale, we have indemnified the purchaser against certain losses   in excess of amounts recorded limited to US$6 through 2007. No amounts have   been paid under this indemnification 2005 and we believe such amounts if   ultimately paid, if any, will not be significant.                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| **(d)** | **Commitments**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    | We   do not maintain insurance for our forests; rather, our policy is to   self-insure against fire, disease and other risks to our forests. We have   taken measures to mitigate these risks, but any losses from damage outside of   our control would be for our own account.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    | We   provide guarantees to banks, not in excess of 180 days, although in   exceptional cases, this is extended to 360 days, which finance sales to   certain of our selected customers. We recognize revenue on these sales at the   time our products 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 monitor the amount due from the customer to the bank. We periodically   review the adequacy of our allowance for estimated losses and adjust our allowance   accordingly. At December 31, 2005, customer guarantees provided by us totaled   US$ 57, including interest (US$ 71 at December 31, 2004). Our guarantees are   usually secured by the personal guarantee of the customer’s owner. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    | We   lease timberlands under operating leases from other companies of the   Votorantim Group as a source for raw material for our products. The leases,   most of which commenced in 1991, are typically for a term of 21 years. Lease   payments, equal to 30% of the market value of the timber harvested on the   property, are payable after each harvest. We guarantee to the lessor a   minimum harvest payment. Payments under these operating leases were US$ 2 in   2005 and US$ 1 in 2004 and 2003.                                                                                                                                                                                                                                                                                            |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    | We   have commitments for capital expenditures amounting to US$ 48 at December 31,   2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

F - 31

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|   | We   have long-term “Take-or-Pay” contracts with suppliers of chemical products   for periods from 1 to 13 years. The contractual obligations in connection   with such contracts are US$ 35 per year. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                             |
|   | The   following is a summary of guarantees issued to other companies of the   Votorantim Group:                                                                                                                  |

|                |   |                     |   |                          |   | **Outstanding    guarantee amount** |   |
|---------------------|--------|--------------------------|--------|-------------------------------|--------|-------------------------------------|--------|
|                |   |                     |   |                          |   |                                     |   |
| **Primary obligor** |   | **Obligations**          |   | **Beneficiary**               |   | **2005**                            |   | **2004** |   |
|                     |   |                          |   |                               |   |                                     |   |  |   |
| VOTO   I            |   | US$ 400   notes issuance |   | Noteholders   and the trustee |   |                                |   | 200 |   |
| VOTO   II           |   | US$ 250   notes issuance |   | Noteholders   and the trustee |   |                                |   | 125 |   |
| VOTO   III          |   | US$ 300   notes issuance |   | Noteholders   and the trustee |   | 45                                  |   | 45 |   |
| VOTO   IV           |   | US$ 400   notes issuance |   | Noteholders   and the trustee |   | 200                                 |   |   |   |

| **15**  | **Segment   Information**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| **(a)** | **Segment   information**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | The   following information about segments is based upon information used by our   senior management to assess the performance of our operating segments and   decide on the allocation of resources. This approach is required by SFAS 131,   “Disclosure about Segments of an Enterprise and Related Information”, and has   been applied for all periods presented. Our paper and pulp operations are   based solely in Brazil. Intersegment revenues are accounted for at amounts   which approximate those that would be obtained in a sale to third parties.                                                                                                                                                                                                                  |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|    | The   accounting policies underlying the financial information provided for the   segments are based on Brazilian GAAP. We evaluate segment performance   information generated from the statutory accounting records, except for the   effects of our affiliates Aracruz and Ripar which are proportionally   consolidated in our Brazilian GAAP financial statements but are not included   in information used by our senior management to assess the performance of our   segments. The local currency information related to statement of income data   has been translated to U.S. dollars, for convenience purposes, at the   average rate of each year presented. The information as at the balance sheet   dates has been translated at the respective year-end exchange rates. |

F - 32

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|                                                                             |   | **2005** |   | **2004** |   | **2003** |   |
|----------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                                                             |   |          |        |     |        |          |   |  |  |   |
| Net   operating revenue - Brazilian GAAP                                         |   |     |   |     |   |     |   |   |   |   |
| Pulp                                                                             |   |     | 440    |     |   | 385      |   |   | 276 |   |
| Paper                                                                            |   |     | 704    |     |   | 634      |   |   | 557 |   |
|                                                                             |   |          |        |     |        |          |   |  |  |   |
| Reconciling   item to US GAAP                                                    |   |     |   |     |   |     |   |   |   |   |
| Pulp                                                                             |   |     | (1     | )        |   |     |   |   | (1 | ) |
| Paper                                                                            |   |     | (13    | )        |   | (9       | )      |   | (16 | ) |
|                                                                             |   |          |        |     |        |          |   |  |  |   |
| Total   net operating revenue - US GAAP                                          |   |     | 1,130  |     |   | 1,010    |   |   | 816 |   |
|                                                                             |   |          |        |     |        |          |   |  |  |   |
| Intersegment   sales of pulp to paper segment                                    |   |     | 249    |     |   | 214      |   |   | 196 |   |
|                                                                             |   |          |        |     |        |          |   |  |  |   |
| Net   operating revenue before intersegment    sales eliminations - US GAAP |   |     | 1,379  |     |   | 1,224    |   |   | 1,012 |   |
|                                                                             |   |          |        |     |        |          |   |  |  |   |
| Depreciation   and depletion expense – Brazilian GAAP                       |   |     |   |     |   |     |   |   |   |   |
| Pulp                                                                             |   |     | 89     |     |   | 69       |   |   | 61 |   |
| Paper                                                                            |   |     | 31     |     |   | 23       |   |   | 17 |   |
|                                                                             |   |          |        |     |        |          |   |  |  |   |
| Reconciling   items to US GAAP                                                   |   |     |   |     |   |     |   |   |   |   |
| Pulp                                                                             |   |     | (2     | )        |   | (2       | )      |   | (5 | ) |
| Paper                                                                            |   |     | (1     | )        |   | (1       | )      |   | (1 | ) |
|                                                                             |   |          |        |     |        |          |   |  |  |   |
| Depreciation   and depletion  expense - US GAAP                             |   |     | 117    |     |   | 89       |   |   | 72 |   |
|                                                                             |   |          |        |     |        |          |   |  |  |   |

|   | There   are certain differences between the methodologies we use to determine the   operating profit shown in the following table and operating profit reported   in our US GAAP statement of income. For segment reporting purposes we defer   start-up costs of new facilities and amortize them against operating profit   over the subsequent 10 years. We allocate depreciation to segments based on   property, plant and equipment amounts which have been indexed for inflation,   rather than the historical real amounts. Also, we depreciated our machinery,   equipment and installations over 10 years up to December 31, 1996 and over 25   years thereafter. These differences are reconciled as follows: |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

F - 33

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|                                        |   | **2005** |               | **2004** |   | **2003**           |   |
|---------------------------------------------|--------|----------|--------------------|----------|--------|--------------------|--------|
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Segment   operating income - Brazilian GAAP |   |     |               |     |   |               |   |   |   |   |
| Pulp                                        |   |     | 155                |     |   | 177                |   |   | 137 |   |
| Paper                                       |   |     | 113                |     |   | 150                |   |   | 127 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Operating   income under Brazilian GAAP     |   |     | 268                |     |   | 327                |   |   | 264 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Reconciling   items to US GAAP              |   |     |               |     |   |               |   |   |   |   |
| Depreciation and amortization expense       |   |     |               |     |   |               |   |   |   |   |
| Pulp                                        |   |     | 2                  |     |   | 2                  |   |   | 5 |   |
| Paper                                       |   |     | 1                  |     |   | 1                  |   |   | 1 |   |
| Start-up costs                              |   |     |               |     |   |               |   |   |   |   |
| Pulp                                        |   |     | —   |     |   | —   |   |   | (1 | ) |
| Paper                                       |   |     | —   |     |   | —   |   |   | —   |   |
| Other   adjustments                         |   |     |               |     |   |               |   |   |   |   |
| Pulp                                        |   |     | (10                | )        |   | 1                  |   |   | (1 | ) |
| Paper                                       |   |     | (14                | )        |   | (6                 | )      |   | —   |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Total   pulp                                |   |     | 147                |     |   | 180                |   |   | 140 |   |
| Total   paper                               |   |     | 100                |     |   | 145                |   |   | 128 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Operating   income - US GAAP                |   |     | 247                |     |   | 325                |   |   | 268 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Segment   assets                            |   |     |               |     |   |               |   |   |   |   |
| Pulp                                        |   |     | 1,167              |     |   | 943                |   |   |   |   |
| Paper                                       |   |     | 513                |     |   | 433                |   |   |   |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Total   segment assets per Brazilian GAAP   |   |     | 1,680              |     |   | 1,376              |   |   |   |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Reconciling   items to US GAAP              |   |     |               |     |   |               |   |   |   |   |
| Pulp                                        |   |     | 44                 |     |   | 41                 |   |   |   |   |
| Paper                                       |   |     | 34                 |     |   | 26                 |   |   |   |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Total   pulp                                |   |     | 1,211              |     |   | 984                |   |   |   |   |
| Total   paper                               |   |     | 547                |     |   | 459                |   |   |   |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Property,   plant and equipment - US GAAP   |   |     | 1,758              |     |   | 1,443              |   |   |   |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Capital   expenditures per Brazilian GAAP   |   |     |               |     |   |               |   |   |   |   |
| Pulp                                        |   |     | 188                |     |   | 178                |   |   | 119 |   |
| Paper                                       |   |     | 54                 |     |   | 36                 |   |   | 39 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Reconciling   items to US GAAP              |   |     |               |     |   |               |   |   |   |   |
| Capitalized interest                        |   |     |               |     |   |               |   |   |   |   |
| Pulp                                        |   |     | 4                  |     |   | 3                  |   |   | 5 |   |
| Paper                                       |   |     | 1                  |     |   | 1                  |   |   | 2 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Total   capitalized interest                |   |     | 5                  |     |   | 4                  |   |   | 7 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Total   pulp                                |   |     | 192                |     |   | 181                |   |   | 124 |   |
| Total   paper                               |   |     | 55                 |     |   | 37                 |   |   | 41 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |
| Capital   expenditures - US GAAP            |   |     | 247                |     |   | 218                |   |   | 165 |   |
|                                        |   |          |                    |     |        |                    |   |  |  |   |

F-34

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **(b)** | **Export sales by region**                                                                                                                                                                                                                      |
|---------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                            |
|    | The   following table includes our sales made directly to unaffiliated customers   (the final customers) as well as our sales made to Votorantrade N.V. and   related parties (also a member of the Votorantim Group) to the final   customers. |

|                               |   | **2005**  |   | **2004** |   | **2003**           |   |
|------------------------------------|--------|-----------|--------|----------|--------|--------------------|--------|
|                               |   |           |        |          |        |                    |   |  |  |  |  |  |   |  |  |  |  |  |   |
|                               |   | **Paper** |   | **Pulp** |   | **Paper**          |   | **Pulp** |   | **Paper** |   | **Pulp** |   |
|                               |   |           |        |     |        |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
| Europe                             |   |      | 50     |     |   | 243                |   |   | 45 |   |   | 164 |   |   | 39 |   |   | 109 |   |
| Middle   East and Asia             |   |      | 10     |     |   | 120                |   |   | 9 |   |   | 150 |   |   | 9 |   |   | 94 |   |
| North   America                    |   |      | 54     |     |   | 39                 |   |   | 53 |   |   | 37 |   |   | 46 |   |   | 38 |   |
| South   America, other than Brazil |   |      | 44     |     |   | —   |   |   | 33 |   |   | —   |   |   | 25 |   |   | —   |   |
| Africa                             |   |      | 5      |     |   | 1                  |   |   | 4 |   |   | 3 |   |   | 13 |   |   | —   |   |
|                               |   |           |        |     |        |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |
|                               |   |      | 163    |     |   | 403                |   |   | 144 |   |   | 354 |   |   | 132 |   |   | 241 |   |
|                               |   |           |        |     |        |                    |   |  |  |   |  |  |   |  |  |   |  |  |   |

| **16** | **Shareholders’ Equity**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Our   by-laws require that we pay a dividend to our common and preferred   shareholders of at least 25% of our annual net distributable income   determined in accordance with Brazilian Corporate Law. Preferred shareholders   are entitled to receive a dividend per share 10% higher than that paid to   common shareholders. In 2005, 2004 and 2003 we paid dividends in excess of   the mandatory amount.                                                                                                                                                                                                                                              |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | The   preferred shareholders may not vote at shareholders meetings but have   priority in repayment of their capital, in the case of liquidation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | In   accordance with the Brazilian Corporate Law and our by-laws we are required   to make annual appropriations to certain reserves (“Appropriated retained   earnings”). These comprise mainly (a) 5% of the net income in our statutory   accounts which must be transferred to a legal reserve until such reserve   reaches 20% of our share capital and (b) appropriation of an amount equal to   income tax rebates available for investments in certain underdeveloped   regions of Brazil to an investment incentive reserve. The legal and   investment incentives reserves cannot be used to distribute dividends to our   shareholders. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | Brazilian   law permits the payment of dividends only in “reais”, limited to the   unappropriated retained earnings in our financial statements prepared in   accordance with Brazilian GAAP.                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

F - 35

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|   | Brazilian   companies are permitted to pay limited amounts of interest attributable to   capital to shareholders and treat such payments as an expense for Brazilian   income and social contribution tax purposes. This notional interest   distribution is treated for accounting purposes as a deduction from   shareholders’ equity in a manner similar to a dividend. Interest attributable   to capital is treated as a dividend for purposes of the mandatory dividend   payable. A 15% tax is withheld and paid by upon credit of the interest.                                                                                                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | The   devaluation of the Real impacts the amount available for distribution when   measured in U.S. dollars. Amounts reported as available for distribution in   our statutory accounting records prepared under Brazilian GAAP will decrease   or increase when measured in U.S. dollars as the real depreciates or   appreciates, respectively, against the U.S. dollar. The devaluation of the   real results in net foreign exchange losses which are included in the   statement of income determined under Brazilian GAAP and which reduces the   amount of unappropriated earnings available for distribution. At December 31,   2005, we had unappropriated retained earnings of R$ 1,469 million (2004 -   R$ 1,224 million) in our statutory books, equivalent, at the exchange rate at   December 31, 2005, to US$ 628 (2004 - US$ 461). |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   | Dividends   paid per shares in U.S. dollars were as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |

|      |   | **2005** |   | **2004** |   | **2003** |   |
|-----------|--------|----------|--------|----------|--------|----------|--------|
|      |   |          |   |          |   |          |   |
| Preferred |   | 0.45     |   | 0.58     |   | 0.22     |   |
| Common    |   | 0.41     |   | 0.52     |   | 0.20     |   |

|   | On   December 3, 2003, the Board of Directors approved a change in VCP’s dividend   policy. Under the new policy, VCP intends to pay dividends and/or interest   attributable to capital based on 60% of “free cash flow”. Free cash flow is   expected to be an amount equal to “EBITDA” (defined as operating profit   excluding net financial income (expense), amortization, depreciation and depletion   and equity gain (loss) of affiliate) minus changes in working capital, minus   income tax and social contribution effectively paid by VCP and minus capital   expenditures and will be based upon VCP’s financial statements prepared in   accordance with Brazilian GAAP. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|   | On   October 18, 2004, the Extraordinary General Meeting approved the following   proposals:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (a)    | increase   of subscribed capital stock, from US$1,320 to US$1,838, by means of   capitalization of part of unappropriated retained earnings without issue of   new shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| (b)    | a   reverse stock split dividing the entire subscribed capital of the Company, by   200 resulting in 191,613,498 shares, of which 105,702,452 are shares of   common stock and 85,911,046 are shares of preferred stock;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

F - 36

----

|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| (c)    | a   reverse split of our American Depositary Shares - ADSs traded on the New York   Stock Exchange, each of which had previously represented 500 preferred   shares, to represent one preferred share per ADS.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | We   have retroactively adjusted all shares and ADS data to take account of the   reverse split.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **17** | **Concentration of Credit Risk**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|   | We   are potentially subject to credit risk with respect to our cash equivalents,   held-to-maturity investments, available for sales securities, trade   receivables, guarantees provided to banks which finance our customers, and   derivative contracts. We limit our risk associated with cash equivalents,   held-to-maturity investments and available for sales securities by placing   our investments with highly rated financial institutions and we only take out   derivative contracts with financially sound counter-parties. With respect to   trade receivables and guarantees, provided to banks financing our customers,   we perform initial and ongoing credit evaluations of our customers and, when   deemed necessary, obtain collateral or letters of credit to protect our interests.   Additionally, most of our export sales to the USA and Europe are secured by   letters of credit. We establish an allowance for doubtful accounts against   receivables we believe will not befully collected. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **18** | **Financial Income and Financial   Expense**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

|                                                        |   | **2005** |   | **2004** |   | **2003**           |   |
|-------------------------------------------------------------|--------|----------|--------|----------|--------|--------------------|--------|
|                                                        |   |          |        |     |        |                    |   |  |  |   |
| Financial   income                                          |   |     |   |     |   |               |   |   |   |   |
| Interest income on cash equivalents                         |   |     | 32     |     |   | 39                 |   |   | 21 |   |
| Realized and unrealized gain on held-to-maturity securities |   |     | 13     |     |   | 15                 |   |   | 27 |   |
| available for sale securities                               |   |     | 22     |     |   | —   |   |   | —   |   |
| Interest income on credit sales                             |   |     | 7      |     |   | 4                  |   |   | 2 |   |
| Other (including taxes)                                     |   |     | 5      |     |   | (18                | )      |   | 15 |   |
|                                                        |   |          |        |     |        |                    |   |  |  |   |
|                                                        |   |     | 79     |     |   | 40                 |   |   | 65 |   |
|                                                        |   |          |        |     |        |                    |   |  |  |   |
| Financial   expenses                                        |   |     |   |     |   |               |   |   |   |   |
| Interest and charges on U.S. dollar debt                    |   |     | 62     |     |   | 39                 |   |   | 53 |   |
| Interest and charges on Real debt                           |   |     | 16     |     |   | 16                 |   |   | 15 |   |
| Indexation and interest charges on contingencies            |   |     | 17     |     |   | —   |   |   | —   |   |
| Tax on checking accounts - CPMF                             |   |     | 10     |     |   | 7                  |   |   | 6 |   |
| Other                                                       |   |     | 14     |     |   | 7                  |   |   | (3 | ) |
|                                                        |   |          |        |     |        |                    |   |  |  |   |
|                                                        |   |     | 119    |     |   | 69                 |   |   | 71 |   |
|                                                        |   |          |        |     |        |                    |   |  |  |   |

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

| **19**  | **Retirement benefits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **(a)** | **Defined contribution plan**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | In   March 2000 we began co-sponsoring a multi-employer defined contribution plan   of the Votorantim Group which is available to all of our employees. For   employees below a certain income level we match the employee’s contribution   limited to 1.5% of the employee’s compensation. For employees above that   income level we match the employee’s contribution up to 6% of the employee’s   compensation. At our option we may also make additional contributions. Our   contributions vest in varying percentages depending on the employee’s years of   service and will fully vest upon the employee’s retirement, death or   disability, provided the employee has at least one year of service. Our   contributions were US$ 2 in 2005, US$ 2 in 2004 and US$ 1 in 2003. |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| **(b)** | **Post-retirement benefits**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | The   actuarial liability relates to our proportion of the costs of a hospital   facility we share with co-sponsors. Although the not-for-profit hospital is   funded by multiple-employers, it has no separate assets and costs are   apportioned among the sponsors based on usage. No liability had been recorded   prior to 2005. Contributions paid to the hospital in the year ended December   31, 2005 and 2004 amounted to US$ 1.                                                                                                                                                                                                                                                                                                                                                                                 |
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|    | Based   on the report of our independent actuary, the accumulated post-retirement   benefit obligation and accrued benefit cost (no plan assets) was US$ 21.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |

|                                                   |   | **Percentage** |   |
|--------------------------------------------------------|--------|----------------|--------|
|                                                   |   |                |   |
| Weighted-average   assumptions as of December 31, 2005 |   |           |   |
| Discount   rate                                        |   | 8.5            |   |
| Health   care cost trend on covered changes            |   | 3.0            |   |

|                                                             |   | **US$** |   |
|------------------------------------------------------------------|--------|---------|--------|
|                                                             |   |         |   |
| Components   of net periodic benefit cost for 2006 Interest cost |   | 2       |   |
|                                                             |   |         |   |
| Total   net periodic benefit cost (benefit)                      |   | 2       |   |
|                                                             |   |         |   |

|   | It   has been assumed, for measurement purposes, that health care cost trends for   2006 will not be considerably different from 2005. Our actuaries are unable   to project the direction and pattern of changes in the assumed trend rates,   the ultimate trend rates, nor can they estimate when the rates are expected   to be achieved. A one-percentage-point change in assumed health care cost   trend rates would have the following effects in 2005 (all other assumptions   have been held constant): |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|   | **Votorantim Celulose e Papel S.A.**                     |
|--------|----------------------------------------------------------|
|   |                                                     |
|   | **Notes to the Consolidated Financial Statements**       |
|   | **In millions of U.S. dollars, unless otherwise stated** |
|   |                                                          |

|                                            |   | **One-percentage-   point increase** |   | **One-percentage-   point decrease** |   |
|-------------------------------------------------|--------|--------------------------------------|--------|--------------------------------------|--------|
|                                            |   |                                      |   |                                      |   |
| Sensitivity of retiree welfare results          |   |                                 |   |                                 |   |
| On total service and   interest cost components |   | 0.3                                  |   | (0.3                                 | )      |
| On post-retirement benefit   obligation         |   | 2.0                                  |   | (2.0                                 | )      |

 

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