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Aracruz Celulose S.A.
Consolidated Financial Statements at
December 31, 1999 and 2000 and
Report of Independent Accountants
Report of Independent Accountants

To the Board of Directors and Stockholders of
Aracruz Celulose S.A.



In our opinion, the accompanying consolidated balance sheets and the related consolidated statements
of income, of cash flows and of changes in stockholders' equity, expressed in United States dollars,
present fairly, in all material respects, the financial position of Aracruz Celulose S.A. and its subsidiaries
at December 31, 1999 and 2000 and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These consolidated financial statements are the
responsibility of the management of Aracruz Celulose S.A.; our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the United States of America
which 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
statement presentation. We believe that our audits provide a reasonable basis for the opinion
expressed above.




PricewaterhouseCoopers VitĂłria, Brazil
Auditores Independentes January 12, 2001




2
Aracruz Celulose S.A.
Consolidated Balance Sheets
Expressed in thousands of United States dollars
(except number of shares)


December 31, December 31,

Assets 1999 2000 Liabilities and stockholders' equity 1999 2000

Current assets Current liabilities
Cash and cash equivalents 312,590 18,091 Suppliers 21,158 29,310
Debt securities available-for-sale 189,480 323,032 Payroll and related charges 8,753 11,036
Accounts receivable, net Income and other taxes 7,356 13,416
Related party 5,892 9,530 Current portion of long-term debt
Other 78,085 84,536 Related party 65,044 60,251
Inventories, net 69,639 80,976 Other 288,572 45,035
Deferred income tax, net 6,488 6,736 Short-term borrowings - export financing and 102,368 157,693
Recoverable income and other taxes 22,323 72,081 Accrued finance charges 17,668 9,063
Prepaid expenses and other current assets 8,462 7,956 Other accruals 2,907 1,273

692,959 602,938 513,826 327,077

Property, plant and equipment, net 1,702,747 1,664,322 Long-term liabilities
Long-term debt
Investment in affiliated company 79,698 Related party 175,593 109,367
Other 216,761 169,506
Other assets Tax assessments and litigation contingencies 36,883 68,910
Other 4,255 6,115
Advances to suppliers 15,993 16,659
Deposits for tax assessments 21,181 20,329 433,492 353,898
Deferred income tax, net 49,423 7,163
Recoverable income taxes 114,430 54,868
Other 4,270 8,481 Commitments and contingencies (Note 16)
205,297 100,673
Minority interest 373 362




3
Aracruz Celulose S.A.
Consolidated Balance Sheets
Expressed in thousands of United States dollars
(except number of shares) (Continued)




Stockholders' equity
Share capital - no-par-value shares authorized and
issued
Preferred stock
Class A - 1999 - 40,941,849 shares; 2000 -
40,929,550 shares 33,465 33,455
Class B - 1999 - 581,587,165 shares; 2000 -
581,599,464 shares 581,031 581,041
Common stock - 1999 and 2000 - 455,390,699 297,265 297,265
shares
Treasury stock
Class A preferred stock - 1999 and 2000 –
35,301 shares; Class B preferred stock -
1999 - 28,235,292 shares; 2000 -
45,330,292 shares; and common
stock - 1999 and 2000 - 483,114 shares (35,089 ) (57,807 )

Total share capital 876,672 853,954

Other cumulative comprehensive income
Net unrealized gain (loss) on available-for-sale
securities 514 1,095
Appropriated retained earnings 203,425 340,250
Unappropriated retained earnings 572,701 577,822

1,653,312 1,773,121

2,601,003 2,454,458 2,601,003 2,454,458




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

4
Aracruz Celulose S.A.
Consolidated Statements of Income
Expressed in thousands of United States dollars
(except number of shares and per-share amounts)


Year ended December 31,

1998 1999 2000
Reclassified
Operating revenues Note 1
Sales of eucalyptus pulp
Domestic 38,449 33,796 43,601
Export 462,163 550,729 751,900

500,612 584,525 795,501
Sales taxes and other deductions (39,490) (43,459 ) (63,240)

Net operating revenues 461,122 541,066 732,261

Operating costs and expenses
Cost of sales 349,621 311,190 344,515
Selling 34,231 32,626 28,390
Administrative 47,238 29,849 34,620
Other, net 28,188 33,060 11,978

459,278 406,725 419,503

Operating income 1,844 134,341 312,758

Non-operating (income) expenses
Equity in results of affiliated company 1,313
Financial income (104,840) (100,692 ) (64,849)
Financial expenses 120,955 120,336 101,461
Loss (gain) on currency remeasurement, net 7,780 7,454 (8,812)
Other, net 65 (146 ) (120)

23,960 26,952 28,993


Income (loss) before income taxes and minority interest and (22,116) 107,389 283,765

Income tax expense (benefit)
Current (9,573) 8,980 40,461
Deferred (15,733) 7,699 41,604

(25,306) 16,679 82,065

Minority interest in losses of subsidiary 257 63 11

Net income for the year 3,447 90,773 201,711




5
Aracruz Celulose S.A.

Consolidated Statements of Income
Expressed in thousands of United States dollars
(except number of shares and per-share amounts) (Continued)


Year ended December 31,

1998 1999 2000

Basic and diluted earnings per share
Class A preferred stock 0.09 0.09 0.20
Class B preferred stock 0.00 0.09 0.20
Common stock 0.00 0.08 0.18

Weighted-average number of shares
outstanding (thousands)

Class A preferred stock 41,007 40,979 40,903
Class B preferred stock 564,374 553,279 552,889
Common stock 454,908 454,908 454,908




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

6
Aracruz Celulose S.A.

Consolidated Statements of Cash Flows
Expressed in thousands of United States dollars



Year ended December 31,

1998 1999 2000
Cash flows from operating activities
Net income 3,447 90,773 201,711
Adjustments to reconcile net income to cash
provided by operating activities:
Non-cash items
Depreciation and depletion 152,803 158,829 167,960
Equity in results of affiliated company 1,313
Provision for impairment of property,
plant and equipment 12,098 1,573
Deferred income tax (15,733 ) 7,699 41,604
Loss (gain) on currency remeasurement 7,780 7,454 (8,812 )
Provision for contingencies 700
Loss on sale of equipment 3,775 23,864 1,643
Other 648
Decrease (increase) in assets
Accounts receivable, net 4,943 (16,000 ) (11,226 )
Inventories, net (580 ) 13,303 (11,337 )
Interest receivable on debt securities (14,685 ) 11,606 (36,398 )
Recoverable income taxes (54,488 ) (14,015 ) (1,047 )
Other 12,821 (2,734) (890 )
Increase (decrease) in liabilities
Suppliers (19,145 ) 4,429 7,788
Payroll and related charges 272 (4,021 ) 3,458
Income and other taxes and litigation
contingencies (4,747 ) 18,888 45,323
Accrued finance charges 1,244 (11,739 ) (8,381 )
Other (1,993 ) (1,898 ) 407

Net cash provided by operating activities 88,512 288,659 393,116

Cash flows from investing activities
Debt securities 509,108 (96,165 )
Proceeds from sale of equipment 2,420 61,871 677
Acquisition of Terra Plana Agropecuária Ltda
and Veracel Celulose S.A. (101,215 )
Additions to property, plant and equipment (88,306 ) (56,467 ) (118,152 )

Net cash provided by (used in) investing activities (85,886 ) 514,512 (314,855 )

7
Aracruz Celulose S.A.

Consolidated Statements of Cash Flows
Expressed in thousands of United States dollars (Continued)



Year ended December 31,

1998 1999 2000
Cash flows from financing activities
Short-term debt, net 171,832 (403,105 ) 57,134
Long-term debt
Issuances
Related parties 59,939 2,703
Other 209,216 78,400
Repayments
Related parties (41,564 ) (52,020 ) (62,699 )
Other (229,595 ) (231,654 ) (289,085 )
Bank deposits, as compensating balances 4,442 1,195 2,589
Treasury stock acquired (26,400 ) (22,718 )
Dividends paid (24,388 ) (18,196 ) (57,963 )

Net cash provided by (used in) financing
activities 123,482 (622,677 ) (372,742 )

Effect of changes in exchange rates on cash and
cash equivalents (1,960 ) (19,790 ) (18 )

Increase (decrease) in cash and cash equivalents 124,148 160,704 (294,499 )

Cash and cash equivalents, beginning of year 27,738 151,886 312,590

Cash and cash equivalents, end of year 151,886 312,590 18,091

Supplementary cash flow information
Financial charges paid 117,014 138,309 69,303

Income taxes paid, including escrow deposits
for tax assessments 329 19 20

Withholding income tax on financial income 99,629 64,909 25,825




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

8
Aracruz Celulose S.A.

Consolidated Statements of Changes in Stockholders’ Equity
Expressed in thousands of United States dollars
(except number of shares and per-share amounts)


Year ended December 31,

1998 1999 2000

Shares U.S.$ Shares U.S.$ Shares U.S.$
Share Capital
Preferred stock - Class A
Balance, January 1 41,042,246 33,547 41,042,246 33,547 40,941,849 33,465
Conversion to Class B stock (100,397 ) (82 ) (12,299 ) (10 )

Balance, December 31 41,042,246 33,547 40,941,849 33,465 40,929,550 33,455

Preferred stock - Class B
Balance, January 1 581,486,768 580,949 581,486,768 580,949 581,587,165 581,031
Conversion from Class A stock 100,397 82 12,299 10

Balance, December 31 581,486,768 580,949 581,587,165 581,031 581,599,464 581,041

Common stock
Balance, January 1 and December 31 455,390,699 297,265 455,390,699 297,265 455,390,699 297,265

Treasury stock
Balance, January 1 (6,921,707) (8,689 ) (28,753,707 ) (35,089 ) (28,753,707 ) (35,089 )
Treasury stock acquired (21,832,000) (26,400 ) (17,095,000 ) (22,718 )

Balance, December 31 (28,753,707) (35,089 ) (28,753,707 ) (35,089 ) (45,848,707 ) (57,807 )

Total share capital 1,049,166,006 876,672 1,049,166,006 876,672 1,032,071,006 853,954




9
Aracruz Celulose S.A.
Consolidated Statements of Changes in Stockholders’ Equity
Expressed in thousands of United States dollars
(except number of shares and per-share amounts) (Continued)

Year ended December 31,
1998 1999 2000
Shares U.S.$ Shares U.S.$ Shares U.S.$
1,049,166,006 876,672 1,049,166,006 876,672 1,032,071,006 853,954
Balance brought forward
Net unrealized gain (loss) on
available-for-sale securities
Balance, January 1 (11,177 ) 514
Unrealized gain (loss) on available-for-sale
(16,420 ) 17,236 988
securities, net of reclassification adjustments
5,243 (5,545 ) (407 )
Tax effect on above
(11,177 ) 514 1,095
Balance December 31,
Appropriated retained earnings
Unrealized income reserve
Balance, January 1 19,687 8,572 9,016
Transfer from (to) unappropriated retained earnings (11,115 ) 444 (9,016 )
Balance, December 31 8,572 9,016
Investments reserve
Balance, January 1 376,362 313,942 143,917
Transfer from (to) unappropriated retained earnings (62,420 ) (170,025 ) 138,558
Balance, December 31 313,942 143,917 282,475
Fiscal incentiv e reserve
Balance, January 1 97
Transfer to share capital (97 )
Balance, December 31
Legal reserve
Balance, January 1 66,801 66,801 50,492
Transfer from (to) unappropriated retained earnings (16,309 ) 7,283
Balance, December 31 66,801 50,492 57,775
Total appropriated retained earnings 389,315 203,425 340,250
Balance carried forward 1,049,166,006 1,254,810 1,049,166,006 1,080,611 1,032,071,006 1,195,299



10
Aracruz Celulose S.A.

Consolidated Statements of Changes in Stockholders’ Equity
Expressed in thousands of United States dollars
(except number of shares and per-share amounts) (Continued)


Year ended December 31,

1998 1999 2000

Shares U.S.$ Shares U.S.$ Shares U.S.$

Balance brought forward 1,049,166,006 1,254,810 1,049,166,006 1,080,611 1,032,071,006 1,195,299

Unappropriated retained earnings
Balance, January 1 259,822 312,354 572,701
Net income for the year 3,447 90,773 201,711
Cash dividends (per share: 1998 - U.S.$ 0.09 to Class A
preferred stock and U.S.$ 0.02 to both Class B
preferred and common stock; 1999 - U.S.$ 0.06
to Class A preferred stock and U.S.$ 0.01 to
both Class B preferred and common stock;
2000 - U.S.$ 0.06 to both Class A preferred and
Class B preferred stock and U.S.$ 0.05 to common stock) (24,450 ) (16,316 ) (59,765 )
Transfer from (to) reserves 73,535 185,890 (136,825 )

Balance, December 31 312,354 572,701 577,822

Total stockholders’ equity 1,049,166,006 1,567,164 1,049,166,006 1,653,312 1,032,071,006 1,773,121

Comprehensive income (loss) is comprised as follows:
Net income for the year 3,447 90,773 201,711
Net unrealized gain (loss) on available-for-sale securities
Unrealized gain (loss) arising during the year (11,177 ) 12,340 581
Less: reclassification adjustments for losses
included in net income (649 )

(11,177 ) 11,691 581

Total comprehensive income (loss) (7,730 ) 102,464 202,292

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

11
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

1 Summary of significant accounting policies

The consolidated financial statements of Aracruz Celulose S.A. and its subsidiaries (the
Company) have been prepared in conformity with accounting principles generally accepted in
the United States of America (“US GAAP”), which require management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and expenses during
the reporting periods and require the disclosure of contingent assets and liabilities as of the date
of the financial statements. The Company's consolidated financial statements therefore include
estimates concerning such matters as the selection of useful lives of property, plant and
equipment, provisions necessary for asset impairments, contingent liabilities, employee
postretirement benefits and other similar evaluations; actual results may vary from estimates.

(a) Basis of presentation

The consolidated financial statements have been prepared in accordance with US GAAP,
which differ in certain respects from the Brazilian accounting principles applied by the Company
in its statutory financial statements prepared in accordance with Brazilian corporate legislation.

The Company has reported in U.S. dollars since 1994 when the U.S. Securities and Exchange
Commission permitted foreign registrants to report in U.S. dollars rather than in the currency of
the country in which they are incorporated. The U.S. dollar amounts have been remeasured
from Brazilian reais (R$) in accordance with the criteria set forth in Statement of Financial
Accounting Standards Nº 52 - "Foreign Currency Translation" (“SFAS 52”). The Board of
Directors and management have historically considered the U.S. dollar as the Company's
functional currency as this has been, and remains in their opinion, the currency in which it
principally operates as well as being the Company’s primary unit of economic measure.
Accordingly, the Company's management has concluded that the Company's functional
currency is and will continue to be the U.S. dollar.

On January 13 and 15, 1999, certain significant changes occurred in the exchange rate policy
until then adopted by the Brazilian government, which resulted in the elimination of certain
exchange controls, previously carried out by means of a system of trading bands, when the
Central Bank decided to no longer intervene in the foreign exchange markets. Following this
decision and the markets’ reaction, the Real devalued to U.S.$ 1: R$ 1.7890 at December 31,
1999 from U.S.$ 1: R$ 1.2087 at December 31, 1998 (U.S.$ 1: R$ 1.9554 at December 31,
2000).

Gains and losses resulting from the remeasurement of the financial statements, as well as those
resulting from foreign currency transactions, have been recognized in the statements of income.
The impact of the devaluation of the Real on the Company’s monetary assets and liabilities in
12
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

2000 was a net gain of U.S.$ 8.8 million (U.S.$ 7.5 million loss in 1999 and U.S.$ 7.8 million
loss in 1998).

Stockholders' equity included in the consolidated financial statements presented herein differs
from that included in the Company's statutory accounting records as a result of the variations in
the U.S. dollar exchange rate, the indexation mandated over the years up to December 31,
1995 for statutory financial statements and adjustments made to reflect the requirements of US
GAAP.

(b) Basis of consolidation

The financial statements of majority-owned subsidiaries have been consolidated, and all
significant intercompany accounts and transactions have been eliminated. Accordingly, the
following companies were consolidated: Aracruz Trading S.A., Aracruz Celulose (USA) Inc.,
Portocel – Terminal Especializado de Barra do Riacho S.A., Mucuri Agroflorestal S.A.,
Aracruz Produtos de Madeira S.A., Aracruz Empreendimentos S/C Ltda. and Terra Plana
Agropecuária Ltda..

(c) Cash and cash equivalents

Cash and cash equivalents represent cash, bank accounts and short-term financial investments
with a ready market and maturities when purchased of 90 days or less, and are stated at the
lower of cost plus accrued interest or market value.

(d) Concentration of risk

Financial instruments which potentially subject the Company to concentrations of credit and
performance risk are cash and cash equivalents, debt securities and trade accounts receivable.
The Company limits its credit and performance risk associated with cash and cash equivalents
by placing its investments with highly rated financial institutions and in very short-term securities,
and the Company’s debt securities are principally comprised of U.S. dollar denominated notes
which are issued and guaranteed as to principal and interest by the Brazilian government. An
allowance for doubtful accounts is established to the extent the Company’s trade receivables
are estimated not to be fully collectible.

The Company's pulp sales are made substantially to the paper industry; consequently, its
performance is dependent upon that industry's worldwide demand for pulp and the related
supply, as well as fluctuations in the market price for pulp which can be significant.


13
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

(e) Inventories

Inventories are stated at the lower of the average cost of purchase or production, and
replacement or realizable values. Cost is determined principally on the average-cost method.

(f) Investments in affiliated companies and debt securities available-for-sale

(i) Investments in affiliated companies

The Company uses the equity method of accounting for all long-term investments for which it
owns between 20% and 50% of the investee’s voting stock and/or has the ability to exercise
significant influence over operating and financial policies of the investee. The equity method
requires periodic adjustments to the investment account to recognize the Company’s
proportionate share in the investee’s results, reduced by receipt of investee dividends and
amortization of goodwill.

(ii) Debt securities available-for-sale

In accordance with SFAS 115 - “Accounting for Certain Investments in Debt and Equity
Securities”, the Company’s investments in securities are classified in accordance with their
nature and management’s intentions. Available-for-sale debt securities are carried at cost plus
accrued interest, adjusted to market value. Any unrealized gains or losses, net of taxes, are
excluded from income and recognized as a separate component of stockholders’ equity until
realized.

(g) Property, plant and equipment

Timber resources are stated at cost, less accumulated depletion. Tree development costs and
forest maintenance costs are capitalized. Depletion is determined on the unit-of-production
basis, excluding from the amount to be depleted the portion of tree-development costs that
benefits future harvests; such costs are deferred and included in the cost of those harvests.

Other property, plant and equipment are recorded at cost, including interest incurred on
financing during the construction period of major new facilities. Interest on local currency
borrowings is determined as that part of the total finance cost incurred on borrowings net of the
foreign currency translation adjustments arising on such borrowings, and, on foreign currency
borrowings (including those denominated in U.S. dollars), at the contractual interest rates.
Depreciation is computed on the straight-line basis at rates which take into consideration the
useful lives of the assets, principally an average of 25 years for buildings, 10 years for

14
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

improvements and installations, and 4 to 25 years for machinery and equipment and other
assets.

(h) Environmental costs

Expenditures relating to ongoing programs for compliance with environmental regulations are
generally expensed but may be capitalized under certain circumstances. Capitalization is
considered appropriate when the expenditures relate to the acquisition and installation of
pollution control equipment. These ongoing programs are designed to minimize the
environmental impact of the Company's pulp-producing activities.

(i) Recoverability of long-lived assets

In accordance with SFAS 121 – “Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of”, management reviews long-lived assets, primarily
property, plant and equipment to be held and used in the business, for the purposes of
determining and measuring impairment on a recurring basis or when events or changes in
circumstances indicate that the carrying value of an asset or group of assets may not be
recoverable. At December 31, 1998 and 1999 the Company recorded provisions of U.S.$
12.1 million and U.S.$ 1.6 million, respectively, for impairment related to plant and equipment
expected to be discontinued. The Company did not record a provision for impairment in 2000.

(j) Employee retirement and postemployment benefits

The cost of the retirement benefits plans is accrued currently. Employee postretirement and
postemployment benefits as defined by SFAS 106 - “Employers’ Accounting for
Postretirement Benefits other than Pensions” and SFAS 112 - “Employers’ Accounting for
Postemployment Benefits”, respectively, are not significant. The Company is required by law to
provide severance benefits to employees terminated without just cause. No significant amounts
were accrued at December 31, 1999 and 2000, since future severance costs are not
reasonably estimable.

(k) Compensated absences

The liability for employees' future vacation compensation is accrued as vacation vests during the
year.




15
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)



(l) Revenues and expenses

Revenues arise from annual and long-term contracts and from spot sales and are recognized
when products are invoiced. Expenses and costs are accrued as incurred.

(m) Accounting for derivatives and hedging activities

The Company maintains an overall risk management strategy to minimize significant unplanned
fluctuations caused by foreign exchange rate volatility. The Company may enter into forward
foreign exchange contracts to protect against exchange-rate movements affecting its non-US
dollar denominated export accounts receivable. Additionally, the Company may enter into
foreign currency swaps and foreign currency options to manage risk in administering the
Company’s cash and cash equivalents portfolio. Finally, the Company may enter into contracts
to protect against exchange-rate movements affecting its non-US dollar denominated export
accounts payable and indebtedness. Market-value gains and losses on these contracts are
recognized in income currently, offsetting foreign exchange gains and losses arising on the
accounts receivable and cash equivalent balances.

In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 133 - Accounting for Derivative Financial Instruments and Hedging
Activities (SFAS 133), as amended by SFAS 137 and SFAS 138. These standards are
effective for the Company as from January 1, 2001. FAS 133, as amended, requires that all
derivative instruments be recorded on the balance sheet at fair value. Changes in fair value of
derivatives are recorded each period in current earnings or other comprehensive income,
depending on whether the derivative is designated as part of a hedge transaction and, if it is,
depending on the type of hedge transaction. For fair value hedge transactions, in which the
Company is hedging changes in the fair value of an asset, liability or firm commitment, changes
in the fair value of the derivative instrument will generally be offset in the income statement by
changes in the hedged item’s fair value. For cash-flow hedge transactions in which the
Company is hedging the variability of cash flows related to a variable-rate asset, liability, or a
forecasted transaction, changes in the fair value of the derivative instrument will be reported in
other comprehensive income. The gains and losses on the derivative instrument that are
reported in other comprehensive income will be reclassified as earnings in the periods in which
earnings are impacted by the variability of the cash flows of the hedged item. The ineffective
portion of all hedges will be recognized in current period earnings.




16
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

Management estimates that, due to the limited number of unsettled derivative instruments as of
December 31, 2000, the adoption of FAS 133, as amended, as of January 1, 2001 will not
have a significant effect on the Company’s results of operations or its financial position.

(n) Income taxes

The Company has adopted SFAS 109 - "Accounting for Income Taxes" for all years
presented. Accordingly, the Company recognizes (i) the benefits of tax loss carryforwards
available to be offset against future taxable income and (ii) deferred tax assets and liabilities for
the expected future tax consequences of temporary differences between the tax bases and
financial reporting bases of assets and liabilities, as well as on the effects of adjustments made to
reflect the requirements of US GAAP. A valuation allowance is provided to reduce deferred
tax assets when management considers that realization is not reasonably assured.

(o) Basic and diluted earnings per share

Basic and diluted earnings per share are computed by dividing net income by the weighted
average number of all classes of shares outstanding during the year, net of treasury stock, after
taking into consideration the dividend provisions applicable to Class A preferred and Class B
preferred stocks, assuming that all earnings for the year are fully distributed. There were no
dilutive securities outstanding in 1998, 1999 and 2000.

(p) Comprehensive income

The Company has disclosed comprehensive income as part of the Statement of Changes in
Stockholders´ Equity, in compliance with SFAS 130 - "Reporting Comprehensive Income".

2 Sale of the “Electrochemical Plant”

On September 27, 1999, the Company formed Aracruz EletroquĂ­mica Ltda., a wholly-owned
subsidiary, and transferred to the subsidiary certain equipment comprising an "electrochemical
plant", at its net book value of U.S.$ 82.6 million, as payment of capital subscribed.

On December 17, 1999, Aracruz EletroquĂ­mica Ltda. issued debt securities in the international
market ("Fixed rate notes") in the amount of U.S.$ 58 million. In addition, at that date, the
subsidiary was split and cash in the amount of U.S.$ 54.9 million was retained by the twin
subsidiary Aracruz Empreendimentos S/C Ltda., also wholly-owned, incorporated on
December 6, 1999.


17
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

Aracruz EletroquĂ­mica Ltda., which retained the electrochemical plant assets and the liability for
the notes, with a net equity of U.S.$ 27.7 million, was then sold for
U.S.$ 6.1 million, on December 17, 1999, to CanadianOxy Chemicals Holding Ltd., a
Canadian group. The loss on sale of the plant of U.S.$ 21.6 million (U.S.$ 13.6 million net of
taxes), was recorded in “Other operating costs and expenses”.

Pursuant to a contract signed by the Company and the acquirors of the electrochemical plant,
the Company will purchase future production from the plant. See discussion of "take-or-pay"
contract in Note 16 (b).

3 Acquisition of Terra Plana Agropecuária Ltda

On June 1, 2000 the Company acquired Terra Plana Agropecuária Ltda (“Terra”) for
U.S.$ 20,204. The acquisition has been accounted for using the purchase method of
accounting. The net assets of Terra are comprised solely of land, and at September 30, 2000
the Company has allocated the purchase price to land (U.S.$ 13,169) and goodwill (U.S.$
7,035), based upon estimates of the fair value of the land. Goodwill will be amortized on a
straight-line basis over 7 years, which the Company believes is the estimated benefit period.

4 Investment in Veracel Celulose S.A.

On October 10, 2000, the Company acquired a 45% interest in Veracel Celulose S.A.
(Veracel) for U.S.$ 81,011. Veracel is currently in the pre-operational stage, growing
eucalyptus plantations in the state of Bahia in Brazil. Stora Enso OYJ and Odebrecht S.A.
own the remaining 45% and 10%, respectively. At the end of 2002, the Company and Stor
Enso will jointly decide, based upon prevailing market conditions, whether to proceed with a
planned construction of Veracel´s own green field.

Upon closing of the purchase agreement, the Company andVeracel entered into a three-year
wood supply contract to provide wood for the Company´s mill expansion currently in progress.
Under terms of the contract, beginning in 2002 Veracel will supply up to 3.85 million cubic
meters of wood at U.S.$ 40.50 per cubic meter.

The Company accounts for its investment in Veracel using the equity method of accounting. At
December 31, 2000 the Company’s investment in Veracel included goodwill of U.S.$ 15,583,
which will be amortized over a period up to 7 years. Amortization is expected to commence in
2002, which corresponds to the estimated beginning of the period the Company believes it will
benefit from its investment. For the year ended December 31, 2000, the Company recognized
equity earnings of
U.S.$ 1,313.
18
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)



5 Income taxes

Income taxes in Brazil comprise federal income tax and social contribution (which is an
additional federal income tax). The statutory rates applicable for federal income tax and social
contribution are presented as follows:

Year ended December 31 - %
1998 1999 2000

Federal income tax rate 25.0 25.0 25.0
Social contribution (*) 8.0 8.0 to 12.0 9.0 to 12.0
Composite tax rate 33.0 33.0 to 37.0 34.0 to 37.0

(*) Pursuant to a provisional measure, the social contribution rate was increased to 12% for the
period May 1, 1999 to January 31, 2000 and was reduced to 9% for the period February 1,
2000 to December 31, 2000. The social contribution rate will continue to be 9% until
December 31, 2002 and will be reduced to 8% again effective January 1, 2003. Because
provisional measures are valid only for 30 days unless approved by the Congress, the enacted
rate continues to be 8% in accordance with the provisions of SFAS 109. Therefore, this rate
was used to calculate deferred taxes at December 31, 2000 and 1999.




19
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)



The amounts reported as income tax expense (benefit) in the consolidated statements of income
are reconciled to the statutory rates as follows:

Year ended December 31,

1998 1999 2000

Income (loss) before income taxes and minority
interest (22,116 ) 107,389 283,765

Federal income tax and social
contribution at statutory rates (7,298 ) 39,734 93,642
Adjustments to derive effective tax rate:
Effects of differences in remeasurement
from reais to U.S. dollars, using
historical exchange rates and indexing
for tax purposes:
Translation effect for the period (5,716 ) (14,797 ) (4,688 )
Depreciation on difference in asset basis 1,074 29,025 22,406
Valuation allowance (reversal)
Operations in Brazil (4,168 ) (38,924 ) (5,394 )
Operations outside Brazil (4,389 ) 2,617 (29,737 )
Effects of changes in tax rates for 1999 (1,116 )
Social contribution recovered, net of federal
income tax effect of U.S.$ 2,601
(see Note 16 (a) (iv)) (7,806 )
Other permanent items 2,997 140 5,836

Income tax expense (benefit) per consolidated
statement of income (25,306 ) 16,679 82,065




20
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

The major components of the deferred tax accounts in the balance sheet are as follows:

December 31,

1999 2000

Assets
Tax loss carryforwards
Operations in Brazil 22,777 63
Operations outside Brazil 32,211 2,474
Depreciation - book over tax 10,961
Expenses not currently deductible 22,235 7,100
Others 6,488 6,736
Valuation allowance (38,761 ) (2,474 )

55,911 13,899

Current assets 6,488 6,736

Long-term assets 49,423 7,163


Although realization of net deferred tax assets is not assured, management believes that, except
where a valuation allowance has been provided, such realization is more likely than not to
occur. The amount of the deferred tax asset considered realizable could, however, be reduced
if estimates of future taxable income during the tax loss carryforwards period are reduced. Tax
loss carryforwards do not expire and are available to offset against future taxable income limited
to 30% of taxable income in any individual year.

In addition, at December 31, 2000, the Company had recoverable taxes in the total amount of
U.S.$ 126,949, relating mainly to the withholding income tax on financial income (U.S.$
63,974), which can be offset with future income tax payable, and to the value-added tax credits
(U.S.$ 41,056) for which management is studying alternatives of recovery with the Government
of the EspĂ­rito Santo State.




21
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)



6 Cash and cash equivalents

December 31,

1999 2000

Brazilian reais 13,934 704
United States dollars 288,743 15,768
Other European currencies 9,913 1,619

312,590 18,091


Cash equivalents in Reais represent principally short-term investments in certificates of deposit
placed with major financial institutions in Brazil. The amount invested in United States dollars at
December 31, 1999 consists of participations in an investment fund whose assets are basically
denominated in U.S. dollar. The amount invested in United States dollars at December 31,
2000 consist primarily of time deposits with prime financial institutions.

7 Debt securities available-for-sale

The Company’s debt securities available-for-sale are comprised of Notas do Tesouro Nacional
(“National Treasury Notes”) Series D, and Notas do Banco Central (“Central Bank Bonds”)
Series E, which are issued and guaranteed by the Brazilian Federal Government. These
securities have maturity dates ranging from May 2001 to June 2004.

During the first half of 1999 the Company sold National Treasury Notes for an amount of U.S.
$ 80,313, realizing losses of U.S. $648, net of taxes, calculated on an identified security basis.
The realized loss that had been previously recorded as a component of other cumulative
comprehensive income in stockholders’ equity was classified as financial expense in the
statement of income. Additionally, in accordance with the maturity schedule of the National
Treasury Notes, U.S. $94,398 were redeemed in September 1999 and partially reinvested.

During October and November of 2000, National Treasury Notes with a value of U.S. $
119,768 matured and the Company partially reinvested proceeds of U.S. $34,924 into Central
Bank Bonds, Series E with a maturity date in June 2004.




22
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)



At December 31, 2000, the fair value of the Company’s debt securities available for sale
amounted to U.S. $323,032 (1999 – U.S. $189,480), with an unrealized gain, net of tax, of
U.S. $1,095 recorded as a component of other cumulative comprehensive income.

8 Accounts receivable, net

December 31,

1999 2000
Customers - pulp sales
Domestic 6,999 8,149
Export 71,074 80,887
Advances to suppliers 1,223 3,432
Other 5,171 2,044

84,467 95,512
Allowance for doubtful accounts (490 ) (446 )

Total, net 83,977 94,066


At December 31, 2000, one customer accounted for 30% of total customer receivables (1999
- two customers accounted for 37%) and no other accounted for more than 10%.

Export receivables are denominated in the following currencies:

December 31,

1999 2000

United States dollars 41,416 77,439
European currency units - EURO 29,399 3,448
British pounds 259

71,074 80,887


Export receivables in currencies other than U.S. dollars are swapped into U.S. dollars through
forward foreign exchange contracts as discussed in Note 17.

23
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)




9 Inventories, net

December 31,
1999 2000

Finished products 24,054 34,151
Work in process 853 824
Timber 3,181 5,737
Raw materials 7,694 10,731
Spare parts and maintenance supplies, less allowance
for loss of U.S.$ 4,841 (1999 – U.S.$ 3,522) 33,857 29,533

69,639 80,976

Spare parts include parts which, when utilized, are expected to extend the useful lives of plant
and equipment and will be capitalized.

Property, plant and equipment
10

December 31, 1999 December 31, 2000

Accumu- Accumu-
lated lated
depre- depre-
Cost ciation Net Cost ciation Net

Land 134,581 134,581 178,192 178,192
Timber resources 454,491 296,038 158,453 482,164 327,680 154,484
Buildings,
improvements,
and installations 462,092 244,295 217,797 467,231 264,275 202,959
Equipment 1,842,545 759,931 1,082,614 1,831,744 830,576 1,001,168
Information
tecnology
equipment 41,572 24,635 16,937 41,898 28,082 13,816
Other 135,444 76,620 58,824 144,617 95,331 49,287
24
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

3,070,725 1,401,519 1,669,206 3,145,849 1,545,943 1,599,906
Construction in
progress 33,541 33,541 64,416 64,416

Total 3,104,266 1,401,519 1,702,747 3,210,265 1,545,943 1,664,322

During the second quarter of 2000, the Company commissioned a technical report from
engineering experts in order to align, for accounting purposes, the remaining useful life of the
plant assets to their prospective economical use. Based on that report, which considered
aspects such as the useful economic life established by the assets’ manufacturers, the
Company´s maintenance standards and the general conditions of use and conservation,
management concluded that the Company should depreciate its industrial assets at higher annual
rates to reflect the actual wear of the assets by their use. Accordingly, as a result of this change,
which was effective April 1, 2000, the depreciation charge for the year ended December 31,
2000 increased by U.S.$ 17.8 million. For the year ended December 31, 2000 U.S.$ 15.6
million, respectively, was charged against cost of sales, net income was reduced by U.S.$ 10.5
million, respectively, and earnings per share were reduced by U.S.$ .02 per Class A and B
shares U.S.$ .02 per common share for the year ended December 31, 2000. Assets acquired
in the future will be depreciated at the same rates as those determined in the technical report,
taking into consideration the nature of the assets.

11 Short-term borrowings

The Company's short-term borrowings are principally from commercial banks for export
financing and are substantially denominated in U.S. dollars. Average annual interest rates at
December 31, 1999 and 2000 were, respectively, 8.2% and 7.4%.

At December 31, 2000, U.S.$ 125,203 of short-term borrowings fall due within 90 days,
U.S.$ 29,440 from 91 to 180 days and U.S.$ 3,050 from 181 to 365 days.




25
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)



12 Long-term debt

December 31,
1999 2000
Denominated in Brazilian currency - term loans with
varying interest rates; principally the "Long-term
Interest Rate" (TJLP) plus 5.5% to 11.5%
162,330 117,464
(1999 - 5.5% to 11.5%), due 2000 to 2006
Denominated in foreign currencies
Term loans - 9,26% to 12.37% (1999 - 8.45% to
193,354 136,640
12.23%), due 2001 to 2004
Securitization of receivables - 7.98% (1999 - 7.98%
69,572 39,547
to 9.89%) due 2001 to 2002
Import financing - 6.56% to 7.31% (1999 - 5.55%
40,197 34,227
to 7.08%), due 2001 to 2007
Import financing - LIBOR plus 1.4%, due 2001
73,167 56,281
to 2004
Pre-export financing - 1999 - 5.54% to
207,350
10.7%, due 2000
583,640 266,695
745,970 384,159
Total
353,616 105,286
Less current maturities
392,354 278,873

In January 1994, the Company issued U.S.$ 120 million of 10.375% unsecured notes (the
"Notes") maturing 2002. The Notes were redeemable on January 31, 1997 at 94.527% of
face value if redeemed at the option of the Company, or at 93.710% of face value if redeemed
at the option of the bondholder. On January 31, 1997, the terms of the Notes were
remarketed and amended, through a purchase and resale operation under which they were
redeemed at 94.527% of their face value and reissued at 104.75% of face value on the same
date. The gain on the redemption was recognized currently in financial income in 1997 while the
premium on reissuance is being amortized over the remaining term of the Notes. Interest, fees
and commissions on the Notes are exempt from Brazilian withholding tax. However, should the
instruments be redeemed prior to their original final maturities, the Company will be obligated to
pay such tax on both past and future payments at rates from 12.5% through 15%, depending
upon the country to which such payments are remitted.

In November 1994, the Company, through Aracruz Trading S.A. entered into a U.S.$ 100
million Euro-Commercial Paper program, guaranteed by the Company, with maturities through
1997 and with interest negotiated as each tranche is released. The Company has drawn down
and repaid several tranches under this program. On September 2, 1998, renewal of this
26
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

program was approved by the Brazilian Central Bank for a 3-year term, in conjunction with an
increase in the amount from U.S.$ 100 million to U.S.$ 200 million. The Company did not
draw down on this facility during 2000.

In February 1995, the Company, through Aracruz Trading S.A., signed a financing agreement
with a special-purpose entity (SPE) under which such entity received from a trust and advanced
to the Company, as a first phase of a U.S.$ 200 million program, U.S.$ 50 million, representing
funds received by the trust through the private placement of trust certificates. In return, the
Company securitizes the financing by selling to the SPE its current and future accounts
receivable from designated customers. Concurrently, the SPE has assigned its right, title and
interest on the certificates to the trust. Each month such collections in excess of contractual
funding requirements are transferred to the Company. The financing bears fixed annual interest
of 9.89% and has been fully repaid. The net proceeds were transferred to Aracruz Celulose
S.A. as advances for future purchases of pulp. In July 1995, the Company completed the
remaining U.S.$ 150 million phase of the securitization program, which has been structured
similarly to the first phase described above. This second phase comprehends U.S.$ 38 million
of five-year certificates with interest equal to one-month LIBOR plus 1.75%, which were fully
redeemed during 1997, and U.S.$ 112 million of seven-year certificates, with interest of
7.98%, and repayments beginning, respectively, in December 1996 and June 1999, with
monthly interest payments which began in July 1995. In August 1995, Aracruz Trading S.A., a
wholly-owned subsidiary of the Company, used the funds to purchase the full amount of an
issue of US$ 150 million of Aracruz Celulose S.A.'s unsecured 9% notes, due August 2003;
accordingly these amounts have been offset against each other in the consolidated financial
statements.

During 1998, the Company, through Aracruz Trading S.A., entered into a U.S.$ 65 million
long-term debt, with maturities from September 2000 to November 2000. This debt was fully
paid at each maturity date during the year 2000.

At December 31, 2000, the Company had outstanding debt with the Banco Nacional de
Desenvolvimento EconĂ´mico e Social - BNDES, a stockholder, in an amount equivalent to
U.S.$ 170 million (1999 - U.S.$ 241 million) maturing up to 2006; local currency loans bear
interest at varying rates based on the TJLP plus 5.5% to 11.5% and foreign currency loans are
linked to a basket of foreign currencies. The loans are secured by liens on the Company's
property, plant and equipment and on its timber resources.

At December 31, 2000, the Company had in treasury and available for resale all of its
debentures (approximately U.S.$ 140 million at December 31, 2000 values) issued in 1982 and
1990, which were repurchased in the market in 1992.



27
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)



The long-term portion of the Company's debt at December 31, 2000 becomes due in the
following years:

2002 196,045
2003 46,363
2004 17,935
2005 7,274
2006 and thereafter 11,256

Total 278,873

13 Stockholders' equity

The Company's principal common stockholders and their common stock ownership interests,
either direct or indirect, are as follows: Arapar S.A. (a Company associated with the Chairman
of the Board of the Company), S.O.D.E.P.A. - Sociedade de Empreendimentos, Publicidade e
Participação S.A. (SODEPA) (an affiliate of Banco Safra S.A.), and Mondi International for
28% each; Banco Nacional de Desenvolvimento EconĂ´mico e Social - BNDES for 12.5%.
At December 31, 1999 and 2000, SODEPA and the Banco Nacional de Desenvolvimento
EconĂ´mico e Social - BNDES also owned preferred stocks which in total amounted to 16.4%
and 23.5%, respectively, of the total preferred stocks.

Class A preferred stock may be converted into Class B preferred stock at any time at the
option of the stockholder. Preferred stock does not have voting rights but has priority in the
return of capital in the event the Company is liquidated. Stock dividends payable to Class A
preferred stockholders are effected through issuance of Class B preferred stock. Class A
preferred stock has priority in the distribution of a minimum annual cash dividend equivalent to
6% of the related capital. Additionally, in order to comply with Law 9457/97, the Company's
By-laws were changed to grant Class B preferred stock the right to receive an annual dividend
in an amount that is 10% greater than dividends paid to common stockholders (“Dividend
Ratio”); earnings, if any, in excess of the Class A preferred stock minimum dividend will be
distributed as dividends to Class B preferred stock and common stock, up to the equivalent on
a per-share basis to those paid to Class A preferred stock, while maintaining the Dividend Ratio
between Class B preferred stock and common stock. Any earnings remaining for distribution
thereafter are shared ratably among Class A preferred, Class B preferred and common stocks
while maintaining the Dividend Ratio between Class A and Class B preferred stock and
common stock . In the event that Class A preferred stock is not paid dividends for three
consecutive years, holders of that stock are entitled to voting rights until the dividends in arrears
for those three years are paid.


28
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

Basic and diluted earnings per share ("EPS") as of December 31, 1998, 1999 and 2000, as
presented in the Company's statement of income, have been calculated on the above basis
taking into consideration the Dividend Ratio between Class A and Class B preferred stock and
common stock. However, the per share amounts have been rounded to two decimal places.
The following presents the earnings per share calculations:

1998 1999 2000

Net income 3,447 90,773 201,711

Less priority Class A preferred stock dividends (3,561 ) (2,429 ) (2,219 )

Less Class B preferred stock and common stock
dividends up to the Class A preferred stock
dividends on a per-share basis while
maintaining the Dividend Ratio 114 (57,308 ) (52,429 )

Remaining net income to be equally allocated to
Class A and Class B preferred stock and
common stock while maintaining the
Dividend Ratio 31,036 147,063

Weighted average number of shares
outstanding (thousands)
Class A preferred 41,007 40,979 40,903
Class B preferred 564,374 553,279 552,889
Common 454,908 454,908 454,908

Basic and diluted earnings per share
Class A preferred 0.09 0.09 0.20
Class B preferred 0.00 0.09 0.20
Common 0.00 0.08 0.18

Brazilian law permits the payment of cash dividends only from retained earnings and certain
reserves registered in the Company's statutory accounting records. At December 31, 2000,
after considering appropriated retained earnings which can be transferred to unappropriated
retained earnings, the earnings and reserves available for distribution as dividends, upon
approval by the Company's stockholders, amounted to the equivalent of U.S.$ 239 million.


29
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

Retained earnings that represent unrealized income (principally inflationary income recognized
up to December 31, 1995 in the Company's statutory financial statements) are transferred to
unrealized income reserve and are transferred back to retained earnings as financial resources
become available for dividend distribution.

The investments reserve represents discretionary appropriations, ratified by the stockholders,
for plant expansion and other capital projects, the amount of which is based on an approved
capital budget presented by management. After completion of the projects, the Company may
elect to retain the appropriations until the stockholders vote to transfer all or a portion of the
reserve to capital or to retained earnings, from which a cash dividend may then be paid.

The fiscal incentive reserve results from an option to invest a portion of income tax otherwise
payable in the acquisition of capital stock of companies undertaking specified government-
approved projects. The amount so applied is credited to non-operating income and
subsequently appropriated from retained earnings to this reserve.

The legal reserve results from appropriations from retained earnings of 5% of annual net income
recorded in the statutory accounting records. Such appropriations are required until the
balance reaches 20% of the balance of capital stock, based on the statutory accounting
records. At December 31, 2000, such capital stock was R$ 1,855 million and the balance in
the legal reserve was R$ 113 million.

The fiscal incentive and legal reserves may be used to increase capital and to absorb losses, but
are not available for distribution as cash dividends.

14 Pension plans

The Company sponsors a retirement plan covering substantially all of its employees. Prior to
May 1, 1992, the program (“Plan 1”) consisted of a final-pay, defined-benefit pension plan
with benefits based on years of service and salary so as to complement the government social
security benefits. As of May 1, 1992, a new program (“Plan 2”) was created under which the
retirement benefits were based principally on defined-contribution accumulations and the
disability and death benefits were based on a defined-benefits formula. On attaining retirement,
participants could either opt for a defined monthly retirement benefit or withdraw a capital sum,
both determined on the basis of the contributions accumulated relating to the participant.
Substantially, all active employees elected to transfer to Plan 2 while the retired employees
remained in Plan 1.

In September 1998, the Company implemented another plan (“Plan ARUS”), which
automatically replaced Plan 2, with retirement benefits based solely on defined contribution
accumulations. Upon implementation of Plan ARUS, each participant was assigned an
30
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)

individual account with his/her accumulated benefit at the date of implementation; also, the
option for a defined monthly retirement benefit provided under Plan 2 was eliminated.

The net effect of U.S.$ 1,395 resulting from the transfer of the benefit obligation and related
assets from Plan 2 to Plan ARUS was accounted for as a settlement gain in accordance with
SFAS 88 - “Employers’ Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits”, and credited to income for the year ended
December 31, 1998.

The Company and eligible employees make monthly contributions under the plan to a private,
government-approved pension fund, whose sponsors are Aracruz Celulose S.A. and its
subsidiary companies and whose board of administrators is composed principally of officers of
Aracruz Celulose S.A. Contributions by employees to the new plan are optional. The fund
owns and administers (or places with a trustee) its investments and other assets, which
comprise, principally, bank certificates of deposit, investments funds, marketable equity
securities and real estate.

Contributions made by the Company to the plan amounted to U.S.$ 1,211, U.S.$ 1,266 and
U.S.$ 1,183 in 1998, 1999 and 2000, respectively, and represented the annual pension
expense of the Company for this plan.

After the implementation of Plan 2, and its subsequent substitution by Plan ARUS, few
participants remained in the defined-benefit plan (Plan 1), and it no longer represents a
significant liability for the Fund. Accordingly, the Company’s management considers that it is
no longer necessary to disclose the plan’s funded status and other information required by
SFAS 132 – “Employers’ Disclosures about Pensions and Other Posretirement Benefits”.

15 Employee benefits

In addition to the pension plans, the Company makes monthly contributions, based on total
payroll, to government pension, social security and severance indemnity plans and such
payments are expensed as incurred. Also, certain severance payments are due on dismissal of
employees, principally notice of one month's salary and a severance payment calculated at 40%
of the accumulated contributions made to the government severance indemnity plan on behalf of
the employee. Based on current operating plans management does not expect that amounts of
future severance indemnities will be material.




31
Aracruz Celulose S.A.

Notes to Consolidated Financial Statements
Expressed in thousands of United States dollars
(unless otherwise stated)



16 Commitments and contingencies

(a) Contingencies

(i) Labor Proceedings

The Company has been involved in legal proceedings with labor unions in respect of wage
adjustments to incorporate inflation for the period February 16, 1990 through March 15, 1990.
Such suits, however, have been denied by the Superior Labor Court, based on rulings by the
Federal Supreme Court.

The Company has received an unfavorable judgment in respect of a suit brought by certain
industrial employees represented by their union, claiming additional compensation for alleged
hazardous conditions at the mill. The Court’s decision established a framework for computing
the amount of liability. Five other collective suits of the same nature have their respective
technical expertise proceedings concluded although not yet decided by the local court. At
December 31, 2000, the Company had recorded a provision for eventual losses, based on the
Court’s computation framework and existing labor jurisprudence, in the amount of U.S.$
16,849 regarding these claims, and deposited U.S.$ 4,180 in an escrow account.

(ii) Administrative Proceedings

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