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o | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(Translation of Registrant’s name into English)
(Jurisdiction of Incorporation or Organization)
(Address of Principal Executive Offices)
Tel. 011-5511-3718-5301, Fax 011-5511-5297
760 Av. Escola Politécnica, Jaguaré 05350-901 São Paulo — SP, Brazil
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Name of Each Exchange on | ||
Title of Each Class | which Registered | |
Common Shares, no par value per share, each represented by American Depositary Shares | New York Stock Exchange |
pursuant to Section 15(d) of the Act:
At December 31, 2008 | 206,527,618 shares of common stock |
Large accelerated filerþ | Accelerated filero | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting companyo |
o U.S. GAAP | o | International Financial Reporting Standards as issued by the International Accounting Standards Board | þ Other |
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• | frozen whole and cut chickens; | ||
• | frozen pork cuts and beef cuts; | ||
• | processed food products, such as the following: |
• | marinated frozen whole and cut chickens, roosters (sold under theChester® brand) and turkeys; | ||
• | specialty meats, such as sausages, ham products, bologna, frankfurters, salamis, bacon and other smoked products; | ||
• | frozen processed meats, such as hamburgers, steaks, breaded meat products, kibes and meatballs, and frozen processed vegetarian foods; | ||
• | frozen prepared entrees, such as lasagnas and pizzas, as well as other frozen foods, including vegetables, cheese bread and pies; | ||
• | dairy products, such as cheeses, powdered milk and yogurts; | ||
• | juices, soy milk and soy juices; and | ||
• | margarine; |
• | milk; and | ||
• | soy meal and refined soy flour, as well as animal feed. |
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2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(in millions ofreais,except per share and per ADS amounts and share numbers) | ||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||
Brazilian GAAP | ||||||||||||||||||||
Net sales | 11,393.0 | 6,633.4 | 5,209.8 | 5,145.2 | 4,883.3 | |||||||||||||||
Cost of sales | (8,634.1 | ) | (4,760.1 | ) | (3,865.7 | ) | (3,685.9 | ) | (3,532.4 | ) | ||||||||||
Gross profit | 2,758.9 | 1,873.3 | 1,344.1 | 1,459.3 | 1,350.9 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling expenses | (1,891.1 | ) | (1,279.0 | ) | (1,070.8 | ) | (845.6 | ) | (790.8 | ) | ||||||||||
General and administrative expenses | (140.4 | ) | (76.9 | ) | (72.3 | ) | (56.9 | ) | (54.1 | ) | ||||||||||
Management compensation | (18.8 | ) | (13.5 | ) | (9.6 | ) | (9.5 | ) | (7.7 | ) | ||||||||||
(2,050.3 | ) | (1,369.4 | ) | (1,152.7 | ) | (912.0 | ) | 852.6 | ||||||||||||
Operating income before financial expenses and other | 708.6 | 503.9 | 191.4 | 547.3 | 498.3 | |||||||||||||||
Financial expenses, net | (630.3 | ) | (105.4 | ) | (129.3 | ) | (82.7 | ) | (117.8 | ) | ||||||||||
Other operating (expenses) income, net(1) | (261.9 | ) | (14.7 | ) | 12.2 | (13.4 | ) | (12.1 | ) | |||||||||||
(Loss) Income before taxes, profit sharing and participation of non-controlling shareholders | (183.6 | ) | 383.8 | 74.3 | 451.1 | 368.4 | ||||||||||||||
Income and social contribution taxes benefit (expense) | 255.3 | (32.1 | ) | 61.6 | (62.5 | ) | (47.3 | ) | ||||||||||||
Employees’ profit sharing | (13.5 | ) | (24.6 | ) | (9.9 | ) | (22.8 | ) | (19.1 | ) | ||||||||||
Management profit sharing | (3.4 | ) | (2.6 | ) | (1.6 | ) | (4.8 | ) | (6.4 | ) | ||||||||||
Non-controlling shareholders | (0.4 | ) | (3.2 | ) | (7.1 | ) | — | — | ||||||||||||
Net income | 54.4 | 321.3 | 117.3 | 361.0 | 295.6 | |||||||||||||||
Earnings per share(2) | 0.263 | 1.732 | 0.707 | 8.109 | 6.643 | |||||||||||||||
Dividends per share(3) | 0.369 | 0.540 | 0.212 | 2.433 | 1.993 | |||||||||||||||
Dividends per ADS(3) | 0.738 | 1.077 | 0.424 | 4.866 | 3.986 | |||||||||||||||
Dividends per ADS (in U.S. dollars) | 0.316 | 0.608 | 0.198 | 2.079 | 1.502 | |||||||||||||||
Average shares outstanding (in millions) (5) | 206.5 | 185.5 | 165.5 | 44.5 | 44.5 | |||||||||||||||
U.S. GAAP | ||||||||||||||||||||
Net sales | 11,357.2 | 6,632.7 | 5,209.8 | 5,145.2 | 4,883.3 | |||||||||||||||
Net income | (89.7 | ) | 313.0 | 141.8 | 356.5 | 292.2 | ||||||||||||||
Basic and diluted earnings per share(2) (4) | (0.44 | ) | 1.8728 | 0.9873 | 2.6697 | 2.1884 | ||||||||||||||
Basic and diluted earnings per ADS(4) | (0.88 | ) | 3.7440 | 1.9746 | 5.3394 | 4.3768 | ||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
(in millions ofreais,except as otherwise indicated) | ||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Brazilian GAAP | ||||||||||||||||||||
Cash, cash equivalents and marketable securities | 1,976.0 | 1,773.6 | 1,120.5 | 817.7 | 263.6 | |||||||||||||||
Trade accounts receivable, net | 1,378.0 | 803.9 | 701.6 | 555.7 | 524.4 | |||||||||||||||
Inventories | 1,689.0 | 865.1 | 643.2 | 558.7 | 509.0 | |||||||||||||||
Other assets | 942.1 | 325.6 | 286.3 | 169.1 | 175.5 | |||||||||||||||
Total current assets | 5,985.1 | 3,768.2 | 2,751.6 | 2,101.2 | 1,472.5 | |||||||||||||||
Marketable securities | 0.2 | 63.3 | 80.0 | 91.6 | 134.0 | |||||||||||||||
Investments | 1.0 | 1.0 | 1.0 | 15.6 | 0.4 | |||||||||||||||
Property, plant and equipment | 2,918.5 | 2,136.9 | 1,663.8 | 1,194.2 | 990.1 | |||||||||||||||
Intangibles | 1,545.7 | 269.5 | 84.5 | 0.0 | 0.0 | |||||||||||||||
Deferred assets | 172.1 | 113.4 | 89.8 | 93.8 | 76.5 | |||||||||||||||
Other assets | 596.9 | 191.0 | 158.7 | 128.6 | 120.2 | |||||||||||||||
Total assets | 11,219.5 | 6,543.3 | 4,829.4 | 3,625.0 | 2,793.7 | |||||||||||||||
Short-term debt | 1,646.4 | 1,051.8 | 547.0 | 548.7 | 706.8 | |||||||||||||||
Trade accounts payable | 1,083.4 | 575.6 | 486.6 | 332.6 | 327.1 | |||||||||||||||
Other current liabilities | 351.1 | 313.8 | 218.0 | 248.6 | 202.0 | |||||||||||||||
Total current liabilities | 3,080.9 | 1,941.2 | 1,251.6 | 1,129.9 | 1,235.9 | |||||||||||||||
Long-term debt | 3,719.7 | 1,214.1 | 1,287.1 | 1,125.4 | 464.7 | |||||||||||||||
Other liabilities | 307.6 | 162.0 | 146.8 | 146.9 | 123.0 | |||||||||||||||
Non-controlling shareholders | 0.7 | — | 39.0 | — | — | |||||||||||||||
Shareholders’ equity | 4,110.6 | 3,226.0 | 2,104.9 | 1,222.8 | 970.1 | |||||||||||||||
Total liabilities and shareholders’ equity | 11,219.5 | 6,543.3 | 4,829.4 | 3,625.0 | 2,793.7 | |||||||||||||||
U.S. GAAP | ||||||||||||||||||||
Total assets | 11,354.4 | 6,495.7 | 4,790.8 | 3,572.0 | 2,768.2 | |||||||||||||||
Property, plant and equipment | 3,176.3 | 2,294.7 | 1,658.0 | 1,145.9 | 942.6 | |||||||||||||||
Long-term debt | 3,715.5 | 1,206.2 | 1,282.0 | 1,124.5 | 464.7 | |||||||||||||||
Shareholders’ equity | 3,973.4 | 3,159.0 | 2,066.8 | 1,196.1 | 950.9 |
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2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Operating Data | ||||||||||||||||||||
Poultry slaughtered (million heads per year) | 879.8 | 627.3 | 547.4 | 487.1 | 444.9 | |||||||||||||||
Hogs/beef slaughtered (thousand heads per year) | 4,713.0 | 3,775.0 | 3,656.0 | 3,570.0 | 2,750.0 | |||||||||||||||
Total sales of meat and other processed products ( thousand tons per year) | 3,162.9 | 1,812.5 | 1,350.4 | 1,141.3 | 993.0 | |||||||||||||||
Milk collected from producers (millions of liters) | 1,605.6 | 247.0 | 147.9 | — | — | |||||||||||||||
Employees (at year end) | 59,008 | 44,752 | 39,048 | 31,406 | 27,951 |
(1) | For comparability purposes, non-operating results for 2004, 2005, 2006 and 2007 were reclassified to other operating (expenses) income, net. | |
(2) | Earnings (loss) per share, or “EPS,” is computed under Brazilian GAAP based on the outstanding shares at the end of each period. Under U.S. GAAP, EPS is calculated based on weighted average shares outstanding over the period. For U.S. GAAP purposes, in all years presented, basic EPS is equal to diluted EPS. | |
(3) | Dividends are calculated based on net income determined in accordance with Brazilian GAAP and adjusted in accordance with the Brazilian Corporation Law. Each ADS represents two common shares. | |
(4) | For U.S. GAAP purposes only, all historical periods are presented reflecting the three-for-one share split that became effective on April 12, 2006. | |
(5) | Includes common shares represented by ADSs. |
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Reaisper U.S. Dollar | ||||||||||||||||
Year | High | Low | Average | Period End | ||||||||||||
2004 | 3.2051 | 2.6544 | 2.9257 | 2.6544 | ||||||||||||
2005 | 2.7621 | 2.1633 | 2.4341 | 2.3407 | ||||||||||||
2006 | 2.3711 | 2.0586 | 2.1771 | 2.1380 | ||||||||||||
2007 | 2.1556 | 1.8389 | 2.2002 | 1.7713 | ||||||||||||
2008 | 2.5004 | 1.5593 | 1.8375 | 2.3370 |
Reais per U.S. Dollar | ||||||||
Month | High | Low | ||||||
January 2009 | 2.3803 | 2.1889 | ||||||
February 2009 | 2.3916 | 2.2446 | ||||||
March 2009 | 2.4218 | 2.2375 | ||||||
April 2009 | 2.2899 | 2.1699 | ||||||
May 2009 | 2.1476 | 1.9730 | ||||||
June 2009 (through June 19, 2009) | 1.9780 | 1.9300 |
Source: Central Bank / Bloomberg |
• | Increases in prices for our commodity raw materials, such as corn and soybeans, through the first three quarters of 2008, which we could not pass on through selling prices. | ||
• | Because as the global economic crisis affected demand, we were forced to decrease selling prices, particularly in our export markets. | ||
• | Negative macroeconomic trends in our domestic market starting in the fourth quarter of 2008 as the global economic crisis began to affect the Brazilian economy and domestic consumer confidence. | ||
• | We announced a 20% cut in meat production for export for the first quarter of 2009 due to weak demand in our export markets. Temporary shutdowns of production of some facilities have adversely affected our margins. | ||
• | The Brazilianrealdepreciated 22% against the U.S. dollar in the fourth quarter of 2008 compared to the third quarter of 2008, reflecting uncertainty regarding the effect of the global economic crisis on Brazil and other emerging market economies. This devaluation in therealcaused us to incur net foreign exchange variation expenses (recorded as part of our net financial expenses) of R$416.0 million in 2008, of which R$318.0 million was attributable to the fourth quarter of 2008. | ||
• | Uncertainties engendered by the crisis and the challenges of managing inventories, accounts receivable, accounts payable and other items required us to reinforce our working capital, leading to a 66% increase in our total debt to R$5.4 billion as of March 31, 2009, compared to R$3.3 billion as of March 31, 2008, including R$1.8 billion of short-term debt. |
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• | exchange rate fluctuations; | ||
• | deterioration in economic conditions; | ||
• | imposition of increased tariffs, anti-dumping duties or other trade barriers; | ||
• | strikes or other events affecting ports and other transport facilities; | ||
• | compliance with differing foreign legal and regulatory regimes; and | ||
• | sabotage affecting our products. |
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• | the approval by the shareholders of our company of a series of corporate actions, including (1) the change in our company’s name, (2) the change in the location of our headquarters to Itajaí in the State of Santa Catarina, (3) changes in the composition of our board of directors, (4) the increase in our share capital necessary for the issuance of shares in connection with the business combination and related equity financing, and (5) the merger of shares (incorporação de ações) by which a holding company that will hold a controlling interest in Sadia will become a subsidiary of our company; and | ||
• | the approval by the shareholders of Sadia of a number of actions, including (1) the disposition of Concórdia Financeira, (Sadia’s banking and brokerage subsidiary), which will not be included in the combined company and (2) changes to the composition of Sadia’s board of directors. |
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• | devising a coherent marketing and branding strategy in our domestic market and our export markets that takes into account the relative strengths of Perdigão’s and Sadia’s marketing and brands in each of those markets and across their many product lines; | ||
• | integrating two of the largest customer distribution networks in Brazil, as well as distribution networks in Perdigão’s and Sadia’s export markets; | ||
• | integrating the extensive production facilities of Perdigão and Sadia in several Brazilian states; | ||
• | the potential loss of key customers of Perdigão or Sadia, or both; | ||
• | the potential loss of key officers of Perdigão or Sadia, or both; | ||
• | distraction of management from the ongoing operations of the company; | ||
• | aligning the standards, processes, procedures and controls of Perdigão and Sadia in the operations of the combined companies; and | ||
• | increasing the scope, geographic diversity and complexity of our operations. |
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• | requiring that a substantial portion of our cash flows from operations be used for the payment of principal and interest on its debt, reducing the funds available for our operations or other capital needs; | ||
• | limiting our flexibility in planning for, or reacting to, changes in its business and the industry in which we operate because our available cash flow after paying principal and interest on our debt might not be sufficient to make the capital and other expenditures necessary to address these changes; | ||
• | increasing our vulnerability to general adverse economic and industry conditions because, during periods in which we experience lower earnings and cash flows, we would be required to devote a proportionally greater amount of our cash flows to paying principal and interest on debt; | ||
• | limiting our ability to obtain additional financing in the future to fund working capital, capital expenditures, acquisitions and general corporate requirements; | ||
• | making it difficult for us to refinance our indebtedness or to refinance such indebtedness on terms favorable to us, including with respect to existing accounts receivable securitizations; | ||
• | placing us at a competitive disadvantage compared to competitors that are relatively less leveraged and that may be better positioned to withstand economic downturns; and | ||
• | exposing our current and future borrowings made at floating interest rates to increases in interest rates. |
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• | the current pressures on credit continue or worsen, | ||
• | Sadia’s operating results worsen significantly, | ||
• | Sadia is unable to complete any necessary divestitures of non-core assets and its cash flow or capital resources prove inadequate, or | ||
• | Sadia is unable to refinance any debt that becomes due, we could face liquidity problems and may not be able to pay our or Sadia’s outstanding debt when due, which could have a material adverse effect on our business and financial condition. |
• | borrow money; | ||
• | make investments; |
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• | sell assets, including capital stock of subsidiaries; | ||
• | guarantee indebtedness; | ||
• | enter into agreements that restrict dividends or other distributions from certain subsidiaries; | ||
• | enter into transactions with affiliates; | ||
• | create or assume liens; and | ||
• | engage in mergers or consolidations. |
• | impede our ability, and the ability of our subsidiaries, to develop and implement refinancing plans in respect of Sadia’s debt; | ||
• | limit our ability to seize attractive growth opportunities for our businesses that are currently unknown, particularly if we are unable to obtain financing or make investments to take advantage of these opportunities. |
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• | exchange rate movements; | ||
• | exchange control policies; |
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• | expansion or contraction of the Brazilian economy, as measured by rates of growth in GDP; | ||
• | inflation; | ||
• | tax policies; | ||
• | other economic political, diplomatic and social developments in or affecting Brazil; | ||
• | interest rates; | ||
• | energy shortages; | ||
• | liquidity of domestic capital and lending markets; and | ||
• | social and political instability. |
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• | PREVI—Caixa de Previdência dos Funcionários do Banco do Brasil, or “PREVI,” the pension fund of employees of Banco do Brasil S.A.; | ||
• | Fundação Telebrás de Seguridade Social—SISTEL, or “SISTEL,” the pension fund of employees of Telecomunicações Brasileiras S.A.—Telebrás; | ||
• | PETROS—Fundação Petrobras de Seguridade Social, or “PETROS,” the pension fund of employees of Petróleo Brasileiro S.A.—Petrobras; | ||
• | Real Grandeza Fundação de Assistência e Previdência Social, or “Real Grandeza,” the pension fund of employees of Furnas Centrais Elétricas S.A.—Furnas; | ||
• | Fundação de Assistência e Previdência Social do BNDES—FAPES, or “FAPES,” the pension fund of employees of Banco Nacional de Desenvolvimento Economico e Social—BNDES; | ||
• | PREVI—BANERJ—Caixa de Previdência dos Funcionários do Banerj, or “PREVI—BANERJ,” the pension fund of employees of Banco do Estado do Rio de Janeiro S.A.; | ||
• | VALIA—Fundação Vale do Rio Doce, or “VALIA,” the pension fund of employees of Companhia Vale do Rio Doce; and | ||
• | TELOS—Fundação Embratel de Seguridade Social, or “TELOS,” the pension fund of employees of Empresa Brasileira de Telecomunicações—Embratel. |
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Country of | ||||
Subsidiary | Incorporation | Business | ||
Crossban Holdings GMBH | Austria | Holding company of international subsidiaries | ||
Perdigão International Ltd. | Cayman Islands | Principal export subsidiary | ||
Perdix International Foods Comércio International Lda | Portugal | Distributor for exports to the European Union | ||
Plusfood Groep BV | The Netherlands | Holding company of international subsidiaries |
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• | Perdigão will change its corporate name to BRF – Brasil Foods S.A., move its headquarters to Itajaí in the State of Santa Catarina, and change its certificate of incorporation so that its Board of Directors has nine to eleven members and a co-chairman structure; | ||
• | Concórdia Holding, parent company of Concórdia Corretora (a broker-dealer owned by Sadia) and Concórdia Bank (a bank owned by Sadia), is not part of the merger and, consequently, will be sold to Sadia’s shareholders before the business combination with BRF; |
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• | holders of common shares of HFF will receive 0.166247 common shares of BRF for each share they hold without any further action by those holders; and | ||
• | HFF will become a wholly owned subsidiary of BRF. |
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• | Lasagnas and Pizzas. We produce several varieties of lasagna and pizza. We produce the meat used in these products and buy other raw materials in the domestic market, except for the durum flour used to make the noodles for the lasagna, which we import. | ||
• | Vegetables. We sell a variety of frozen vegetables, such as broccoli, cauliflower, peas, French beans, French fries and cassava fries. These products are produced by third parties that deliver them to us packaged, almost all for ourEscolha Saudável (“healthy choice”) line of products. We purchase most of these products in the domestic market, but we import French fries and peas. | ||
• | Cheese Bread. We produce cheese bread, a popular Brazilian bread infused with cheese. We purchase the ingredients in the domestic market, except for the parmesan cheese, which we import. | ||
• | Pies and Pastries. We produce a variety of pies and pastries, such as chicken and heart-of-palm pies and lime pies. We produce the meat, sauces and toppings used in our pies and pastries, and we purchase other raw materials, such as heart-of-palm, lime and other fillings from third parties. |
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Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(in millions ofreais) | ||||||||||||
Expansion and enhancement of production facilities | 250.5 | 164.3 | 195.0 | |||||||||
Eleva acquisition | 1,679.2 | — | — | |||||||||
Other acquisitions | 96.4 | 347.6 | 124.7 | |||||||||
Araguaia Project – Mineiros Agroindustrial Complex | 6.4 | 85.7 | 130.7 | |||||||||
Bom Conselho Agroindustrial Complex | 84.6 | — | — | |||||||||
New Projects | 286.9 | 259.8 | 184.0 | |||||||||
Total capital expenditures | 2,404.1 | 857.4 | 634.4 | |||||||||
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• | Leading Brazilian Food Company with Strong Brands and Global Market Presence.We are one of Brazil’s largest food industry companies, with a size and scale that enable us to compete in Brazil and globally. We believe that our leading position allows us to take advantage of market opportunities by enabling us to expand our business and increase our share of international markets. In 2008 and in 2007, we slaughtered 863.2 million and 627.3 million chickens and other poultry and 4.7 million and 3.7 million hogs and cattle, respectively. We sold nearly 3.2 million tons and 1.8 million tons of poultry, pork, beef, milk and processed food products, including dairy products, in the same periods. Our own and licensed brands are highly recognized in Brazil, and the brands that we use in our export markets are well established in those markets. | ||
• | Extensive Distribution Network in Brazil and in Export Markets.We believe we are one of the only companies with an established distribution network capable of distributing frozen and refrigerated products in virtually any area of Brazil. In addition, we export products to over 110 countries, and we have begun to develop our own distribution capability in Europe, where we sell directly to food processing and food service companies and to local distributors. Our established distribution capabilities and logistics expertise enable us to expand both our domestic and foreign business, resulting in increased sales volumes and broader product lines. |
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• | Low-Cost Producer in Increasingly Global Market.We believe that we have a competitive advantage over producers in some of our export markets due to generally lower feed and labor costs and gains in efficiencies in animal production in Brazil. We have also achieved a scale and quality of production that enables us to compete effectively with major producers in Brazil and other countries. We have implemented a number of programs designed to maintain and improve our cost-effectiveness, including our ATP—Perdigão Total Service program to optimize our supply chain by integrating demand, production, inventory management and client service functions; our CSP—Perdigão Shared Services Center, which centralizes our corporate and administrative functions; and MVP—More Value Perdigão program to provide our managers with more efficient use of fixed and working capital; and matrix-based budget intended to improve the efficiency of cost management. | ||
• | Diversified and Strategic Geographical Location.In the meat business, our slaughterhouses are strategically located in different regions of Brazil (South and Mid-West), which enables us to mitigate the risks arising from export restrictions that may occur in certain regions of the country due to sanitary concerns. Furthermore, the geographical diversity of our plants in 11 Brazilian states enables us to reduce transportation costs due to the proximity to grain-producing regions. Additionally, the geographic diversity of our plants present in 11 states lowers our transportation costs due to the proximity to grain-producing regions, while also being close to the country’s principal export ports. Our dairy operations are based in the principal milk-producing areas of different regions of Brazil, permitting easy access to the consumer market. | ||
• | Emphasis on Product Quality and Safety and on a Diversified Product Portfolio.We focus on quality and food safety in all our operations in order to meet customers’ specifications, prevent contamination and minimize the risk of outbreaks of animal diseases. We employ traceability systems that allow us to quickly identify and isolate any farm on which a quality or health concern may arise. We also monitor the health and treatment of the poultry and hogs that we raise at all stages of their lives and throughout the production process. We were the first Brazilian company approved by the European Food Safety Inspection System as qualified to sell processed poultry products to European consumers. We have a diversified product range, which gives us the flexibility to channel our production according to market demand and the seasonality of our products. | ||
• | Experienced Management Team.Our senior management is highly experienced and has transformed our company during the last decade into a global business. Most members of our senior management have worked with us for over ten years, and the members of our senior management who joined our company during that period have seasoned experience in their professional capacities. Our management seeks to emphasize best practices in our operations as well as corporate governance, as demonstrated by the listing of our common shares on theNovo Mercadoof the São Paulo Stock Exchange, which requires adherence to the highest corporate governance standards of that Exchange. |
• | Grow Our Core Businesses.We intend to further develop our core businesses of producing and selling poultry, pork, beef, milk, dairy and processed food products by, among other methods, investing in additional production capacity to gain scale and efficiency. |
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For example, we are expanding our Rio Verde Agroindustrial Complex in the mid-western State of Goiás, and we have built a new agroindustrial complex for the processing of turkey, also in Goiás. We have also enlarged our Nova Mutum poultry plant in the State of Mato Grosso to meet long-term demand for chicken meat exports. In 2008, we announced the construction of a specialty meats plant in Bom Conselho, in the State of Pernambuco. |
• | Diversify Our Product Lines, Focusing on Value-Added Processed Food Products.We intend to continue diversifying our product lines, focusing on processed food products whose prices tend to fluctuate less than our unprocessed poultry and pork cuts and that can be targeted to specific markets. Recent acquisitions include Batávia (milk and dairy products), a beef slaughterhouse, Sino dos Alpes (a specialty meats producer), Paraíso Agroindustrial (which owns a poultry slaughterhouse and animal feed mill) and theDoriana,DelicataandClaybommargarine brands, from Unilever, as well as the assets used in manufacturing them, among others. In 2008 we announced the construction of a dairy and processed products plant in Bom Conselho, in the State of Pernambuco, and the purchase of control of Eleva, in order to include products like powdered milk and cheese in our portfolio and increase our market share in milk and dairy products. In addition, we acquired Cotochés in the State of Minas Gerais. We may pursue other selective acquisitions and/or build new industrial plants to support these strategic goals. | ||
• | Expand Our Domestic and International Customer Base.We seek to continue to strengthen our domestic and international customer base through superior service and quality as well as increased product offerings. We believe there are considerable opportunities to increase penetration of export markets, particularly as we broaden our product lines to include beef products, milk and dairy products and additional processed food products. We are also positioning our company to enter new export markets when existing trade barriers are relaxed or eliminated. Our objective is to pursue balanced growth of our domestic and export businesses. Domestic market sales represented 56% of our net sales while export market sales represented 44% in 2008. Due to the consolidation of the dairy business, the domestic market demonstrated a higher relative share in our total net sales in 2008. | ||
• | Strengthen Our Global Distribution Network.We are developing our distribution capabilities outside Brazil to enable us to improve our services to existing customers and to expand our foreign customer base. We are focusing on expanding our distribution network in Europe and in the Middle East, so as to broaden our coverage and to support more targeted marketing efforts in these key regions. We are also considering processing some products abroad, to allow us to deliver those products directly to customers in those markets. We may consider selective acquisitions as one way to achieve this goal. In early December 2007, we entered into a purchase agreement with the Dutch holding company Cebeco Groep B.V. for the acquisition of Plusfood Groep B.V. Plusfood has three industrial plants in Europe for the manufacture of poultry- and beef-based processed food products, with an installed capacity for manufacturing approximately 20,000 tons per year of finished products. | ||
• | Continue to Seek Leadership in Low Costs.We are continuing to improve our cost structure in order to remain a low-cost producer and enhance the efficiency of our operations. We seek to achieve greater economies of scale by increasing our production capacity, and we are concentrating our expansion efforts primarily in the mid-western region of Brazil because the availability of raw materials, land, labor, favorable weather and other features allows us to minimize our production costs. We are also continuing to implement new technologies to streamline our production and distribution functions. | ||
• | Synergies.We understand that the acquisitions of the past two years, especially the incorporation of Eleva, have created important synergies. With the business combination with Sadia, we can expand our businesses in both in the Brazilian and international markets. We believe that we will achieve commercial, operational, financial and production synergies in both the medium and long term. |
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Poultry Panorama(1) | ||||||||||||||||||||
Primary Poultry Producers | 2005 | 2006 | 2007(2) | 2008(2) | 2009(3) | |||||||||||||||
(In thousands of tons — “ready to cook” equivalent) | ||||||||||||||||||||
U.S.A. | 18,334 | 18,473 | 18,889 | 19,357 | 18,515 | |||||||||||||||
China | 10,204 | 10,354 | 11,296 | 11,900 | 12,138 | |||||||||||||||
Brazil | 9,710 | 9,708 | 10,763 | 11,543 | 11,910 | |||||||||||||||
European Union (27 countries) | 10,088 | 9,598 | 10,110 | 10,320 | 10,350 | |||||||||||||||
Mexico | 2,512 | 2,606 | 2,698 | 2,819 | 2,811 | |||||||||||||||
Others | 17,135 | 18,453 | 19,568 | 20,610 | 20,766 | |||||||||||||||
Total | 67,983 | 69,192 | 73,324 | 76,549 | 76,490 |
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Primary Poultry Exporters | 2005 | 2006 | 2007(2) | 2008(2) | 2009(3) | |||||||||||||||
(In thousands of tons — “ready to cook” equivalent) | ||||||||||||||||||||
Brazil | 2,900 | 2,658 | 3,099 | 3,457 | 3,546 | |||||||||||||||
U.S.A. | 2,618 | 2,609 | 2,926 | 3,465 | 3,003 | |||||||||||||||
European Union (27 countries) | 855 | 820 | 759 | 865 | 805 | |||||||||||||||
China | 331 | 322 | 358 | 285 | 215 | |||||||||||||||
Thailand | 488 | 450 | 524 | 383 | 360 | |||||||||||||||
Others | 469 | 394 | 483 | 619 | 580 | |||||||||||||||
Total | 7,432 | 7,120 | 7,962 | 9,074 | 8,509 |
Primary Poultry Consumers | 2005 | 2006 | 2007(2) | 2008(3) | 2009(3) | |||||||||||||||
(In thousands of tons — “ready to cook” equivalent) | ||||||||||||||||||||
U.S.A. | 15,676 | 15,966 | 15,982 | 15,857 | 15,641 | |||||||||||||||
China | 10,104 | 10,392 | 11,450 | 12,064 | 12,408 | |||||||||||||||
European Union (27 countries) | 9,970 | 9,496 | 10,127 | 10,247 | 10,345 | |||||||||||||||
Brazil | 6,811 | 7,050 | 7,665 | 8,087 | 8,364 | |||||||||||||||
Mexico | 3,065 | 3,216 | 3,280 | 3,458 | 3,475 | |||||||||||||||
Russia | 2,263 | 2,483 | 2,678 | 2,859 | 2,915 | |||||||||||||||
Others | 19,283 | 20,291 | 21,753 | 22,998 | 23,079 | |||||||||||||||
Total | 67,172 | 68,894 | 72,935 | 75,570 | 76,227 |
(1) | Includes chicken, special poultry and turkey | |
(2) | Preliminary data | |
(3) | Estimated | |
Source: | USDA, April 2009. |
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World Pork Panorama | ||||||||||||||||||||
Main Pork Producers | 2005 | 2006 | 2007(1) | 2008(1) | 2009(2) | |||||||||||||||
(In thousands of tons - weight in equivalent carcass) | ||||||||||||||||||||
China | 45,553 | 46,505 | 42,878 | 46,150 | 48,700 | |||||||||||||||
European Union (27 countries) | 21,676 | 21,791 | 22,858 | 22,530 | 22,100 | |||||||||||||||
U.S.A. | 9,392 | 9,559 | 9,962 | 10,599 | 10,339 | |||||||||||||||
Brazil | 2,710 | 2,830 | 2,990 | 3,015 | 3,010 | |||||||||||||||
Russian Federation | 1,735 | 1,805 | 1,910 | 2,060 | 2,145 | |||||||||||||||
Canada | 1,920 | 1,898 | 1,894 | 1,920 | 1,960 | |||||||||||||||
Others | 11,565 | 11,768 | 12,208 | 12,167 | 12,064 | |||||||||||||||
Total | 94,551 | 96,156 | 94,700 | 98,441 | 100,318 |
Main Pork Exporters | 2005 | 2006 | 2007(1) | 2008(2) | 2009(2) | |||||||||||||||
(In thousands of tons - weight in equivalent carcass) | ||||||||||||||||||||
U.S.A. | 1,209 | 1,359 | 1,425 | 2,117 | 1,837 | |||||||||||||||
European Union (27 countries) | 1,143 | 1,284 | 1,286 | 1,715 | 1,250 | |||||||||||||||
Canada | 1,084 | 1,081 | 1,033 | 1,129 | 1,150 | |||||||||||||||
Brazil | 761 | 639 | 730 | 625 | 610 | |||||||||||||||
China | 502 | 544 | 350 | 223 | 210 | |||||||||||||||
Chile | 128 | 130 | 148 | 142 | 130 | |||||||||||||||
Others | 179 | 187 | 190 | 186 | 192 | |||||||||||||||
Total | 5,006 | 5,224 | 5,162 | 6,137 | 5,379 |
Main Pork Consumers | 2005 | 2006 | 2007(1) | 2008(2) | 2009(2) | |||||||||||||||
(In thousands of tons - weight in equivalent carcass) | ||||||||||||||||||||
China | 45,139 | 46,051 | 42,726 | 46,357 | 48,790 | |||||||||||||||
European Union (27 countries) | 20,632 | 20,632 | 21,507 | 20,970 | 20,905 | |||||||||||||||
U.S.A. | 8,669 | 8,640 | 8,966 | 8,811 | 8,884 | |||||||||||||||
Russian Federation | 2,486 | 2,639 | 2,803 | 3,112 | 2,894 | |||||||||||||||
Japan | 2,509 | 2,452 | 2,473 | 2,486 | 2,476 | |||||||||||||||
Brazil | 1,949 | 2,191 | 2,260 | 2,390 | 2,400 | |||||||||||||||
Others | 12,805 | 13,315 | 13,814 | 14,143 | 13,822 | |||||||||||||||
Total | 94,189 | 95,920 | 94,549 | 98,269 | 100,171 |
(1) | Preliminary data | |
(2) | Estimated | |
Source: USDA, April 2009 |
World Beef Panorama | ||||||||||||||||||||
Main Beef Producers | 2005 | 2006 | 2007(1) | 2008(1) | 2009(2) | |||||||||||||||
(In thousands of tons - weight in equivalent carcass) | ||||||||||||||||||||
United States | 11,318 | 11,980 | 12,096 | 12,163 | 12,105 | |||||||||||||||
Brazil | 8,592 | 9,025 | 9,303 | 9,024 | 8,935 | |||||||||||||||
China | 5,681 | 5,767 | 6,134 | 6,100 | 6,000 | |||||||||||||||
EU-27 | 8,090 | 8,150 | 8,188 | 8,100 | 8,200 | |||||||||||||||
Argentina | 3,200 | 3,100 | 3,300 | 3,150 | 3,010 | |||||||||||||||
India | 2,250 | 2,375 | 2,413 | 2,470 | 2,475 | |||||||||||||||
Others | 17,548 | 17,762 | 17,464 | 17,531 | 16,923 | |||||||||||||||
Total | 56,679 | 58,159 | 58,898 | 58,538 | 57,648 |
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World Beef Panorama | ||||||||||||||||||||
Main Beef Exporters | 2005 | 2006 | 2007(1) | 2008(1) | 2009(2) | |||||||||||||||
(In thousands of tons - weight in equivalent carcass) | ||||||||||||||||||||
Brazil | 1,845 | 2,084 | 2,189 | 1,801 | 1,675 | |||||||||||||||
Australia | 1,388 | 1,430 | 1,400 | 1,407 | 1,350 | |||||||||||||||
India | 617 | 681 | 678 | 625 | 600 | |||||||||||||||
U.S.A. | 316 | 519 | 650 | 856 | 826 | |||||||||||||||
New Zealand | 577 | 530 | 496 | 533 | 525 | |||||||||||||||
Others | 2,572 | 2,273 | 2,230 | 2,343 | 2,254 | |||||||||||||||
Total | 7,315 | 7,517 | 7,643 | 7,565 | 7,230 |
World Beef Panorama | ||||||||||||||||||||
Main Beef Consumers | 2005 | 2006 | 2007(1) | 2008(1) | 2009(2) | |||||||||||||||
(In thousands of tons - weight in equivalent carcass) | ||||||||||||||||||||
U.S.A. | 12,664 | 12,833 | 12,829 | 12,452 | 12,554 | |||||||||||||||
European Union (27 countries) | 8,550 | 8,649 | 8,691 | 8,362 | 8,520 | |||||||||||||||
Brazil | 6,795 | 6,969 | 7,144 | 7,252 | 7,290 | |||||||||||||||
China | 5,614 | 5,692 | 6,065 | 6,062 | 5,968 | |||||||||||||||
Argentina | 2,451 | 2,553 | 2,771 | 2,733 | 2,614 | |||||||||||||||
Mexico | 2,428 | 2,519 | 2,568 | 2,591 | 2,538 | |||||||||||||||
Others | 17,702 | 18,153 | 19,240 | 18,317 | 17,554 | |||||||||||||||
Total | 56,204 | 57,368 | 58,308 | 57,769 | 57,038 |
(1) | Preliminary data | |
(2) | Estimated | |
Source: USDA — April 2009 |
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Breakdown of Net Sales | 2008 | 2007 | 2006 | |||||||||
Domestic Market | 56.4 | % | 52.5 | % | 53.6 | % | ||||||
Poultry | 3.6 | % | 2.7 | % | 3.6 | % | ||||||
Pork/Beef | 1.4 | % | 0.8 | % | 1.1 | % |
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Breakdown of Net Sales | 2008 | 2007 | 2006 | |||||||||
Processed food products | 35.1 | % | 43.0 | % | 43.7 | % | ||||||
Milk | 13.0 | % | 2.8 | % | 1.9 | % | ||||||
Other | 3.3 | % | 3.2 | % | 3.2 | % | ||||||
Export | 43.6 | % | 47.5 | % | 46.4 | % | ||||||
Poultry | 26.3 | % | 28.0 | % | 25.5 | % | ||||||
Pork/Beef | 7.2 | % | 8.0 | % | 10.9 | % | ||||||
Processed food products | 9.2 | % | 11.5 | % | 10.0 | % | ||||||
Milk | 0.9 | % | — | — | ||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % |
2008 | 2007 | 2006 | ||||||||||
(percentage of domestic net sales) | ||||||||||||
Supermarkets | 63.2 | 63.9 | 63.5 | |||||||||
Wholesalers | 20.1 | 19.1 | 18.4 | |||||||||
Food service and other institutional buyers | 7.4 | 7.7 | 7.9 | |||||||||
Retail stores | 9.3 | 9.3 | 10.2 | |||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
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2008 | 2007 | 2006 | ||||||||||||||||||||||
Export | Total | Export | Total | Export | Total | |||||||||||||||||||
Net Sales | Tons | Net Sales | Tons | Net Sales | Tons | |||||||||||||||||||
(%) | (%) | (%) | (%) | (%) | (%) | |||||||||||||||||||
Europe: | ||||||||||||||||||||||||
Germany | 5.4 | 5.1 | 7.2 | 5.6 | 5.9 | 5.1 | ||||||||||||||||||
England | 6.0 | 3.8 | 6.5 | 4.0 | 7.7 | 4.3 | ||||||||||||||||||
Netherlands | 2.2 | 1.4 | 2.1 | 1.2 | 2.8 | 2.2 | ||||||||||||||||||
Others | 8.6 | 6.3 | 13.9 | 10.5 | 12.2 | 9.7 | ||||||||||||||||||
Total | 22.2 | 16.6 | 29.7 | 21.3 | 28.6 | 21.3 | ||||||||||||||||||
Far East: | ||||||||||||||||||||||||
Japan | 12.1 | 9.3 | 11.4 | 10.8 | 12.7 | 11.2 | ||||||||||||||||||
Hong Kong | 6.9 | 9.2 | 7.9 | 9.3 | 6.6 | 8.7 | ||||||||||||||||||
Singapore | 2.3 | 2.3 | 3.1 | 3.2 | 3.7 | 3.7 | ||||||||||||||||||
Others | 1.6 | 1.8 | 2.5 | 2.8 | 2.3 | 2.1 | ||||||||||||||||||
Total | 22.9 | 22.6 | 24.9 | 26.1 | 25.3 | 25.7 | ||||||||||||||||||
Eurasia: | ||||||||||||||||||||||||
Russia | 12.4 | 9.9 | 11.7 | 10.7 | 10.9 | 9.2 | ||||||||||||||||||
Others | 2.2 | 2.2 | 4.0 | 4.8 | 6.6 | 6.6 | ||||||||||||||||||
Total | 14.6 | 12.1 | 15.7 | 15.5 | 17.5 | 15.8 | ||||||||||||||||||
Middle East: | ||||||||||||||||||||||||
Saudi Arabia | 13.4 | 14.5 | 13.5 | 15.5 | 14.0 | 17.2 | ||||||||||||||||||
United Arab Emirates | 3.5 | 4.2 | 2.3 | 2.8 | 2.0 | 2.6 | ||||||||||||||||||
Kuwait | 2.5 | 3.3 | 2.3 | 2.9 | 1.4 | 1.9 | ||||||||||||||||||
Others | 6.2 | 7.7 | 4.5 | 5.5 | 3.5 | 4.4 | ||||||||||||||||||
Total | 25.6 | 29.7 | 22.6 | 26.7 | 20.9 | 26.1 | ||||||||||||||||||
Africa, the Americas and Other | 14.7 | 19.0 | 7.1 | 10.4 | 7.7 | 11.1 | ||||||||||||||||||
Total | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||
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![(LINE GRAPH)](https://capedge.com/proxy/20-F/0000950123-09-019157/y77990y7799004.gif)
Source: A.C. Nielsen do Brasil S.A.
YTD: January 2008 –December 2008
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![(LINE GRAPH)](https://capedge.com/proxy/20-F/0000950123-09-019157/y77990y7799005.gif)
Source: A.C. Nielsen do Brasil S.A.
YTD: December 2007 – November 2008
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Source: AC Nielsen
YTD: December 2007 — November 2008
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Company | Percentage of Brazilian Exports — Poultry | |||
Sadia | 23.31 | % | ||
Perdigão | 21.93 | % | ||
Seara | 11.86 | % | ||
Frangosul | 10.01 | % | ||
Marfrig | 4.72 | % |
Company | Percentage of Brazilian Exports — Pork | |||
Perdigão | 21.64 | % | ||
Sadia | 17.41 | % | ||
Aliben | 14.20 | % | ||
Seara | 11.15 | % | ||
Plamplona | 8.41 | % | ||
Aurora | 6.84 | % |
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Production Plant | State of Location | Activities | ||
Bom Conselho** | Pernambuco | Industrialized plant | ||
Bom Retiro do Sul | Rio Grande do Sul | Meat processing | ||
Capinzal | Santa Catarina | Poultry slaughtering and poultry processing | ||
Carambeí | Paraná | Pork and poultry slaughtering (including turkey); chicken, turkey and pork processing | ||
Caxias do Sul* | Rio Grande do Sul | Pork slaughtering | ||
Dourados | Mato Grosso do Sul | Poultry slaughtering | ||
Herval D’Oeste | Santa Catarina | Pork slaughtering and pork processing | ||
Jataí | Goiás | Poultry slaughtering and poultry processing | ||
Jaragua do Sul* | Santa Catarina | Pork slaughtering | ||
Lages | Santa Catarina | Pasta, pizza and cheese bread processing; beef processing | ||
Lajeado | Rio Grande do Sul | Pork and poultry slaughtering and pork processing | ||
Marau (3 plants) | Rio Grande do Sul | Pork and poultry slaughtering and processing | ||
Mato Castelhano* | Rio Grande do Sul | Pork slaughtering | ||
Mineiros | Goiás | Special poultry (turkey) slaughtering and processing | ||
Mirassol D’Oeste | Mato Grosso | Beef plant | ||
Nova Mutum | Mato Grosso | Poultry slaughtering and processing | ||
Porto Alegre | Rio Grande do Sul | Poultry slaughtering | ||
Rio Verde | Goiás | Pork and poultry slaughtering; poultry, pork, pies and pasta processing | ||
Salto Veloso | Santa Catarina | Poultry, pork and beef processing | ||
São Gonçalo dos Campos | BA | Poultry slaughtering and processing | ||
Serafina Corrêa | Rio Grande do Sul | Poultry slaughtering | ||
Videira | Santa Catarina | Pork and poultry slaughtering and processing | ||
Videira | Santa Catarina | Pork and poultry slaughtering |
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Production Plant | State of Location | Activities | ||
Dairy products: | ||||
Amparo* | São Paulo | Dairy products | ||
Barra Mansa* | Rio de Janeiro | Dairy products | ||
Bom Conselho** | Pernambuco | Dairy products | ||
Carambeí | Paraná | Dairy products | ||
Conceição do Pará* | Minas Gerais | Dairy products | ||
Concórdia | Santa Catarina | Dairy products | ||
Ijuí | Rio Grande do Sul | Dairy products | ||
Itatiba* | São Paulo | Dairy products | ||
Itumbiara | Goiás | Dairy products | ||
Ravena | Minas Gerais | Dairy products | ||
Santa Rosa | Rio Grande do Sul | Dairy products | ||
São Lourenço | Rio Grande do Sul | Dairy products | ||
São Paulo* | São Paulo | Dairy products | ||
Teutônia | Rio Grande do Sul | Dairy products | ||
Três de Maio** | Rio Grande do Sul | Dairy products | ||
Soybean and margarine: | ||||
Valinhos | São Paulo | Margarine processing | ||
Videira | Santa Catarina | Soybean crushing |
* | Production facilities owned and operated by third-party producers who produce according to our specifications. | |
** | Under construction. |
Distribution Centers | Owned or Leased | |
Belém, Pará | Leased | |
Belo Horizonte, Minas Gerais | Owned | |
Baurú, São Paulo | Owned | |
Brasília — Distrito Federal | Owned | |
Campinas, São Paulo | Owned | |
Embú, São Paulo | Owned | |
Fortaleza, Ceará | Owned | |
Itajaí, Santa Catarina | Leased | |
Manaus, Amazonas | Leased | |
Marau, Rio Grande do Sul | Owned | |
Recife, Pernambuco | Leased | |
Rio de Janeiro, Rio de Janeiro | Owned | |
Rio Verde, Goiás | Owned | |
São José dos Pinhais, Paraná | Leased | |
Santos, São Paulo | Owned | |
Salvador, Bahia | Owned | |
Videira*, Santa Catarina | Owned | |
Vitória, Espírito Santo | Owned | |
Bom Conselho, Pernambuco | Owned | |
Carambeí, Paraná | Owned |
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Distribution Centers | Owned or Leased | |
Concórdia, Santa Catarina | Owned | |
Esteio, Rio Grande do Sul | Leased | |
Teutônia, Rio Grande do Sul | Owned | |
São Gonçalo dos Campos, Bahia | Leased | |
Rio de Janeiro, Rio de Janeiro | Leased | |
Ijuí, Rio Grande do Sul | Owned | |
Lajeado, Rio Grande do Sul | Owned | |
Ravena — Minas Gerais | Owned |
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• | frozen whole and cut chickens; | ||
• | frozen pork cuts and beef cuts; | ||
• | processed food products, such as the following: |
• | marinated frozen whole and cut chickens, roosters (sold under theChester® brand) and turkeys; | ||
• | specialty meats, such as sausages, ham products, bologna, frankfurters, salamis, bacon and other smoked products; |
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• | frozen processed meats, such as hamburgers, steaks, breaded meat products, kibes and meatballs, and frozen processed vegetarian foods; | ||
• | frozen prepared entrees, such as lasagnas and pizzas, as well as other frozen foods, including vegetables, cheese bread, pies and pastries; | ||
• | dairy products, such as cheeses, powdered milk and yogurts; | ||
• | juices, soy milk and soy juices; and | ||
• | margarine; |
• | milk; and | ||
• | soy meal and refined soy flour, as well as animal feed. |
• | Brazilian and global economic conditions; | ||
• | the effect of trade barriers and other import restrictions; | ||
• | concerns regarding avian influenza and other animal diseases; |
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• | the effect of demand in our export markets on supply in the domestic market, including the effect of actions by our major Brazilian competitors and of temporary increases in supply by producers in other countries; | ||
• | commodity prices; | ||
• | exchange rate fluctuations and inflation; | ||
• | interest rates; and | ||
• | freight costs. |
• | the global economic crisis since late 2007, which first affected our export sales and later affected our domestic market sales; | ||
• | the steady appreciation of therealagainst the U.S. dollar from 2004 through 2007, followed by the sharp 31.9% devaluation of therealagainst the U.S. dollar in 2008; and | ||
• | volatility in commodity prices and oil prices, exacerbated by the global economic crisis. |
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• | In late 2005, Russia, the largest import market for our pork cuts, banned imports of Brazilian pork due to outbreaks of foot-and-mouth disease affecting cattle in the States of Mato Grosso do Sul and Paraná. In April 2006, Russia lifted the ban on imports from the State of Rio Grande do Sul. Although we responded to the ban by dedicating our production of pork cuts in Rio Grande do Sul to the Russian market, the ban had an adverse effect on our results of operations in the first half of 2006. In addition, when we shift production among our facilities to respond to trade restrictions like this one, we incur additional production costs. | ||
• | In the first half of 2006, our exports of poultry cuts to Russia were significantly lower than in the same period in 2005 because of a delay in allocating quotas for poultry products. It is not uncommon for Russian quotas for poultry and pork products to be subject to changes in policy and delays in allocation. | ||
• | In 2005, in a proceeding before the World Trade Organization, Brazil obtained a favorable result in a panel against the European Union involving the classification of exports of salted chicken breast meat. The European Union has introduced quotas on imports of Brazilian salted chicken breast, marinated turkey breast and processed chicken. Since July 2007, Brazil has been granted a majority share of these quotas. While the quotas establish lower import tariffs for the products mentioned above, the import of the same products and others continues to be permitted at the traditional import tariffs for unprocessed products. | ||
• | In December 2007, Russia started to reopen its market to imports of Brazilian beef and pork products from certain states of Brazil and currently has its market open to imports from most states, including the States of Santa Catarina, São Paulo, Paraná, Mato Grosso do Sul, Minas Gerais and Goiás. | ||
• | Ukraine also restricted pork imports for the retail market, on which higher taxes are levied, for a period through December 2008. More recently, in March 2009, Ukraine initiated an anti-dumping investigation regarding imports of halves and quarters of poultry, as well as legs and cuts of poultry, in each case originating in the United States and Brazil. We were asked to answer a questionnaire from the Ministry of Economy of Ukraine in connection with the investigation. |
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2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
Appreciation (depreciation) of the real against the U.S. dollar) | (31.9 | )% | 16.3 | % | 9.5 | % | 13.4 | % | 8.8 | % | ||||||||||
Period-end exchange rate (U.S.$1.00) | R$ | 2.34 | R$ | 1.77 | R$ | 2.14 | R$ | 2.34 | R$ | 2.65 | ||||||||||
Average (daily) exchange rate (U.S.$1.00) (1) | R$ | 1.84 | R$ | 1.95 | R$ | 2.18 | R$ | 2.44 | R$ | 2.93 | ||||||||||
Inflation (INPC) (2) | 6.5 | % | 5.2 | % | 2.8 | % | 5.1 | % | 6.1 | % | ||||||||||
Inflation (IPCA) (3) | 5.9 | % | 4.5 | % | 3.1 | % | 5.7 | % | 7.6 | % | ||||||||||
Inflation (IGP-M) (4) | 9.8 | % | 7.6 | % | 3.8 | % | 1.2 | % | 12.4 | % |
Sources: IBGE, Fundação Getúlio Vargas and the Central Bank. | ||
(1) | The average (daily) exchange rate is the sum of the daily exchange rates based on PTAX 800 Option 5, divided by the number of business days in the period. | |
(2) | The National Consumer Price Index (Índice Nacional de Preços ao Consumidor), or “INPC,” is published by the IBGE, measuring inflation for families with income between one and eight minimum monthly wages in eleven metropolitan areas of Brazil. | |
(3) | The National Extended Consumer Price Index (Índice Nacional de Preços ao Consumidor Ampliado), or “IPCA,” is published by IBGE, measuring inflation for families with income between one and 40 minimum monthly wages in eleven metropolitan areas of Brazil. | |
(4) | The General Market Price Index (Índice Geral de Preços do Mercado), or “IGP-M,” gives different weights to consumer prices, wholesale prices and construction prices. The IGP-M is published by the Getúlio Vargas Foundation (Fundação Getúlio Vargas), a private foundation. |
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Average Interest for the Year Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(%) | (%) | (%) | ||||||||||
TJLP | 6.25 | 6.37 | 7.87 | |||||||||
CDI | 12.28 | 11.91 | 15.23 | |||||||||
Six-month LIBOR | 3.06 | 5.25 | 5.27 |
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Year ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
(%) | (%) | (%) | ||||||||||
Net sales | 100.0 | 100.0 | 100.0 | |||||||||
Cost of sales | 75.8 | 71.8 | 74.2 | |||||||||
Gross profit | 24.2 | 28.2 | 25.8 | |||||||||
Operating expenses: | ||||||||||||
Selling expenses | 16.6 | 19.3 | 20.6 | |||||||||
General and administrative expenses | 1.2 | 1.2 | 1.4 | |||||||||
Management compensation | 0.2 | 0.2 | 0.2 | |||||||||
Operating income before financial expenses and other | 6.2 | 7.6 | 3.7 | |||||||||
Financial expenses, net | 5.5 | 1.6 | 2.5 | |||||||||
Other operating (expense) income, net | 2.3 | 0.2 | 0.2 | |||||||||
(Loss) Income before taxes, profit sharing and participation of non-controlling shareholders | 1.6 | 5.8 | 1.4 | |||||||||
Income and social contribution taxes benefit (expense) | 2.2 | 0.5 | 1.2 | |||||||||
Employees’ profit sharing | 0.1 | 0.4 | 0.2 | |||||||||
Management profit sharing | 0.0 | 0.0 | 0.0 | |||||||||
Non-controlling shareholders | 0.0 | 0.0 | 0.1 | |||||||||
Net income | 0.5 | 4.8 | 2.3 | |||||||||
• | ICMS Taxes.ICMS is a state value-added tax on our gross sales in the domestic market at a rate that varies by state and product sold. Our average ICMS tax rate is 9.5%. | ||
• | PIS and COFINS Taxes.The PIS and the COFINS taxes are federal social contribution taxes on our gross sales in the domestic market at the rates of 1.65% for PIS and 7.60% for COFINS. | ||
• | Discounts, Returns and Other Deductions.Deductions, returns and other deductions are unconditional discounts granted to domestic customers, product returns by domestic customers and other deductions from gross sales in the domestic market. |
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Net Sales | Sales Volumes | Average Selling Prices | ||||||||||||||||||||||||||||||||||
2008 | 2007 | Change | 2008 | 2007 | Change | 2008 | 2007 | Change | ||||||||||||||||||||||||||||
Domestic Market | (in millions ofreais) | (%) | (thousand tons) | (%) | (inreaisper kg) | (%) | ||||||||||||||||||||||||||||||
Poultry | 414.9 | 178.4 | 132.6 | 125.9 | 47.6 | 164.6 | 3.29 | 3.75 | (12.1 | ) | ||||||||||||||||||||||||||
Pork /Beef | 155.2 | 52.6 | 195.1 | 38.6 | 13.4 | 187.4 | 4.02 | 3.91 | 2.7 | |||||||||||||||||||||||||||
Milk (1) | 1,475.7 | 188.6 | 682.3 | 880.1 | 127.5 | 590.1 | 1.68 | 1.48 | 13.4 | |||||||||||||||||||||||||||
Processed foods (2) | 3,997.5 | 2,849.1 | 40.3 | 1,004.4 | 797.7 | 25.9 | 3.98 | 3.57 | 11.4 | |||||||||||||||||||||||||||
Other | 380.5 | 213.6 | 78.1 | 218.6 | 184.6 | 18.5 | 1.74 | 1.16 | 50.3 | |||||||||||||||||||||||||||
Total | 6,423.8 | 3,482.3 | 84.5 | 2,267.7 | 1,170.8 | 93.7 | 2.83 | 2.97 | (4.8 | ) |
(1) | Fluid and powder milk. | |
(2) | Includes processed meat, other processed products (lasagnas, pizzas, cheese bread) and dairy processed products. |
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Net Sales | Sales Volumes | Average Selling Prices | ||||||||||||||||||||||||||||||||||
2008 | 2007 | Change | 2008 | 2007 | Change | 2008 | 2007 | Change | ||||||||||||||||||||||||||||
Export Markets | (in millions of reais) | (%) | (thousand tons) | (%) | (inreaisper kg) | (%) | ||||||||||||||||||||||||||||||
Poultry | 3,000.1 | 1,858.2 | 61.5 | 767.0 | 555.2 | 38.2 | 3.91 | 3.35 | 16.9 | |||||||||||||||||||||||||||
Pork /Beef | 817.3 | 528.4 | 54.7 | 142.2 | 120.4 | 18.1 | 5.75 | 4.39 | 31.0 | |||||||||||||||||||||||||||
Milk(1) | 106.8 | ¾ | ¾ | 12.7 | ¾ | ¾ | 8.41 | ¾ | ¾ | |||||||||||||||||||||||||||
Processed foods(2) | 1,045.0 | 764.4 | 36.7 | 191.8 | 150.6 | 27.4 | 5.45 | 5.08 | 7.3 | |||||||||||||||||||||||||||
Other | ¾ | ¾ | ¾ | ¾ | ¾ | ¾ | ¾ | ¾ | ¾ | |||||||||||||||||||||||||||
Total | 4,969.2 | 3,151.0 | 57.7 | 1,113.7 | 826.2 | 34.8 | 4.46 | 3.81 | 17.0 | |||||||||||||||||||||||||||
(1) | Fluid and powder milk. | |
(2) | Includes processed meat, other processed products (such as lasagnas, pizzas and cheese bread) and dairy processed products. |
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Net Sales | Sales Volumes | Average Selling Prices | ||||||||||||||||||||||||||||||||||
2007 | 2006 | Change | 2007 | 2006 | Change | 2007 | 2006 | Change | ||||||||||||||||||||||||||||
(in millions ofreais) | (%) | (thousand tons) | (%) | (inreaisper kg) | (%) | |||||||||||||||||||||||||||||||
Poultry | 178.4 | 189.6 | (5.9 | ) | 47.6 | 72.8 | (34.6 | ) | 3.75 | 2.61 | 43.7 | |||||||||||||||||||||||||
Pork /Beef | 52.6 | 56.6 | (7.1 | ) | 13.4 | 17.9 | (25.1 | ) | 3.91 | 3.16 | 23.7 | |||||||||||||||||||||||||
Milk (1) | 188.6 | 101.0 | 86.7 | 127.5 | 73.4 | 73.7 | 1.48 | 1.38 | 7.2 | |||||||||||||||||||||||||||
Processed foods (2) | 2,849.1 | 2,276.7 | 25.1 | 797.7 | 652.0 | 22.3 | 3.56 | 3.49 | 2.0 | |||||||||||||||||||||||||||
Other | 213.6 | 169.1 | 26.4 | 184.6 | 65.6 | 181.4 | — | — | — | |||||||||||||||||||||||||||
Total | 3,482.3 | 2,793.0 | 24.7 | 1,170.8 | 881.8 | 32.8 | 2.97 | 3.21 | (7.5 | ) | ||||||||||||||||||||||||||
(1) | Fluid and powder milk. | |
(2) | Includes processed meat, other processed products (such as lasagnas, pizzas and cheese bread) and dairy processed products. |
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Net Sales | Sales Volumes | Average Selling Prices | ||||||||||||||||||||||||||||||||||
2007 | 2006 | Change | 2007 | 2006 | Change | 2007 | 2006 | Change | ||||||||||||||||||||||||||||
(in millions ofreais) | (%) | (thousand tons) | (%) | (inreaisper kg) | (%) | |||||||||||||||||||||||||||||||
Poultry | 1,858.2 | 1,326.7 | 40.1 | 555.2 | 457.4 | 21.4 | 3.35 | 2.90 | 15.5 | |||||||||||||||||||||||||||
Pork and beef | 528.4 | 568.4 | (7.0 | ) | 120.4 | 125.8 | (4.3 | ) | 4.39 | 4.52 | (2.9 | ) | ||||||||||||||||||||||||
Processed foods | 764.4 | 521.6 | 46.5 | 150.6 | 113.2 | 33.0 | 5.08 | 4.61 | 10.2 | |||||||||||||||||||||||||||
Total | 3,151.0 | 2,416.7 | 30.4 | 826.2 | 696.4 | 18.6 | 3.81 | 3.47 | 9.8 | |||||||||||||||||||||||||||
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• | Held for trading– if the financial assets were purchased for the purpose of sale or repurchase in the short term, they are initially recorded at fair value and changes in fair value are recorded directly to income under financial income or expenses; | ||
• | Held to maturity– if we have the positive intent and ability to hold the financial assets to maturity, they are recorded at their acquisition cost. Interest and monetary variation are recognized in income, when incurred, under financial income or expenses; and | ||
• | Available for sale– includes all financial assets that do not qualify in the other two categories above. They are initially measured at fair value and changes in fair value are recorded to shareholders’ equity, under equity valuation adjustments while unrealized, net of tax. Interest and monetary variation are recognized in income, when incurred, under financial income or expenses. |
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At December 31, 2008 | At December 31, | Percentage | ||||||||||||||||||
Short-term | Long-term | 2008 | 2007 | change | ||||||||||||||||
(in millions ofreais) | (%) | |||||||||||||||||||
Local currency | 460.1 | 768.1 | 1,228.2 | 620.0 | 98 | |||||||||||||||
Foreign currency | 1,186.3 | 2,951.6 | 4,137.9 | 1,645.9 | 151 | |||||||||||||||
Total debt | 1,646.4 | 3,719.7 | 5,366.1 | 2,265.9 | 137 | |||||||||||||||
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At December 31, 2008 | At December 31, | |||||||||||||||
Short-term | Long-term | 2008 | 2007 | |||||||||||||
(in millions ofreais, except where indicated) | ||||||||||||||||
Total debt | 1,646.4 | 3,719.7 | 5,366.1 | 2,265.8 | ||||||||||||
Cash, cash equivalents and marketable securities: | ||||||||||||||||
Local currency | 771.8 | — | 771.8 | 1,452.6 | ||||||||||||
Foreign currency | 1,204.1 | 0.2 | 1,204.3 | 384.3 | ||||||||||||
Total | 1,975.9 | 0.2 | 1,976.1 | 1,836.9 | ||||||||||||
Net debt | 329.5 | 3,719.5 | (3,390.0 | ) | (428.9 | ) | ||||||||||
Exchange rate exposure (in millions of U.S.$) | (821.3 | ) | (308.7 | ) |
At December 31, | ||||||||
2008 | 2007 | |||||||
Debt in foreign currency: | ||||||||
Pre-paid exports | 1,622.3 | 646.9 | ||||||
Finem – BNDES | 83.3 | 27.3 | ||||||
Trade-related facilities | 1,871.6 | 469.7 | ||||||
ACC/ACE | 443.7 | 494.9 | ||||||
Gains/losses with derivatives | 67.4 | 7.1 | ||||||
Working capital | 49.6 | — | ||||||
Total foreign currency | 4,137.9 | 1,645.9 | ||||||
Debt in local currency: | ||||||||
Rural credit financing | 220.3 | 135.1 | ||||||
Finem — BNDES | 538.2 | 186.5 | ||||||
Debentures — BNDES | 6.3 | 10.4 | ||||||
Tax incentives and other | 463.3 | 288.0 | ||||||
Gains/losses with derivatives | 0.1 | — | ||||||
Total local currency | 1,228.2 | 620.0 | ||||||
Gross debt | 5,366.1 | 2,265.9 | ||||||
Cash and equivalents and marketable securities: | ||||||||
In foreign currency | 1,204.4 | 384.3 | ||||||
In local currency | 771.7 | 1,452.6 | ||||||
Total | 1,976.1 | 1,836.9 | ||||||
Net debt | (3,390.0 | ) | (429.0 | ) |
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Several of the instruments governing our indebtedness contain financial covenants, and in particular maximum ratios of net debt to EBITDA (as defined in such agreements). In addition, the instruments governing a substantial portion of our indebtedness contain cross-default or cross-acceleration clauses, such that the occurrence of an event of default under one of those instruments could trigger an event of default under other indebtedness or enable a creditor under another debt instrument to accelerate that indebtedness. We have obtained waivers, most recently on April 29, 2009, under a U.S.$50 million credit facility we entered into with FIN Trade, because the ratio of our net debt to EBITDA (as defined in such agreement) did not comply with the levels specified in the agreement. We are required to assess compliance with such covenant on a quarterly basis. Our current waiver expires on June 30, 2009.
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Payments Due by Period | ||||||||||||||||||||
Less Than | From One to | From Three | Five Years | |||||||||||||||||
Obligation | Total | One Year | Three Years | to Five Years | or More | |||||||||||||||
(in millions ofreais) | ||||||||||||||||||||
Loans and financing (1) | 6,104.1 | 1,625.9 | 2,105.8 | 2,165.7 | 206.7 | |||||||||||||||
Rental and lease obligations on property and equipment (2) | 77.9 | 22.3 | 38.8 | 5.9 | 10.9 | |||||||||||||||
Commitments for purchase of goods and services (3) | 854.6 | 613.1 | 121.3 | 78.8 | 41.3 | |||||||||||||||
Other | 10.5 | 2.3 | 4.6 | 3.6 | — | |||||||||||||||
Total | 7,047.1 | 2,263.6 | 2,270.5 | 2,254.0 | 258.9 | |||||||||||||||
(1) | Includes both short-term debt and long-term debt and expected interest obligations. | |
(2) | Includes capital and operating lease. | |
(3) | These purchase commitments include future purchase commitments for corn and soy meal and service fees to our integrated outgrowers. Amounts payable under contracts for goods or services that allow termination at any time without penalty have been excluded. With respect to contracts for goods and services that allow termination at any time without penalty after a specified noticed period, only amounts payable during the specified notice period have been included. |
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Director/Alternate | ||||||
Name | Position Held | Since | Age | |||
Nildemar Secches | Chairman | April 12, 2007 | 60 | |||
Wang Wei Chang | Alternate | April 12, 2007 | 62 | |||
Francisco Ferreira Alexandre | Vice Chairman | April 22, 2003 | 46 | |||
João José Caiafa Torres | Alternate | April 30, 2009 | 70 | |||
Carlos Alberto Cardoso Moreira | Board Member | April 30,2009 | 49 | |||
Wilson Carlos Duarte Delfino | Alternate | April 30,2009 | 63 | |||
Décio da Silva (1) | Board Member | April 12, 2007 | 52 | |||
Gerd Edgar Baumer | Alternate | April 12, 2007 | 74 | |||
João Vinicius Prianti(1) | Board Member | April 30,2009 | 60 | |||
Adib Fadel | Alternate | April 30,2009 | 64 | |||
Luis Carlos Fernandes Afonso | Board Member | April 22, 2003 | 48 | |||
Susana Hanna Stiphan Jabra | Alternate | April 12, 2007 | 51 | |||
Manoel Cordeiro Silva Filho | Board Member | April 12, 2007 | 55 | |||
Maurício da Rocha Wanderley | Alternate | April 12, 2007 | 40 | |||
Rami Naum Goldfajn | Board Member | April 30, 2008 | 41 | |||
Claudio da Silva Santos | Alternate | April 30, 2008 | 38 |
(1) | Independent member. |
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Current Position | ||||||
Name | Position Held | Held Since | Age | |||
José Antonio do Prado Fay | Chief Executive Officer | October 28 2008 | 55 | |||
Leopoldo Viriato Saboya | Chief Financial Officer and Investor Relations Officer | June 26, 2008 | 33 | |||
Antonio Augusto de Toni | General Officer of Perdix Business | April 26, 2007 | 45 | |||
Giberto Antonio Orsato | Human Relations Officer | April 26, 2007 | 47 | |||
Luiz Adalberto Stabile Benicio | Agropecuary Officer | March 28, 2005 | 46 | |||
Nelson Vas Hacklauer | Business Development Officer | May 31, 1995 | 57 | |||
Nilvo Mittanck | Chief Operating Officer | April 26, 2007 | 47 | |||
Wlademir Paravisi | General Officer of Batavo Business | April 26, 2007 | 48 |
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Current Position | ||||||
Name | Position Held | Held Since | Age | |||
Attilio Guaspari (1) | Member of the Fiscal Council | April 29, 2005 | 62 | |||
Agenor Azevedo dos Santos | Alternate | April 12, 2007 | 53 | |||
Osvaldo Roberto Nieto(2) | Member of the Fiscal Council | April 30, 2009 | 58 | |||
Ernesto Rubens Gelbcke | Alternate | April 30, 2009 | 65 | |||
Jorge Kalache Filho | Member of the Fiscal Council | April 30, 2009 | 59 | |||
Mauricio Rocha Neves | Alternate | April 30, 2009 | 44 |
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(1) | Financial Expert and Independent Member | |
(2) | Independent Member |
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As of December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Administration | 1,452 | 720 | 844 | |||||||||
Commercial | 6,480 | 4,659 | 3,919 | |||||||||
Production | 51,076 | 39,373 | 34,285 | |||||||||
Total | 59,008 | 44,752 | 39,048 | |||||||||
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Common Shares | ||||||||
Number | % | |||||||
PREVI – Caixa de Previdência dos Funcionários do Banco do Brasil(1) | 29,305,261 | 14.16 | ||||||
PETROS – Fundação Petrobras de Seguridade Social(1) | 24,924,263 | 12.04 | ||||||
BIRD Fundo de Investimento em Ações – Investimento no Exterior | 15,015,867 | 7.26 | ||||||
Fundação Telebrás de Seguridade Social – SISTEL(1) | 8,240,891 | 3.98 | ||||||
VALIA – Fundação Vale do Rio Doce(1) (2) | 7,695,352 | 3.72 | ||||||
FPRV1 Sabiá F1 Multimercado Previdenciário(1)(3) | 2,286,562 | 1.10 | ||||||
All directors and executive officers as a group, including the board of directors (11 persons) | 334,605 | 0.16 |
(1) | These pension funds are controlled by participating employees of the respective companies and they are parties to a voting agreement. | |
(2) | Excludes 4,828,832 common shares beneficially owned through Fundo de Investimento em Ações that are not subject to the voting agreement. | |
(3) | Investment fund beneficially owned by Fundação de Assistência e Previdência Social do BNDES – FAPES. The common shares held by this fund are subject to the voting agreement to which FAPES is a party. |
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• | We have challenged the current 30% deductibility limit to carrying forward prior-year losses in the calculation of corporate income and social contribution taxes, which represented a total potential loss of R$60.7 million as of December 31, 2008. The Brazilian Superior Court of Justice, an appellate court in Brazil, has already held against taxpayers on this matter. Currently, the Brazilian Federal Supreme Court is examining related matters in connection with this issue and has thus far ruled unfavorably. Accordingly, we classify losses as probable in relation to the main issue but remote for issues regarding certain calculation errors made on payment and the assessment of significant fines. Indeed, during 2008, we obtained a favorable decision in the Taxpayers Council that decreased the applicable fine from 75% (considered a punitive fine) to 20% (considered a late payment fine). As a result, the tax authorities commenced a procedure to reduce the applicable fine for late payment, and, correspondingly, we decreased our recorded provision for loss of R$30.4 million as of December 31, 2007, to R$1.8 million as of December 31, 2008. | ||
• | We have challenged the increases in the rates and calculation of the tax base of the PIS and COFINS taxes. In regards to the rate increase issue, the Brazilian Federal Supreme Court is currently revisiting the issue based on a new argument. Even so, the Brazilian Federal Supreme Court’s latest rulings have adopted a position favorable to the tax authorities. According, we believe that losses are probable in this regard. We had a R$9.5 million provision for loss as of December 31, 2008, corresponding to the amount we would pay in the event of an adverse ruling regarding the tax rate increase. On the other hand, during 2008, we liquidated our provision for loss of R$9.5 million related to the calculation of the tax base. We were able to do so based on a favorable decision of the General Federal Tax Attorney, whose decision, in turn, was based on favorable Brazilian Federal Supreme Court holdings. |
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• | We have challenged the assessment or payment of ICMS taxes in connection with a number of matters, the total value of which was estimated at R$256.6 million as of December 31, 2008, including the following: |
Ø | We have several tax default notices issued by the tax authorities in relation to ICMS tax credits recorded upon the acquisition of raw materials considered part of the basic food basket. In the past, this matter was decided in favor of the taxpayers by the Brazilian Superior Court of Justice and the Brazilian Federal Supreme Court. However, on March 17, 2005, the Brazilian Federal Supreme Court decided that the recording of credits in proportion to the reduction of the calculation base of the ICMS tax is constitutional. In March 2005, the Brazilian Federal Supreme Court changed its decision, in order to allow the recording of credits only in proportion to the reduction of the calculation base of the ICMS tax. Our counsel has advised that the Brazilian Federal Supreme Court did not properly consider all of the arguments related to the case and that Complementary Law No. 86/96 does not require the credits to be excluded from the calculation base. We estimated a potential loss of R$111.4 million as of December 31, 2008 in relation to this matter, for which we have not provided a provision for loss because we believe that losses are possible. | ||
Ø | We have challenged the payment of certain ICMS taxes in connection with our use of tax credits relating to consumption goods. We recorded a provision for loss of R$26.8 million as of December 31, 2008, relating to these proceedings in which we believe that losses are probable. | ||
Ø | We have challenged the disallowance of certain ICMS tax credits. We were served by the tax authorities for having inopportunely recorded ICMS tax credits with inflation adjustments and were thereby disallowed from claiming the entire tax credit, rather than just that portion related to the adjustment. We are currently waiting for the Brazilian Federal Supreme Court to render judgment in our appeal. The jurisprudence in the appellate courts indicates that inflation rate adjustments are not appropriate in calculating tax credits, unless done with the prior approval of the tax authorities. As of December 31, 2008, the amount pending in the proceeding amounted to R$30.3 million, for which we have recorded a provision for loss of R$23.4 million. |
• | We have challenged the assessment of the Tax on Bank Account Transactions (Contribuição Provisória sobre Movimentação ou Transmissão de Valores e de Créditos e Direitos de Natureza Financeira—CPMF) to our export sales. As the appellate courts have not yet decided on this matter, we believe that losses are probable. We have established a provision for loss of R$27.1 million as of December 31, 2008 relating to this proceeding, compared to R$24.8 million as of December 31, 2007. | ||
• | We have challenged the assessment of PIS and COFINS taxes on the receipt of interest on shareholders’ equity. We estimate the amount involved in this proceeding to be R$38.4 million as of December 31, 2008, and based on the advice of counsel, while we believe that losses are possible, we have not recorded contingency reserves in relation to this proceeding. | ||
• | We have challenged the assessment of corporate income and social contribution taxes on our overseas entities located in the Cayman Islands, which is, in turn, controlled by Crossban Holding GmbH, or “Crossban,” located in Austria. During the corresponding tax period, Crossban was controlled by PDA – Distribuidora de Alimentos Ltda. and PRGA Participações Ltda., both located in Brasil, which were in turn controlled by Perdigão Agroindustrial S.A. The tax authorities disregarded Crossban for tax purposes, classifying it as a pass-through entity, based on the belief that we were attempting to avoid double taxation through the improper use of the current tax treaty between Brazil and Austria. Furthermore, arguing that the company acted deliberately in such regard, the tax authorities assessed a penalty of 150% of the tax claimed. Recently, however, the Regional Office of the Brazilian IRS (Delegacia Regional da Receita Federal), after due analysis of our arguments, rejected the arguments of the tax authority and decided in our favor. As of December 31, 2008, the amount involved in this proceeding was R$176.8 million. Based on our counsel’s advice involved in the matter and on the favorable opinion received, we did not set aside a provision for loss for this proceeding. Though the tax authorities have filed for appeal, our counsel’s opinion regarding the possibility of loss remains unchanged. |
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• | We have also challenged certain social contribution taxes benefiting the Brazilian Services for the Support of Small and Micro-Enterprises (Serviço Brasileiro de Apoio às Micro e Pequenas Empresas), or “SEBRAE,” for which the Brazilian Federal Supreme Court has already ruled in favor of to the tax authorities. In addition, we have challenged the payment of certain social contribution taxes benefiting the Rural Laborers Assistance Fund (Fundo de Assistência e Previdência do Trabalhador Rural), or “FUNRURAL,” that are allegedly owed in connection with the sale and production of day-old chicks in our incubators. We recorded a provision for loss of R$17.0 million as of December 31, 2008,relating to these proceedings in which we believe that losses are probable. |
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Nominal | ||||||||||||
Currency | U.S.$ Equivalent | |||||||||||
Brazilian | per Share at | |||||||||||
Year | Description | First Payment Date | per Share | Payment Date | ||||||||
2004 | Interest on shareholders’ equity | August 31, 2004 | 0.37 | 0.13 | ||||||||
2004 | Interest on shareholders’ equity | February 28, 2005 | 0.19 | 0.08 | ||||||||
2004 | Dividends | February 28, 2005 | 0.09 | 0.04 | ||||||||
2005 | Interest on shareholders’ equity | August 31, 2005 | 0.35 | 0.15 | ||||||||
2005 | Interest on shareholders’ equity | February 24, 2006 | 0.36 | 0.17 | ||||||||
2005 | Dividends | February 24, 2006 | 0.10 | 0.05 | ||||||||
2006 | Interest on shareholders’ equity | February 27, 2007 | 0.19 | 0.09 | ||||||||
2006 | Dividends | February 27, 2007 | 0.02 | 0.01 | ||||||||
2007 | Interest on shareholders’ equity | August 31, 2007 | 0.22 | 0.11 | ||||||||
2007 | Interest on shareholders’ equity | February 29, 2008 | 0.33 | 0.19 | ||||||||
2008 | Interest on shareholders’ equity | August 29, 2008 | 0.25 | 0.15 | ||||||||
2008 | Interest on shareholders’ equity | February 27, 2009 | 0.12 | 0.05 |
Dividends and | Dividends and | |||||||||||
Interest on | Interest on | Total Dividends | ||||||||||
Shareholders’ | Shareholders’ | and Interest on | ||||||||||
Equity on | Equity on | Shareholders’ | ||||||||||
Common Shares | Preferred Shares | Equity | ||||||||||
(in millions ofreais) | ||||||||||||
2004 | 30.7 | 58.0 | 88.7 | |||||||||
2005 | 37.5 | 70.8 | 108.3 | |||||||||
2006 | 35.2 | — | 35.2 | |||||||||
2007 | 100.2 | — | 100.2 | |||||||||
2008 | 76.4 | — | 76.4 |
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São Paulo Stock Exchange | ||||||||||||||||||||||||
Reaisper | Reaisper | New York Stock Exchange | ||||||||||||||||||||||
Common Share | Preferred Share(1) | U.S. dollars per ADS | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Year | ||||||||||||||||||||||||
2004 | R$ | 15.33 | R$ | 7.00 | R$ | 19.40 | R$ | 7.87 | R$ | 14.73 | R$ | 5.12 | ||||||||||||
2005 | 22.30 | 15.33 | 26.83 | 14.22 | 24.00 | 11.39 | ||||||||||||||||||
2006 | 32.33 | 18.38 | 32.33 | 20.10 | 28.60 | 15.20 | ||||||||||||||||||
2007 | 48.96 | 24.51 | — | — | 56.96 | 22.88 | ||||||||||||||||||
2008 | �� | 53.30 | 27.20 | — | — | 65.70 | 23.37 |
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São Paulo Stock Exchange | ||||||||||||||||||||||||
Reaisper | Reaisper | New York Stock Exchange | ||||||||||||||||||||||
Common Share | Preferred Share(1) | U.S. dollars per ADS | ||||||||||||||||||||||
High | Low | High | Low | High | Low | |||||||||||||||||||
Quarter | ||||||||||||||||||||||||
2007 | ||||||||||||||||||||||||
First Quarter | 30.20 | 24.51 | — | — | 28.02 | 22.88 | ||||||||||||||||||
Second Quarter | 38.15 | 26.68 | — | — | 40.75 | 26.06 | ||||||||||||||||||
Third Quarter | 41.25 | 30.50 | — | — | 44.91 | 30.25 | ||||||||||||||||||
Fourth Quarter | 48.96 | 37.59 | — | — | 56.96 | 41.51 | ||||||||||||||||||
2008 | ||||||||||||||||||||||||
First Quarter | 45.38 | 35.06 | — | — | 52.03 | 40.62 | ||||||||||||||||||
Second Quarter | 53.30 | 39.60 | — | — | 65.70 | 46.90 | ||||||||||||||||||
Third Quarter | 45.80 | 33.80 | — | — | 57.86 | 34.44 | ||||||||||||||||||
Fourth Quarter | 38.20 | 27.20 | — | — | 39.97 | 23.37 | ||||||||||||||||||
2009 | ||||||||||||||||||||||||
First Quarter | 33.50 | 26.15 | — | — | 29.45 | 21.76 |
São Paulo Stock Exchange | ||||||||||||||||
Reaisper | New York Stock Exchange | |||||||||||||||
Common Share | U.S. dollars per ADS | |||||||||||||||
High | Low | High | Low | |||||||||||||
Month | ||||||||||||||||
December 2008 | 37.65 | 29.74 | 31.68 | 25.19 | ||||||||||||
January 2009 | 33.50 | 30.50 | 28.76 | 25.77 | ||||||||||||
February 2009 | 31.35 | 28.90 | 27.62 | 23.01 | ||||||||||||
March 2009 | 32.70 | 26.15 | 29.45 | 21.76 | ||||||||||||
April 2009 | 32.80 | 28.71 | 30.29 | 25.60 | ||||||||||||
May 2009 | 39.35 | 32.00 | 39.30 | 34.70 | ||||||||||||
June 2009 (through June 29, 2009) | 39.98 | 36.57 | 41.05 | 36.26 |
Source: Bloomberg | ||
(1) | Preferred shares were converted into common shares on April 12, 2006. |
• | our common shares on the São Paulo Stock Exchange was R$37.17 per share; | ||
• | the ADSs on the NYSE was U.S.$37.85 per ADS. |
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• | Corporate Governance Level 1; | ||
• | Corporate Governance Level 2; and | ||
• | TheNovo Mercado(New Market) of the São Paulo Stock Exchange. |
• | maintain a share capital structure composed exclusively of common shares; | ||
• | ensure that shares representing 25% of our total outstanding share capital are held by investors other than our directors, executive officers and any controlling shareholders; | ||
• | adopt offering procedures that favor widespread ownership of shares whenever making a public offering; | ||
• | comply with minimum quarterly disclosure standards; | ||
• | follow stricter disclosure policies with respect to transactions involving our securities made by any controlling shareholders and our directors and executive officers; | ||
• | make a schedule of corporate events available to our shareholders; |
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• | offer tag-along rights to minority shareholders (meaning that, upon the acquisition of a controlling interest, the purchaser must also agree to purchase the shares of minority shareholders for the same price paid for the shares in the controlling stake); | ||
• | in the event of a delisting of shares, conduct a public tender offer for our common shares at a price at least equal to the economic value determined pursuant to an appraisal; | ||
• | present an annual balance sheet prepared in accordance with, or reconciled to, U.S. GAAP or International Financial Reporting Standards; | ||
• | establish a two-year term for all members of the board of directors; | ||
• | require that at least 20% of our board of directors consist of independent directors; and | ||
• | submit to arbitration by the Market Arbitration Chamber (Câmara de Arbitragem do Mercado) all controversies and disputes involving our company, members of our board of directors, board of executive officers, fiscal council or shareholders relating to the application, validity, efficacy, interpretation, violation or effect of theNovo Mercadolisting agreement and regulations, our by-laws, the Brazilian Corporation Law or the rules of the CMN, the Central Bank, the CVM or the Market Arbitration Chamber or other rules within the jurisdiction of the Market Arbitration Chamber. |
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• | the processing and sale of foods in general, principally those derived from animal protein and those that use a refrigerated supply chain for distribution; | ||
• | the processing and sale of animal feed and nutrients for animals; | ||
• | the provision of food services in general; | ||
• | the processing, refinement and sale of vegetable oils; | ||
• | the exploration, conservation, storage and sale of grains, their derivatives and by products; | ||
• | reforestation activities and other activities involving the extraction, processing and sale of wood; | ||
• | the wholesale and resale of consumer and manufactured goods, including the sale of equipment and vehicles used in logistical activities; | ||
• | the export and import of manufactured and consumer goods; | ||
• | participation in other companies, which may increase our ability to attain our other purposes; and | ||
• | participating in projects that are necessary for the operation of the business of our company. |
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• | the right to participate in the distribution of profits; | ||
• | the right to participate equally and ratably in any remaining residual assets in the event of our liquidation; | ||
• | preemptive rights in the event of issuance of shares, convertible debentures or warrants, except in certain specific circumstances under Brazilian law described under “—Preemptive rights”; | ||
• | the right to monitor our management in accordance with the provisions of the Brazilian Corporation Law; and | ||
• | the right to withdraw from our company in the cases specified in the Brazilian Corporation Law, which are described under “—Withdrawal Rights.” |
• | amendment of our by-laws; | ||
• | election and dismissal, at any time, of the members of our board of directors and fiscal council and approval of their aggregate compensation; | ||
• | approval of management accounts and our audited financial statements; | ||
• | granting stock awards and approval of stock splits or reverse stock splits; | ||
• | approval of stock option plans for our management and employees, as well as stock option plans for companies directly or indirectly controlled by us; | ||
• | authorization of the issuance of convertible debentures and/or secured debentures; | ||
• | suspension of the rights of a shareholder; | ||
• | approval, in accordance with the proposal submitted by our board of directors, of the distribution of our profits and payment of dividends, as well as the establishment of any reserve other than the legal reserve; | ||
• | acceptance or rejection of the valuation of in-kind contributions offered by a shareholder in consideration for issuance of shares of our share capital; |
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• | approval of our transformation, merger, consolidation, spin-off; | ||
• | approval of any dissolution or liquidation, and the appointment and dismissal of a liquidator, as well as the members of our fiscal council, which shall be installed in the event of our liquidation if it does not already exist at the time; | ||
• | authorization to delist from theNovo Mercadoand to become a private company, as well as to retain a specialized firm to prepare a valuation report with respect to the value of our shares in such circumstances; and | ||
• | authorization to petition for bankruptcy or file a request for judicial or extra-judicial restructuring. |
• | reduce the percentage of mandatory dividends; | ||
• | change our corporate purpose; | ||
• | consolidate with or merge our company into another company; | ||
• | spin off assets of our company; | ||
• | approve our participation in a centralized group of companies; | ||
• | apply for cancellation of any voluntary liquidation; | ||
• | approve our dissolution; and | ||
• | approve the merger of all of our shares into another Brazilian company. |
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• | any shareholder, if our board of directors fails to call a shareholders’ meeting within 60 days after the date it is required to do so under applicable law and our by-laws; | ||
• | shareholders holding at least 5% of our shares, if our board of directors fails to call a meeting within eight days after receipt of a request to call the meeting by those shareholders indicating the reasons for calling such a meeting and the proposed agenda; | ||
• | shareholders holding at least 5% of our shares if our board of directors fails to call a meeting within eight days after receipt of a request to call a meeting to approve the creation of a fiscal council; | ||
• | our fiscal council, if the board of directors fails to call an annual shareholders’ meeting within one month after the date it is required to do so under applicable law and our by-laws. The fiscal council may also call an extraordinary general shareholders’ meeting if it believes that there are important or urgent matters to be addressed; and | ||
• | the chairman of our board of directors, within two days of a determination by the São Paulo Stock Exchange that the prices of our common shares must be quoted separately from otherNovo Mercadosecurities or following the suspension of trading of our shares on theNovo Mercado, in each case, due to our non-compliance with theNovo Mercado regulations. All members of our board of directors must be replaced at such shareholders’ meeting. If the chairman of the board of directors fails to call such shareholders’ meeting within the prescribed time limit, any shareholder of our company may do so. |
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• | performing any charitable act at our expense, except for such reasonable charitable acts for the benefit of employees or of the community in which we participate, upon approval by the board of directors or the executive officers; | ||
• | by virtue of the director’s or officer’s position, receiving any type of direct or indirect personal advantage from third parties without authorization in our by-laws or from a shareholders’ meeting; | ||
• | borrowing money or property from us or using our property, services or credits for the director’s or officer’s own benefit, for the benefit of a company in which the director or officer has an interest or of a third party, without the prior approval at a shareholders’ meeting or of our board of directors; | ||
• | taking part in any corporate transaction in which the director or officer has an interest that conflicts with our interests, or in the decisions made by other directors or officers on the matter; | ||
• | using, for its own benefit or for the benefit of third parties, commercial opportunities made known to it as a result of its participation in our management; | ||
• | failing to exercise or protect our rights or, for the purposes of obtaining benefits for itself or third parties, failing to take advantage of business opportunities for us; and | ||
• | purchasing, for resale, assets or rights known to be of interest to us or necessary for our activities. |
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• | Reserves for increases in capital. 20% of our adjusted net profits for each fiscal year must be allocated to our reserves for increases in capital until the aggregate amount in such reserve equals 20% of our share capital. At December 31, 2008, we had reserves for increases in capital of R$160.3 million. | ||
• | Expansion reserves. Under our by-laws, shareholders may decide at a meeting to retain a portion of net profits to allocate to an expansion reserve, up to a limit of 80% of our share capital. This reserve is intended to minimize the effects of a decrease in our working capital. At December 31, 2008, we had an expansion reserve of R$505.1 million. |
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• | spin-off (as described below); | ||
• | reduction in our mandatory dividends; | ||
• | change in our corporate purpose; | ||
• | consolidation with or merger into another company; | ||
• | participation in a group of companies (as defined in the Brazilian Corporation Law); or | ||
• | the acquisition by our company of the control of any company if the acquisition price exceeds the limits established in the second paragraph of Article 256 of the Brazilian Corporation Law. |
• | there is a change in our corporate purpose, except to the extent that the principal business purpose of the entity to which the spun-off assets and liabilities were transferred is consistent with our business purpose; | ||
• | there is a reduction in our mandatory dividend; or | ||
• | we are made part of a centralized group of companies, as defined in the Brazilian Corporation Law. |
• | merge into or consolidate with another company; | ||
• | participate in a group of companies (as defined in the Brazilian Corporation Law); | ||
• | participate in a merger of shares; or | ||
• | acquire the control of any company if the acquisition price exceeds the limits established in the second paragraph of Article 256 of the Brazilian Corporation Law, |
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• | to any of our former officers, directors or members of the fiscal council for a six-month period, if any such officer, director or member of the fiscal council left office prior to disclosure of material information that occurred while in office; | ||
• | if we intend to merge or combine with another company, consolidate, spin off part or all of our assets or reorganize, until such information is disclosed to the market; | ||
• | to us, if an agreement for the transfer of our control has been executed, or if an option or mandate to such effect has been granted, until such information is disclosed to the market; | ||
• | during the 15-day period before the disclosure of our quarterly and annual financial statements required by the CVM; or | ||
• | to the controlling shareholders, our officers, and members of our board of directors, whenever we, or any of our controlling companies, affiliates or companies under common control, are in the process of purchasing or selling shares issued by us. |
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• | when there is an assignment of share subscription rights or rights of other securities convertible into our shares that results in the transfer of our control; or | ||
• | in case of change of control of another company that holds control of the company. In this case, the selling controlling shareholder must inform the São Paulo Stock Exchange of the amount of the purchase price paid for control and provide the corresponding documents. |
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• | result in a reduction of our share capital; | ||
• | require the use of resources greater than our retained earnings or reserves (other than the legal reserve, unrealized profit reserve, revaluation reserve, and special mandatory dividend reserves) recorded in our most recent balance sheet; | ||
• | create, directly or indirectly, any artificial demand, supply or share price condition, or use any unfair practice as a result of any action or omission; | ||
• | be conducted during the course of a public tender offer of our shares; or | ||
• | be used to purchase shares not fully paid or held by any controlling shareholder. |
• | financial statements prepared in accordance with Brazilian GAAP and related management and auditors’ reports, within three months from the end of its fiscal year or on the date in which they are published or made available to shareholders, whichever occurs first, together with theDemonstrações Financeiras Padronizadas(a report on a standard form containing financial information derived from our financial statements required to be filled out by us and filed with the CVM); | ||
• | notices of our annual shareholders’ meeting, on the date of its publication; | ||
• | a summary of the decisions taken at the annual general shareholders’ meeting, on the day the meeting is held; |
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• | a copy of the minutes of the annual shareholders’ meeting, within ten days of its occurrence; | ||
• | Informações Anuais—IAN (a report on a standard form containing annual corporate, business, and selected financial information), within a month from the date of the annual general shareholders’ meeting; and | ||
• | Informações Trimestrais—ITR (a report on a standard form containing quarterly corporate, business and financial information), together with a special review report issued by our independent auditor, within 45 days from the end of each quarter (except for the last quarter of each year) or upon disclosure of such information to the public if it occurs within 45 days from the end of the relevant quarter. |
• | a notice of any extraordinary shareholders’ meeting, on the same date it is published; | ||
• | a summary of the decisions taken at any extraordinary shareholders’ meetings, on the following day; | ||
• | minutes of any extraordinary shareholders’ meeting, within ten days of the date the meeting occurred; | ||
• | a copy of any shareholders’ agreement on the date it is filed with us; | ||
• | any press release giving notice of material facts, on the same date it is published in the press; | ||
• | information on any filing for corporate reorganization, the reason for such filing, special financial statements prepared for obtaining a legal benefit and, if applicable, a plan for payment of holders of debentures, as well as a copy of any judicial decision granting such request, on the same date it is filed and on the date we take notice of the judicial decision, respectively; | ||
• | request for information or notice of bankruptcy, the same day of notice by the Company, or the filing of a bankruptcy petition in court, as appropriate; and | ||
• | a copy of any judicial decision granting a bankruptcy request and appointing of a bankruptcy trustee, on the date we take notice of it. |
• | no later than six months following our listing on theNovo Mercado, we must disclose financial statements and consolidated financial statements at the end of each quarter (except the last quarter of each year) and at the end of each fiscal year, including a cash flow statement that must indicate, at a minimum, the changes in our cash and cash equivalents, divided into operating, finance and investment cash flows; | ||
• | as from the date we release our financial statements relating to the second fiscal year following our listing on theNovo Mercadowe must, no later than four months after the end of the fiscal year: |
• | release our annual financial statements and consolidated financial statements in accordance with U.S. GAAP or IFRS, inreaisor U.S. dollars, in the English language, including notes to the financial statements and including information on net profits and net worth calculated at the end of such fiscal year in accordance with Brazilian GAAP, together with a management report and the management proposal for the allocation of net profits and our independent auditors’ report; or |
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• | disclose, in the English language, the complete financial statements, management reports and notes to the financial statements prepared in accordance with the Brazilian Corporation Law, accompanied by an additional explanatory note reconciling the year-end results and net worth calculated in accordance with Brazilian GAAP and U.S. GAAP or IFRS, as the case may be, which must include the principal differences between the accounting principles used, as well as the independent auditors’ report; and |
• | as from the date we release our first financial statements prepared as provided above, no more than 15 days following the period established by law for the publication of quarterly financial information, we must: |
• | disclose, in its entirety, our quarterly financial information translated into the English language; or | ||
• | disclose our financial statements and consolidated financial statements in accordance with U.S. GAAP or IFRS, accompanied by the independent auditors’ report. |
• | our consolidated balance sheet, consolidated statement of income, and a discussion and analysis of our consolidated performance; | ||
• | any direct or indirect ownership interest exceeding 5% of our share capital, looking through to any ultimate individual beneficial owner; | ||
• | the number and characteristics of our shares held directly or indirectly by any controlling shareholders and members of our board of directors, board of executive officers and fiscal council; | ||
• | changes in the numbers of our shares held by any controlling shareholders and members of our board of directors, board of executive officers and fiscal council in the immediately preceding 12 months; | ||
• | our cash flow statement and consolidated cash flow statement, together with an explanatory note thereto; | ||
• | the number of shares constituting our free float and their percentage in relation to the total number of issued shares; and | ||
• | if we are party to an arbitration agreement for dispute resolution. |
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• | the name and qualifications of the person acquiring the shares or other securities; | ||
• | the amount, price, type, and/or class, in the case of acquired shares, or characteristics, in the case of other securities; | ||
• | the form of acquisition (private placement, purchase through a stock exchange, among others); | ||
• | the reason and purpose of the acquisition; and | ||
• | information on any agreement regarding the exercise of voting rights or the purchase and sale of our securities. |
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• | appoint at least one representative in Brazil who will be responsible for complying with registration an reporting requirements and procedures with the Central Bank and the CVM. If the representative is an individual or a non-financial company, the investor must also appoint an institution duly authorized by the Central Bank that will be jointly and severally liable for the representative’s obligations; | ||
• | complete the appropriate foreign investor registration form; | ||
• | register as a foreign investor with the CVM; | ||
• | register the foreign investment with the Central Bank; | ||
• | appoint a tax representative in Brazil; and |
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• | obtain a taxpayer identification number from the Brazilian federal tax authorities. |
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• | 50% of net income (after the social contribution on net profits tax, and before the provision for corporate income tax and the amounts attributable to shareholders as interest on shareholders’ equity) for the period in respect of which the payment is made; and | ||
• | 50% of the sum of retained profits and profit reserves as of the date of the beginning of the period in respect of which the payment is made. |
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• | are subject to the withholding income tax at a zero percent rate, when realized by a Non-Resident Holder that (i) has registered its investment in Brazil before the Central Bank under the rules of the Brazilian Monetary Counsel (“Registered Holder”) and (ii) is not a Tax Haven Resident; and | ||
• | are subject to withholding income tax at a rate of 15% with respect to gains realized by a Non-Resident Holder that is not a Registered Holder (including a Non-Resident Holder who qualifies under Law No. 4,131/62) and gains earned by Tax Haven Residents that are Registered Holders. In this case, a withholding income tax of 0.005% shall be applicable and can be offset against any income tax due on the capital gain. |
• | are subject to income tax at a rate of 15% when realized by any Non-Resident Holder that is not a Tax Haven Resident, whether or not such holder is a Registered Holder; and | ||
• | are subject to income tax at a rate of 25% when realized by a Tax Haven Resident, whether or not such holder is a Registered Holder. |
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• | the average price per common share on the Brazilian stock exchange on which the greatest number of such common shares were sold on the day of deposit; or | ||
• | if no common shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of common shares were sold during the 15 preceding trading sessions. |
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• | an individual citizen or resident of the United States; | ||
• | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any State thereof or the District of Columbia; | ||
• | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or | ||
• | a trust if it (1) is subject to the primary supervision of a court within the United States and one or more United States persons have the authority to control all substantial decisions of the trust or (2) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person. |
• | a dealer in securities or currencies; | ||
• | a financial institution; | ||
• | a regulated investment company; | ||
• | a real estate investment trust; | ||
• | an insurance company; |
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• | a tax-exempt organization; | ||
• | a person holding our common shares or ADSs as part of a hedging, integrated or conversion transaction or a straddle; | ||
• | a person deemed to sell our common shares or ADSs under the constructive sale provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”); | ||
• | a trader in securities that has elected the mark-to-market method of accounting for your securities; | ||
• | a person liable for alternative minimum tax; | ||
• | a person who owns or is deemed to own 10% or more of our voting stock; | ||
• | a partnership or other pass-through entity for U.S. federal income tax purposes; or | ||
• | a person whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar. |
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• | at least 75% of our gross income is passive income, or | ||
• | at least 50% of the value (determined on a quarterly basis) of our assets is attributable to assets that produce or are held for the production of passive income. |
• | the excess distribution or gain will be allocated ratably over your holding period for the ADSs or common shares, | ||
• | the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and | ||
• | the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
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Perdigão S.A.
Avenida Escola Politécnica, 760
05350-901 — São Paulo — SP — Brazil
Tel.: +55 11 3718-5301
Fax: +55 11 3718-5297
E-mail:acoes@perdigao.com.br
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All-in Weighted Average | Short | Carrying | Fair | |||||||||||||||||||||||||||||||||
Financial Instruments | Annual Interest Rate | Term | 2010 | 2011 | 2012 | 2013 | Thereafter | Amount | Value | |||||||||||||||||||||||||||
Assets — Short/Long-term | 1,764.6 | 0.2 | 1,764.8 | 1,764.8 | ||||||||||||||||||||||||||||||||
Fixed rate | 622.9 | 622.9 | 622.9 | |||||||||||||||||||||||||||||||||
In U.S. dollars | 3.80 | % | 570.9 | 570.9 | 570.9 | |||||||||||||||||||||||||||||||
In euros | 1.50 | % | 7.0 | 7.0 | 7.0 | |||||||||||||||||||||||||||||||
Inreais | 15.80 | % | 45.0 | 45.0 | 45.0 | |||||||||||||||||||||||||||||||
Variable rate | 1,065.8 | 0.2 | 1,066.0 | 1,066.0 | ||||||||||||||||||||||||||||||||
Inreais | 98% to 105% CDI | 705.2 | 0.2 | 705.4 | 705.4 | |||||||||||||||||||||||||||||||
Inreais | TR + 9.31% | 1.5 | 1.5 | 1.5 | ||||||||||||||||||||||||||||||||
In U.S. dollars | Libor + 2.42% | (338.2 | ) | (338.2 | ) | (338.2 | ) | |||||||||||||||||||||||||||||
In U.S. dollars | Fed Fund U.S. | 545.9 | 545.9 | 545.9 | ||||||||||||||||||||||||||||||||
In U.S. dollars | 95% to 97% CDI | 151.4 | 151.4 | 151.4 | ||||||||||||||||||||||||||||||||
Without rate | 75.9 | 75.9 | 75.9 | |||||||||||||||||||||||||||||||||
Inreais | — | 75.9 | 75.9 | 75.9 | ||||||||||||||||||||||||||||||||
Liabilities — Short/Long-term | 1,435.2 | 867.5 | 980.3 | 1,391.5 | 373.1 | 107.2 | 5,154.8 | 5,154.8 | ||||||||||||||||||||||||||||
Fixed rate | 470.8 | 106.7 | 87.6 | 4.1 | 4.0 | 1.9 | 675.1 | 675.1 | ||||||||||||||||||||||||||||
Inreais | 6.83 | % | 239.4 | 7.7 | 4.7 | 1.3 | 1.2 | 1.9 | 256.2 | 256.2 | ||||||||||||||||||||||||||
In U.S. dollars | 7.84 | % | 160.7 | 99.0 | 82.9 | 2.8 | 2.8 | 348.2 | 348.2 | |||||||||||||||||||||||||||
In euros | 0.00 | % | 70.7 | 70.7 | 70.7 | |||||||||||||||||||||||||||||||
In pounds sterling | — | |||||||||||||||||||||||||||||||||||
Variable rate | 964.4 | 760.8 | 892.7 | 1,387.4 | 369.1 | 105.3 | 4,479.7 | 4,479.7 | ||||||||||||||||||||||||||||
Inreais | 346.6 | 214.9 | 212.5 | 124.4 | 100.0 | 99.4 | 1,097.8 | 1,097.8 | ||||||||||||||||||||||||||||
Index | TJLP + 2.4% | 66.6 | 139.1 | 122.4 | 118.8 | 93.2 | 40.2 | 580.3 | 580.3 | |||||||||||||||||||||||||||
Index | 95% to 100% CDI | 116.8 | 54.0 | 86.1 | 256.9 | 256.9 | ||||||||||||||||||||||||||||||
Index | 1GPM + 1.82% | 0.8 | 2.2 | 4.0 | 5.6 | 6.8 | 59.2 | 78.6 | 78.6 | |||||||||||||||||||||||||||
Index | TR + 10.32% | 162.4 | 19.6 | 182.0 | 182.0 | |||||||||||||||||||||||||||||||
In U.S. dollars | 617.8 | 545.9 | 680.2 | 1,263.0 | 269.1 | 5.9 | 3,381.9 | 3,381.9 | ||||||||||||||||||||||||||||
Index | Libor + 2.83% | 558.5 | 527.3 | 662.1 | 1,246.2 | 255.6 | 3,249.7 | 3,249.7 | ||||||||||||||||||||||||||||
Index | Euribor + 1.20% | 48.9 | 48.9 | 48.9 | ||||||||||||||||||||||||||||||||
Index | UMBNDES + 2.52% | 10.4 | 18.6 | 18.1 | 16.8 | 13.5 | 5.9 | 83.3 | 83.3 | |||||||||||||||||||||||||||
Net | 329.4 | (867.3 | ) | (980.3 | ) | (1,391.5 | ) | (373.1 | ) | (107.2 | ) | (3,390.0 | ) | (3,390.0 | ) | |||||||||||||||||||||
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On-Balance Sheet Financial | Carrying | |||||||||||||||||||||||||||||||
Instruments | Short-Term | 2010 | 2011 | 2012 | 2013 | Thereafter | Amount | Fair Value | ||||||||||||||||||||||||
U.S dollar-denominated instruments | ||||||||||||||||||||||||||||||||
Assets: | ||||||||||||||||||||||||||||||||
Short-term/Non-current marketable securities | 1,197.2 | 1,197.2 | 1,197.2 | |||||||||||||||||||||||||||||
Average annual interest rate | 2.03 | % | 2.03 | % | ||||||||||||||||||||||||||||
Liabilities: | ||||||||||||||||||||||||||||||||
Short term/Non-current debt | 1,118.9 | 644.9 | 763.1 | 1,265.8 | 271.9 | 5.9 | 4,070.5 | 4,070.5 | ||||||||||||||||||||||||
Average annual interest rate | 5.76 | % | 4.94 | % | 4.76 | % | 4.54 | % | 4.77 | % | 6.97 | % | 4.93 | % | ||||||||||||||||||
Euro-denominated instruments | ||||||||||||||||||||||||||||||||
Long-term investments | 7.0 | — | — | — | — | — | 7.0 | 7.0 | ||||||||||||||||||||||||
Average annual interest rate | 1.50 | % | — | — | — | — | — | 1.50 | % |
Notional Amount — Expected Maturity Date | Gain/(Loss) | |||||||||||||||||||||||||||||||
Exchange/Interest Rate | Carrying | |||||||||||||||||||||||||||||||
Derivatives | Short-Term | 2010 | 2011 | 2012 | 2013 | Thereafter | Amount | Fair Value | ||||||||||||||||||||||||
Cross-Currency Swaps: | ||||||||||||||||||||||||||||||||
Receive U.S.$/Pay R$ | ||||||||||||||||||||||||||||||||
Amount | 613.8 | — | — | — | — | — | 60.5 | 60.5 | ||||||||||||||||||||||||
annual interest received in U.S.$ | 4.75 | % | ||||||||||||||||||||||||||||||
annual interest paid in R$ (%CDI) | 100 | % | ||||||||||||||||||||||||||||||
1.5 | ||||||||||||||||||||||||||||||||
Receive R$/Pay U.S.$ | ||||||||||||||||||||||||||||||||
Amount | 8.4 | — | 86.1 | — | — | — | (22.0 | ) | (22.0 | ) | ||||||||||||||||||||||
annual interest received in R$ | 16.09 | % | 16.14 | % | ||||||||||||||||||||||||||||
annual interest paid in U.S.$ | 0.00 | % | 11.30 | % | ||||||||||||||||||||||||||||
0.16 | 3.00 | |||||||||||||||||||||||||||||||
Receive U.S.$/Pay U.S.$ | ||||||||||||||||||||||||||||||||
Amount | 52.4 | 154.7 | 255.0 | 91.9 | — | (35 | ) | (35 | ) | |||||||||||||||||||||||
annual interest received in U.S.$ | 2.97 | % | 2.97 | % | 2.97 | % | 2.97 | % | ||||||||||||||||||||||||
annual interest paid in U.S.$ | 4.12 | % | 4.12 | % | 4.12 | % | 4.12 | % | ||||||||||||||||||||||||
2.03 | 3.04 | 4.06 | 5.07 | |||||||||||||||||||||||||||||
Receive U.S.$/Pay R$ | ||||||||||||||||||||||||||||||||
Amount | 23.9 | 95.8 | 151.9 | — | (25.8 | ) | (25.8 | ) | ||||||||||||||||||||||||
annual interest received in U.S.$ | 6.29 | % | 6.29 | % | 6.29 | % | ||||||||||||||||||||||||||
annual interest paid in 92.40% of CDI | 12.58 | % | 12.58 | % | 12.58 | % | ||||||||||||||||||||||||||
3.04 | 4.06 | 5.07 | ||||||||||||||||||||||||||||||
+ Spread/Pay CDI | ||||||||||||||||||||||||||||||||
Amount | 11.9 | (0.1 | ) | (0.1 | ) | |||||||||||||||||||||||||||
annual interest received in TR+ | 9.31 | % | ||||||||||||||||||||||||||||||
annual interest paid in 93.72% of CDI | 13.36 | % | ||||||||||||||||||||||||||||||
0.59 | ||||||||||||||||||||||||||||||||
Total Cross-Currency Swaps: | 634.1 | 52.4 | 264.7 | 350.8 | 243.8 | — | (22.4 | ) | (22.4 | ) |
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Notional Amount — Expected Maturity Date | Gain/(Loss) | |||||||||||||||||||||||||||||||
Exchange/Interest Rate | Carrying | |||||||||||||||||||||||||||||||
Derivatives | Short-Term | 2010 | 2011 | 2012 | 2013 | Thereafter | Amount | Fair Value | ||||||||||||||||||||||||
Non-Deliverable Forward: | �� | |||||||||||||||||||||||||||||||
NDF | ||||||||||||||||||||||||||||||||
Receive Euro/Pay U.S.$ | ||||||||||||||||||||||||||||||||
Amount | 51.1 | 7.7 | 7.7 | |||||||||||||||||||||||||||||
annual interest received in Euro | 1.42 | % | ||||||||||||||||||||||||||||||
annual interest paid in U.S.$ | 0.00 | % | ||||||||||||||||||||||||||||||
NDF | ||||||||||||||||||||||||||||||||
Receive R$/Pay U.S.$ | ||||||||||||||||||||||||||||||||
Amount | 382.9 | (37.4 | ) | (37.4 | ) | |||||||||||||||||||||||||||
annual interest received in R$ | 15.31 | % | ||||||||||||||||||||||||||||||
annual interest paid in U.S.$ | 0.00 | % | ||||||||||||||||||||||||||||||
NDF | ||||||||||||||||||||||||||||||||
Receive R$/Pay Euro | ||||||||||||||||||||||||||||||||
Amount | 26.5 | (5.3 | ) | (5.3 | ) | |||||||||||||||||||||||||||
annual interest received in R$ | 13.52 | % | ||||||||||||||||||||||||||||||
annual interest paid in Euro | 0.00 | % | ||||||||||||||||||||||||||||||
Futures | ||||||||||||||||||||||||||||||||
Receive U.S.$/Pay reais | ||||||||||||||||||||||||||||||||
Amount | 327.5 | (10.1 | ) | (10.1 | ) | |||||||||||||||||||||||||||
Total Derivatives | (67.5 | ) | (67.5 | ) |
At December 31, | Percentage | |||||||||||||||||||
Short-Term | Long-Term | 2008 | 2007 | Change | ||||||||||||||||
(in millions ofreais) | (%) | |||||||||||||||||||
Local currency | 460.1 | 768.1 | 1,228.2 | 620.0 | 98 | |||||||||||||||
Foreign currency | 1,186.3 | 2,951.6 | 4,137.9 | 1,645.8 | 151 | |||||||||||||||
Total debt | 1,646.4 | 3,719.7 | 5,366.1 | 2,265.8 | 137 | |||||||||||||||
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At December 31, | Percentage | |||||||||||||||||||
Short-Term | Long-Term | 2008 | 2007 | Change | ||||||||||||||||
(in millions ofreais, except where indicated) | (%) | |||||||||||||||||||
Total debt | 1,646.4 | 3,719.7 | 5,366.1 | 2,265.8 | 137 | |||||||||||||||
Cash, cash equivalents and marketable securities | ||||||||||||||||||||
Local currency | 771.8 | — | 771.8 | 1,452.6 | (47 | ) | ||||||||||||||
Foreign currency | 1,204.1 | 0.2 | 1,204.3 | 384.3 | 213 | |||||||||||||||
Total | 1,975.9 | 0.2 | 1,976.1 | 1,836.9 | 8 | |||||||||||||||
Net debt | 329.5 | (3,719.5 | ) | (3,390.0 | ) | (428.9 | ) | 690 | ||||||||||||
Exchange rate exposure (in millions of U.S.$) | (821,3 | ) | (308.7 | ) | 166 |
147
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New Fee and Reimbursement Provisions | ||
Fee or Charge: | Relating to: | |
• U.S.$0.02 or less per ADR per annum, subject to prior consent by the Company | • depositary services | |
• payment of any other charges payable by the depositary, any of the depositary’s agents, including the depositary’s custodian, or the agents of the depositary’s agents in connection with the servicing of shares underlying the American Depositary Shares or other deposited securities |
148
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149
Table of Contents
/s/ José Antonio do Prado Fay | /s/ Leopoldo Viriato Saboya | |||||
Chief Executive Officer | Chief Financial Officer |
150
Table of Contents
Year Ended December 31, | ||||||||
2008 | 2007 | |||||||
(in thousands ofreais) | ||||||||
Audit fees | 2,508.1 | 904.0 | ||||||
Audit-related fees | — | 1,736.8 | ||||||
Tax fees | 37.8 | 36 | ||||||
All Other fees | — | — | ||||||
Total fees | 2,545.9 | 2,676.8 |
151
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152
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153
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154
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Exhibit | ||
Number | Description | |
1.01 | Amended and Restated By-laws of the Registrant, together with an English translation. | |
2.01 | Deposit Agreement among the Registrant, The Bank of New York, as depositary, and the holders from time to time of American Depositary Shares issued thereunder (incorporated by reference to Exhibit 1 to the Registration Statement on Form F-6, dated June 24, 2009, SEC File No. 333-160191). | |
2.02 | Form of American Depositary Receipt (incorporated by reference to Exhibit A to Exhibit 1 to the Registration Statement on Form F-6, dated June 24, 2009, SEC File No. 333-160191). | |
4.01 | Merger Agreement, dated May 19, 2009, among the Registrant, HFF Participações S.A., Sadia S.A. and the shareholders of the Registrant and Sadia S.A. named therein. | |
4.02 | Share Purchase and Sale Agreement, dated October 30, 2007, among the Registrant, Eleva Alimentos S.A. and the controlling shareholders of Eleva Alimentos S.A. | |
4.03 | Shareholders’ Voting Agreement, dated March 6, 2006, among certain shareholders of the Registrant and the Registrant (incorporated by reference to Exhibit 99.1 to Registration Statement on Form 6-K dated March 7, 2006, SEC File No. 1-15148). | |
8.01 | Subsidiaries of the Registrant | |
12.01 | Certification of the Chief Executive Officer under Item 15 | |
12.02 | Certification of the Chief Financial Officer under Item 15 | |
13.01 | Certification pursuant to 18 U.S.C. Section 1350. | |
13.02 | Certification pursuant to 18 U.S.C. Section 1350. |
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Audited Consolidated Financial Statements: | ||||
F-2 | ||||
F-6 | ||||
F-8 | ||||
F-9 | ||||
F-10 | ||||
F-11 | ||||
F-12 |
F-1
Table of Contents
Perdigão S.A.
F-2
Table of Contents
June 30, 2009
F-3
Table of Contents
Perdigão S.A.
1. | We have audited the consolidated balance sheet of Perdigão S.A. and subsidiaries as of December 31, 2006, and the related consolidated statements of income, changes in shareholders’ equity, cash flows and value added for the year then ended. 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 of Batávia S.A. Indústria de Alimentos, a subsidiary acquired on May 26, 2006 in which the Company holds a 51% interest as of December 31, 2006, which statements reflect total assets of R$270.5 million as of December 31, 2006, and total revenues of R$322.3 million, for the period from June 1, 2006 to December 31, 2006. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for Batávia S.A Indústria de Alimentos, is based solely on the report of the other auditors. | |
2. | We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the report of other auditors provide a reasonable basis for our opinion. | |
3. | In our opinion, based on our audit and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Perdigão S.A. and subsidiaries as of December 31, 2006, and the consolidated results of its operations, changes in its shareholders’ equity, cash flows and value added for the then year ended, in conformity with accounting principles generally accepted in Brazil, which differ in certain respects from accounting principles generally accepted in the United States of America (see Note 25 to the consolidated financial statements). | |
4. | We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2006, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 9, 2007 (except for controls over Note 25, which are dated June 8, 2007) expressed an unqualified opinion thereon. |
CRC-2SP015199/O-6
Accountant
F-4
Table of Contents
Batávia S.A. Indústria de Alimentos
CRC 2SP013439/O-5 S PR
Engagement Partner
CRC 1PR049038/O-9
F-5
Table of Contents
December 31, 2008 and 2007
(In millions of Brazilianreais)
2008 | 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | 1,233.5 | 1,108.0 | ||||||
Marketable securities | 742.5 | 665.6 | ||||||
Trade accounts receivable, net | 1,378.0 | 803.9 | ||||||
Inventories | 1,689.0 | 865.1 | ||||||
Recoverable taxes | 576.3 | 174.4 | ||||||
Deferred income tax | 127.3 | 35.3 | ||||||
Other assets | 238.5 | 115.9 | ||||||
5,985.1 | 3,768.2 | |||||||
Non-current assets: | ||||||||
Marketable securities | 0.2 | 63.3 | ||||||
Trade accounts receivable, net | 11.6 | 11.8 | ||||||
Recoverable taxes | 147.5 | 33.5 | ||||||
Deferred income tax | 323.4 | 77.9 | ||||||
Judicial deposits | 23.3 | 14.0 | ||||||
Notes receivable | 54.9 | 44.0 | ||||||
Other assets | 36.2 | 9.8 | ||||||
597.1 | 254.3 | |||||||
Permanent assets: | ||||||||
Investments | 1.0 | 1.0 | ||||||
Property, plant and equipment | 2,918.5 | 2,136.9 | ||||||
Intangibles | 1,545.7 | 269.5 | ||||||
Pre-operating expenses and software development | 172.1 | 113.4 | ||||||
4,637.3 | 2,520.8 | |||||||
5,234.4 | 2,775.1 | |||||||
Total assets | 11,219.5 | 6,543.3 | ||||||
F-6
Table of Contents
CONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2007
(In millions of Brazilianreais)
2008 | 2007 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term debt | 1,646.4 | 1,051.8 | ||||||
Trade accounts payable | 1,083.4 | 575.6 | ||||||
Payroll and related charges | 173.2 | 132.8 | ||||||
Taxes and social charges | 66.6 | 29.8 | ||||||
Dividends and interest on shareholders’ equity | 23.3 | 58.4 | ||||||
Management and employees profit sharing | 17.9 | 35.2 | ||||||
Other liabilities | 70.1 | 57.6 | ||||||
3,080.9 | 1,941.2 | |||||||
Non-current liabilities: | ||||||||
Long-term debt | 3,719.7 | 1,214.1 | ||||||
Taxes and social charges | 20.0 | 4.4 | ||||||
Deferred income tax | 69.0 | 30.2 | ||||||
Provision for contingencies | 186.4 | 124.3 | ||||||
Other liabilities | 32.2 | 3.1 | ||||||
4,027.3 | 1,376.1 | |||||||
Non-controlling shareholders | 0.7 | — | ||||||
Total liabilities | 7,108.9 | 3,317.3 | ||||||
Shareholders’ equity: | ||||||||
Capital | 3,445.0 | 2,500.0 | ||||||
Profit reserves | 704.5 | 726.8 | ||||||
Treasury shares | (0.8 | ) | (0.8 | ) | ||||
Equity Valuation Adjustments | (38.1 | ) | — | |||||
4,110.6 | 3,226.0 | |||||||
Total liabilities and shareholders’ equity | 11,219.5 | 6,543.3 | ||||||
F-7
Table of Contents
Years ended December 31, 2008, 2007 and 2006
(In millions of Brazilianreais, except per share data)
2008 | 2007 | 2006 | ||||||||||
Gross sales: | ||||||||||||
Domestic sales | 8,104.2 | 4,589.2 | 3,644.5 | |||||||||
Export sales | 5,057.1 | 3,199.4 | 2,461.4 | |||||||||
13,161.3 | 7,788.6 | 6,105.9 | ||||||||||
Taxes, discounts and returns on sales | (1,768.3 | ) | (1,155.2 | ) | (896.1 | ) | ||||||
Net sales | 11,393.0 | 6,633.4 | 5,209.8 | |||||||||
Cost of sales | (8,634.1 | ) | (4,760.1 | ) | (3,865.7 | ) | ||||||
Gross profit | 2,758.9 | 1,873.3 | 1,344.1 | |||||||||
Operating expenses: | ||||||||||||
Selling expenses | (1,891.1 | ) | (1,279.0 | ) | (1,070.8 | ) | ||||||
General and administrative expenses | (140.4 | ) | (76.9 | ) | (72.3 | ) | ||||||
Management compensation | (18.8 | ) | (13.5 | ) | (9.6 | ) | ||||||
(2,050.3 | ) | (1,369.4 | ) | (1,152.7 | ) | |||||||
Operating income before financial expenses and other | 708.6 | 503.9 | 191.4 | |||||||||
Financial expenses, net | (630.3 | ) | (105.4 | ) | (129.3 | ) | ||||||
Other operating (expenses) income, net | (261.9 | ) | (14.7 | ) | 12.2 | |||||||
(Loss) Income before taxes, profit sharing and participation of non-controlling shareholders | (183.6 | ) | 383.8 | 74.3 | ||||||||
Income and social contribution taxes benefit (expense) | 255.3 | (32.1 | ) | 61.5 | ||||||||
Employees’ profit sharing | (13.5 | ) | (24.6 | ) | (9.8 | ) | ||||||
Management’s profit sharing | (3.4 | ) | (2.6 | ) | (1.6 | ) | ||||||
Non-controlling shareholders | (0.4 | ) | (3.2 | ) | (7.1 | ) | ||||||
Net income | 54.4 | 321.3 | 117.3 | |||||||||
Shares outstanding at December 31 (thousands) | 206,528 | 185,527 | 165,527 | |||||||||
Earnings per outstanding share at year end – in BrazilianReais | 0.26 | 1.73 | 0.71 | |||||||||
F-8
Table of Contents
Years ended December 31, 2008, 2007 and 2006
(In millions of Brazilianreais, except per share data)
Equity | ||||||||||||||||||||||||
Profit | Treasury | Valuation | Retained | |||||||||||||||||||||
Capital | reserves | shares | Adjustments | earnings | Total | |||||||||||||||||||
BALANCES AS OF DECEMBER 31, 2005 | 800.0 | 423.6 | (0.8 | ) | — | — | 1,222.8 | |||||||||||||||||
Capital increase – shares issued (Note 15a) | 800.0 | — | — | — | — | 800.0 | ||||||||||||||||||
Net income for the year | — | — | — | — | 117.3 | 117.3 | ||||||||||||||||||
Appropriation of income for the year: | ||||||||||||||||||||||||
Legal reserve | — | 5.7 | — | — | (5.7 | ) | — | |||||||||||||||||
Reserve for capital increase | — | 22.9 | — | — | (22.9 | ) | — | |||||||||||||||||
Reserve for expansion | — | 50.7 | — | — | (50.7 | ) | — | |||||||||||||||||
Unrealized profits | — | 2.8 | — | — | (2.8 | ) | — | |||||||||||||||||
Dividends and interest on shareholders’ equity - R$0.2126 per outstanding share at year-end | — | — | — | — | (35.2 | ) | (35.2 | ) | ||||||||||||||||
BALANCES AS OF DECEMBER 31, 2006 | 1,600.0 | 505.7 | (0.8 | ) | — | — | 2,104.9 | |||||||||||||||||
Capital increase – shares issued (Note 15a) | 900.0 | — | — | — | — | 900.0 | ||||||||||||||||||
Net income for the year | — | — | — | — | 321.3 | 321.3 | ||||||||||||||||||
Appropriation of income for the year (Note 15c): | ||||||||||||||||||||||||
Legal reserve | — | 16.3 | — | — | (16.3 | ) | — | |||||||||||||||||
Reserve for capital increase | — | 65.1 | — | — | (65.1 | ) | — | |||||||||||||||||
Reserve for expansion | — | 144.0 | — | — | (144.0 | ) | — | |||||||||||||||||
Unrealized profits | — | (4.3 | ) | — | — | 4.3 | — | |||||||||||||||||
Interest on shareholders’ equity — R$0.5401 per outstanding share at year-end | — | — | — | — | (100.2 | ) | (100.2 | ) | ||||||||||||||||
BALANCES AS OF DECEMBER 31, 2007 | 2,500.0 | 726.8 | (0.8 | ) | — | — | 3,226.0 | |||||||||||||||||
Adjustments relating to the first time adoption of Law No. 11,638/07– adjustments (Note 2) | — | — | — | (38.1 | ) | (0.3 | ) | (38.4 | ) | |||||||||||||||
Capital increase – shares issued (Note 15a) | 945.0 | — | — | — | — | 945.0 | ||||||||||||||||||
Net income for the year | — | — | — | — | 54.4 | 54.4 | ||||||||||||||||||
Appropriation of income for the year (Note 15c): | ||||||||||||||||||||||||
Legal reserve | — | 3.9 | — | — | (3.9 | ) | — | |||||||||||||||||
Reserve for expansion | — | (3.1 | ) | — | — | 3.1 | — | |||||||||||||||||
Unrealized profits | — | (23.1 | ) | — | — | 23.1 | — | |||||||||||||||||
Interest on shareholders’ equity — R$0.36923 per outstanding share at year-end | — | — | — | — | (76.4 | ) | (76.4 | ) | ||||||||||||||||
BALANCES AS OF DECEMBER 31, 2008 | 3,445.0 | 704.5 | (0.8 | ) | (38.1 | ) | — | 4,110.6 | ||||||||||||||||
F-9
Table of Contents
Years ended December 31, 2008, 2007 and 2006
(In millions of Brazilianreais)
2008 | 2007 | 2006 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net income for the year | 54.4 | 321.3 | 117.3 | |||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Non-controlling shareholders | 0.4 | 3.2 | 7.1 | |||||||||
Depreciation, amortization and depletion | 448.5 | 272.2 | 238.6 | |||||||||
Amortization of goodwill | 153.0 | 21.4 | 7.4 | |||||||||
Exchange variations and interest | 998.4 | (75.6 | ) | 33.4 | ||||||||
Loss on disposal of permanent assets | 35.6 | 18.6 | 0.4 | |||||||||
Deferred income tax | (291.1 | ) | (14.2 | ) | (39.2 | ) | ||||||
Settlement of Summer Plan | — | — | (47.6 | ) | ||||||||
Effects relating to the first adoption of Law No. 11,638/07 | 9.6 | — | — | |||||||||
Provision/reversal for contingencies | (34.1 | ) | 3.5 | (14.2 | ) | |||||||
Other provisions | 7.8 | 9.9 | 1.7 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Trade acounts receivable | (194.9 | ) | (99.3 | ) | (72.5 | ) | ||||||
Inventories | (464.4 | ) | (223.8 | ) | (61.1 | ) | ||||||
Trade acounts payable | 255.8 | 94.1 | 106.6 | |||||||||
Contingencies payment | (27.0 | ) | (9.4 | ) | (7.0 | ) | ||||||
Payroll and related charges payable and others | (317.3 | ) | 15.4 | (67.8 | ) | |||||||
Net cash provided by operating activities | 634.7 | 337.3 | 203.0 | |||||||||
Cash flows from investing activities: | ||||||||||||
Investments in marketable securities | (2,733.0 | ) | (350.5 | ) | (972.8 | ) | ||||||
Redemption of marketable securities | 2,829.9 | 541.1 | 258.2 | |||||||||
Business acquisitions, net of cash acquired | (796.1 | ) | (347.3 | ) | (95.5 | ) | ||||||
Additions to property, plant and equipment | (634.5 | ) | (509.7 | ) | (523.9 | ) | ||||||
Acquisitions/formation period of breeding stock | (208.3 | ) | (126.1 | ) | (105.9 | ) | ||||||
Additions to deferred charges | (98.5 | ) | (42.8 | ) | (16.4 | ) | ||||||
Proceeds from disposal of permanent assets | 13.1 | 4.2 | 14.2 | |||||||||
Net cash used in investing activities | (1,627.6 | ) | (831.1 | ) | (1,442.1 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of Debt | 3,248.0 | 1,705.9 | 1,655.8 | |||||||||
Repayments of debt | (2,048.8 | ) | (1,265.2 | ) | (1,592.8 | ) | ||||||
Dividends and interest on shareholders’ equity paid | (114.3 | ) | (75.5 | ) | (61.8 | ) | ||||||
Capital Increase | 33.5 | 900.0 | 800.0 | |||||||||
Capital distribution to non-controlling shareholders | — | — | (4.1 | ) | ||||||||
Net cash provided by financing activities | 1,118.4 | 1,265.2 | 797.1 | |||||||||
Net (decrease) increase in cash and cash equivalents | 125.5 | 771.4 | (442.0 | ) | ||||||||
At the beginning of year | 1,108.0 | 336.6 | 778.6 | |||||||||
At the end of year | 1,233.5 | 1,108.0 | 336.6 | |||||||||
Supplemented cash flow disclosure: | ||||||||||||
Cash paid during the year for: | ||||||||||||
Interest | 174.3 | 139.4 | 138.9 | |||||||||
Income and social contribution taxes | 3.5 | 1.1 | 0.7 | |||||||||
Non-cash financing and investing activities Share exchange for Eleva acquisition | 911.6 |
F-10
Table of Contents
Years ended December 31, 2008, 2007 and 2006
(In millions of Brazilianreais)
2008 | 2007 | 2006 | ||||||||||
1 - Revenues | 12,488.5 | 7,437.3 | 5,871.4 | |||||||||
Sales of goods and products | 12,606.6 | 7,458.5 | 5,876.4 | |||||||||
Other income | (108.0 | ) | (13.6 | ) | (1.4 | ) | ||||||
Allowance for doubtful accounts – (Reversal / Provision) | (10.1 | ) | (7.6 | ) | (3.6 | ) | ||||||
2 - Raw materials acquired from third parties | (8,616.6 | ) | (4,722.0 | ) | (3,836.1 | ) | ||||||
Costs of products and goods sold | (6,987.6 | ) | (3,682.3 | ) | (2,977.0 | ) | ||||||
Materials, energy, services of third parties and others | (1,613.9 | ) | (1,036.3 | ) | (860.1 | ) | ||||||
Loss / Recovery of assets values | (15.1 | ) | (3.4 | ) | 1.0 | |||||||
3 - GROSS VALUE ADDED (1-2) | 3,871.9 | 2,715.3 | 2,035.3 | |||||||||
4 - RETENTIONS (DEPRECIATION, AMORTIZATION AND DEPLETION) | (601.6 | ) | (293.3 | ) | (245.9 | ) | ||||||
5 - NET VALUE ADDED (3-4) | 3,270.3 | 2,421.7 | 1,789.4 | |||||||||
6 - RECEIVED FROM THIRD PARTIES | 616.5 | 11.2 | 59.5 | |||||||||
Financial income | 616.2 | 11.0 | 59.3 | |||||||||
Other operating income | 0.4 | 0.2 | 0.2 | |||||||||
7 - ADDED VALUE TO BE DISTRIBUTED (5+6) | 3,886.9 | 2,432.9 | 1,848.9 | |||||||||
8 - DISTRIBUTION OF VALUE ADDED: | 3,886.9 | 2,432.9 | 1,848.9 | |||||||||
Payroll | 1,320.1 | 969.5 | 770.3 | |||||||||
Salaries | 1,073.4 | 814.0 | 636.2 | |||||||||
Benefits | 177.5 | 112.8 | 96.6 | |||||||||
Government Severance Indemnity Fund for Employees, Guarantee Fund for Length of Service — F.G.T.S | 69.2 | 42.6 | 37.5 | |||||||||
Taxes and contribution | 1,201.1 | 1,018.9 | 766.3 | |||||||||
Federal | 544.6 | 623.6 | 466.1 | |||||||||
State | 649.6 | 392.0 | 298.1 | |||||||||
Municipal | 6.9 | 3.3 | 2.1 | |||||||||
Capital Remuneration from third parties | 1,310.9 | 120.1 | 187.9 | |||||||||
Interests | 1,246.6 | 83.4 | 159.9 | |||||||||
Rents | 64.3 | 36.7 | 28.0 | |||||||||
Interest on own capital (dividends and interest on shareholders’ equity) | 54.8 | 324.5 | 124.4 | |||||||||
Interests on shareholder’s equity | 76.4 | 100.2 | 31.5 | |||||||||
Dividends | — | — | 3.7 | |||||||||
Retained earnings / Accumulated losses | (22.0 | ) | 221.1 | 82.1 | ||||||||
Non-controlling shareholders’ participation | 0.4 | 3.2 | 7.1 |
F-11
Table of Contents
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
• | Frozen whole chicken and chicken, pork and beef cuts; | ||
• | Ham products, sausages, bologna, frankfurters, salami and other smoked products; | ||
• | Hamburgers, steaks, breaded meat products, kibes and meatballs; | ||
• | Lasagnas, pizzas, vegetables, cheese breads, pies and pastries; | ||
• | Milk and diary products; | ||
• | Juices, soy milk and soy juices; | ||
• | Margarine; and | ||
• | Soy meal and refined soy flour, as well as animal feed. |
Participation in capital (%) | ||||||||
2008 | 2007 | |||||||
Perdigão Export Ltd.(2) | 100.0 | 100.0 | ||||||
Perdigão Agroindustrial S.A. | 100.0 | 100.0 | ||||||
PDF Participações Ltda. | 100.0 | 100.0 | ||||||
Avipal Nordeste S.A. | 100.0 | 100.0 | ||||||
Avipal S.A. Construtora Incorp.(2) | 100.0 | 100.0 | ||||||
Avipal Centro-Oeste S.A. | 100.0 | 100.0 | ||||||
Avipal Alimentos | 100.0 | 100.0 | ||||||
Estab. Levino Zaccarrdi y Cia. S.A. | 100.0 | 100.0 | ||||||
UP Alimentos Ltda. | 50.0 | 50.0 | ||||||
Perdigão Trading S.A.(2) | 100.0 | 100.0 | ||||||
PSA Participações Ltda. | 100.0 | 100.0 | ||||||
Sino dos Alpes Alimentos Ltda. | 100.0 | 100.0 | ||||||
Crossban Holdings GMBH.(1) | 100.0 | 100.0 | ||||||
Perdix International Foods Comércio Internacional Lda. | 100.0 | 100.0 | ||||||
Perdigão International Ltd. | 100.0 | 100.0 | ||||||
Perdigão UK Ltd. | 100.0 | 100.0 | ||||||
Perdigão France SARL | 100.0 | 100.0 | ||||||
Perdigão Holland B.V. | 100.0 | 100.0 | ||||||
Perdigão Nihon K.K. | 100.0 | 100.0 | ||||||
Perdigão Asia PTE Ltd. | 100.0 | 100.0 | ||||||
Plusfood UK Ltd | 100.0 | 100.0 | ||||||
BFF International Ltd.(2) | 100.0 | 100.0 | ||||||
Highline International Ltd.(2) | 100.0 | 100.0 | ||||||
Acheron Beteiligung-sverwaltung GMBH | 100.0 | — | ||||||
Perdigão Hungary | 100.0 | — | ||||||
Plusfood Groep B.V | 100.0 | — |
F-12
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Participation in capital (%) | ||||||||
2008 | 2007 | |||||||
Plusfood Magyaroszag KFT | 100.0 | — | ||||||
Plusfood Constanta SRL | 100.0 | — | ||||||
Plusfood Finance UK LTD | 100.0 | — | ||||||
Plusfood France SARL | 100.0 | — | ||||||
Plusfood Iberia SL | 100.0 | — | ||||||
Plusfood Italia SRL | 67.0 | — | ||||||
Fribo Foods Ltd. | 100.0 | — | ||||||
Batávia S.A. Indústria de Alimentos | — | 100.0 | ||||||
Perdigão Agroindustrial Mato Grosso Ltda. | — | 100.0 |
(1) | Holding company for investments abroad. | |
(2) | These subsidiaries are not currently operating. |
Total acquisition R$ | ||||
Amount paid in cash | 764.6 | |||
Exchange of shares | 911.6 | |||
Additional costs of acquisition (*) | 3.0 | |||
Purchase price | 1,679.2 | |||
Assets and liabilities, net (net assets) | 489.4 | |||
Adjustments to conform accounting practices (**) | (153.6 | ) | ||
Adjustments to the beginning balances of net assets(***) | (20.7 | ) | ||
Assets and liabilities acquired, net (net assets acquired) | 315.1 | |||
Interest acquired | 100.0 | % | ||
Net Assets acquired | 315,1 | |||
Goodwill | 1,364.1 | |||
(*) | Consists of costs relating to attorneys, external auditors, consultants and legal publications. | |
(**) | The revaluation reserve recorded by the subsidiary Eleva was reversed on January 02, 2008, in order to conform Eleva´s accounting practices to those of Perdigão. | |
(***) | Adjustments recorded to the beginning balances of the net assets of Eleva Alimentos. |
F-13
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
(g) | Corporate Restructuring |
F-14
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Current Assets | 779.6 | |||
Non-current Assets | 286.2 | |||
Permanent Assets | 404.5 | |||
Current Liabilities | (591.0 | ) | ||
Non-current Liabilities | (547.1 | ) | ||
Net Assets | 332.2 | |||
F-15
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
12 2008;
F-16
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
No. 556, of November 12 2008;
approved by CVM Resolution No. 565, of December 17, 2008;
Resolution No. 566, of December 17, 2008.
F-17
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Reported amounts | ||||||||||||
considering the | Balances excluding | |||||||||||
adjustments of Law | Law No. | the adjustments of | ||||||||||
No. 11.638/07 and | 11.638/07 and | Law No. 11.638/07 | ||||||||||
Provisional | Provisional | and Provisional | ||||||||||
Executive Act No. | Executive Act No. | Executive Act No. | ||||||||||
449/08 adjustments | 449/08 adjustments | 449/08 adjustments | ||||||||||
Current Assets | ||||||||||||
Cash, cash equivalents and marketable securities | 1,976.0 | 1.8 | (a) | 1,974.2 | ||||||||
Accounts receivable | 1,378.0 | (11.8 | )(b) | 1,389.8 | ||||||||
Other assets | 2,631.1 | (3.0 | )(b) | 2,634.1 | ||||||||
Non-current Assets | ||||||||||||
Accounts receivable | 11.6 | (0.3 | )(b) | 11.9 | ||||||||
Other assets | 262.1 | (5.1 | )(e) | 267.2 | ||||||||
Deferred tax | 323.4 | 16.0 | (b) | 307.4 | ||||||||
Investments | 1.0 | — | 1.0 | |||||||||
Property, plant and equipment, net | 2,918.5 | 8.9 | (c) | 2,909.6 | ||||||||
Intangibles | 1,545.7 | — | 1,545.7 | |||||||||
Deferred charges | 172.1 | — | 172.1 | |||||||||
Total Assets | 11,219.5 | 6.5 | 11,213.0 | |||||||||
Current Liabilities | ||||||||||||
Trade accounts payable | 1,083.4 | (4.7 | )(b) (c) | 1,088.1 | ||||||||
Short-term debt | 1,646.4 | 48.7 | (d) | 1,597.7 | ||||||||
Other liabilities | 351.1 | (1.3 | )(b) | 352.4 | ||||||||
Non-Current Liabilities | ||||||||||||
Long-term debt | 3,719.7 | — | 3,719.7 | |||||||||
Trade Accounts payable | — | 5.2 | (b) | (5.2 | ) | |||||||
Tax and social charges payable | 20.0 | (1.7 | )(c) | 21.7 | ||||||||
Other liabilities | 287.6 | (11.0 | )(b) | 298.6 | ||||||||
Non-controlling shareholders | 0.7 | — | 0.7 | |||||||||
Shareholders Equity | 4,110.6 | (28.7 | ) | 4,139.3 | ||||||||
Total Liabilities | 11,219.5 | 6.5 | 11,213.0 |
a) | According to CPC 14, the Company classified its investments in Brazilian Treasury Bonds held by its subsidiary Crossban Holdings GMBH, as “available for sale”. The unrealized gains arising from the difference between the carrying amounts and the fair value of such bonds were recorded to shareholders equity. | |
b) | The Company recorded the adjustment to present value on the relevant outstanding balances of the following accounts: trade accounts receivable, net, other assets and trade accounts payable, tax and social charges and other liabilities. The discount rate applied is based on the weighted average cost of capital, which considers the value of money over time and the specific risks of the assets and liabilities (Note 3d). | |
c) | Adjustment relating to machinery and equipment finance leasing recorded in accordance with CPC 06, which determines that the asset cost is capitalized at inception as a fixed asset |
F-18
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
and a liability (under other liabilities) for the lowest of fair value or present value of minimum lease payments per the contract. Fixed assets acquired under finance leases are depreciated using the rates set out in Note 10. | ||
d) | The Company measured its derivative instruments on non-deliverable forwards, currency swap and interest rate swap at fair value, in compliance with CPC 14 (Note16). | |
e) | The Company opted for the transition tax Regime as permitted by Provisional Executive Act No. 449/08. This regime allows companies to calculate corporate income tax and social contribution for the years 2008 and 2009 in accordance with Brazilian GAAP established by Law No. 6,404/76 and in effect at December 31, 2007 and therefore not considering the amendments of Law No. 11,638/07. Deferred income tax and social contribution were calculated and recorded in the Company’s financial statements with respect to the adjustments arising out from Law No. 11,638/07 and Provisional Executive Act No. 449/08. |
Shareholders | ||||||||
Net Income | Equity | |||||||
As reported | 54.4 | 4,110.6 | ||||||
Adjustments to retained earnings at the transition date | — | (1.3 | ) | |||||
Available for sale investments | (0.2 | ) | (0.1 | ) | ||||
Financial Instruments at fair value | 7.5 | (50.3 | ) | |||||
Finance Leasing | 0.7 | 0.7 | ||||||
Adjustment to Present Value of Assets | (8.6 | ) | (8.6 | ) | ||||
Adjustment to Present Value of Liabilities | 15.2 | 15.2 | ||||||
Investment Subsidies (*) | 2.5 | — | ||||||
Deferred taxes | (5.0 | ) | 15.8 | |||||
Balances excluding the adjustments from Law No. 11,638/07 and Provisional Executive Act No. 449/08 | 42.2 | 4,139.3 | ||||||
(*) | Law No. 11,638/07 and Provisional Executive Act No. 449/08 revoked the possibility of recording investment subsidies directly to a capital reserve. Nevertheless, the balance of investment subsidies existing in the capital reserve account at the beginning of the fiscal year in which an entity first adopts Law No. 11,638/07 and the Provisional Executive Act No. 449/08 must be maintained until its realization. Therefore, the Company maintained the existing capital reserves as of December 31, 2007, and recorded the 2008 amounts to income under other operating income. |
• | Presentation of comparative financial statements: the Company decided not to restate its 2007 financial statements using Brazilian GAAP in effect in 2008; | ||
• | Classification of financial instruments at inception date: CPC 13 allowed the classification of financial instruments to be made at the time of the first adoption of the new accounting practices, not only at its inception date; | ||
• | Maintenance of deferred charges until full realization: the Company opted to maintain its deferred charges on December 31, 2008 until complete amortization. These balances are subject to a recoverability analysis, under CPC 01 — Reduction in the Recoverable Value of Assets, although no impairment has been identified. In addition, the Company reclassified goodwill, which was recognized as a deferred charge to |
F-19
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
intangible assets, as the nature of goodwill meets the criteria for classification as intangibles; and | |||
• | Periodic assessment of fixed assets economic useful life: the Company will reassess the useful life of its fixed assets in 2009. |
• | Functional and presentation currency: financial statements of each subsidiary |
F-20
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
included in the consolidation must be prepared using the currency of the primary economic environment in which it operates. Financial statements of subsidiaries abroad are converted to reais based on its functional currency; |
• | Investments: investments in subsidiaries are accounted for by the equity method. Other investments are recorded at acquisition cost and reduced by a provision for losses, when necessary. The financial statements of subsidiaries abroad are converted to Reais based on its functional currency; and | ||
• | Exchange variation on investments: gains and losses arising from exchange rate variations on investments in subsidiaries abroad of R$214.3 in December 31, 2008 (R$84.0 in December 31, 2007) are recorded to income under financial income or expenses (Note 17). |
(i) | Held for trading – if the financial assets were purchased for the purpose of sale or repurchase in the short term, these assets are initially recorded at fair value and changes in fair value monetary (inflation adjustments) and exchange rate variations if applicable are recorded directly to income under financial income or expenses; | ||
(ii) | Held to maturity – if the Company has the positive intent and ability to hold the financial assets to maturity, these assets are recorded at their acquisition cost. Interest and monetary variation (inflation adjustments) are recognized in income, when incurred, under financial income or expenses; | ||
(iii) | Available for sale – includes all financial assets that do not qualify for categories (i) and (ii) above. These assets are initially measured at fair value and changes in fair value are recorded to shareholders’ equity, under equity valuation adjustments while unrealized, net of tax. Interest and monetary variation (inflation adjustments) are recognized in income, when incurred, under financial income or expenses. (Note 17). |
F-21
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-22
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-23
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
December, 31 | ||||||||
2008 | 2007 | |||||||
Final rate | ||||||||
U.S. dollar | 2.3370 | 1.7713 | ||||||
Euro | 3.2382 | 2.6086 | ||||||
Pound | 3.4151 | 3.5610 |
December, 31 | ||||||||
2008 | 2007 | |||||||
Average rate | ||||||||
U.S. dollar | 2.3944 | 1.7860 | ||||||
Euro | 3.2317 | 2.6021 | ||||||
Pound | 3.5571 | 3.6034 |
F-25
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||
Local currency (Brazilianreais): | ||||||||
Cash and banks | 66.5 | 669.3 | ||||||
Highly liquid investments | 44.9 | 119.3 | ||||||
111.4 | 788.6 | |||||||
Foreign currency (*): | ||||||||
Cash and banks | 421.9 | 70.3 | ||||||
Highly liquid investments | 700.2 | 249.1 | ||||||
1,122.1 | 319.4 | |||||||
1,233.5 | 1.108.0 | |||||||
(*) | Principally U.S. dollars |
WATM | ||||||||||||||
Due date | (*) | 2008 | 2007 | |||||||||||
Bank Deposits Certificates — CDB | From March 2009 to December 2011 | 1.6 | 660.1 | 663.9 | ||||||||||
Capitalization Security | From March to November 2009 | 0.6 | 0.3 | — | ||||||||||
Brazilian Treasury notes | From June to October 2009 | 0.8 | 82.3 | 65.0 | ||||||||||
742.7 | 728.9 | |||||||||||||
Current | 742.5 | 665.6 | ||||||||||||
Non-current | 0.2 | 63.3 |
(*) | Weighted average term maturity (years). |
F-26
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||
Current | ||||||||
Domestic trade accounts receivable | 695.3 | 485.1 | ||||||
Foreign trade accounts receivable | 705.6 | 325.7 | ||||||
(-) Adjustment to present value* | (11.8 | ) | — | |||||
(-) Allowance for doubtful accounts | (11.1 | ) | (6.9 | ) | ||||
1,378.0 | 803.9 | |||||||
Non-current | ||||||||
Domestic trade accounts receivable | 29.1 | 28.3 | ||||||
Foreign trade accounts receivable | 2.9 | 2.1 | ||||||
(-) Adjustment to present value* | (0.3 | ) | — | |||||
(-) Allowance for doubtful accounts | (20.1 | ) | (18.6 | ) | ||||
11.6 | 11.8 | |||||||
(*) | Note 2b |
2008 | 2007 | |||||||
Balance at beginning of period | 25.5 | 18.7 | ||||||
Provision | 15.5 | 11.3 | ||||||
Acquisition of companies | 7.3 | 0.4 | ||||||
Write-offs | (17.1 | ) | (4.9 | ) | ||||
Balance at end of year | 31.2 | 25.5 | ||||||
2008 | 2007 | |||||||
Finished goods | 903.3 | 277.9 | ||||||
Work-in-process | 41.0 | 31.9 | ||||||
Raw materials | 116.5 | 109.1 | ||||||
Livestock (poultry, turkey and hogs) for slaughter | 390.2 | 294.5 | ||||||
Secondary material and packing | 214.3 | 131.6 | ||||||
Advances to suppliers and imports in transit | 23.7 | 20.1 | ||||||
1,689.0 | 865.1 | |||||||
F-27
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||
State ICMS (VAT) | 203.1 | 82.0 | ||||||
Income tax | 131.5 | 63.2 | ||||||
PIS/COFINS (Federal Taxes to Fund Social Programs) | 359.0 | 21.5 | ||||||
Import Duty | 25.0 | 33.3 | ||||||
IPI (Federal VAT) | 3.3 | 7.2 | ||||||
Other | 1.9 | 0.7 | ||||||
723.8 | 207.9 | |||||||
Current | 576.3 | 174.4 | ||||||
Non-current | 147.5 | 33.5 |
F-28
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | 2006 | ||||||||||
(Loss) Income before income taxes and participations | (183.6 | ) | 383.8 | 74.3 | ||||||||
Nominal tax rate | 34 | % | 34 | % | 34 | % | ||||||
Tax benefit (expense) at nominal rate | 62.4 | (130.5 | ) | (25.3 | ) | |||||||
Adjustment of taxes and contributions on: | ||||||||||||
Statutory profit-sharing | 4.9 | 8.6 | 3.5 | |||||||||
Interest on shareholders’ equity | 27.7 | 34.1 | 11.5 | |||||||||
Equity pick-up | 72.9 | (28.6 | ) | (8.1 | ) | |||||||
Difference of tax rates on foreign earnings from subsidiaries abroad | 101.0 | 48.1 | 33.1 | |||||||||
Tax incentives | 0.8 | 9.2 | 7.3 | |||||||||
Summer Plan(*) | — | 0.1 | 33.4 | |||||||||
Income tax/ Social contribution adjustment on goodwill | (14.7 | ) | — | — | ||||||||
Reversal of valuation allowances on income tax and social contribution | — | 26.1 | 1.8 | |||||||||
Other adjustments | 0.3 | 0.8 | 4.3 | |||||||||
Actual tax benefit (expense) | 255.3 | (32.1 | ) | 61.5 | ||||||||
Current income taxes (expense) benefit | (43.3 | ) | (46.3 | ) | 26.4 | |||||||
Deferred income taxes (expense) benefit | 298.6 | 14.2 | 35.1 |
(*) | During 2006, the Company obtained a final favorable and irrevocable decision from the federal courts in its suit related to the Summer Plan (“Plano Verão”). Under the Summer Plan, the federal government published inflation rates to be used for the monetary correction of certain assets. In January and February 1989, the inflation rates published by the federal government were understated. As such, the monetary restatements for property, plant and equipment for these months were lower, resulting in less depreciation and, consequently, less tax benefits in subsequent years. The favorable decision obtained in 2006 results in recoverable taxes to be applied against income tax payable. |
2008 | 2007 | 2006 | ||||||||||
Income before income taxes from subsidiaries abroad | 191.6 | 164.6 | 113.7 | |||||||||
Current income taxes (expense) benefit of subsidiaries abroad | 35.6 | (2.4 | ) | 0.1 | ||||||||
Deferred income taxes (expense) benefit of subsidiaries abroad | — | (5.5 | ) | (5.7 | ) |
F-29
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||
Tax loss carry-forwards (corporate income tax) | 211.0 | 39.7 | ||||||
Negative calculation bases (social contribution) | 75.5 | 13.6 | ||||||
Temporary differences: | ||||||||
Provisions for contingencies | 111.2 | 45.5 | ||||||
Income tax and social contribution on goodwill | 10.6 | — | ||||||
Profit from foreign subsidiary (*) | — | (29.4 | ) | |||||
Taxes whose payments are suspended | 9.5 | 11.2 | ||||||
Unrealized loss on derivatives | 9.7 | 2.4 | ||||||
Depreciation | (68.9 | ) | — | |||||
Adjustments relating to the Transition Tax Regime | 16.0 | — | ||||||
Other temporary differences | 7.1 | 0 | ||||||
381.7 | 83.0 | |||||||
Current assets | 127.3 | 35.3 | ||||||
Non-current assets | 323.4 | 77.9 | ||||||
Non-current liabilities | (69.0 | ) | (30.2 | ) |
(*) | As of December 31, 2008, the Company has not provided for income taxes on the undistributed earnings of approximately R$47.2 of its foreign subsidiaries since these earnings are intended to be indefinitely reinvested. A deferred tax liability will be recognized when the Company can no longer demonstrate that it plans to indefinitely reinvest these undistributed earnings. It is not practicable to estimate the amount of additional taxes that might be payable on such undistributed earnings. |
Year | Value | |||
Current (until December 31, 2009) (*) | 117.9 | |||
2010 | 23.2 | |||
2011 | 28.9 | |||
2012 onward | 116.5 | |||
286.5 | ||||
(*) | Refer to subsequent event (Note 25 (ii)). |
F-30
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Annual | 2008 | 2007 | ||||||||||||||||||
depreciation | Accumulated | Residual | Residual | |||||||||||||||||
rate (%) | Costs | depreciation | value | value | ||||||||||||||||
Buildings and improvements | 4 | 1,404.5 | (428.9 | ) | 975.6 | 773.7 | ||||||||||||||
Machinery and equipment | 11 | 2,091.2 | (994.1 | ) | 1,097.1 | 865.3 | ||||||||||||||
Electric and hydraulic installations | 10 | 242.2 | (96.7 | ) | 145.5 | 80.3 | ||||||||||||||
Forests and reforestations | 3 | 70.3 | (16.7 | ) | 53.6 | 37.0 | ||||||||||||||
Other | 12 | 80.2 | (40.2 | ) | 40.0 | 22.7 | ||||||||||||||
Land | — | 166.9 | — | 166.9 | 121.5 | |||||||||||||||
Breeding stock | (*) | 199.3 | (40.4 | ) | 158.9 | 109.4 | ||||||||||||||
Construction in progress | 250.5 | — | 250.5 | 110.9 | ||||||||||||||||
Advances to suppliers | — | 30.4 | — | 30.4 | 16.1 | |||||||||||||||
4,535.5 | (1,617.0 | ) | 2,918.5 | 2,136.9 | ||||||||||||||||
(*) | Depreciated based on the poultry breeding cycle (15 months) and hog breeding cycle (30 months). |
F-31
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Original | ||||||||||||||||||||||||
Balances as of | Reclassified | Balances as of | ||||||||||||||||||||||
December 31, | balances as of | Exchange | December 31, | |||||||||||||||||||||
2007 | December 31, 2007 | Additions | Amortization | gain / loss | 2008 | |||||||||||||||||||
Goodwill — Incubatório Paraíso acquisition | — | 1.0 | — | (0.3 | ) | — | 0.7 | |||||||||||||||||
Goodwill — Paraíso Agroindustrial acquisition | — | 21.2 | — | (4.5 | ) | — | 16.7 | |||||||||||||||||
Goodwill — margarines business acquisition | — | 62.5 | — | (13.2 | ) | — | 49.3 | |||||||||||||||||
Goodwill — Eleva acquisition | — | — | 1,364.1 | (90.8 | ) | — | 1,273.3 | |||||||||||||||||
Goodwill — Batávia acquisition | — | 170.8 | 0.1 | (37.7 | ) | — | 133.2 | |||||||||||||||||
Goodwill — Perdigão Mato Grosso acquisition | — | 8.9 | — | (1.3 | ) | — | 7.6 | |||||||||||||||||
Goodwill — Plusfood acquisition | — | — | 19.8 | (2.3 | ) | 3.7 | 21.2 | |||||||||||||||||
Goodwill — Sino dos Alpes acquisition | — | 5.1 | — | (1.0 | ) | — | 4.1 | |||||||||||||||||
Goodwill — Cotochés acquisition | — | — | 41.6 | (2.0 | ) | — | 39.6 | |||||||||||||||||
— | 269.5 | 1,425.6 | (153.1 | ) | 3.7 | 1,545.7 | ||||||||||||||||||
Annual | ||||||||||||||||
weighted | ||||||||||||||||
average amort. | Cost | |||||||||||||||
rate (%) | Value | Amortization | Net Value | |||||||||||||
Preoperating expenses | 16 | 146.1 | (58.7 | ) | 87.4 | |||||||||||
Software development | 26 | 83.5 | (16.8 | ) | 66.7 | |||||||||||
Reorganization expenses | 20 | 47.4 | (29.5 | ) | 18.0 | |||||||||||
277.0 | (105.0 | ) | 172.1 | |||||||||||||
Annual | ||||||||||||||||
weighted | ||||||||||||||||
average amort, | Cost | |||||||||||||||
rate (%) | Value | Amortization | Net Value | |||||||||||||
Preoperating expenses (*) | 18 | 91.7 | (33.7 | ) | 58.0 | |||||||||||
Software development (**) | 22 | 38.8 | (11,0 | ) | 27.8 | |||||||||||
Reorganization expenses | 24 | 47.7 | (20.2 | ) | 27.5 | |||||||||||
178.2 | (64.9 | ) | 113.3 | |||||||||||||
(*) | Refers substantially to the projects related to the Rio Verde, Mineiros and Bom Conselho plants. | |
(**) | Refers substantially to the projects related to the adequacy of the systems and controls in the acquired Companies. |
F-32
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Weighted | Balance as | Balance | ||||||||||||||||||||||
Weighted | average term | of | as of | |||||||||||||||||||||
Charges | average rate | maturity | Non- | December | December | |||||||||||||||||||
Funding line | (% p.y.) | (p.y.) | (years) | Current | current | 31, 2008 | 31, 2007 | |||||||||||||||||
Local currency: | ||||||||||||||||||||||||
Rural credit financing | 6.75% (7.37% on 12.31.2007) | 6.75% (7.37% on 12.31.2007) | 0.5 | 220.3 | — | 220.3 | 135.1 | |||||||||||||||||
FINEM — BNDES | TJLP + 2.35% (TJLP + 2.55% on 12.31.2007) | 8.59% (8.8% on 12.31.2007) | 3.4 | 45.4 | 492.8 | 538.2 | 186.5 | |||||||||||||||||
Debentures — BNDES | TJLP + 6.00% (TJLP + 6.00% on 12.31.2007) | 12.25% (12.25% on 12.31.2007) | 1.2 | 4.2 | 2.1 | 6.3 | 10.4 | |||||||||||||||||
Tax incentives and other | TJLP / FIXED RATE/ IGPM / TR +5.15% (FIXED RATE / IGPM / TR +5.83% ON December 31, 2007) | 11.26% (7.92% on 12.31.2007) | 2.6 | 190.1 | 273.2 | 463.3 | 288.0 | |||||||||||||||||
New Swap balance (see Note 16d) | % CDI vs TR | % CDI vs TR | 0.6 | 0.1 | — | 0.1 | — | |||||||||||||||||
Total local currency | 460.1 | 768.1 | 1,228.2 | 620.0 | ||||||||||||||||||||
Foreign currency: | ||||||||||||||||||||||||
Advances on export contracts — ACC’s and ACE’s (US$) | 6.06% + e.r.(US$) (5.17% + e.r.(US$ on 12.31.2007) | 6.06% + e.r (US$) (5.17% + e.r (US$) on 12.31.2007) | 0.3 | 443.7 | — | 443.7 | 494.9 | |||||||||||||||||
Working Capital (US$) | EURIBOR + 1.20% | 6.66% + e.r (US$) | 1.0 | 49.6 | — | 49.6 | — | |||||||||||||||||
Trade related facilities (US$) | LIBOR + 2.47% / FIXED RATE (LIBOR + 1.10% on 12.31.2007) + e.r.(US$ and other currencies) | 4.46% (5.70% on 12.31.2007) + e.r (US$ and other currencies) | 3.1 | 239.8 | 1,631.8 | 1,871.6 | 469.7 | |||||||||||||||||
Pre-export facilities (US$) | LIBOR / FIXED RATE CDI + 3.17% (LIBOR +0.91% on 12.31.2007) + e.r..(US$) | 4.98% (5.50% on 12.31.2007) + e.r (US$) | 2.7 | 375.4 | 1,246.9 | 1,622.3 | 646.9 | |||||||||||||||||
FINEM — BNDES (US$ and other currencies) | UMBNDES + 2.52% (UMBNDES + 2.71% on 12.31.2007) + e.r.(US$ and other currencies) | 6.97% (9.17% on 12.31.2007) + e.r (US$ and other currencies) | 3.3 | 10.4 | 72.9 | 83.3 | 27.3 | |||||||||||||||||
Net SWAP balance (see Note 16d) | %CDI vs e.r.(US$ and other currencies) | %CDI vs e.r (US$ and other currencies) | 2.1 | 67.4 | — | 67.4 | 7.1 | |||||||||||||||||
Total foreign currency | 1,186.3 | 2,951.6 | 4,137.9 | 1,645.9 | ||||||||||||||||||||
Total debt | 1,646.4 | 3,719.7 | 5,366.1 | 2,265.9 | ||||||||||||||||||||
F-33
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-34
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Current (until December 31, 2009) | 1,646.4 | |||
2010 | 867.5 | |||
2011 | 980.4 | |||
2012 | 1,391.5 | |||
2013 | 373.2 | |||
2014 to 2043 | 107.1 | |||
5,366.1 | ||||
2008 | 2007 | |||||||
Total Debt | 5,366.1 | 2,265.9 | ||||||
Mortgages guarantees: | 606.8 | 260.5 | ||||||
Related to FINEM — BNDES | 570.2 | 213.2 | ||||||
Others — related to tax incentives and other | 36.6 | 47.3 | ||||||
Collateral of real state guarantees: | 14.5 | 0.2 | ||||||
Related to FINEM — BNDES | 12.0 | 0.2 | ||||||
Others — related to tax incentives and other | 2.5 | — | ||||||
Guarantees by pledge of goods: | 2.3 | — | ||||||
F-35
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Balance | Merger of | Updates | Balance | |||||||||||||||||||||||||
December | Companies | Additions | Reversals | for | December | |||||||||||||||||||||||
31, 2007 | (*) | (**) | (**) | Payments | inflation | 31, 2008 | ||||||||||||||||||||||
Tax (i) | 99.5 | 86.8 | 90.1 | (132.3 | ) | (4.8 | ) | 14.0 | 153.2 | |||||||||||||||||||
Labor (ii) | 27.8 | 22.8 | 27.9 | (13.2 | ) | (17.4 | ) | 3.7 | 51.6 | |||||||||||||||||||
Civil, commercial and other (iii) | 9.3 | 1.5 | 9.4 | (1.5 | ) | (5.1 | ) | 0.7 | 14.3 | |||||||||||||||||||
(-) Judicial deposits | (12.3 | ) | (9.6 | ) | (19.9 | ) | 8.5 | 0.5 | — | (32.8 | ) | |||||||||||||||||
124.3 | 101.5 | 107.5 | (138.5 | ) | (26.8 | ) | 18.4 | 186.4 | ||||||||||||||||||||
(*) | Balances from incorporation of the companies Cotochés, Eleva and Plusfood as of December 31, 2008 Note 1b, 1c and 1d. | |
(**) | As mentioned in Note 1c, the Company modified certain accounting practices adopted by Eleva to conform them to those of the Company, which impact the additions and reversals presented. |
Balance | Updates | Balance | ||||||||||||||||||||||||||
December | Sino dos | for | December 31, | |||||||||||||||||||||||||
31, 2006 | Alpes (*) | Additions | Reversals | Payments | inflation | 2007 | ||||||||||||||||||||||
Tax (i) | 94.9 | 1.5 | 9.7 | (7.7 | ) | (4.8 | ) | 5.9 | 99.5 | |||||||||||||||||||
Labor (ii) | 27.6 | 3.1 | 17.7 | (20.0 | ) | (3.1 | ) | 2.5 | 27.8 | |||||||||||||||||||
Civil, commercial and other (iii) | 4.6 | 0.5 | 7.4 | (2.2 | ) | (1.4 | ) | 0.4 | 9.3 | |||||||||||||||||||
(-) Judicial deposits | (8.2 | ) | — | (4.3 | ) | 0.2 | — | — | (12.3 | ) | ||||||||||||||||||
118.9 | 5.1 | 30.5 | (29.7 | ) | (9.3 | ) | 8.8 | 124.3 | ||||||||||||||||||||
(*) | Balances from the acquisition of Sino dos Alpes Alimentos Ltda. on March 30, 2007. |
The Company has been discussing the issue concerning the full compensation of tax losses and although the jurisprudence of Brazilian courts is contrary to the subject, the Company’s lawsuits have some peculiarities. Recently, the Company obtained a favorable decision from the Taxpayers’ Council, with respect to one of its lawsuits. That decision led to the reduction
F-36
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
The Company has challenged the increase in rates of the COFINS, receiving an unfavorable outcome in the Supreme Court (STF). Similarly, on the same subject, there is another execution tax action, duly guaranteed by the company, in process in the Foreclosure Tax Court. In June 2008, the Attorney General of the Federal Treasury (Procuradoria Geral da Fazenda Nacional) reviewed the fiscal execution for the periods of July and from October to December 1999, reducing the registered debits in accordance to the arguments presented by the Company. Thus, the provisioned amount of R$9.5 was reversed according to the new debt certificate issued by the Attorney General and the remaining provisioned balance totals to R$9.5 (R$18.4 as of December 31, 2007). Recently, new arguments have been presented related to the unconstitutionality of this increase, which have not been analyzed by the Supreme Court .
The Company has recorded a provision for a contingency of R$27.1 (R$24.8 as of December 31, 2007) regarding a judicial action for non-payment of the CPMF charge on the income from exports, which has not been analyzed by the superior courts. The Company’s suits are in the Third Region Federal Court of Appeals (TRF) and the trial appeal is pending.
The Treasury State of Rio Grande do Sul issued tax assessments disallowing the monetary correction of ICMS extemporaneous credits on raw material acquisitions, electricity services, communication services and transportation services. In relation to the monetary correction of extemporaneous credits, the precedent is against the taxpayer. The total amount of provisions is R$23.4.
The Company is discussing principally the utilization of credits on materials for consumption, being the suits in first or second administrative jurisdiction, as well as in judicial phase. The precedent is favorable to the request once the materials are part of the final product. The provision amounted to R$26.8 (R$18.3 as of December 31, 2007).
The Company is discussing administratively the utilization of credits in federal taxes compensation, in the amount of R$27.0 (R$15.1 as of December 31, 2007).
The Company’s law suit is in the second jurisdiction. The precedent of the courts allowed the collection over the portion of the production of the integrated partners considered the Company’s own production in which the retention and collection is the Company’s obligation, until Laws 8.212/91 and 8.213/91 were published. The provision amounted to R$6.9 (R$5.5 as of December 31, 2007).
F-37
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-38
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-39
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Limit | ||||||||||||||||||||||||||||
over | ||||||||||||||||||||||||||||
share | Income appropriation | Balances of Reserves | ||||||||||||||||||||||||||
capital% | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | ||||||||||||||||||||||
Interests on shareholders’ equity | — | 76.4 | 100.2 | 31.5 | — | — | — | |||||||||||||||||||||
Dividend | — | — | — | 3.7 | — | — | — | |||||||||||||||||||||
Legal reserve | 20 | 3.9 | 16.3 | 5.7 | 66.2 | 62.3 | 46.1 | |||||||||||||||||||||
Reserve for capital increase | 20 | — | 65.1 | 22.9 | 160.3 | 160.3 | 95.1 | |||||||||||||||||||||
Reserve for expansion | 80 | (3.1 | ) | 144.0 | 50.7 | 505.0 | 508.1 | 364.1 | ||||||||||||||||||||
77.2 | 325.6 | 114.5 | 731.5 | 730.7 | 505.3 | |||||||||||||||||||||||
F-40
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Common Shares | ||||||||
Shareholders | (thousands) | % | ||||||
Major shareholders(*) | 74,590.2 | 36.04 | ||||||
Managers | — | — | ||||||
Supervisory board/ Board of director | 332.9 | 0.16 | ||||||
Fiscal council | — | — | ||||||
Treasury shares | 430.5 | 0.21 | ||||||
Other shareholders | 131,604.5 | 63.59 | ||||||
206,958.1 | 100.00 | |||||||
Free floating shares | 131,604.5 | 63.59 | ||||||
(*) | Shareholders which constitutes the shareholders’ voting agreement. |
Common shares | ||||||||
Shareholders | (thousands) | % | ||||||
Major shareholders(*) | 77,606.0 | 41.73 | ||||||
Managers | — | — | ||||||
Supervisory board/ Board of director | 307.0 | 0.17 | ||||||
Fiscal council | — | — | ||||||
Treasury shares | 430.5 | 0.23 | ||||||
Other shareholders | 107,613.7 | 57.87 | ||||||
185,957.2 | 100.00 | |||||||
Free floating shares | 107,613.6 | 57.87 | ||||||
(*) | Shareholders which constitutes the shareholders’ voting agreement. |
F-41
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Common shares | ||||||||
Shareholders | (thousands) | % | ||||||
PREVI — Caixa Prev. Func. Bco Brasil(1) | 29,305.3 | 14.16 | ||||||
PETROS — Fund. Petrobrás Seg. Soc.(1) | 24,924.3 | 12.04 | ||||||
Fundo Bird(2) | 15,015.9 | 7.26 | ||||||
Fund. Telebrás Seg. Social — SISTEL(1) | 8,284.9 | 4.00 | ||||||
VALIA — Fund. Vale do Rio Doce(1) | 7,695.4 | 3.72 | ||||||
FPRV1 Sabiá FI Multimercado Previd. (Ex. Fund. Inv. Tit. V M Librium)(3) | 2,286.6 | 1.10 | ||||||
REAL GRANDEZA Fundação de A.P.A.S(1) | 2,093.8 | 1.01 | ||||||
89,606.0 | 43.30 | |||||||
Others | 117,352.1 | 56.70 | ||||||
206,958.1 | 100.00 | |||||||
(1) | Pension funds are controlled by participating employees of the respective companies | |
(2) | It is not part of the agreement signed by the Pension Funds, it belongs to Shan Ban Shun family. | |
(3) | Investment Fund held exclusively by Fundação de Assistência e Previdência Social do BNDES-FAPES. The common shares currently held by this fund are tied to the voting agreement signed by the Pension Funds. |
Common shares | ||||||||
Shareholders | (thousands) | % | ||||||
a) Major Shareholders | 74,590.2 | 36.04 | ||||||
b) Managers and Fiscal Council | 333.0 | 0.16 |
Common shares | ||||||||
Shareholders | (thousands) | % | ||||||
Advisory Council — Direct participation | 332.4 | 0.16 | ||||||
Directors | 0.6 | 0 | ||||||
Fiscal Council | — | — |
F-42
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
This Risk Policy determines what the strategies to be adopted are, and Management is responsible for contracting instruments of protection (hedge) that are approved based on limits of authority. The Board of Directors, Executive Directors and Committee of Financial Risks have different levels of authority where each of them operates within the limits pre- established in the Policy.
F-43
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-44
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Interest Risk – Fixed interest rate | Interest Risk – Capitalized interest rate | |||||||||||||
Rate | Exposure | Variation | Impact | Rate | Exposure | Variation | Impact | |||||||
CDI | Aplications | + | - | CDI | Aplications | + | + | |||||||
CDI | Aplications | - | + | CDI | Aplications | - | - | |||||||
CDI | Liabilities | + | + | CDI | Liabilities | + | - | |||||||
CDI | Liabilities | - | - | CDI | Liabilities | - | + | |||||||
Libor/Cupom USD | Aplications | + | - | TJLP | Liabilities | + | - | |||||||
Libor/Cupom USD | Aplications | - | + | TJLP | Liabilities | - | + | |||||||
Libor/Cupom USD | Liabilities | + | + | Libor | Liabilities | + | - | |||||||
Libor/Cupom USD | Liabilities | - | - | Libor | Liabilities | - | + |
2008 | 2007 | |||||||
Cash, cash equivalents and financial investments | 1,400.5 | 384.4 | ||||||
Contracts of exchange rates (swaps) — nominal value | 826.5 | 334.2 | ||||||
Contracts for future U.S. dollars — face value | 397.4 | 375.1 | ||||||
Loans and financing | (4,138.0 | ) | (1,638.7 | ) | ||||
Other operating assets and liabilities, net * | 154.7 | (1.8 | ) | |||||
(1,358.9 | ) | (546.8 | ) | |||||
F-45
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||
Exposure in foreign currency exchange rate in R$ | (1,358.9 | ) | (546.8 | ) | ||||
Exposure in foreign currency exchange rate in US$ | (581.5 | ) | (308.7 | ) |
* | Basically refers to purchase of inventory and trade accounts payable. |
2008 | ||||||||||||||||||||||
Reference | ||||||||||||||||||||||
Object of | Counterpart of the | value | Market | Unrealized | ||||||||||||||||||
Instrument | protection | Maturity | Receiving | Payable | principal value | (notional) | value | losses | ||||||||||||||
Swap (over-the-counter-CETIP) | Exchange Rate | July 2009 | R$/TR (9.31%) | R$/CDI weighted average 93.72% of CDI) | Unibanco | 11.9 | (0.1 | ) | — |
F-46
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | ||||||||||||||||||||||
Reference | ||||||||||||||||||||||
Object of | Counterpart of the | value | Market | Unrealized | ||||||||||||||||||
Instrument | protection | Maturity | Receiving | Payable | principal value | (notional) | value | losses | ||||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | From January 2009 to September 2009 | US$ (4.75%) | R$/CDI (100% of CDI) | ITAUBBA/ Santander/Votorantim /UBS/HSBC and others | 613.8 | 60.5 | 3.5 | ||||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | February 2009 | R$ Pré (16.09%) | US$ | Santander | 8.4 | (2.9 | ) | (0.2 | ) | ||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | From January 2009 to January 2013 | US$ (E.R.) + 7% | R$(76% of CDI) | Unibanco | 56.1 | 5.7 | 6.8 | ||||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | From March 2009 to January 2013 | R$ (118.5% of CDI) | US$ (E.R.)+ 83% of CDI | HSBC | 86.1 | (19.0 | ) | (0.2 | ) | ||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | From April 2009 to December 2013 | US$ + Libor 6 months + 3.61% | R$ (96.67% of CDI) | Credit Suisse | 215.5 | (31.6 | ) | (29.9 | ) | ||||||||||||
Swap (over-the-counter – CETIP) | Interest Rate | From February 2009 to August 2013 | US$ + 4.08% | US$ (Libor + 0.62%) | Santander/ HSBC and others | 554.1 | (35.0 | ) | (34.4 | ) | ||||||||||||
NDF (over-the-counter – CETIP) | Exchange Rate | From January 2009 to February 2009 | EUR (-1.42%) | US$ (E.R.) | Itaú BBA/ HSBC | 51.1 | 7.7 | (0.9 | ) | |||||||||||||
NDF (over-the-counter – CETIP) | Exchange Rate | From January 2009 to June 2009 | R$ (15.31%) | US$ (E.R.) | HSBC /UBS PACTUAL and others | 382.9 | (37.4 | ) | 7.0 | |||||||||||||
NDF (over-the-counter – CETIP) | Exchange Rate | From February 2008 to March 2009 | R$ (13.52%) | EUR (E.R.) | ITAÚBBA/UBS/Votorantim | 26.5 | (5.3 | ) | (0.4 | ) | ||||||||||||
Futures Contracts (BM&F) | Exchange Rate | February 2009 | US$ (E.R.) | R$ | Finabank | 327.5 | (10.1 | ) | (10.1 | ) | ||||||||||||
(67.5 | ) | (58.8 | ) | |||||||||||||||||||
2007 | ||||||||||||||||||||||
Reference | ||||||||||||||||||||||
Object of | Counterpart of the | value | Market | Unrealized | ||||||||||||||||||
Instrument | protection | Maturity | Receiving | Payable | principal value | (notional) | value | losses | ||||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | July 2009 | R$/TR (9.51%) | R$/CDI (weighted average 98.2% of CDI) | Unibanco | 11.9 | — | — | ||||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | From January 2008 to July de 2013 | US$ (4.089%) | R$/CDI (97.8% of CDI) | Votorantim /Unibanco and others | 276.8 | (4.5 | ) | (5.8 | ) | ||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | From January 2008 to March 2008 | US$ (E.R) | Euro (1.3327%) | Merril Lynch | 37.9 | (1.2 | ) | (1.4 | ) | ||||||||||||
Swap (over-the-counter – CETIP) | Exchange Rate | January 2008 | US$(3.46%) | Pounds (-0,20%) | Santander / HSBC | 7.6 | 0.2 | 0.1 | ||||||||||||||
(5.5 | ) | (7.1 | ) | |||||||||||||||||||
F-47
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Shareholders’ | ||||||||
Net Income | equity | |||||||
Protection derivatives | ||||||||
Interest risk | — | (57.8 | ) | |||||
Sub total | — | (57.8 | ) | |||||
Trading derivatives | ||||||||
Exchange risks | 7.5 | 1.6 | ||||||
Subtotal | 7.5 | 1.6 | ||||||
Total | 7.5 | (56.2 | ) | |||||
2008 | 2007 | |||||||||||||||||||||||||||||||
Loans and | Available | Held to | Loans and | Available | Held to | |||||||||||||||||||||||||||
receivable | for sale | maturity | Total | receivable | for sale | maturity | Total | |||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||
Marketable securities | — | 742.7 | — | 742.7 | — | 728.9 | — | 728.9 | ||||||||||||||||||||||||
Trade accounts receivable and other receivables | 1,419.1 | — | — | 1,419.1 | 815.8 | — | — | 815.8 | ||||||||||||||||||||||||
Investments | — | — | 2.4 | 2.4 | — | — | 1.0 | 1.0 |
F-48
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||||||||||||||||||||||||||
Loans and | Available | Held to | Loans and | Available | Held to | |||||||||||||||||||||||||||
receivable | for sale | maturity | Total | receivable | for sale | maturity | Total | |||||||||||||||||||||||||
Liabilities | ||||||||||||||||||||||||||||||||
Loans and financing in local currency | 871.3 | — | — | 871.3 | 609.7 | — | — | 609.7 | ||||||||||||||||||||||||
Loan and financing in foreign currency | 3,232.9 | — | — | 3,232.9 | 1,638.7 | — | — | 1,638.7 | ||||||||||||||||||||||||
Debentures | 8.3 | — | — | 8.3 | 7.1 | — | — | 7.1 | ||||||||||||||||||||||||
Total | (2,693.4) | 742.7 | 2.4 | (1,948.3 | ) | (1,439.7 | ) | 728.9 | 1.0 | (709.8 | ) | |||||||||||||||||||||
Counterpart | Hedgeinstruments | Object of hedge | Asset | Liability | Asset | Liability | Equity | |||||||||||||||||
HSBC | Swap contract of US$45.0 (Asset 118.5%CDI /Liability 83%CDI + Exchange Variation of the Principal) | Debt of $45.0 contracted to 118.5% interest in CDI (BRL) | 1.1 | (19.9 | ) | 28.3 | (47.4 | ) | (0.2 | ) | ||||||||||||||
Santander | Swap contract of US$10.0 (Asset Libor 3 months +0.5%/ Liability 3.96%) | Debt of $10.0 contracted to Libor 3 months interest + overlibor 0.5% | 23.4 | (23.5 | ) | 320.6 | (322.0 | ) | (1.3 | ) | ||||||||||||||
Santander | Swap contract of US$20.0 (Asset Libor 3 months +0.5%/ Liability 3.96%) | Debt of $20.0 contracted with ING Bank to the Libor 3 months interest + 0.5% overlibor | 46.9 | (47.0 | ) | 641.8 | (644.5 | ) | (2.7 | ) |
F-49
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Counterpart | Hedgeinstruments | Object of hedge | Asset | Liability | Asset | Liability | Equity | |||||||||||||||||
Santander | Swap contract of US$20.0 (Asset Libor 3 months +0.5%/ Liability 3.96%) | Debt of $20.0 contracted with ING Bank to the Libor 3 months interest + overlibor 0.5% | 46.9 | (47.0 | ) | 642.4 | (645.1 | ) | (2.6 | ) | ||||||||||||||
HSBC | Swap contract of US$30.0 (Asset Libor 6 months +0.8%/ Liability 4.31%) | Debt of $30.0 incurred to the Libor 6 months interest + overlibor 0.8% | 70.9 | (71.0 | ) | 513.1 | (517.2 | ) | (4.0 | ) | ||||||||||||||
HSBC | Swap contract of US$20.0 (Asset Libor 6 months +0.8%/ Liability 4.31%) | Debt of $20.0 incurred to the Libor 6 months interest + overlibor 0.8% | 47.4 | (47.5 | ) | 344.0 | (346.8 | ) | (2.7 | ) | ||||||||||||||
ABN Amro Bank | Swap contract US$75.0 (Asset Libor 6 months /Liability 4.06%) | Debt of $75.0 contracted at the Libor 6 months interest + overlibor 0.9% | — | — | 957.7 | (968.6 | ) | (10.9 | ) | |||||||||||||||
Citibank | Swap contract of US$65.0 (Asset Libor 6 months +1.75%/ Liability 4.22%) | Debt of US$65.0 contracted at the Libor 6 months interest + overlibor 1.75% | — | — | 712.1 | (715.0 | ) | (2.9 | ) | |||||||||||||||
Unibanco | Swap contract US$35.0 (Asset 7%p.y. / Liability 76%CDI ) | Debt of $35.0 contracted to the interest rate of 7% pa. (USD) | 2.7 | (3.8 | ) | 23.0 | (17.4 | ) | 6.6 | |||||||||||||||
Credit Suisse | Swap contract of US$50.0 (Asset Libor 3 months + overlibor 2.50% /Liability 92.5%CDI ) | Debt of $50.0 contracted at the Libor 3 months interest + overlibor 2.50% | 1.9 | (3.5 | ) | 17.1 | (31.2 | ) | (12.5 | ) | ||||||||||||||
Credit Suisse | Swap contract of US$50.0 (Asset Libor 3 months + overlibor 4.50% /Liability 100%CDI ) | Debt of $50.0 contracted at the Libor 3 months interest + 1.00% + overlibor Deposit contracted at the cost of 3.5% pa | 0 | (0.1 | ) | 26.7 | (44.0 | ) | (17.3 | ) | ||||||||||||||
Santander | Swap contract of US$20.0 (Asset Libor 6 months /Liability 3.82%) | Debt of $20.0 incurred to the Libor 6 months interest + overlibor1.45% | 47.2 | (47.2 | ) | 301.9 | (304.9 | ) | (2.9 | ) | ||||||||||||||
Santander | Swap contract of US$30.0 (Asset Libor 6 months /Liability 3.79%) | Debt of $30.0 incurred to the Libor 6 months interest + overlibor1.45% | 70.8 | (71.0 | ) | 454.5 | (458.9 | ) | (4.3 | ) | ||||||||||||||
TOTAL | 359.2 | (381.5 | ) | 4,983.2 | (5,063.1 | ) | (57.8 | ) | ||||||||||||||||
F-50
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Carrying value | Fair value | |||||||
Cash and cash equivalent | 1,233.5 | 1,233.5 | ||||||
Investments | 742.7 | 742.7 | ||||||
Trade accounts receivable | 1,378.0 | 1,378.0 | ||||||
Loans and financing (debt) | (5,298.6 | ) | (5,298.6 | ) | ||||
Trade accounts receivable | (1,083.4 | ) | (1,083.4 | ) | ||||
Derivatives unrealized losses (Note 16d) | (67.5 | ) | (67.5 | ) | ||||
(3,095.3 | ) | (3,095.3 | ) | |||||
F-51
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | ||||||||||||||||||||||||
R$xUSD | R$xEUR | USDxEUR | ||||||||||||||||||||||
Maturity | Notional | Average USD | Notional | Average EUR | Notional | Average EUR | ||||||||||||||||||
December 2008 | — | — | — | — | — | — | ||||||||||||||||||
January 2009 | 45.0 | 2.16061 | — | — | 15.0 | 1,5675 | ||||||||||||||||||
February 2009 | 35.0 | 2.15554 | 5.0 | 2,91250 | 5.0 | 1,5678 | ||||||||||||||||||
March 2009 | 45.0 | 2.19724 | 5.0 | 2,70850 | — | — | ||||||||||||||||||
April 2009 | 22.5 | 2.15162 | — | — | — | — | ||||||||||||||||||
May 2009 | 30.0 | 2.20400 | — | — | — | — | ||||||||||||||||||
June 2009 | 10.0 | 1.94525 | — | — | — | — | ||||||||||||||||||
TOTAL | 187.5 | — | 10.0 | — | 20.0 | — | ||||||||||||||||||
Type | 2008 | 2007 | ||||||
CDB | 24.5 | — | ||||||
Bank guarantee | 38.0 | 38.0 | ||||||
62.5 | 38.0 | |||||||
F-52
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Scenario (II) | Scenario (III) | |||||||||||||||
Probable | (deterioration of | (deterioration of | ||||||||||||||
Operation | Risk | Scenario (I) | 25%) | 50%) | ||||||||||||
Future | Apreciation of R$ | (2.2 | ) | 98.1 | 198.3 | |||||||||||
NDF | Depreciation of R$ | (35.1 | ) | (149.3 | ) | (263.6 | ) | |||||||||
SWAP | Apreciation of R$ | 43.5 | 184.9 | 324.5 | ||||||||||||
Cash and Cash Equivalents indexed in foreign currency | Apreciation of US$ | — | 350.1 | 700.2 | ||||||||||||
Debt in foreign currency | Apreciation of US$ | — | (1.034.6 | ) | (2,069.0 | ) | ||||||||||
Total | 6.2 | (550.8 | ) | (1,109.6 | ) | |||||||||||
Premisse | Exchange rate | 2,33(*) | 2,91 | 3,50 |
(*) | Note 3z. |
F-53
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Expenses: | ||||||||||||
Interest expense | (288.0 | ) | (193.7 | ) | (172.5 | ) | ||||||
Exchange variation | (911.7 | ) | 145.9 | 48.5 | ||||||||
Financial transactions tax (CPMF) | 0.1 | (33.1 | ) | (28.7 | ) | |||||||
Expenses of public offer shares | — | (29.8 | ) | (34.5 | ) | |||||||
Adjustment to present value (*) | 2.9 | — | — | |||||||||
Other expenses | (49.8 | ) | (5.7 | ) | (1.4 | ) | ||||||
(1,246.5 | ) | (116.4 | ) | (188.6 | ) | |||||||
Income | ||||||||||||
Interest Income | 83.5 | 104.8 | 70.9 | |||||||||
Summer plan | — | — | 20.7 | |||||||||
Exchange variation | 281.3 | (12.0 | ) | (13.6 | ) | |||||||
Earnings (losses) from translation of investments abroad | 214.3 | (84.0 | ) | (23.7 | ) | |||||||
Adjustment to present value (*) | (1.2 | ) | — | — | ||||||||
Other income | 38.3 | 2.2 | 5.0 | |||||||||
616.2 | 11.0 | 59.3 | ||||||||||
Net financial expense | (630.3 | ) | (105.4 | ) | (129.3 | ) | ||||||
(*) | Note 3d. |
F-54
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Insurance coverage | Type of risks | Coverage amount | ||||
PP&E and inventories | Fire, windstorm, lightning, breakage of machines, deterioration of refrigerated products, loss of profit and other risks | 4,300.6 | ||||
Domestic transportation | Road risk and carrier´s civil liabilities | Amount to be calculated based on the registered cargo | ||||
Civil liability | Third party claims | 157.1 | ||||
Credit risk | Default payments | 35.6 |
F-55
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||
Number of employees — participants in the plan | 16.1 | 17.6 | ||||||
Equity | 128.1 | 132.9 | ||||||
Sponsor’s contributions: | 6.1 | 5.9 | ||||||
Basic contribution | 5.7 | 5.4 | ||||||
Past services | 0.4 | 0.4 | ||||||
Commitment undertaken at the beginning of the plan, arising from past services on behalf of beneficiaries hired by the employer before the beginning of the plan | 3.5 | 3.9 | ||||||
Plan assets (consisted of fixed income funds and securities, variable income funds and shares) | 128.1 | 132.9 |
Assets and liabilities conciliation | 2008 | 2007 | ||||||
Present value of the actuarial liabilities | (5.7 | ) | (5.9 | ) | ||||
Fair value of assets | 6.9 | 7.2 | ||||||
Value of gain / losses, net | 0.2 | — | ||||||
Value of (liabilities) / assets, net | 1.4 | 1.3 | ||||||
Movement of actuarial (liabilities) assets, net | 2008 | |||
Assets (liabilities) net to the plan on 12.31.2007 | 1.3 | |||
Revenue recognized in the income | 0.1 | |||
Sponsor’s contribution | — | |||
Assets (liabilities) net to the plan on 12.31.2008 | 1.4 | |||
Movement of actuarial liabilities | 2008 | |||
Present value of the actuarial liabilities on 12.31.2007 | (5.9 | ) | ||
Interests on actuarial liabilities | (0.6 | ) | ||
Benefits paid | 0.7 | |||
Acturial gain / (loss) | 0.1 | |||
Present value of the actuarial liabilities on 12.31.2008 | (5.7 | ) | ||
Movement of the plan assets | 2008 | |||
Fair value of assets on 12.31.2007 | 7.2 | |||
Expected return of plan | 0.7 |
F-56
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Movement of the plan assets | 2008 | |||
Actuarial loss | (0.3 | ) | ||
Employees contribution in 2008 | — | |||
Benefits paid | (0.7 | ) | ||
Fair value of the plan assets on December 31, 2008 | 6.9 | |||
Realized expenses and revenues | 2008 | |||
Interests cost | (0.6 | ) | ||
Expected return on the plan assets | 0.7 | |||
Total | 0.1 | |||
Expected expenses and revenues | 2009 | |||||||
Interests cost | (0.6 | ) | ||||||
Expected return on the plan assets | 0.7 | |||||||
Total | 0.1 | |||||||
Actuarial assumptions | 2008 | 2007 | ||||||
Economic assumptions | ||||||||
Discount rate | 12.81% p.y. | 10.24% p.y. | ||||||
Expected rate of return on assets | 11.04% p.y. | 9.84% p.y. | ||||||
Future wage growth | — | — | ||||||
Inflation rate | 5.00% p.y. | 4.00% p.y. | ||||||
Demographic assumptions | ||||||||
Mortality table | AT-1983 | AT-1983 | ||||||
Mortality table of invalid | RRB 1983 | RRB 1944 |
2009 | 22.3 | |||
2010 | 16.6 | |||
2011 | 12.9 | |||
2012 | 9.3 | |||
2013 | 3.7 |
F-57
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2014 and thereafter | 13.1 | |||
77.9 | ||||
2008 | 2007 | |||||||
Cost | 17.4 | 13.8 | ||||||
Accumulated depreciation (*) | (8.5 | ) | (6.8 | ) | ||||
Residual | 8.9 | 7.0 | ||||||
(*) | The leased assets are depreciated at the rates described in the Note 10 for machinery and equipment. |
2008 | ||||
2009 | 2.3 | |||
2010 | 2.2 | |||
2011 | 1.5 | |||
2012 | 1.1 | |||
2013 and thereafter | 0.6 | |||
7.7 | ||||
2008 | 2007 | 2006 | ||||||||||
Amortization of goodwill(1) | (153.0 | ) | (21.4 | ) | — | |||||||
Penalties(2) | (62.6 | ) | — | — | ||||||||
Other(3) | (46.3 | ) | 6.5 | 12.2 | ||||||||
(261.9 | ) | (14.7 | ) | 12.2 | ||||||||
(1) | Refers to the amortization of goodwill related to the acquired companies. From January 1, 2009 goodwill will no longer be amortized but rather tested for impairment test. | |
(2) | As mentioned in Note 1(h) and 1(i), income for the year was affected in other operating expenses by the termination fine and due to the closure of the contract with CCL and the provision for losses related to the CCPL contract. | |
(3) | The amount of other income (expenses) relates, substantially, to some idleness cost, write-off of property, plants and equipments and obsolescence of fixed assets that are not being used in the production process. |
24. | SUMMARY OF DIFFERENCES BETWEEN BRAZILIAN GAAP AND U.S. GAAP APPLICABLE TO THE COMPANY | |
24.1 | Description of differences between Brazilian and U.S. GAAP |
F-58
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-59
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||
Cost | 60.0 | 60.0 | ||||||
Accumulated amortization | (38.6 | ) | (31.3 | ) | ||||
21.4 | 28.7 | |||||||
F-60
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
• | a hedge of the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; | ||
• | a hedge of the exposure to the variable cash flows of a forecasted transaction; or | ||
• | a hedge of the foreign currency exposure of a net investment in a foreign operation. |
F-61
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
At December 31, 2008 | ||||||||||||
Gross | ||||||||||||
Amortized | unrealized | Estimated | ||||||||||
cost | gains | fair value | ||||||||||
Bank Deposit Certificate—CDB, denominated inreais | 654.3 | — | 654.3 | |||||||||
Capitalization security | 0.3 | — | 0.3 | |||||||||
Brazilian Treasury notes: | ||||||||||||
Fixed and floating income securities denominated in U.S. dollars | 80.5 | 1.8 | 82.3 | |||||||||
735.1 | 1.8 | 736.9 | ||||||||||
Noncurrrent marketable securities | 0.2 | — | 0.2 | |||||||||
At December 31, 2007 | ||||||||||||
Gross | ||||||||||||
Amortized | unrealized | Estimated | ||||||||||
cost | gains | fair value | ||||||||||
Bank Deposit Certificate—CDB, denominated inreais | 663.9 | — | 663.9 | |||||||||
Brazilian Treasury notes: | ||||||||||||
Fixed and floating income securities denominated in U.S. dollars | 65.0 | 1.5 | 66.5 | |||||||||
728.9 | 1.5 | 730.4 | ||||||||||
Amortized | Estimated | |||||||
cost | fair value | |||||||
Due in 2009 | 735.1 | 736.9 | ||||||
Due in 2010 | — | — | ||||||
Due till 2011 | 0.2 | 0.2 | ||||||
Total | 735.3 | 737.1 | ||||||
F-62
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-63
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Eleva | Plusfood | Cotochés | ||||||||||
Fair value increments: | ||||||||||||
Inventories | 23.0 | 0.7 | 0.1 | |||||||||
Property, plant and equipment | 94.3 | 10.5 | 30.4 | |||||||||
Trademark | 714.2 | 5.7 | 12.7 | |||||||||
Commercial distribution relationship | 345.6 | 5.8 | 6.4 | |||||||||
Derivatives | 0.4 | — | — | |||||||||
Suppliers relationship | 189.4 | — | 4.9 | |||||||||
Pre operating expenses | (12.2 | ) | — | — | ||||||||
Current debt | (0.2 | ) | — | — | ||||||||
Pension plan | — | 3.7 | — | |||||||||
Deferred tax liability | (460.5 | ) | (6.7 | ) | (18.5 | ) | ||||||
Adjustments to fair value | 894.0 | 19.7 | 36.0 | |||||||||
Net book value under U.S. GAAP of identifiable net assets before adjustments to fair value | 257.4 | 18.6 | 9.2 | |||||||||
Total net assets (liabilities) | 1,151.4 | 38.3 | 45.2 | |||||||||
Interest acquired | 100 | % | 100 | % | 100 | % | ||||||
Net assets acquired | 1,151.4 | 38.3 | 45.2 | |||||||||
Acquisition cost net of cash acquired | 1,665.3 | 38.3 | 50.8 | |||||||||
Goodwill recorded under U.S. GAAP | 513.9 | — | 5.6 | |||||||||
Eleva | Plusfood (*) | Cotochés | ||||||||||
Differences in net (loss) income: | ||||||||||||
Reversal of goodwill amortization according to Brazilian GAAP | 90.8 | (1.4 | ) | 2.0 | ||||||||
Realization of fair value adjustment to inventory (a) | (23.0 | ) | (0.7 | ) | (0.1 | ) | ||||||
Exchange rate variation over trademark | — | 1.1 | — | |||||||||
Amortization of suppliers relationship (e) | (100.2 | ) | — | (3.7 | ) | |||||||
Commercial distributor relationship (d) | (52.4 | ) | 0.3 | (0.5 | ) | |||||||
Pre operating expenses | 8.8 | — | — | |||||||||
Fair value adjustment to current debt (c) | 0.2 | — | — | |||||||||
Realization of derivatives | (0.4 | ) | — | — | ||||||||
Realization of fair value adjustment to pension plan | — | 1.2 | — | |||||||||
Depreciation of fair value adjustment to property, plant and equipment (b) | (7.6 | ) | 1.0 | (1.7 | ) | |||||||
Adjustment before income tax effect | (83.8 | ) | 1.5 | (4.0 | ) | |||||||
Eleva | Plusfood (*) | Cotochés | ||||||||||
Difference in shareholders’ equity: | ||||||||||||
Reversal of goodwill recorded under Brazilian GAAP, net of amortization | (1,273.2 | ) | (21.1 | ) | (39.6 | ) | ||||||
Goodwill recorded under U.S. GAAP | 513.9 | — | 5.6 | |||||||||
Fair value adjustment to property, plant and equipment (b) | 86.7 | 11.5 | 28.7 | |||||||||
Trademarks (f) | 714.2 | 6.8 | 12.7 | |||||||||
Suppliers relationship (e) | 89.2 | — | 1.2 | |||||||||
Commercial distributor relationship (d) | 293.2 | 6.1 | 5.9 | |||||||||
Fair value adjustment to pension plan (Plusfood) | — | (6.3 | ) | — |
F-64
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Eleva | Plusfood (*) | Cotochés | ||||||||||
Pre operating expenses | (3.4 | ) | — | — | ||||||||
Adjustment before income tax effect | 420.6 | (3.0 | ) | 14.5 | ||||||||
(a) | The fair value adjustments to inventories from Plusfood, Eleva and Cotochés acquisitions were entirely realized during 2008, based on its turnover. | |
(b) | The fair value adjustments to property, plant and equipment are being depreciated over the remaining useful life of the assets, approximately 11.1%, 10,6%, 9,3% per year for Plusfood, Eleva and Cotochés, respectively. | |
(c) | The fair value adjustments to current debts was amortized over the remaining term of the related debt agreement. | |
(d) | The fair value adjustment to commercial distribution relationship is being amortized between 11% to 15% per year approximately. | |
(e) | The fair value adjustment to suppliers relationship is being amortized between 30% to 50% per year approximately. | |
(f) | The amounts of R$714.2, R$6.8 and R$12.7 for Eleva, Plusfood and Cotochés respectively were assigned to registered trademarks with undefined useful life subject to annual impairment test. | |
(*) | The adjustments recorded in Plusfood’s net loss and in shareholders’ equity include the exchange rate variation effects from Euro to Reais. |
F-65
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
49% | 51% | |||||||
acquisition | acquisition | |||||||
2007 | 2006 | |||||||
Fair value increments: | ||||||||
Inventories (a) | 2.0 | 1.9 | ||||||
Property, plant and equipment (b) | 89.6 | 95.5 | ||||||
Trademark (c) | 120.5 | 45.2 | ||||||
Supplier relationship(c) | 12.0 | 9.1 | ||||||
Commercial distributors relationship(c) | 69.3 | 6.6 | ||||||
Non-current debt(d) | 6.6 | 10.5 | ||||||
Deferred tax liability | (102.0 | ) | (57.4 | ) | ||||
Adjustments to fair value | 198.0 | 111.4 | ||||||
Net book value under U.S. GAAP of identifiable net assets before adjustments to fair value | 81.7 | 80.2 | ||||||
Total net assets | 279.7 | 191.6 | ||||||
Interest acquired | 49 | % | 51 | % | ||||
Net assets acquired | 137.1 | 97.7 | ||||||
Acquisition cost (net of other acquisition costs expensed under U.S. GAAP) | 155.1 | 112.9 | ||||||
Cash acquired | — | 2.6 | ||||||
Put option granted to minority shareholders’ | (11.6 | ) | 17.4 | |||||
Goodwill recorded under U.S. GAAP | 6.4 | 35.2 | ||||||
49% acquisition | 51% acquisition | |||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2006 | ||||||||||||||||
Differences in net (loss) income: | ||||||||||||||||||||
Reversal of goodwill amortization according to Brazilian GAAP | 22.6 | — | 15.1 | 15.1 | 2.5 | |||||||||||||||
Other acquisition costs charged to expenses under U.S. GAAP | — | — | — | — | (0.5 | ) | ||||||||||||||
Realization of fair value adjustment to inventory (a) | — | (1.0 | ) | — | — | (1.0 | ) | |||||||||||||
Amortization of supply relationship (c) | (3.9 | ) | (0.3 | ) | — | (2.8 | ) | (1.8 | ) |
F-66
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
49% acquisition | 51% acquisition | |||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2006 | ||||||||||||||||
Commercial distributor relationship (c) | (2.0 | ) | (0.2 | ) | (0.5 | ) | (0.5 | ) | (0.3 | ) | ||||||||||
Fair value adjustment to non-current debt (d) | (0.3 | ) | — | (0.5 | ) | (0.4 | ) | (0.3 | ) | |||||||||||
Depreciation of fair value adjustment to property, plant and equipment (b) | (4.5 | ) | (0.4 | ) | (6.0 | ) | (6.0 | ) | (3.4 | ) | ||||||||||
Put option fair value (f) | — | 10.5 | — | — | — | |||||||||||||||
Adjustment before income tax effect | 11.9 | 8.6 | 8.1 | 5.4 | (4.8 | ) | ||||||||||||||
49% acquisition | 51% acquisition | |||||||||||||||||||
2008 | 2007 | 2008 | 2007 | 2006 | ||||||||||||||||
Difference in shareholders’ equity: | ||||||||||||||||||||
Reversal of goodwill recorded under Brazilian GAAP | (90.3 | ) | (112.9 | ) | (42.8 | ) | (57.9 | ) | (73.0 | ) | ||||||||||
Goodwill recorded under U.S. GAAP | 6.4 | 6.4 | 13.1 | 13.1 | 34.5 | |||||||||||||||
Deferred tax benefit applied to reduce goodwill (e) | — | — | 0.7 | 0.7 | 0.7 | |||||||||||||||
Fair value adjustment to property, plant and equipment (b) | 40.1 | 44.6 | 34.3 | 40.3 | 45.2 | |||||||||||||||
Fair value adjustment to non-current debt (d) | 2.9 | 3.2 | 4.2 | 4.7 | 5.1 | |||||||||||||||
Trademarks (c) | 59.1 | 59.1 | 23.1 | 23.1 | 23.1 | |||||||||||||||
Supply relationship (c) | 1.7 | 5.6 | — | — | 2.8 | |||||||||||||||
Commercial distributor relationship (c) | 31.8 | 33.8 | 2.1 | 2.6 | 3.1 | |||||||||||||||
Put option | 22.1 | 22.1 | (22.1 | ) | (22.1 | ) | (22.1 | ) | ||||||||||||
Adjustment before income tax effect | 73.8 | 61.9 | 12.6 | 4.5 | 19.4 | |||||||||||||||
(a) | The fair value adjustments to inventories from the 49% and 51% acquisitions were entirely realized during December 2007 and June 2006, respectively, based on its turnover. | |
(b) | The fair value adjustments to property, plant and equipment are being depreciated over the remaining useful life (approximately 12 years) of the related assets. | |
(c) | Of the R$98.9 and R$31.1 acquired intangible assets in 2007 and 2006 respectively (49% and 51% of the identified intangibles), R$59.1 and R$23.1 was assigned to registered trademarks that are not subject to amortization. The remaining R$39.8 and R$8.7 of acquired intangible assets in 2007 and 2006, respectively, have a weighted-average useful life of approximately 9 years. The intangible assets that make up that amount include supply relationship of R$5.9 and R$5.3 (1.5-year weighted-average useful life) and commercial distributor relationship of R$33.9 and R$3.4 (16.9 and 7.5-year weighted-average useful life) in 2007 and 2006, respectively. | |
(d) | The fair value adjustments to long-term debt are being amortized over the remaining term of the related debt agreement. | |
(e) | Under Brazilian GAAP, the subsidiary Batavia reversed to income the valuation allowance of R$26.1 relating to the deferred tax asset on tax losses accumulated up to 2004. For U.S. GAAP purposes, SFAS No. 109, paragraph 30, provides guidance that if a valuation allowance is recognized for a deferred tax asset of an acquired entity’s deductible temporary differences or operating loss or tax credit carry forwards at the acquisition date, the tax benefits for those items that are subsequently recognized in the financial statements after the acquisition date shall be applied (i) first to reduce to zero any goodwill related to the acquisition, (ii) second to reduce to zero other non-current intangible assets related to the acquisition, and (iii) third to reduce income tax expense. For the acquisition of 51% of Batávia, the amount of R$26.1 was applied to reduce goodwill in 2007. |
F-67
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
(f) | The amount of R$10.5 corresponds to the updating fair value of the put option from December 31, 2006 to November 30, 2007. |
Margarine | Paraíso | Sino dos | ||||||||||
business | Agroindustrial | Alpes | ||||||||||
Fair value increments: | ||||||||||||
Property, plant and equipment | 33.0 | 8.5 | 1.3 | |||||||||
Trademark | 32.2 | — | — | |||||||||
Customer relationship | 34.4 | — | — | |||||||||
Deferred tax liability | (33.9 | ) | (2.9 | ) | (0.4 | ) | ||||||
Adjustments to fair value | 65.7 | 5.6 | 0.9 | |||||||||
Net book value under U.S. GAAP of identifiable net assets before adjustment to fair value | 9.0 | 6.4 | (5.0 | ) | ||||||||
Total net assets (liabilities) | 74.7 | 12.0 | (4.1 | ) | ||||||||
Interest acquired | 100.0 | % | 100.0 | % | 100.0 | % | ||||||
Net assets (liabilities) acquired | 74.7 | 12.0 | (4.1 | ) | ||||||||
Acquisition cost | 74.8 | 28.7 | 0.4 | |||||||||
Goodwill recorded under U.S. GAAP | 0.1 | 16.7 | 4.5 | |||||||||
Margarine | Paraíso | Sino dos | ||||||||||
business | Agroindustrial | Alpes | ||||||||||
Differences in net (loss) income before income tax impact: | ||||||||||||
Reversal of goodwill amortization according to Brazilian GAAP | 13.1 | 4.5 | 1.0 |
F-68
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Margarine | Paraíso | Sino dos | ||||||||||
business | Agroindustrial | Alpes | ||||||||||
Fair value depreciation of property, plant and equipment (a) | (3.2 | ) | (0.8 | ) | (0.1 | ) | ||||||
Fair value depreciation of customer relationship (c) | (4.3 | ) | — | — | ||||||||
Adjustment before income tax effect | 5.6 | 3.7 | 0.9 | |||||||||
Differences in shareholders’ equity before income tax impact: | ||||||||||||
Reversal of goodwill recorded under Brazilian GAAP | (49.4 | ) | (16.6 | ) | (4.1 | ) | ||||||
Goodwill recorded under U.S. GAAP | 0.1 | 16.7 | 4.5 | |||||||||
Fair value adjustments to property, plant and equipment (a) | 28.7 | 7.3 | 1.1 | |||||||||
Fair value adjustment to trademarks (b) | 32.2 | — | — | |||||||||
Fair value adjustment to customer relationship (c) | 28.6 | — | — | |||||||||
Adjustment before income tax effect | 40.2 | 7.4 | 1.5 | |||||||||
Margarine | Paraíso | Sino dos | ||||||||||
business | Agroindustrial | Alpes | ||||||||||
Differences in net (loss) income before income tax impact: | ||||||||||||
Reversal of goodwill amortization according to Brazilian GAAP | 3.3 | 1.2 | 0.3 | |||||||||
Fair value depreciation of property, plant and equipment (a) | (1.1 | ) | (0.4 | ) | (0.1 | ) | ||||||
Fair value depreciation of customer relationship (c) | (1.4 | ) | — | — | ||||||||
Adjustment before income tax effect | 0.8 | 0.8 | 0.2 | |||||||||
Differences in shareholders’ equity before income tax impact: | ||||||||||||
Reversal of goodwill recorded under Brazilian GAAP | (62.5 | ) | (21.1 | ) | (5.1 | ) | ||||||
Goodwill recorded under U.S. GAAP | 0.1 | 16.7 | 4.5 | |||||||||
Fair value adjustments to property, plant and equipment (a) | 31.9 | 8.1 | 1.2 | |||||||||
Fair value adjustment to trademarks (b) | 32.2 | — | — | |||||||||
Fair value adjustment to customer relationship (c) | 32.9 | — | — | |||||||||
Adjustment before income tax effect | 34.6 | 3.7 | 0.6 | |||||||||
(a) | The fair value adjustments to property, plant and equipment from the Margarine business, Paraíso Agroindustrial and Sino dos Alpes acquisitions are being depreciated over the remaining useful life (approximately 10 years) of the related assets. |
F-69
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
(b) | Of the acquired intangible assets of the Margarine business, trademarks are not subject to amortization. | |
(c) | The customer relationship acquired as intangible assets of the Margarine business acquisition has 8 years weighted-average useful life. |
Amounts Under Brazilian GAAP | 2008 | 2007 | ||||||
Net sales | 11,430.7 | 9,439.4 | ||||||
Operating (loss) income | (135.9 | ) | 394.0 | |||||
Net income | 53.6 | 279.0 | ||||||
Basic and diluted earnings per share(1) in R$ | 0.26 | 1.50 |
(1) | Shares issued in the computation of earnings per share are shares outstanding at December 31, 2008 and 2007 of 206,528 thousand and 185,527 thousand, respectively. |
F-70
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Description | 2008 | 2007 | ||||||
Balance as of January | 13.4 | 15.2 | ||||||
Addition of tax positions related to current year | 2.0 | 0.2 | ||||||
Expiration of statue of limitations | — | (2.0 | ) | |||||
Balance as of December | 15.4 | 13.4 | ||||||
F-71
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Open tax | ||||
years | ||||
Brazil | 2004-2008 | |||
Netherlands | 2001-2008 | |||
U.K. | 2004-2008 | |||
Italy | 2004-2008 | |||
Others | 2004-2008 |
• | Defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and establishes a framework for measuring fair value; | ||
• | Establishes a three-level hierarchy for fair value measurements based upon the observable inputs to the valuation of an asset or liability at the measurement date; | ||
• | Requires consideration of our nonperformance risk when valuing liabilities; and | ||
• | Expands disclosures about instruments measured at fair value. |
• | Level 1 — Quoted prices foridenticalinstruments in active markets; | ||
• | Level 2 — Quoted prices forsimilarinstruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose significant inputs are observable: and |
F-72
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
• | Level 3 — Instruments whose significant inputs areunobservable. |
Fair value measurement on a recurring basis | ||||||||||||||||
at December 31, 2008 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Financial assets | ||||||||||||||||
Bank deposit certificate-CDB | 654.5 | 654.5 | ||||||||||||||
Capitalization security | 0.3 | 0.3 | ||||||||||||||
Brazilian treasury notes | 82.3 | — | — | 82.3 | ||||||||||||
Liabilities | ||||||||||||||||
Derivatives | ||||||||||||||||
Interest rate and foreign currency swaps | — | (67.5 | ) | — | (67.5 | ) | ||||||||||
Total | 82.3 | 587.0 | 0.3 | 669.6 | ||||||||||||
F-73
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
The plan is a funded plan of the defined benefit type, providing retirement benefits based on career average salary.
F-74
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
PSPP | Plusfood | |||||||
Change in project benefit obligation | ||||||||
At beginning of the year | 5.9 | 44.2 | ||||||
Service cost | — | 1.5 | ||||||
Interest cost | 0.6 | 3.0 | ||||||
Employee contributions | — | 0.8 | ||||||
Benefits paid | (0.7 | ) | (0.7 | ) | ||||
Actual expenses, taxes and premiums paid | — | (0.1 | ) | |||||
Actuarial gain | (0.1 | ) | (3.2 | ) | ||||
Effect of exchange rate changes | — | 10.7 | ||||||
Project benefit obligation at the end of the year | 5.7 | 56.2 | ||||||
Change in plan assets | ||||||||
Fair value of plan assets | ||||||||
At beginning of the year | 7.2 | 42.8 | ||||||
Employer contributions | — | 1.2 | ||||||
Employee contributions | — | 0.8 | ||||||
Benefits paid | (0.7 | ) | (0.7 | ) | ||||
Actual expenses, taxes and premiums paid | — | (0.1 | ) | |||||
Actual return on plan assets | 0.4 | (10.7 | ) | |||||
Effect of exchange rate changes | — | 10.2 | ||||||
Fair value of plan assets at the end of the year | 6.9 | 43.5 | ||||||
Accrued pension cost asset (liability) | ||||||||
Funded status, excess (shortfall) over project benefit obligation | 1.2 | (12.7 | ) | |||||
Current asset | 1.2 | — | ||||||
Noncurrent liability (*) | — | (12.7 | ) |
(*) Assets exceed the present value of expected benefit payment in the next year, therefore all liabilities are classified as noncurrent | ||||||||
Amounts recognized in accumulated other comprehensive (loss) income | ||||||||
Net loss | 0.1 | 11.2 | ||||||
Components of net periodic pension cost | ||||||||
Service cost | — | 1.5 | ||||||
Interest cost | 0.6 | 3.0 | ||||||
Amortization of net transition asset | (0.1 | ) | — | |||||
Expected return on plan assets | (0.7 | ) | (3.6 | ) | ||||
Net periodic pension cost | (0.2 | ) | 0.9 | |||||
PSPP | Plusfood | |||||||
Used to determine benefit obligation | ||||||||
Discount rate | 12.8 | % | 5.5 | % | ||||
Underlying consumer price inflation | 5.0 | % | 1.9 | % | ||||
Rate of future compensation increases | — | 2.0 | % | |||||
Rate of pension increases | — | 1.2 | % | |||||
Long term rate of return on plan assets | 11.0 | % | 6.1 | % | ||||
Used to determine net periodic pension cost | ||||||||
Discount rate | 12.8 | % | 5.5 | % | ||||
Underlying consumer price inflation | 5.0 | % | 1.9 | % | ||||
Rate of future compensation increases | — | 2.0 | % | |||||
Rate of pension increases | — | 1.2 | % | |||||
Long term rate of return on plan assets | 11.0 | % | 6.7 | % |
F-75
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
PSPP | Plusfood | |||||||
Asset category | ||||||||
Fixed income | 83.1 | % | — | |||||
Equity securities | 16.9 | % | 27.3 | % | ||||
Corporate bonds | — | 71.8 | % | |||||
Real estate / property | 0.9 | % | ||||||
Total | 100.0 | % | 100.0 | % | ||||
PSPP | Plusfood | |||||||
Estimated future benefit payment | ||||||||
2009 | 0.5 | 0.8 | ||||||
2010 | 0.5 | 0.9 | ||||||
2011 | 0.5 | 1.1 | ||||||
2012 | 0.5 | 1.2 | ||||||
2013 | 0.5 | 1.3 | ||||||
2014-2018 | 1.9 | 8.9 |
PSPP | Plusfood | Total | ||||||||||
Funded status of pension plan — Brazilian GAAP | 1.4 | (6.4 | ) | (5.0 | ) | |||||||
Funded status of pension plan — U.S. GAAP | 1.2 | (12.7 | ) | (11.5 | ) | |||||||
Difference | (0.2 | ) | (6.3 | ) | (6.5 | ) | ||||||
U.S. GAAP difference at the acquisition | — | 3.7 | 3.7 | |||||||||
Effect in other comprehensive income | (0.3 | ) | (11.2 | ) | (11.5 | ) | ||||||
Effect in income | 0.1 | 1.2 | 1.3 | |||||||||
Effect in shareholders’ equity | (0.2 | ) | (6.3 | ) | (6.5 | ) |
F-76
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Under U.S. GAAP, handling costs are recognized as an expense in the period in which they incurred.
• | Interest income and interest expense, together with other financial charges, are displayed within operating income in the income statements presented in accordance with Brazilian GAAP. These amounts have been reclassified to non-operating income and expenses in the condensed income statement in accordance with U.S. GAAP. | ||
• | Under Brazilian GAAP, the idleness costs are classified as other operating expense. Under U.S. GAAP, idleness costs are classified as cost of sales. | ||
• | Employee and management profit sharing expenses have been classified after non-operating expenses in the consolidated income statements in accordance with Brazilian GAAP. These amounts have been reclassified to operating expenses in the condensed consolidated income statement in accordance with U.S. GAAP. | ||
• | The net income differences between Brazilian GAAP and U.S. GAAP (Note 24.2.1), have been incorporated in the condensed income statement in accordance with U.S. GAAP. |
• | Certain pre-operating expenses have been reclassified to property, plant and equipment, according to their nature. | ||
• | Deferred tax assets and liabilities are classified as current or non-current based on the classification of the related asset or liability for financial reporting or according to the expected reversal date of the temporary differences if they are not related to an asset or liability for financial reporting. All current deferred tax assets and liabilities are offset |
F-77
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
and presented as a single amount and all non-current deferred tax assets and liabilities are offset and presented as a single amount for a particular tax-paying component of the Company and within a particular tax jurisdiction. | |||
• | Judicial deposits have been reclassified from provision for contingencies, in non-current liabilities, to other assets, in non-current assets. |
Note | 2008 | 2007 | 2006 | |||||||||||||
Net income under Brazilian GAAP as reported in the accompanying consolidated financial statements | 54.4 | 321.3 | 117.3 | |||||||||||||
Different criteria for: | ||||||||||||||||
Depreciation of inflation restatement adjustments of 1996 and 1997 | 24.1 | (a) | (1.7 | ) | (2.5 | ) | (4.1 | ) | ||||||||
Reversal of depreciation on property, plant and equipment revaluation | 24.1 | (b) | 0.9 | 1.6 | 0.5 | |||||||||||
Net reversal of deferred charges – non-allowable deferred charges | 24.1 | (c) | (66.0 | ) | (30.7 | ) | 8.7 | |||||||||
Capitalization (reversal) of financial costs during construction-in-progress, net of depreciation | 24.1 | (d) | — | (0.2 | ) | — | ||||||||||
Gains (losses) on derivatives based on fair value | 24.1 | (e) | (57.7 | ) | 2.5 | (0.6 | ) | |||||||||
Adjustment to present value (Law n°11,638/07) | 24.1 | (n) | (6.5 | ) | — | — | ||||||||||
Adjustment to present value (APB No. 21) | 24.1 | (n) | 7.0 | — | — | |||||||||||
Business combinations: | ||||||||||||||||
Eleva | 24.1 | (g) | (83.8 | ) | — | — | ||||||||||
Plusfood | 24.1 | (g) | 1.5 | — | — |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Note | 2008 | 2007 | 2006 | |||||||||||||
Cotochés | 24.1 | (g) | (4.0 | ) | — | — | ||||||||||
Batávia – 51% | 24.1 | (g) | 8.1 | 5.4 | (4.8 | ) | ||||||||||
Batávia – 49% | 24.1 | (g) | 11.9 | 8.6 | — | |||||||||||
Margarine | 24.1 | (g) | 5.6 | 0.8 | — | |||||||||||
Paraíso Agroindustrial | 24.1 | (g) | 3.6 | 0.8 | — | |||||||||||
Sino dos Alpes | 24.1 | (g) | 0.9 | 0.2 | — | |||||||||||
Other acquisitions | 24.1 | (g) | 1.2 | 1.2 | 3.2 | |||||||||||
Expenses incurred in the public offering of common shares (net of tax of R$10.1 and R$11.7 in 2007 and 2006, respectively) | 24.1 | (i) | — | 19.6 | 22.7 | |||||||||||
Securities available-for-sale | 24.1 | (f) | 0.1 | — | — | |||||||||||
Adjustment from pension plan | 24.1 | (o) | 0.1 | — | — | |||||||||||
Handling costs | 2.4.1 | (p) | (41.4 | ) | — | — | ||||||||||
Minority interest on U.S. GAAP adjustments | 24.1 | (j) | — | 2.6 | (0.2 | ) | ||||||||||
Capital lease adjustment | 0.5 | — | — | |||||||||||||
Reversal of Batávia’s valuation allowance | 24.1 | (g) | — | (26.1 | ) | — | ||||||||||
Deferred tax effects of U.S. GAAP adjustments | 75.6 | 7.9 | (0.9 | ) | ||||||||||||
Net income (loss) under U.S. GAAP | (89.7 | ) | 313.0 | 141.8 | ||||||||||||
Basic and diluted (loss) earnings per share under U.S. GAAP | (0.44 | ) | 1.87 | 0.99 | ||||||||||||
Basic and diluted (loss) earnings per ADS under U.S. GAAP | (0.88 | ) | 3.74 | 1.97 | ||||||||||||
Average outstanding shares under U.S. GAAP (thousands) | 204,778 | 167,194 | 138,860 | |||||||||||||
Average outstanding ADSs under U.S. GAAP (thousands) | 102,389 | 83,597 | 69,430 |
Note | 2008 | 2007 | ||||||||||
Shareholders’ equity under Brazilian GAAP as reported in the accompanying consolidated financial statements | 4,110.6 | 3,226.0 | ||||||||||
Different criteria for: | ||||||||||||
Inflation restatement adjustments in1996 and 1997 | 24.1 | (a) | 31.9 | 33.5 | ||||||||
Reversal of property, plant and equipment revaluation, net of depreciation | 24.1 | (b) | (32.7 | ) | (33.6 | ) | ||||||
Net reversal of deferred charges—non-allowable deferred charges | 24.1 | (c) | (150.6 | ) | (84.6 | ) | ||||||
Capitalization (reversal) of financial costs during construction in progress, net of depreciation | 24.1 | (d) | (3.4 | ) | (3.3 | ) | ||||||
Gain (losses) on derivatives based on fair value | 24.1 | (e) | — | 1.5 | ||||||||
Adjustment to present value (Law n°11,638/07) | 24.1 | (n) | (1.1 | ) | — | |||||||
Adjustment to present value (APB No. 21) | 24.1 | (n) | 7.0 | |||||||||
Business combinations: | ||||||||||||
Eleva | 24.1 | (g) | 420.6 | — | ||||||||
Plusfood | 24.1 | (g) | (3.0 | ) | — | |||||||
Cotochés | 24.1 | (g) | 14.5 | — | ||||||||
Batávia – 51% | 24.1 | (g) | 12.6 | 4.5 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
Note | 2008 | 2007 | ||||||||||
Batávia – 49% | 24.1 | (g) | 73.8 | 61.9 | ||||||||
Margarine | 24.1 | (g) | 40.2 | 34.6 | ||||||||
Paraíso Agroindustrial | 24.1 | (g) | 7.3 | 3.7 | ||||||||
Sino dos Alpes | 24.1 | (g) | 1.6 | 0.6 | ||||||||
Other acquisitions | 24.1 | (g) | 19.1 | 17.8 | ||||||||
Unrealized gains on securities available-for-sale | 24.1 | (f) | — | 1.5 | ||||||||
Pension plan | 24.1 | (o) | (0.2 | ) | — | |||||||
Handling costs | 24.1 | (p) | (41.4 | ) | ||||||||
Minority interest on U.S. GAAP adjustments | 24.1 | (j) | — | — | ||||||||
Reversal of Batávia’s deferred tax valuation allowance | 24.1 | (g) | — | (26.1 | ) | |||||||
Deferred tax effects of U.S. GAAP adjustments | (533.4 | ) | (79.0 | ) | ||||||||
Shareholders’ equity under U.S. GAAP | 3,973.4 | 3,159.0 | ||||||||||
F-80
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Domestic Market | ||||||||||||
Poultry | 414.9 | 178.4 | 189.6 | |||||||||
Pork/Beef | 155.2 | 52.6 | 56.6 | |||||||||
Processed products | 3,997.5 | 2,849.1 | 2,276.7 | |||||||||
Milk | 1,475.9 | 188.6 | 101.0 | |||||||||
Other | 380.5 | 213.6 | 169.1 | |||||||||
6,423.8 | 3,482.3 | 2,793.0 | ||||||||||
Exports | ||||||||||||
Poultry | 3,000.1 | 1,858.2 | 1,326.7 | |||||||||
Pork/Beef | 817.3 | 528.4 | 568.4 | |||||||||
Milk | 106.8 | — | — | |||||||||
Processed products | 1,045.0 | 764.4 | 521.6 | |||||||||
Other | — | — | — | |||||||||
4,969.2 | 3,151.0 | 2,416.7 | ||||||||||
11,393.0 | 6,633.4 | 5,209.7 | ||||||||||
2008 | 2007 | 2006 | ||||||||||
Domestic market | 302.0 | 262.3 | 160.2 | |||||||||
Exports | 406.5 | 241.6 | 31.2 | |||||||||
708.5 | 503.9 | 191.4 | ||||||||||
2008 | 2007 | 2006 | ||||||||||
Europe | 1,103.2 | 905.6 | 666.8 | |||||||||
Far East | 1,137.9 | 795.1 | 619.4 | |||||||||
Middle East | 1,272.1 | 721.6 | 509.7 | |||||||||
Eurasia (including Russia) | 725.5 | 501.3 | 433.0 | |||||||||
Americas / Africa / and others | 730.5 | 227.4 | 187.8 | |||||||||
4,969.2 | 3,151.0 | 2,416.7 | ||||||||||
2008 | 2007 | |||||||
Trademarks (a) | 848.1 | 114.3 | ||||||
Supplier relationship (c) | 204.8 | 8.7 | ||||||
Customer relationship (b) | 393.4 | 34.4 | ||||||
Commercial distributor relationship | 37.3 | 37.1 | ||||||
1,483.6 | 194.5 | |||||||
Accumulated amortization | (176.9 | ) | (5.2 | ) | ||||
1,306.7 | 189.3 | |||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
(a) | This increase in 2008 resulted mainly from the Eleva acquisition which corresponds to 84.2% of the outstanding amount. |
(b) | The amount relates to the fair market value of customer relationship of Eleva acquisition which corresponds to 87.8% of the outstanding amount. |
(c) | The increase in 2008 resulted from Eleva’s acquisition which corresponds to 92.5% of the outstanding amount. |
2009 | 125.6 | |||
2010 | 87.1 | |||
2011 | 60.2 | |||
2012 | 60.2 | |||
2013 | 60.1 | |||
2014 onwards | 65.4 | |||
Total intangible assets with defined useful life | 458.6 | |||
Trademarks (indefinite useful life, not subject to amortization, annually tested for impairment) | 848.1 | |||
Total intangible assets | 1,306.7 | |||
F-82
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-83
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-84
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-85
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-86
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
F-87
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash and cash equivalents | 1,233.4 | 1,108.0 | ||||||
Marketable securities | 736.9 | 665.6 | ||||||
Trade accounts receivable, net | 1,385.7 | 803.1 | ||||||
Inventories | 1,688.3 | 864.7 | ||||||
Deferred tax asset | 149.1 | 35.3 | ||||||
Other assets | 790.4 | 289.5 | ||||||
5,983.8 | 3,766.2 | |||||||
Non-Current Assets: | ||||||||
Marketable securities | 0.2 | 64.8 | ||||||
Other assets | 305.8 | 126.5 | ||||||
Intangible assets | 1,306.7 | 189.3 | ||||||
Property, plant and equipment | 3,176.3 | 2,294.7 | ||||||
Investment | 6.5 | — | ||||||
Goodwill | 575.2 | 54.2 | ||||||
5,370.6 | 2,729.5 | |||||||
Total Assets | 11,354.4 | 6,495.7 | ||||||
2008 | 2007 | |||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current Liabilities: | ||||||||
Short-term debt | 1,575.9 | 1,044.7 | ||||||
Derivative financial instruments | 67.5 | 5.5 | ||||||
Trade accounts payable | 1,088.2 | 574.5 | ||||||
Other liabilities | 349.6 | 313.6 | ||||||
3,081.2 | 1,938.3 | |||||||
Non-current Liabilities: | ||||||||
Long-term debt | 3,715.5 | 1,206.2 | ||||||
Provision for contingencies | 217.4 | 106.2 | ||||||
Deferred tax liability | 305.8 | 30.2 | ||||||
Other | 60.4 | 55.8 | ||||||
4,299.1 | 1,398.4 | |||||||
Total Liabilities | 7,379.7 | 3,336.7 | ||||||
Minority Interest | 0.7 | — | ||||||
Shareholders’ Equity | 3,973.4 | 3,159.0 | ||||||
Total Liabilities, Minority Interest and Shareholders’ Equity | 11,354.4 | 6,495.7 | ||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
2008 | 2007 | 2006 | ||||||||||
Net sales | 11,357.2 | 6,632.7 | 5,209.8 | |||||||||
Cost of sales | (8,840.2 | ) | (4,811.5 | ) | (3,878.1 | ) | ||||||
Gross profit | 2,517.0 | 1,821.2 | 1,331.7 | |||||||||
Operating expenses: | ||||||||||||
Selling, general and administrative expenses | (2,136.5 | ) | (1,401.3 | ) | (1,157.5 | ) | ||||||
Other operating expenses, net | (76.0 | ) | 17.2 | 21.7 | ||||||||
(2,212.5 | ) | (1,384.1 | ) | (1,135.8 | ) | |||||||
Operating income | 304.5 | 437.1 | 195.9 | |||||||||
Non-operating (loss) income, net: | ||||||||||||
Equity pick-up | 5.5 | — | — | |||||||||
Financial expenses, net | (733.0 | ) | (73.7 | ) | (107.5 | ) | ||||||
(Loss) Income before income taxes and minority interest | (423.0 | ) | 363.4 | 88.4 | ||||||||
Income tax benefit (expense) | 333.7 | (60.4 | ) | 60.7 | ||||||||
Minority interest | (0.4 | ) | 10.0 | (7.3 | ) | |||||||
Net (loss) income | (89.7 | ) | 313.0 | 141.8 | ||||||||
2008 | 2007 | 2006 | ||||||||||
Net (loss) income | (89.7 | ) | 313.0 | 141.8 | ||||||||
Unrealized gains on securities available for sale, net of income tax effects | 0.2 | (2.0 | ) | (1.4 | ) | |||||||
Pension plan, net of deferred tax benefit of R$2.7 | (8.6 | ) | — | — | ||||||||
Comprehensive (loss) income | (98.1 | ) | 311.0 | 143.2 | ||||||||
2008 | 2007 | 2006 | ||||||||||
At beginning of the year | 3,159.0 | 2,066.8 | 1,196.1 | |||||||||
Comprehensive (loss) income | (98,1 | ) | 311.0 | 143.2 | ||||||||
Capital increase, net of related costs of R$19.6 and R$22.7 in 2007 and 2006, respectively | 945.0 | 880.4 | 777.2 | |||||||||
Additional paid in capital | 43.9 | — | — | |||||||||
Dividends and interest attributed to shareholders’ equity | (76.4 | ) | (103.9 | ) | (45.0 | ) | ||||||
Deemed dividend | — | 4.7 | (4.7 | ) | ||||||||
At end of the year | 3,973.4 | 3,159.0 | 2,066.8 | |||||||||
F-89
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
a) | On May 19, 2009, the Boards of Directors of PERDIGÃO S.A. (“PERDIGÃO”) and SADIA S.A. (“SADIA”) and, together with PERDIGÃO, the “Companies” informed their shareholders and the market that an association agreement (“Association Agreement”) was executed by and between both listed companies and the holding company HFF Participações S.A. (“HFF”), which will hold the majority of common shares issued by |
F-90
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
• | the change of the corporate name of PERDIGÃO to BRF and the incorporation of the shares issued by HFF by BRF; |
• | the corporate restructuring of BRF, SADIA and HFF; and |
• | the acquisition of shares issued by SADIA by BRF. |
F-91
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the years ended December 31, 2008, 2007 and 2006
(in millions of Brazilianreais, unless otherwise stated)
b) | On June 22, 2009, the Company issued a call notice for the extraordinary general shareholders’ meeting to be held on July 8, 2009 to vote on the matters relating to the business combination. |
F-92
Table of Contents
PERDIGÃO S.A. | ||||||
By: | /s/ José Antonio do Prado Fay | |||||
Name: | ||||||
Title: | Chief Executive Officer | |||||
By: | /s/ Leopoldo Viriato Saboya | |||||
Name: | ||||||
Title: | Chief Financial Officer |
Table of Contents
Exhibit | ||
Number | Description | |
1.01 | Amended and Restated By-laws of the Registrant, together with an English translation. | |
2.01 | Deposit Agreement among the Registrant, The Bank of New York, as depositary, and the holders from time to time of American Depositary Shares issued thereunder (incorporated by reference to Exhibit 1 to the Registration Statement on Form F-6, dated June 24, 2009, SEC File No. 333-160191). | |
2.02 | Form of American Depositary Receipt (incorporated by reference to Exhibit A to Exhibit 1 to the Registration Statement on Form F-6, dated June 24, 2009, SEC File No. 333-160191). | |
4.01 | Merger Agreement, dated May 19, 2009, among the Registrant, HFF Participações S.A., Sadia S.A. and the shareholders of the Registrant and Sadia S.A. named therein. | |
4.02 | Share Purchase and Sale Agreement, dated October 30, 2007, among the Registrant, Eleva Alimentos S.A. and the controlling shareholders of Eleva Alimentos S.A. | |
4.03 | Shareholders’ Voting Agreement, dated March 6, 2006, among certain shareholders of the Registrant and the Registrant (incorporated by reference to Exhibit 99.1 to Registration Statement on Form 6-K dated March 7, 2006, SEC File No. 1-15148). | |
8.01 | Subsidiaries of the Registrant | |
12.01 | Certification of the Chief Executive Officer under Item 15 | |
12.02 | Certification of the Chief Financial Officer under Item 15 | |
13.01 | Certification pursuant to 18 U.S.C. Section 1350. | |
13.02 | Certification pursuant to 18 U.S.C. Section 1350. |