INDEX | |
INDEPENDENT AUDITORS’ REPORT | 3 |
BALANCE SHEETS | 4 |
STATEMENTS OF INCOME | 6 |
STATEMENTS OF COMPREHENSIVE INCOME | 7 |
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY | 8 |
STATEMENTS OF CASH FLOWS | 10 |
STATEMENTS OF ADDED VALUE | 11 |
EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS | 12 |
OPINION OF THE FISCAL COUNCIL | 89 |
SUMMARIZED ANNUAL REPORT OF THE AUDIT COMMITTEE | 90 |
STATEMENTS OF BOARD OF DIRECTORS | 91 |
INDEPENDENT AUDITOR’S REPORT ON FINANCIAL STATEMENTS
The Shareholders and Officers BRF S.A.
Itajaí - SC
We have audited the accompanying individual and consolidated financial statements of BRF S.A., identified as Parent Company and Consolidated, which comprise the balance sheet as at December 31, 2014, and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. MANAGEMENT’S RESPONSIBILITY FOR THE FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), as well as for the internal controls management determined as necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error. INDEPENDENT AUDITORS’ RESPONSIBILITYOur responsibility is to express an opinion on these financial statements based on our audit, conducted in accordance with the Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. | An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the Company’s financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. OPINION In our opinion, the individual and consolidated financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of BRF S.A. as of December 31, 2014, and the individual and consolidated results of its operations and its cash flows for the year then ended in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). | OTHER MATTERS Statements of valued added We have also audited the individual and consolidated statements of value added for the year ended December 31, 2014, prepared under the responsibility of the Company´s management, which presentation is required by the Brazilian Corporate Law for public companies, and as supplemental information by IFRS, which do not require the presentation of the statement of value added. These statements have been subject to the same audit procedures previously described and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole. São Paulo, February 26, 2015. ERNST & YOUNG Antonio Humberto Barros dos Santos Patricia Nakano Ferreira |
3
BALANCE SHEETS
Year ended December 31, 2014 and 2013
(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)
Parent company | Consolidated | |||||
ASSETS | Note | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
CURRENT ASSETS | ||||||
Cash and cash equivalents | 7 | 1,979,357 | 905,176 | 6,006,942 | 3,127,715 | |
Marketable securities | 8 | 283,623 | 178,720 | 587,480 | 459,568 | |
Trade accounts receivable, net | 9 | 4,663,193 | 3,985,424 | 3,046,871 | 3,338,355 | |
Notes receivable | 9 | 170,029 | 83,743 | 215,067 | 149,007 | |
Interest on shareholders' equity receivable | 30 | 13,369 | 33,104 | 10,248 | 16 | |
Inventories | 10 | 2,204,822 | 2,462,818 | 2,941,355 | 3,111,615 | |
Biological assets | 11 | 1,122,350 | 1,198,361 | 1,130,580 | 1,205,851 | |
Recoverable taxes | 12 | 914,720 | 1,211,084 | 1,009,076 | 1,302,939 | |
Other financial assets | 22 | 42,922 | 8,857 | 43,101 | 11,572 | |
Other current assets | 501,549 | 356,079 | 539,518 | 386,937 | ||
11,895,934 | 10,423,366 | 15,530,238 | 13,093,575 | |||
Assets of discontinued operations and held for sale | 13 | 1,957,565 | 146,924 | 1,958,007 | 148,948 | |
Total current assets | 13,853,499 | 10,570,290 | 17,488,245 | 13,242,523 | ||
NON-CURRENT ASSETS | ||||||
Marketable securities | 8 | 62,104 | 56,002 | 62,104 | 56,002 | |
Trade accounts receivable, net | 9 | 6,486 | 7,690 | 7,706 | 7,811 | |
Notes receivable | 9 | 336,815 | 306,069 | 361,673 | 353,675 | |
Recoverable taxes | 12 | 898,174 | 790,619 | 912,082 | 800,808 | |
Deferred income and social contribution taxes | 14 | 751,932 | 745,875 | 714,015 | 665,677 | |
Judicial deposits | 15 | 612,286 | 472,617 | 615,719 | 478,676 | |
Biological assets | 11 | 681,823 | 568,978 | 683,210 | 568,978 | |
Receivables from related parties | 30 | - | 13,505 | - | - | |
Restricted cash | 16 | 115,179 | 99,212 | 115,179 | 99,212 | |
Other non-current assets | 310,557 | 393,438 | 317,387 | 413,717 | ||
Investments in associates and join ventures | 17 | 3,999,729 | 3,204,866 | 438,423 | 107,990 | |
Property, plant and equipment, net | 18 | 9,424,609 | 10,338,897 | 10,059,349 | 10,821,578 | |
Intangible | 19 | 3,445,090 | 4,084,139 | 4,328,643 | 4,757,922 | |
Total non-current assets | 20,644,784 | 21,081,907 | 18,615,490 | 19,132,046 |
TOTAL ASSETS | 34,498,283 | 31,652,197 | 36,103,735 | 32,374,569 | |
See accompanying notes to the consolidated financial statements. |
4 | FINANCIAL STATEMENTS 2014 |
Parent company | Consolidated | |||||
LIABILITIES | Note | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
CURRENT LIABILITIES | ||||||
Short-term debt | 20 | 2,601,022 | 2,469,634 | 2,738,903 | 2,696,594 | |
Trade accounts payable | 21 | 3,591,980 | 3,378,029 | 3,977,327 | 3,674,705 | |
Payroll and related charges | 378,093 | 390,405 | 427,058 | 433,467 | ||
Tax payable | 216,256 | 213,331 | 299,951 | 253,678 | ||
Interest on shareholders' equity | 27 | 430,909 | 336,677 | 430,909 | 336,677 | |
Employee and management profit sharing | 374,575 | 177,064 | 395,767 | 177,064 | ||
Other financial liabilities | 22 | 216,057 | 318,201 | 257,438 | 357,182 | |
Provision for tax, civil and labor risks | 26 | 233,636 | 233,435 | 242,974 | 243,939 | |
Pension abd other post-employment plans | 25 | 56,096 | 49,027 | 56,096 | 49,027 | |
Advances from related parties | 30 | 16,403 | 1,672,005 | - | - | |
Other current liabilities | 159,918 | 157,430 | 234,439 | 213,698 | ||
8,274,945 | 9,395,238 | 9,060,862 | 8,436,031 | |||
Liabilities of discontinued operations | 13 | 508,264 | - | 508,264 | - | |
Total current liabilities | 8,783,209 | 9,395,238 | 9,569,126 | 8,436,031 | ||
NON-CURRENT LIABILITIES | ||||||
Long-term debt | 20 | 7,429,599 | 5,205,667 | 8,850,432 | 7,484,596 | |
Tax payable | 6,005 | 12,219 | 25,902 | 19,494 | ||
Provision for tax, civil and labor risks | 26 | 919,446 | 754,632 | 942,759 | 775,359 | |
Deferred income and social contribution taxes | 14 | - | - | 90,184 | 20,566 | |
Liabilities with related parties | 30 | 19,738 | 12,329 | - | - | |
Advances from related parties | 30 | 796,860 | 702,780 | - | - | |
Pension abd other post-employment plans | 25 | 257,974 | 242,236 | 257,974 | 242,236 | |
Other non-current liabilities | 694,975 | 672,025 | 677,415 | 700,133 | ||
Total non-current liabilities | 10,124,597 | 7,601,888 | 10,844,666 | 9,242,384 | ||
SHAREHOLDERS' EQUITY | 27 | |||||
Capital | 12,460,471 | 12,460,471 | 12,460,471 | 12,460,471 | ||
Capital reserves | 109,446 | 113,797 | 109,446 | 113,797 | ||
Income reserves | 3,945,825 | 2,511,880 | 3,945,825 | 2,511,880 | ||
Treasury shares | (304,874) | (77,379) | (304,874) | (77,379) | ||
Other comprehensive loss | (620,391) | (353,698) | (620,391) | (353,698) | ||
Equity attributable to interest of controlling | ||||||
shareholders | 15,590,477 | 14,655,071 | 15,590,477 | 14,655,071 | ||
Equity attributable to non-controlling interest | - | - | 99,466 | 41,083 | ||
Total shareholders' equity | 15,590,477 | 14,655,071 | 15,689,943 | 14,696,154 | ||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | 34,498,283 | 31,652,197 | 36,103,735 | 32,374,569 |
5
STATEMENTS OF INCOME
Year ended December 31, 2014 and 2013
(Amounts expressed in thousands of Brazilian Reais, except Dividend – Interest on own equity per share data)
Parent company | Consolidated | |||||
Note | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||
CONTINUED OPERATIONS | ||||||
NET SALES | 31 | 25,934,135 | 25,667,319 | 29,006,843 | 27,787,477 | |
Cost of sales | 35 | (18,901,439) | (19,658,279) | (20,497,430) | (20,877,597) | |
GROSS PROFIT | 7,032,696 | 6,009,040 | 8,509,413 | 6,909,880 | ||
OPERATING INCOME (EXPENSES) | ||||||
Selling expenses | 35 | (3,654,697) | (3,370,012) | (4,216,500) | (4,141,016) | |
General and administrative expenses | 35 | (289,388) | (303,650) | (402,054) | (427,344) | |
Other operating expenses, net | 33 | (338,743) | (419,785) | (438,110) | (458,115) | |
Income from associates and joint ventures | 17 | 673,343 | 95,169 | 25,570 | 12,908 | |
OPERATING INCOME | 3,423,211 | 2,010,762 | 3,478,319 | 1,896,313 | ||
Financial income | 34 | (1,755,007) | (1,406,771) | (2,571,454) | (1,564,832) | |
Financial expenses | 34 | 780,366 | 542,855 | 1,580,756 | 817,296 | |
INCOME BEFORE TAXES | 2,448,570 | 1,146,846 | 2,487,621 | 1,148,777 | ||
Current | 14 | (77,467) | 8,808 | (117,361) | (13,093) | |
Deferred | 14 | (235,889) | (140,403) | (235,205) | (116,026) | |
INCOME FROM CONTINUED OPERATIONS | 2,135,214 | 1,015,251 | 2,135,055 | 1,019,658 | ||
DISCONTINUED OPERATIONS | ||||||
INCOME FROM DISCONTINUED OPERATIONS | 13 | 89,822 | 47,179 | 89,822 | 47,179 | |
NET PROFIT | 2,225,036 | 1,062,430 | 2,224,877 | 1,066,837 | ||
Attributable to | ||||||
Controlling shareholders | 2,225,036 | 1,062,430 | 2,225,036 | 1,062,430 | ||
Non-controlling interest | - | - | (159) | 4,407 | ||
2,225,036 | 1,062,430 | 2,224,877 | 1,066,837 | |||
EARNINGS PER SHARE | ||||||
Earnings per share - basic | 870,412,068 | 870,534,511 | ||||
Weighted average shares outstanding - basic | 28 | 2.55630 | 1.22043 | |||
Earning per share - diluted | 870,823,776 | 871,441,705 | ||||
Weighted average shares outstanding - diluted | 28 | 2.55509 | 1.21916 | |||
EARNINGS PER SHARE FROM CONTINUED OPERATIONS | ||||||
Earnings per share - basic | 870,412,068 | 870,534,511 | ||||
Weighted average shares outstanding - basic | 28 | 2.45311 | 1.16624 | |||
Earning per share - diluted | 870,823,776 | 871,441,705 | ||||
Weighted average shares outstanding - diluted | 28 | 2.45195 | 1.16502 | |||
See accompanying notes to the consolidated financial statements. |
6 | FINANCIAL STATEMENTS 2014 |
STATEMENTS OF COMPREHENSIVE INCOME
Year ended December 31, 2014 and 2013
(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)
Parent company | Consolidated | |||||
Note | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||
Net Profit | 2,225,036 | 1,062,430 | 2,224,877 | 1,066,837 | ||
Other comprehensive income | ||||||
Loss ON foreign currency translation adjustments | (120,337) | (41,264) | (120,337) | (41,264) | ||
Loss on available for sale marketable securities | 8 | (11,931) | (23,759) | (11,931) | (23,759) | |
Taxes on unrealized gains on available for sale securities | 8 | 41 | 129 | 41 | 129 | |
Unrealized losses on cash flow hedge | 4 | (162,817) | (260,066) | (162,817) | (260,066) | |
Taxes on unrealized loss on cash flow hegde | 4 | 55,752 | 94,271 | 55,752 | 94,271 | |
Net other comprehensive income, to be reclassified to | ||||||
the statement of income in subsequent periods | (239,292) | (230,689) | (239,292) | (230,689) | ||
Actuarial gains on pension and post-employment plans | 25 | 8,731 | 34,183 | 8,731 | 34,183 | |
Taxes on realized gains on pension post-employment | ||||||
plans | 25 | (2,969) | (11,623) | (2,969) | (11,623) | |
Net other comprehensive income, with no impact into | ||||||
subsequent statement of income | 5,762 | 22,560 | 5,762 | 22,560 | ||
Total comprehensive income | 1,991,506 | 854,301 | 1,991,347 | 858,708 | ||
Attributable to | ||||||
Controlling shareholders | 1,991,506 | 854,301 | 1,991,506 | 854,301 | ||
Non-controlling interest | - | - | (159) | 4,407 | ||
1,991,506 | 854,301 | 1,991,347 | 858,708 | |||
See accompanying notes to the consolidated financial statements. |
7
STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
Year ended December 31, 2014 and 2013
(Amounts expressed in thousands of Brazilian Reais, except Dividend – Interest on own equity per share data)
Capital reserves | |||||||
Paid-in | Capital | Treasury | Legal | Reserve for | |||
capital | reserve | shares | reserve | expansion | |||
BALANCES AT DECEMBER 31, 2012 | 12,460,471 | 69,897 | (51,907) | 220,246 | 1,216,049 | ||
Comprehensive income | |||||||
Loss on foreign currency translation adjustments | - | - | - | - | - | ||
Unrealized loss on available for sale marketable securities | - | - | - | - | - | ||
Unrealized loss on cash flow hedge | - | - | - | - | - | ||
Actuarial gains on pension and post-employment plans | - | - | - | - | - | ||
Net profit | - | - | - | - | - | ||
SUB-TOTAL COMPREHENSIVE INCOME | |||||||
Appropriation of income (loss) | |||||||
Dividends - R$0,05171974 per outstanding share at the end of exercise | - | - | - | - | (45,300) | ||
Interest on shareholders' equity - R$0.83154173 per outstanding share at the end of | |||||||
exercise | - | - | - | - | - | ||
Legal reserve | - | - | - | 53,121 | - | ||
Reserve for capital increases | - | - | - | - | - | ||
Reserve for tax incentives | - | - | - | - | - | ||
Reserve for retained profit | - | - | - | - | - | ||
Share-based payments | - | 26,761 | - | - | - | ||
Gains on shares sold | - | 17,139 | - | - | - | ||
Non-controlling interest | - | - | - | - | - | ||
Treasury shares acquired | - | - | (78,634) | - | - | ||
Treasury shares sold | - | - | 53,162 | - | - | ||
BALANCES AT DECEMBER 31, 2013 | 12,460,471 | 113,797 | (77,379) | 273,367 | 1,170,749 | ||
Comprehensive income | |||||||
Loss on foreign currency translation adjustments | - | - | - | - | - | ||
Unrealized loss in available for sale marketable securities | - | - | - | - | - | ||
Unrealized gain in cash flow hedge | - | - | - | - | - | ||
Actuarial gains on pension and post-employment plans | - | - | - | - | - | ||
Net profit | - | - | - | - | - | ||
SUB-TOTAL COMPREHENSIVE INCOME | |||||||
Appropriation of income (loss) | |||||||
Dividends - R$0,09972393 per outstanding share at the end of exercise | - | - | - | - | - | ||
Interest on shareholders' equity - R$0,84863360 per outstanding share at the end | |||||||
of exercise | - | - | - | - | - | ||
Legal reserve | - | - | - | 111,252 | - | ||
Reserve for expansion | - | - | - | - | 730,684 | ||
Reserve for capital increases | - | - | - | - | - | ||
Reserve for tax incentives | - | - | - | - | - | ||
Share-based payments | - | 20,673 | - | - | - | ||
Gains on of shares sold | - | (23,682) | - | - | - | ||
Goodwill on the acquisition of non-controlling interest | - | (1,342) | - | - | - | ||
Non-controlling interest | - | - | - | - | - | ||
Treasury shares acquired | - | - | (350,942) | - | - | ||
Treasury shares sold | - | - | 123,447 | - | - | ||
BALANCES AT DECEMBER 31, 2014 | 12,460,471 | 109,446 | (304,874) | 384,619 | 1,901,433 | ||
See accompanying notes to the consolidated financial statements. |
8 | FINANCIAL STATEMENTS 2014 |
Attributed to of controlling shareholders | ||||||||||||
Income reserves | Other comprehensive income (loss) | |||||||||||
Acumulated | ||||||||||||
Reserve | foreign | Available | Total | |||||||||
Reserve | for | Reserve | currency | for sale | Losses on | Actuarial | Retained | Non- | shareholders' | |||
for capital | retained | for tax | translation | marketable | cash flow | gains | earnings | controlling | equity | |||
increases | profit | incentives | adjustments | securities | hedge | (losses) | (losses) | Total equity | interest | (consolidated) | ||
700,811 | 13,127 | 123,973 | 9,006 | 18,224 | (175,892) | (52,350) | - | 14,551,655 | 37,512 | 14,589,167 | ||
- | - | - | (41,264) | - | - | - | - | (41,264) | - | (41,264) | ||
- | - | - | - | (23,630) | - | - | - | (23,630) | - | (23,630) | ||
- | - | - | - | - | (165,795) | - | - | (165,795) | - | (165,795) | ||
- | - | - | - | - | - | 78,003 | (55,443) | 22,560 | - | 22,560 | ||
- | - | - | - | - | - | - | 1,062,430 | 1,062,430 | 4,407 | 1,066,837 | ||
(41,264) | (23,630) | (165,795) | 78,003 | 1,006,987 | 854,301 | 4,407 | 858,708 | |||||
- | - | - | - | - | - | - | - | (45,300) | - | (45,300) | ||
- | - | - | - | - | - | - | (724,013) | (724,013) | - | (724,013) | ||
- | - | - | - | - | - | - | (53,121) | - | - | - | ||
121,800 | - | - | - | - | - | - | (121,800) | - | - | - | ||
- | - | 121,180 | - | - | - | - | (121,180) | - | - | - | ||
- | (13,127) | - | - | - | - | - | 13,127 | - | - | - | ||
- | - | - | - | - | - | - | - | 26,761 | - | 26,761 | ||
- | - | - | - | - | - | - | - | 17,139 | - | 17,139 | ||
- | - | - | - | - | - | - | - | - | (836) | (836) | ||
- | - | - | - | - | - | - | - | (78,634) | - | (78,634) | ||
- | - | - | - | - | - | - | - | 53,162 | - | 53,162 | ||
822,611 | - | 245,153 | (32,258) | (5,406) | (341,687) | 25,653 | - | 14,655,071 | 41,083 | 14,696,154 | ||
- | - | - | (120,337) | - | - | - | - | (120,337) | - | (120,337) | ||
- | - | - | - | (11,890) | - | - | - | (11,890) | - | (11,890) | ||
- | - | - | - | - | (107,065) | - | - | (107,065) | - | (107,065) | ||
- | - | - | - | - | - | (27,401) | 33,163 | 5,762 | - | 5,762 | ||
- | - | - | - | - | - | - | 2,225,036 | 2,225,036 | (159) | 2,224,877 | ||
(120,337) | (11,890) | (107,065) | (27,401) | 2,258,199 | 1,991,506 | (159) | 1,991,347 | |||||
- | - | - | - | - | - | - | (86,489) | (86,489) | - | (86,489) | ||
- | - | - | - | - | - | - | (737,765) | (737,765) | - | (737,765) | ||
- | - | - | - | - | - | - | (111,252) | - | - | - | ||
- | - | - | - | - | - | - | (730,684) | - | - | - | ||
451,640 | - | - | - | - | - | - | (451,640) | - | - | - | ||
- | - | 140,369 | - | - | - | - | (140,369) | - | - | - | ||
- | - | - | - | - | - | - | - | 20,673 | - | 20,673 | ||
- | - | - | - | - | - | - | - | (23,682) | - | (23,682) | ||
- | - | - | - | - | - | - | - | (1,342) | - | (1,342) | ||
- | - | - | - | - | - | - | - | - | 58,542 | 58,542 | ||
- | - | - | - | - | - | - | - | (350,942) | - | (350,942) | ||
- | - | - | - | - | - | - | - | 123,447 | - | 123,447 | ||
1,274,251 | - | 385,522 | (152,595) | (17,296) | (448,752) | (1,748) | - | 15,590,477 | 99,466 | 15,689,943 |
9
STATEMENTS OF CASH FLOWS
Year ended December 31, 2014 and 2013
(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)
Parent company | Consolidated | ||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||
OPERATING ACTIVITIES | |||||
Net profit | 2,135,214 | 1,015,251 | 2,135,214 | 1,015,251 | |
Adjustments to reconcile net income to net cash provided by operating | |||||
activities | |||||
Non-controlling interest | - | - | (159) | 4,407 | |
Depreciation and amortization | 1,178,124 | 1,060,173 | 1,230,418 | 1,117,352 | |
Equity in income of affiliates | (673,343) | (95,169) | (25,570) | (12,908) | |
Gain in business combination | - | - | (24,963) | - | |
Results on disposal on investments | (179,268) | - | (179,268) | - | |
Loss on disposal of property, plant and equipment | (103,291) | (104,300) | (111,410) | (85,226) | |
Deferred income tax | 235,889 | 140,403 | 235,205 | 116,026 | |
Provision for tax, civil and labor risks | 302,016 | 309,527 | 306,632 | 314,845 | |
Other provisions | 15,349 | (58,405) | 70,273 | (60,161) | |
Exchange rate variations and interest | 1,323,603 | 949,436 | 1,173,758 | 1,253,195 | |
Changes in operating assets and liabilities | |||||
Investments in trading securities | (295,424) | - | (295,424) | - | |
Redemptions of trading securities | 217,761 | 106,125 | 218,899 | 118,116 | |
Other financial assets and liabilities | (300,181) | (133,643) | (284,471) | (158,438) | |
Trade accounts receivable | (675,242) | (977,772) | 459,197 | (188,300) | |
Inventories | 270,676 | 11,531 | 369,183 | (110,619) | |
Biological assets - current assets | 76,011 | 159,754 | 75,271 | 165,148 | |
Trade accounts payable | 198,868 | 351,158 | 202,946 | 402,052 | |
Payment of tax, civil and labor provisions | (259,445) | (283,908) | (259,445) | (284,761) | |
Interest paid | (452,375) | (403,788) | (618,724) | (568,364) | |
Payroll and related charges | - | - | (5,556) | (2,333) | |
Interest on shareholders' equity received | 114,572 | 22,287 | 54,674 | 22,287 | |
Other rights and obligations | (1,522,672) | (591,633) | 114,958 | 155,615 | |
Net cash provided by operating activities from continued operations | 1,606,842 | 1,477,027 | 4,841,638 | 3,213,184 | |
Net cash provided by operating activities from continued operations | 160,153 | 105,499 | 160,153 | 105,499 | |
Net cash provided by operating activities | 1,766,995 | 1,582,526 | 5,001,791 | 3,318,683 | |
INVESTING ACTIVITIES | |||||
Investments in held to maturity securities | - | - | - | (314,991) | |
Redemptions of held to maturity marketable securities | - | - | - | 429,214 | |
Investments in available for sale securities | - | - | (43,878) | (144,888) | |
Redemptions of available for sale securities | 1,014 | - | 43,405 | 156,160 | |
Investments in restricted cash | (15,967) | (15,335) | (15,967) | (6,198) | |
Capital increase in associates and joint ventures | - | (104,359) | - | (17,500) | |
Business combination, net of cash | - | - | (372,751) | - | |
Investments in associates and joint venturies | (3,420) | (1,030) | (53,520) | (55,491) | |
Goodwill in the acquisiton of non-controlling entities | (1,342) | - | (1,342) | - | |
Cash of merged company | - | - | - | - | |
Additions to property, plant and equipment | (771,100) | (1,041,595) | (1,020,964) | (1,180,562) | |
Additions to biological assets - non-current assets | (515,849) | (501,842) | (517,488) | (501,842) | |
Proceeds from disposals of property, plant and equipment | 141,243 | 264,286 | 170,557 | 265,759 | |
Additions to intangible assets | (47,257) | (4,535) | (50,410) | (54,575) | |
Net cash used in investing activities from continued operations | (1,212,678) | (1,404,410) | (1,862,358) | (1,424,914) | |
Net cash used in investing activities from discontinued operations | (51,161) | (87,720) | (51,161) | (87,720) | |
Net cash used in investing activities | (1,263,839) | (1,492,130) | (1,913,519) | (1,512,634) | |
FINANCING ACTIVITIES | |||||
Proceeds from debt issuance | 3,985,631 | 3,281,370 | 5,116,839 | 3,744,296 | |
Repayment of debt | (2,462,778) | (2,795,735) | (4,707,779) | (3,897,043) | |
Treasury shares acquired | (350,942) | (78,634) | (350,942) | (78,634) | |
Treasury shares disposal | 99,765 | 53,162 | 99,765 | 53,162 | |
Payments of dividends and interest on shareholders' equity | (726,013) | (579,050) | (726,013) | (579,050) | |
Net cash (used in) provided by financing activities | 545,663 | (118,887) | (568,130) | (757,269) | |
EFFECT ON EXCHANGE RATE VARIATION ON CASH AND CASH EQUIVALENTS | 25,362 | 25,748 | 359,085 | 148,242 | |
Net encrease in cash | 1,074,181 | (2,743) | 2,879,227 | 1,197,022 | |
At the beginning of the period | 905,176 | 907,919 | 3,127,715 | 1,930,693 | |
At the end of the period | 1,979,357 | 905,176 | 6,006,942 | 3,127,715 | |
Supplementary information that not affect cash flow: | |||||
Goodwill on acquisition of the equity interest of Minerva R$ 247,282 and financial leasing R$30,021. | |||||
See accompanying notes to the consolidated financial statements. |
10 | FINANCIAL STATEMENTS 2014 |
STATEMENTS OF ADDED VALUE
Year ended December 31, 2014 and 2013
(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)
Parent company | Consolidated | ||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||
1 - REVENUES | 29,259,062 | 28,741,357 | 32,751,151 | 31,281,047 | |
Sales of goods and products | 28,570,547 | 28,152,437 | 31,895,159 | 30,592,365 | |
Other income | 11,675 | (251,366) | (54,946) | (283,019) | |
Revenue related to construction of own assets | 675,517 | 833,743 | 908,443 | 956,161 | |
Allowance for doubtful accounts provisions | 1,323 | 6,543 | 2,495 | 15,540 | |
2 - RAW MATERIAL ACQUIRED FROM THIRD PARTIES | (18,402,267) | (18,979,449) | (20,364,761) | (20,714,969) | |
Costs of products and goods | (15,180,278) | (15,864,812) | (16,530,170) | (16,793,971) | |
Materials, energy, third parties services and other | (3,234,668) | (3,098,658) | (3,851,677) | (3,903,418) | |
Recovery (loss) of assets values | 12,679 | (15,979) | 17,086 | (17,580) | |
3 - GROSS VALUE ADDED (1-2) | 10,856,795 | 9,761,908 | 12,386,390 | 10,566,078 | |
4 - DEPRECIATION AND AMORTIZATION | (1,178,124) | (1,060,173) | (1,230,418) | (1,117,352) | |
5 - NET VALUE ADDED (3-4) | 9,678,671 | 8,701,735 | 11,155,972 | 9,448,726 | |
6 - RECEIVED FROM THIRD PARTIES | 1,461,829 | 644,591 | 1,614,489 | 837,344 | |
Income from associates and joint ventures | 673,343 | 95,169 | 25,570 | 12,908 | |
Financial income | 780,366 | 542,855 | 1,580,756 | 817,296 | |
Others | 8,120 | 6,567 | 8,163 | 7,140 | |
7 - VALUE ADDED TO BE DISTRIBUTED (5+6) | 11,140,500 | 9,346,326 | 12,770,461 | 10,286,070 | |
8 - DISTRIBUTION OF VALUE ADDED | 11,140,500 | 9,346,326 | 12,770,461 | 10,286,070 | |
Payroll | 3,688,690 | 3,608,993 | 4,082,427 | 3,993,426 | |
Salaries | 2,850,479 | 2,782,240 | 3,188,374 | 3,124,457 | |
Benefits | 649,633 | 642,329 | 700,277 | 680,777 | |
Government severance indemnity fund for employees | |||||
guarantee fund for lenght of services - F.G.T.S. | 188,578 | 184,424 | 193,776 | 188,192 | |
Taxes, Fees and Contributions | 3,334,767 | 3,015,528 | 3,696,140 | 3,372,897 | |
Federal | 1,808,228 | 1,562,288 | 2,093,344 | 1,827,898 | |
State | 1,498,684 | 1,425,061 | 1,565,961 | 1,501,068 | |
Municipal | 27,855 | 28,179 | 36,835 | 43,931 | |
Capital Remuneration from Third Parties | 1,981,829 | 1,706,554 | 2,856,839 | 1,900,089 | |
Interests | 1,787,751 | 1,456,652 | 2,609,140 | 1,617,007 | |
Rents | 194,078 | 249,902 | 247,699 | 283,082 | |
Interest on Own-Capital | 2,135,214 | 1,015,251 | 2,135,055 | 1,019,658 | |
Interest on shareholders' equity | 737,765 | 724,013 | 737,765 | 724,013 | |
Dividends | 86,489 | - | 86,489 | - | |
Retained earnings | 1,310,960 | 291,238 | 1,310,960 | 291,238 | |
Non-controlling interest | - | - | (159) | 4,407 | |
See accompanying notes to the consolidated financial statements. |
11
EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS
Year ended December 31, 2014 and 2013
(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)
1. COMPANY’S OPERATIONS BRF S.A. (“BRF”) and its subsidiaries (collectively the “Company”) is one of Brazil’s largest companies in the food industry. BRF is a public company, listed on the New Market of Brazilian Securities, Commodities & Futures Exchange (“BM&FBOVESPA”), under the ticker BRFS3, and listed on the New York Stock Exchange (“NYSE”), under the ticker BRFS. It´s headquarter is located at 475, Rua Jorge Tzachel in the City of Itajaí, State of Santa Catarina. With a focus on raising, producing and slaughtering of poultry, pork for processing, production and sale of fresh meat, processed products, pasta, sauce, mayonnaise, frozen vegetables and soybean by-products, among which the following are highlighted: • Whole chickens and frozen cuts of chicken,turkey and pork; • Ham products, bologna, sausages,frankfurters and other smoked products; • Hamburgers, breaded meat products andmeatballs; | • Lasagnas, pizzas, cheese breads, pies andfrozen vegetables; • Margarine, sauces and mayonnaise; and • Soy meal and refined soy flour, as well asanimal feed. As previously disclosed to the market, the Company’s Management was studying the best strategic alternative to the operating segment of dairy and decided to discontinue such segment after analyzing offer for acquisition made by a company of Groupe Lactalis, details of which are presented in note 13. The Company’s activities are segregated into 3 operating segments, being Domestic market (Brazil), Foreign market (International) and Food Service, as disclosed in note 5. In Brazil, the Company operates 34 manufacturing facilities, being: 34 meat processing plants, 3 margarine processing plants, 3 pasta processing plants, 1 dessert processing plant and 3 soybean crushing plant, located close to the Company’s raw material suppliers or the main consumer centers. | The Company has an advanced distribution system and uses 27 distribution centers to deliver its products to supermarkets, retail stores, wholesalers, restaurants and other institutional customers in Brazil and International markets. In the International market, the Company operates 10 manufacturing facilities, being: 7 meat processing plants, 1 margarine and oil processing plant, 1 sauces and mayonnaise processing plant, 1 frozen vegetables processing plant, and 15 distribution centers, besides subsidiaries or sales offices in the South Africa, Germany, Saudi Arabia, Argentina, Austria, Singapore, Chile, China, South Korea, United Arab Emirates, Spain, France, The Netherlands, Hungary, Cayman Islands, Italy, Japan, Kuwait, Nigeria, Oman, Portugal, United Kingdom, Russia, Uruguay and Venezuela. The Company exports to more than 120 countries. The table below summarizes the direct and indirect equity interests of the Company, as well as the activities of each entity: |
1.1 EQUITY INTEREST | ||||||
Entities | Industrialization and commercializations of milk | Country | Participation | 12.31.14 | 12.31.13 | |
Avipal Centro-oeste S.A. | (a) | Construction and real estate marketing | Brazil | Direct | 100.00% | 100.00% |
Avipal S.A. Construtora e | ||||||
Incorporadora | (s) | Holding | Brazil | Direct | - | 100.00% |
BRF GmbH | Import, commercialization and distribution of | |||||
products | Austria | Direct | 100.00% | 100.00% | ||
Al Khan Foodstuff LLC | (l) | Industrialization and commercialization of products | Oman | Joint venture | 40.00% | - |
Al-Wafi Food Products Factory LLC | United Arab | |||||
Import and commercialization of products | Emirates | Indirect | 49.00% | 49.00% | ||
Badi Ltd. | United Arab | |||||
Import and commercialization of products | Emirates | Indirect | 100.00% | 100.00% | ||
Al-Wafi Al-Takamol Imp. | Import and commercialization and distribution of | |||||
products | Saudi Arabia | Indirect | 75.00% | 75.00% | ||
BRF Al Yasra Food K.S.C.C. | (p) | Import and commercialization of products | Kuwait | Indirect | 75.00% | - |
BRF Global Company South Africa | ||||||
Proprietary Ltd. | Marketing and logistics services | South Africa | Indirect | 100.00% | 100.00% | |
BRF Global Company Nigeria Ltd. | Industralization, import and commercialization of | |||||
products | Nigeria | Indirect | 1.00% | 1.00% | ||
BRF Foods GmbH | (f) | Import and commercialization of products | Austria | Indirect | 100.00% | - |
BRF Foods LLC | Marketing and logistics services | Russia | Indirect | 90.00% | 90.00% | |
BRF Global Company Nigeria Ltd. | Holding and trading | Nigeria | Indirect | 99.00% | 99.00% | |
BRF Global GmbH | (b) | Import and commercialization of products | Austria | Indirect | 100.00% | 100.00% |
Xamol Consultores Serviços Ltda. | (a) | Import and commercialization of products | Portugal | Indirect | 100.00% | 100.00% |
Qualy 5201 B.V. | (b) | Import, commercialization of products and holding | The Netherlands | Indirect | 100.00% | 100.00% |
BRF Japan KK | Marketing and logistics services | Japan | Indirect | 100.00% | 100.00% | |
BRF Korea LLC | Marketing and logistics services | Korea | Indirect | 100.00% | 100.00% | |
BRF Singapore PTE Ltd. | Marketing and logistics services | Singapore | Indirect | 100.00% | 100.00% |
12 | FINANCIAL STATEMENTS 2014 |
Entities | Industrialization and commercializations of milk | Country | Participation | 12.31.14 | 12.31.13 | |
Federal Foods LLC | United Arab | |||||
(d) | Import and commercialization of products | Emirates | Indirect | 49.00% | 49.00% | |
Perdigão Europe Ltd. | Import and commercialization of products | Portugal | Indirect | 100.00% | 100.00% | |
Perdigão France SARL | Marketing and logistics services | France | Indirect | 100.00% | 100.00% | |
Perdigão International Ltd. | Cayman | |||||
Import and commercialization of products | Island | Indirect | 100.00% | 100.00% | ||
BFF International Ltd. | Cayman | |||||
Financial fundraising | Island | Indirect | 100.00% | 100.00% | ||
Highline International | Cayman | |||||
(a) | Financial fundraising | Island | Indirect | 100.00% | 100.00% | |
Plusfood Germany GmbH | Import and commercialization of products | Germany | Indirect | 100.00% | 100.00% | |
Plusfood Holland B.V. | The | |||||
Administrative services | Netherlands | Indirect | 100.00% | 100.00% | ||
Plusfood B.V. | Industrialization, import and commercializations of | The | ||||
products | Netherlands | Indirect | 100.00% | 100.00% | ||
Plusfood Hungary Trade and Service | ||||||
LLC | Import and commercialization of products | Hungary | Indirect | 100.00% | 100.00% | |
Plusfood Iberia SL | Marketing and logistics services | Spain | Indirect | 100.00% | 100.00% | |
Plusfood Italy SRL | Import and commercialization of products | Italy | Indirect | 67.00% | 67.00% | |
Plusfood UK Ltd. | Import and commercialization of products | England | Indirect | 100.00% | 100.00% | |
Plusfood Wrexham | Industrialization, import and commercializations of | |||||
products | England | Indirect | 100.00% | 100.00% | ||
Rising Star Food Company Ltd. | Industralization, import and commercialization of | |||||
(i) | products | China | - | - | 50.00% | |
Sadia Chile S.A. | Import and commercialization of products | Chile | Indirect | 40.00% | 40.00% | |
Sadia Foods GmbH | (a) | Import and commercialization of products | Germany | Indirect | 100.00% | 100.00% |
BRF Foods LLC | Import and commercialization of products | Russia | Indirect | 10.00% | 10.00% | |
Wellax Food Logistics C.P.A.S.U. Lda. | Import and commercialization of products | Portugal | Indirect | 100.00% | 100.00% | |
Elebat Alimentos S.A. | (o) | Industrialization and commercialization of products | Brazil | Direct | 99.00% | - |
Establecimiento Levino Zaccardi y | Industrialization and commercializations of dairy | |||||
Cia. S.A. | products | Argentina | Direct | 98.26% | 98.26% | |
K&S Alimentos S.A. | Industrialization and commercialization of products | Brazil | Affiliate | 49.00% | 49.00% | |
Mato Grosso Bovinos S.A. | (e) | |||||
(m) | Participation in other companies | Brazil | Direct | - | 99.00% | |
Minerva S.A. | (n) | Industrialization and commercialization of products | Brazil | Affiliate | 16.29% | - |
Nutrifont Alimentos S.A. | (c) | Industrialization and commercialization of products | Brazil | Affiliate | 50.00% | 50.00% |
Perdigão Trading S.A. | (r) | Holding | Brazil | Direct | - | 100.00% |
PSA Laboratório Veterinário Ltda. | (q) | Veterinary activities | Brazil | Indirect | - | 12.00% |
PP-BIO Administração de bem próprio | ||||||
S.A. | Management of assets | Brazil | Affiliate | 33.33% | 33.33% | |
PSA Laboratório Veterinário Ltda. | (q) | Veterinary activities | Brazil | Direct | 100.00% | 88.00% |
Elebat Alimentos S.A. | (o) | Industrialization and commercialization of products | Brazil | Indirect | 1.00% | - |
Sino dos Alpes Alimentos Ltda. | (a) | |||||
(k) | Industrialization and commercializations of products | Brazil | Indirect | 99.99% | 100.00% | |
PR-SAD Administração de bem próprio | ||||||
S.A. | (g) | Management of assets | Brazil | Affiliate | 33.33% | - |
Quickfood S.A. | Industrialization and commercialization of products | Argentina | Direct | 90.05% | 90.05% | |
Sadia Alimentos S.A. | Import and export of products | Argentina | Direct | 99.98% | 99.98% | |
Avex S.A. | (j) | Industrialization and commercialization of products | Argentina | Indirect | 95.00% | 99.46% |
Flora Dánica S.A. | Industrialization and commercialization of products | Argentina | Indirect | 95.00% | 95.00% | |
GB Dan S.A. | Industrialization and commercialization of products | Argentina | Indirect | 5.00% | 5.00% | |
Flora San Luis S.A. | Industrialization and commercialization of products | Argentina | Indirect | 95.00% | 95.00% | |
Flora Dánica S.A. | Industrialization and commercialization of products | Argentina | Indirect | 5.00% | 5.00% | |
GB Dan S.A. | Industrialization and commercialization of products | Argentina | Indirect | 95.00% | 95.00% | |
Flora San Luis S.A. | Industrialization and commercialization of products | Argentina | Indirect | 5.00% | 5.00% | |
Sadia International Ltd. | Cayman | |||||
Import and commercialization of products | Island | Direct | 100.00% | 100.00% | ||
Sadia Chile S.A. | Import and commercialization of products | Chile | Indirect | 60.00% | 60.00% | |
Sadia U.K. Ltd. | (h) | Import and commercialization of products | England | Indirect | - | 100.00% |
Sadia Uruguay S.A. | Import and commercialization of products | Uruguay | Indirect | 100.00% | 100.00% | |
Avex S.A. | (j) | Industrialization and commercialization of products | Argentina | Indirect | 5.00% | - |
Sadia Alimentos S.A. | Import and export of products | Argentina | Indirect | 0.02% | 0.02% | |
Sadia Overseas Ltd. | Cayman | |||||
Financial fundraising | Island | Direct | 100.00% | 100.00% | ||
UP Alimentos Ltda. | Industrialization and commercializations of products | Brazil | Affiliate | 50.00% | 50.00% | |
Vip S.A. Emp. Part. Imobiliárias | Commercialization of owned real state | Brazil | Direct | 100.00% | 100.00% | |
Establecimiento Levino Zaccardi y | Industrialization and commercializations of dairy | |||||
Cia. S.A. | products | Argentina | Indirect | 1.74% | 1.74% | |
Sino dos Alpes Alimentos Ltda. | (a) | |||||
(k) | Industrialization and commercializations of products | Brazil | Indirect | 0.01% | - |
13
(a) Dormant subsidiaries.
(b) The wholly-owned subsidiary BRF Global GmbH, started to operate as a trading in the European market as from May 1, 2013. In addition, it owns 101 direct subsidiaries in Madeira Island, Portugal, with an investment as of December 31, 2014 of R$2.964 (R$2.799 as of December 31, 2013) and a direct subsidiary in Den Bosch, The Netherlands, denominated Qualy 20 with an investiment as of December 31, 2014 of R$4.372 (R$1.130 as of December 31, 2013). The wholly-owned subsidiary Qualy 5201 B.V. owns 213 subsidiaries in The Netherlands being the amount of this investment as of December 31, 2014 totaled R$14.553 (R$10.546 as of December 31, 2013). The purpose of these two subsidiaries is to operate in the European market to increase the Company’s market share, which is regulated by a system of poultry and turkey meat import quotas.
(c) Subsidiary pre operating
(d) On January, 16, 2013 BRF acquired 49% of the equity interest with the rights to 60% of dividends as permitted by Federal Law Nº 8/1984, in force in the United Arab Emirates and according to the shareholders’ agreement. On April 09, 2014, the Company announced the conclusion of purchase of 100% of the economic rights.
(e) On February 11, 2014 change the corporate name from BRF Suínos do Sul Ltda to Mato Grosso Bovinos S.A This subsidiary was part of share exchange transaction with Minerva (note 6.2.2).
(f) On February 21, 2014, establishment of wholly-owned subsidiary.
(g) On March 14, 2014, acquisition of equity interest.
(h) On April 12, 2014, settlement of wholly-owned subsidiary.
(i) On April 30, 2014, disposal of 50% of equity interest held by BRF GmbH to Pah Chong Hong Limited.
(j) On June 26, 2014, Sadia Alimentos S.A. disposed of 50% of the shares of Avex S.A. to Sadia Uruguay S.A
(k) On June 27, 2014, PSA Laboratório Veterinário Ltda, disposed of 1 (one) share to VIP S.A. Empreendimentos e Participações Imobiliárias.
(l) On July 03, 2014, acquisition of 40% of equity interest of Al Khan Foodtuff LLC.
(m)On October 1, 2014, disposal of equity interest to Minerva S.A.
(n) On October 1, 2014, acquisition of equity interest.
(o) On October 15, 2014, establishment of equity interest.
(p) On November 21, 2014, acquisition of equity interest.
(q) On December 1, 2014, corporate restructuring due to dissolution of the wholly-owned subsidiary Perdigão Trading S.A.
(r) On December 1, 2014, dissolution of the wholly-owned subsidiary.
(s) On December 31, 2014, dissolution of the wholly-owned subsidiary.
1.2. STEP ACQUISITION – FEDERAL FOODS LLC (“FF”)On April 09, 2014, the Company concluded the acquisition of the remaining economic rights for a consideration of R$61,488, becoming the controlling shareholder of FF. (note 6.1.1). 1.3. ACQUISITION OF SHARE EQUITY OF AL KHAN FOODS LLC (“AKF”)On July 03, 2014, the Company concluded the acquisition of 40% equity interest of AKF (note 6.2.1). 1.4. ACQUISITION OF SHARE EQUITY OF ALYASRA FOOD COMPANY W.L.L. (“AFC”) AND GOODWILL ALLOCATION ARISING FROM THE BUSINESS COMBINATION On November 21, 2014, the Company acquired 75% of equity interest of BRF AFC (note 6.1.2). 1.5. EXERCISE OF THE CALL OPTION - CARAMBEÍ (PR) FACILITY On May 13, 2014, the Company entered into a lease agreement with Marfrig Alimentos S.A. (“Marfrig”), by means of which risks and rewards of ownership relating pork slaughtering and processing manufacturing facility located in the City of Carambeí (PR) were transferred. In accordance with the terms of the agreement, Marfrig had a call option of this manufacturing facility for R$188,000, subject to the variation of General Price Market Index (“IGP-M”) which should be exercised until June 01, 2014. Rights and obligations related to this agreement were assumed by Seara Brasil (“Seara”), a company of Marfrig Group, which was acquired by JBS Group in October 2013. | On May 30, 2014, Seara exercised the call option set out in agreement and paid to BRF the amount of R$57,348 adjusted by IGP-M. The remaining balance of R$138,000, will be paid in the future and adjusted by IGP-M, such amount was recorded as other receivables. Arising from this transaction, the Company measured a gain of R$141.546 recorded as other operating income. 1.6. ACQUISITION OF EQUITY INTEREST OF MINERVA S.A. On October 01, 2014, BRF concluded the share exchange transaction between Minerva S.A, and Mato Grosso Bovinos S.A (a wholly-owned subsidiary of BRF S.A) (note 6.2.2). 1.7. CONCLUSION OF THE SALES CONTRACT OF THE DAIRY SEGMENT BY BRF TO GROUPE LACTALIS (“PARMALAT”)On December 05, 2014, BRF entered into with Lactalis do Brasil – Comércio, Importação e Exportação de Laticínios Ltda. (“Lactalis”), subsidiary of Parmalat S.p.A, Italian public company owned by Groupe Lactalis, sales contract for its dairy operating segment. 1.8. SEASONALITY The Company does not operate with any significant seasonality through the year. In general, during the fourth quarter of each year the demand in Brazil is slightly stronger than in the other quarters, mainly due to the year-end holiday season such as Christmas and New Years Eve. Our bestselling products are: turkey, Chester® and ham. | 2. MANAGEMENT’S STATEMENT AND BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS The Company’s consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”), implemented in Brazil through Brazilian Accounting Pronouncements Committee (“CPC”) and its technical interpretations (“ICPC”) and guidelines (“OCPC”), approved by the Brazilian Securities Exchange Commission (“CVM”). The Parent Company’s individual financial statements have been prepared in accordance with the accounting practices adopted in Brazil, which comprises the provisions of Corporate Law, required by Law No. 6,404/76 amended by Law No. 11,638/07 and No. 11,941/09 and accounting pronouncements, interpretations and guidelines issued by CPC, approved by CVM. Up to December 31, 2013, such accounting practices differs from IFRS, applicable to separate financial statements, in relation to the evaluation of investments in subsidiaries, affiliates and joint ventures, which were measured and recorded based on the equity pick-up accounting method rather than at cost or fair value, as required by IFRS. |
14 | FINANCIAL STATEMENTS 2014 |
With the issuance of the Standard IAS 27 (Separate Financial Statements) reviewed by the IASB in 2014, the separate financial statements in accordance with IFRS began to allow the use of the equity pick-up accounting method for evaluation of investments in subsidiaries, associates and joint ventures. In December 2014, CVM issued CVM Deliberation No. 733/2014, approved the Document of Technical Pronouncement Review No. 07 related to the pronouncements CPC 18, CPC 35 and CPC 37 issued by CPC, due to amendments introduced by IAS 27, allowing its adoption from year ended December 31, 2014. Thus, Parent Company’s individual financial statements are in compliance with IFRS from year ended December 31, 2014 The Company’s individual and consolidated financial statements are expressed in thousands of Brazilian Reais (“R$”), as well as the amounts of other currencies disclosed in the quarterly financial statements, when applicable, were also expressed in thousands. The result information is prepared by their accumulated over the same period last year. The preparation of the Company’s financial statements requires Management to make judgments, use estimates and adopt assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, as well as the disclosures of contingent liabilities, as of the reporting date of these financial statements. However, the uncertainty inherent to these judgments, assumptions and estimates could lead to results requiring a material to carrying amount of the affected asset or liability in future periods. The Company reviews its judgments, estimates and assumptions quarterly. The consolidated financial statements were prepared on the historical cost basis except for the following items which are measured at fair value: • derivative and non-derivative financialinstruments, being changes to fair value recognized through the statement of income; • available for sale financial assets; and • share-based payments and employeebenefits. | 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. CONSOLIDATION:includes the BRF’s individual financial statements and the financial statements from subsidiaries where BRF has direct or indirect control. All transactions and balances between BRF and its subsidiaries have been eliminated upon consolidation, as well as the unrealized profits or losses arising from transactions between the Company and its subsidiaries. Non-controlling interest is presented separately. 3.2. FUNCTIONAL CURRENCY:the financial statements of each subsidiary included in consolidation are prepared using the currency of the main economic environment where it operates. The financial statements of foreign subsidiaries are translated into Brazilian Reais in accordance with their functional currency using the following criteria: Foreign subsidiaries with functional currency – Dihan, Euro, Argentine Peso and Rial Omã • Assets and liabilities are translated at theexchange rate in effect at year-end; • Statement of income accounts aretranslated based on the monthly average rate; and • The cumulative effects of gains or lossesupon translation are recognized as Accumulated Foreign Currency Translation Adjustments component of other comprehensive income. Foreign subsidiaries with functional currency – Brazilian Reais • Non-monetary assets and liabilities aretranslated at the historical rate of the transaction; • Monetary assets and liabilities aretranslated at the exchange rate in effect at year-end; • Statement of income accounts aretranslated based on monthly average rate; and • The cumulative effects of gains or lossesupon translation are recognized in the statement of income. Goodwill arising from business combination entity outside to be expressed in the functional currency of that entity and converted by the closing to exchange rate for the reporting currency of the acquiring. | The accounting policies have been consistently applied by all subsidiaries included in consolidation. 3.3. INVESTMENTS:investments in associates and joint ventures are initially recognized at cost and adjusted thereafter for the equity method. In the investments in associates the Company has significant influence, which is the power to participate in the financial and operating policy decisions of the investee but it does not have control or joint control of those policies. In investments in joint ventures there is the contractually agreed sharing control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. 3.4. BUSINESS COMBINATIONS:are accounted for using the purchase method. The cost of an acquisition is the sum of the consideration paid, evaluated based on the fair value at acquisition date, and the amount of any non-controlling interests in the acquiree. For each business combination, the Company recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s net assets. Costs directly attributable to the acquisition are accounted for as an expense when incurred. When acquiring a business, management evaluate the assets acquired and the liabilities assumed in order to classify and allocate them pursuant to the terms of the agreement, economic circumstances and conditions at the acquisition date. Goodwill is initially measured as the excess of the consideration paid over the fair value of the net assets acquired. If the consideration is lower than the fair value of the net assets acquired, the difference is recognized as a gain in the statement of income. After initial recognition, goodwill is measured at cost, net of any accumulated impairment losses. For purposes of impairment testing, the goodwill acquired in a business combination, as from the acquisition date, is allocated to each of the Company’s cash generating units expected to benefit from the synergies of the business combination, regardless of whether other assets or liabilities of the acquire are attributed to these units. |
15
3.5. SEGMENT INFORMATION:an operating segment is a component of the Company that carries out business activities from which it can obtain revenues and incur expenses. The operating segments reflect how the Company’s management reviews financial information to make decisions. The Company’s management has identified reportable segments, which meet the quantitative and qualitative disclosure requirements. The segments identified for disclosure represent mainly sales channels. The information according to the characteristics of the products is also presented, based on their nature, as follows: poultry, pork, beef, processed products, other processed products and other sales. 3.6. CASH AND CASH EQUIVALENTS:include cash on hand, bank deposits and highly liquid investments in fixed-income funds and/or securities with maturities, upon acquisition, of 90 days or less, which are readily convertible into known amounts of cash and subject to insignificant risk of change in value. The investments classified in this group, due to their nature, are measured at fair value through the profit and loss, and will be used for the Company in short term. 3.7. FINANCIAL INSTRUMENTS:financial assets and liabilities are recorded when the Company becomes party to the contractual provisions of the instruments and classified into the following categories: marketable securities, loans and receivables, derivatives and other. 3.7.1. MARKETABLE SECURITIES: are financial assets that comprise public and private fixed-income securities, classified and recorded based on the purpose for which they were acquired, in accordance with the following categories: • Trading securities: acquired for sale orrepurchase in the short term, recorded at fair value with variations directly recorded in the statement of income for the year within interest income or expense; • Held to maturity: when the Companyhas the intention and ability to hold them up to maturity, investments are recorded at amortized cost, plus interest, monetary and exchange rate changes, when applicable, and recognized in thestatement of income when incurred, within interest income or expense; and | • Available for sale: this category is for theremaining securities that are not classified in any of the categories above, which are measured at fair value, with changes to fair value recorded in other comprehensive income while the asset is not realized, net of taxes. Interest and monetary and exchange variation, when applicable, are recognized in the statement of income when incurred within interest income or expense. 3.7.2. DERIVATIVES FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE: are those actively traded on organized markets and fair value is determined based on the amounts quoted on an active market at the balance sheet date. These financial instruments are designated at initial recognition, classified as other financial assets and/or liabilities, with a corresponding entry in the statement of income within financial income or expenses or cash flow hedge, a component of other comprehensive income, net of taxes. 3.7.3. HEDGE TRANSACTIONS: the Company utilizes derivative and non-derivative financial instruments, as disclosed in note 4, to hedge the exposure to exchange rate and interest variations or to modify the characteristics of financial assets and liabilities and highly probable transactions, which are: (i) highly correlated to changes in the market value of the item being hedged, both at inception and throughout the term of the contract (effectiveness between 80% and 125%); (ii) supported by documents that identify the transaction, the hedged risk, the risk management process and the methodology used to assess effectiveness; and (iii) considered effective in the mitigation of the risk associated with the hedged exposure. These transactions are accounted for in accordance with CVM Deliberation Nº 604/09, that permits the protection accounting methodology (“hedge accounting”) with measurement of effect of fair value in equity and its realization in income for the relevant heading. Hedges that meet the criteria of hedge accounting are recorded as cash flow hedge. | In a cash flow hedge, the effective portion of the gain or loss on the hedging instrument is recognized as other comprehensive income, while the ineffective portion of the hedge is recognized immediately as financial income or expense. The amounts recorded as other comprehensive income are immediately transferred to the statement of income when the hedged transaction affects the statement of income, for example, when the forecasted revenue in foreign currency occurs. If the occurrence of the forecasted transaction or firm commitment is no longer expected, the amounts previously recognized in other comprehensive income are transferred to the statement of income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its classification as a hedge is revoked, the gains or losses previously recognized remain recorded in other comprehensive income until the forecasted transaction or firm commitment affect the statement of income. 3.7.4. LOANS AND RECEIVABLES: these are financial assets and liabilities with fixed or determinable payments which are not quoted on an active market. Such assets and liabilities are initially recognized at fair value plus any attributable transaction costs. After initial recognition, loans and receivables are measured at amortized cost under the effective interest rate method, less any impairment losses. 3.8. ADJUSTMENT TO PRESENT VALUE:the Company and its subsidiaries measure the adjustment to present value of outstanding balances of non-current trade accounts receivable, trade payables, social obligations and other non-current liabilities, being recorded in accounts reducing their lines on the other hand financial result. The Company adopts the weighted average of the cost of funding to determine the adjustment to present value to those assets and liabilities, which corresponds to annual rate of 11.20%. 3.9. TRADE ACCOUNTS RECEIVABLES:are recorded at the invoiced amount and adjusted to present value, when applicable, net of allowance for doubtful accounts. |
16 | FINANCIAL STATEMENTS 2014 |
The Company adopts procedures and analyses to establish credit limits and substantially does not require collateral from customers. In the event of default, collection attempts are made, which includes direct contact with customers and collection through third parties. Should these efforts prove unsuccessful, court measures are considered and the notes are reclassified to non-current assets at the same time receivables are written-off. The notes are written-off from the provision when management considers that they are not recoverable after taking all appropriate measures to collect. 3.10. INVENTORIES:are evaluated at average acquisition or formation cost, not exceeding market value or net realizable value. The cost of finished products includes raw materials, labor, cost of production, transport and storage, which are related to all process needed to make the products ready for sale. Provisions for obsolescence, adjustments to net realizable value, impaired items and slow-moving inventories are recorded when necessary. Usual production losses are recorded and are an integral part of the production cost of the respective month, whereas unusual losses, if any, are recorded as other operating expense. 3.11. BIOLOGICAL ASSETS:The consumables and production biological assets (live animals) are measured at their cost. 3.12. ASSETS HELD FOR SALE:Such assets are measured at carrying amount or fair value, whichever is lower, net of selling costs and are not depreciated or amortized. The income statement and cash flows from discontinued operations are presented separately from those of continuing operations of the Company. 3.13. PROPERTY, PLANT AND EQUIPMENT:stated at the cost of acquisition or construction, less accumulated depreciation and impairment losses, when applicable. The borrowing costs are capitalized as a component of construction in progress, pursuant to with CVM Deliberation Nº 672/11, considering the weighted average interest rate of the Company’s debt at the capitalization date. | Depreciation is recognized based on the estimated economic useful life of each asset on a straight-line basis. The estimated useful life, residual values and depreciation methods are annually reviewed and the effects of any changes in estimates are accounted for prospectively. Land is not depreciated. The Company annually performs an analysis of impairment indicators of property, plant and equipment along with goodwill impairment test. If an impairment indicator is identified, the corresponding assets are tested for impairment using the discounted cash flow methodology. Hence, when an impairment is identified, a provision is recorded. The recoverability of these assets was tested for impairment in 2014, and no adjustments were identified. The realization of the test involved the adoption of assumptions and judgments. Gains and losses on disposals of property, plant and equipment items are calculated by comparing the proceeds of the disposals with their net book values and recognized in the statement of income at the disposal date. 3.14. INTANGIBLE ASSETS:Intangible assets acquired are measured at cost at the time they are initially recognized. The cost of intangible assets acquired in a business combination corresponds to the fair value at the acquisition dat. After initial recognition, intangible assets are presented at cost less accumulated amortization and impairment losses, when applicable. Internally-generated intangible assets, excluding development costs, are not capitalized but recognized in the statement of income as incurred. The useful life of intangible assets is assessed as finite or indefinite. Intangible assets with a finite life are amortized over the economic useful life and reviewed for impairment whenever there is an indication that their carrying values may be impaired. The amortization period and method for an intangible asset with a finite useful life are reviewed at least at the end of each fiscal year. The amortization of intangible assets with a finite useful life is recognized in the statement of income as an expense consistently with the use of the intangible asset. | Intangible assets with an indefinite useful life are not amortized, but are tested annually for impairment on an individual basis or at the cash generating unit level. The Company records goodwill and trademarks as intangibles assets with in indefinite useful life. Goodwill recoverability was tested for fiscal year 2014 and no impairment loss was identified. Such test involved the adoption of assumptions and judgments. 3.15. INCOME TAXES:in Brazil, are comprised of corporate income tax (“IRPJ”) and social contribution tax (“CSLL”), which are calculated monthly on taxable income, at the rate of 15% plus 10% surtax for IRPJ, and of 9% for CSLL, considering the offset of tax loss carryforwards, up to the limit of 30% of annual taxable income. The income from foreign subsidiaries is subject to taxation pursuant to the local tax rates and legislation. Deferred taxes are recorded on IRPJ and CSLL tax losses, assets and liabilities and temporary differences between the tax basis and the carrying amount and classified as non-current assets, as required by CVM Deliberation nº 676/11. When the Company’s analysis indicates that the realization of these credits, within 10 years, is not probable, a valuation allowance is recorded. Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity. In the consolidated financial statements, the Company’s tax assets and liabilities can be offset against the tax assets and liabilities of the subsidiaries if, and only if, these entities have a legally enforceable right to make or receive a single net payment and intend to make or receive this net payment, or recover the assets and settle the liabilities simultaneously. Therefore, for presentation purposes, the balances of tax assets and tax liabilities are being disclosed separately. |
17
Deferred tax assets and liabilities must be measured by rates that are expected to be applicable for the period when the assets are realized and liabilities settled. 3.16. ACCOUNTS PAYABLE AND TRADE ACCOUNTS PAYABLE:are initially recognized at fair value plus any accrued charges, monetary and exchange variations incurred through the balance sheet date. 3.17. PROVISION FOR TAX, CIVIL AND LABOR RISKS AND CONTINGENT LIABILITIES:are established when the Company has a present obligation, formalized or not, as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and its amount can be reliably estimated. The Company is part of various lawsuits, including, tax, labor and civil claims. The assessment of the likelihood of an unfavorable outcome in these lawsuits includes the analysis of the available evidence, the hierarchy of the laws, available former court decisions, as well as the most recent court decisions and their importance to the Brazilian legal system, as well as the opinion of external legal counsel. The provisions are reviewed and adjusted to reflect changes in the circumstances, such as the applicable statute of limitation, conclusions of tax inspections or additional exposures identified based on new claims or court decisions. A contingent liability recognized in a business combination is initially measured at fair value and subsequently measured at the higher of: • the amount that would be recognized inaccordance with the accounting policy for the provisions above that comply with CVM Deliberation Nº 594/09; or • the amount initially recognized less, ifappropriate, cumulative amortization recognized in accordance with CVM Deliberation Nº 692/12. | As a result of the business combinations with Sadia, Avex and Dánica group the Company recognized contingent liabilities related to tax, civil and labor claims. 3.18. LEASES:lease transactions in which the risks and rewards of ownership are substantially transferred to the Company are classified as finance leases. When there is no significant transfer of the risks and rewards of ownership, lease transactions are classified as operating leases. Finance lease agreements are recognized in property, plant and equipment and in liabilities at the lower of the present value of the minimum future payments of the agreement and the fair value of the asset, including, when applicable, the initial direct costs incurred in the transaction. The amounts recorded in property, plant and equipment are depreciated and the underlying interest is recorded in the statement of income in accordance with the terms of the lease agreement. Operating lease agreements are recognized as expenses throughout the lease terms. 3.19. SHARE BASED PAYMENTS:the Company provides share based payments for its executives, which are settled with Company shares. The Company adopts the provisions of CVM Deliberation Nº 650/10, recognizing as an expense, on a straight-line basis, the fair value of the options granted, over the length of service required by the stock options plan, with a corresponding entry to equity. The accumulated expense recognized reflects the acquired vesting period and the Company’s best estimate of the number of shares to be acquired. The expense or income arising from the movement during the year is recognized in the statement of income under other operating expense or income. No expense is recognized for options that have not completed their vesting period. | The dilution effect of outstanding options is reflected as additional dilution in the calculation of diluted earnings per share. 3.20. PENSION AND OTHER POST-EMPLOYMENT PLANS:the Company sponsor 04 supplementary defined benefit and defined contribution plans, as well as other post-employment benefits, for those, annually an appraisal actuarial is prepared by an independent actuary. The costing of defined benefits is established separately for each plan using the projected unit credit method (see note). The measurements comprise the actuarial gains and losses, the effect of a limit on contributions and yields on plan contributions and are recognized in the balance sheet with a contra entry in other comprehensive income when incurred. These measurements are not reclassified to statement of income in subsequent periods. The Company recognizes the net defined benefit asset, when: • controls a resource and has the abilityto use the surplus to generate future benefits; • the control is a result of past events; and • the future economic benefits are availableto the Company in the form of a reduction in future contributions or a cash refund, either directly to the Company or indirectly to another deficitary plan. The asset ceiling is the present value of those future benefits. The past service cost is recognized in the statement of income at the earliest of the following dates: • when the plan amendment or curtailmentoccurs, or • when the Company recognizes relatedrestructuring costs. The past service cost and net interest on net defined benefit liability or asset are recognized in the statement of income within other operating expense or income. |
18 | FINANCIAL STATEMENTS 2014 |
3.21. EARNINGS PER SHARE:basic earnings per share are calculated by dividing the net profit attributable to the holders of ordinary shares of the Company by the weighted average number of ordinary shares during the year. Diluted earnings per share are calculated by dividing the net profit attributable to the holders of ordinary shares of the Company by the weighted average number of ordinary shares during the year, plus the weighted average number of ordinary shares that would be issued when converting all dilutive potential ordinary shares into ordinary shares 3.22. DETERMINATION OF INCOME:results from operations are recorded on an accrual basis. 3.23. REVENUE RECOGNITION:revenues comprise of the fair value of consideration received or receivable by the sale of products, net of taxes, returns, rebates and discounts. Revenues are recognized in accordance with the accrual basis of accounting, when the sales value is reliably measurable and when the Company no longer has control over the goods sold, or otherwise related to the property, the costs incurred or to be incurred due to transaction can be reliably measured, it is probable that economic benefits will be received by the Company and the risks and benefits were fully transferred to the purchaser. 3.24. EMPLOYEE AND MANAGEMENT PROFIT SHARING:employees are entitled to profit sharing based on certain targets agreed upon on an annual basis, whereas managers are entitled to profit sharing based on the provisions of the bylaws, proposed by the Board of Directors and approved by the shareholders. The profit sharing amount is recognized in the statement of income for the period in which the targets are attained. 3.25. FINANCIAL INCOME:include interest earnings on amounts invested (including available for sale financial assets), dividend income (except for dividends received from equity investees), gains on disposal of available for sale financial assets, changes in fair value of financial assets measured at fair value through income and gains on hedging instruments that are recognized in income. | Interest income is recognized in earnings through the effective interest method. 3.26. GRANTS AND GOVERNMENT ASSISTANCE:government subsidies are recognized at fair value when there is reasonable assurance that the conditions established are met and related benefits will be received. The amounts are accounted for as follows: • Subsidies relating to assets: are accountedfor in the statement of income in proportion to the depreciation of the asset; and • Subsidies to investments: the amountsrecorded in the statement of income when excluded from the income tax and social contribution calculation basis are reclassified to shareholders’ equity, as a reserve of tax incentives, unless there are accumulated losses. 3.27. DIVIDENDS AND INTEREST ON SHAREHOLDERS’ EQUITY:the proposal for payment of dividends and interest on shareholders’ equity made by the Company’s Management, which is within the portion equivalent to the mandatory minimum dividend, is recorded in current liabilities, as a legal obligation provided for in the bylaws; on the other hand, the dividends that exceed the mandatory minimum dividend, declared by management before the end of the accounting period covered by the consolidated financial statements, not yet approved by the shareholders, is recorded as additional dividend proposed in shareholders’ equity. For financial statement presentation purposes, interest on shareholders’ equity is stated as an allocation of income directly in shareholders’ equity. 3.28. TRANSACTIONS AND BALANCES IN FOREIGN CURRENCY:the balances of assets and liabilities of foreign subsidiaries are translated into Brazilian Reais using the exchange rates in effect at the balance sheet date and statement of income accounts are translated based on monthly average rates. | |||||
The exchange rates in Brazilian Reais effective at the balance sheet dates were as follows: | ||||||
Exchange rate at the | ||||||
balance sheet date | 12.31.14 | 12.31.13 | ||||
U.S. Dollar (US$ or USD) | 2.6562 | 2.3426 | ||||
Euro (€ or EUR) | 3.2270 | 3.2265 | ||||
Pound Sterling (£ or GBP) | 4.1405 | 3.8728 | ||||
Argentine Peso ($ or ARS) | 0.3172 | 0.3594 | ||||
Rial Omã (OMR) | 6.8992 | 6.0847 | ||||
Dirhan (AED) | 0.7232 | 0.6379 | ||||
Average rates | ||||||
U.S. Dollar (US$ or USD) | 2.3536 | 2.1576 | ||||
Euro (€ or EUR) | 3.1221 | 2.8677 | ||||
Pound Sterling (£ or GBP) | 3.8721 | 3.3779 | ||||
Argentine Peso ($ or ARS) | 0.2905 | 0.3947 | ||||
Rial Omã (OMR) | 6.1134 | 5.6078 | ||||
Dirhan (AED) | 0.6408 | 0.5875 | ||||
3.29. ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS:as mentioned in note 2, in the process of applying the Company’s accounting policies, management made the following judgments which have a material impact on the amounts recognized in the consolidated financial statements: • fair value of financial instruments (seenote 4); • impairment of non-financial assets (seenote 5 and 19); • measurement of fair value of items relatedto business combinations (see note 6); • allowance for doubtful accounts (see note 9); • net realizable value provision forinventories (see note 10); • biological assets (see note 11); • loss on the reduction of recoverable valueof taxes (see note 12 and 14); • useful lives of property, plant andequipment and intangible (see note 18 and 19); • share-based payment transactions (seenote 24); • pension and post-employment plans (seenote 25); and • provision for tax, civil and labor risks (seenote 26). The Company reviews the estimates and underlying assumptions used in its accounting estimates on a quarterly basis. Revisions toaccounting estimates are recognized in the period in each the estimates are revised. |
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3.30. STATEMENT OF ADDED VALUE:the Company prepared individual and consolidated statements of added value (“DVA”) in accordance with CMV Deliberation Nº 557/08, which are submitted as part of these financial statements in accordance with BR GAAP. It represents for IFRS additional financial information. 4. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT 4.1. OVERVIEW In the normal course of its business, the Company is exposed to credit, liquidity and market risks, which are actively managed in conformity to the Risk Policy and internal guidelines subject to such policy. The Risk Policy is under the management of the Financial Risk Management Committee, Board of Executive Officers and Board of Directors, with clear and defined roles and responsibilities, as follows: • The Board of Directors is responsible forapproving the Risk Policy and defining the limits of tolerance of the different risks identified as acceptable for the Company on behalf of its shareholders. The current risk policy was reviewed and approved on November 26, 2014, with maturity of two years, and is automatically renewed once for the same period if no change expressed during the term of the agreement; • The Financial Risk Management Committee is in charge of the execution of the Risk Policy, which comprises the supervision of the risk management process, planning and verification of the impacts of the decisions implemented, as well as the evaluation and approval of hedging strategies and monitoring the risk exposure levels to ensure compliance with Risk Policy; | • The Board of Executive Officers is incharge of the evaluation of the Company’s exposure for each identified risk, according to the guidelines established by the Board of Directors; and • The Risk Management area has as acrucial role in monitoring, evaluating and reporting of the financial risks taken by the Company. The Risk Policy does not authorize the Company’s management to contract leveraged derivative transactions and determines that any individual hedge operations (notional amount) must not exceed 2.5% of the Company’s shareholders’ equity. a. Credit risk management The Company is subject to the credit risk related to trade accounts receivable, financial investments and derivative contracts, as follows: • Credit risk associated with trade accountsreceivable is actively managed by dedicated team, though specific systems. Furthermore, it should be noted the diversification of the customer portfolio and the concession of credit to customers with good financial and operational conditions. The Company does not usually require collateral for sales to customer, and has a contracted credit insurance policy for specific markets; and • Credit risk associated with financialinvestments and derivative contracts is mitigated by the Company’s policy of working with prime institutions. On December 31, 2014, the Company had financial investments over R$10,000 at the following financial institutions: Banco BNP, Banco Bradesco, Banco do Brasil, Banco do Nordeste, Banco HSBC, Banco Itaú, Banco Safra, Banco Santander, Caixa Econômica Federal, Standard Chartered and Societe Generale. | The Company also held derivative contracts with the following financial institutions: Banco Bradesco, Banco do Brasil, Banco HSBC, Banco Itaú, Banco Santander, Banco Votorantim, Barclays, Citibank, Deutsche Bank, ING Bank, JP Morgan, Merrill Lynch, Banco BNP and Rabobank. b. Liquidity risk management Liquidity risk management aims to reduce the impacts caused by events which may affect the Company’s cash flow. Thus, the Company utilizes the following metrics: • Cash Flow at Risk (“CFaR”), which aimsto statistically estimates the cash flows for the next twelve months and the Company’s liquidity exposure. The Company determined that the minimum cash available should be equivalent mainly to the average monthly billing and EBITDA for the last twelve-month period; and • Value at Risk (“VaR”) is used for derivativetransactions that require payments of periodic adjustments. Currently, the Company holds only BM&F operations with daily adjustments and in order to monitor them, such methodology is utilized, which statistically measures potential maximum adjustments to be paid at intervals of 1 to 21-days. The Company maintains its leverage levels in order to avoid any impact to its ability to settle commitments and obligations. As a guideline, the majority of the debt should be in long term. On December 31, 2014, the long term debt portion accounted for 76.4% (73.5% as of December 31, 2013) of the total outstanding debt with an average term greater than 5 years. The table below summarizes the commitments and contractual obligations that may impact the Company’s liquidity: |
20 | FINANCIAL STATEMENTS 2014 |
Parent company | ||||||||
31.12.14 | ||||||||
Cash flow | ||||||||
Book value | contracted | 2015 | 2016 | 2017 | 2018 | 2019 | After 5 years | |
Non derivative financial | ||||||||
liabilities | ||||||||
Loans and financing | 4,328,233 | 4,690,501 | 2,731,855 | 342,538 | 535,896 | 586,685 | 174,577 | 318,950 |
BRF bonds | 5,702,388 | 8,170,684 | 302,876 | 302,876 | 302,876 | 783,501 | 264,126 | 6,214,429 |
Trade accounts payable | 3,591,980 | 3,591,980 | 3,591,980 | - | - | - | - | - |
Capital lease(1) | 243,606 | 363,063 | 88,074 | 58,329 | 34,503 | 29,463 | 22,409 | 130,285 |
Operational lease | - | 784,513 | 169,332 | 150,895 | 127,593 | 110,095 | 93,678 | 132,920 |
Derivative financial | ||||||||
liabilities | ||||||||
Financial instruments | ||||||||
designated as cash flow | ||||||||
hedge | ||||||||
Interest rate and | ||||||||
exchange rate | ||||||||
derivatives | 119,388 | 74,724 | 249 | 326 | 45 | 74,104 | - | - |
Currency derivatives | ||||||||
(NDF) | 77,122 | 2,209 | 2,209 | - | - | - | - | - |
Fixed exchange rate | 3,482 | (13,298) | (13,298) | - | - | - | - | - |
Currency derivatives | ||||||||
(options) | 7,155 | 1,780 | 1,780 | - | - | - | - | - |
Financial instruments not | ||||||||
designated as cash flow | ||||||||
hedge | ||||||||
Currency derivatives | ||||||||
(Future) | 5,694 | 5,694 | 5,694 | - | - | - | - | - |
Interest rate and | ||||||||
exchange rate | ||||||||
derivatives | 3,216 | (2,113) | (1,344) | (290) | (290) | (189) | - | - |
(1) It does not include the capital leases contracted with financial institutions which are included in loans and financing line above.
| ||||||||
Consolidated | ||||||||
31.12.14 | ||||||||
Cash flow | ||||||||
Book value | contracted | 2015 | 2016 | 2017 | 2018 | 2019 | After 5 years | |
Non derivative financial | ||||||||
liabilities | ||||||||
Loans and financing | 4,674,151 | 5,063,413 | 2,812,813 | 353,634 | 547,153 | 856,286 | 174,577 | 318,950 |
BRF bonds | 5,702,388 | 8,170,684 | 302,876 | 302,876 | 302,876 | 783,501 | 264,126 | 6,214,429 |
BFF bonds | 595,372 | 816,047 | 42,297 | 42,297 | 42,297 | 42,297 | 42,297 | 604,562 |
Sadia bonds | 427,285 | 497,305 | 29,175 | 29,175 | 438,955 | - | - | - |
Quickfood bonds | 190,139 | 192,670 | 45,537 | - | 71,939 | 39,248 | 35,946 | - |
Trade accounts payable | 3,977,327 | 3,977,327 | 3,977,327 | - | - | - | - | - |
Capital lease(1) | 243,790 | 363,295 | 88,164 | 58,329 | 34,503 | 29,463 | 22,409 | 130,427 |
Operational lease | - | 788,211 | 169,357 | 152,093 | 128,791 | 111,372 | 93,678 | 132,920 |
Derivative financial | ||||||||
liabilities | ||||||||
Financial instruments | ||||||||
designated as cash flow | ||||||||
hedge | ||||||||
Interest rate and | ||||||||
exchange rate | ||||||||
derivatives | 157,975 | 187,257 | 22,778 | 29,700 | 29,582 | 104,571 | 626 | - |
Currency derivatives | ||||||||
(NDF) | 77,122 | (2,209) | (2,209) | - | - | - | - | - |
Fixed exchange rate | 3,482 | (13,298) | (13,298) | - | - | - | - | - |
Currency derivatives | ||||||||
(options) | 7,155 | 1,780 | 1,780 | - | - | - | - | - |
Financial instruments not | ||||||||
designated as cash flow | ||||||||
hedge | ||||||||
Currency derivatives | ||||||||
(NDF) | 2,794 | 138 | 138 | - | - | - | - | - |
Currency derivatives | ||||||||
(Future) | 5,694 | 5,694 | 5,694 | - | - | - | - | - |
Interest rate and | ||||||||
exchange rate | ||||||||
derivatives | 3,216 | (2,113) | (1,344) | (290) | (290) | (189) | - | - |
(1) It does not include the capital leases contracted with financial institutions which are included in loans and financing line above. |
21
c. Interest rate risk management Interest rates risk is the one the Company incurs in economic losses resulting from changes in these rates, which could affect its assets and liabilities. The Company’s Risk Policy does not restrict exposure to different interest rates, neither establishes limits for fixed or floating rates. However, the Company continually monitors the market interest rates, in order to evaluate any need to enter into hedging transaction to protect from the exposure to fluctuation such rates and manage the mismatch between its financial investments and debts. In these transactions the Company enters into contracts that exchange floating rate for fixed rate or vice-versa. Such transactions were designated by the Company as cash flow hedge. The Company’s indebtedness is essentially tied to the London Interbank Offered rate (“LIBOR”), fixed coupon (“R$ and USD”), Long Term Interest Rate (“TJLP”) and Monetary | Unit of the Bank National Economic and Social Development (“UMBNDES”) rates. In case of adverse changes in the market that result in LIBOR hikes, the cost of the floating indebtedness rises and on the other hand, the cost of the fixed indebtedness decreases in relative terms. With regards to the Company’s marketable securities, the main index is the Interbank Deposit Certificate (“CDI”) for investments in Brazil and fixed coupon (“USD”) for investments in the International market. d. Foreign exchange risk management Foreign exchange risk is the one related to variations of foreign exchange rates that may cause the Company to incur unexpected losses, leading to a reduction of assets or an increase in liabilities. The Risk Policy is intended to protect the Company’s results from these variations, in order to: | • Protect operating revenues and costs thatare related to transactions arising from commercial activities, such as estimated exports and purchases of raw materials, utilizing hedging instruments, that is, to protect its future cash flow denominated in foreign currency; and • Manage assets and liabilities denominatedin foreign currencies in order to protecting the balance sheet of the Company, through the use of over-the-counter and futures transactions. The Company’s consolidated financial statements are mainly impacted by the following currencies: (i) U.S. Dollar (“US$” or “USD”), (ii) Euro (“EUR”), (iii) Pound Sterling (“GBP”) and (iv) Argentine Peso (“ARS”). Assets and liabilities denominated in foreign currency are as follows: |
Consolidated | ||
12.31.14 | 12.31.13 | |
Total exposure | ||
Cash and cash equivalents and marketable securities | 4,551,213 | 2,651,927 |
Trade accounts receivable | 1,693,314 | 1,593,473 |
Accounts receivable from subsidiaries | 1,243 | 146,223 |
Future dollar agreements | 252,339 | 480,233 |
Embedded derivative (see note 13.1) | 1,853,379 | - |
Inventories | 21,128 | 50,808 |
Exchange rate contracts (Swap) | (4,571) | (20,158) |
Loans and financing | (7,596,191) | (6,108,727) |
Bonds designated as cash flow hedge | 796,860 | 702,780 |
Exports prepayment designated as cash flow hedge | 796,860 | 702,780 |
Trade accounts payable | (957,201) | (634,214) |
Other assets and liabilities, net | 97,608 | 231,459 |
1,505,981 | (203,416) | |
Foreign exchange exposure (in US$) | 566,968 | (86,833) |
Foreign exchange exposure impacting the income (in US$) | 550,542 | 28,747 |
Foreign exchange exposure impacting the shareholders' equity (in US$) | 16,426 | (115,580) |
Foreign exchange exposure (in US$) | 566,968 | (86,833) |
22 | FINANCIAL STATEMENTS 2014 |
The Company’s net foreign exchange exposure as of December 31, 2014 corresponds to a liability amounting to US$566,968. Due to the impacts of the functional currency, net foreign exchange exposure is composed of: (i) an asset totaling US$550,542, which variations are recorded in statement of income and (ii) a liability totaling US$16,426, which variation are recognized in comprehensive income. On December 31, 2014, the net foreign exchange exposure is within the limit set by the Company’s Risk Policy. e. Commodity price risk management In the normal course of its operations, the Company purchases commodities, mainly corn, soymeal and oil and live hog, which are some of the individual components of production cost. | Corn, soymeal and oil prices are subject to volatility resulting from weather conditions, crop yield, transportation and storage costs, government’s agricultural policy, foreign exchange rates and the prices of these commodities on the international market, among others factors. The prices of hog acquired from third parties are subject to market conditions and are influenced by internal availability and levels of demand in the international market, among other aspects. The Risk Policy establishes limits for hedging the corn and soymeal purchase flow, aiming to reduce the impact resulting from a price increase of these raw materials, and may utilize derivative instruments or inventory management for this purpose. Currently, the management of inventory levels is used as a hedging instrument. f. Capital management | The Company’s definition of the adequate capital structure is essentially associated with (i) cash strength as a tolerance factor to liquidity volatility, (ii) financial leverage and (iii) maximization of the opportunity cost of capital. The cash and liquidity strategy takes into consideration the historical scenarios of volatility of results as well as simulations of sectorial and systemic crises and is based on permitting the resilience in scenarios of restricted access to capital. Financial leverage aims the balance between the different sources of funding and their conditions of allocation in order to maximize the opportunity cost to BRF in its business expansion initiatives. Moreover, the objective of maintaining the investment grade disciplines the weighting of using own and third party capital. The Company monitors debt levels and net debt, which are shown below: |
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Current | Non-current | Total | Total | |
Foreign currency debt | (197,542) | (7,398,649) | (7,596,191) | (6,108,727) |
Local currency debt | (2,541,361) | (1,451,783) | (3,993,144) | (4,072,463) |
Other financial liabilities | (257,438) | - | (257,438) | (357,182) |
Gross debt | (2,996,341) | (8,850,432) | (11,846,773) | (10,538,372) |
Marketable securities and cash and cash equivalents | 6,594,422 | 62,104 | 6,656,526 | 3,643,285 |
Other financial assets | 43,101 | - | 43,101 | 11,572 |
Restricted cash | - | 115,179 | 115,179 | 99,212 |
Net debt | 3,641,182 | (8,673,149) | (5,031,967) | (6,784,303) |
4.2. DERIVATIVE AND NON-DERIVATIVE FINANCIAL INSTRUMENTS DESIGNATED AS HEDGE ACCOUNTING As permitted by CVM Deliberation Nº 604/09, the Company applies hedge accounting to its derivative instruments classified as cash flow hedge, in accordance with the Risk Policy. The cash flow hedge consists of hedging the exposure to variations of the cash flow which is attributable to a particular risk associated with a recognized asset or liability, or a highly probable transaction that could affect profit and loss. The Risk Policy has also the purpose of determining parameters of use of financial instruments, including derivatives, whichare designed to protect the operating and financial assets and liabilities, which are exposed to the variations of foreign exchange rates, the fluctuation of the interest rates and changes to the commodity prices. The Risk Management area is responsible for ensuring compliance to the requirements established by the Company’s Risk Policy. | The Company formally designated its operations for hedge accounting treatment for the derivative financial instruments to protect cash flows and export revenues by documenting: • The relationship of the hedge; • The objective and risk managementstrategy of the Company to enter into a hedge transaction; | • The identification of the financialinstrument; • The hedge object or transaction; • The nature of the risk to be hedged; • The description of the hedge relationship; • The demonstration of the correlationbetween the hedge transaction and the hedge object, when applicable; and • The prospective demonstration of theeffectiveness of the hedge. The transactions for which the Company has designated hedge accounting are highly probable, present an exposure to variation in cash flow that could affect profit and loss and are highly effective in protecting changesin fair value or cash flows attributable to hedged risk, consistent with the risk originally documented in the Risk Policy. |
23
The effectiveness tests are prepared prospectively and retrospectively at each period end. The prospective test is based on the comparison between the critical terms of derivative and non-derivative financial instruments and the hedged items. The hedged items (e.g. future monthly export sales) and the hedge instruments have the same critical terms, as follows: • Both fair value change due to theexchange rate variation (spot or forward rate method); • Their nominal values (notional) aresimilar; and • Their maturities are identical and boththe hedged item (revenue) and the settlement of the financial instrument will occur at the same period. The retrospective test is based on the analysis of the coverage ratio. This ratio compares the fair value variation accumulated since the inception of the hedged item (date of hedge designation) with the accumulated variation of the derivative and non-derivative financial instrument since its inception. The effectiveness of the hedge is determined at the settlement date of the financial instrument, by comparing the cumulative changes of highly probable revenues with the gains or losses arising from the financial instruments. | The Company, within its hedge accounting strategy, utilizes the following financial instruments: a. Non-deliverable forwards – NDF Non-deliverable forward contract is the future commitment to purchase or sell certain currencies on a certain date in the future for a predetermined price. This contract does not require physical settlement of contracted positions, but the financial settlement of the difference between the settlement price and the predetermined price of the contract. b. Interest rate and currency swap Similar to a non-deliverable forward contract, the swap is the future commitment to buy or sell certain interest rates or currency at a specified date in the future for a predetermined price. The particularity in this type of transaction is the possibility to exchange cash flows on various dates. The Company contracts swaps that do not require the physical settlement of contracted positions, but the financial settlement of the difference between the settlement price and the price established in the contract. c. Options A put option gives the holder (option holder) the right to buy an asset at a certain price (strike) at certain future date (the exercise date). A call option gives the holder the right to sell an asset at a certain price at a certain future date. In addition, there is a possibility of buying (premium disbursement, with rights) or selling (premium receiving, with obligations). | d. Fixed exchange rate Fixed exchange rate is a non-derivative financial instrument contracted from financial institutions that allows the definition of a future rate to internalization of resources arising from foreign activities. Contractually, there is the requirement of submission of export invoices to prove the nature of resources which will be internalized trough closing of exchange rate. Such contract has similar characteristics of a non-deliverable forward derivative contract because it determines, at its inception, a future exchange rate. Nevertheless, the contract requires a physical settlement of the contracted positions. e. Export prepayments – PPEs The Company utilizes the exchange rates variation of export prepayments contracts (“PPEs”) as a hedge instrument for the highly probable future sales in foreign currency. f. Senior unsecured notes – Bonds The Company designates part of the transactions involving Senior Unsecured Notes (Bond BRF2022 and 2023) as hedge accounting. 4.2.1 BREAKDOWN OF THE BALANCES OF DERIVATIVE FINANCIAL INSTRUMENTS The positions of outstanding derivative financial instruments are as follows: |
24 | FINANCIAL STATEMENTS 2014 |
Parent company and Consolidated | ||||||
12.31.14 | 12.31.13 | |||||
Reference | ||||||
currency | Reference value | Reference value | ||||
Instrument | Hedge object | (notional) | (notional) | Fair value(1) | (notional) | Fair value(1) |
Financial instruments designated as | ||||||
cash flow hedge | ||||||
NDF - Dollar's sale | Currency | USD | 439,655 | (62,699) | 190,000 | (21,349) |
NDF - Euro's sale | Currency | EUR | 74,042 | 184 | 106,800 | (25,193) |
NDF - Libra's sale | Currency | GBP | 41,574 | (2,097) | 33,000 | (12,088) |
NDF - Iene's sale | Currency | JPY | 16,993,208 | (2,761) | - | - |
Currency swap - US$ | Currency | BRL | 250,000 | (90,328) | 572,990 | (203,924) |
Interest rate - US$ | Interest | USD | 200,000 | (29,060) | 200,000 | (33,187) |
Fixed exchange rate - US$ | Currency | USD | 102,470 | (2,848) | 160,000 | (10,429) |
Fixed exchange rate - Euro | Currency | EUR | 8,000 | 299 | - | - |
Options (Collar) - US$ | Currency | USD | 164,000 | (3,995) | 120,000 | (287) |
Total in Parent company | (193,305) | (306,457) | ||||
Interest rate - US$ | Interest | USD | 200,000 | (38,587) | 200,000 | (38,754) |
Total Consolidated | (231,892) | (345,211) | ||||
Financial instruments not | ||||||
designated as cash flow hedge | ||||||
NDF - Iene's sale | Currency | 1,000,000 | 1,125 | - | - | |
Embedded derivative - Lactalis | Currency | 697,756 | 27,955 | - | - | |
Currency swap - US$ | Currency | USD | 2,798 | (1,750) | 13,992 | (6,104) |
Interest rate - R$ | Interest | BRL | 590,000 | (1,466) | 317,380 | 590 |
Options | Live cattle | BRL | - | - | 6,650 | (154) |
NDF | Live cattle | BRL | - | - | 3,296 | (484) |
Future - BM&F Bovespa | Live cattle | BRL | - | - | 4,400 | 18 |
Future - BM&F Bovespa | Currency | USD | 95,000 | (5,694) | 205,000 | 3,247 |
Total in Parent company | 20,170 | (2,887) | ||||
NDF - Euro | Currency | EUR | 150,000 | 87 | 150,000 | 2,715 |
NDF - Libra | Currency | GBP | 20,000 | (2,638) | 15,000 | (227) |
NDF - Peso | Currency | USD | 3,360 | (64) | - | - |
Total Consolidated | 17,555 | (399) | ||||
Total in Parent company | (173,135) | (309,344) | ||||
Total Consolidated | (214,337) | (345,610) | ||||
(1) The market value determination method used by the Company consists of calculating the future value based on the contracted conditions and determining the present value based on market curves,obtained from the database of Bloomberg and BM&F. | ||||||
25
a. Non-deliverable forwards – NDF |
The position of the outstanding non- |
deliverable forward – NDF as of December 31, |
2013 and December 31, 2012, by maturity, as |
well as the weighted average exchange rates |
and the fair value, are presented as follows: |
R$ x US$ | |||
Maturities | Notional (US$) | Average rate | Fair value |
Financial instruments designated as cash flow hedge | |||
January 2015 | 104,064 | 2.5538 | (10,982) |
February 2015 | 67,800 | 2.5043 | (11,640) |
March 2015 | 47,345 | 2.4665 | (10,621) |
April 2015 | 45,020 | 2.4509 | (11,704) |
May 2015 | 46,164 | 2.5392 | (8,883) |
June 2015 | 32,648 | 2.6095 | (4,846) |
July 2015 | 43,532 | 2.6862 | (4,043) |
August 2015 | 27,694 | 2.8184 | 246 |
September 2015 | 7,694 | 2.7831 | (414) |
October 2015 | 7,694 | 2.8035 | (412) |
November 2015 | 10,000 | 2.9434 | 600 |
439,655 | 2.5759 | (62,699) | |
EUR x US$ | |||
Maturities | Notional (EUR) | Average rate | Fair value |
Financial instruments not designated as cash flow hedge | |||
January 2015 | - | - | - |
March 2015 | 150,000 | 1.2196 | 87 |
150,000 | 1.2196 | 87 |
b. Interest rate and currency swap |
The position of interest rate and currency |
swap is presented as follows: |
12.31.14 | |||||||
Parent company | Consolidated | ||||||
Liabilities | |||||||
Instrument | Maturity | Assets (Hedged object) | (Protected risk) | Notional | Fair value | Notional | Fair value |
Financial | |||||||
instruments | |||||||
designated as cash | |||||||
flow hedge | |||||||
Interest rate | 01.22.18 | LIBOR 6M + 2.82% p.a. | 5.86% p.a. | 100,000 | (15,498) | 100,000 | (15,498) |
Interest rate | 06.18.18 | LIBOR 3M + 2.60% p.a. | 5.47% p.a. | 100,000 | (13,562) | 100,000 | (13,562) |
Interest rate | 02.01.19 | LIBOR 6M + 2.70% p.a. | 5.90% p.a. | - | - | 100,000 | (19,399) |
Interest rate | 02.01.19 | LIBOR 6M + 2.70% p.a. | 5.88% p.a. | - | - | 100,000 | (19,188) |
(29,060) | (67,647) | ||||||
Currency swap | 05.22.18 | R$ + 7.75% | US$ + 1.60% | 250,000 | (90,328) | 250,000 | (90,328) |
(119,388) | (157,975) | ||||||
Financial | |||||||
instruments not | |||||||
designated as cash | |||||||
flow hedge | |||||||
Interest rate - Bond | 05.22.18 | R$ (Fixed rate of 7.75% p.a.) | 68.84% CDI | 50,000 | (166) | 50,000 | (166) |
Interest rate - NCE | 06.19.15 | R$ (Fixed rate of 8.00% p.a.) | 66.30% CDI | 50,000 | (9) | 50,000 | (9) |
Interest rate - NCE | 11.19.15 | R$ (Fixed rate of 10.84% p.a.) | 89.84% CDI | 300,000 | (996) | 300,000 | (996) |
Interest rate - NCE | 06.29.15 | R$ (Fixed rate of 8.00% p.a.) | 67.35% CDI | 90,000 | (48) | 90,000 | (48) |
Interest rate - NCE | 10.29.15 | R$ (Fixed rate of 10.84% p.a.) | 89.35% CDI | 100,000 | (247) | 100,000 | (247) |
(1,466) | (1,466) | ||||||
Currency swap | 03.16.15 | R$ (Fixed rate of 8.41% p.a.) | US$ - 0.20% | 2,798 | (1,750) | 2,798 | (1,750) |
(3,216) | (3,216) |
26 | FINANCIAL STATEMENTS 2014 |
Parent company and Consolidated | ||||||||
12.31.14 | ||||||||
R$ x EUR | R$ x GBP | R$ x JPY | ||||||
Notional (EUR) | Average rate | Fair value | Notional (GBP) | Average rate | Fair value | Notional (JPY) | Average rate | Fair value |
12,000 | 3.1955 | (455) | 4,392 | 4.0142 | (545) | 3,013,280 | 0.0231 | 2,471 |
11,000 | 3.2565 | 54 | 3,891 | 4.0767 | (324) | 4,100,000 | 0.0229 | 1,884 |
11,573 | 3.2743 | (67) | 5,509 | 4.1039 | (441) | 1,000,000 | 0.0219 | (699) |
7,906 | 3.1809 | (970) | 4,270 | 4.0961 | (551) | 1,000,000 | 0.0221 | (712) |
9,736 | 3.2801 | (503) | 4,622 | 4.0088 | (312) | 1,000,000 | 0.0223 | (712) |
10,588 | 3.4497 | 886 | 4,589 | 4.3034 | 37 | 1,000,000 | 0.0225 | (743) |
6,116 | 3.4803 | 522 | 4,934 | 4.3278 | 4 | 1,000,000 | 0.0227 | (758) |
3,123 | 3.5179 | 265 | 2,622 | 4.3691 | 12 | 1,000,000 | 0.0228 | (784) |
2,000 | 3.6880 | 452 | 2,564 | 4.4002 | - | 1,000,000 | 0.0230 | (791) |
- | - | - | 2,700 | 4.4360 | 5 | 1,000,000 | 0.0232 | (820) |
- | - | - | 1,481 | 4.4760 | 18 | 1,879,928 | 0.0236 | (1,097) |
74,042 | 3.3132 | 184 | 41,574 | 4.1989 | (2,097) | 16,993,208 | 0.0229 | (2,761) |
GBP x US$ | JPY x R$ | ARS x US$ | ||||||
Notional (GBP) | Average rate | Fair value | Notional (JPY) | Average rate | Fair value | Notional (ARS) | Average rate | Fair value |
- | - | - | 1,000,000 | 0.0234 | 1,125 | - | - | - |
20,000 | 1.5535 | (2,638) | - | - | - | 3,360 | 9.1700 | (64) |
20,000 | 1.5535 | (2,638) | 1,000,000 | 0.0234 | 1,125 | 3,360 | 9.1700 | (64) |
c. Fixed exchange rate |
The position of fixed exchange rate designated |
as cash flow hedge is presented as follows: |
Parent company and Consolidated | ||||||
12.31.14 | ||||||
R$ x US$ | R$ x US$ | |||||
Maturities | Notional US$ | Average US$ | Fair value | Notional Eur | Average Eur | Fair value |
April 2015 | 4,968 | 2.7222 | (35) | - | - | - |
May 2015 | 4,968 | 2.7387 | (32) | - | - | - |
June 2015 | 34,968 | 2.6723 | (3,100) | - | - | - |
July 2015 | 4,968 | 2.7910 | (10) | 5,000 | 3.4126 | 86 |
August 2015 | 14,968 | 2.8302 | 231 | 3,000 | 3.4977 | 213 |
September 2015 | 14,968 | 2.8580 | 269 | - | - | - |
October 2015 | 14,968 | 2.8695 | 135 | - | - | - |
November 2015 | 7,694 | 2.8411 | (306) | - | - | - |
102,470 | 2.7754 | (2,848) | 8,000 | 3.4445 | 299 |
27
d. Options The Company designates as a cash flow hedge only the variation in the intrinsic value of its options, recognizing the time value of the premium in the financial result. If the hedge is not effective and the option is not exercised due to devaluation of the Brazilian Real, thelosses related to the options will be registered as financial expenses in the statement of income. | The Company has designated transactions involving options denominated collar where there is a purchase of a put option (“PUT”) and a sale of a call option (“CALL”). | When the market price of any of the options is not available in an active market, the fair value is based on an option pricing model (Black-Scholes or Binomial). |
Parent company and Consolidated | ||||
12.31.14 | ||||
R$ x US$ | ||||
Type | Maturities | Notional (US$) | Average US$ | Fair value |
Financial instruments designated as cash flow hedge | ||||
Collar - Put (Purchase) | From 10.2014 to 05.2015 | 164,000 | 2.5362 | 3,160 |
Collar - Call (Sale) | From 10.2014 to 05.2015 | (164,000) | 2.7748 | (7,155) |
Total Option (Collar) | (3,995) |
4.2.2 BREAKDOWN OF THE BALANCES OF NON- | The position of non-derivative financial | |
DERIVATIVE FINANCIAL INSTRUMENTS | instruments is presented as follows: |
Parent company and Consolidated | ||||||
12.31.14 | 12.31.13 | |||||
Reference | ||||||
currency | ||||||
Instrument | Hedge object | (notional) | Value (notional) | Fair value(1) | Value (notional) | Fair value(1) |
Financial instruments designated as | ||||||
cash flow hedge | ||||||
Export prepayment - PPEs | Exchange | USD | 300,000 | 796,860 | 300,000 | 702,780 |
Senior unsecured notes - Bonds | Exchange | USD | 300,000 | 796,860 | 300,000 | 702,780 |
600,000 | 1,593,720 | 600,000 | 1,405,560 | |||
(1) Notional converted by the exchange rate in effect at year-end. |
a. Export prepayments – PPEs |
The position of PPEs is presented as follows: |
Parent company and Consolidated | |||||
12.31.14 | |||||
Hedge Instrument | Type of risk hedged | Maturities | Notional (US$) | Average rate | Fair value |
Export prepayment - PPE | US$ (E.R.) | 02.2017 to 02.2019 | 300,000 | 1.7796 | 796,860 |
28 | FINANCIAL STATEMENTS 2014 |
b. Senior unsecured notes – Bonds |
The position of bonds designated as cash flow |
hedge is presented as follows: |
Parent company and Consolidated | |||||
12.31.14 | |||||
Hedge Instrument | Type of risk hedged | Maturities | Notional (US$) | Average rate | Fair value |
BRF SA BRFSBZ5 | US$ (E.R.) | 06.2022 | 150,000 | 2.0213 | 398,430 |
BRF SA BRFSBZ3 | US$ (E.R.) | 05.2023 | 150,000 | 2.0387 | 398,430 |
300,000 | 2.0300 | 796,860 |
4.3. GAINS AND LOSSES OF DERIVATIVE AND | The unrealized gains and losses of derivative | a component of other comprehensive income, |
NON-DERIVATIVE FINANCIAL INSTRUMENTS | and non-derivative financial instruments | as set forth below: |
designated as cash flow hedge are recorded as |
Shareholders’ Equity | ||||
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Financial instruments designated as cash flow hedge | ||||
Foreign exchange risks | (152,670) | (172,402) | (152,670) | (172,402) |
Interest risks | (26,072) | (30,525) | (59,300) | (64,911) |
(178,742) | (202,927) | (211,970) | (237,313) | |
Financial instruments not designated as cash flow hedge | ||||
Foreign exchange risks | (450,840) | (262,680) | (450,840) | (262,680) |
Gross losses | (629,582) | (465,607) | (662,810) | (499,993) |
Deferred taxes on losses | 214,058 | 158,306 | 214,058 | 158,306 |
OCI recognized by subsidiaries | (33,228) | (34,386) | - | - |
Losses, net of taxes | (448,752) | (341,687) | (448,752) | (341,687) |
Rolforward | (163,975) | (277,268) | (162,817) | (260,066) |
Income taxes | 55,752 | 94,271 | 55,752 | 94,271 |
OCI recognized by subsidiaries | 1,158 | 17,202 | - | - |
Net gains (losses) recognized in other comprehensive income | (107,065) | (165,795) | (107,065) | (165,795) |
On December 31, 2014, the realized | by a net loss amounting to R$72,347 (loss of | |
transaction with derivative and non-derivative | R$132,565 as of December 31, 2013) recorded | |
financial instruments designated as cash flow | as gross revenues and a net gain of R$4,753 | |
hedge resulted in a loss of R$77,100 (loss of | (loss of R$1,106 as of December 31, 2013) | |
R$133,671 as of December 31, 2013), composed | recorded in the financial result. |
29
4.4 BREAKDOWN OF FINANCIAL INSTRUMENTS |
BY CATEGORY – EXCEPT DERIVATIVES |
Parent company | ||||||
12.31.14 | ||||||
Loans and | Financial | |||||
receivables | Available for sale | Trading securities | Held to maturity | liabilities | Total | |
Assets | ||||||
Amortized cost | ||||||
Marketable securities | - | - | - | 62,104 | - | 62,104 |
Restricted cash | - | - | - | 115,179 | - | 115,179 |
Trade accounts receivable | 4,669,679 | - | - | - | - | 4,669,679 |
Other credits | 506,844 | - | - | - | - | 506,844 |
Other receivables | 195,481 | - | - | - | - | 195,481 |
Fair value | ||||||
Marketable securities | - | - | 283,623 | - | - | 283,623 |
Liabilities | ||||||
Amortized cost | ||||||
Trade accounts payable | - | - | - | - | (3,591,980) | (3,591,980) |
Loans and financing | ||||||
Local currency | - | - | - | - | (3,454,444) | (3,454,444) |
Foreign currency | - | - | - | - | (6,037,477) | (6,037,477) |
Capital lease payable | - | - | - | - | (243,606) | (243,606) |
Fair value | ||||||
Loans and financing - NCE | - | - | - | - | (538,700) | (538,700) |
5,372,004 | - | 283,623 | 177,283 | (13,866,207) | (8,033,297) | |
Parent company | ||||||
12.31.13 | ||||||
Loans and | Financial | |||||
receivables | Available for sale | Trading securities | Held to maturity | liabilities | Total | |
Assets | ||||||
Amortized cost | ||||||
Marketable securities | - | - | - | 56,002 | - | 56,002 |
Restricted cash | - | - | - | 99,212 | - | 99,212 |
Trade accounts receivable | 3,993,114 | - | - | - | - | 3,993,114 |
Other credits | 389,812 | - | - | - | - | 389,812 |
Other receivables | 284,707 | - | - | - | - | 284,707 |
Fair value | ||||||
Marketable securities | - | 623 | 178,097 | - | - | 178,720 |
Liabilities | ||||||
Amortized cost | ||||||
Trade accounts payable | - | - | - | - | (3,378,029) | (3,378,029) |
Loans and financing | ||||||
Local currency | - | - | - | - | (4,072,463) | (4,072,463) |
Foreign currency | - | - | - | - | (3,602,838) | (3,602,838) |
Capital lease payable | - | - | - | - | (187,856) | (187,856) |
4,667,633 | 623 | 178,097 | 155,214 | (11,241,186) | (6,239,619) |
30 | FINANCIAL STATEMENTS 2014 |
Consolidated | ||||||
12.31.14 | ||||||
Loans and | Financial | |||||
receivables | Available for sale | Trading securities | Held to maturity | liabilities | Total | |
Assets | ||||||
Amortized cost | ||||||
Marketable securities | - | - | - | 62,104 | - | 62,104 |
Restricted cash | - | - | - | 115,179 | - | 115,179 |
Trade accounts receivable | 3,054,577 | - | - | - | - | 3,054,577 |
Other credits | 576,740 | - | - | - | - | 576,740 |
Other receivables | 195,481 | - | - | - | - | 195,481 |
Fair value | ||||||
Marketable securities | - | 303,857 | 283,623 | - | - | 587,480 |
Liabilities | ||||||
Amortized cost | ||||||
Trade accounts payable | - | - | - | - | (3,977,327) | (3,977,327) |
Loans and financing | ||||||
Local currency | - | - | - | - | (3,454,444) | (3,454,444) |
Foreign currency | - | - | - | - | (7,596,191) | (7,596,191) |
Capital lease payable | - | - | - | - | (243,790) | (243,790) |
Fair value | ||||||
Loans and financing - NCE | - | - | - | - | (538,700) | (538,700) |
3,826,798 | 303,857 | 283,623 | 177,283 | (15,810,452) | (11,218,891) | |
Consolidated | ||||||
12.31.13 | ||||||
Loans and | Financial | |||||
receivables | Available for sale | Trading securities | Held to maturity | liabilities | Total | |
Assets | ||||||
Amortized cost | ||||||
Marketable securities | - | - | - | 56,002 | - | 56,002 |
Restricted cash | - | - | - | 99,212 | - | 99,212 |
Trade accounts receivable | 3,346,166 | - | - | - | - | 3,346,166 |
Other credits | 502,682 | - | - | - | - | 502,682 |
Other receivables | 284,707 | - | - | - | - | 284,707 |
Fair value | ||||||
Marketable securities | - | 280,373 | 179,195 | - | - | 459,568 |
Liabilities | ||||||
Amortized cost | ||||||
Trade accounts payable | - | - | - | - | (3,674,705) | (3,674,705) |
Loans and financing | ||||||
Local currency | - | - | - | - | (4,072,463) | (4,072,463) |
Foreign currency | - | - | - | - | (6,108,727) | (6,108,727) |
Capital lease payable | - | - | - | - | (188,839) | (188,839) |
4,133,555 | 280,373 | 179,195 | 155,214 | (14,044,734) | (9,296,397) |
31
4.5. DETERMINATION OF THE FAIR VALUE OF FINANCIAL INSTRUMENTS The Company discloses its financial assets and liabilities at fair value, based on the appropriate accounting pronouncements, which refers to concepts of valuation and disclosure requirements. Particularly related to the disclosure, the Company applies the hierarchy requirements set out in CVM Deliberation 699/12, which involves the following aspects: • The fair value is the price that an assetcould be exchanged and a liability could be settled, between knowledgeable willing parties in an arm’s length transaction; and | • Hierarchy on three levels for measurementof the fair value, according to observable inputs for the valuation of an asset or liability on the date of its measurement. The valuation established on three levels of hierarchy for measurement of the fair value is based on observable and non-observable inputs. Observable inputs reflect market data obtained from independent sources, while non-observable inputs reflect the Company’s valuation technics. These two types of inputs create the hierarchy of fair value set forth below: | • Level 1 –Prices quoted (unadjusted) for identical instruments in active markets;• Level 2 –Prices quoted in active markets for similar instruments, prices quoted for identical or similar instruments in non-active markets and evaluation models for which inputs are observable; and• Level 3 –Instruments whose significant inputs are non-observable. The table below presents the overall classification of financial assets and liabilities according to the valuation hierarchy. The fair value of financial instruments presented below was based in prices observed in active markets, level 1 of the hierarchy for fair value measurement. |
Parent company | ||||
12.31.14 | ||||
Level 1 | Level 2 | Level 3 | Total | |
Assets | ||||
Financial assets | ||||
Held for trading | ||||
Bank deposit certificates | - | 64,820 | - | 64,820 |
Financial treasury bills | 218,803 | - | - | 218,803 |
Other financial assets | ||||
Financial instruments derivatives designed as cash flow hedge | - | 13,842 | - | 13,842 |
Financial instruments derivatives not designated as cash flow hedge | - | 29,080 | - | 29,080 |
218,803 | 107,742 | - | 326,545 | |
Liabilities | ||||
Financial liabilities | ||||
Loans and financing | - | (538,700) | - | (538,700) |
Other financial liabilities | ||||
Financial instruments derivatives designed as cash flow hedge | - | (207,147) | - | (207,147) |
Financial instruments derivatives not designated as cash flow hedge | - | (8,910) | - | (8,910) |
- | (754,757) | - | (754,757) | |
Parent company | ||||
12.31.13 | ||||
Level 1 | Level 2 | Level 3 | Total | |
Assets | ||||
Financial assets | ||||
Available for sale | ||||
Stocks | 623 | - | - | 623 |
Held for trading | ||||
Bank deposit certificates | - | 113,253 | - | 113,253 |
Financial treasury bills | 64,844 | - | - | 64,844 |
Other financial assets | ||||
Financial instruments derivatives designed as cash flow hedge | - | 5,592 | - | 5,592 |
Financial instruments derivatives not designated as cash flow hedge | - | 3,265 | - | 3,265 |
65,467 | 122,110 | - | 187,577 | |
Liabilities | ||||
Financial liabilities | ||||
Other financial liabilities | ||||
Financial instruments derivatives designed as cash flow hedge | - | (311,459) | - | (311,459) |
Financial instruments derivatives not designated as cash flow hedge | - | (6,742) | - | (6,742) |
- | (318,201) | - | (318,201) |
32 | FINANCIAL STATEMENTS 2014 |
Consolidated | ||||
12.31.14 | ||||
Level 1 | Level 2 | Level 3 | Total | |
Assets | ||||
Financial assets | ||||
Available for sale | ||||
Credit linked notes | 187,867 | - | - | 187,867 |
Brazilian foreign debt securities | 92,356 | - | - | 92,356 |
Investment funds | 23,634 | - | - | 23,634 |
Held for trading | ||||
Bank deposit certificates | - | 64,820 | - | 64,820 |
Financial treasury bills | 218,803 | - | - | 218,803 |
Other financial assets | ||||
Financial instruments derivatives designed as cash flow hedge | - | 13,842 | - | 13,842 |
Financial instruments derivatives not designated as cash flow hedge | - | 29,259 | - | 29,259 |
522,660 | 107,921 | - | 630,581 | |
Liabilities | ||||
Financial liabilities | ||||
Loans and financing | - | (538,700) | - | (538,700) |
Other financial liabilities | ||||
Financial instruments derivatives designed as cash flow hedge | - | (245,734) | - | (245,734) |
Financial instruments derivatives not designated as cash flow hedge | - | (11,704) | - | (11,704) |
- | (796,138) | - | (796,138) | |
Consolidated | ||||
12.31.13 | ||||
Level 1 | Level 2 | Level 3 | Total | |
Assets | ||||
Financial assets | ||||
Available for sale | ||||
Credit linked notes | 173,969 | - | - | 173,969 |
Brazilian foreign debt securities | 105,322 | - | - | 105,322 |
Investment funds | 459 | - | - | 459 |
Stocks | 623 | - | - | 623 |
Held for trading | ||||
Bank deposit certificates | - | 114,351 | - | 114,351 |
Financial treasury bills | 64,844 | - | - | 64,844 |
Other financial assets | ||||
Financial instruments derivatives designed as cash flow hedge | - | 5,592 | - | 5,592 |
Financial instruments derivatives not designated as cash flow hedge | - | 5,980 | - | 5,980 |
345,217 | 125,923 | - | 471,140 | |
Liabilities | ||||
Financial liabilities | ||||
Other financial liabilities | ||||
Financial instruments derivatives designed as cash flow hedge | - | (350,213) | - | (350,213) |
Financial instruments derivatives not designated as cash flow hedge | - | (6,969) | - | (6,969) |
- | (357,182) | - | (357,182) |
33
The following is a description of the valuation methodologies utilized by the Company for financial instruments measured at fair value: • Investments in Brazilian foreign debtsecurities, Financial Treasury Notes (“LFT”), financial investment funds and stocks are classified at Level 1 of the fair value hierarchy, as the market prices are available in an active market; • Investments in Bank Deposit Certificates (“CDB”) are classified at Level 2, since the determination of fair value is based onthe price quotation of similar financial instruments in non-active markets; and | • Derivative financial instruments arevalued through existing pricing models widely accepted by financial market and described in appendix III of the Risk Policy. Readily observable market inputs are used, such as interest rate forecasts, volatility factors and foreign currency rates. These instruments are classified at Level 2 in the valuation hierarchy, including interest rates swap and foreign currency derivatives. | 4.6. COMPARISON BETWEEN BOOK VALUE AND FAIR VALUE OF FINANCIAL INSTRUMENTS Except for the items presented below, the book value of all other financial instruments approximate fair value. The fair value of financial instruments presented below was based in prices observed in active markets, level 1 of the hierarchy for fair value measurement. |
Parent company and Consolidated | |||||
12.31.14 | 12.31.13 | ||||
Maturity | Book value | Fair value | Book value | Fair value | |
BRF bonds | |||||
BRF SA BRFSBZ5 | 2022 | (1,995,163) | (2,101,511) | (1,757,590) | (1,754,392) |
BRF SA BRFSBZ4 | 2024 | (1,961,020) | (1,953,912) | - | - |
BRF SA BRFSBZ3 | 2023 | (1,245,013) | (1,241,545) | (1,076,223) | (915,169) |
BRF SA BRFSBZ7 | 2018 | (501,192) | (439,461) | (500,323) | (416,898) |
Parent company | (5,702,388) | (5,736,429) | (3,334,136) | (3,086,459) | |
BFF bonds | |||||
Sadia Overseas BRFSBZ7 | 2020 | (595,372) | (679,571) | (1,501,982) | (1,654,926) |
Sadia bonds | |||||
Sadia Overseas BRFSBZ6 | 2017 | (427,285) | (457,477) | (520,609) | (574,900) |
Quickfood bonds | |||||
Quickfood | 2016 | (190,139) | (190,139) | (54,586) | (54,586) |
Consolidated | (6,915,184) | (7,063,616) | (5,411,313) | (5,370,871) |
4.7. TABLE OF SENSITIVITY ANALYSISThe Company has financing, loans and receivables denominated in foreign currency and in order to mitigate the risks resulting from exchange rate exposure, it contracts derivative financial instruments. The Company understands that the current interest rate fluctuations do not affect significantly its financial results, since it opted to fix the exchange rate of a considerableportion of its floating interest rates debts by using derivative transactions (interest rates swaps). The Company designates such derivatives as cash flow hedge and, therefore, their effectiveness is monitored through prospective and retrospective tests. | In the table presented below, five scenarios are considered for the next twelve-month period, considering the percentage variations of the quote of the parity between theBrazilian Reais and U.S. Dollar, Brazilian Reais and Euro, Brazilian Reais and Pounds Sterling and Brazilian Reais and Iene whereas the most likely scenario is that one adopted by the Company. The total of export sales analyzed corresponds to the total of derivative financial instruments increased by the amortization flow of PPEs designated as cash flow hedge. |
34 | FINANCIAL STATEMENTS 2014 |
2.6562 | 2.3906 | 1.9922 | 3.3203 | 3.9843 | ||
Parity - Brazilian Reais x U.S. Dollar | Current | Scenario I | Scenario II | Scenario III | Scenario IV | |
Transaction/Instrument | Risk | Scenario | 10% appreciation | 25% appreciation | 25% devaluation | 50% devaluation |
Financial instruments designated as | ||||||
cash flow hedge | ||||||
Non-deliverable forward and | ||||||
Deliverable forward (cash flow | ||||||
hedge) | Devaluation of R$ | (35,322) | 81,458 | 256,629 | (327,276) | (619,229) |
Deliverable forwards | Devaluation of R$ | 12,212 | 39,430 | 80,257 | (55,833) | (123,878) |
Options - currencies | Devaluation of R$ | - | 23,969 | 93,296 | 89,450 | 198,354 |
Export prepayments | Devaluation of R$ | (262,980) | (183,294) | (63,765) | (462,195) | (661,410) |
Bonds | Devaluation of R$ | (187,860) | (108,174) | 11,355 | (387,075) | (586,290) |
Swaps | Devaluation of R$ | (77,457) | (44,711) | 4,407 | (159,321) | (241,185) |
Exports | Appreciation of R$ | 23,110 | (144,857) | (430,182) | 293,659 | 544,753 |
Financial instruments not | ||||||
designated as cash flow hedge | ||||||
Embedded derivative | Appreciation of R$ | (53,421) | (238,759) | (516,765) | 409,924 | 873,268 |
Dollar Future sales - BM&F Bovespa | Devaluation of R$ | 5,082 | 30,316 | 68,167 | (58,003) | (121,088) |
Net effect | (576,636) | (544,622) | (496,601) | (656,670) | (736,705) | |
Shareholders' equity | (528,297) | (336,179) | (48,003) | (1,008,591) | (1,488,885) | |
Statement of income | (48,339) | (208,443) | (448,598) | 351,921 | 752,180 | |
3.2270 | 2.9043 | 2.4203 | 4.0338 | 4.8405 | ||
Parity - Brazilian Reais x Euro | Current | Scenario I | Scenario II | Scenario III | Scenario IV | |
Transaction/Instrument | Risk | Scenario | 10% appreciation | 25% appreciation | 25% devaluation | 50% devaluation |
Financial instruments designated as | ||||||
cash flow hedge | ||||||
Non-deliverable forward and | ||||||
Deliverable forward (cash flow | ||||||
hedge) | Devaluation of R$ | 6,384 | 30,278 | 66,118 | (53,349) | (113,082) |
Deliverable forwards | Devaluation of R$ | 1,740 | 4,322 | 8,194 | (4,714) | (11,168) |
Exports | Appreciation of R$ | (8,124) | (34,600) | (74,312) | 58,063 | 124,250 |
Financial instruments not | ||||||
designated as cash flow hedge | ||||||
NDF and Deliverable forward (cash | ||||||
flow hedge) | Devaluation of R$ | 1,853 | 50,258 | 122,866 | (119,160) | (240,174) |
Net effect | 1,853 | 50,258 | 122,866 | (119,160) | (240,174) | |
Shareholders' equity | - | - | - | - | - | |
Statement of income | 1,853 | 50,258 | 122,866 | (119,160) | (240,174) | |
4.1405 | 3.7265 | 3.1054 | 5.1756 | 6.2108 | ||
Parity - Brazilian Reais x GBP | Current | Scenario I | Scenario II | Scenario III | Scenario IV | |
Transaction/Instrument | Risk | Scenario | 10% appreciation | 25% appreciation | 25% devaluation | 50% devaluation |
NDF and Deliverable forward (cash | ||||||
flow hedge) | Devaluation of R$ | 2,428 | 19,642 | 45,463 | (40,606) | (83,640) |
Exports | Appreciation of R$ | (2,428) | (19,642) | (45,463) | 40,606 | 83,640 |
Financial instruments not | ||||||
designated as cash flow hedge | ||||||
NDF and Deliverable forward (cash | ||||||
flow hedge) | Devaluation of R$ | (282) | 7,999 | 20,421 | (20,984) | (41,686) |
Net effect | (282) | 7,999 | 20,421 | (20,984) | (41,686) | |
Shareholders' equity | - | - | - | - | - | |
Statement of income | (282) | 7,999 | 20,421 | (20,984) | (41,686) | |
0.0222 | 0.0200 | 0.0167 | 0.0278 | 0.0333 | ||
Parity - Brazilian Reais x JPY | Current | Scenario I | Scenario II | Scenario III | Scenario IV | |
Transaction/Instrument | Risk | Scenario | 10% appreciation | 25% appreciation | 25% devaluation | 50% devaluation |
NDF and Deliverable forward (cash | ||||||
flow hedge) | Devaluation of R$ | 10,872 | 48,648 | 105,312 | (83,567) | (178,007) |
Exports | Appreciation of R$ | (10,872) | (48,648) | (105,312) | 83,567 | 178,007 |
Financial instruments not | ||||||
designated as cash flow hedge | ||||||
NDF and Deliverable forward (cash | ||||||
flow hedge) | Devaluation of R$ | 1,173 | 3,396 | 6,731 | (4,385) | (9,942) |
Net effect | 1,173 | 3,396 | 6,731 | (4,385) | (9,942) | |
Shareholders' equity | - | - | - | - | - | |
Statement of income | 1,173 | 3,396 | 6,731 | (4,385) | (9,942) |
35
5. SEGMENT INFORMATION The operating segments are reported consistently with the management reports provided to the Board of Directors and Directors for assessing the performance of each segment and allocating resources. As disclosed in note 1, the operating segment of dairy was discontinued by the Company and the segment information of 2014 and 2013 was prepared based on the 3 remaining operating segments, as follows: Domestic Market (Brazil), Foreign Market (International) and Food Service, which primarily observe division by sales channel. •Domestic Market (Brazil): includes the Company´s sales executed in Brazil, except those relating to products in the food service channel. •Foreign Market (International): includes the Company´s sales for exports and those generated outside Brazil, except those relating to products in the food service channel. •Food Service: includes the Company’s sales of all products in its portfolio, generated in Brazil and International market, to the customers for food service category that includes: bars, restaurants, industrial kitchens, among others. Hence, these segments are disclosed according to the nature of the products as described below: •Poultry: involves the production and sale of whole poultry and in-natura cuts. •Pork and beef cuts: involves the production and sale of in-natura cuts. •Processed products: involves the production and sale of processed foods, frozen and processed products derived from poultry, pork and beef. •Other processed products: involves the production and sale of processed foods like margarine and vegetable and soybean-based products. •Other sales: involves the production and trade of animal feed, soy meal and refined soy flour. | ||||
The net sales for each reportable operating | ||||
segment are presented below: | ||||
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Domestic Market (Brazil) | ||||
Poultry | 1,825,631 | 1,492,300 | ||
Pork and beef | 827,067 | 946,713 | ||
Processed products | 7,474,478 | 6,764,757 | ||
Other processed products | 2,886,806 | 2,904,982 | ||
Other sales | 920,722 | 940,838 | ||
13,934,704 | 13,049,590 | |||
Foreign Market (International) | ||||
Poultry | 8,338,599 | 8,261,663 | ||
Pork and beef | 1,850,915 | 1,897,288 | ||
Processed products | 2,643,208 | 2,626,658 | ||
Other processed products | 441,512 | 289,887 | ||
Other sales | 50,584 | 56,112 | ||
13,324,818 | 13,131,608 | |||
Food Service | ||||
Poultry | 431,494 | 378,222 | ||
Pork and beef | 211,496 | 224,982 | ||
Processed products | 972,655 | 855,786 | ||
Other processed products | 109,552 | 147,289 | ||
Other sales | 22,124 | - | ||
1,747,321 | 1,606,279 | |||
29,006,843 | 27,787,477 | |||
The operating income for each reportable | ||||
operating segment is presented below: | ||||
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Domestic Market (Brazil) | 1,841,572 | 1,320,275 | ||
Foreign Market (International) | 1,433,255 | 398,925 | ||
Food Service | 203,492 | 177,113 | ||
3,478,319 | 1,896,313 | |||
No customer was individually or in aggregate | Net export sales were originated in the | |||
responsible for more than 5% of net sales for | segments of the International market and | |||
the year ended December 31, 2014 and 2013. | food service, as set for below: | |||
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Foreign Market (International) | 13,324,818 | 13,131,608 | ||
Food Service | 258,253 | 230,944 | ||
13,583,071 | 13,362,552 |
36 | FINANCIAL STATEMENTS 2014 |
Net export sales by region are | Consolidated | ||
presented below: | 12.31.14 | 12.31.13 | |
Middle East / Africa | 5,709,821 | 5,315,353 | |
Europe / Eurasia | 3,092,636 | 3,010,283 | |
Far East | 3,072,944 | 2,723,911 | |
Americas | 1,707,670 | 2,313,005 | |
13,583,071 | 13,362,552 |
The goodwill and intangible assets with | from business combination were allocated | considering the nature of the products |
indefinite useful life (trademarks) arising | to the reportable operating segments, | manufactured in each segment (cash- |
generating unit), as presented below: |
Consolidated | ||||||
Goodwill | Trademarks | Total | ||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Domestic market (Brazil) | 1,069,958 | 1,069,958 | 982,478 | 982,478 | 2,052,436 | 2,052,436 |
Foreign market (International) | 1,373,846 | 1,278,855 | 285,410 | 319,827 | 1,659,256 | 1,598,682 |
Dairy products | - | 671,398 | - | - | - | 671,398 |
Food service | 81,539 | 81,539 | - | - | 81,539 | 81,539 |
2,525,343 | 3,101,750 | 1,267,888 | 1,302,305 | 3,793,231 | 4,404,055 |
The Company performed the impairment test of the assets allocated to the reportable segments, as disclosed in note 19. Information referring to the total assets by reportable segments is not being disclosed, as it is not included in the set of information made available to the Company’s Management, which take investment decisions and determine allocation of assets on a consolidated basis. | 6. BUSINESS COMBINATION AND ACQUSITION OF ENTITIES INTEREST 6.1. BUSINESS COMBINATION 6.1.1. STEP ACQUISITION – FEDERAL FOODS LLC (“FF”) On January 16, 2013, BRF acquired 49% equity interest of FF, becoming the holder of 60% of economic rights of such company, with no control, pursuant to the terms of shareholders agreement entered into with Al Nowais Investments Company LLC (“ANI”), former parent company of FF. | On April 09, 2014, the Company concluded the acquisition of the remaining economic rights for a consideration of R$61,488, becoming the controlling shareholder of FF. Such transaction, in compliance with CVM Deliberation No. 665/11, which approved the technical pronouncement CPC 15 (R1), in their paragraphs 41 and 42, was accounted for as step acquisition. Thus, the carrying amount of the investment prior to this acquisition was measured at fair value for R$90,226, generating a gain of R$24,963 recorded as other operating results. |
37
The fair value of assets acquired and liabilities | Fair value recognized on acquisition date | |
assumed in determining the purchase price | Cash and cash equivalents | 10,926 |
allocation, as follows: | Trade accounts receivable, net | 109,904 |
Inventories | 131,498 | |
Property, plan and equipament | 2,386 | |
Relationship with costumers | 29,349 | |
Other assets | 15,722 | |
299,785 | ||
Loans and financing | 75,275 | |
Trade accounts receivable | 78,689 | |
Payroll and related charges | 3,028 | |
Deferred taxes | 7,337 | |
Other liabilities | 27,806 | |
192,135 | ||
Net assets acquired | 107,650 | |
Fair value of consideration paid | 151,714 | |
Goodwill from acquisition | 44,064 |
The fair value of consideration paid was | Cash - consideration paid for acquisition of controlling | 61,488 |
determined as follows: | Carrying amount of former equity interest | 65,263 |
Gain generated by the remeasurement of the former equity interest at | ||
fair value | 24,963 | |
Fair value of consideration paid at the acquisition date | 151,714 |
FF contributed with a net profit of R$19,100 | Fair value recognized on acquisition date | |
from the acquisition date to 31.12.14 in the | Cash and cash equivalents | 12,531 |
consolidated net profit. If the acquisition | Trade accounts receivable, net | 55,208 |
had occurred at the beginning of year 2014, | Inventories | 50,339 |
the consolidated net revenues for this year | Property, plan and equipment | 1,497 |
would be increased by R$112,160 and the | Relationship with costumers | 184,726 |
consolidated net profit of year would be | 304,301 | |
increased by R$2,464. | ||
Trade accounts payable | 5,904 | |
6.1.2. Business combination – BRF Alyasra | Deferred taxes | 46,181 |
52,085 | ||
Food Company K.S.C.C (“BRF AFC”) | ||
On January 16, 2013, BRF acquired 75% | Net assets | 252,216 |
equity interest of BRF AFC for R$324,730. The | Non-controlling interest (25%) | (63,054) |
acquisition was realized in compliance to the | Net assets acquired | 189,162 |
local laws and regulation of Kuwait. | Fair value of consideration paid | 324,730 |
Goodwill on the expected future profitability | 135,568 | |
The fair value of assets acquired and liabilities | ||
assumed in determining the purchase price | ||
allocation, as follows: |
38 | FINANCIAL STATEMENTS 2014 |
Whereas the BRF AFC was acquired in 21.11.14, | closing date. The purchase price of the | A preliminary appraisal report to support the | |||
the Company’s Management believes that | remaining equity interest will be determined | fair value of assets acquired and liabilities | |||
the net profit and revenues by the closing | based on multiples of EBITDA of AKF. | assumed in determining the purchase | |||
date (31.12.14) are not relevant for further | price allocation in the financial statements | ||||
disclosures. BRF AFC was originated from the | AKF is a leader in the distribution of frozen | was prepared to record the Company´s | |||
transfer of assets and liabilities arising from | food in the Sultanate of Oman, covering | investment, since the measurement of fair | |||
the distribution activity of frozen products | a broad sector of retail, food service and | value was still in progress on the date of | |||
of Alyasra Food Company WLL, Kuwait. The | wholesale clients. The company has been | approval of the financial statements by the | |||
Company did not have access to revenues and | distributing Sadia’s products for 25 years, in | Board of Directors. | |||
net profit prior at the acquisition date. | addition to several of frozen products of other | ||||
brands and suppliers. | The preliminary fair value of assets acquired | ||||
6.2. ACQUISITION OF ENTITIES INTEREST | and liabilities assumed of Minerva on | ||||
6.2.1. ACQUISITION OF ENTITY INTEREST OF AL | The AKF’s investment is measured based on | acquisition date as follows: | |||
KHAN FOODS LLC (“AKF”) | the equity method and classified as joint | ||||
venture. | Fair value recognized on | ||||
On July 03, 14, BRF acquired 40% of equity | acquisition date 01.10.14 | ||||
Current assets | 632,608 | ||||
interest of AKF for R$45,492. | 6.2.2. ACQUISITION OF EQUITY INTEREST OF | Non-current assets | 464,545 | ||
MINERVA S.A. | Current liabilities | 228,796 | |||
The Company prepared an appraisal report | On October 01, 2014, the Extraordinary | Non-current liabilities | 746,306 | ||
to support the fair value of assets acquired | Shareholders Meetings of Minerva S.A. and | Preliminary fair value of equity | |||
and liabilities assumed in determining the | Mato Grosso Bovinos S.A. (a wholly-owned | interest in the net assets acquired | 122,051 | ||
purchase price allocation, as follows: | subsidiary of BRF S.A) approved the merger | Estimated purchase price | 372,650 | ||
Goodwill on the expected future | |||||
of all shares issued by Mato Grosso Bovinos | profitability | 250,599 | |||
Cash - consideration paid for | S.A. by Minerva S.A. BRF transferred to Mato | ||||
acquisition of 40% of equity interest | 45,492 | ||||
Fair value of equity interest in AKF | Grosso Bovinos S.A. its beef slaughtering | The Minerva’s investment is measured | |||
immediately before acquisition of | and deboning activities carried out on the | based on the equity method and classified | |||
40% of equity interest(1) | 5,249 | ||||
manufacturing facilities of Várzea Grande and | as associate. The Company has utilized the | ||||
transaction Preliminary goodwill generated in | 40,243 | Mirassol D’Oeste, both located in Mato Grosso | financial statements of October 31, 2014 | ||
State. | of Minerva to adjust the investment and | ||||
Allocation of relationship with | measure the result from the associate up to | ||||
customers (note 19) | (17,338) | As a consideration for the share exchange | December 31, 2014. | ||
Deferred income tax | 4,335 | transaction, BRF received 29,000,000 shares | |||
Goodwill in the acquisition of equity | issued by Minerva S.A. which currently | ||||
interest | 27,240 | correspond to 16.29% of the total and voting | |||
(1) Corresponding to assets (current and non-current) of | capital stock of Minerva. In such transaction, | ||||
R$29.112 and liabilities (current and non-current) of | the Company measured a gain of R$179,268, | ||||
R$23.863. | |||||
related to the difference between the | |||||
Additionally, BRF has a commitment to | carrying amount of net assets of Mato Grosso | ||||
acquire the remaining equity interest of AKF | Bovinos S.A. and the fair value of 29,000,00 | ||||
within 36 to 90 months from the acquisition | shares received by BRF. |
39
7. CASH AND CASH EQUIVALENTS
Average rate (p.a.) | Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||
Cash and bank accounts | |||||
U.S. Dollar | - | 13,049 | 18,472 | 1,309,800 | 582,898 |
Brazilian Reais | - | 101,422 | 211,874 | 101,654 | 211,929 |
Euro | - | 122,282 | 97,118 | 311,339 | 190,525 |
Other currencies | - | 626 | 428 | 115,719 | 42,299 |
237,379 | 327,892 | 1,838,512 | 1,027,651 | ||
Cash equivalents | |||||
In Brazilian Reais | |||||
Investment funds | 9.85% | 13,863 | 13,650 | 13,863 | 13,650 |
Bank deposit certificates | 11.18% | 1,617,420 | 462,365 | 1,644,069 | 529,959 |
1,631,283 | 476,015 | 1,657,932 | 543,609 | ||
In U.S. Dollar | |||||
Term deposit(1) | 0.56% | 39,888 | - | 1,521,420 | 1,277,506 |
Overnight | 0.18% | 22,267 | 52,851 | 901,851 | 212,137 |
In Euro | |||||
Term deposit | 0.62% | 48,540 | 48,418 | 78,190 | 66,690 |
Other currencies | |||||
Term deposit | 5.16% | - | - | 9,037 | 122 |
110,695 | 101,269 | 2,510,498 | 1,556,455 | ||
1,979,357 | 905,176 | 6,006,942 | 3,127,715 | ||
(1) Matures with various dates through March 25, 2015. |
8. MARKETABLE SECURITIES
Parent company | Consolidated | |||||||
Average | ||||||||
interest rate | ||||||||
WATM(1) | Currency | (p.a.) | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||
Available for sale | ||||||||
Credit linked note | (a) | 5.45 | US$ | 3.77% | - | - | 187,867 | 173,969 |
Brazilian foreign debt securities | (b) | 1.82 | US$ | 2.28% | - | - | 92,356 | 105,322 |
Stocks | - | R$ | - | - | 623 | - | 623 | |
Investment funds | (c) | 1.00 | ARS | 11.00% | - | - | 23,634 | 459 |
- | 623 | 303,857 | 280,373 | |||||
Held for trading | ||||||||
Bank deposit certificates | (d) | 3.99 | R$ | 11.42% | 64,820 | 113,253 | 64,820 | 114,351 |
Financial treasury bills | (e) | 3.27 | R$ | 11.65% | 218,803 | 64,844 | 218,803 | 64,844 |
283,623 | 178,097 | 283,623 | 179,195 | |||||
Held to maturity | ||||||||
Financial treasury bills | (e) | 2.73 | R$ | 11.65% | 62,104 | 56,002 | 62,104 | 56,002 |
62,104 | 56,002 | 62,104 | 56,002 | |||||
345,727 | 234,722 | 649,584 | 515,570 | |||||
Current | 283,623 | 178,720 | 587,480 | 459,568 | ||||
Non-current | 62,104 | 56,002 | 62,104 | 56,002 | ||||
(1) Weighted average maturity in years. |
(a) The credit linked note is a structured | (c) The fund in foreign currency is basically | |
operation with a first-class financial | represented of public and private securities | |
institution that bears periodic interest | (d) Bank Deposit Certificate (“CDB”) | |
(LIBOR + spread) and corresponds to a | investments are denominated in Brazilian | |
credit note that contemplates | Reais and remunerated at rates varying | |
the Company’s risk. | from 98% to 100% of the Interbank Deposit | |
(b) Brazilian foreign debt securities are | Certificate (“CDI”). | |
denominated in U.S. Dollars and | (e) Financial Treasury Bills (“LFT”) are | |
remunerated at pre- and post-fixed rates. | remunerated at the rate of the Special | |
System for Settlement and Custody (“SELIC”). |
40 | FINANCIAL STATEMENTS 2014 |
The unrealized loss by the change in fair value | On December 31, 2014, the maturities of the | |||
of the available for sale securities, recorded | non-current marketable securities are as | |||
in other comprehensive income, corresponds | follows: | |||
to the accumulated amount of R$17,296 net | ||||
of income tax of R$225 (loss of R$5,406 net of | Parent company and | |||
income tax of R$266 as of December 31, 2013). | Maturities | Consolidated | ||
2017 | 62,104 | |||
62,104 | ||||
Additionally, on December 31, 2014, of the | ||||
total of marketable securities, R$32,433 | The Company conducted an analysis of | |||
(R$82,758 as of December 31, 2013) were | sensitivity to foreign exchange rate as | |||
pledged as collateral for operations with | presented in note 4.7. | |||
future contracts denominated in U.S. Dollars | ||||
and live cattle, traded on the Futures and | ||||
Commodities Exchange (“BM&F Bovespa”). |
9. TRADE ACCOUNTS RECEIVABLE, NET AND OTHER RECEIVABLES
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Trade accounts receivable, net | ||||
Domestic third parties | 1,476,399 | 1,712,518 | 1,476.399 | 1,712,900 |
Domestic related parties | 1,622 | 1,059 | 1,622 | 1,059 |
Foreign third parties | 410,943 | 316,750 | 1,693,314 | 1,593,473 |
Foreign related parties | 2,889,486 | 2,062,672 | 1,243 | 146,223 |
4,778,450 | 4,092,999 | 3,172,578 | 3,453,655 | |
( - ) Adjustment to present value | (10,220) | (11) | (10,220) | (11) |
( - ) Allowance for doubtful accounts | (98,551) | (99,874) | (107,781) | (107,478) |
4,669,679 | 3,993,114 | 3,054,577 | 3,346,166 | |
Current | 4,663,193 | 3,985,424 | 3,046,871 | 3,338,355 |
Non-current | 6,486 | 7,690 | 7,706 | 7,811 |
Credit notes | 532,148 | 403,934 | 602,987 | 520,216 |
( - ) Adjustment to present value | (8,640) | (175) | (9,583) | (3,587) |
( - ) Allowance for doubtful accounts | (16,664) | (13,947) | (16,664) | (13,947) |
506,844 | 389,812 | 576,740 | 502,682 | |
Current | 170,029 | 83,743 | 215,067 | 149,007 |
Non-current | 336,815 | 306,069 | 361,673 | 353,675 |
(1) Weighted average maturity of 2,84 years. |
41
Credit notes are comprised mainly by receivables from the (i) disposal of Ana Rech assets to JBS, of R$149,350, (ii) disposal of assets of Vila Anastácio, former headquarters of Sadia, of R$ 66,103 and (iii) facility of Carambeí (PR) to Seara, of R$161,599 and (iv) disposal of various other assets and farms, R$177,760. | The trade accounts receivable from related parties are disclosed in note 30 and refers to transactions with the associates UP!, K&S, Nutrifont in domestic market and with the joint ventures AKF in the foreign market. The rollforward of allowance for doubtful accounts is presented below: |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Beginning balance | 99,874 | 106,417 | 107,478 | 123,018 |
Additions | 85,163 | 61,051 | 91,315 | 93,739 |
Business combination | - | - | 2,798 | - |
Reversals | (54,479) | (28,904) | (57,838) | (67,195) |
Write-offs | (32,089) | (38,639) | (33,953) | (39,669) |
Exchange rate variation | 82 | (51) | (2,019) | (2,415) |
Ending balance | 98,551 | 99,874 | 107,781 | 107,478 |
The aging of trade accounts receivable is as |
follows: |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Current | 4,494,352 | 3,913,969 | 2,793,427 | 3,143,565 |
Overdue | ||||
01 to 60 days | 45,872 | 50,559 | 118,902 | 169,744 |
61 to 90 days | 29,504 | 33,172 | 29,988 | 35,996 |
91 to 120 days | 34,367 | 3,357 | 42,092 | 4,105 |
121 to 180 days | 72,658 | 6,903 | 73,992 | 8,716 |
181 to 360 days | 13,317 | 3,430 | 13,758 | 4,705 |
More than 361 days | 88,380 | 81,609 | 100,419 | 86,824 |
( - ) Adjustment to present value | (10,220) | (11) | (10,220) | (11) |
( - ) Allowance for doubtful accounts | (98,551) | (99,874) | (107,781) | (107,478) |
4,669,679 | 3,993,114 | 3,054,577 | 3,346,166 |
10. INVENTORIES
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Finished goods | 1,045,232 | 1,515,920 | 1,551,383 | 1,951,167 |
Goods for resale | 16,764 | 26,038 | 23,025 | 26,038 |
Work in process | 193,228 | 175,711 | 207,039 | 186,883 |
Raw materials | 482,863 | 315,984 | 517,460 | 361,940 |
Packaging materials | 75,745 | 80,905 | 96,275 | 100,150 |
Secondary materials | 217,604 | 204,282 | 232,657 | 223,901 |
Spare parts | 145,311 | 119,966 | 164,925 | 137,510 |
Goods in transit | - | 27 | 77,576 | 104,896 |
Imports in transit | 74,864 | 59,506 | 122,593 | 63,847 |
Advances to suppliers | 10,678 | 11,158 | 10,678 | 11,158 |
(-) Provision for adjustment to realizable value | (67) | (30,663) | (1,205) | (31,590) |
(-) Provision for deterioration | (17,411) | (10,795) | (19,521) | (19,064) |
(-) Provision for obsolescense | (16,522) | (5,221) | (18,063) | (5,221) |
(-) Adjustment to present value | (23,467) | - | (23,467) | - |
2,204,822 | 2,462,818 | 2,941,355 | 3,111,615 |
42 | FINANCIAL STATEMENTS 2014 |
The write-offs of products sold from inventories to cost of sales during the year ended December 31, 2014 totaled R$18,901,439 in the parent companyand R$20,497,430 in the consolidated (R$19,658,279 in the parent company and R$20,877,597 in the consolidated in December31, 2013). Such amounts include the additions and reversals of inventory provisions presented in the table below: |
|
Parent company | |||||||
12.31.13 | Additions | Reversals | Write-offs | 12.31.14 | |||
Provision for adjustment to realizable value | (30,663) | (13,053) | 43,649 | - | (67) | ||
Provision for deterioration | (10,795) | (46,631) | - | 40,015 | (17,411) | ||
Provision for obsolescence | (5,221) | (15,664) | - | 4,363 | (16,522) | ||
(46,679) | (75,348) | 43,649 | 44,378 | (34,000) | |||
Consolidated | |||||||
Exchange rate | |||||||
12.31.13 | Additions | Reversals | Write-offs | variation | 12.31.14 | ||
Provision for adjustment to realizable | |||||||
value | (31,590) | (14,126) | 68,616 | - | (24,105) | (1,205) | |
Provision for deterioration | (19,064) | (48,134) | - | 46,499 | 1,178 | (19,521) | |
Provision for obsolescence | (5,221) | (17,090) | - | 4,570 | (322) | (18,063) | |
(55,875) | (79,350) | 68,616 | 51,069 | (23,249) | (38,789) |
On December 31, 2014, inventory items of R$40,000 (R$50,000 in December 31, 2013) were pledged as collateral for rural credit operations. | 11. BIOLOGICAL ASSETS The balance of biological assets are segregated in current and non-current assets are presented below: |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Live animals | 1,122,350 | 1,198,361 | 1,130,580 | 1,205,851 |
Total current | 1,122,350 | 1,198,361 | 1,130,580 | 1,205,851 |
Live animals | 459,381 | 446,106 | 460,768 | 446,106 |
Forests | 222,442 | 122,872 | 222,442 | 122,872 |
Total non-current | 681,823 | 568,978 | 683,210 | 568,978 |
1,804,173 | 1,767,339 | 1,813,790 | 1,774,829 |
The living animals which are segregated by the categories: poultry, pork and cattle and separated into consumable and for production. The animals classified as consumables are those intended for slaughtering to produce in-natura meat or processed products. Until they reach the adequate weight for slaughtering, they are classified as immature. The slaughtering and production process occurs sequentially and in a very short period of time, so that only live animals ready for slaughtering are classified as mature. | The animals classified as for production (breeding stock) are those that have the function of producing other biological assets. Until they reach the age of reproduction they are classified as immature and when they are able to initiate the reproductive cycle, they are classified as mature. In the Management’s opinion, the fair value of the biological assets is substantially represented by their cost, mainly due to the short life cycle of the animals and to the fact that a significant portion of the profitability of the Company’s products derives from the manufacturing process and not fromobtaining in-natura meat (raw materials at slaughtering point). This opinion is supported by a fair value appraisal report prepared in 2014 by an independent appraiser, which shows a non-significant difference between the fair value and the cost of biological assets. Therefore, they were measured at weighted average cost. | To measure biological assets at fair value, the Company used discounted cash flow methodology. The discount rate used was the Weighted Average Cost of Capital (“WACC”), was 5.39% (4.95% as of December 31, 2013). |
43
The quantities and balances per live animals assets are presented below:
Parent company | ||||
12.31.14 | 12.31.13 | |||
Quantity | Quantity | |||
(thousand of | (thousand of | |||
heads) | Value | heads) | Value | |
Consumable biological assets | ||||
Immature poultry | 174,855 | 507,707 | 180,316 | 524,189 |
Immature pork | 3,370 | 614,643 | 3,332 | 586,463 |
Immature cattle | - | - | 73 | 87,709 |
Total current | 178,225 | 1,122,350 | 183,721 | 1,198,361 |
Production biological assets | ||||
Immature poultry | 6,793 | 88,652 | 6,526 | 87,391 |
Mature poultry | 11,378 | 154,238 | 11,606 | 156,863 |
Immature pork | 174 | 44,547 | 160 | 38,699 |
Mature pork | 379 | 171,304 | 377 | 163,005 |
Immature cattle | - | 395 | - | 60 |
Mature cattle | - | 245 | - | 88 |
Total non-current | 18,724 | 459,381 | 18,669 | 446,106 |
196,949 | 1,581,731 | 202,390 | 1,644,467 | |
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Quantity | Quantity | |||
(thousand of | (thousand of | |||
heads) | Value | heads) | Value | |
Consumable biological assets | ||||
Immature poultry | 177,914 | 515,937 | 187,946 | 531,679 |
Immature pork | 3,370 | 614,643 | 3,332 | 586,463 |
Immature cattle | - | - | 73 | 87,709 |
Total current | 181,284 | 1,130,580 | 191,351 | 1,205,851 |
Production biological assets | ||||
Immature poultry | 6,836 | 89,308 | 6,526 | 87,391 |
Mature poultry | 11,451 | 154,969 | 11,606 | 156,863 |
Immature pork | 174 | 44,547 | 160 | 38,699 |
Mature pork | 379 | 171,304 | 377 | 163,005 |
Immature cattle | - | 395 | - | 60 |
Mature cattle | - | 245 | - | 88 |
Total non-current | 18,840 | 460,768 | 18,669 | 446,106 |
200,124 | 1,591,348 | 210,020 | 1,651,957 |
44 | FINANCIAL STATEMENTS 2014 |
The rollforward of biological assets for the year |
is presented below: |
Parent company | |||||||||
Current | Non-current | ||||||||
Poultry | Pork | Cattle | Total | Poultry | Pork | Cattle | Forests | Total | |
Balance as of 12.31.13 | 524,189 | 586,463 | 87,709 | 1,198,361 | 244,254 | 201,704 | 148 | 122,872 | 568,978 |
Acquisition | 146,037 | 1,088,380 | 26,032 | 1,260,449 | 25,607 | 123,959 | - | - | 149,566 |
Gain on variation in fair value | - | - | - | - | - | - | - | 23,963 | 23,963 |
Increase due to reproduction, | |||||||||
consumption of animal feed, | |||||||||
medication and remuneration of | |||||||||
outgrowers | 1,073,534 | 55,977 | 207 | 1,129,718 | 345,428 | 20,355 | 500 | - | 366,283 |
Depreciation | - | - | - | - | (317,093) | (69,761) | (8) | - | (386,862) |
Harvest | - | - | - | - | - | - | - | (23,353) | (23,353) |
Write-off | - | - | - | - | - | - | - | (909) | (909) |
Transfer between current and | |||||||||
non-current | 55,306 | 60,406 | - | 115,712 | (55,306) | (60,406) | - | - | (115,712) |
Transfer from held for sale | - | - | - | - | - | - | - | 99,869 | 99,869 |
Reduction due to slaughtering/ | |||||||||
disposal | (1,291,359) | (1,176,583) | (113,948) | (2,581,890) | - | - | - | - | - |
Balance as of 12.31.14 | 507,707 | 614,643 | - | 1,122,350 | 242,890 | 215,851 | 640 | 222,442 | 681,823 |
Consolidated | |||||||||
Current | Non-current | ||||||||
Poultry | Pork | Cattle | Total | Poultry | Pork | Cattle | Forests | Total | |
Balance as of 12.31.13 | 531,679 | 586,463 | 87,709 | 1,205,851 | 244,254 | 201,704 | 148 | 122,872 | 568,978 |
Acquisition | 146,037 | 1,088,380 | 26,032 | 1,260,449 | 27,246 | 123,959 | - | - | 151,205 |
Gain on variation in fair value | - | - | - | - | - | - | - | 23,963 | 23,963 |
Increase due to reproduction, | |||||||||
consumption of animal feed, | |||||||||
medication and remuneration of | |||||||||
outgrowers | 1,128,241 | 55,977 | 207 | 1,184,425 | 345,428 | 20,355 | 500 | - | 366,283 |
Depreciation | - | - | - | - | (317,400) | (69,761) | (8) | - | (387,169) |
Harvest | - | - | - | - | - | - | - | (23,353) | (23,353) |
Write-off | - | - | - | - | - | - | - | (909) | (909) |
Transfer between current and | |||||||||
non-current | 55,306 | 60,406 | - | 115,712 | (55,306) | (60,406) | - | - | (115,712) |
Transfer from held for sale | - | - | - | - | - | - | - | 99,869 | 99,869 |
Reduction due to slaughtering/ | |||||||||
disposal | (1,344,716) | (1,176,583) | (113,948) | (2,635,247) | - | - | - | - | - |
Exchange rate variation | (610) | - | - | (610) | 55 | - | - | - | 55 |
Balance as of 12.31.14 | 515,937 | 614,643 | - | 1,130,580 | 244,277 | 215,851 | 640 | 222,442 | 683,210 |
The breeding animal costs are depreciated using the straight-line method for a period from 15 to 30 months. The acquisitions of biological assets for production occur when there is an expectation that the production plan cannot be met with its own animals and, usually, this acquisition refers to immature animals in the beginning of the life cycle. | The acquisitions of biological assets for slaughtering are represented by day-old poultry and pork of up to 22 kilos, which are subject to the management of a substantial part of the agricultural activity by the Company. The increase by reproduction of the biological assets classified as current assets is related to eggs from animals for production. |
45
12. RECOVERABLE TAXES
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
State ICMS ("VAT") | 990,317 | 977,506 | 1,048,236 | 1,017,279 |
PIS and COFINS ("Federal Taxes to Social Fund | ||||
Programs") | 289,333 | 507,782 | 289,389 | 507,866 |
Withholding income and social contribution tax | 551,050 | 588,420 | 585,187 | 623,573 |
IPI ("Federal VAT") | 59,560 | 60,295 | 59,560 | 60,295 |
Other | 148,940 | 84,373 | 172,031 | 119,262 |
(-) Allowance for losses | (226,306) | (216,673) | (233,245) | (224,528) |
1,812,894 | 2,001,703 | 1,921,158 | 2,103,747 | |
Current | 914,720 | 1,211,084 | 1,009,076 | 1,302,939 |
Non-current | 898,174 | 790,619 | 912,082 | 800,808 |
The rollforward of the allowance for |
losses is presented below: |
Parent company | |||||
12.31.13 | Additions | Write-offs | 12.31.13 | ||
State ICMS ("VAT") | (175,685) | (14,632) | 20,799 | (169,518) | |
PIS and COFINS ("Federal Taxes to Social Fund | |||||
Programs") | (17,698) | (13,780) | - | (31,478) | |
Withholding income and social contribution tax | (8,550) | (435) | - | (8,985) | |
IPI ("Federal VAT") | (14,740) | - | - | (14,740) | |
Other | - | (1,585) | - | (1,585) | |
(216,673) | (30,432) | 20,799 | (226,306) | ||
Consolidated | |||||
Exchange rate | |||||
12.31.13 | Additions | Write-offs | variation | 12.31.13 | |
State ICMS ("VAT") | (175,686) | (14,632) | 20,799 | - | (169,519) |
PIS and COFINS ("Federal Taxes to | |||||
Social Fund Programs") | (17,698) | (13,780) | - | - | (31,478) |
Withholding income and social | |||||
contribution tax | (8,550) | (525) | 46 | - | (9,029) |
IPI ("Federal VAT") | (14,740) | - | - | - | (14,740) |
Other | (7,854) | (1,585) | 32 | 928 | (8,479) |
(224,528) | (30,522) | 20,877 | 928 | (233,245) |
12.1. STATE ICMS (“VAT”) Due to its (i) export activity, (ii) domestic sales that are subject to reduced tax rates and (iii) investments in property, plant and equipment, the Company accumulates tax credits that are offset against debits generated in sales in the domestic market or transferred to third parties. The Company has ICMS tax credits in the States of Mato Grosso do Sul, Mato Grosso, Paraná, Santa Catarina and Minas Gerais, for which Management understands that realization will occur in medium or long term. | 12.2.PIS AND COFINS Tax credits on Contribution to the Social Integration Program (“PIS”) and Contribution to Social Fund Programs (“COFINS”) arise from credits on purchases of raw materials used in the production of exported products or products that are taxed at zero rate, such as in-natura meat, margarine, butter, UHT and pasteurized milk. The recovery of these tax credits can be achieved through offsetting against domestic sales operations of taxed products and other federal taxes or compensation claims. The Management’s Company continually evaluates alternatives that would allow to accelerate the use of these accumulated tax credits. | 12.3. WITHHOLDING INCOME AND SOCIAL CONTRIBUTION TAXES These correspond to withholding taxes on marketable securities, interest and prepayments of income and social contribution taxes, which are realizable through offsetting against other federal taxes. |
46 | FINANCIAL STATEMENTS 2014 |
13. ASSETS AND LIABILITIES OF |
DISCONTINUED OPERATIONS AND |
HELD FOR SALE |
13.1. ASSETS AND LIABILITIES NON-CURRENT |
HELD FOR SALE |
2014 | 2013 | |||||||||
Parent company | Consolidated | Parent company | Consolidated | |||||||
ASSETS | Dairy | Other(1) | Total | Other | Total | Dairy | Other | Total | Other | Total |
Current Assets | ||||||||||
Trade accounts | ||||||||||
receivable | 233,000 | - | 233,000 | - | 233,000 | - | - | - | - | - |
Inventories | 213,000 | - | 213,000 | - | 213,000 | - | - | - | - | - |
Total current assets | 446,000 | - | 446,000 | - | 446,000 | - | - | - | - | - |
Non-Current Assets | ||||||||||
Investments | 15,089 | - | 15,089 | - | 15,089 | - | - | - | - | - |
Property, plant and | ||||||||||
equipment, net | 750,677 | 74,401 | 825,078 | 442 | 825,520 | - | 146,924 | 146,924 | 2,024 | 148,948 |
Intangible | 671,398 | - | 671,398 | - | 671,398 | - | - | - | - | - |
Total non-current | ||||||||||
assets | 1,437,164 | 74,401 | 1,511,565 | 442 | 1,512,007 | - | 146,924 | 146,924 | 2,024 | 148,948 |
Total Assets | 1,883,164 | 74,401 | 1,957,565 | 442 | 1,958,007 | - | 146,924 | 146,924 | 2,024 | 148,948 |
LIABILITIES | ||||||||||
Current Liabilities | ||||||||||
Trade accounts | ||||||||||
payable | 279,000 | - | 279,000 | - | 279,000 | - | - | - | - | - |
Payroll and related | ||||||||||
charges | 14,277 | - | 14,277 | - | 14,277 | - | - | - | - | - |
Tax payable | 14,370 | - | 14,370 | - | 14,370 | - | - | - | - | - |
Deferred income tax | 200,617 | 200,617 | 200,617 | |||||||
Total current liabilities | 508,264 | - | 508,264 | - | 508,264 | - | - | - | - | - |
Total Liabilities | 508,264 | - | 508,264 | - | 508,264 | - | - | - | - | - |
Assets and liabilities | ||||||||||
of discontinued | ||||||||||
operations and held | ||||||||||
for sale | 1,374,900 | 74,401 | 1,449,301 | 442 | 1,449,743 | - | 146,924 | 146,924 | 2,024 | 148,948 |
(1) The reduction in other assets held for sale in 2014 is mainly related to the transfer of forests for biological assets. |
47
13.2. DISCONTINUED OPERATIONS On December 05, 2014, BRF entered into a sales contract with Lactalis (“buyer”), establishing terms and conditions for the disposal of its manufacturing facilities in the dairy operating segment, which includes (i) manufacturing facilities located in the cities of Bom Conselho (PE), Carambeí (PR), Ravena (MG), Concórdia (SC), Teutônia (RS), Itumbiara (GO), Terenos (MS), Ijuí (RS), Três de Maio I (RS), Três de Maio II (RS) and Santa Rosa (RS) and (ii) related assets and trademarks dedicated to such segment (Batavo, Elegê, Cotochés, Santa RosaeDoBon) of this segment (“Transaction”). On this date, the value of such Transaction was set forth at R$697,756 (equivalent to R$1,800,000), to be received on the conclusion date of the transaction, subject to usual adjustments for working capital and net debt, as the terms of the contract. The Transaction was fixed in U.S. Dollars and, considering that the functional currency of BRF and of buyer is different of U.S. Dollars, was recognized an embedded derivative in the terms of CPC 38, approved by CVM Deliberation No.604/09. The fair market value of the embedded derivative totaled R$27,955 on December 31, 2014 and was recognized in other financial assets in counterpart of financial results. The conclusion of the Transaction is also subject to compliance with precedent conditions, such as necessary investments to adapt the assets to transfer to the buyer and regulatory approval (including the Administrative Council for Economic Defense (“CADE”)). The Company does not expect significant impact on the conclusion of the transaction, planned for the 2ndquarter 2015. The statement of income and cash flow from discontinued operations that represent the dairy segment performance are disclosed as follows: | ||||
STATEMENTS OF INCOME | Parent company and Consolidated | |||
12.31.14 | 12.31.13 | |||
Net sales | 2,720,406 | 2,733,769 | ||
Cost of sales | (2,111,487) | (2,075,548) | ||
Gross profit | 608,919 | 658,221 | ||
Operating income (expenses) | ||||
Selling | (424,899) | (483,273) | ||
General and administrative | (30,042) | (34,761) | ||
Other operating expenses, net | (30,568) | (77,266) | ||
Equity in income of associates | (2,826) | 414 | ||
Income before taxes | 120,584 | 63,335 | ||
Current income tax | (30,762) | (16,156) | ||
Net income from discontined operations | 89,822 | 47,179 | ||
STATEMENTS OF CASH FLOWS | Parent company and Consolidated | |||
12.31.14 | 12.31.13 | |||
Net profit from discontinued operations | 89,822 | 47,179 | ||
Adjustments to reconcile net income to net cash | ||||
provided by discontinued operations | ||||
Depreciation and amortization | 67,505 | 58,734 | ||
Equity in income of affiliates | 2,826 | (414) | ||
Net cash provided by discontinued operating | ||||
activities | 160,153 | 105,499 | ||
Investing activities from discontinued operations | ||||
Additions to property, plant and equipment | (51,161) | (87,720) | ||
Net cash used investing activities from continued | ||||
operations | (51,161) | (87,720) | ||
Net cash provided from discontinued operations | 108,992 | 17,779 |
48 | FINANCIAL STATEMENTS 2014 |
14. INCOME AND SOCIAL | 14.1. DEFERRED INCOME AND SOCIAL | |
CONTRIBUTION TAXES | CONTRIBUTION TAXES |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Assets | ||||
Tax loss carryforwards (corporate income tax) | 640,745 | 688,177 | 697,843 | 732,149 |
Negative calculation basis (social contribution tax) | 262,731 | 277,826 | 263,159 | 278,494 |
Temporary differences | ||||
Provisions for tax, civil and labor risks | 200,748 | 146,696 | 204,212 | 150,534 |
Suspended collection taxes | 69,074 | 70,239 | 69,074 | 70,239 |
Allowance for doubtful accounts | 6,783 | 14,958 | 7,652 | 16,136 |
Provision for property, plant and equipment losses | 15,529 | 6,454 | 15,529 | 6,454 |
Provision for tax credits realization | 73,350 | 70,762 | 73,893 | 70,762 |
Provision for other obligations | 50,810 | 53,716 | 52,914 | 55,730 |
Employees' profit sharing | 118,899 | 51,607 | 118,899 | 51,607 |
Provision for inventories | 11,560 | 15,871 | 11,560 | 15,871 |
Employees' benefits plan | 106,784 | 99,029 | 106,784 | 99,029 |
Business combination - Sadia(1) | 583,770 | 695,646 | 583,770 | 695,646 |
Unrealized losses on derivatives financial instruments | 56,615 | 83,606 | 56,615 | 83,606 |
Provision for losses - other debtors | 8,220 | 3,969 | 8,220 | 3,969 |
Other temporary differences | 48,428 | 69,667 | 52,014 | 75,649 |
2,254,046 | 2,348,223 | 2,322,138 | 2,405,875 | |
Liabilities | ||||
Temporary differences | ||||
Business combination - Sadia and Quickfood(1) | (750,509) | (763,121) | (750,509) | (763,121) |
Business combination - other companies | - | - | (103,557) | (131,000) |
Difference between tax basis and accounting basis of goodwill | ||||
amortization | (223,213) | (335,858) | (223,213) | (335,858) |
Difference between tax depreciation rate and accounting | ||||
depreciation rate (useful life) | (511,404) | (468,378) | (511,404) | (468,378) |
Other temporary differences | (16,988) | (34,991) | (19,440) | (41,841) |
(1,502,114) | (1,602,348) | (1,608,123) | (1,740,198) | |
Total net deferred tax assets | 751,932 | 745,875 | 714,015 | 665,677 |
Business combination - Dánica and Avex (deferred tax liability) | - | - | (15,633) | (20,566) |
Business combination - AFC (deferred tax liability) | - | - | (34,636) | - |
Business combination - AKF (deferred tax liability) | - | - | (4,334) | - |
Business combination - Federal Foods (deferred tax liability) | - | - | (7,751) | - |
Other - exchange variation | - | - | (27,829) | - |
Total deferred tax | 751,932 | 745,875 | 623,831 | 645,111 |
(1) The deferred tax asset on the business combination with Sadia is mainly computed on the difference between the goodwill tax basis and goodwill accounting basis identified in the purchase price | ||||
allocation. Deferred tax liabilities on business combinations Sadia and Quickfood are substantially represented by the fair value of property, plant and equipment, trademarks and contingent | ||||
liabilities. |
The Company prepared an analysis of the effects that could result from application of the provisions of Law No. 12,973 / 14 (previously issued as Provisional Measure No. 627/13) and concluded that no significant effects on its financial statements of 31.12.14 and 31.12.13. Thus, the Company’s Management elected not to adopt the new tax regime in 2014. Certain subsidiaries of the Company have tax loss carryforwards and negative basis of social contribution of R$16,474 and R$16,291, respectively, (R$18,493 and R$18,312 as of December 31, 2013), for which no deferred tax asset was recorded. If there was an expectation that such tax credits wouldbe realized the amount recognized in the balance sheet would be R$5,585 (R$6,271 as of December 31, 2013). | 14.2. ESTIMATED TIME OF REALIZATIONDeferred tax arising from temporary differences will be realized as they are settled our realized. The period of the settlement or realization of such differences would not be properly estimated and is tied to several factors that are not under control of the Management. When assessing the likelihood of the realization of deferred tax assets on income tax loss carryforward and negative calculation bases of social contribution tax, Managementconsiders the Company’s budget, strategic plan and projected taxable income. Based on this estimate, Management believes that it is more likely than not that the deferred tax will be realized, as shown below: | |||||
Parent | ||||||
company | Consolidated | |||||
2015 | 213,537 | 215,012 | ||||
2016 | 176,178 | 177,291 | ||||
2017 | 196,901 | 203,148 | ||||
2018 | 219,883 | 226,485 | ||||
2019 | 96,977 | 103,556 | ||||
2020-2022 | - | 20,955 | ||||
2023-2024 | - | 14,555 | ||||
903,476 | 961,002 |
49
The rollforward of deferred tax is set forth |
below: |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Beginning balance | 745,875 | 819,236 | 645,111 | 690,388 |
Deferred income tax recorded in the statement of | ||||
income | (235,889) | (140,403) | (235,205) | (116,026) |
Deferred income and social contribution taxes | ||||
transfered to assets held for sale - dairy business | 200,617 | - | 200,617 | - |
Deferred income and social contribution taxes in | ||||
Business combination - Minerva | 1,128 | - | - | - |
Deferred income tax recorded in other comprehensive | ||||
income | 52,783 | 60,848 | 52,824 | 60,718 |
Business combination | - | - | (46,722) | 9,356 |
Other | (12,582) | 6,194 | 7,206 | 675 |
Ending balance | 751,932 | 745,875 | 623,831 | 645,111 |
14.3. INCOME AND SOCIAL CONTRIBUTION |
TAXES RECONCILIATION |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Income before taxes from continued operations | 2,448,570 | 1,146,846 | 2,487,621 | 1,148,777 |
Nominal tax rate | 34% | 34% | 34% | 34% |
Tax expense at nominal rate | (832,514) | (395,305) | (845,791) | (395,962) |
Reconciling itens: | ||||
Income from associates and joint ventures | 222,469 | (107,758) | 8,694 | 4,530 |
Exchange rate variation on foreign investments | 6,467 | 140,257 | 43,087 | 129,944 |
Difference of tax rates on results of foreign | ||||
subsidiaries | - | - | 150,394 | (125,423) |
Interest on shareholders' equity | 250,840 | 246,164 | 250,840 | 246,164 |
Penalties | (15,066) | 1,707 | (15,066) | 1,707 |
Investment grant | 47,726 | 41,201 | 47,726 | 41,201 |
Other permanent differences | 6,722 | (57,861) | 7,550 | (31,280) |
(313,356) | (131,595) | (352,566) | (129,119) | |
Current income tax | (77,467) | 8,808 | (117,361) | (13,093) |
Deferred income tax | (235,889) | (140,403) | (235,205) | (116,026) |
The taxable income, current and deferredincome tax from foreign subsidiaries ispresented below: | Company determined that the earnings recorded by the holdings of its wholly-owned subsidiaries located abroad will not be redistributed. Such resources will be used for investments in the subsidiaries, and thus no deferred income tax was recognized. The total of undistributed earnings corresponds to R$1,896,478 as of December 31, 2014 (R$1,158,814 as of December 31, 2013). | Brazilian income taxes are subject to review for a 5-year period, during which the tax authorities might audit and assess the Company for additional taxes and penalties. Subsidiaries located abroad are taxed in their respective jurisdictions, according to local regulations. | ||||
Consolidated | ||||||
12.31.14 | 12.31.13 | |||||
Taxable income | ||||||
(loss) from foreign | ||||||
subsidiaries | 576,048 | (412,551) | ||||
Current income tax | ||||||
credit (expense) from | ||||||
foreign subsidiaries | (37,559) | (19,862) | ||||
Deferred income | ||||||
tax from foreign | ||||||
subsidiaries | (8,311) | 26,163 |
50 | FINANCIAL STATEMENTS 2014 |
15. JUDICIAL DEPOSITS |
The rollforward of the judicial deposits is |
presented below: |
Parent company | |||||||
Price index | |||||||
12.31.13 | Additions | Reversals | Write-offs | update | 12.31.14 | ||
Tax | 292,456 | 39,729 | (9,016) | (931) | 30,036 | 352,274 | |
Labor | 155,938 | 106,933 | (13,829) | (31,515) | 10,782 | 228,309 | |
Civil, commercial and other | 24,223 | 7,188 | (539) | (1,754) | 2,585 | 31,703 | |
472,617 | 153,850 | (23,384) | (34,200) | 43,403 | 612,286 | ||
Consolidated | |||||||
Price index | Exchange rate | ||||||
12.31.13 | Additions | Reversals | Write-offs | update | variation | 12.31.14 | |
Tax | 292,633 | 42,543 | (9,328) | (3,731) | 30,080 | (13) | 352,184 |
Labor | 155,979 | 111,809 | (13,829) | (33,574) | 10,784 | 200 | 231,369 |
Civil, commercial and | |||||||
other | 30,064 | 7,394 | (5,255) | (1,754) | 2,585 | (868) | 32,166 |
478,676 | 161,746 | (28,412) | (39,059) | 43,449 | (681) | 615,719 |
16. RESTRICTED CASH
Parent company and Consolidated | |||||
Average interest | |||||
Maturity(1) | Currency | rate (p.a.) | 12.31.14 | 12.31.13 | |
National treasury certificates | 2020 | R$ | 15.67% | 115,179 | 99,212 |
115,179 | 99,212 | ||||
(1) Weighted average maturity in years. |
The national treasury certificates are pledged |
as collateral for the loan obtained through |
the Special Program Asset Restructuring |
(“PESA”) (see note 20). |
17. INVESTMENTS IN ASSOCIATES |
AND JOINT VENTURES |
17.1. INVESTMENTS BREAKDOWN |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Investment in associates and joint ventures | 3,439,320 | 2,756,464 | 137,359 | 105,874 |
Goodwill Quickfood | 312,177 | 447,429 | - | - |
Goodwill Minerva | 247,283 | - | 247,283 | - |
Goodwill AKF | - | - | 52,428 | - |
Advance for future capital increase | 100 | 100 | - | - |
3,998,880 | 3,203,993 | 437,070 | 105,874 | |
Other investments | 849 | 873 | 1,353 | 2,116 |
3,999,729 | 3,204,866 | 438,423 | 107,990 |
51
17.2. SUMMARY FINANCIAL INFORMATION IN |
ASSOCIATES AND JOINT VENTURES |
Avipal Centro | Avipal | Elebat Alimentos | Establec. Levino | ||
Oeste S.A. | Construtora S.A. | BRF GmbH | S.A. | Zaccardi | |
12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | |
Current assets | 38 | - | 391,669 | 1 | 3,921 |
Non-current assets | - | - | 2,767,582 | - | 124 |
Current liabilities | - | - | (13,402) | - | (1,729) |
Non-current liabilities | - | - | (205,604) | - | (1,235) |
Shareholders' equity | (38) | - | (2,940,245) | (1) | (1,081) |
Net revenues | - | - | 10,283 | - | 3,718 |
Net income (loss) | (44) | (49) | 717,782 | - | (2,960) |
12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | |
Current assets | 81 | 123 | 118,881 | - | 4,588 |
Non-current assets | - | - | 2,255,989 | - | 1,868 |
Current liabilities | - | (5) | (406) | - | (1,979) |
Non-current liabilities | - | - | (175,557) | - | (60) |
Shareholders' equity | (81) | (118) | (2,198,907) | - | (4,417) |
Net revenues | - | - | 5,190 | - | 8,449 |
Net income (loss) | (4) | 2 | (426,673) | - | (2,238) |
(1) Merger of wholly-owned subsidiaries by BRF GmbH on March 31, 2013. |
52 | FINANCIAL STATEMENTS 2014 |
Perdigão Trading | PSA Labor. Veter. | Sadia Alimentos | Sadia | Sadia Overseas | VIP S.A. Empr. e | ||
S.A. | Ltda. | Quickfood S.A. | S.A. | Sadia GmbH(1) | International Ltd. | S.A. | Particip. Imob. |
12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 | 12.31.14 |
- | 3,698 | 232,850 | 18,533 | - | 1,428 | 39 | 65,907 |
- | 2,503 | 217,735 | 89,086 | - | 180,728 | 385,891 | 22,870 |
- | (637) | (270,110) | (13,106) | - | (1,737) | (2,917) | (2,608) |
- | - | (161,763) | (16,110) | - | - | (424,367) | (26) |
- | (5,564) | (18,712) | (78,403) | - | (180,419) | 41,354 | (86,143) |
- | - | 860,071 | 3,440 | - | - | - | - |
(52) | 630 | (23,500) | (35,543) | - | (10,024) | (20,030) | 10,489 |
12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 | 12.31.13 |
- | 6,037 | 184,492 | 27,600 | - | 1,252 | 101 | 125,731 |
1,013 | 2,507 | 130,705 | 146,063 | - | 169,564 | 505,045 | 44,592 |
- | (2,980) | (184,741) | (19,347) | - | (1,601) | (3,555) | (30,237) |
- | - | (79,157) | (21,166) | - | - | (517,054) | (2,025) |
(1,013) | (5,564) | (51,299) | (133,150) | - | (169,215) | 15,463 | (138,061) |
- | 10 | 832,083 | 37,470 | 54 | - | - | - |
(102) | 139 | (4,154) | (56,278) | 62,083 | (466) | (12,290) | 23,140 |
53
17.3. ROLLFORWARD OF THE INTEREST IN |
SUBSIDIARIES AND ASSOCIATES - PARENT |
COMPANY |
Mato | |||||||||
Avipal | Avipal | Elebat | Establec. | Grosso | Perdigão | ||||
Centro | Construtora | Alimentos | Levino | Bovinos | Trading | PSA Labor. | Quickfood | ||
Oeste S.A. | S.A. | BRF GmbH | S.A. | Zaccardi | S.A. | S.A. | Veter. Ltda | S.A. | |
a) Capital share as of December | |||||||||
31, 2014 | |||||||||
% of share | 100.00% | - | 100.00% | 99.00% | 98.26% | 100.00% | - | 100.00% | 90.05% |
Total number of shares and | |||||||||
membership interests | 6,963,854 | - | 1 | 1,000 | 100 | 100 | - | 5,463,850 | 36,469,606 |
Number of shares and | |||||||||
membership interest held | 6,963,854 | - | 1 | 990 | 98 | 50 | - | 5,463,850 | 32,841,224 |
b) Subsidiaries' information as of | |||||||||
December 31, 2014 | |||||||||
Capital stock | 5,972 | - | 6,122 | 1 | 6,604 | - | - | 5,564 | 28,117 |
Shareholders' equity | 38 | - | 2,940,245 | 1 | 1,081 | - | - | 5,564 | 18,712 |
Fair value adjustments of assets | |||||||||
and liabilities acquired | - | - | - | - | - | - | - | - | 136,615 |
Goodwill based on expectation | |||||||||
of future profitability | - | - | - | - | - | - | - | - | 175,562 |
Income (loss) for the period | (44) | (49) | 717,782 | - | (2,960) | - | (52) | 630 | (23,500) |
c) Balance of investments as of | |||||||||
December 31, 2014 | |||||||||
Balance of the investment in | |||||||||
the beginning of the exercise | 81 | 118 | 2,198,907 | - | 4,326 | - | 1,013 | 4,550 | 493,576 |
Equity pick-up | (43) | (49) | 717,782 | - | (2,908) | - | (52) | 559 | (21,162) |
Premium related to Exchange | |||||||||
Offer | - | - | - | - | - | - | - | - | - |
Unrealized profit in inventory | - | - | - | - | 704 | - | - | - | (191) |
Goodwill in the acquisition of | |||||||||
non-controlling entities | - | - | - | - | - | - | - | - | - |
Exchange rate variation on | |||||||||
goodwill in the acquisiton of | |||||||||
non-controlling entities | - | - | 3 | - | - | - | - | - | - |
Exchange rate variation on | |||||||||
goodwill | - | - | - | - | - | - | - | - | (126,664) |
Goodwill | - | - | - | - | - | - | - | - | (8,033) |
Write-off of fair value of | |||||||||
property, plant and equipment | - | - | - | - | - | - | - | - | (555) |
Exchange rate variation on | |||||||||
foreign investments | - | - | 3,656 | - | - | - | - | - | - |
Other comprehensive income | - | - | 19,903 | - | (1,062) | - | - | - | (8,011) |
Increase / decrease in capital | - | - | - | - | - | 180,319 | - | - | - |
Dividends and interests on | |||||||||
shareholders' equity | - | - | - | - | - | - | - | (630) | - |
Write-off plants | - | (69) | - | - | - | (180,319) | (961) | - | - |
Acquisition of company | - | - | - | - | - | - | - | 1,082 | - |
Impairment losses for | |||||||||
investments | - | - | - | - | - | - | - | - | - |
Transfer to held for sale and | |||||||||
dicontinued operations | - | - | - | - | - | - | - | - | - |
38 | - | 2,940,251 | - | 1,060 | - | - | 5,561 | 328,960 |
54 | FINANCIAL STATEMENTS 2014 |
Subsidiaries | Affiliate | ||||||||||
PP-BIO | PR-SAD | ||||||||||
VIP S.A. | Adm. | Adm. Bem | |||||||||
Sadia | Sadia | Sadia | Empr. e | K&S | Nutrifont | Bem | próprio | UP! | |||
Alimentos | International | Overseas | Particip. | Alimentos | Alimentos | próprio | S.A | Alimentos | |||
S.A. | Ltd. | S.A. | Imob | S.A. | Minerva S.A. | S.A. | S.A. | Ltda | Total | ||
31.12.14 | 31.12.13 | ||||||||||
100.00% | 100.00% | 100.00% | 100.00% | 49.00% | 16.29% | 50.00% | 33.33% | 33.33% | 50.00% | ||
33,717,308 | 900 | 50,000 | 14,249,459 | 27,664,086 | 178,000,090 | 20,000 | - | - | 1,000 | ||
33,717,308 | 900 | 50,000 | 14,249,459 | 13,555,402 | 29,000,000 | 10,000 | - | - | 500 | ||
225,073 | 2,391 | 3 | 40,061 | 27,664 | 834,136 | 35,000 | - | - | 1 | ||
78,403 | 180,419 | (41,354) | 86,143 | 35,772 | 675,037 | 30,176 | - | - | 1 | ||
- | - | - | - | - | - | - | - | - | - | ||
- | - | - | - | - | 247,283 | - | - | - | - | ||
(35,543) | (10,024) | (20,030) | 10,489 | 10,492 | (104,488) | (5,652) | - | - | 70,518 | ||
133,150 | 169,215 | - | 138,061 | 13,609 | - | 17,915 | 1,030 | - | 28,442 | 3,203,993 | 3,170,823 |
(35,543) | (10,024) | (20,030) | 10,489 | 5,141 | (17,021) | (2,826) | - | - | 35,259 | 659,572 | (306,866) |
- | - | - | - | - | - | - | - | - | - | - | (78,340) |
(1) | - | - | - | - | - | - | - | - | - | 512 | 69 |
(1,342) | - | - | - | - | 247,283 | - | - | - | - | 245,941 | - |
- | - | - | - | - | - | - | - | - | - | 3 | (2,977) |
- | - | - | - | - | - | - | - | - | - | (126,664) | - |
- | - | - | - | - | - | - | - | - | - | (8,033) | (10,139) |
- | - | - | - | - | - | - | - | - | - | (555) | - |
- | 21,227 | (5,862) | - | - | - | - | - | - | - | 19,021 | 412,519 |
(17,957) | - | - | (19) | - | 2,744 | - | - | - | - | (4,402) | (44,715) |
- | - | - | - | - | - | - | 324 | 126 | - | 180,769 | 104,360 |
- | - | - | (62,389) | (1,222) | - | - | - | - | (63,700) | (127,941) | (55,385) |
- | - | - | - | - | - | - | - | - | - | (181,349) | - |
- | - | - | - | - | 124,240 | - | - | 1,888 | - | 127,210 | 1,030 |
- | - | 25,892 | - | - | - | - | - | - | - | 25,892 | 13,614 |
- | - | - | - | - | - | (15,089) | - | - | - | (15,089) | - |
78,307 | 180,418 | - | 86,142 | 17,528 | 357,246 | - | 1,354 | 2,014 | 1 | 3,998,880 | 3,203,993 |
The exchange rate variation result on the | On December 31, 2014, these associates, |
investments in foreign subsidiaries, whose | affiliates and joint ventures do not have any |
functional currency is Brazilian Reais, | significant restriction to transfer dividends or |
totaling a gain of R$126,726 on December 31, | repay their loans or advances to the Company. |
2014 (R$382,197 as of December 31, 2013), | |
was recognized as financial result in the | |
consolidated statement of income. |
55
17.4. SUMMARY OF FINANCIAL INFORMATION |
IN ASSOCIATE AND JOINT VENTURE |
K&S | Minerva(1) | Nutrifont | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | |
Current assets | 22,605 | 16,342 | 431,505 | 20,176 | 4,633 |
Non-current assets | 4,369 | 4,893 | 580,945 | 61,827 | 14,455 |
Current liabilities | (9,049) | (7,217) | (221,189) | (65,355) | (1,130) |
Non-current liabilities | (397) | (410) | (681,298) | (1,559) | (43) |
Transfer to held for sale | - | - | - | (15,089) | - |
17,528 | 13,608 | 109.963 | - | 17,915 | |
K&S | Minerva(1) | Nutrifont | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | |
Net revenues | 51,577 | 42,682 | 159,809 | - | - |
Operational expenses | (10,592) | (11,352) | (23,873) | (255) | (6) |
Net income (loss) | 5,141 | 2,304 | (17,021) | (2,826) | 415 |
% of interest | 49% | 49% | 16% | 50% | 50% |
(1) The balances are not comparative because the acquisition of equity interest of AKF and Minerva occurred on July 03, 2014 and October 01 2014 respectively. |
18. PROPERTY, PLANT AND |
EQUIPMENT, NET |
Property, plant and equipment rollforward is |
presented below: |
Weighted average | |||
depreciation rate (p.a.) | 12.31.13 | Additions | |
Cost | |||
Land | - | 567,115 | 7,497 |
Buildings and improvements | - | 5,250,780 | 26,527 |
Machinery and equipment | - | 6,215,598 | 66,043 |
Facilities | - | 1,538,825 | 1,893 |
Furniture | - | 94,376 | 302 |
Vehicles | - | 156,121 | 1 |
Construction in progress | - | 647,081 | 675,517 |
Advances to suppliers | - | 3,649 | 23,341 |
14,473,545 | 801,121 | ||
Depreciation | |||
Buildings and improvements | 3.06% | (1,341,344) | (127,558) |
Machinery and equipment | 5.86% | (2,261,586) | (340,542) |
Facilities | 3.81% | (423,821) | (62,532) |
Furniture | 7.96% | (41,305) | (6,231) |
Vehicles | 18.61% | (47,609) | (21,595) |
(4,115,665) | (558,458) | ||
Provision for losses | (18,983) | (50,998) | |
10,338,897 | 191,665 | ||
(1) Besides the balance presented to intangible assets and biological assets, also was included the value of R$180,319, relating to the capitak paid with property, | |||
plant and equipment related to division of beef BRF in its wholly-subsidiary Mato Grosso Bovinos S.A., as disclosed in note 17.3. |
56 | FINANCIAL STATEMENTS 2014 |
Associate | Joint Venture | ||||||||
PP-BIO | PR-SAD | UP! | AKF(1) | Federal Foods | Rising Star | ||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 |
- | - | - | 36,553 | 42,902 | 29,565 | - | 152,319 | - | 46,663 |
1,355 | 1,030 | 2,015 | 101 | 30 | 2,267 | - | 3,887 | - | 243 |
- | - | - | (36,653) | (14,490) | (24,389) | - | (106,481) | - | (46,714) |
- | - | - | - | - | (946) | - | (5,026) | - | (12) |
- | - | - | - | - | - | - | - | - | - |
1,355 | 1,030 | 2,015 | 1 | 28,442 | 6,497 | - | 44,699 | - | 180 |
PP-BIO | PR-SAD | UP! | AKF(1) | Federal Foods | Rising Star | ||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 |
- | - | - | 106,340 | 90,767 | 27,016 | 85,257 | 311,564 | 137,416 | 502,716 |
- | - | - | (21,806) | (20,287) | (988) | (12,350) | (42,923) | (2,610) | (9,139) |
- | - | - | 35,259 | 28,441 | 46 | 2,615 | (17,221) | (469) | (617) |
33% | 33% | 33% | 50% | 50% | 40% | 49% | 49% | 50% | 50% |
Parent company | |||||
Additions from | Net transfers between | ||||
discontinued operations | Disposals | Reversals | Transfers(1) | held for sale | 12.31.14 |
- | (2,449) | - | 16,698 | (39,367) | 549,494 |
- | (49,953) | - | 64,267 | (437,329) | 4,854,292 |
- | (109,642) | - | 388,844 | (579,980) | 5,980,863 |
- | (3,110) | - | 107,642 | (897) | 1,644,353 |
- | (4,647) | - | 6,963 | (9,173) | 87,821 |
- | (20,424) | - | (825) | (3,455) | 131,418 |
51,161 | (187) | - | (879,324) | (36,471) | 457,777 |
- | - | - | (23,420) | - | 3,570 |
51,161 | (190,412) | - | (319,155) | (1,106,672) | 13,709,588 |
(22,523) | 29,161 | - | 16,841 | 97,228 | (1,348,195) |
(41,365) | 75,302 | - | 34,861 | 222,519 | (2,310,811) |
(2,433) | 2,448 | - | 9,637 | 704 | (475,997) |
(758) | 2,793 | - | 417 | 3,713 | (41,371) |
(426) | 9,518 | - | 483 | 1,708 | (57,921) |
(67,505) | 119,222 | - | 62,239 | 325,872 | (4,234,295) |
- | - | 19,297 | - | - | (50,684) |
(16,344) | (71,190) | 19,297 | (256,916) | (780,800) | 9,424,609 |
57
Additions from | ||||
Weighted average | discontinued | |||
depreciation rate (p.a.) | 12.31.13 | Additions | operations | |
Cost | ||||
Land | - | 567,129 | 7,497 | - |
Buildings and improvements | - | 5,414,069 | 28,424 | - |
Machinery and equipment | - | 6,538,245 | 69,410 | - |
Facilities | - | 1,573,355 | 2,757 | - |
Furniture | - | 111,478 | 1,240 | - |
Vehicles | - | 160,474 | 561 | - |
Construction in progress | - | 798,372 | 908,443 | 51,161 |
Advances to suppliers | - | 13,707 | 32,653 | - |
15,176,829 | 1,050,985 | 51,161 | ||
Depreciation | ||||
Buildings and improvements | 3.07% | (1,348,171) | (133,557) | (22,523) |
Machinery and equipment | 5.86% | (2,427,892) | (362,877) | (41,365) |
Facilities | 3.89% | (459,156) | (64,153) | (2,433) |
Furniture | 7.94% | (53,389) | (7,582) | (758) |
Vehicles | 18.74% | (47,660) | (22,571) | (426) |
(4,336,268) | (590,740) | (67,505) | ||
Provision for losses | (18,983) | (50,998) | - | |
10,821,578 | 409,247 | (16,344) | ||
(1) On January 16, 2012, the Company through its wholly-owned subsidiary BRF GmbH, acquired control and consequently started to consolidate the | ||||
financial statement of wholly-owned subsidiary Federal Foods (note 6.1.1). |
The Company has fully depreciated items |
that are still in operation, which are set forth |
below: |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Cost | ||||
Buildings and improvements | 114,984 | 110,626 | 127,168 | 122,939 |
Machinery and equipment | 633,241 | 567,665 | 671,054 | 618,276 |
Facilities | 71,313 | 75,265 | 71,676 | 75,294 |
Furniture | 14,499 | 13,766 | 19,140 | 21,013 |
Vehicles | 4,494 | 5,293 | 4,494 | 5,610 |
Others | 39,852 | 28,202 | 39,852 | 28,202 |
878,383 | 800,817 | 933,384 | 871,334 |
58 | FINANCIAL STATEMENTS 2014 |
Consolidated | ||||||
Net transfers | ||||||
Business | between held for | Exchange rate | ||||
combination(1) | Disposals | Reversals | Transfers | sale | variation | 12.31.14 |
- | (3,869) | - | 17,754 | (39,367) | (4,146) | 544,998 |
2,540 | (143,333) | - | 249,924 | (438,494) | (13,875) | 5,099,255 |
6,064 | (201,553) | - | 496,107 | (579,980) | (24,868) | 6,303,425 |
- | (27,112) | - | 211,957 | (897) | (2,652) | 1,757,408 |
1,279 | (13,870) | - | 4,807 | (9,173) | 4,669 | 100,430 |
20,772 | (32,926) | - | (64) | (3,455) | (1,314) | 144,048 |
4,010 | (36,673) | - | (1,090,310) | (36,471) | 9,177 | 607,709 |
- | - | - | (27,539) | - | 1,446 | 20,267 |
34,665 | (459,336) | - | (137,364) | (1,107,837) | (31,563) | 14,577,540 |
(2,442) | 31,336 | - | 16,641 | 97,958 | 918 | (1,359,840) |
(5,485) | 87,357 | - | 34,624 | 222,519 | 6,946 | (2,486,173) |
- | 5,599 | - | 9,716 | 704 | 1,789 | (507,934) |
(1,217) | 3,908 | - | 775 | 3,713 | (56) | (54,606) |
(17,050) | 22,619 | - | 483 | 1,708 | 3,943 | (58,954) |
(26,194) | 150,819 | - | 62,239 | 326,602 | 13,540 | (4,467,507) |
- | - | 19,297 | - | - | - | (50,684) |
8,471 | (308,517) | 19,297 | (75,125) | (781,235) | (18,023) | 10,059,349 |
During year ended December 31, 2014, the | determine the capitalized amount was 5.43% | and/or construction of property, plant and |
Company capitalized interest in the amount | p.a in the parent company and 5.98% in the | equipment items. |
of R$32,744 in the parent company and | consolidated (5.94% in the parent company | |
R$ 37,686 in the consolidated (R$49,881 in | and 6.21% in the consolidated p.a. as of | The property, plant and equipment items that |
the parent company and R$52,175 in the | December 31, 2013). | are pledged as collateral for transactions of |
consolidated as of December 31, 2013). The | different natures are presented below: | |
weighted average interest rate utilized to | On December 31, 2014, the Company had no | |
commitments assumed related to acquisition |
Parent company and Consolidated | |||
12.31.14 | 12.31.13 | ||
Type of collateral | Book value of the collateral | Book value of the collateral | |
Land | Financial/Labor/Tax/Civil | 320,905 | 330,823 |
Buildings and improvements | Financial/Labor/Tax/Civil | 1,670,522 | 1,824,785 |
Machinery and equipment | Financial/Labor/Tax | 2,053,784 | 2,054,899 |
Facilities | Financial/Labor/Tax | 640,400 | 660,038 |
Furniture | Financial/Labor/Tax/Civil | 18,699 | 19,906 |
Vehicles | Financial/Tax | 10,835 | 1,591 |
Others | Financial/Labor/Tax/Civil | 76,944 | 100,337 |
4,792,089 | 4,992,379 |
59
19. INTANGIBLES |
Intangible assets are comprised of the |
following items: |
Parent company | |||||
Weighted average | |||||
amortization rate | Accumulated | ||||
(p.a.) | Cost | amortization | 12.31.14 | 12.31.13 | |
Goodwill | - | 2,096,587 | - | 2,096,587 | 2,767,985 |
Outgrowers relationship | 12.50% | 13,682 | (3,955) | 9,727 | 10,150 |
Trademarks | - | 1,173,000 | - | 1,173,000 | 1,173,000 |
Patents | 16.51% | 3,722 | (1,397) | 2,325 | 2,896 |
Software | 20.00% | 414,941 | (251,490) | 163,451 | 130,108 |
3,701,932 | (256,842) | 3,445,090 | 4,084,139 | ||
Consolidated | |||||
Weighted average | |||||
amortization rate | Accumulated | ||||
(p.a.) | Cost | amortization | 12.31.14 | 12.31.13 | |
Non-compete agreement | 2.44% | 332 | (332) | - | 124 |
Goodwill | - | 2,525,343 | - | 2,525,343 | 3,101,750 |
Outgrowers relationship | 12.50% | 13,682 | (3,955) | 9,727 | 10,151 |
Trademarks | - | 1,267,888 | - | 1,267,888 | 1,302,305 |
Patents | 17.30% | 4,823 | (2,266) | 2,557 | 3,485 |
Customer relationship | 7.71% | 351,449 | (21,437) | 330,012 | 168,066 |
Supplier relationship | 42.00% | 10,064 | (7,580) | 2,484 | 5,629 |
Software | 20.00% | 453,551 | (262,919) | 190,632 | 166,412 |
4,627,132 | (298,489) | 4,328,643 | 4,757,922 |
The intangible assets rollforward is set |
forth below: |
Parent company | ||||||
Transfer to held | ||||||
12.31.13 | Additions | Disposals | Transfers | for sale | 12.31.14 | |
Cost: | ||||||
Goodwill: | 2,767,985 | - | - | - | (671,398) | 2,096,587 |
Ava | 49,368 | - | - | - | - | 49,368 |
Batavia | 133,163 | - | - | - | (133,163) | - |
Cotochés | 39,590 | - | - | - | (39,590) | - |
Eleva Alimentos | 1,273,324 | - | - | - | (465,184) | 808,140 |
Heloísa | 33,461 | - | - | - | (33,461) | - |
Incubatório Paraíso | 656 | - | - | - | - | 656 |
Paraíso Agroindustrial | 16,751 | - | - | - | - | 16,751 |
Perdigão Mato Grosso | 7,636 | - | - | - | - | 7,636 |
Sadia | 1,214,036 | - | - | - | - | 1,214,036 |
Outgrowers relationship | 12,463 | 1,219 | - | - | - | 13,682 |
Trademarks | 1,173,000 | - | - | - | - | 1,173,000 |
Patents | 3,722 | - | - | - | - | 3,722 |
Supplier relationship | 135,000 | - | (135,000) | - | - | - |
Software | 290,396 | 46,038 | (1,447) | 79,954 | - | 414,941 |
4,382,566 | 47,257 | (136,447) | 79,954 | (671,398) | 3,701,932 | |
Amortization: | ||||||
Outgrowers relationship | (2,313) | (1,642) | - | - | - | (3,955) |
Patents | (826) | (571) | - | - | - | (1,397) |
Supplier relationship | (135,000) | - | 135,000 | - | - | - |
Software | (160,288) | (91,526) | 1,442 | (1,118) | - | (251,490) |
(298,427) | (93,739) | 136,442 | (1,118) | - | (256,842) | |
4,084,139 | (46,482) | (5) | 78,836 | (671,398) | 3,445,090 |
60 | FINANCIAL STATEMENTS 2014 |
Consolidated | ||||||||
Business | Transfer to | Exchange rate | ||||||
12.31.13 | Additions | Disposals | combination | Transfers | held for sale | variation | 12.31.14 | |
Cost: | ||||||||
Goodwill: | 3,101,750 | - | - | 322,276 | (167,893) | (671,398) | (59,392) | 2,525,343 |
Ava | 49,368 | - | - | - | - | - | - | 49,368 |
Avex | 32,819 | - | - | - | - | - | (3,854) | 28,965 |
Batavia | 133,163 | - | - | - | - | (133,163) | - | - |
BRF AFC | - | - | - | 274,112 | (138,544) | - | 2,773 | 138,341 |
Cotochés | 39,590 | - | - | - | - | (39,590) | - | - |
Dánica | 8,354 | - | - | - | - | - | (981) | 7,373 |
Eleva Alimentos | 1,273,324 | - | - | - | - | (465,184) | - | 808,140 |
Federal Foods | 25,249 | - | - | 48,164 | (29,349) | - | 13,364 | 57,428 |
Heloísa | 33,461 | - | - | - | - | (33,461) | - | - |
Incubatório | ||||||||
Paraíso | 656 | - | - | - | - | - | - | 656 |
Paraíso | ||||||||
Agroindustrial | 16,751 | - | - | - | - | - | - | 16,751 |
Perdigão Mato | ||||||||
Grosso | 7,636 | - | - | - | - | - | - | 7,636 |
Plusfood | 21,084 | - | - | - | - | - | 3 | 21,087 |
Quickfood | 246,259 | - | - | - | - | - | (70,697) | 175,562 |
Sadia | 1,214,036 | - | - | - | - | - | - | 1,214,036 |
Non-compete | ||||||||
agreement | 375 | - | - | - | - | - | (43) | 332 |
Exclusivity | ||||||||
agreement | 497 | - | (382) | - | - | - | (115) | - |
Outgrowers | ||||||||
relationship | 12,463 | 1,219 | - | - | - | - | - | 13,682 |
Trademarks | 1,302,305 | - | - | - | - | - | (34,417) | 1,267,888 |
Patents | 5,546 | 50 | (774) | - | - | - | 1 | 4,823 |
Customer | ||||||||
relationship | 179,561 | - | - | - | 214,074 | - | (42,186) | 351,449 |
Supplier relationship | 146,138 | - | (135,000) | - | - | - | (1,074) | 10,064 |
Software | 329,340 | 49,141 | (1,448) | 2,040 | 78,363 | - | (3,885) | 453,551 |
5,077,975 | 50,410 | (137,604) | 324,316 | 124,544 | (671,398) | (141,111) | 4,627,132 | |
Amortization: | ||||||||
Non-compete | ||||||||
agreement | (251) | (100) | - | - | - | - | 19 | (332) |
Exclusivity | ||||||||
agreement | (497) | - | 377 | - | - | - | 120 | - |
Outgrowers | ||||||||
relationship | (2,312) | (1,643) | - | - | - | - | - | (3,955) |
Patents | (2,061) | (606) | 399 | - | - | - | 2 | (2,266) |
Customer | ||||||||
relationship | (11,495) | (10,150) | - | - | - | - | 208 | (21,437) |
Supplier relationship | (140,509) | (2,275) | 135,000 | - | - | - | 204 | (7,580) |
Software | (162,928) | (98,670) | 1,442 | (1,410) | (1,118) | - | (235) | (262,919) |
(320,053) | (113,444) | 137,218 | (1,410) | (1,118) | - | 318 | (298,489) | |
4,757,922 | (63,034) | (386) | 322,906 | 123,426 | (671,398) | (140,793) | 4,328,643 |
61
Amortizations of outgrowers relationship and supplier relationships are recognized as a cost of sales in the statement of income, while software amortization is recorded according to its use as cost of sales, administrative or sales expenses. Trademarks in intangible assets derive from the business combination with Sadia, Quickfood and Dánica group and are considered assets with indefinite useful life as they are expected to indefinitely contribute to the Company’s cash flows. The goodwill is based on expected future profitability supported by valuation reports, after purchase price allocation. | Goodwill and intangible assets with indefinite useful life (trademarks) are allocated to cash-generating units as presented in note 5. In 2014, the Company performed the annual impairment analysis including property, plant and equipment items, based on the value in use that was determined by a discounted cash flow model, in accordance with the allocation of goodwill and intangible assets to the cash generating units. Discounted cash flows were prepared based on the multi-annual budget (2015-2018) of the Company and growth projections up to 2023 (6.9% p.a. up to 13.1% p.a.), which, are based on historical informationand market projections of government agencies and associations, such as the United States Department of Agriculture (“USDA”), the Brazilian Pork Industry and Exporter (“ABIPECS”), the Brazilian Pullet Producer Association (“APINCO”). In the Management’s opinion, the use of periods that exceed 5 years in the preparation of discounted cash flows is adequate as it reflects the estimated time of use of these groups of assets. | Management adopted the WACC (11.8% p.a.) as the discount rate for the development of discounted cash flows and also adopted the assumptions shown in the table below: |
2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
PIB Brazil-BACEN | 3.00% | 3.60% | 3.50% | 3.40% | 3.80% | 4.20% | 4.00% | 4.20% | 4.20% |
PIB Worldwide - FMI | 4.30% | 4.30% | 4.20% | 4.10% | 4.00% | 4.10% | 4.00% | 4.00% | 4.00% |
IPCA | 5.60% | 5.40% | 5.30% | 5.20% | 5.20% | 5.20% | 5.00% | 4.90% | 4.80% |
CPI-FMI | 2.30% | 2.20% | 2.20% | 2.20% | 2.20% | 2.20% | 2.20% | 2.20% | 2.20% |
SELIC | 10.00% | 9.30% | 8.40% | 7.60% | 7.50% | 7.50% | 7.50% | 7.30% | 7.30% |
The rates above do not consider any tax effect (they are before taxes). Based on Management analyses performed during 2014, no impairment loss was identified. In addition to the above mentioned recovery analysis, management prepared a sensitivity analysis considering the variations in the EBITDA margin and in the nominal WACC as presented below: | |||||
Variations | |||||
Apreciation | |||||
(devaluation) | 1.0% | 0.0% | -1.0% | ||
WACC | 12.8% | 11.8% | 10.8% | ||
EBITDA margin | 17.2% | 16.2% | 15.2% | ||
Based on the above scenarios, the Company determined that no need to recognize an impairment loss to the intangible assets with indefinite useful life. |
62 | FINANCIAL STATEMENTS 2014 |
20. LOANS AND FINANCING
Parent company | |||||||
Weighted average | |||||||
Charges (p.a.) | interest rate (p.a.) | WAMT(1) | Current | Non-current | 12.31.14 | 12.31.13 | |
Local currency | |||||||
Working capital | 6.26% (5.50% on | 6.26% (5.50% on | |||||
12.31.13) | 12.31.13) | 0.6 | 1,239,834 | - | 1,239,834 | 1,210,328 | |
Export credit facility | 9.63% (98.50% CDI / | ||||||
TJLP + 3.75% / Fixed | 9.63% (8.21% on | ||||||
rate on 12.31.13) | 12.31.13) | 0.5 | 967,748 | - | 967,748 | 914,119 | |
Development bank credit | Fixed rate / TJLP + | ||||||
lines | 2.50% (Fixed rate / TJLP | 3.89% (4.68% on | |||||
+ 2.56% on 12.31.13 | 12.31.13) | 1.6 | 277,909 | 485,839 | 763,748 | 866,060 | |
Bonds | 7.75% (7.75% on | 7.75% (7.75% on | |||||
12.31.13) | 12.31.13) | 3.4 | 4,140 | 497,052 | 501,192 | 500,322 | |
Other secured debts and | 8.14% (8.37% on | 8.14% (8.37% on | |||||
financial lease | 12.31.13) | 12.31.13) | 3.6 | 45,951 | 248,675 | 294,626 | 362,879 |
Special program asset | Fixed rate / IGPM + | ||||||
restructuring | 4.90% (Fixed rate | ||||||
/ IGPM + 4.90% on | 8.54% (10.37% on | ||||||
12.31.13) | 12.31.13) | 5.2 | 3,887 | 209,564 | 213,451 | 206,073 | |
Fiscal incentives | Fixed rate / 10.00% | ||||||
IGPM + 1.00% (Fixed | |||||||
rate / 10.00% IGPM + | 1.52% (1.70% on | ||||||
1.00% on 12.31.13) | 12.31.13) | 7.5 | 1,892 | 10,653 | 12,545 | 12,682 | |
2,541,361 | 1,451,783 | 3,993,144 | 4,072,463 | ||||
Foreign currency | |||||||
Bonds | 4.97% (5.11% on | 4.97% (5.11% on | |||||
12.31.13) + e.r. US$ | 12.31.13) + e.r. US$ | 8.5 | 25,900 | 5,175,296 | 5,201,196 | 2,833,814 | |
Export credit facility | LIBOR + 2.74% (LIBOR | 3.07% (3.13% on | |||||
+ 2.74% on 12.31.13) + | 12.31.13) + e.r. US$ and | ||||||
e.r. US$ | other currencies | 3.3 | 6,508 | 787,380 | 793,888 | 695,552 | |
Development bank credit | UMBNDES + 2.22% | ||||||
lines | (UMBNDES + 2.20% on | 6.34% (5.85% on | |||||
12.31.13) + e.r. US$ and | 12.31.13) + e.r. US$ and | ||||||
other currencies | other currencies | 1.1 | 27,253 | 15,140 | 42,393 | 73,472 | |
59,661 | 5,977,816 | 6,037,477 | 3,602,838 | ||||
2,601,022 | 7,429,599 | 10,030,621 | 7,675,301 | ||||
(1) Weighted average maturity in years. |
Consolidated | |||||||
Weighted average | Non- | ||||||
Charges (p.a.) | interest rate (p.a.) | WAMT(1) | Current | current | 12.31.14 | 12.31.13 | |
Local currency | |||||||
Working capital | 6.26% (5.50% on | ||||||
6.26% (5.50% on 12.31.13) | 12.31.13) | 0.6 | 1,239,834 | - | 1,239,834 | 1,210,328 | |
Export credit facility | 9.63% (98.50% CDI / TJLP + 3.75% / | 9.63% (8.21% on | |||||
Fixed rate on 12.31.13) | 12.31.13) | 0.5 | 967,748 | - | 967,748 | 914,119 | |
Development bank credit | Fixed rate / TJLP + 2.50% (Fixed rate | 3.89% (4.68% on | |||||
lines | / TJLP + 2.56% on 12.31.13) | 12.31.13) | 1.6 | 277,909 | 485,839 | 763,748 | 866,060 |
Bonds | 7.75% (7.75% on | ||||||
7.75% (7.75% on 12.31.13) | 12.31.13) | 3.4 | 4,140 | 497,052 | 501,192 | 500,322 | |
Other secured debts and | 8.14% (8.37% on | ||||||
financial lease | 8.14% (8.37% on 12.31.13) | 12.31.13) | 3.6 | 45,951 | 248,675 | 294,626 | 362,879 |
Special program asset | Fixed rate / IGPM + 4.90% (Fixed | 8.54% (10.37% on | |||||
restructuring | rate / IGPM + 4.90% on 12.31.13) | 12.31.13) | 5.2 | 3,887 | 209,564 | 213,451 | 206,073 |
Fiscal incentives | Fixed rate / 10.00% IGPM + 1.00% | ||||||
(Fixed rate / 10.00% IGPM + 1.00% | 1.52% (1.70% on | ||||||
on 12.31.13) | 12.31.13) | 7.5 | 1,892 | 10,653 | 12,545 | 12,682 | |
2,541,361 | 1,451,783 | 3,993,144 | 4,072,463 | ||||
Foreign currency | |||||||
Bonds | 5.87% (6.13% on | ||||||
5.87% (6.13% on 12.31.13) + e.r. US$ | 12.31.13) + e.r. US$ and | ||||||
and ARS | ARS | 7.6 | 89,902 | 6,324,090 | 6,413,992 | 4,910,991 | |
Export credit facility | LIBOR + 2.71% (LIBOR + 2.71% on | 3.01% (3.06% on | |||||
12.31.13) + e.r. US$ | 12.31.13) + e.r. US$ | 3.4 | 6,948 | 1,052,485 | 1,059,433 | 929,620 | |
Working capital | Fixed rate + LIBOR + 2.71% (Fixed | 22.97% (27.12% on | |||||
rate + LIBOR + 4.75% on 12.31.13) + | 12.31.13) + e.r. US$ and | ||||||
e.r. US$ and ARS | ARS | 0.1 | 65,474 | 3,343 | 68,817 | 173,216 | |
Development bank credit | UMBNDES + 2.22% (UMBNDES + | 6.34% (5.85% on | |||||
lines | 2.20% on 12.31.13) + e.r. US$ and | 12.31.13) + e.r. US$ and | |||||
other currencies | other currencies | 1.1 | 27,253 | 15,142 | 42,395 | 73,472 | |
Other secured debts and | 15.08% (15.08% on 12.31.13) + e.r. | 15.08% (15.08% on | |||||
financial lease | ARS | 12.31.13) + e.r. ARS | 0.9 | 7,965 | 3,589 | 11,554 | 21,428 |
197,542 | 7,398,649 | 7,596,191 | 6,108,727 | ||||
2,738,903 | 8,850,432 | 11,589,335 | 10,181,190 | ||||
(1) Weighted average maturity in years. |
63
20.1. WORKING CAPITAL Rural credit:The Company and its subsidiaries entered into rural credit loans with several commercial banks, under a Brazilian Federal government program that offers an incentive to investments in rural activities. Working capital in foreign currency: Refers to credit lines taken from financial institutions and utilized primarily for short term working capital and import operations of subsidiaries located in Argentina. The loans are denominated in Argentine Pesos and U.S. Dollars, mainly maturing in 2015. 20.2. EXPORT CREDIT FACILITIES Pre-export facilities:Generally are denominated in U.S. Dollars, maturing between 2017 and 2019. Under the terms of each of these credit facilities, the Company entered into loans which must be evidenced subsequently by accounts receivable related to the exports of its products. Commercial credit lines:Denominated in U.S. Dollars with quarterly payments of interest and principal maturing in 2018 and are utilized for purchases of imported raw materials and other working capital needs. Export credit notes:The Company entered into export credit notes contracts indexed to the CDI, to be utilized as working capital and maturing in 2015. 20.3. DEVELOPMENT BANK CREDIT LINESThe Company and its subsidiaries have several outstanding obligations with National Bank for Economic and Social Development (“BNDES”). The loans were obtained for the acquisition of equipment and expansion of productive facilities. FINEM:Credit lines of Financing for Enterprises (“FINEM”) which are subject to the variations of UMBNDES currency basket. The values of principal and interest are paid in monthly installments, with maturities between 2015 and 2019 and are secured by pledge of equipment, facilities and mortgage on properties owned by the Company. FINEP:Credit lines of Financial of Studies and Projects (“FINEP”) obtained with reduced charges for projects of research, development and innovation, with maturities dates between 2015 and 2019. | 20.4. BONDS Senior Notes BRF 2024:On May 15, 2014, BRF completed international offerings of 10 year bonds in the aggregate amount of US$750,000 (the “USD Bonds”), which will mature on May 22, 2024 (“Senior Notes BRF 2024”), issued with a coupon (interest) of 4.75% p.a. (yield to maturity 4.952%), payable semi-annually beginning on November 22, 2014. From the total amount raised of Senior Notes BRF 2024, US$ 470,593 was used for settlement transaction denominated Tender Offer realized for the purpose to repurchase a portion of the debts of Sadia Overseas Bonds 2017 and BFF Notes 2020 (“existing bonds”). In the execution of Tender Offer, BRF paid a premium in the amount of US$ 86,427 (equivalent to R$198,514) to the existing bondholders, which was recorded as financial expenses. BFF Notes 2020:On January 28, 2010, BFF International Limited issued senior notes in the total value of US$750,000, whose notes are guaranteed by BRF, with a nominal interest rate of 7.25% p.a. and effective rate of 7.54% p.a. maturing on January 28, 2020. On June 20, 2013, the amount of US$120,718 of these senior notes was exchanged by Senior Notes BRF 2023 and on May 15, 2014, the amount of US$409,640 was repurchased with part of the proceeds obtained from the Senior Notes BRF 2024, and the remaining balance amounted to US$219,642 on June 30, 2014. For the year ended December 31, 2014, there was no change in the remaining balance. Sadia Overseas Bonds 2017:In the total value of US$250,000, such bonds are guaranteed by BRF, with an interest rate of 6.88% p.a. and maturing on May 24, 2017. On June 20, 2013, the amount of US$29,282 of these senior notes was exchanged by Senior Notes BRF 2023 and on May 15, 2014, the amount of US$60,953 was repurchased with part of the proceeds obtained from Senior Notes BRF in 2024, and the remaining balance amounted to US$159.765 on June 30, 2014. For the year ended December 31, 2014, there was no change in the remaining balance. | Senior Notes BRF 2023:On May 15, 2013, BRF completed international offerings of (i) 10 year bonds in the aggregate amount ofUS$500,000 (the “USD Bonds”), which will mature on May 22, 2023 (“Senior Notes BRF 2023”), issued with a coupon (interest) of 3.95% per year (yield to maturity 4.135%), payable semi-annually beginning on November 22, 2013 and (ii) 5 year bonds in the aggregate amount of R$500,000 (the “BRL Bonds”) which will mature on May 22, 2018, issued with a coupon (interest) of 7.75% p.a. (yield to maturity 7.75%), payable semi-annually beginning as from November 22, 2013. Senior Notes BRF2022:On June 6, 2012, BRF issued senior notes of US$500,000, with nominal interest rate of 5.88% p.a. and an effective rate of 6.00% p.a. maturing on June 6, 2022. On June 26, 2012 the Company reopened this transaction for an additional amount of R$ 250,000, with nominal interest rate of 5.88% p.a. and effective rate of 5.50% p.a. 20.5. OTHER SECURED DEBTS AND FINANCIAL LEASE Industrial credit notes:The Company issue industrial credit notes, receiving from official funds, such as Fund for Worker Support (“FAT”), Constitutional Fund for Financing the Midwest (“FCO”) and Constitutional Fund for Financing the Northwest (“FNE”). The notes are paid on a monthly basis and have maturity dates between 2015 and 2023. These notes are secured by a pledge of machinery and equipment and real estate mortgages. Financial lease:The Company entered into financial leases for acquisition of vehicles, which consists in the principal amount and interest paid in monthly installments. 20.6. SPECIAL PROGRAM ASSET RECOVERY (“PESA”)The Company has a loan facility obtained through the Special Program for Asset Recovery (“Programa Especial de Saneamento de Ativos”) promoted by the federal government and securitized by commercial financial institutions. Such loan facility is subject to the variations of the General Market Price Index (“IGPM”) plus interest of 4.90% p.a. The principal is payable in a single installment and the maturity date is 2020, being secured by endorsements and pledges of public debt securities (see note 16). |
64 | FINANCIAL STATEMENTS 2014 |
20.7. ROTATIVE CREDIT LINE (“REVOLVER CREDIT FACILITY”)With the purpose of improving its financial liquidity, the Company and its wholly-owned subsidiary BRF Global GmbH obtained a credit line Revolver Credit Facility (“Revolver Credit Facility”) in the amount of US$1,000,000, with a maturity date in May 2019, from a syndicate comprised of 28 banks. The transaction was structured to allow the Company to utilize thecredit line at any time, during the contracted period. Until December 31, 2014, the Company did not use this credit facility. | 20.8. LOANS AND FINANCING MATURITY SCHEDULE The maturity schedule of the loans and financing balances is as follow: | |||||
Parent company | Consolidated | |||||
12.31.14 | 12.31.14 | |||||
2015 | 2,601,022 | 2,738,903 | ||||
2016 | 268,616 | 347,487 | ||||
2017 | 483,290 | 946,906 | ||||
2018 | 1,044,846 | 1,345,901 | ||||
2019 | ||||||
onwards | 5,632,847 | 6,210,138 | ||||
10,030,621 | 11,589,335 |
20.9. GUARANTEES
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Total of loans and financing | 10,030,621 | 7,675,301 | 11,589,335 | 10,181,190 |
Mortgage guarantees | 1,102,742 | 1,278,353 | 1,102,742 | 1,278,353 |
Related to FINEM-BNDES | 594,915 | 817,340 | 594,915 | 817,340 |
Related to FNE-BNB | 293,529 | 335,395 | 293,529 | 335,395 |
Related to tax incentives and other | 214,298 | 125,618 | 214,298 | 125,618 |
Statutory lien on assets acquired with financing | 1,045 | 26,755 | 1,045 | 26,783 |
Related to FINEM-BNDES | 648 | 1,203 | 648 | 1,203 |
Related to financial lease | 397 | 25,552 | 397 | 25,580 |
The Company is the guarantor of a loan obtained by Instituto Sadia de Sustentabilidade from the BNDES. The loan was obtained with the purpose of allowing the implementation of biodigesters in the farms of the outgrowers which take part in the Company´s integration system, targeting the reduction of the emission of Greenhouse Gases. The value of these guarantees on December 31, 2014 totaled R$53,305 (R$61,060 as of December 31, 2013). The Company is the guarantor of loans related to a special program, which aimed the local development of outgrowers in the central region of Brazil. The proceeds of such loans are utilized by the outgrowers is to improve farm conditions and will be paid by them in 10 years, taking as collateral the landand equipment acquired by the outgrowers through this program. The guarantee as of December 31, 2014 totaled R$280,136 (R$363,700 as of December 31, 2013). | On December 31, 2014, the Company contracted bank guarantees in the amount of R$2,048,340 (R$1,707,162 as of December 31, 2013). The variation occurred in this period is related to bank guarantees offered mainly in litigations involving the Company´s use of tax credits. These guarantees have an average cost of 0.90% p.a. (0.92% p.a. as of December 31, 2013). 20.10. COMMITMENTS In the normal course of the business, the Company enters into agreements with third parties which are mainly related to thepurchase of raw materials, such as corn and soymeal, where the agreed prices can be fixed or to be fixed. The Company enters into other agreements, such as electricity, packaging supplies and manufacturing activities. The amounts of the agreements on the date of these financial statements are set forth below: | ||||
Parent company and | |||||
Consolidated | |||||
12.31.14 | |||||
2015 | 3,054,692 | ||||
2016 | 697,757 | ||||
2017 | 550,385 | ||||
2018 | 523,430 | ||||
2019 onwards | 2,197,059 | ||||
7,023,323 |
65
21. TRADE ACCOUNTS PAYABLE
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Domestic suppliers | ||||
Third parties | 3,029,397 | 3,025,005 | 3,029,714 | 3,028,458 |
Related parties | 18,795 | 12,033 | 18,795 | 12,033 |
3,048,192 | 3,037,038 | 3,048,509 | 3,040,491 | |
Foreign suppliers | ||||
Third parties | 571,563 | 339,387 | 957,201 | 634,135 |
Related parties | 608 | 1,604 | - | 79 |
572,171 | 340,991 | 957,201 | 634,214 | |
(-) Adjustment to present value | (28,383) | - | (28,383) | - |
3,591,980 | 3,378,029 | 3,977,327 | 3,674,705 |
In the year ended on December 31, 2014, | The information on accounts payable | 30. The trade accounts payable to related |
accounts payable to suppliers are 70 days. | involving related parties is presented in note | parties refer to transactions with associates |
UP! and K&S in the Brazil. |
22. OTHER FINANCIAL ASSETS AND LIABILITIES
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Derivative financial instruments | ||||
Financial instruments derivatives designated as cash flow | ||||
hedge | ||||
Assets | ||||
Non-deliverable forward (NDF) | 9,749 | 801 | 9,749 | 801 |
Currency option contracts | 3,160 | 2,683 | 3,160 | 2,683 |
Deliverable forwards contracts | 933 | 1,518 | 933 | 1,518 |
13,842 | 5,002 | 13,842 | 5,002 | |
Liabilities | ||||
Non-deliverable forward (NDF) | (77,122) | (59,431) | (77,122) | (59,431) |
Currency option contracts | (7,155) | (2,970) | (7,155) | (2,970) |
Deliverable forwards contracts | (3,482) | (11,947) | (3,482) | (11,947) |
Exchange rate contracts currency (Swap) | (119,388) | (237,111) | (157,975) | (275,865) |
(207,147) | (311,459) | (245,734) | (350,213) | |
Financial instruments derivatives designated as cash flow | ||||
hedge | ||||
Assets | ||||
Non-deliverable forward (NDF) | 1,125 | - | 1,304 | 2,715 |
Live cattle forward contracts (see note 13.1) | 27,955 | - | 27,955 | - |
Exchange rate contracts currency (Swap) | - | 590 | - | 590 |
Dollar future contracts - BM&F Bovespa | - | 3,247 | - | 3,247 |
Live cattle future contracts - BM&F Bovespa | - | 18 | - | 18 |
29,080 | 3,855 | 29,259 | 6,570 | |
Liabilities | ||||
Non-deliverable forward (NDF) | - | - | (2,794) | (227) |
Live cattle forward contracts (NFD) | - | (484) | - | (484) |
Currency option contracts | - | (154) | - | (154) |
Exchange rate contracts currency (Swap) | (3,216) | (6,104) | (3,216) | (6,104) |
Dollar future contracts - BM&F Bovespa | (5,694) | - | (5,694) | - |
(8,910) | (6,742) | (11,704) | (6,969) | |
Current assets | 42,922 | 8,857 | 43,101 | 11,572 |
Current liabilities | (216,057) | (318,201) | (257,438) | (357,182) |
The collateral given in the transactions |
presented above are disclosed in note 8. |
66 | FINANCIAL STATEMENTS 2014 |
23. LEASES The Company is lessee in several contracts, which can be classified as operating or finance lease. 23.1. OPERATING LEASE The minimum future payments of non-cancellable operating lease are presented below: | On, December 31, 2014, the payments of operating lease agreements recognized as expense in the year ended December 31, 2014 amounted to R$194,078 in the parent company and R$247,699 in the consolidated (R$249,902 in the parent company and R$283,082 in the consolidated as of December 31, 2013). 23.2. FINANCE LEASE The Company enters into finance leases mainly for the acquisitions of machinery, equipment, vehicles, software and buildings, presented below: | |||||
Parent company | Consolidated | |||||
12.31.14 | 12.31.14 | |||||
2015 | 169,332 | 169,357 | ||||
2016 | 150,895 | 152,093 | ||||
2017 | 127,593 | 128,791 | ||||
2018 | 110,095 | 111,372 | ||||
2019 | ||||||
onwards | 226,598 | 226,598 | ||||
784,513 | 788,211 |
Parent company | Consolidated | ||||
Weighted average | |||||
interest rate (p.a.)(1) | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Cost | |||||
Machinery and equipment | 23,666 | 75,475 | 32,010 | 86,512 | |
Software | 72,961 | 22,108 | 72,961 | 22,108 | |
Vehicles | 28,204 | 138,899 | 28,204 | 138,899 | |
Buildings | 128,659 | 113,732 | 128,659 | 113,732 | |
253,490 | 350,214 | 261,834 | 361,251 | ||
Accumulated depreciation | |||||
Machinery and equipment | 18.45% | (8,306) | (17,776) | (16,613) | (26,953) |
Software | 20.00% | (48,298) | (8,914) | (48,298) | (8,914) |
Vehicles | 13.02% | (8,831) | (36,996) | (8,831) | (36,996) |
Buildings | 15.43% | (20,248) | (9,638) | (20,248) | (9,638) |
(85,683) | (73,324) | (93,990) | (82,501) | ||
167,807 | 276,890 | 167,844 | 278,750 | ||
(1) The period of depreciation of leased assets corresponds to the lowest of term of the contract and the useful life of the asset, as determined by CVM Deliberation Nº 645/10. |
The minimum future payments required |
for these finance leases are segregated as |
follows, and were recorded in current and |
non-current liabilities: |
Parent Company | |||
12.31.14 | |||
Present value of | Minimum future | ||
minimum payments(1) | Interest | payments(2) | |
2015 | 63,743 | 24,743 | 88,486 |
2016 | 41,750 | 16,579 | 58,329 |
2017 | 24,497 | 10,006 | 34,503 |
2018 | 21,667 | 7,796 | 29,463 |
2019 onwards | 92,356 | 60,338 | 152,694 |
244,013 | 119,462 | 363,475 | |
Consolidated | |||
12.31.14 | |||
Present value of | Minimum future | ||
minimum payments(1) | Interest | payments(2) | |
2015 | 63,810 | 24,766 | 88,576 |
2016 | 41,750 | 16,579 | 58,329 |
2017 | 24,497 | 10,006 | 34,503 |
2018 | 21,667 | 7,796 | 29,463 |
2019 onwards | 92,473 | 60,363 | 152,836 |
244,197 | 119,510 | 363,707 | |
(1) Comprises the amount of R$407 related to financial lease of vehicles which are recorded as loans and financing. | |||
(2) Comprises the amount of R$412 related to financial lease of vehicles which are recorded as loans and financing. |
67
Date | Quantity | Grant(1) | Price of converted share(1) | ||||
Beginning of the | Outstanding | Fair value of the | |||||
Grant date | year | End of the year | Options granted | options | option | Granting date | Updated IPCA |
Stock options to related to service | |||||||
condition | |||||||
05/03/10 | 05/02/11 | 05/02/15 | 1,540,011 | 80,833 | 7.77 | 23.44 | 30.49 |
05/02/11 | 05/01/12 | 05/01/16 | 2,463,525 | 401,941 | 11.36 | 30.85 | 37.67 |
05/02/12 | 05/01/13 | 05/01/17 | 3,708,071 | 959,059 | 7.82 | 34.95 | 40.60 |
05/02/13 | 05/01/14 | 05/01/18 | 3,490,201 | 1,487,865 | 11.88 | 46.86 | 51.12 |
04/04/14 | 04/03/15 | 04/03/19 | 1,552,564 | 1,332,113 | 12.56 | 44.48 | 45.66 |
05/02/14 | 05/01/15 | 05/01/19 | 1,610,450 | 1,426,321 | 14.11 | 47.98 | 49.25 |
12/18/14 | 12/17/15 | 12/17/19 | 5,702,714 | 5,702,714 | 14.58 | 63.49 | 63.49 |
20,067,536 | 11,390,846 | ||||||
(1) Values expressed in Brazilian Reais |
The contract terms for both modalities, with respect to renewal, adjustment and purchase option, are according to market practices. In addition, there are no clauses of contingent payments or restrictions on dividends distribution, payments of interest on shareholders’ equity or obtaining debt. 24. SHARE BASED PAYMENT The Company grants to its directors and executive managers the stock option plan, consisting of two instruments: (i) stock option plan and (ii) additional stock option plan, which is optional and the executives can use a portion of their profit-sharing amounts. The basis of the vesting conditions will be the attainment of effective results and appreciation of the Company’s business. The plan includes shares issued by the Company up to the limit of 2.5% of the total stock, and its purpose is to: (i) attract, retain and motivate the beneficiaries, (ii) add valuefor shareholders, and (iii) encourage the view of entrepreneur of the business. | The plan is managed by the Board of Directors, within the limits established by the general guidelines of the plan and applicable legislation. The exercise price of the options is determined by the Board of Directors and is equivalent to the average amount of the closing price of the share at the last twenty trading sessions of the BM&FBOVESPA, prior to the grant date, updated monthly by the variation of the Amplified Consumer Price Index (“IPCA”) between the grant date and the month prior to the option exercise notice by the beneficiary. The vesting period ranges from 1 to 3 years and will observe the following deadlines from the grant date of the option: • up to 1/3 of the total options may beexercised after one year; • up to 2/3 of the total options may beexercised after two years; and | • all the options may be exercised afterthree years. After the vesting period and within no more than five years from the grant date, the beneficiary is no longer entitled to the right to the unexercised options. To satisfy the exercise of the options, the Company may issue new shares or use shares held in treasury. At the Extraordinary General Meeting of Abril 03, 2014, was approved by shareholders the stock option plan conditioned to performance, for which were granted 1,251,238 options. On September 30, 2014, by decision of the Board of Directors, such grants were canceled with no effect on the financial statements for the year ended on December 31, 2014. The breakdown of the outstanding granted options is presented as follows: |
68 | FINANCIAL STATEMENTS 2014 |
The rollforward of the outstanding granted | 12.31.14 | These plans are managed by BRF Previdênciaa pension fund entity of non-economic natureand non-profit, through its DeliberativeBoard which is responsible for definepension premises and policies, as well asestablish fundamentals guidelines andorganization, operation and managementrules. The Deliberative Board is composedof representatives from the sponsor andparticipants, the proportion of 2/3 and 1/3respectively.
Main purpose of FAF plan is to supplement thebenefit paid by the Brazilian Social Security (“INSS – Instituto Nacional de SecuridadeSocial”), calculated proportionally accordingto the length of service performed and in linewith the type of retirement. Main actuarialrisks related are (i) survival time overexpected in the mortality tables (ii) turnoverlower than expected, (iii) salary growthhigher than expected, (iv) actual return onassets below the actual discount rate, (v)amendment of the rules of social securityand actual family composition of the retiredemployee or executive different from theestablished assumption. In plans I and II, the contributions are madeon a 1 to 1 basis (the contributions of thesponsor are equal to the basic contributionsof the participants). In the Plan FAF, thecontribution is made through a percentageactuarially defined for the participant andthe sponsor. The actuarial calculations of theplans managed by BRF Previdência are madeby independent actuaries, on a yearly basis,according to the rules in force. In case of a deficit result in plans, it must besupported by the sponsor, participants andbeneficiaries, in the proportion between theircontributions. | |||||
options for the year ended December 31, 2014 | Expected maturity of the | ||||||
is presented as follows: | option: | ||||||
Exercise in the 1st year | 3.0 years | ||||||
Consolidated | Exercise in the 2nd year | 3.5 years | |||||
Exercise in the 3rd year | 4.0 years | ||||||
Quantity of outstanding | |||||||
options as of December 31, | Risk-free interest rate | 5.18% | |||||
2013 | 6,932,434 | Volatility | 29.45% | ||||
Issued - grant of 2014 | 10,116,966 | Expected dividends over | |||||
Exercised: | shares | 1.26% | |||||
Grant of 2013 | (400,216) | Expected inflation rate | 5.92% | ||||
Grant of 2012 | (959,596) | ||||||
Grant of 2011 | (820,931) | 24.2. EXPECTED PERIOD
24.6. EXPECTED INFLATION RATE 25. PENSION AND OTHER POST-EMPLOYMENT PLANS 25.1. PENSION PLANS | |||||
Grant of 2010 | (415,867) | ||||||
Cancelled: | |||||||
Grant of 2014 | |||||||
(performance) | (1,251,238) | ||||||
Grant of 2014 | (404,580) | ||||||
Grant of 2013 | (864,472) | ||||||
Grant of 2012 | (430,759) | ||||||
Grant of 2011 | (110,895) | ||||||
Quantity of outstanding options as of December 31, 2014 | 11,390,846 | ||||||
The weighted average exercise prices ofthe outstanding options is R$54.93 (fifty The Company records as capital reserve inshareholders’ equity the fair value of theoptions in the amount of R$92,898 (R$72,225as of December 31, 2013). In the statementof income in the year ended December 31,2014 the amount recognized as expense wasR$20,673 (R$26,761 as of December 31, 2013). During the year ended December 31, 2014 theCompany’s executives exercised 2,596,610shares, with an average price of R$38.42(thirty eight Brazilian Reais and forty twocents) totaling R$99,765. In order to complywith this commitment, the Company utilizedtreasury shares with an acquisition cost ofR$47.54 (forty seven Brazilian Reais and fiftyfour cents), totaling R$123,447, recording again in the amount of R$23,682 as capitalreserve. 24.1. FAIR VALUE MEASUREMENT The weighted average fair value of optionsoutstanding as of December 31, 2014 wasR$13.20 (thirteen Brazilian Reais and twentycents) (R$10.11 as of December 31, 2013). Thefair value of the stock options was measuredusing the Black-Scholes pricing model, basedon the following assumptions: | |||||||
Plan | Modality | Adhesions | |||||
Plan I | Variable | ||||||
Contribution | Closed | ||||||
Plan II | Variable | ||||||
Contribution | Closed | ||||||
Plan III | Defined | ||||||
Contribution | Open | ||||||
FAF | Defined Benefit Closed |
69
Consolidated | ||||
FAF | Plan I and II | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Assets and liabilities composition | ||||
Present value of actuarial liabilities | 1,644,567 | 1,407,960 | 13,283 | 11,046 |
Fair value of assets | (2,385,220) | (2,219,315) | (21,971) | (18,477) |
(Surplus) Deficit | (740,653) | (811,355) | (8,688) | (7,431) |
Irrecoverable (surplus) deficit - impact on asset limit | 740,653 | 811,355 | 3,164 | 2,959 |
Net (Assets) Liabilities | - | - | (5,524) | (4,472) |
Rollforward of irrecoverable surplus | ||||
Beginning balance of irrecoverable surplus | 811,355 | 222,140 | 2,959 | - |
Interest on irrecoverable surplus | 101,338 | 19,282 | 369 | - |
Changes in irrecoverable surplus during the period | (172,040) | 569,933 | (164) | 2,959 |
Ending balance of irrecoverable surplus | 740,653 | 811,355 | 3,164 | 2,959 |
Changes in actuarial obligation | ||||
Beginning balance of the present value of the actuarial obligation | 1,407,960 | 1,916,445 | 11,046 | 14,145 |
Interest on actuarial obligations | 169,862 | 163,103 | 1,320 | 1,171 |
Current service cost | 16,782 | 42,560 | - | - |
Benefit paid | (80,399) | (70,690) | (1,077) | (861) |
Actuarial (gains) losses - experience | 11,334 | (69,412) | 1,073 | 300 |
Actuarial losses - hypothesis | 119,028 | (574,046) | 921 | (3,709) |
Ending balance of actuarial obligation | 1,644,567 | 1,407,960 | 13,283 | 11,046 |
Rollforward of assets fair value | ||||
Beginning balance of the fair value of plan assets | (2,219,315) | (2,138,585) | (18,477) | (11,182) |
Interest income on assets plan | (271,200) | (182,385) | (2,245) | (918) |
Benefit paid | 80,399 | 70,690 | 1,077 | 861 |
Contributions paid by the Company | (407) | - | - | - |
Return on assets higher (lower) than projection | 25,303 | 30,965 | (2,326) | (7,238) |
Ending balance of assets fair value | (2,385,220) | (2,219,315) | (21,971) | (18,477) |
Rollforward of comprehensive income | ||||
Beginning balance | 42,560 | 29,049 | 7,688 | (2,963) |
Reversion to statement of income | (42,560) | (29,049) | (7,688) | 2,963 |
Actuarial gains (losses) | (130,362) | 643,458 | (1,994) | 3,409 |
Return on assets higher (lower) than projection | (25,303) | (30,965) | 2,326 | 7,238 |
Changes on irrecoverable surplus | 172,040 | (569,933) | 164 | (2,959) |
Ending balance of comprehensive income | 16,375 | 42,560 | 496 | 7,688 |
Costs recognized in statement of income | ||||
Current service costs | (16,782) | (42,560) | - | - |
Interest on actuarial obligations | (169,862) | (163,103) | (1,320) | (1,171) |
Projected return on assets | 271,200 | 182,385 | 2,245 | 918 |
Interest on irrecoverable surplus | (101,338) | (19,282) | (369) | - |
Costs recognized in statement of income | (16,782) | (42,560) | 556 | (253) |
Estimated costs for the next period | ||||
Costs of defined benefit | (27,827) | (16,782) | 633 | 556 |
Estimated costs for the next period | (27,827) | (16,782) | 633 | 556 |
b. Defined contribution plan Plan III is a defined contribution plan, where contributions are known and the benefit amount depends directly on the contributions made by participants and sponsors, time of contribution and of the result obtained through investment of contributions. The contributions are made on a 1 to 1 basis (the contributions of the sponsor are equal to the basic contributions of the participants) and that may vary from 0.7% to 7.0% accordingto the salary range of the participant. The contributions made by the Company in the years ended December 31, 2014 and December 31, 2013 are amounted R$5,087 and R$4,445 respectively.On December 31, 2014, the plan has 13,362 participants (7,442 participants as of December 31, 2013). | If plans I, II and III participants end the employment relationship with the sponsor, the balance formed by the contributionsof the sponsor not used for the payment of benefits, will form a fund of overage of contributions that may be used to compensate the future contributions of the sponsor. | c. Rollforward of defined benefit plans The assets and actuarial liabilities are presented below: |
70 | FINANCIAL STATEMENTS 2014 |
d. Actuarial assumptions and demographic |
data |
The main actuarial assumptions and |
demographic data used in the actuarial |
calculations are summarized below: |
Consolidated | ||||
FAF | Plan I e II | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Actuarial assumptions | ||||
Economic hypothesis | ||||
Discount rate | 11.45% | 12.49% | 11.45% | 12.47% |
Projected return on assets | 11.45% | 12.49% | 11.45% | 12.47% |
Inflation rate | 5.20% | 5.40% | 5.20% | 5.40% |
Wage growth rate | 6.25% | 6.98% | N/A | N/A |
Demographic hypothesis | ||||
Schedule of mortality | AT-2000 | AT-2000 | AT-2000 | AT-2000 |
Schedule of disabled mortality | IAPC | IAPC | IAPC | IAPC |
Demographic data | ||||
Number of active participants | 9,431 | 10,103 | - | - |
Number of participants in direct proportional benefit | 22 | 104 | - | - |
Number of assisted beneficiary participants | 5,502 | 5,230 | 53 | 51 |
e. Composition of the investment portfolios |
The composition of the investment portfolios |
is presented below: |
FAF | Plans I and II | |||||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |||||
Composition of the fund's | ||||||||
portfolio: | ||||||||
Fixed income | 1,717,359 | 72.0% | 1,551,301 | 69.9% | 18,676 | 85.0% | 13,599 | 73.6% |
Variable income | 360,168 | 15.1% | 348,432 | 15.7% | 3,066 | 14.0% | 4,231 | 22.9% |
Real estate | 179,369 | 7.5% | 210,835 | 9.5% | - | - | - | - |
Structured investments | 113,536 | 4.8% | 95,431 | 4.3% | 229 | 1.0% | 647 | 3.5% |
Transactions with | ||||||||
participants | 14,788 | 0.6% | 13,316 | 0.6% | - | - | - | - |
2,385,220 | 100.0% | 2,219,315 | 100.0% | 21,971 | 100.0% | 18,477 | 100.0% | |
% of nominal return on | ||||||||
assets | 11.63% | 6.45% | 11.66% | 0.12% |
f. Forecast and average term of payments of | FAF | Plans I and II | |
obligations | Payments in: | ||
The following amounts represent the | 2015 | 89,215 | 1,040 |
expected benefit payments for future years | 2016 | 96,738 | 1,090 |
(10 years) and the average duration of the | 2017 | 103,888 | 1,144 |
plan obligations: | 2018 | 111,755 | 1,197 |
2019 | 121,659 | 1,253 | |
2020 to 2024 | 779,452 | 7,152 | |
Weighted average | |||
duration - in years | 12.50 | 11.37 |
71
g. Sensibility analysis of defined benefit | the relevant assumptions of defined benefit | |
plan - FAF | plan – FAF on December 31, 2014 is presented | |
The quantitative sensibility analysis regarding | below: |
Assumptions | Variation of 1% | Variation of actuarial liabilities | |||
Significant hypothesis | utilized | Increase | Decrease | Increase | Decrease |
Benefit plan - FAF | |||||
Discount rate | 11.45% | 12.50% | 10.40% | (183,353) | 225,565 |
Wage growth rate | 6.25% | 7.30% | 5.20% | 74,274 | (54,541) |
25.2. POST-EMPLOYMENT PLANS: DESCRIPTION AND CHARACTERISTICS OF BENEFITS AND ASSOCIATED RISKS | b. Medical Plan The Company offers to the retired employee according to the Law No. 9.656 a medical plan with fixed contribution, which guarantees to the retired employee that contributed to the health plan by reason of employment relationship, for at least 10 years, the right of maintenance as beneficiary, on the same conditions of coverage enjoyed when the employment contract was in force. Main actuarial risks related are (i) survival time over expected in the mortality tables (ii) turnover lower than expected and (iii) medical costs growth higher than expected. c. Award for length of service The Company usually rewards employees that attain at least 10 years of services rendered and subsequently every 5 years, with an additional remuneration ranges from 1 to 5 current salaries at the date of the event. Main actuarial risks related are (i) survival time over expected in the mortality tables (ii) turnover lower than expected and (iii) medical costs growth higher than expected. | d. Retirement compensation On retirement, employees with over 10 years of service to the Company are eligible for additional compensation of 1 to 2 current wages in force at the time of retirement. Main actuarial risks related are (i) survival time higher than expected in the mortality tables (ii) turnover lower than expected and (iii) medical costs growth higher than expected e. Life insurance The Company offers life insurance benefit to the employees who, at the time of their termination, are retired and during the employment contract opted for the insurance. For the employees with 10-20 years of service, the maintenance period of insurance is 2 years, from 21 years of service, the period is 3 years. Main actuarial risks related are (i) survival time higher than expected in the mortality tables (ii) turnover lower than expected and (iii) salary growth higher than expected. f. Rollforward of post-employment plans The rollforward of actaurial liabilities related to other benefits, prepared based on an actuarial report, are as follow: | ||||
Parent company and | ||||||
Consolidated | ||||||
Liabilities | ||||||
12.31.14 | 12.31.13 | |||||
Medical | ||||||
assistance | 115,666 | 115,478 | ||||
Penalty F.G.T.S.(1) | 124,461 | 112,023 | ||||
Reward for | ||||||
working time | 48,288 | 41,421 | ||||
Other | 25,655 | 22,341 | ||||
314,070 | 291,263 | |||||
Current | 56,096 | 49,027 | ||||
Non-current | 257,974 | 242,236 | ||||
(1) FGTS – Government Severance Indemnity Fund for Employees | ||||||
The Company offers the following post-employment plans in addition to the pension plans, which are measured by actuarial calculation and recognized in the financial statement. a. F.G.T.S. penalty As settled by the Regional Labor Court (“TRT”) on April 20, 2007, retirement does not affect the employment contract between the Company and its employees. The benefit paid is equivalent to 50% of F.G.T.S being 40% corresponding to a penalty and 10% of social contribution. Main actuarial risks related are (i) survival time over expected in the mortality tables (ii) turnover lower than expected and (iii) salary growth higher than expected. |
72 | FINANCIAL STATEMENTS 2014 |
Consolidated | ||||||||
Award for | ||||||||
F.G.T.S. | length of | |||||||
Medical plan | penalty | service | Others(1) | |||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Composition of actuarial | ||||||||
liabilities | ||||||||
Present value of actuarial | ||||||||
liabilities | 115,666 | 115,478 | 124,461 | 112,023 | 48,288 | 41,421 | 25,655 | 22,341 |
Net liabilities | 115,666 | 115,478 | 124,461 | 112,023 | 48,288 | 41,421 | 25,655 | 22,341 |
Rollforward of present | ||||||||
value of actuarial liabilities | ||||||||
Beginning balance of net | ||||||||
liabilities | 115,478 | 72,520 | 112,023 | 150,715 | 41,421 | 40,483 | 22,341 | 20,230 |
Interest on actuarial | ||||||||
liabilities | 14,128 | 6,292 | 11,760 | 11,067 | 4,497 | 2,682 | 2,481 | 1,523 |
Current service costs | 505 | 376 | 6,023 | 8,763 | 1,931 | 2,677 | 1,040 | 822 |
Past service costs - changes | ||||||||
in plan | - | (6,080) | - | - | - | - | (37) | 7,433 |
Past service costs - | ||||||||
decrease of plan | - | - | (1,009) | - | (66) | - | (127) | - |
Benefits paid directly by | ||||||||
the Company | (4,062) | (3,817) | (7,579) | (6,197) | (10,079) | (7,019) | (3,747) | (2,907) |
Actuarial (gains) losses | (22,406) | 105,356 | 1,931 | 6,192 | 10,952 | 5,245 | 3,157 | 2,446 |
Actuarial (gains) losses - | ||||||||
demographic hypotesis | (103) | (6,794) | (3,108) | (22,508) | (1,333) | 3,804 | (547) | (525) |
Actuarial (gains) losses - | ||||||||
economic hypothesis | 12,126 | (52,375) | 4,420 | (36,009) | 965 | (6,451) | 1,094 | (6,681) |
Ending balance of net | ||||||||
liabilities | 115,666 | 115,478 | 124,461 | 112,023 | 48,288 | 41,421 | 25,655 | 22,341 |
Rollforward of assets plan | ||||||||
Benefits paid directly by | ||||||||
the Company | 4,062 | 3,817 | 7,579 | 6,197 | 10,079 | 7,019 | 3,747 | 2,907 |
Contributions of the | ||||||||
sponsor | (4,062) | (3,817) | (7,579) | (6,197) | (10,079) | (7,019) | (3,747) | (2,907) |
Ending balance of fair value | ||||||||
of assets plan | - | - | - | - | - | - | - | - |
Rollforward of | ||||||||
comprehensive income | ||||||||
Beginning balance | (65,398) | (19,211) | 72,025 | 19,700 | (13,777) | (11,179) | (4,229) | (8,989) |
Actuarial gains (losses) | 10,383 | (46,187) | (3,243) | 52,325 | (10,584) | (2,598) | (3,704) | 4,760 |
Ending balance of | ||||||||
comprehensive income | (55,015) | (65,398) | 68,782 | 72,025 | (24,361) | (13,777) | (7,933) | (4,229) |
Costs recognized in | ||||||||
statement of income | ||||||||
Interest on actuarial | ||||||||
liabilities | (14,128) | (6,292) | (11,760) | (11,067) | (4,497) | (2,682) | (2,481) | (1,523) |
Current service costs | (505) | (376) | (6,023) | (8,763) | (1,931) | (2,677) | (1,040) | (822) |
Past service costs | - | 6,080 | 1,009 | - | 66 | - | 164 | (7,433) |
(14,633) | (588) | (16,774) | (19,830) | (6,362) | (5,359) | (3,357) | (9,778) | |
Estimated costs for the next | ||||||||
period | ||||||||
Current service costs | (320) | (505) | (6,424) | (5,938) | (1,991) | (1,927) | (1,055) | (1,034) |
Interest on actuarial | ||||||||
liabilities | (13,027) | (14,128) | (12,121) | (11,810) | (4,722) | (4,478) | (2,629) | (2,472) |
(13,347) | (14,633) | (18,545) | (17,748) | (6,713) | (6,405) | (3,684) | (3,506) | |
(1) Considers the sums of the retirement compensation and life insurance benefits. |
73
g. Actuarial assumptions and demographic | The main actuarial assumptions and | |
data | demographic data used in the actuarial | |
calculations are summarized below: |
Consolidated | ||||||||
Medical plan | F.G.T.S. penalty | Award for length of service | Others(1) | |||||
Actuarial premises | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 |
Economic hypothesis | ||||||||
Discount rate | 11.49% | 12.49% | 11.27% | 12.27% | 11.27% | 12.03% | 11.44% | 12.49% |
Inflation rate | 5.20% | 5.40% | 5.20% | 5.40% | 5.20% | 5.40% | 5.20% | 5.40% |
Medical inflation | 8.36% | 8.56% | N/A | N/A | N/A | N/A | N/A | N/A |
Wage growth rate | N/A | N/A | 6.78% | 6.98% | 6.78% | 6.98% | 6.78% | 6.98% |
Medical plan | Other benefits | |||||||
Actuarial premises | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||||
Demographic hypothesis | ||||||||
Schedule of mortality | AT-2000 | AT-2000 | AT-2000 | AT-2000 | ||||
Schedule of disabled | RRB-1944 | RRB-1944 | RRB-1944 | RRB-1944 | ||||
Schedule of disabled mortality | IAPC | IAPC | IAPC | IAPC | ||||
Schedule of turnover - BRF's historical | 2014 | 2013 | 2014 | 2013 | ||||
Demoraphic data | ||||||||
Number of active participants | 1,558 | 2,941 | 102,534 | 110,201 | ||||
Number of assisted beneficiary | ||||||||
participants | 847 | 649 | - | - | ||||
(1) Includes retirement compensation and life insurance benefits. |
h. Forecast and average duration of | (10 years), from the obligation of benefits | |
payments of obligations | granted and the average duration of the plan | |
The following amounts represent the | obligations: | |
expected benefit payments for future years |
Award for length | |||||
Payments | Medical plan | F.G.T.S. penalty | of service | Others | Total |
2015 | 4,585 | 33,819 | 12,776 | 4,916 | 56,096 |
2016 | 4,986 | 9,910 | 6,746 | 2,061 | 23,703 |
2017 | 5,503 | 13,953 | 7,060 | 2,723 | 29,239 |
2018 | 6,069 | 16,513 | 5,146 | 2,617 | 30,345 |
2019 | 6,730 | 19,678 | 5,391 | 2,911 | 34,710 |
2020 to 2024 | 44,775 | 146,403 | 31,603 | 19,183 | 241,964 |
Weighted average duration - in years | 16.91 | 5.84 | 5.41 | 7.44 | 7.83 |
i. Sensibility analysis of post-employment | regarding the relevant assumptions of the | |
plans | plans on December 31, 2014, is presented | |
The Company made the sensibility analysis | below: |
Assumptions | Variation of 1% | Variation of actuarial liabilities | |||||
Significant hypothesis | utilized | Increase | Decrease | Increase | % | Decrease | % |
Medical plan | |||||||
Discount rate | 11.49% | 12.49% | 10.49% | (15,181) | -12.90% | 19,139 | 16.50% |
Medical inflation | 8.36% | 9.36% | 7.36% | 19,044 | 16.50% | (15,314) | -13.20% |
Turnover | Historical | +3,00% | -3,00% | (798) | -0.90% | 1,035 | 0.90% |
F.G.T.S. penalty | |||||||
Discount rate | 11.27% | 12.27% | 10.27% | (5,114) | -4.40% | 5,642 | 4.90% |
Wage growth rate | 6.78% | 7.78% | 5.78% | 1,016 | 0.90% | (947) | -0.80% |
Turnover | Historical | +3,00% | -3,00% | (17,100) | -14.80% | 23,304 | 20.10% |
74 | FINANCIAL STATEMENTS 2014 |
26. PROVISION FOR TAX, CIVIL AND LABOR RISKS The Company and its subsidiaries are involved in certain legal proceedings arising from the normal course of business, which include civil, administrative, tax, social security and labor claims. | The Company classifies the risk of unfavorable decisions in the legal proceedings as “probable”, “possible” or “remote”. The provisions recorded relating to such proceedings is determined by the Company’s management, based on legal advice and reasonably reflect the estimated probable losses. | The Company’s management believes that its provision for tax, civil and labor risks, accounted for according to CVM Deliberation Nº 594/09 is sufficient to cover estimated losses related to its legal proceedings, as presented below: 26.1. Contingencies for probable losses |
Parent company | |||||||
Price index | |||||||
12.31.13 | Additions | Reversals | Payments | update | 12.31.14 | ||
Tax | 137,098 | 124,586 | (36,509) | (48,272) | 67,480 | 244,383 | |
Labor | 261,784 | 267,866 | (99,211) | (161,871) | 46,689 | 315,257 | |
Civil, commercial and other | 45,980 | 77,164 | (24,781) | (49,302) | 8,275 | 57,336 | |
Contingent liabilities | 543,205 | - | (7,099) | - | - | 536,106 | |
988,067 | 469,616 | (167,600) | (259,445) | 122,444 | 1,153,082 | ||
Current | 233,435 | 233,636 | |||||
Non-current | 754,632 | 919,446 | |||||
Consolidated | |||||||
Price index | Exchange rate | ||||||
12.31.13 | Additions | Reversals | Payments | update | variation | 12.31.14 | |
Tax | 141,478 | 130,169 | (37,978) | (48,272) | 67,480 | (500) | 252,377 |
Labor | 276,128 | 272,257 | (101,198) | (161,871) | 46,692 | (1,584) | 330,424 |
Civil, commercial and other | 48,257 | 77,164 | (26,683) | (49,302) | 8,278 | (355) | 57,359 |
Contingent liabilities | 553,435 | - | (7,099) | - | - | (763) | 545,573 |
1,019,298 | 479,590 | (172,958) | (259,445) | 122,450 | (3,202) | 1,185,733 | |
Current | 243,939 | 242,974 | |||||
Non-current | 775,359 | 942,759 |
26.1.1. Tax The tax contingencies consolidated and classified as probable losses relate to the following main legal proceedings: Income tax and social contribution:The Company recorded a provision of R$7,882 (R$5,949 as of December 31, 2013) refers to various claims. ICMS:The Company is involved in administrative and judicial tax disputes associated to the register and/or maintenance of ICMS tax credits on certain transactions, such as exports, acquisition of consumption materials and monetary correction. The provision amounts to R$96,362 (R$18,696 as of December 31, 2013). PIS and COFINS:The Company discusses the use of certain tax credits arising from the acquisition of raw materials to offset federaltaxes, which amount is R$78,894 (R$76,105 as of December 31, 2013). | Other tax contingencies:The Company recorded other provisions for tax claims related to payment of social security contributions (SAT, INCRA, FUNRURAL, Education Salary), as well as tax debts arising from differences of accessory obligations, duties, including legal fees and others, totaling a provision of R$54,290 (R$36,470 as of December 31, 2013). 26.1.2. Labor The Company is defendant in several labor claims, mainly related to overtime and salary inflation adjustments for periods prior to the introduction of the Brazilian Real, illnesses allegedly contracted at work and work-related injuries and others. The labor suits are mainly in the lower courts, and for the majority of the cases a decision for the dismissal ofthe claims has been granted. None of these labor claims is individually significant. The Company recorded a provision based on past history of payments. Based on the opinion of the Company’s management and external legal counsel, the provision is sufficient to cover estimated losses. | 26.1.3. Civil, commercial and others Civil contingencies are mainly related to claims relating to traffic accidents, moral and property damage, physical casualties and others. The legal actions are mostly in the lower courts, depending on confirmation or absence of the Company’s guilt. 26.2. Contingencies classified as a risk of possible loss The Company is involved in other tax, civil, labor and social security contingencies, for which losses have been assessed as possible |
75
by management with the support from legal counsel and therefore no provision was recorded. On December 31, 2014 the total amount of the possible contingencies was R$9,268,519 (R$8,433,843 as of December 31, 2013). 26.2.1. Tax Tax contingencies amounted to R$8,514,288 (R$7,945,012 as of December 31, 2013), from which R$530,106 (R$537,205 as of December 31, 2013) was recorded at fair value as a result of business combination with Sadia, Avex and Dánica group, according to the requirements of paragraph 23 of CVM Deliberation Nº 665/11. The most relevant tax cases are set forth below: Profits earned abroad:The Company was assessed by the Brazilian Internal Revenue Service for alleged underpayment of income tax and social contribution on profits earned by its subsidiaries located abroad, in a total amount of R$588,105 (R$742,745 as of December 31, 2013). Such amendment arises, in addition to the interest on the amount of debts litigated, cancellation of tax assessment (Case No. 16561.000122 / 2008-46) in the amount of R$ 258,018 in November 2014 through final decision of the Administrative Tax Appeals Council (“CARF”). The Company’s legal defense is based on the facts that the subsidiaries located abroad are subject exclusively to the full taxation in the countries in which they are based as a result of the treaties signed to avoid double taxation. The total profits earned abroad are disclosed in note 14.3. Income Tax and Social Contribution:The Company is involved in administrative disputes associated to the use of tax losses, refunds and offset of income and social contribution tax credits against other federal tax debts, including credits arising from the Plano Verão legal dispute, in a total amount of R$482,873 (R$386,274 as of December 31, 2013). | ICMS:The Company is involved in the following disputes associated to the ICMS tax: (i) alleged undue ICMS tax credits generated by tax incentives granted by certain State tax authorities (“guerra fiscal”) in a total amount of R$1,963,122 (R$1,720,984 as of December 31, 2013); (ii) maintenance of ICMS tax credits on the acquisition of certain products with a reduced tax burden (“cesta básica”) in a total amount of R$522,000 (R$513,196 as of December 31, 2013); (iii) utilization of tax benefit deemed credits in a total amount of R$100,455 (R$142,982 as of December 31, 2013); and (iv) R$1,007,465 (R$949,540 as of December 31, 2013) related to other ICMS claims. IPI:The Company discusses administratively the non-ratification of compensation of IPI credits resulting from purchases of exempted goods, sales to Manaus Free Zone and purchases of supplies of non-taxpayers with PIS and COFINS in the amount of R$546,225 (R$299,912 as of December, 2013). IPI Premium Credits:The Company is involved in a judicial dispute related to the alleged undue offsetting of IPI Premium Credits against other federal taxes in a total amount of R$420,548 (R$401,248 as of December 31, 2013). The Company recorded and used the credits based on a final judicial decision. PIS and COFINS:The Company is involved in administrative proceedings regarding the offsetting of credits against other federal tax debts, in the amount of R$2,572,291 (R$1,681,248 as of December 31, 2013). Normative Instruction 86:The Company discusses administratively the imposition of separate fine due to absence of delivery magnetic file to the Brazilian Internal Revenue Service for the periods 2003 to 2005, for a total amount of R$219,355 (R$178,955 as of December 31, 2013). In the year ended December 31, 2014, the Company obtained a favorable decision issued by CARF, such legal proceedings was reclassified by our legal advices as remote risk of loss. | Social Security Taxes:The Company is involved in disputes related to social security taxes allegedly due on payments to service providers as well as joint responsibility with civil construction service providers and others in a total amount of R$113,307 (R$170,560 as of December 31, 2013). Other Contingencies:The Company is involved in other tax contingencies including rural activity, transfer price, social contribution tax and others, totaling R$197,991 (R$187,552 as of December 31, 2013). Additionally, management is disclosing the information related to the lawsuit in which the Company was included as co-responsible in a debt from Huaine Participações Ltda (former holding of Perdigão). In this lawsuit it is being discussed the inclusion of the Company in the liability from the tax execution in the amount of R$609,329 (R$595,945 as of December 31, 2013). BRF presented a guarantee to the debt, which was duly accepted by the judge and filed a motion to stay execution, which is awaiting judgment. The Company’s legal advisors classified the risk of losses as remote. 27. SHAREHOLDERS’ EQUITY 27.1. CAPITAL STOCK On December 31, 2014, the capital subscribed and paid by the Company is R$12,553,418, which is composed of 872,473,246 book-entry shares of common stock without par value. The value of the capital stock is net of the public offering expenses of R$92,947. The Company is authorized to increase the capital stock, irrespective of amendment to the bylaws, up to the limit of 1,000,000,000 common shares, in book-entry form without par value. |
76 | FINANCIAL STATEMENTS 2014 |
27.2. INTEREST ON SHAREHOLDERS’ EQUITY | 27.5. SHAREHOLDERS’ REMUNERATION | ||||||||
AND DIVIDENDS | |||||||||
On February 14, 2014 the payment of | Parent company | ||||||||
R$365,013 was made related to the interest | 12.31.14 | 12.31.13 | |||||||
on shareholders’ equity proposed by the | Net profit | 2,225,036 | 1,062,430 | ||||||
Management on December 20, 2013 and | Legal reserve (5.00%) | (111,252) | (53,121) | ||||||
approved in the Shareholders Ordinary | Dividends calculation base | 2,113,784 | 1,009,309 | ||||||
Meeting on April 4, 2014. | Minimum mandatory dividend (25.00%) | 528,446 | 252,327 | ||||||
Remuneration of shareholders' exceeding | |||||||||
the mandatory minimum | 295,808 | 471,686 | |||||||
On June 18, 2014, the Board of Directors | Total remuneration of shareholders' in the year, as interest on shareholders' equity and dividends (R$86.489 in 2014) | ||||||||
approved the payment of R$361,000 related | 824,254 | 724,013 | |||||||
to interest on shareholder’s equity settled on | Withholding income tax on interest on | ||||||||
August 15, 2014. | shareholders' equity | (64,176) | (60,551) | ||||||
Remuneration of shareholders', net of | |||||||||
withholding income tax | 760,078 | 663,462 | |||||||
On December 18, 2014, the Board of Directors | |||||||||
approved the payment of R$376,765 related | Percentage of gross remuneration on the | ||||||||
to interest on shareholder’s equity settled on | basis of calculation | 38.99% | 71.73% | ||||||
February 13, 2015. | Earnings paid per share | 0.94836 | 0.83154 | ||||||
Payment of interest on shareholders' | |||||||||
equity, paid in the year - gross of | |||||||||
27.3. BREAKDOWN OF CAPITAL STOCK BY | 2014 withholding (R$30,532 income in 2013) tax of R$30,272 in | (361,000) | (359,000) | ||||||
NATURE | Paid in the previous period - interest on | ||||||||
shareholders' equity - gross withholding | |||||||||
income tax of R$30,019 in 2013 (R$15,743 | |||||||||
Consolidated | in 2013) | (365,013) | (174,750) | ||||||
12.31.14 | 12.31.13 | Paid in the previous period - Dividends | - | (45,300) | |||||
Common | Payments maid during in the year | (726,013) | (579,050) | ||||||
shares | 872,473,246 | 872,473,246 | Total remuneration of shareholders' | ||||||
Treasury | outstanding | 463,254 | 365,013 | ||||||
shares | (5,188,897) | (1,785,507) | Withholding income tax on interest on | ||||||
Outstanding | shareholders' equity | (33,904) | (30,019) | ||||||
shares | 867,284,349 | 870,687,739 | Remaining amounts outstanding | 1,559 | 1,683 | ||||
Interest on shareholders' equity | |||||||||
27.4. ROLLFORWARD OF OUTSTANDING SHARES | outstanding | 430,909 | 336,677 | ||||||
Consolidated | 27.6. PROFIT DISTRIBUTION | ||||||||
Quantity of outstanding of shares | |||||||||
12.31.14 | 12.31.13 | Income appropriation | Reserve balances | ||||||
Shares at the | Limit on | ||||||||
beggining of the | |||||||||
exercise | 870,687,739 | 870,073,911 | capital % | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | ||
Purchase of | Gain actuarial FAF | - | (33,163) | 55,443 | - | - | |||
treasury shares | (6,000,000) | (1,381,946) | Dividends | - | 86,489 | - | - | - | |
Sale of treasury | Interest on shareholdes' equity | - | 737,765 | 724,013 | - | - | |||
shares | 2,596,610 | 1,995,774 | Legal reserve | 20 | 111,252 | 53,121 | 384,619 | 273,367 | |
Shares at the end | |||||||||
of the exercise | 867,284,349 | 870,687,739 | Capital increase reserve | 20 | 451,640 | 121,800 | 1,274,251 | 822,611 | |
Reserve for expansion | 80 | 730,684 | - | 1,901,433 | 1,170,749 | ||||
Reserve for tax incentives | - | 140,369 | 121,180 | 385,522 | 245,153 | ||||
Reserve of retained profit | |||||||||
- adjustment of CVM | |||||||||
Deliberation No. 695/12 | - | - | (13,127) | - | - | ||||
2,225,036 | 1,062,430 | 3,945,825 | 2,511,880 |
77
Legal reserve:It is computed based on five percent (5%) of net profit of each fiscal year as specified in article 193 of Law No. 6,404/76, modified by Law No. 11,638/07, which shall not exceed twenty percent (20%) of the capital stock. On December 31, 2014, this reserve corresponds to 3.09% of capital stock (2.20% as of December 31, 2013). Reserve for capital increase:it is calculated based on twenty percent (20%) towards the establishment of reserves for capital increase, which shall not exceed twenty percent (20%) of the capital stock. On December 31, 2014 this reserve corresponds to 10.23% of capital stock (6.66% as of December 31, 2013). Reserve for expansion:Up to 50% (fifty per cent) for the constitution of the reserve for expansion. This reserve should not exceed 80% (eighty per cent) of the capital stock. On December 31, 2014 the balance of this reserve correspond to 15.26% of the capital stock (9.40% as of December 31, 2013). | Reserve for tax incentives: Constituted as specified in article 195-A of the Law No. 6,404/76, modified by Law No. 11,638/07, based on the amounts of government grants for investment. 27.7. TREASURY SHARES The Company has 5,188,897 shares in treasury, with an average cost of R$58.76 (fifty eight Brazilian Reais and seventy six cents) per share, with a market value corresponding to R$326,745. During the year ended December 31, 2014, the Company sold 2,596,610 treasury shares due to exercise of the stock options of the Company’s executives. During the year ended December 31, 2014, as authorized by the Board of Directors, the Company acquired 6,000,000 shares of its own shares at a cost fo R$350,942, with the objective of maintenance of treasury shares for possible compliance with the provisionsin the plans of options and additional stock option, both approved by tha special meeting of Board of Directors held on May 19, 2014 and annual meeting of the Board of Directors on September 25, 2014. | On December 18, 2014, the Board of Directors approved the repurchase of shares, between January 05, 2015 to April 03, 2015, issued by itself, with the objective of the treasure shares for eventual compliance maintenance with the provisions in the stock options plans and stock option. 27.8. BREAKDOWN OF THE CAPITAL BY OWNER The shareholding position of the largest shareholders, management, members of the Board of Directors and Fiscal Council is presented below (unaudited): |
12.31.14 | 12.31.13 | |||
Shareholders | Quantity | % | Quantity | % |
Major shareholders | ||||
Fundação Petrobrás de Seguridade Social - Petros(1) | 108,933,497 | 12.49 | 105,530,869 | 12.10 |
Caixa de Previd. dos Func. Do Banco do Brasil(1) | 100,282,352 | 11.49 | 106,946,152 | 12.26 |
Tarpon | 91,529,085 | 10.49 | 68,667,090 | 7.87 |
BlackRock, Inc | 43,444,596 | 4.98 | 42,485,050 | 4.87 |
Fundação Vale do Rio Doce de Seg. Social - Valia(1) | 8,904,259 | 1.02 | 21,432,909 | 2.46 |
Fundação Sistel de Seguridade Social(1) | 7,444,520 | 0.85 | 9,409,120 | 1.08 |
FAPES/BNDES | 1,523,104 | 0.17 | 2,520,304 | 0.29 |
Management | ||||
Board of Directors | 35,117,782 | 4.03 | 64,909,594 | 7.44 |
Executives | 85,221 | 0.01 | 94,962 | 0.01 |
Treasury shares | 5,188,897 | 0.59 | 1,785,507 | 0.20 |
Other | 470,019,933 | 53.88 | 448,691,689 | 51.42 |
872,473,246 | 100.00 | 872,473,246 | 100.00 | |
(1) The pension funds are controlled by employees that participate in the respective entities. |
The shareholding position of the shareholders |
holding more than 5% of the voting capital is |
presented below (unaudited): |
12.31.14 | 12.31.13 | |||
Shareholders | Quantity | % | Quantity | % |
Fundação Petrobrás de Seguridade Social - Petros(1) | 108,933,497 | 12.49 | 105,530,869 | 12.10 |
Caixa de Previd. dos Func. Do Banco do Brasil(1) | 100,282,352 | 11.49 | 106,946,152 | 12.26 |
Tarpon | 91,529,085 | 10.49 | 68,667,090 | 7.87 |
300,744,934 | 34.47 | 281,144,111 | 32.23 | |
Other | 571,728,312 | 65.53 | 591,329,135 | 67.77 |
872,473,246 | 100.00 | 872,473,246 | 100.00 | |
(1) The pension funds are controlled by employees that participate in the respective entities. |
The Company is bound to arbitration in the |
Market Arbitration Chamber, as established by |
the arbitration clause in its bylaws. |
78 | FINANCIAL STATEMENTS 2014 |
28. EARNINGS PER SHARE
Parent company | ||
Continued operations | 12.31.14 | 12.31.13 |
Basic numerator | ||
Net profit for the continued operations attributable to controlling shareholders | 2,135,214 | 1,015,251 |
Basic denominator | ||
Common shares | 872,473,246 | 872,473,246 |
Weighted average number of outstanding shares - basic | ||
(except treasury shares) | 870,412,068 | 870,534,511 |
Net earnings per share basic - R$ | 2.45311 | 1.16624 |
Diluted numerator | ||
Net profit for the continued operations attributable to controlling shareholders | 2,135,214 | 1,015,251 |
Diluted denominator | ||
Weighted average number of outstanding shares - basic | ||
(except treasury shares) | 870,412,068 | 870,534,511 |
Number of potential shares (stock options) | 411,708 | 907,194 |
Weighted average number of outstanding shares - diluted | 870,823,776 | 871,441,705 |
Net earnings per share diluted - R$ | 2.45195 | 1.16502 |
Parent company | ||
Discontinued operations | 12.31.14 | 12.31.13 |
Basic numerator | ||
Net profit for the discontinued operations attributable to controlling shareholders | 89,822 | 47,179 |
Basic denominator | ||
Common shares | 872,473,246 | 872,473,246 |
Weighted average number of outstanding shares - basic | ||
(except treasury shares) | 870,412,068 | 870,534,511 |
Net earnings per share basic - R$ | 0.10319 | 0.05420 |
Diluted numerator | ||
Net profit for the discontinued operations attributable to controlling shareholders | 89,822 | 47,179 |
Diluted denominator | ||
Weighted average number of outstanding shares - basic | ||
(except treasury shares) | 870,412,068 | 870,534,511 |
Number of potential shares (stock options) | 411,708 | 907,194 |
Weighted average number of outstanding shares - diluted | 870,823,776 | 871,441,705 |
Net earnings per share diluted - R$ | 0.10315 | 0.05414 |
Parent company | ||
12.31.14 | 12.31.13 | |
Basic numerator | ||
Net profit for the exercise attributable to controlling shareholders | 2,225,036 | 1,062,430 |
Basic denominator | ||
Common shares | 872,473,246 | 872,473,246 |
Weighted average number of outstanding shares - basic (except treasury shares) | 870,412,068 | 870,534,511 |
Net earnings per share basic - R$ | 2.55630 | 1.22043 |
Diluted numerator | ||
Net profit for the exercise attributable to controlling shareholders | 2,225,036 | 1,062,430 |
Diluted denominator | ||
Weighted average number of outstanding shares - basic (except treasury shares) | 870,412,068 | 870,534,511 |
Number of potential shares (stock options) | 411,708 | 907,194 |
Weighted average number of outstanding shares - diluted | 870,823,776 | 871,441,705 |
Net earnings per share diluted - R$ | 2.55509 | 1.21916 |
79
On December 31, 2014, from the total of 11,390,846 stock options outstanding (6,932,434 as of December 31, 2013) granted to executives of the Company, 8,616,900 options (2,752,553 as of December 31, 2013) were not considered in the calculation of the diluted earnings per share due to the fact that the exercise price until the vesting period was higher than the average market price of the common shares during the period, so that they did not cause any dilution effect. 29. GOVERNMENT GRANTS The Company has tax benefits related to ICMS for investments granted by the governments of states of Goiás, Pernambuco, Mato Grosso and Bahia. Such incentives are directly associated to the manufacturingfacilities operations, job generation and to the economic and social development in the respective states. | On December 31, 2014, this incentive totaled R$140,369 (R$120,826 as of December 31, 2013) composing so, the Reserve for Tax Incentives account as set forth in the tax legislation. 30. RELATED PARTIES – PARENT COMPANY As part of the Company’s operations, rights and obligations arise between related parties, resulting from transactions of purchase and sale of products, loans agreed on normal conditions of market for similar transactions, based on contracts. | All the relationships between the Company and its subsidiaries were disclosed irrespective of the existence or not of transactions between these parties. All the transactions and balances among the companies were eliminated in the consolidation and refer to commercial and/or financial transactions. 30.1. TRANSACTIONS AND BALANCES The balances of the opertion with the related parties are as follow: |
Dividends and interest on the | ||||
Accounts receivable | shareholders’ equity receivable | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Avex S.A. | 9,269 | 4,049 | - | - |
Avipal Centro Oeste S.A. | - | - | - | - |
Avipal S.A. Construtora e Incorporadora | - | - | - | 5 |
BFF International Ltd. | - | - | - | - |
BRF Foods LLC | - | - | - | - |
BRF Foods GmbH | 8,484 | - | - | - |
BRF Global GmbH | 2,773,388 | 1,898,754 | - | - |
Highline International Ltd. | - | - | - | - |
K&S Alimentos S.A. | - | - | 1,221(2) | 16 |
Minerva S.A. | - | - | - | - |
Nutrifont Alimentos S.A. | - | - | - | - |
Perdigão Europe Ltd. | 38,475 | 50,906 | - | - |
Perdigão International Ltd. | - | 52,070 | - | - |
PSA Laboratório Veterinário Ltda. | - | - | 630 | 2,980 |
Quickfood S.A. | 20,226 | 3,404 | - | - |
Sadia Alimentos S.A. | 12,366 | 14,721 | - | - |
Sadia Chile S.A. | 22,550 | 24,125 | - | - |
Sadia Uruguay S.A. | 4,728 | 3,144 | - | - |
UP! Alimentos Ltda. | 1,622 | 1,059 | 9,027(2) | - |
VIP S.A. Empreendimentos e Partic. Imob. | - | - | 2,491 | 30,103 |
Wellax Foods Logistics C.P.A.S.U. Lda. | - | 11,499 | - | - |
2,891,108 | 2,063,731 | 13,369 | 33,104 | |
(1) The amount corresponds to advances for export pre-payment. | ||||
(2) The consolidated balance is R$10,248 on December 31, 2014 (R$16 as of December 31,2013). |
80 | FINANCIAL STATEMENTS 2014 |
Loan contracts | Trade accounts payable | Advance for future capital increase | Other rights | Other obligations | |||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 |
- | - | (608) | (1,028) | - | - | 25,468 | 25,423 | - | - |
- | - | - | - | - | - | - | - | (38) | (38) |
- | - | - | - | - | - | - | - | - | - |
- | - | - | - | - | - | 1,448 | 1,277 | - | - |
- | - | - | - | - | - | 323 | 62 | - | - |
- | - | - | - | - | - | - | - | (571) | - |
- | - | - | (3) | - | - | - | - | - | (670,414)(1) |
(4,844) | (4,272) | - | - | - | - | - | - | - | - |
- | - | (4,011) | - | - | - | 2,643 | - | - | - |
- | - | - | - | - | - | - | - | (5,413) | - |
- | - | - | - | - | - | 428 | 291 | - | - |
- | - | - | - | - | - | - | - | - | - |
(14,894) | (8,057) | - | - | - | - | 9,735 | 1,820 | (806,660)(1) | (1,340,352)(1) |
- | - | - | - | 100 | 100 | - | - | - | (45) |
- | - | - | - | - | - | - | - | (581) | - |
- | - | - | (81) | - | - | - | - | - | - |
- | - | - | (46) | - | - | - | - | - | - |
- | - | - | (279) | - | - | - | - | - | - |
- | - | (14,784) | (12,033) | - | - | 4,328 | 3,590 | - | - |
- | - | - | - | - | - | - | 6 | - | - |
- | - | - | (167) | - | - | 225 | - | - | (363,936)(1) |
(19,738) | (12,329) | (19,403) | (13,637) | 100 | 100 | 44,598 | 32,469 | (813,263) | (2,374,785) |
81
Revenue | Financial results, net | Purchases | ||||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Avex S.A. | 5,220 | 4,140 | - | - | (9,022) | (9,343) |
BRF Foods GmbH | 8,018 | - | - | - | - | - |
BRF Global GmbH | 9,280,147 | 2,544,447 | (19,841) | (1,831) | - | - |
Establecimiento Levino Zaccardi y | ||||||
Cia. S.A. | - | - | - | - | (1,517) | (3,864) |
K & S Alimentos Ltda. | - | - | - | - | (117,174) | (93,731) |
Nutrifont Alimentos S.A. | - | - | 484 | - | - | - |
Perdigão Europe Ltd. | - | 332,086 | - | - | - | - |
Perdigão International Ltd. | 18,046 | 3,345,302 | (50,304) | (67,533) | - | - |
Quickfood S.A. | 16,985 | 3,404 | - | - | (12,905) | (10,385) |
Sadia Alimentos S.A. | 2,339 | 17,415 | - | - | - | - |
Sadia Chile S.A. | 50,810 | 69,554 | - | - | - | - |
Sadia Uruguay S.A. | 12,185 | 13,958 | - | - | (181) | (666) |
UP! Alimentos Ltda. | 14,735 | 11,232 | - | - | (191,750) | (172,182) |
Wellax Foods Logistics C.P.A.S.U. Lda. | - | 3,150,185 | (5,305) | (43,238) | - | - |
Galeazzi e Associados Consult. Serv. | ||||||
Ltda. | - | - | - | - | (11,565) | (7,098) |
Instituto de Desenvolvimento | ||||||
Gerencial S.A. | - | - | - | - | (2,912) | - |
9,408,485 | 9,491,723 | (74,966) | (112,602) | (347,026) | (297,269) |
All companies presented in note 1.1 are controlled by BRF, except for UP! Alimentos Ltda, K&S, PP-Bio, PR-SAD, Minerva and Nutrifont, which are associates. During the year ended December 31, 2014, the Galeazzi and Associates consulting firm, which BRF has no equity interest, provided advisory services for strategic management and organizational restructuring. | The Company also recorded a liability in the amount of R$10,833 (R$13,228 as of December 31, 2013) related to the fair value of the guarantees offered to BNDES concerning a loan made by the Instituto Sadia de Sustentabilidade. Due to the acquisition of biodigesters from Instituto Sadia de Sustentabilidade, as of December 31, 2014 the Company recorded apayable to this entity of R$39,173 included in other liabilities (R$47,832 as of December 31, 2013). | The Company entered into loans agreement with its subsidiaries. Below is a summary of the balances and rates charged for the transactions which corresponding balance is above R$10,000 at the balance sheet date: |
Counterparty | Balance | Interest rate (p.a.) | ||
Creditor | Debtor | Currency | 12.31.14 | |
BRF GmbH | BRF Global GmbH | US$ | 500,291 | 1.1% |
Sadia Overseas Ltd. | BRF Global GmbH | US$ | 385,891 | 7.0% |
BFF International Ltd. | BRF Global GmbH | US$ | 167,532 | 8.0% |
Sadia International Ltd. | Wellax Food Comércio | US$ | 156,389 | 1.5% |
Quickfood S.A. | Avex S.A. | AR$ | 137,472 | 25.0% |
BRF GmbH | Plusfood Holland B.V. | EUR | 120,324 | 3.0% |
Perdigão International Ltd. | BRF Global GmbH | US$ | 99,020 | 0.9% |
BRF GmbH | BRF Foods GmbH | US$ | 91,263 | 1.2% |
Plusfood Holland B.V. | Plusfood B.V. | EUR | 76,734 | 3.0% |
BRF GmbH | BRF Foods LLC | US$ | 49,672 | 2.5% |
Wellax Food Comércio | BRF GmbH | EUR | 25,834 | 1.5% |
Perdigão International Ltd. | BRF S.A. | US$ | 14,894 | 0.4% |
BRF GmbH | BRF Global GmbH | EUR | 13,235 | 1.5% |
Plusfood Holland B.V. | BRF GmbH | EUR | 12,901 | 1.5% |
82 | FINANCIAL STATEMENTS 2014 |
30.2. OTHER RELATED PARTIES The Company leased properties owned by FAF. For the year ended December 31, 2014, the total amount paid as rent was R$6,166 (R$6,022 as of December 31, 2013). The rent value was set based on market conditions. 30.3. GRANTED GUARANTEES All granted guarantees on behalf of related parties were disclosed in note 20.10. 30.4. MANAGEMENT REMUNERATIONThe management key personnel include the directors and officers, members of the executive committee and the head of internal audit. On December 31, 2014, there were 24 professionals (24 professionals as of December 31, 2013). | ||||
The total remuneration and benefits paid to | ||||
these professionals are demonstrated below: | ||||
Consolidated | ||||
12.31.14 | 12.31.13 | |||
Salary and profit | ||||
sharing | 48,093 | 32,793 | ||
Short term benefits | ||||
of employees(1) | 917 | 1,342 | ||
Private pension | 387 | - | ||
Post-employment | ||||
benefits | 168 | 166 | ||
Termination | ||||
benefits | 28,411 | 1,881 | ||
Stock-based | ||||
payment | 8,665 | 8,003 | ||
86,641 | 44,185 | |||
(1) Comprises: Medical assistance, educational expenses and others. | ||||
31. NET SALES
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Gross sales | ||||
Domestic market (Brazil) | 16,998,856 | 15,898,719 | 17,003,975 | 15,911,822 |
Foreign market (International) | 10,385,534 | 11,201,066 | 13,925,919 | 13,860,319 |
Food service | 1,980,009 | 1,764,358 | 2,016,743 | 1,856,145 |
29,364,399 | 28,864,143 | 32,946,637 | 31,628,286 | |
Sales deductions | ||||
Domestic market (Brazil) | (3,068,987) | (2,861,959) | (3,069,271) | (2,862,232) |
Foreign market (International) | (107,924) | (106,407) | (601,101) | (728,711) |
Food service | (253,353) | (228,458) | (269,422) | (249,866) |
(3,430,264) | (3,196,824) | (3,939,794) | (3,840,809) | |
Net sales | ||||
Domestic market (Brazil) | 13,929,869 | 13,036,760 | 13,934,704 | 13,049,590 |
Foreign market (International) | 10,277,610 | 11,094,659 | 13,324,818 | 13,131,608 |
Food service | 1,726,656 | 1,535,900 | 1,747,321 | 1,606,279 |
25,934,135 | 25,667,319 | 29,006,843 | 27,787,477 |
32. RESEARCH AND DEVELOPMENT |
COSTS |
Consist of expenditures on internal research |
and development of new products which are |
recognized when incurred. The amounted to |
R$192,786 for year ended December 31, 2014 |
in the parent company and the consolidated |
(R$68,586 as of December 31, 2013 in the |
parent company and the consolidated). |
83
33. OTHER OPERATING INCOME |
(EXPENSES), NET |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Income | ||||
Net income on exchange of Minerva stock | 179,268 | - | 179,268 | - |
Net income from the disposal of property, plant and | ||||
equipment | 103,291 | - | 111,410 | - |
Recovery of expenses | 44,364 | 37,319 | 63,773 | 44,892 |
Gain on business combination | - | - | 24,963 | - |
Provision reversal | 6,317 | 8,270 | 6,317 | 8,270 |
Other(1) | 76,395 | 24,936 | 96,613 | 28,923 |
409,635 | 70,525 | 482,344 | 82,085 | |
Expenses | ||||
Employees profit sharing | (324,002) | (130,540) | (356,495) | (137,785) |
Restructuring(2) | (119,735) | (98,062) | (214,737) | (103,880) |
Provision for tax risks | (91,152) | (37,196) | (91,219) | (35,599) |
Provision for civil and labor risks | (71,611) | (37,431) | (72,354) | (37,431) |
Idleness costs(3) | (31,883) | (52,793) | (54,116) | (52,879) |
Other employees benefits | (33,439) | (32,545) | (33,439) | (32,545) |
Stock options plan | (20,673) | (26,761) | (20,673) | (26,761) |
Management profit sharing | (13,863) | (17,712) | (14,159) | (17,712) |
Net losses from the disposal of property, plant and | ||||
equipment | - | (21,565) | - | (14,126) |
Other | (42,020) | (35,705) | (63,262) | (81,482) |
(748,378) | (490,310) | (920,454) | (540,200) | |
(338,743) | (419,785) | (438,110) | (458,115) | |
(1) Includes the amount arising of R$27,562 related to success in the lawsuit compulsory loan Eletrobrás. | ||||
(2) Includes amounts arising from the review of the administrative and operational structure. | ||||
(3) Idleness cost includes depreciation expense in the amount of R$23,431 and R$30,323 for the year ended December 31, 2014 and December 31, 2013, respectively. |
34. FINANCIAL INCOME |
(EXPENSES), NET |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Financial income | ||||
Exchange rate variation on assets | 369,733 | 303,558 | 694,353 | 161,209 |
Exchange rate variation on marketable securities | 25,358 | 25,748 | 287,232 | - |
Interest on assets | 243,862 | 114,948 | 251,015 | 133,823 |
Gains on the translation of foreign investments(1) | - | - | 126,726 | 382,219 |
Interest on cash and cash equivalents | 76,686 | 27,276 | 97,280 | 33,024 |
Interests on financial assets classified as | ||||
Held for trading | 27,802 | 15,842 | 27,902 | 16,621 |
Held to maturity | 22,069 | 19,586 | 22,069 | 23,533 |
Available for sale | 391 | 75 | 10,314 | 23,973 |
Gains on derivative transactions | - | - | 46,260 | - |
Others | 14,465 | 35,822 | 17,605 | 42,894 |
780,366 | 542,855 | 1,580,756 | 817,296 | |
Financial expenses | ||||
Exchange rate variation on loans and financing | (645,879) | (312,579) | (648,022) | (316,762) |
Interest on loans and financing | (482,266) | (391,733) | (645,052) | (567,382) |
Exchange rate variation on other liabilities | (123,869) | (334,485) | (582,844) | (323,559) |
Premium paid for the repurchase (Tender Offer) | - | - | (198,514) | - |
Interest on liabilities | (172,626) | (134,768) | (179,863) | (170,887) |
Adjustment to present value | (157,918) | - | (154,359) | - |
Losses on derivative transactions | (8,046) | (39,754) | - | (72,370) |
Interest expenses on loans to related parties | (74,694) | (111,237) | - | - |
Others | (89,709) | (82,215) | (162,800) | (113,872) |
(1,755,007) | (1,406,771) | (2,571,454) | (1,564,832) | |
(974,641) | (863,916) | (990,698) | (747,536) | |
(1) Refers to investments in subsidiaries whose functional currency is Real. |
84 | FINANCIAL STATEMENTS 2014 |
35. STATEMENT OF INCOME BY |
NATURE |
The Company has chosen to disclose its |
statement of income by function and thus |
presents below the details by nature: |
Parent company | Consolidated | |||
12.31.14 | 12.31.13 | 12.31.14 | 12.31.13 | |
Costs of sales | ||||
Costs of goods | 13,400,201 | 14,095,006 | 14,632,935 | 14,998,447 |
Depreciation | 999,659 | 927,441 | 1,019,374 | 952,383 |
Amortization | 2,517 | 4,707 | 2,721 | 10,370 |
Salaries and employees benefits | 2,624,640 | 2,479,195 | 2,844,547 | 2,704,383 |
Others | 1,874,422 | 2,151,930 | 1,997,853 | 2,212,014 |
18,901,439 | 19,658,279 | 20,497,430 | 20,877,597 | |
Sales expenses | ||||
Depreciation | 54,881 | 46,651 | 58,438 | 52,231 |
Amortization | 4,883 | 1,438 | 5,964 | 2,569 |
Salaries and employees benefits | 840,980 | 821,934 | 985,574 | 950,660 |
Indirect/direct logistics expenses | 1,912,657 | 1,750,302 | 2,127,448 | 2,181,998 |
Others | 841,296 | 749,687 | 1,039,076 | 953,558 |
3,654,697 | 3,370,012 | 4,216,500 | 4,141,016 | |
Administrative expenses | ||||
Depreciation | 7,111 | 9,227 | 15,731 | 17,523 |
Amortization | 86,339 | 40,389 | 104,759 | 51,954 |
Salaries and employees benefits | 187,938 | 214,151 | 245,358 | 267,816 |
Fees | 25,874 | 22,090 | 26,124 | 22,134 |
Others | (17,874) | 17,793 | 10,082 | 67,917 |
289,388 | 303,650 | 402,054 | 427,344 | |
Other operating expenses(1) | ||||
Depreciation | 22,734 | 30,320 | 23,431 | 30,322 |
Others | 725,644 | 459,990 | 897,023 | 509,878 |
748,378 | 490,310 | 920,454 | 540,200 | |
(1) The composition of other operating expenses is disclosed in note 33. |
36. INSURANCE COVERAGE The Company adopts the policy of contracting insurance coverage for assets subject to risks in amounts sufficient to cover any claims, considering the nature of its activity. | |||||
12.31.14 | |||||
Insured | Amount of | ||||
Assets covered | Coverage | amounts | coverage | ||
Inventories and | Fire, lightning, explosion, windstorm, | ||||
property, plant and | deterioration of refrigerated products, breakdown | ||||
equipment | of machinery, loss of profit and other | 31,603,893 | 1,856,524 | ||
Garantee | Judicial, traditional and customer garantees | 1,900,238 | 1,900,238 | ||
National / international | Road risk and civil liability of cargo carrier and | ||||
transport | transport risk during imports and exports | 37,081,830 | 1,095,586 | ||
General civil liability for | |||||
directors and officers | Third party complaints | 32,966,366 | 2,947,607 | ||
Credit | Customer default | 419,320 | 387,987 |
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37. NEW ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED IAS 32 – Offsetting Financial Assets and Financial Liabilities – Amendment In December 2011, IASB issued an amendment to clarify the meaning of “currently has a legally enforceable right to offset the recognized amounts” and the criteria that would cause the not simultaneous settlement mechanisms of clearing houses to qualify for offsetting. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014. IFRS 10, IFRS 12 and IAS 27 – Investment Entities – Amendment In October 2012, IASB issued an amendment to introduce a definition for “Investment Entity” and an exception to consolidation, specific for Investment Entity, which requires that such entity measures its investment in a subsidiary at fair value through profit or loss in accordance with Technical Pronouncement CPC 38 – Financial Instruments: Recognition and Measurement in its consolidated and separated financial statements. On December 12, 2014, CVM issued CVM Deliberation No. 733/14, correspondent to these IFRS/IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014. IFRIC 21 – Levies In May 2013, the IASB issued IFRIC 21, which provides guidance on when an entity should recognize a liability for a levy in accordance with laws and/or regulations, except for income taxes, in its financial statements. The obligation should only be recognized when the event that triggers such obligation occurs. IFRIC 21 is an interpretation of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. IAS 37 establishes criteria for the recognition of a liability, one ofwhich is the requirement that the Company has a present obligation as a result of a past event, known as the obligating event. On November 27, 2014, CVM issued CVM Deliberation No. 730/14, correspondent to this IFRIC. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014. | IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets – Amendment On May 2013, IASB issued an amendment to introduce the disclosure of fair value hierarchy level for each impairment loss or reversal recognized during the period for individual asset, including goodwill or cash generate unit, as well as improvement of wording, aiming a better application of standard in accordance with international accounting practices and do not change the meaning of the original text issued. On August 14, 2014, CVM issued CVM Deliberation No. 724/14, correspondent to this IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014. IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting –Amendment On June 2013, IASB issued an amendment to eases the discontinuation of hedge accounting when the novation of a derivative designated as a hedge meets certain criteria and retrospective application is mandatory. These revisions are effective for fiscal years beginning on or after January 01, 2014 and the Company does not expect a material impact on its consolidated financial statements. On August 14, 2014, CVM issued CVM Deliberation No. 724/14, correspondent to this IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014. | 38. NEW ACCOUNTING PRONOUNCEMENTS NOT ADOPTED IFRS 9 – Financial Instruments On July 2014, IASB issued the final version of IFRS 9 – Financial Instruments, which reflects all phases of financial instruments project and replaces IAS 39 – Financial Instruments: Recognizing and Measurement and all previous versions of IFRS 9. The standard introduces new guidance about classification and measurement, impairment loss and hedge accounting. Early adoption is not permitted and is effective from periods beginning on January 1, 2018. Retrospective adoption is mandatory, however, is not required the presentation of comparative information. Early adoption of previous versions of IFRS 9, issued in 2009, 2010 and 2013, is permitted if the initial adoption date is prior to February 1, 2015. The effects related to the adoption of this standard affects only the classification and measurement of financial assets, financial liabilities are exempt. The Company is evaluating the impact of adopting this standard in its consolidated financial statements. IFRS 15 – Revenue from Contracts with Customers On May 2014, IASB issued IFRS 15 that establishing a 5 steps model that will be applied to revenue obtained from a contract with customer. In accordance with this standard, revenues are recognized based on an amount that reflects the consideration which an entity expects to be entitled for the transfer of goods or services to a customer. The guidelines of IFRS consider a more structured approach to measure and recognize revenue. |
86 | FINANCIAL STATEMENTS 2014 |
This standard is applicable to all entities and will replace all current requirements related to revenue recognition. Retrospective adoption, total or modified, is mandatory to periods beginning on January 1, 2017 or after. Earlier adoption is permitted, but it is under analysis for regulatory entities in Brazil. The Company is evaluating the impact of adopting this standard in its consolidated financial statements. IFRS 11 – Accounting for Acquisition of Interests in Joint Operations – Amendment On May 2014, IASB issued amendments to IFRS 11, which demands that a joint operator that is accounting an acquisition of equity interest in which the joint operation activity constitutes a business, applied the guidelines according to IFRS 3 for business combination accounting. The amendments also clarify that an equity interest previously held in a joint operation is not remeasured on an additional acquisition of interest in the same joint operation while the joint control is held. Additionally, the amendments are not applied when the parties sharing the control, including the reporting entity, are under common control of the parent company. The amendments are applicable to both the acquisition of the final equity interest in a joint operation and on the acquisition of any additional equity interest in the same joint operation. This standard will be in force prospectively to periods beginning on January 1, 2017 or after. Early adoption in Brazil is not permitted by regulatory entities. The Company is evaluating the impact of adopting this standard in its consolidated financial statements. | IAS 16 and IAS 38 – Clarification of Accountable Methods of Depreciation and Amortization – Amendment On May 2014, IASB issued amendments to clarify guidelines of IAS 16 and IAS 38, that revenue reflects a model of economic benefits generated from operation of business (of which the asset is a part), instead of economic benefits generated from the use of the asset. As a result, a method based on revenue cannot be used for property, plant and equipment depreciation purposes and may be used only under very limited circumstances to amortize intangible assets. The amendments will be in force prospectively to amortize intangible assets fiscal years beginning on January 01, 2016 or after. The Company does not expect impact on its consolidated financial statements, since the Company does not use a method based on revenue to depreciate non-current assets. 39. SUBSEQUENT EVENTS 39.1. STATE ICMS (“VAT”) – BASIC FOOD BASKET In a meeting held on October 16, 2014 and disclosure of decision on February 02, 2015, the Federal Supreme Court (“STF”) was favorable to Tax Authority of State of Rio Grande do Sul, in the judgment of the extraordinary appeal No.635.688 submitted by company Santa Lúcia, understanding as improper the integral maintenance of ICMS tax credits on the reduced tax basis of food products that composes the basic food basket. | Although this decision has wide general reflection and attributable to other taxpayers and courts, it will be held still, in accordance with applicable law, motion for clarification of resources. The motion for clarification of resources aiming, including the determination of the beginning of effects of such decision applicable to the Company, making it impossible the measurement of its effects and the recognition in the Company’s financial statements. 39.2. TAX ASSESSMENT NOTICE – INCOME TAX AND SOCIAL CONTRIBUTION On February 05, 2015, BRF received an tax assessment notices through which is demanded Income Tax and Social Contribution, in the amount of R$521,105, related to the compensation of tax loss carryforwards and negative calculation basis up to limit of 30%, carried out based on legal opinion, upon the merger of Sadia S.A. Legal defenses will be presented, considering that the Company’s legal advice classify the risk of loss as possible. |
87
40. APPROVAL OF THE |
CONSOLIDATED FINANCIAL |
STATEMENTS |
The consolidated financial statements |
were approved by the Board of Directors on |
February 26, 2015. |
BOARD OF DIRECTORS | |
Chairman (Independent) | Abilio dos Santos Diniz |
Vice-Chairman (Independent) | Sérgio Ricardo Silva Rosa |
Board Member | Carlos Fernando da Costa |
Board Member | Eduardo Silveira Mufarej |
Board Member | José Carlos Reis de Magalhães Neto |
Board Member | Luis Carlos Fernandes Afonso |
Independent Member | Luiz Fernando Furlan |
Independent Member | Manoel Cordeiro Silva Filho |
Board Member | Paulo Assunção de Sousa |
Independent Member | Walter Fontana Filho |
Board Member | Vicente Falconi Campos |
FISCAL COUNCIL | |
Chairman and Financial Specialist | Attilio Guaspari |
Members | Décio Magno Andrade Stochiero |
Members | Susana Hanna Stiphan Jabra |
AUDIT COMITTÊE | |
Comittee Coordinator | Sérgio Ricardo Silva Rosa |
Members | Walter Fontana Filho |
Members | Fernando Maida Dall Acqua |
BOARD OF EXECUTIVE OFFICERS(1) | |
Chief Executive Officer Global | Cláudio Eugênio Sttiller Galeazzi |
Chief Executive Officer Brazil | Sérgio Carvalho Mandin Fonseca |
Chief Executive Officer International | Pedro de Andrade Faria |
Vice President of Finance and Investor Relations | Augusto Ribeiro Junior |
Vice President of Food Service | Ely David Mizrahi |
Vice President of Administration and Human Resources | Gilberto Antônio Orsato |
Vice President of Integrated Planning and | |
Management Control | Hélio Rubens Mendes dos Santos |
Vice President of Marketing and Innovation | Flávia Moyses Faugeres |
(1) On January 1, 2015, the Board of Directors became composed of: Chief Executive Officer Global - Pedro de Andrade Faria; VicePresident of Quality and Management - Gilberto Antônio Orsato; Vice President Legal and Relations - José Roberto PernomianRodrigues and Vice President People - Rodrigo Reghini Vieira | |
Marcos Roberto Badollato
Controller
Joloir Nieblas Cavichini
Accountant – CRC 1SP257406/O-5
88 | FINANCIAL STATEMENTS 2014 |
OPINION OF THE FISCAL COUNCIL
The Fiscal Council of BRF S.A., in fulfilling its statutory and legal duties, reviewed: (i) the financial statements (parent company and consolidated) for the fiscal year ended on December 31, 2014. (ii) the Management Report; and (iii) the conclusion issued by Ernst&Young Auditores Independentes S.S.; | Based on the documents reviewed and on the explanations provided, the members of the Fiscal Council, undersigned, issued an opinion for the approval of the financial information identified above. | São Paulo, February 26, 2015. Attilio Guaspari Décio Magno Andrade Stochiero Susana Hanna Stiphan Jabra |
89
SUMMARIZED ANNUAL REPORTOF THE AUDIT COMMITTEE
At the Extraordinary and Annual General Meeting held on April 3, 2014, approval was given to a permanently functioning Audit Committee, 2 (two) independent members from the Board of Directors and 1 (one) independent outside member being elected. Activities of the Audit Committee The committee was elected on April 3, 2014, pursuant to the meeting of the Board of Directors, subsequently meeting ordinarily on a monthly basis as well as holding a further four extraordinary meetings. The principal topics of discussion are described in the following paragraph. The Audit Committee also met privately on two occasions with the independent auditors and discusses the principal issues monitored during the year on a monthly basis with the Board of Directors. Issues discussed by the Audit Committee The Audit Committee met with the vice chairmen, directors of the company, the area for prevention of fraud, the internal and independent auditors in order to gain an understanding of the processes, internal controls, possible deficiencies and eventual plans for improvement as well as issuing its recommendations to the Board of Directors and Executive Board. The principal issues discussed at these meetings were: Discussion and approval of the annual internal audit plan; Monitoring the points identified by the auditors during the course of their work, justification and eventual action plans of those responsible in the more important | cases in onsite meetings; Decision on the schedule for the Internal Audit Work Plan; Analysis of the Related Parties Policy; Evaluation and discussion of the internal audit’s performance; Understanding the planning of the outside audit and principal conclusions in the reports which review the quarterly and annual information; Discussion of the recommendations listed in the internal controls letter; Discussion and recommendations for approval of the quarterly and annual financial statements; Monitoring of the conditions of independence of the external audit in executing the work; Approval for contracting the work of the External Auditor for auditing the subsidiary companies and due diligence in the Company’s M&A and New Businesses processes; Recommendations and achieving consensus on the constitution of the Company’s Area for Prevention of Fraud; Monitoring the investigative processes and recommendation of Action Plans; Discussion of internal controls processes; Analysis and recommendation for mapping the Company’s risks; Recommendation for improvements in the Whistle Blowing Channel process; Verification of the policy and compliance with the anticorruption law in the Company; Analysis of BRF’s quarterly and annual financial statements and respective information for disclosure to the market: Analysis and discussion of the provisions, contingent liabilities and assets in accordance with the pertinent regulations; Discussion of the principal legal actions and quality of management’s judgment on probable outcomes. | Audit Committee’s Opinion In the exercising of its legal and statutory duties, BRF’s Audit Committee has examined the financial statements (controlling company and consolidated) for the fiscal year ending December 31, 2014; the Management Report; and the report issued without qualification by Ernst & Young Auditores Independentes S.S. There were no instances of significant divergences between the Company’s management, the independent auditors and the Audit Committee with respect to the Company’s Financial Statements. Based on the examined documents and the clarifications rendered, the undersigned members of the Audit Committee are of the opinion that the financial statements in all material respects are fairly presented and should be approved. São Paulo, February 26, 2015. Sérgio Ricardo Silva Rosa Walter Fontana Filho Fernando Maida Dall Acqua |
90 | FINANCIAL STATEMENTS 2014 |
OPINION OF EXECUTIVE BOARD ON THE CONSOLIDATED FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT
In compliance with the dispositions of sections V and VI of article 25 of CVM Instruction No. 480/09, the executive board of BRF S.A., states: (i) reviewed, discussed and agreed with the Company’s consolidated financial statements for the fiscal year ended on December 31, 2014; and (ii) reviewed, discussed and agreed with opinions expressed in the Ernst&Young Auditores Independentes S.S. reported on the Company’s consolidated financial statements for the fiscal year ended on December 31, 2014. | São Paulo, February 26, 2015. Cláudio Eugênio Stiller Galeazzi Sérgio Carvalho Mandin Fonseca Pedro de Andrade Faria Augusto Ribeiro Junior Ely David Mizrahi | Gilberto Antônio Orsatto Hélio Rubens Mendes dos Santos Flávia Moyses Faugeres On January 1, 2015, the Board of Directors became composed of: Chief Executive Officer Global -Pedro de Andrade Faria; Vice President of Quality and Management - Gilberto Antônio Orsato; Vice President Legal and Relations - José Roberto Pernomian Rodrigues and Vice President People -Rodrigo Reghini Vieira |
91