FINANCIAL STATEMENTS - 3Q08
FORM 6-K
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13A-16 OR 15D-16
OF THE SECURITIES EXCHANGE ACT OF 1934

For the month of October 2008

Commission File Number 1-15184

SADIA S.A.
(Exact Name as Specified in its Charter)

N/A
--------------------------------------
(Translation of Registrant's Name)

Rua Fortunato Ferraz, 659
Vila Anastacio, Sao Paulo, SP
05093-901 Brazil
(Address of principal executive offices) (Zip code)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F   [X]                    Form 40-F    [   ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):    [   ]

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):    [   ]

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes   [    ]                           No   [X]

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): Not applicable.




SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused the Report to be signed
on its behalf by the undersigned, thereunto duly authorized.

Date: October 30, 2008

SADIA S.A.


By:/s/Welson Teixeira Junior
----------------------------------
Name: Welson Teixeira Junior
Title: Investor Relations Director



 

 

 

 

 


Sadia S.A.
(Public-held company)

Interim financial information
Nine-month period ended
September 30, 2008

 

 

 

 



Sadia S.A.


Publicly-held company




Interim financial information


Nine-month period ended September 30, 2008



Contents



Independent auditors’ review report 3
Balance sheets 4 - 5
Statements of income 6 - 7
Statements of cash flows 8 - 9
Statements of consolidated added value 10
Notes to the interim financial information 11 - 74




2




Independent auditors’ review report


To

The Board of Directors and Shareholders of

Sadia S.A.

Concórdia - SC


1.

We have reviewed the Quarterly Financial Information of Sadia S.A (the Company) and the consolidated Quarterly Financial Information of the Company and its subsidiaries for the quarter ended September 30, 2008, comprising the balance sheets, the statements of income, cash flows, added value and the management report, which are the responsibility of its management.


2.

Our review was conducted in accordance with the specific rules set forth by the IBRACON - The Brazilian Institute of Independent Auditors, in conjunction with the Federal Accounting Council – CFC, and consisted mainly of the following: (a) inquiries and discussions with the persons responsible for the Accounting, Finance and Operational areas of the company and its subsidiaries as to the main criteria adopted in the preparation of the Quarterly Financial Information; and (b) reviewing information and subsequent events that have or may have relevant effects on the financial position and operations of the Company and its subsidiaries.


3.

Based on our review, we are not aware of any material modifications that should be made in the Quarterly Financial Information described above, for it to be in accordance with the rules issued by the Brazilian Securities and Exchange Commission (CVM), applicable to the preparation of the Quarterly Financial Information, including the Instruction CVM n° 469/08.


4.

As mentioned in Note 3q, on December 28, 2007 Law N˚ 11638 was enacted, and effective from January 1, 2008. This Law modified, amended and introduced new rules to the existing Corporate Law (Law N° 6404/76) and resulted in changes to certain accounting practices currently adopted in Brazil. Despite the fact that the new Law is already in force, the changes required depend on the issuance of further normatization by local regulators, in order for them to be fully adopted by the companies. Consequently, in this transition phase, the Brazilian Securities and Exchange Commission (CVM), through CVM Instruction 469/08, permitted the non-application of all of the provisions of Law 11638/07 in the preparation of the quarterly information.  Accordingly, the accounting information in the Quarterly Information for the quarter ended September 30, 2008 was prepared in accordance with specific instructions issued by the CVM and did not include all of the changes in the accounting practices introduced by Law 11638/07.



October 29, 2008



KPMG Auditores Independentes

CRC 2SP014428/O-6-S-SC




Carlos Augusto Pires

Accountant CRC 1SP184830/O-7-S-SC

3




Sadia S.A.


Balance sheets


September 30, 2008 and June 30, 2008


(In thousands of Reais)


 

 

 

 

Parent company

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September

 

June 30,

 

September

 

June 30,

Assets

 

30, 2008

 

2008

 

30, 2008

 

 2008

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

97,905

 

49,340

 

138,928

 

60,017

 

Short-term investments

5

1,781,179

 

417,096

 

3,263,821

 

1,824,185

 

Accounts receivable from future

  contracts

 

62,483

 

4,810

 

238,651

 

59,770

 

Trade accounts receivable

6

518,009

 

376,819

 

531,604

 

485,480

 

Inventories

7

1,740,133

 

1,469,025

 

1,983,390

 

1,621,286

 

Recoverable taxes

8

410,903

 

329,361

 

498,716

 

464,496

 

Deferred tax credits

21

38,294

 

50,393

 

42,297

 

51,370

 

Other credits

 

     76,962

 

     72,780

 

   101,644

 

   102,001

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,725,868

 

2,769,624

 

6,799,051

 

4,668,605

 

 

 

 

 

 

 

 

 

 

 

Noncurrent assets

 

 

 

 

 

 

 

 

 

Long-term investments

5

227,582

 

311,395

 

130,459

 

121,003

 

Recoverable taxes

8

267,666

 

226,166

 

340,427

 

303,366

 

Deferred tax credits

21

388,089

 

101,099

 

361,881

 

101,436

 

Judicial deposits

16

40,429

 

44,090

 

41,326

 

45,004

 

Related parties

9

1,290,267

 

14,006

 

-

 

-

 

Advances to suppliers

 

60,334

 

60,387

 

60,334

 

60,387

 

Other credits

 

76,142

 

59,917

 

81,757

 

65,408

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  2,350,509

 

   817,060

 

  1,016,184

 

  696,604

 

 

 

 

 

 

 

 

 

 

 

Permanent assets

 

 

 

 

 

 

 

 

 

Investments

10

1,791,096

 

2,145,227

 

96,873

 

89,330

 

Property, plant and equipment

11

3,790,155

 

3,401,915

 

4,045,030

 

3,637,974

 

Deferred charges

12

       80,729

 

     76,577

 

     120,161

 

   105,583

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  5,661,980

 

5,623,719

 

  4,262,064

 

3,832,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,738,357

 

9,210,403

 

12,077,299

 

9,198,096


See the independent accountants’ review report and the accompanying notes to the interim financial information.



4


Sadia S.A.


Balance sheets


September 30, 2008 and June 30, 2008


(In thousands of Reais)


 

 

Parent company

 

Consolidated

 

 

 

 

 

 

 

 

 

 

 

September

 

June 30,

 

September

 

June 30,

Liabilities and shareholders’ equity

 

30, 2008

 

2008

 

30, 2008

 

2008

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Loans and financing

13

3,292,269

 

534,718

 

3,559,770

 

1,006,057

Payables from future contracts

 

99,294

 

880

 

276,137

 

38,761

Suppliers

 

979,681

 

838,097

 

993,460

 

844,578

Advances from subsidiaries

9

818,809

 

667,001

 

-

 

-

Salaries, social charges and accrued

 

 

 

 

 

 

 

 

  Vacation payable

 

208,231

 

168,392

 

216,795

 

175,505

Taxes payable

 

27,979

 

34,597

 

65,811

 

139,373

Dividends payable

 

3,909

 

88,798

 

3,909

 

88,798

Employees’ profit sharing

19

-

 

35,768

 

4,595

 

37,500

Deferred taxes

21

12,003

 

10,709

 

13,437

 

11,898

Other accounts payable

 

   142,214

 

   125,609

 

   233,643

 

   213,464

 

 

 

 

 

 

 

 

 

 

 

5,584,389

 

2,504,569

 

5,367,557

 

2,555,934

Noncurrent liabilities

 

 

 

 

 

 

 

 

Loans and financing

14

1,903,911

 

1,559,466

 

3,931,369

 

3,149,565

Advances from subsidiaries

9

2,596,557

 

1,691,075

 

-

 

-

Employee benefit plan

24

120,918

 

116,418

 

120,918

 

116,418

Provision for contingencies

16

59,343

 

53,186

 

63,698

 

57,879

Deferred taxes

21

98,341

 

96,385

 

98,341

 

96,385

Other accounts payable

 

     86,305

 

     53,629

 

     82,577

 

     51,751

 

 

 

 

 

 

 

 

 

 

 

4,865,375

 

3,570,159

 

4,296,903

 

3,471,998

 

 

 

 

 

 

 

 

 

Minority interest in subsidiaries

 

 

 

 

 

     38,868

 

     22,519

 

 

 

 

 

 

 

 

 

Shareholders’ equity

17

 

 

 

 

 

 

 

Capital

 

2,000,000

 

2,000,000

 

2,000,000

 

2,000,000

Capital reserve

 

37,157

 

20,507

 

37,157

 

20,507

Profit reserve

 

980,828

 

980,828

 

980,828

 

980,828

Treasury stock

 

(     97,064)

 

(     84,118)

 

(    97,064)

 

(     84,118)

Retained earnings

 

(   632,328)

 

   218,458

 

(  546,950)

 

   230,428

 

 

 

 

 

 

 

 

 

 

 

  2,288,593

 

3,135,675

 

 2,373,971

 

3,147,645

 

 

 

 

 

 

 

 

 

 

 

12,738,357

 

9,210,403

 

12,077,299

 

9,198,096


See the independent accountants’ review report and the accompanying notes to the interim financial information.

5


Sadia S.A.

Statements of income


Three -month period ended September 30, 2008 and 2007


(In thousands of Reais, except for information on shares)


 

Parent company

Consolidated

 

 

 

 

September

30, 2008

September 30,

2007

September

30, 2008

September 30,

 2007

 

 

 

 

 

Gross operating revenue:

 

 

 

 

Domestic market

 1,665,169

 1,312,406

 1,695,946

 1,312,406

Foreign market

1,279,656

                916,302

1,454,363

1,142,732

 

 

 

 

 

 

2,944,825

2,228,708

3,150,309

2,455,138

Sales deductions:

 

 

 

 

Value-added tax on sales and sales deductions

 (   324,096)

 (   273,248)

(361,838)

(304,798)

 

 

 

 

 

Net operating revenue

2,620,729

1,955,460

2,788,471

2,150,340

 



 

 

Cost of goods sold

(2,134,411)

(1,549,339)

(2,124,131)

(1,553,646)

 



 

 

Gross profit

     486,318

     406,121

     664,340

     596,694

 



 

 

Operating income (expenses):



 

 

Selling expenses

( 404,437)

(337,382)

(443,222)

(369,643)

Administrative and general expenses

 (40,969)

 (24,403)

 (43,331)

(24,268)

Management fees

 ( 5,040)

 (4,037)

 (5,040)

(4,037)

Other operating expenses

 20,543

 (24,684)

      16,686

(24,400)

Financial income (expenses), net

(927,421)

 (53,207)

 (1,214,005)

(11,696)

Equity in income (loss) of subsidiaries

(247,963)

   201,384

 (329)

                            -

 



 

 

Operating income (loss)

(1,118,969)

163,792

 (1,024,901)

 162,650

 



 

 

Nonoperating expenses

( 3,460)

(4,120)

 10,157

( 2,889)

 

 

 

 

 

Income (loss)  before income and social contribution taxes

(1,122,429)

 159,672

(1,014,744)

 159,761

 



 

 

Current income and social contribution taxes

 2

 15,662

(9,937)

14,118

Deferred income and social contribution taxes

    271,641

      14,029

   247,877

     14,550

 



 

 

Net income (loss) before minority interest

(850,786)

189,363

(776,804)

188,429

 




 

Minority interest

 

 

(574)

(77)

 




 

Net income (loss) for the period

(850,786)

    189,363

(777,378)

    188,352

 




 

Outstanding shares net of treasury stock (thousands)

672,951

677,076

672,951

 677,076

Earnings (loss) per share - In Reais

(1.26426)

 0. 27968

( 1.15518)

 0.27818


See the independent accountants’ review report and the accompanying notes to the interim financial information.

6




Sadia S.A.


Statements of income


Nine-month period ended September 30, 2008 and 2007


(In thousands of Reais, except for information on shares)


 

Parent company

Consolidated

 

 

 

 

September

30, 2008

September

30, 2007

September

30, 2008

September

30, 2007

 

 

 

 

 

Gross operating revenue:

 

 

 

 

Domestic market

 4,532,032

 3,694,808

 4,590,525

 3,694,808

Foreign market

3,423,518

 2,782,569

 4,081,460

 3,231,188

 

 

 

 

 

 

7,955,550

 6,477,377

 8,671,985

 6,925,996

Sales deductions:

 

 

 

 

Value-added tax on sales and sales deductions

(893,445)

(759,716)

 (1,008,239)

 (862,991)

 

 

 

 

 

Net operating revenue

 7,062,105

 5,717,661

 7,663,746

 6,063,005

 

 

 

 

 

Cost of goods sold

(5,861,149)

(4,437,945)

 (5,829,051)

 (4,458,183)

 

 

 

 

 

Gross profit

 1,200,956

 1,279,716

 1,834,695

 1,604,822

 

 

 

 

 

Operating income (expenses):

 

 

 

 

Selling expenses

(1,094,044)

(946,645)

 (1,201,016)

 (1,039,260)

Administrative and general expenses

(96,469)

(59,793)

 (100,684)

 (59,369)

Management fees

(14,373)

(11,673)

 (14,373)

 (11,673)

Other operating expenses

(15,146)

(35,113)

 (24,533)

 (37,626)

Financial income (expenses), net

(839,406)

 11,838

(1,189,423)

(15,473)

Equity in income (loss) of subsidiaries

       36,086

    195,211

(329)

                -

 

 

 

 

 

Operating income (loss)

(822,396)

 433,541

 (695,663)

 441,421

 

 

 

 

 

Nonoperating expenses

(10,096)

(1,507)

 875

(368)

 

 

 

 

 

Income (loss)  before income and social contribution taxes

(832,492)

 432,034

 (694,788)

 441,053

 

 

 

 

 

Current income and social contribution taxes

(23)

-

(18,280)

(3,823)

Deferred income and social contribution taxes

 297,825

(41,515)

 270,727

(43,252)

 

 

 

 

 

Net income (loss) before minority interest

(534,690)

 390,519

(442,341)

 393,978

 

 

 

 

 

Minority interest

 

 

(274)

(82)

 

 

 

 

 

Net income (loss) for the period

(534,690)

    390,519

(442,615)

     393,896

 

 

 

 

 

Outstanding shares net of treasury stock (thousands)

 672,951

 677,076

 672,951

 677,076

Earnings (loss) per share - In Reais

 (0.79455)

 0.57677

 (0.65772)

 0.58176


See the independent accountants’ review report and the accompanying notes to the interim financial information.

7



Sadia S.A.



Statements of cash flows


Nine-month period ended September 30, 2008 and 2007


(In thousands of Reais)

 

 

Parent company

 

Consolidated

 

 

 

 

 

 

 

 

 

September

 

 September

 

September

 

 September

 

30, 2008

 

 30, 2007

 

30, 2008

 

 30, 2007

 

 

 

 

 

 

 

 

Net income for the period

  (534,690)


        390,519

 

 (442,341)

 

        393,978

 

 

 


 

 

 

 

   Adjustments to reconcile net income to cash

 

 


 

 

 

 

     Generated by operating activities

 

 


 

 

 

 

Variation in minority interest

 -

 

-

 

           3,995

 

 (262)

Accrued interest, net of paid interest

400,305

 

 ( 63,163)

 

       745,943

 

 (201,651)

Depreciation, amortization and  

  depletion allowances

293,284

 

 222,764

 

       297,224

 

        223,865

Goodwill amortization

        16,522

 

          15,579

 

         16,522

 

          15,579

Investment Subsidy

                -

 

          15,090

 

              -

 

          15,090

Equity in earnings of subsidiaries

   (35,140)

 

( 198,995)

 

           1,305

 

   ( 4,966)

Exchange variations on foreign investments

                -

 

                -

 

(96,633)

 

          90,607

Deferred taxes

   (297,825)

 

          41,516

 

 (270,727)

 

          43,252

Contingencies

          7,473

 

            9,733

 

 (3,096)

 

          10,117

Result from the disposal of permanent assets

        4,974

 

       5,369

 

          5,183

 

            5,414

 

 

 

 

 

 

 

 

  Variation in operating assets and liabilities

 

 

 

 

 

 

 

Trade accounts receivable

       (78,065)

 

        246,880

 

      (45,018)

 

        311,834

Inventories

     (653,189)

 

       ( 204,930)

 

    (814,454)

 

    (182,858)

Recoverable taxes and other

     (301,867)

 

          43,717

 

    (298,809)

 

     (67,034)

Judicial deposits

          1,353

 

            4,848

 

              678

 

            4,742

Suppliers

      395,716

 

    (16,906)

 

       399,509

 

   (20,591)

Advances from subsidiaries

   1,622,239

 

       ( 175,962)

 

              -

 

              -

Taxes payable, salaries payable and others

        65,673

 

(19,821)

 

      120,936

 

( 2,126)

 

 

 

 

 

 

 

 

Net cash generated by operating activities

    906,763

 

   316,238

 

(379,783)

 

      634,990

 

 

 


 

 

 

 

  Investment activities

 

 


 

 

 

 

Purchase of property, plant and equipment

          2,167

 

            3,394

 

       2,198

 

            3,394

Investments in subsidiaries

       (80,972)

 

      (12)

 

                -

 

                -

Dividends received

        89,410

 

                -

 

                -

 

                -

Purchase of property, plant and equipment

  (1,293,718)

 

     (617,759)

 

 (1,471,479)

 

(622,244)

Acquisition of subsidiary, net cash

       (40,290)

 

                -

 

      (40,290)

 

                -

Short-term investments

  (3,350,008)

 

       (25,921)

 

 (5,071,467)

 

    (2,581,974)

Redemption of investments

  1,332,715

 

      1,860

 

  3,136,257

 

     2,450,975

Cash applied in investments activities

(3,340,696)

 

( 638,438)

 

(3,444,781)

 

(749,849)



8



Sadia S.A.


Statements of cash flows (cont.)


Nine-month period ended September 30, 2008 and 2007


(In thousands of Reais)




 

Parent company

 

Consolidated

 

 

 

 

 

 

 

 

 

September

 

 September

 

September

 

 September

 

30, 2008

 

 30, 2007

 

30, 2008

 

 30, 2007

 

 

 

 

 

 

 

 

  Loan activities

 

 

 

 

 

 

 

Loans received

   5,409,587

 

        643,182

 

    6,056,398

 

     2,033,842

Loans paid

  (1,632,312)

 

       (418,060)

 

 (2,200,917)

 

    (1,948,333)

Dividends paid

     (215,721)

 

       (108,267)

 

    (215,721)

 

       (108,267)

Loans to subsidiaries

  (1,284,987)

 

          92,047

 

               -

 

               -

Sale of treasury share

         56,509

 

               463

 

         56,509

 

               463

Acquisition of treasury chare

       (52,805)

 

              (879)

 

      (52,805)

 

              (879)

 

 

 

 

 

 

 

 

Net cash from loan activities

    2,280,271

 

        208,486

 

    3,643,464

 

         (23,174)

 

 

 

 

 

 

 

 

Cash at beginning of year

       251,567

 

        200,177

 

       320,028

 

        234,069

Cash at end of year

         97,905

 

          86,463

 

       138,928

 

          96,036

 

 

 

 

 

 

 

 

Net decrease of cash

     (153,662)

 

       (113,714)

 

    (181,100)

 

       (138,033)


See the independent accountants’ review report and the accompanying notes to the interim financial information.



9



Sadia S.A.




Statements of consolidated added value


Nine-month period ended September 30, 2008 and 2007


(In thousands of Reais)


 

 

Consolidated

 

 

 

 

 

 

 

September

 

June 30,

 

 

30, 2008

 

30, 2008

 

 

 

 

 

Revenues/income

 

      8,875,363

 

      6,763,934

 

 

 

 

 

Wealth generated by operations

 

 8,572,389

 

 6,845,794

Sale of products, goods and services

 

 8,572,389

 

 6,845,794

 

 

 

 

 

Wealth from third parties

 

    302,974

 

      (81,860)

Other operating results

 

     (11,653)

 

      (15,139)

Financial income

 

    217,449

 

      24,253

Equity in earnings of subsidiaries

 

       (1,305)

 

        4,966

Exchange variations on foreign investments

 

     96,633

 

      (90,607)

Other nonoperating results

 

       1,850

 

        (5,333)

 

 

 

 

 

Raw materials acquired from third parties

 

 (4,249,271)

 

 (3,184,929)

 

 

 

 

 

Services rendered by third parties

 

 (1,450,871)

 

 (1,267,652)

 

 

 

 

 

Added value to be distributed

 

 3,175,221

 

 2,311,353

 

 

 

 

 

Distribution of added value

 

 

 

 

Human resources

 

 1,137,377

 

    898,767

Interest on third-party capital

 

 1,503,532

 

      (79,792)

Government

 

    657,579

 

    859,410

Shareholders (dividends)

 

      97,638

 

    112,660

 

 

 

 

 

Retention

 

    (220,905)

 

    520,308

Depreciation/amortization/depletion

 

    313,746

 

    239,444

Retained profits

 

    (539,978)

 

    281,318

Other

 

        5,327

 

           (454)


See the independent accountants’ review report and the accompanying notes to the interim financial information.



10




Sadia S.A.


Publicly-held Company




Notes to the interim financial information


Nine-month period ended September 30, 2008


(In thousands of Reais)



1 Operations


The Company’s main business activities are organized into four operational segments: processed products, poultry (chickens and turkeys), pork and beef. The large production chain permits its products to be commercialized in Brazil and abroad by retailers, small groceries and food service chains.


The Company distributes its products through a large number of sales points in the local market and exports to countries in Europe, the Middle East, Eurasia, Asia and the Americas. The Company has 18 industrial units of its own, 4 leased units and 16 distribution centers located in 14 Brazilian states.


The industrially processed products segment has been the principal focus of the Company’s investments in recent years and comprises products such as oven-ready frozen food, refrigerated pizzas and pasta, margarine, industrially processed poultry and pork by-products, crumbed products, a diet line and pre-sliced ready-packed products and desserts.


The Company has a corporate governance tier one listing for its shares on the São Paulo Stock Exchange, the Madrid Stock Exchange (Latibex) and ADRs negotiated on the New York Stock Exchange (NYSE).



2 Preparation and presentation of the interim financial information


The individual and consolidated interim financial information are presented in thousands of Reais, unless otherwise stated and were prepared in accordance with accounting practices derived from the Brazilian Corporation Law and the rules of the Brazilian Securities and Exchange Commission (CVM).


The accounting practices adopted in the preparation of the interim information is consistent with those adopted by the Company in the preparation of its financial statements.


This interim information should be read in conjunction with the financial statements prepared for the year ended December 31, 2007. The results for the nine-month period ended September 30,


11


Sadia S.A.


Publicly-held Company



Notes to the interim financial information


(In thousands of Reais)

 

2008 should not be considered as an indication for estimating the results of the next quarter, nor for the formation of the results for the year ending December 31, 2008.


The Company has presented the consolidated statements of cash flows and value added as follows:


a.

Statement of cash flows


The cash flows were prepared in accordance with NPC 20 - Statement of Cash Flows, issued by IBRACON (Brazilian Institute of Independent Auditors).


b.

Statement of added value


The value added statement has been presented in accordance with the model proposed by the foundation Instituto de Pesquisa Contábeis, Atuariais e Financeiras - University of São Paulo the aim of which is to show the value of the wealth generated by the Company and its distribution among the elements that contributed to its generation.



3 Description of significant accounting policies


a.

Statement of income


Income and expenses are recognized on the accrual basis. Revenue from the Company’s sales is recognized upon shipment of the products and when the following conditions are met:
i) the ownership is transferred and therefore risk of loss has passed to the client; ii) collection is probable; iii) there is evidence of an arrangement; and iv) the sales price is fixed or determinable. In addition, the Company offers sales incentives and discounts through various programs to customers, which are accounted for as a reduction of revenue in Sales deductions. Sales incentives include volume-based incentive programs and payments to customers for performing marketing activities on our behalf.




12


Sadia S.A.


Publicly-held Company



Notes to the interim financial information


(In thousands of Reais)


 


b.

Foreign currency


Monetary assets and liabilities denominated in foreign currencies were translated into reais at the foreign exchange rate ruling at the balance sheet date and the foreign exchange differences arising on translation are recognized in the statement of income for the period.


c.

Accounting estimates


The preparation of the interim financial information in accordance with accounting practices adopted in Brazil requires that management uses its judgment in determining and recording accounting estimates. Significant assets and liabilities subject to these estimates and assumptions include the residual value of property, plant and equipment, deferred charges, allowance for doubtful accounts, inventories, deferred tax assets and liabilities, provision for contingencies, valuation of derivative instruments, and assets and liabilities related to employees’ benefits. The settlement of transactions involving these estimates may result in different amounts due to the lack of precision inherent to the process of their determination. The Company reviews the estimates and assumptions periodically.


d.

Long and short-term investments


Investment funds in local and foreign currency are recorded at market value according to the respective shares price at the date of the interim financial information.


Other long and short-term investments in local and foreign currency are recorded at cost plus income accrued up to the balance sheet date, not exceeding market value.


e.

Trade accounts receivable


Trade accounts receivable are recorded at the amount invoiced and interest is not levied. The allowance for doubtful accounts is the best estimate the Company has and is considered sufficient by management to cover any losses arising on collection of accounts receivable. Accounts receivable are written off against the allowance for doubtful accounts after all means of collection have been exhausted and the possibility of recovery of the amounts receivable is considered remote.



13


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)





f.

Inventories


Finished goods, livestock (excluding breeders), work-in-progress, raw materials and other supplies are valued at the average cost of acquisition or production (average method), which is lower than the replacement or realization costs. The cost of finished goods and work-in-progress includes raw materials acquired, labor, production expenses, transport and storage relating to the purchase and production of inventories. Normal production losses in hog stock and poultry are inventoried and abnormal losses are expensed immediately as cost of goods sold.  


g.

Investments


Investments in subsidiaries in Brazil and abroad are valued using the equity method based on the respective net equity calculated on the same date, as disclosed in Note 10.


The interim financial information of foreign subsidiaries are translated into Brazilian Reais, based on the following criteria:


·

Balance sheet accounts at the exchange rate at the end of the period.

·

Statement of income accounts at the exchange rate at the end of each month.


Other investments are valued at cost less a provision for devaluation considered as permanent.


h.

Property, plant and equipment


Property, plant and equipment are recorded at cost of acquisition, formation or construction, including the interest incurred on financing, during the period of construction, modernization and expansion of the industrial units. Expenditures that materially extent the useful lives of existing facilities and equipment are capitalized. Depreciation is calculated using the straight-line method at rates that take into account the estimated useful life of the assets, adjusted in keeping with the work shifts, as disclosed in Note 11. Depletion of forestry resources is calculated based on the extraction of timber and the average costs of the forests.




14


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)




Breeding stock is recorded at the cost of formation which includes the appropriation of costs of the breeding hens, animal feed, medication and labor. These costs are accumulated for approximately six months until the breeding stock initiates the breeding cycle. From then on, the costs of the breeding stock begin to be amortized on a straight-line basis. The productive cycle ranges from fifteen to thirty months.


i.

Impairment of long lived assets


The Company reviews its non current assets to verify possible impairment losses, whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable based on future cash flows. If these events occur, the reviews will be conducted at the lowest level of groups of assets for which the Company manages to attribute future cash flows. If the carrying amount of an asset is higher than the future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Until now, these reviews have not indicated the need to recognize impairment losses.


j.

Deferred charges


Deferred charges are represented substantially by pre-operating costs , reorganization charges and development of new products and markets, which are amortized on a straight-line basis over 5 years as from the beginning of operation.


k.

Current and noncurrent liabilities


Current and noncurrent liabilities are stated at known or estimated amounts, plus related charges and monetary and exchange variations up to the interim financial information date.


l.

Provisions


A provision is recognized in the interim financial information as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.




15


Sadia S.A.


Publicly-held Company



Notes to the interim financial information


(In thousands of Reais)




m.

Income and social contribution taxes


The income and social contribution taxes, both current and deferred, are calculated monthly based on taxable income at the rates of 15% plus a surcharge of 10% for income tax and 9% for social contribution and consider the offsetting of tax losses and negative basis of social contribution, limited to 30% of taxable income.


The deferred tax assets were recorded in accordance with CVM Instruction 371/02 and are represented significantly by temporary differences arising from non-deductible provisions, including tax loss carry forward and negative basis of social contribution.


n.

Employees’ benefits


Employees’ benefits are recorded based on actuarial studies prepared annually at the end of the year in compliance with CVM Deliberation 371/00.


o.

Environmental


Our production facilities and our forestry activities are subject to government environmental regulations. We have reduced the risks associated with environmental questions through operational controls and procedures, as well as investments in equipment and systems for pollution control. We believe that no provision for losses related to environmental questions is currently necessary, based on existing Brazilian laws and regulations.


p.

Tax incentives


The Company has tax incentives granted by the governments of the states of Minas Gerais and Mato Grosso where some of its industrial plants are located, which will expire between 2014 and 2020. During the financial year 2007 these subsidies were recorded in the account “Capital Reserve” in net equity. Law 11638/07, amongst other changes, revoked item d) in paragraph 1 of article 182 of Law 6404/76, which implies that the amounts received by way of a subsidy for investment should be recorded in an income account and no longer as Capital Reserve. Accordingly the Company recorded the amount of R$17,694 in the income statement for the period ended September 30, 2008 (R$13,978 as of June 30, 2008).



16


Sadia S.A.


Publicly-held Company



Notes to the interim financial information


(In thousands of Reais)




q.

Alteration to Corporate Law - Law 11638/07


On December 28, 2007, Law 11638/07 was issued, which introduced important changes to Law 6404/76 with respect to the preparation and disclosure of financial statements for public companies. The main changes introduced by the new law requires that international accounting standards be adopted, with the standards to be published by the Brazilian Securities and Exchange Commission - CVM, and prepared in accordance with the standards issued by the International Accounting Standard Board - IASB.


Among the changes introduced, management emphasizes the following issues which may have an impact on the Company’s financial statements and the criteria for calculating the results for the year and the financial position of the Company (parent company and consolidated), as of the year ending December 31, 2008:


·

A change in the criteria for classifying and valuing investments in financial instruments, including derivatives, which are classified as “ available for sale ” or “ held to maturity”, and their valuation will be made based upon this classification.


·

In corporate transactions between independent parties where there is effective transfer of control, the valuation of the assets and liabilities to market value will be mandatory.


·

Tax incentives will no longer be classified as capital reserve, but will be included in the income statement. The General meeting can allocate a part of gain, corresponding to these incentives, to form the Tax Incentives Reserve, which can be excluded from the calculation base for the dividends.


·

Creation of the account “Comprehensive Income” in shareholders’ equity, for recording the valuation adjustments, while they are not computed in the results for the year in accordance with the accrual basis and the marking of prices to market.


Based on the evaluation prepared by Company’s Management, the changes introduced and their respective effects on the net equity and the results for the period ended September 30, 2008 are summarized as follows:



17


Sadia S.A.


Publicly-held Company



Notes to the interim financial information


(In thousands of Reais)



 

Net income

Shareholders’ equity

 


Parent company

Consolidated

Parent company

Consolidated

 

 

 

 

 

Balances at September 30, 2008 - Law 6404/76

(534,690)
(442,615)
2,288,593
2,373,971

 

 

 

 

 

Fair value of long and short-term investments,

  net of taxes (Note 22)


            -


    67,980


             -


     67,980

 

 

 

 

 

Fair value of  foreign currency derivatives (Nota 22)

  (630,253)

(630,253)

(630,253)

(630,253)

 

 

 

 

 

Fair value of  interest rates swap derivatives (Nota 22)

(35,517)

(35,517)

(35,517)

(35,517)

 

 

 

 

 

Stock option (Note 18)

            452

            452

(13,352)

(13,352)

 

 

 

 

 

Balances at September 30, 2008 - Estimated

  according to Law 11638/07


(1,200,008)


(1,039,953)


1,609,471


1,762,829


Management considers that the regulations and orientations to be issued by the regulatory agencies are preponderant factors in the applicability of these changes and may substantively change the amounts estimated by the Company.


r.

Pronunciamentos adotados neste trimestre


On October 17, 2008 the Brazilian Securities Commission (CVM) issued CVM Resolution 550, extending the disclosures related to financial instruments, which were adopted by the Company (see Note 22).

 


4 Consolidated interim financial information


The transactions and balances between the Parent company and its subsidiaries included in the consolidation process have been eliminated and the non-realized profit arising from the sales to the subsidiaries were excluded and incorporated to the inventory balances for each year. Minority interests were excluded from shareholders’ equity and net income and are presented separately in the consolidated balance sheets and income statements in the line of “minority interest in subsidiaries”.



18


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)




In accordance with the CVM Instruction 408/04, the Company consolidated the financial statements of it investment fund Concórdia Foreign Investment Fund Class A, where it is the wholly investment holder. This investment fund has the sole purpose of centralizing the foreign investment fund portfolio, delegating to a third party the administrative functions.


The consolidated interim financial information includes the accounts of Sadia S.A. and its direct and indirect subsidiaries. The consolidated direct or indirect subsidiaries and the corresponding shareholdings of the Company are as follows:


 

 

Shareholdings in % at

 

 

 

 

 

 

 

September 30, 2008

 

June 30, 2008

 

 

 

 

 

Sadia International Ltd.

100.00

 

100.00

 

Sadia Uruguay S.A.

100.00

 

100.00

 

Sadia Chile S.A.

60.00

 

60.00

 

Sadia Alimentos S.A.

95.00

 

95.00

 

Concórdia Foods Ltd.

100.00

 

100.00

 

Sadia U. K. Ltd.

100.00

 

100.00

Big Foods Indústria de Produtos Alimentícios Ltda.

100.00

 

100.00

Avícola Industrial Buriti Alegre Ltda. – Goiaves (a)

-

 

100.00

Baumhardt Comércio e Participações Ltda.

73.94

     

73.94

 

Excelsior Alimentos S.A.

43.69

 

43.69

Excelsior Alimentos S.A. (b)

12.02

     

  9.06

K&S Alimentos S.A. (not consolidated investment) (c)

49.00

 

-

Sadia Industrial Ltda.

100.00

 

100.00

 

Rezende Marketing e Comunicações Ltda.

0.09

 

0.09

Rezende Marketing e Comunicações Ltda.

99.91

 

99.91

Sadia Overseas Ltd.

100.00

 

100.00

Concórdia Holding Financeira S.A.

100.00

 

100.00

 

Concórdia S.A. C.V.M.C.C.

99.99

 

99.99

 

Concórdia Banco S.A. (d)

100.00

 

-

Sadia GmbH

100.00

 

100.00



19


Sadia S.A.


Publicly-held Company



Notes to the interim financial information


(In thousands of Reais)



 

 

Shareholdings in % at

 

 

 

 

 

 

 

September 30, 2008

 

June 30, 2008

 

Wellax Food Logistics C. P. A. S. U. Lda.

100.00

 

100.00

 

Sadia Foods G.m.b.H.

100.00

 

100.00

 

Qualy  B. V.

100.00

 

100.00

 

Sadia Panamá S.A.

100.00

 

100.00

 

Sadia Japan Ltd.

100.00

 

100.00

 

Investeast Ltd.

60.00

 

60.00

 

   Concórdia Ltd.

100.00

 

100.00


(a)

Investment merged on September 30, 2008.

(b)

Capital increase through acquisition of shares on the market purchased in the third quarter of 2008.

(c)

Incorporation made on September 1, 2008.

(d)

Incorporation made in July 2008 with capital contribution made in August 2008.


Reconciliation of shareholders’ equity and net income between the Company and consolidated is as follows:


 

Net income

 

Shareholders’ equity

 

 

 

 

 

 

 

September

30, 2008

September

30, 2007

 

September

 30, 2008

June 30,

2008

 

 

 

 

 

 

Company’s financial statements

(534,690)

390,519

 

2,288,593

3,135,675

 

 

 

 

 

 

Elimination of unrealized profits on inventories in intercompany operations, net of taxes


  18,942


(4,359)

 


  12,245


(5,273)

 

 

 

 

 

 

Reversal of the elimination of unrealized results in inventories, net of taxes, resulting from intercompany operations at December 31, 2007 and 2006



    6,697



7,736

 



      6,697



6,697

 

 

 

 

 

 

Elimination of the adjustment to market value not made on short-term financial investments, net of taxes


    66,436

            -

 


     66,436

               -

 

 

 

 

 

 

Consolidated financial statements

(442,615)

393,896

 

2,373,971

3,147,645


20


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



5 Long and short-term investments


 

 

 

Parent company

 

Consolidated

 

Interest %

 

 

 

 

 

 

(annual average)

 

September

30, 2008

June 30,

 2008

September

30, 2008

June 30,

 2008

Short-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Local currency

 

 

 

 

 

 

Investment funds

13.33

 

    1,561,012

  227,048

  1,656,925

322,136

Bank Deposit Certificate - CDB

13.90

           

       100,156

          -

     194,719

198,300                      

Treasury bills - LFT

13.39

 

         42,925

  53,416

       79,890

     89,242

Other

13.33

 

                  7

          -

151

              5

Interest rate swap contracts

      -

 

                98

           84

          98

            84

 

 

 

 

 

 

 

 

 

 

    1,704,198

 280,548

1,931,783

   609,767

 

 

 

 

 

 

 

Foreign currency

 

 

 

 

 

 

Interest-bearing current accounts

1.80

 

262

545

189,330

55,640

Collateral / Margin

1.80

 

-

-

701,150

229,904

Investment funds

-

 

68,979

134,919

431,236

926,736

Interest rate swap contracts

-

 

          7,740

      1,084

     10,322

       2,138

 

 

 

 

 

 

 

 

 

 

        76,981

  136,548

1,332,038

1,214,418

 

 

 

 

 

 

 

Total short-term

 

 

   1,781,179

  417,096

3,263,821

1,824,185

 

 

 

 

 

 

 

Long-term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

Local currency

 

 

 

 

 

 

Investment funds

13.33

 

64,816

63,095

68,354

63,095

National Treasury Certificate - CTN

12.00

 


42,751


40,146


42,751


40,146

Stocks

-

 

119,720

208,154

19,059

  17,762

Interest rate swap contracts

 

 

       295

            -

       295

            -

 

 

 

 

 

 

 

Total long-term

 

 

227,582

311,395

130,459

121,003



Long-term investments as of September 30, 2008 mature as follows:



21


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



Maturity

Parent company

Consolidated

 

 

 

2009

184,831

87,708

2013 onwards

  42,751

  42,751

 

 

 

 

227,582

130,459


The portfolio of investments in investment funds in local currency is composed basically of quotas of other investment funds which have National Treasury Bills (LFT) and credit receivables from the Company (FIDIC). The financial obligations of these funds are limited to the management fee and administrative fees.


The objective of the investments in an exclusive investment fund in foreign currency is to gain earnings from the cash surplus, carrying out structured operations with well known financial institutions with the ability to meet their financial commitments in accordance with the risk classification prepared by specialized rating agencies. As of September 30, 2008 and June 30, 2008, the fund had financing raised from financial institutions that were custodians of the structured notes in the amount of R$197,685 and R$380,095, respectively, recorded under loans and financing.


The financial operations portfolio at market value is comprised of:


 

Consolidated

 

September

30, 2008

June 30,

 2008

Credit Linked Notes – CLN´s

333,465

608,161

Collateral

  29,930

243,736

Margin

  49,293

  27,096

Swap range accrual

    (2,000)

    5,525

Other assets

  20,548

   42,218

 

431,236

926,736







22


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



Credit Linked Notes – CLN´s


Credit notes issued by financial institutions abroad, divided into three types of risk, as follows:   a) Brazil risk; b) large Brazilian companies risk; and c) first tier American and European financial institutions risk. These structured notes paid periodic interest (Libor + spread), however, if any of these companies, financial institutions or governmental institutions entered into default, the Company delivers the principal and receives securities of the company or institution in default.


Collateral and Margin


Initial guarantee required by the counterparty, in the structuring of swap operations with credit risk (Brazil Risk) or tied to a determined security.


Libor Swap range accrual or “Brazil Credit default swap - CDS 5Y”


Operations structured on a notional value, where the Company receives on a six month basis interest (Libor + spread), when the Libor is within a range of 1.5% to 6% p.a., and pays prefixed interest rate.  If the Libor is outside this range there is no accrual of interest.


“Brazil Credit default swap - CDS 5Y”


Structured operations on a notional base, where the Company receives on a six-month basis  interest (CDS + spread), when the Brazil credit default swap - CDS 5Y is within 20 and 350 basis point, paying periodic interest. If the Brazil risk is outside this range there is no receipt of interest.


In September 2008, with the worsening of the international financial crisis, a certain American financial institution, whose risk was part of one of the structured note of the Company’s investment portfolio, entered in default. As a result, the Company received securities of this institution in exchange for the principal invested. With the increase in the volatility of the financial assets on the international market, the marking to market value of these securities, as well as other assets of the fund, totaled a loss of R$239,519.



23


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)




In the same period, one of the Company’s lines of credit (REPO) tied to the structured notes matured, which due to the shortage of credit on the financial market, was not renewed and the Company had to make distressed sales, which generated a loss in the amount of R$108,671.


At September 30, 2008, the amount of R$348,190, resulting from the mark to market and the loss made on the sale of assets, was recorded under financial results (see Note 20).



6 Trade accounts receivable


 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

 2008

September

30, 2008

June 30,

 2008

Foreign





   Customers

159,287

120,284

438,223

313,237

   Subsidiaries

266,106

   90,752

-

           -

   (-) Advance on Export Contracts - ACE

(76.572)

            -

(76,572)

           -

 

 

 

 

 

Total of foreign

348,821

 211,036

361,651

313,237

 

 

 

 

 

Domestic

 

 

 

 

   Customers

166,254

166,909

177,765

180,023

   Subsidiaries

    4,889

    1,763

            -

           -

 

 

 

 

 

Total of domestic

171,143

168,672

177,765

180,023

 

 

 

 

 

(-) Allowance for doubtful accounts

(1,955)

(2,889)

(7,812)

(7,780)

 

 

 

 

 

 

518,009

376,819

531,604

485,480




24


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)


The changes in the allowance for doubtful accounts are as follows:


 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

 2008

September 30,

 2008

June 30,

 2008

 

 

 

 

 

Balance at the beginning of the period

(2,889)

(4,129)

(7,780)

( 7,610)

 

     

 

 

 

   Additions to the provision

(73)

(769)

(1,099)

( 2,217)

   Write offs

 1,007

 2,009

 1,067

  2,047

 

 

 

 

 

Balance at the end of the period

(1,955)

(2,889)

(7,812)

(7,780)


The Company and its subsidiaries abroad (Sadia International Ltd. and Wellax Food Logistics C.P.A.S.U. Lda.) entered into an agreement for sale of its receivables with an outside financial institution up to the maximum amount of US$200 million, with interest rate of 0.26% p.a. + LIBOR.


As of September 30, 2008, the amount of receivables sold under this agreement amounted to approximately R$ 383 million (R$ 318 million as of June 30, 2008). During the period ended September 30, 2008, the Company received cash proceeds of approximately R$ 3,413 million
(R$ 2,743 million as of September 30, 2008) and incurred expenses of R$ 10 million (R$ 13 million as of September 30, 2007) with respect to this agreement.


A credit insurance policy covering 90% of the value of the receivables was taken out with third parties and the beneficiaries in the event of default are the contracting financial institutions.


The Company also assigned receivables to a Credit Assignment Investment Fund (FIDC), administered by Concórdia S.A. Corretora de Valores Mobiliários, Câmbio e Commodities. As of September 30, 2008, the net equity of this fund was R$ 326,205 (R$ 313,204 at June 30, 2008), of which R$ 321,136 (R$ 314,875 at June 30, 2008) were represented by acquisitions of the Company’s receivables on the domestic market, with a discounted cost equivalent to 95% of the CDI per senior quota. The assignment of the receivables is made without right of recourse, and the eventual losses from default for Sadia are limited to the value of the subordinated quotas, which at September 30, 2008, represented R$ 65,241 (R$ 62,640 at June 30, 2008).



25


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



During the period ended September 30, 2008, the Company received cash proceeds related to the local receivables sold of approximately R$ 3,084 million (R$ 2,428 million for the period ended on September 30, 2007) and incurred expenses of R$ 22 million (R$ 20 million for the period ended on September 30, 2007) with respect to this agreement.


For the other local receivables, the Company maintains a credit insurance policy that guarantees the collection in case of default of 90% of the uncollected amounts for customers with approved credit limits and up to R$ 100 to new customers or customers with no approved credit limits.



7 Inventories


 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

 2008

September

30, 2008

June 30,

 2008

 

 

 

 

 

Finished goods and products for sale

572,089

  480,444

759,797

  610,640

Livestock and poultry for slaughter and sale

488,829

  446,985

515,522

  448,720

Raw materials

318,568

  214,348

331,330

  224,090

Work in process

213,225

  203,609

213,408

  203,772

Packaging materials

58,313

    46,089

59,348

    47,103

Storeroom

31,931

    29,780

41,927

    35,853

Products in transit

       285

         161

     2,106

         711

Advances to suppliers

45,794

    35,865

46,009

    36,065

Imports in transit

     11,099

     11,744

     13,943

     14,332

 

 

 

 

 

 

1,740,133

1,469,025

1,983,390

1,621,286




26


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



8 Recoverable taxes


 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

 2008

September

30, 2008

June 30,

 2008

 

 

 

 

 

ICMS

383,252

313,424

384,383

315,458

PIS and COFINS

220,004

164,077

221,157

166,166

Income and social contribution taxes

30,805

  28,325

109,340

181,012

IVA

           -

          -

79,589

  55,379

IPI

44,254

  43,962

44,293

  44,061

INSS

254

    5,739

254

    5,739

Others

           -

           -

       127

         47

 

 

 

 

 

 

678,569

555,527

839,143

767,862

 

 

 

 

 

Short-term portion

410,903

329,361

498,716

464,496

Long-term portion

267,666

226,166

340,427

303,366


a.

Value-added tax on sales and services - ICMS


Composed of credits generated by the commercial operations and by the acquisition of property, plant and equipment, of a number of the Company’s units and can be offset with taxes of the same nature.


b.

Income and social contribution taxes


Correspond to income tax withheld at source on short-term financial investments and income tax and social contributions paid in advance that can be offset with federal taxes and contributions.


c.

Social contributions - PIS/COFINS


The balance is composed from noncumulative collection of PIS and COFINS, and these credits may be compensated with other federal taxes.



27


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



d.

Value-added tax - IVA


Composed of credits generated by the commercial operations in the foreign subsidiaries, which will be compensated with taxes of the same nature or cash reimbursements.  


e.

Excise tax - IPI


Composed of amounts arising from the following operations: presumed credit on packaging and inputs, presumed credit for reimbursement of PIS/PASEP and COFINS on exportations and export incentives, which can be compensated with other federal taxes.


f.

National Institute of Social Security - INSS


The balance relates to credits originated from the Funrural charge on operations related to the production of poultry, which can be compensated with contributions of the same nature.



9 Related party transactions


Related party transactions refers to mainly of sales operations between the Company and its subsidiaries, which were performed under normal market conditions for similar types of operations. The balance sheet and income statement transactions between related parties are shown below:



28


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



 

 Balance sheet

 

September

30, 2008

June 30,

 2008

 

 

 

Accounts receivable

 

 

Wellax Food Logistics C. P. A. S. U. Lda.

209,364

     73,208

Sadia International Ltd.

20,737

       2,851

Qualy B.V.

18,944

       5,019

Sadia Alimentos S.A.

9,003

       4,837

Sadia Chile S.A.

5,307

       2,478

   Concórdia Ltd.

4,899

-

Sadia Uruguay S.A.

2,492

       2,234

Big Foods Ind. Prod. Alimentícios Ltda.

144

       1,832

   Excelsior Alimentos S.A.

105

-

Avícola Industrial Buriti Alegre Ltda. - Goiaves

               -

        56

 

 

 

 

   270,995

 92,515

 

 

 

Loans

 

 

   Wellax Food Logistics C. P. A. S. U. Lda.

1,282,013

-

   Excelsior Alimentos S.A.

5,052

-

Sadia GmbH

2,358

  2,307

Sadia Industrial Ltda.

885

     885

Big Foods Ind. Prod. Alimentícios Ltda.

72

-

Rezende Marketing e Comunicação Ltda.

60

       60

Concórdia S.A. CCVMCC

              34

              -

Sadia International Ltd.

(207)

(172)

Concórdia Holding Financeira S.A.

              -

10,121

Avícola Industrial Buriti Alegre Ltda. - Goiaves

               -

      805

 

 

 

 

1,290,267

 14,006

 

 

 

Suppliers



   Big Foods Ind. Prod. Alimentícios Ltda.

19,844

    12,458

   Avícola Industrial Buriti Alegre Ltda. - Goiaves

               -

   3,790

 

 

 

 

     19,844

 16,248

 

 

 

Advances from subsidiaries

 

 



29


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



 

 Balance sheet

 

September

30, 2008

June 30,

 2008

Wellax Food Logistics C. P. A. S. U. Lda.

(3,413,709)

(2,356,698)

Sadia International Ltd.

(1,657)

(1,378)

 

 

 

Total current and non current

(3,415,366)

(2,358,076)

 


 

 Statement of income

 

September

30, 2008

September

30, 2007

Sales



Wellax Food Logistics C. P. A. S. U. Lda.

2,076,239

1,622,243

Sadia International Ltd.

211,684

167,563

Qualy B. V.

51,462

28,558

Sadia Chile S.A.

15,897

10,019

Sadia Alimentos S.A.

15,420

10,391

Big Foods Ind. Prod. Alimentícios Ltda.

12,038

             -

Sadia Uruguay S.A.

7,003

4,360

Avícola Industrial Buriti Alegre Ltda. - Goiaves

4,793

              -

   Concórdia Ltd.

4,317

-

   Excelsior Alimentos S.A.

          177

               -

 

 

 

 

2,399,030

1,843,134

 



Cost of goods sold



   Big Foods Ind. Prod. Alimentícios Ltda.

(66,155)

-

   Avícola Industrial Buriti Alegre Ltda. - Goiaves

(19,750)

               -

 

 

 

 

(85,905)

               -

 

 

 

Net financial result

 

 

Wellax Food Logistics C. P. A. S. U. Lda.

(461,740)

   157,997

Concórdia Holding Financeira S.A.

(508)

-

Sadia International Ltd.

         118

          255

 

 

 

 

(462,130)

   158,252



30


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



10 Investments


 

 

 


Investment balances

Investments

Ownership

Shareholder’s equity

Net income (loss) for the period

Equity
result

September

30, 2008

June 30,

 2008

 

 

 

 

 

 

 

Sadia GmbH

100.00

1,477,338

(106,376)

(19,438)

1,447,338

1,732,720

Concórdia Hoding Financeira S.A.

100.00

102,453

16,891

17,347

102,453

   183,856

Sadia International Ltd.

100.00

109,565

9,529

18,516

109,565

     87,288

Big Foods Ind. de Produtos Alimentícios Ltda.

100.00

36,532

19,688

19,688

36,532

     30,074

K&S Alimentos S.A.

49.00

26,993

(671)

(329)

13,227

              -

Sadia Industrial Ltda.

100.00

             363

(6)

(6)

              363

          363

Avícola Indl. Buriti Alegre Ltda. - Goiaves

100.00

              -

969

969

              -

     23,685

Rezende Marketing e Comunicações Ltda.

99.91

(29)

(1)

(1)

              -

              -

Sadia Overseas Ltd.

100.00

(1,677)

(3)

(128)

              -

              -

Baumhardt Comércio e Participações Ltda.

73.94

(2,248)

(74)

(55)

             -

              -

Excelsior Alimentos S.A.

12.02

(3,589)

(170)

(122)

               -

               -

 

 

 

 

 

 

 

Total in subsidiaries

 

 

 

   36,441

1,709,478

2,057,986

 

 

 

 

 

 

 

Goodwill

 

 

 

           -

81,560

87,224

Other investments

 

 

 

(1,302)

            58

            17

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total investments of the Parent Company

 

 

 

  35,139

1,791,096

2,145,227

 

 

 

 

 

 

 

 

 

 

 

 

Other investments of subsidiaries/affiliates

 

 

          -

2,028

2,089

Investments eliminated on consolidation

 

 

(60,189)

 (1,696,251)

(2,057,986)

 

 

 

 

 

 

 

Total consolidated investments

 

 

 

(95,328)

       96,873

     89,330




31


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



Changes in the investments:


 

 

 

 

 

 

Shareholding result

 

Acquisition

Amortization

Negative equity

Dividends received

Merger

Operational

Non-
Operational

Sadia GmbH

         -

       -

    -

         -

         -

(285,382)

    -

Sadia International Ltd.

         -

       -

    -

         -

         -

  22,277

    -

Concórdia Holding Financeira S.A.

         -

       -

    -

(89,410)

         -

    7,913

  94

Big Foods Ind. de Prod. Alimentícios Ltda.

         -

       -

    -

         -

         -

    6,458

    -

Avícola Ind. Buriti Alegre Ltda. – Goiaves

         -

       -

    -

         -

(25,142)

    1,457

    -

Excelsior Alimentos S.A.

         -

       -

122

         -

         -

         (20)

(102)

Baumhardt Comércio e Participações Ltda.

         -

       -

  55

         -

         -

         (55)

    -

Sadia Overseas Ltd.

         -

       -

282

         -

         -

       (282)

    -

K&S Alimentos S.A.

13,556

       -

    -

         -

         -

       (329)

    -

 

13,556

       -

459

(89,410)

(25,142)

(247,963)

    (8)

Goodwill

     377

(6,041)

    -

         -

        -

           -

    -

Other investments

         -

       -

    -

         -

        -

           -

  41

 

13,933

(6,041)

459

(89,410)

(25,142)

(247,963)

  33


On September 29, 2008, the board of directors’ proposal for the merger of the wholly owned subsidiary Avícola Industria Buriti Alegre Ltda. (Goiaves), aiming at obtaining operating and corporate benefits and a decrease in expenses resulting from standardizing and rationalizing the administrative and operational activities, was approved in a special general meeting.


On June 26, 2008, the Company acquired 73.94% of the quotas representing the capital of Baumhardt Comércio e Participações Ltda. for the amount of R$5,425 and during this year it acquired 12.02% of the shares representing the capital of Excelsior Alimentos S.A. (18.48% of the voting capital) for the amount R$1,596. Baumhardt holds 80.10% of the common shares and 43.67% of the capital of Excelsior Alimentos S.A., which added to the direct interest, makes the Company a holder of 77.72% of the voting capital and 44.31% of the total capital of Excelsior Alimentos S.A.. Goodwill in the amount of R$8,938 was paid on the acquisition, based on expectations of future profitability and amortization estimated in up to five years. Excelsior’s industrial unit is located in Santa Cruz do Sul, in the State of Rio Grande do Sul, and consists of a factory for industrially processed products and its own freezing works.


On September 1, 2008, the Company paid in capital in the company K&S Alimentos S.A. in the amount of R$13,556, representing a 49% interest in the capital of this invested company. K&S Alimentos S.A. is going to carry out manufacturing, sales and distribution activities for cheeses, including the products currently sold by KFB under the Philadelphia brand, as well as cheeses and cheese pâtés sold under the Sadia brand.



32


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



At September 30, 2008 the net balance of goodwill on the acquisition of investments totaled R$81,560 (R$87,224 at June 30, 2008), and is comprised of:


 

 

Amortization

 

September 30, 2008

June 30, 2008

Beginning

Term

 

 

 

 

 

Avícola Industrial Buriti Alegre Ltda. - Goiaves

37,474

39,637

February, 2008

5 years

Big Foods Indústria de Produtos Alimentícios Ltda.

27,534

30,972

January, 2008

3 years

Empresa Matogrossense de Alimentos Ltda.

8,054

  8,054

Forecast to 2009

5 years

Excelsior Alimentos S.A.

8,498

  8,561

July, 2008

5 years

 

 

 

 

 

 

81,560

87,224

 

 


These amounts of goodwill were based on the expectation of future profitability, with amortization forecast in up to five years.



33


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)


11 Property, plant and equipment



 

 

Parent company

 

 

 

 

 

 

 

Cost

 

Depreciation

 

Carrying amount

 

 

 

 

 

 

 

 

Annual average %

September

30, 2008

 

September

30, 2008

September

30, 2008

June 30,

 2008

 

 

 

 

 

 

 

Lands

-

   114,024

 

              -

   114,024

   109,755

Buildings

4

1,322,396

 

   (421,229)

   901,167

   831,543

Machinery and equipment

15

1,715,721

 

   (747,819)

   967,902

   884,390

Installations

10

   578,932

 

   (199,453)

   379,479

   348,930

Software implementation

20

   117,203

 

     (50,572)

     66,631

     60,486

Vehicles

20

       9,053

 

      (6,036)

       3,017

       2,335

Construction in progress

-

1,102,542

 

            -

1,102,542

   919,016

Breeding stock

-

   599,247

 

   (403,841)

   195,406

   197,457

Forestation and reforestation

-

     43,090

 

       (5,371)

     37,719

     36,837

Advances to suppliers

-

     22,243

 

             -

     22,243

     11,134

Other

-

          960

 

          (935)

            25

            32

 

 

 

 

 

 

 

 

 

5,625,411

 

(1,835,256)

3,790,155

3,401,915




34


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



 

 

Consolidated

 

 

 

 

 

 

 

Cost

 

Depreciation

 

Carrying amount

 

 

 

 

 

 

 

 

Annual average %

September

30, 2008

September

30, 2008

September

30, 2008

June 30,

 2008

 

 

 

 

 

 

Lands

-

   114,833

              -

   114,833

   111,244

Buildings

4

1,333,488

   (426,889)

   906,599

   836,692

Machinery and equipment

15

1,747,166

   (761,854)

   985,312

   906,135

Installations

10

   663,016

   (202,855)

   460,161

   375,158

Software implementation

20

   117,618

     (50,770)

     66,848

     60,651

Vehicles and plane

15

     17,666

       (8,288)

       9,378

       9,546

Construction in progress

-

1,223,440

             -

1,223,440

1,071,675

Breeding stock

-

   599,312

   (403,841)

   195,471

   197,523

Forestation and reforestation

-

     43,090

       (5,371)

     37,719

     36,837

Advances to suppliers

-

     44,011

             -

     44,011

     31,549

Other

-

       3,508

       (2,250)

       1,258

          964

 

 

 

 

 

 

 

 

5,907,148

(1,862,118)

4,045,030

3,637,974



35


Sadia S.A.


Publicly-held Company


Notes to the interim financial information


(In thousands of Reais)



We present the changes in the cost of property, plant and equipment below:


 

 

 

Consolidated

 

 

 

June 30,

 2008

 

 

 

September

 30, 2008

Acquisitions

Disposal

Tranfers

 

 

 

 

 

 

Lands

   111,244

       289

-

    3,300

  114,833

Buildings

1,253,383

    9,010

    ( 4,962)

  76,057

1,333,488

Machinery and equipment

1,641,612

  12,751

    ( 7,856)

100,659

1,747,166

Installations

   565,073

  14,343

       (348)

  83,948

  663,016

Software implementation

   105,646

       127

          (5)

  11,850

  117,618

Vehicles and plane

     18,146

         70

   ( 1,168)

       618

    17,666

Construction in progress

1,071,675

399,371

      (205)

(247,401)

1,223,440

Breeding stock

   561,951

  37,361

         -

           -

  599,312

Forestation and reforestation

     41,928

    1,153

         -

           9

    43,090

Advances to suppliers

     31,549

  24,184

         -

  (11,722)

    44,011

Other

       3,131

       392

            -

(15)

       3,508

 

 

 

 

 

 

Total cost of acquisition

5,405,338

499,051

(14,544)

   17,303

5,907,148



a.

The construction in progress is mainly represented by projects related to the expansion and modernization of industrial units, mainly Uberlandia and Lucas do Rio Verde units.


b.

In accordance with CVM Deliberation 193/96 the interest incurred in the period arising from financing of projects for modernization and expansion of the industrial units has been recorded in the respective costs of the construction in progress in the amount of R$ 54,970 (R$ 40,613 as of September 30, 2007).

36


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 

 

12   Deferred charges


 

 

Parent company

 

 

Cost

 

Amortization

 

Carrying amount

 

Rate

September

30, 2008

September

30, 2008

September

30, 2008

June 30,

 2008

 

 

 

 

 

 

Pre operational costs

20

  72,076

  (9,770)

62,306

55,229

Reorganization expenses

20

  29,114

(15,017)

14,097

15,723

Product development and markets

20

  17,356

(13,959)

  3,397

  4,604

Other

20

    1,948

(1,019)

     929

  1,021

 

 

 

 

 

 

 

 

120,494

(39,765)

80,729

76,577


 

 

 

Consolidated

 

 

Cost

 

Amortization

 

Carrying amount

 

 

Rate

September

30, 2008

September

30, 2008

September

30, 2008

June 30,

2008

 

 

 

 


 

 

Pre operational costs

 

20

110.506

(13.196)

97.310

  80,245

Reorganization expenses

 

20

  29.114

(15.017)

14.097

  15,723

Product development  and markets

 

20

  22.217

(14.392)

  7.825

    8,594

Other

 

20

    1.948

(1.019)

       929

    1,021

 

 

 

 

 

 

 

 

 

 

163.785

(43.624)

120.161

105.583


The reorganization expenses refer to the implementation of the shared service center in the city of Curitiba and the preoperating expenses refer basically to expenses incurred with the Lucas do Rio Verde Project - MT.


37


Sadia S.A.


Publicly-held Company


 


Notes to the interim financial information


(In thousands of Reais)

 

 

 

 


 

13   Loans and financing - Short-term


 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

2008

September

30, 2008

June 30,

 2008

Short-term

 

 

 

 

Foreign currency

 

 

 

 

Advances on export contracts - ACC, with interest rates of 4.82% p.a., guaranteed by promissory notes or sureties

1,263,470

           -

1,263,470

       419

 

 

 

 

 

Financing obtained from financial institutions custodians of structured notes belonging to the Company, with Libor 01 month being charged (3.93% on September 2008) plus interest of 1.50% p.a., guaranteed by its own investments

-

           -

197,685

380,095

 

 

 

 

 

Advanced collection relating to the receivables sold, with no interest

-

           -

22,999

  20,743

 

 

 

 

 

Financing for investments in Russia, to be made in property, plant and equipment, with Libor 06 months (3.98% on September 2008) plus interest of 3.30% p.a., guaranteed by surety according to the investment interest  (60% for Sadia and 40% for the partner)

-

           -

8,251

   35,491

 

 

 

 

 

Credit lines for the development of foreign trade, with interest rates of 9.04% p.a., guaranteed by promissory notes or sureties

-

           -

3,884

     3,430

 

 

 

 

 

     Exchange interest rate contracts

           -

           -

8,690

     9,361

 

 

 

 

 

Currency swap contracts

          195

     1,290

          195

     1,290

 

 

 

 

 

 

1,263,665

     1,290

1,505,174

450,829

 

 

 

 

 


38


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 


 

 

 

 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

2008

September

30, 2008

June 30,

 2008

Local currency

 

 

 

 

Rural credit lines in the amount of R$ 254,700 with interest of 6.75% p.a. for the finance of the production of the integration system in the swine and poultry farming.

254,700

239,354

254,700

239,354

 

 

 

 

 

Loans for working capital in the amount R$426,161, of which R$350,873 is subject to the variation of the Interbank Deposit Certificate (CDI) and 3% interest, and R$75,288 subject to the rate of 108% of the CDI, with no guarantee, and forward operations in the amount of R$40,666 with interest of 1.15% per month, guaranteed by the company’s shares.

466,827

-

466,827

-


Currency swap contracts


742


2,822


742


2,822

 

 

 

 

 

Others

              -

            -

       1,754

    5,418

 

 

 

 

 

 

  722,269

242,176

   724,023

247,594

 

 

 

 

 

 

1,985,934

243,466

2,229,197

698,423



39


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 

 

 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

2008

September

30, 2008

June 30,

 2008

Short-term portion of the long-term debt

 

 

 

 

 

 

 

 

 

Foreign currency

 

 

 

 

Export financing composed of prepayment in the amount of R$ 96,751 of which R$144 is paying six-month Libor (3.09% in September 2008) and 1.75% interest p.a. and R$96,607 paying three-month Libor (2.80% in September 2008) and 0.59% p.a. and a line focused on encouraging foreign trade activities in the amount of R$12,722, paying Libor of 3.38% and 1.17% interest p.a., guaranteed by promissory notes or sureties

96,751

       686

109,473

   13,917

 

 

 

 

 

BNDES (National Bank for Economic and Social Development), for investments and export credit lines, composed as follows: FINEM in the amount of R$ 721 subject to the weighted average of exchange variation of currencies traded by BNDES - UMBNDES and fixed interest of 3.50% p.a. and FINAME in the amount of R$ 22,730 subject to the weighted average of exchange variation of currencies traded by BNDES-UMBNDES and fixed interest of 2.34% p.a. Special pre-shipment BNDES Exim in the amount of R$2 subject to the weighted average should of the variation of currencies traded by BNDES - UMBNDES and a fixed interest of 2.64% p.a., guaranteed by mortgage bonds and real estate mortgage.

23,453

   21,029

23,453

   21,029

 

 

 

 

 

The raising of funds on the international capitals market through the issuing of bonds with interest of 6.88% per annum and the principal to be paid in 2017, guaranteed by endorsement.

           -

           -

11,516

       2,736

 

 

 

 

 

IFC (International Finance Corporation) funding in foreign currency for investment in property, plant and equipment, subject to interest at the rate of 9.05% p.a., guaranteed by real estate mortgages

    1,151

    2,847

    1,151

   2,847

 

 

 

 

 

 

121,355

  24,562

145,593

40,529



40


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 


 

 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

 2008

September

30, 2008

June 30,

 2008

Local currency

 

 

 

 

Export credit note - NCE, an improved credit line for exports, payable in 2009 and 2010, subject to variation of 121,22% of the CDI (interbank deposit certificate) p.a.

1,024,154

107,625

1,024,154

   107,625

 

 

 

 

 

BNDES (National Bank for Economic and Social Development), credit lines for investments and exports, composed as follows: FINAME in the amount of  R$ 148,939  subject to the Long-Term Interest Rate -TJLP (6.25% p.a. in September 2008) and interest of 3.09% p.a., and “BNDES Exim - pre shipment” in the amount of R$ 8 subject to TJLP and interest of 2.64% p.a., guaranteed by mortgage bonds and real estate mortgages

148,947

149,215

148,947

  149,486

 

 

 

 

 

PESA - Special Aid for Agribusiness payable in installments, subject to IGPM variation and annual interest of 9.89%, guaranteed by sureties

4,940

    3,255

4,940

      3,255

 

 

 

 

 

Other subject to interest rate from 1% to 12% p.a.

       6,939

    6,595

       6,939

       6,739

 

 

 

 

 

 

1,184,980

266,690

1,184,980

   267,105

 

 

 

 

 

Short-term portion of long-term debt

1,306,335

291,252

1,330,573

   307,634

 

 

 

 

 

Total short-term

3,292,269

534,718

3,559,770

1,006,057


At September 30, 2008 the weighted average interest in short-term loans was 9.44% p.a. (6.06% p.a. at June 30, 2008).



41


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 

 


14   Loans and financing - Long-term


 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

 2008

September

30, 2008

June 30,

 2008

Foreign currency

 

 

 

 

Export financing composed of prepayment, payable in the amount of
R$ 269,038 in installments up to 2013, of which R$76,716 is paying six-month Libor (3.09% in September 2008) and 1.75% interest p.a. and R$192,322 paying three-month Libor (2.80% in September 2008) and 0.59% interest p.a. and a line focused on encouraging foreign trade in the amount of R$1,423,561, paying 3.38% Libor and 1.17% p.a., guaranteed by promissory notes or sureties

269,038

   159,876

1,692,599

1,298,580

 

 

 

 

 

The raising of funds on the international capitals market through the issuing of bonds to be paid in 2017 with interest of 6.88% per annum, guaranteed by endorsement.

-

               -

490,091

   400,711

 

 

 

 

 

BNDES (National Bank for Economic and Social Development), payable from 2008 to 2015 composed as follows: FINEM in the amount of R$ 721 subject to the weighted average of the exchange variation of currencies traded by BNDES - UMBNDES and fixed interest of 3.50% p.a. and FINAME in the amount of R$ 222,181 subject to the weighted average of the exchange variation of currencies traded by BNDES - UMBNDES and fixed annual interest of 2.64% p.a. guaranteed by mortgage bonds and real estate mortgages

232,696

   125,091

232,696

   125,091

 

 

 

 

 

IFC (International Finance Corporation) for investments in property, plant and equipment of which R$1,151 is paying 9.05% interest p.a. and R$137,071 is paying six-month Libor (3.98% in September 2008) and 3% interest p.a., guaranteed by real estate mortgages

    1,151

     2,847

   138,222

     66,228

 

 

 

 

 

 

502,885

287,814

2,553,608

1,890,610


42


Sadia S.A.


Publicly-held Company

 


Notes to the interim financial information


(In thousands of Reais)

 

 

 

 

 

 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

 2008

September

30, 2008

June 30,

 2008

Local currency

 

 

 

 

Export credit note (NCE), an improved credit line for exports, payable in 2009 and 2010, of which R$1,024,154 is subject to variation of 121.22% of the CDI p.a. and R$311,448 is subject to variation of 90% of the CDI p.a.

1,335,602

   410,357

1,335,602

   410,357

 

 

 

 

 

BNDES (National Bank for Economic and Social Development), credit lines for investments and exports, payable from 2008 to 2015, composed as follows: FINAME in the amount of R$ 1,163,437 subject to the Long-Term Interest Rate -TJLP (6.25% p.a. in September 2008) and interest of 3.09% p.a.,  and BNDES Exim pre shipment special in the amount of R$ 36,518 subject to TJLP and interest of 2.64% p.a., guaranteed by mortgage bonds and real estate mortgages

1,199,955

   987,475

1,199,955

   989,609

 

 

 

 

 

PESA - Special Sanitation Program of the Agroindustry to be paid in installments from 2008 to 2020, subject to the variation of the IGPM (General Market Price Index) and interest of 9.89% p.a., guaranteed by endorsement.

158,019

   151,232

158,019

   151,232

 

 

 

 

 

Other subject to interest rate from 1% to 12% p.a.

     13,785

    13,840

14,758

     15,391

 

 

 

 

 

 

2,707,361

1,562,904

2,708,334

1,566,589

 

 

 

 

 

 

3,210,246

1,850,718

5,261,942

3,457,199

 

 

 

 

 

Short-term portion of long-term debt

(1,306,335)

(291,252)

(1,330,573)

( 307,634)

 

 

 

 

 

Total long-term

1,903,911

1,559,466

3,931,369

3,149,565


The noncurrent portions of financings at September 30, 2008 mature as follows:


Maturity

Parent company

Consolidated

 

 

 

2009

     97,105

   255,350

2010

   625,630

1,008,490

2011

   293,327

   785,128

2012

   391,931

   572,945

2013 onwards

   495,918

1,309,456

 

1,903,911

3,931,369


43


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 

 

15   Pension plans for employees


In addition to the pension plan, the Company’s human resources policy offers the following benefits:


•   Payment of the penalty in connection with the Government Severance Indemnity Fund for Employees upon retirement;
•   Payment of a bonus for time of service;
•   Payment of indemnification for termination of service; and
•   Payment of indemnification for retirement.


These benefits are due in one single payment upon the employee’s retirement or termination of service, and the amounts are computed by actuarial calculations and recorded in the current profit and loss.


16   Commitments and contingencies


Commitments


The Company has non-cancelable leasing agreements for industrial units that expire over the next five years. These leasing are subject to renewal for 1 more year and do not require any penalty if the Company does not renew them. The Company does not pay execution costs, such as maintenance and insurance.  The costs and expenses with these agreements totaled R$ 128,723 as of September 30, 2008 (R$ 87,116 as of September 30, 2007).


The table below shows the future payments related to the leasing agreement at September 30, 2008:


2008

46,772

2009

181,200

2010

131,900

2011

131,900

2012

131,900

Total

623,672


44


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 


In addition the Company signed purchase agreements for production purposes (packaging) in the approximate amount of R$ 88 million on September 30, 2008, payable until 2010.


Contingencies


The Company and its subsidiaries have several on going claims of a labor, civil and tax nature, resulting from its normal business activities. The respective provisions for contingencies were constituted based on the opinion of the Company’s legal counsel, which considered that unfavorable outcomes are likely.


Based on management estimates, the provision for contingencies provided for, net of the respective legal deposits, established by CVM Deliberation 489/05, as presented below, is sufficient to cover possible losses with legal proceedings:


 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

 2008

September

30, 2008

June 30,

 2008

 

 

 

 

 

Tax proceedings

44,424

 35,204

  60,531

 51,296

Labor proceedings

26,714

 29,991

  27,225

 30,855

Civil proceedings

  14,883

   14,734

    14,883

   14,734

 

 

 

 

 

Provision for contingencies

  86,021

   79,929

 102,639

   96,885

 

 

 

  

 

Related legal deposits

 (26,678)

 (26,743)

 (38,941)

 (39,006)

 

 

 

 

 

Provision for contingencies – Net

   59,343

   53,186

   63,698

   57,879



45


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 


The changes in the provision for contingencies are presented as follows:


 

Consolidated

 

June 30,

 2008

 Additions

 Disposals

 Monetary
updates

September

30, 2008

 

 

 

 

 

 

Tax proceedings

51,296

15,380

  (6,752)

   607

  60,531

Civil proceedings

14,734

722

  (2,345)

1,772

  14,883

Labor proceedings

  30,855

     16

  (3,646)

        -

  27,225

 

 

 

 

 

 

Provision for contingencies

96,885

16,118

(12,743)

2,379

102,639

 

 

 

 

 

 

Related legal deposits

(39,006)

         -

     684

   (619)

  (38,941)

 

 

 

 

 

 

Provision for contingencies - Net

  57,879

16,118

(12,059)

1,760

  63,698


Tax litigation


The main tax contingencies involve the following cases:


a.

Income and social contribution taxes on net income


Provision for income and social contribution taxes on net income amounting to R$27,841, of which R$10,205 recorded on the acquisition of the subsidiary Granja Rezende (incorporated in 2002), R$9,017 of income tax and R$3,246 on contribution taxes of Concórdia S.A. CVMCC, R$4,326 on withholding income tax on investments of Granja Rezende and R$1,047 for other provisions.


b.

Value - Added tax on sales and services - ICMS


The Company is a defendant in several administrative cases involving ICMS, mainly in the States of São Paulo, Rio de Janeiro and Paraná, totaling a probable contingency estimated at R$19,365.




46


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 




c.

Other tax contingencies


Several cases related to payment of Social security contribution, PIS (Social Integration Program Tax), Import Duty and others totaling a provision of R$13,325.


The Company has other contingencies of a tax nature in the amount of R$1,221,639 on September 30, 2008, which was evaluated as representing a possible loss by the legal advisors and by Company management, therefore, no provision has been recorded.  These contingencies refers mainly to questions raised regarding ICMS credits in the amount of R$623,936, IPI Credit premium, in the amount of R$295,326, and payment of social security contributions, in the amount of R$117,355 and R$185,022 for other provisions.


Civil litigation


Represents mainly proceedings involving claims for indemnification for losses and damages, including pain and suffering, arising from work-related accidents and consumer relations.


The Company has other contingencies of a civil nature with a claimed amount of R$55,875, which were assessed as possible losses by the legal advisors and by Management and, therefore, no provision was recorded.


Labor claims


The company is involved in approximately 2,324 labor claims. These labor lawsuits refer mainly to claims for overtime, and health exposure and hazard claims, none of which involve a significant amount on an individual basis. The total amount involved is R$55,655, for which the provision in the amount of R$27,225 was recorded based on historical information, representing the best estimate for probable losses.


Court deposits


The Company, as appropriate, performs legal deposits not related to provisions for contingencies, which balance as of September 30, 2008 was R$ 41,326 (R$45,004 on June 30, 2008).



47


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 


Guarantees


a.

The Company provides guarantees to loans obtained by certain out growers located in the central region of the country as part of a special development program for that region. Such loans are used to improve the out growers farms installations and will be repaid in 10 years, where the Company obtain from the out growers their farms and installations as a collateral for such guarantees provided. The amount for such guarantees provided as of September 30, 2008 amounted R$ 440,712 (R$364,091 on June 30, 2008).


b.

The Company is a guarantor for a loan taken out by Instituto Sadia de Sustentabilidade from the National Bank for Economic and Social Development (BNDES). The object of this loan is to set up biodigesters on the properties of the rural producers that are taking part in the Sadia integration system, within the ambit of the Sadia sustainable pig breeding program, seeking a mechanism for clean development and reduction in emission of carbon gases.  The total amount of these guarantees at September 30, 2008 was R$ 67,756 (R$61,131 on June 30, 2008).


c.

The Company offered a lien on the industrial property it owns in the city of Concórdia, state of Santa Catarina, as a guarantee to a notice of collection from the Federal Revenue Service questioning the compensation in prior years of R$74 million in IPI premium credit against other federal taxes, which the right was given to the Company (a right recognized by the final and unappealable decision). Management and its legal advisors deem this charge to be misplaced and to prevent this dispute from prejudicing the Company’s image and rights, a writ of mandamus was filed under which an injunction was obtained staying this notice of collection.




48


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



17   Shareholders’ equity


a.

Capital


Subscribed and paid-in capital is represented by the following shares with no par value:


 

September

30, 2008

June 30,

 2008

 

 

 

Common shares

257,000,000

257,000,000

Preferred shares

426,000,000

426,000,000

 



Total shares

683,000,000

683,000,000

 



Preferred shares in treasury

(10,049,288)

(10,259,288)

 



Total outstanding shares

672,950,712

672,740,712



b.

Statements of changes in shareholders’ equity

 

 

 

Treasury

Retained

 

 

Capital

Reserve

shares

earnings/ (loss)

Total

 

 

 

 

 

 

Balances at December 31, 2007

2,000,000

1,001,335

(84,118)

-

2,917,217

   Interest on shareholders' equity/dividends

-

-

-

(52,057)

(52,057)

   Net income of the period

              -

              -

            -

209,168

   209,168

Balances at March 31, 2008

2,000,000

1,001,335

(84,118)

157,111

3,074,328

   Interest on shareholders' equity/dividends

             -

              -

         -

   (45,581)

     (45,581)

   Net income of the period

             -

              -

         -

106,928

   106,928

Balances at Jume 30, 2008

2,000,000

1,001,335

(84,118)

218,458

3,135,675

Acquisition of treasury stock

             -

             -

(52,805)

             -

    (52,805)

Sales of treasury stock

             -

             -

39,859

             -

39,859

   Gain on sale of treasury stock

             -

16,650

             -

             -

16,650

   Net income for the year

             -

             -

             -

(850,786)

  (850,786)

Balances at September 30, 2008

2,000,000

1,017,985

(97,064)

(632,328)

2,288,593




49


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 


c.

Treasury stock


As of September 30, 2008 the Company held treasury stock, for future sale and/or cancellation, 4,700,000 ordinary shares and 5,349,288 preferred shares, at an average acquisition cost of R$97,064. The market value as of September 30, 2008 was R$ 65,882.


According to a material fact published on July 30, 2008, the Company sold 4,700,000 preferred shares and acquired 4,700,000 common shares of its own issue, from the 5,000,000 shares authorized by the Board of Directors.


d.

Book and market value


At September 30, 2008, the market value of the shares of Sadia S.A., according to the average quotation of the shares traded on the São Paulo stock exchange (BOVESPA), corresponded to R$7.53 per common share and R$5.70 per preferred share  (R$11.36 per preferred share on June 30, 2008). The book value on the same date was R$3.40 per share (R$4.66 on June 30, 2008).



18   Stock option plan


The Company has a granting plan of option of purchase of shares, which contemplates nominative preferred shares of issue of the Company, available in treasury. The plan is managed by a Management Committee, composed of the Chief Executive Officer and the Human Resources Committee of the Board of Directors.


The price for exercising the purchase options does not include any discount and will be based on the average value of the quotation for the share in the last three days of trading on the São Paulo Stock Exchange prior to the grant date, updated by the accumulated National Consumer Price Index (INPC) between the grant date of exercising the option. The vesting period, during which the participant cannot exercise his/her right to purchase the shares, will be three years as from the option granting date. The participant will be able to fully or partially exercise his/her purchase rights after the vesting period within a maximum period of 2 years, and only after this period has expired will he/she lose the right to the options not exercised.



50


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)


 

 

 


The composition of the options granted is presented as follows:


 

Date

 

Quantity

 

Price of shares

Cycle

Grant

Start

Final

of shares

Grant date

Update - INPC

 

 

 

 

 

 

 

2005

06/24/05

06/24/08

06/24/10

1,490,000

4.55

5.27

2006

09/26/06

09/26/09

09/26/11

3,155,000

5.68

6.38

2007

09/27/07

09/27/10

09/27/12

5,000,000

10.03

10.74


 

September

30, 2008

June 30,

 2008

 

 

 

Balances in the beginning of the period

9,855,000

9,955,000

 

 

 

   Exercised options - Cycle 2005

(210,000)

-

   Cancelled options - Cycle 2006

               -

(100,000)

 

 

 

Balances in the end of the period

9,645,000

9,855,000


Since the Company has treasury shares earmarked for its stock option plan, the difference between the market value and the updated price for the year will not affect the Company’s results. If the Company adopted international accounting standards, as commended by CVM Instruction 469/08, the shareholders’ equity and the results for the period ended September 30, 2008 would be decreased on R$13,352 and increased on R$452, respectively (decreased on R$24,227 and R$9,465, respectively on June 30, 2008).


19   Employees’ profit sharing


The Company grants its employees a profit sharing plan, which depends on attaining specific targets, established and agreed to at the beginning of each year.  This plan has been approved by Board of Directors of the Company and it has been registered by a formal agreement with the unions. As of September 30, 2008 as a result of the losses recorded by the Company, the provision in the amount of R$44.872, referring to employee profit sharing, was reversed.




51


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



20   Financial result


 

Parent company

Consolidated


 

September

30, 2008

September

30, 2007

September

30, 2008

September

30, 2007

Financial expenses

 

 

 

 

Interest

(198,502)

(151,604)

   (178,139)

(181,497)

Loss on investment funds

  (93,584)

            -

   (348,190)

           -

Fair value on investments

(100,661)

           -

              -

          -

Monetary variations - Liabilities

  (16,443)

    (6,447)

     (16,443)

    (6,447)

Exchange variations - Financial liabilities

(492,322)

216,058

   (334,886)

339,101

Exchange variations on foreign investments

          -

          -

             -

  (90,607)

Exchange variations on derivatives

   (6,375)

  (15,176)

   (565,492)

   (36,370)

Others

  (50,630)

  (42,326)

     (60,587)

  (63,906)

 

(958,517)

       505

(1,503,737)

  (39,726)

Financial income

 

 

 

 

Interest

  20,298

  29,529

     18,910

  51,671

Gains on investment funds

     5,858

  11,500

     34,111

  89,532

Monetary variations - Assets

    5,169

    6,486

       5,363

    6,486

Exchange variations - Financial assets

  40,778

  (61,954)

     48,486

(262,211)

Exchange variations on foreign investments

           -

           -

     96,633

           -

Exchange variations on derivatives

  17,381

    28

     55,971

98,710

Other

  29,627

  25,744

     54,840

  40,065

 

119,111

  11,333

   314,314

  24,253

 

(839,406)

  11,838

(1,189,423)

  (15,473)


At September 30, the Company had derivative financial instruments that were traded by the treasury department based on the assumption of the appreciation/maintenance of the Real against the US dollar. These instruments contained intrinsic risks, assumed as a result of the stability and the low probability of devaluation of the Real against the US dollar.


As disclosed in a material fact on September 25, 2008, the treasury department exceeded the limits of the treasury policy. As soon as it became aware of this fact, the Board of directors determined that the necessary measures to reduce exposure were taken. With the aim of reducing the exposure related to these operations, the Board of Directors decided to settle part of these operations, making a loss in the amount R$544.496, recorded under exchange variation on derivative instruments.


52


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



The operations that were settled and their respective originally contracted notional amounts are presented as follows:


 

Notional - US$ mil

Loss

Financial Institution

Non deliverable Forward (short position)

Target

Forward

(long position)

Long call option

US$ thousand

R$ thousand

 

 

 

 

 

 

Financial Institution A

500,000

   865,000

   700,000

(221,936)

(424,851)

Financial Institution B

216,666

   395,000

   400,000

  (62,500)

(119,645)

 

716,666

1,260,000

1,100,000

284,436

(544,496)



21   Income and social contribution taxes


Income before the provision for income tax (IR) and social contribution on net income (CSLL) was composed as follows:



 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

September

30, 2007

September

30, 2008

September

30, 2007

 

 


 


Local

(832,492)

432,034

(597,944)

 162,084

Foreign

             -

            -

(96,844)

 278,969

 

 

 

 

 

 

(832,492)

432,034

 (694,788)

 441,053


The composition of income and social contribution taxes is as follows:




53


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

September

30, 2007

September

30, 2008

September

30, 2007

Local

 


 


Current

         (23)

         -

  (14,913)

  (4,210)

Deferred

294,585

(36,933)

 263,891

(38,670)

 

294,562

(36,933)

 248,978

(42,880)

Foreign





Current

           -

         -

    (3,367)

      387

Deferred

    3,240

(4,582)

     6,836

(4,582)

 

    3,240

(4,582)

     3,469

(4,195)

 

 

 

 

 

 

297,802

(41,515)

 252,447

(47,075)



Income and social contribution taxes were calculated at applicable rates and reconciliation with the income and social contribution tax expenses is shown below:



54


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

September

30, 2007

September

30, 2008

September

30, 2007

 

 

 

 

 

Income before taxation/profit sharing

(832,492)

432,034

(694,788)

441,053

Interest on shareholders' equity

(91,163)

(112,660)

(91,163)

(112,660)

 





Income before income and social contribution taxes


(923,655)


319,374


(785,951)


328,393

 





Income and social contribution taxes at nominal rate - 34%

314,043

(108,587)

267,223

(111,654)

 





Adjustment to calculate the effective rate





Permanent differences





Equity pick-up

     9,150

  63,076

     5,961

  61,193

Losses in foreign investment fund

  (26,093)

           -

  (26,093)

           -

Other

        702

     3,996

     5,356

      3,386

 





Income and social contribution taxes at effective rate

 297,802

(  41,515)

 252,447

(  47,075)




55


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 

 

The composition of deferred income and social contribution taxes is as follows:


 

Parent company

 

Consolidated

 

 

 

 

 

 

September

30, 2008

June 30,

2008

September

30, 2008

June 30,

2008

 

 

 

 

 

Assets

 

 

 

 

Deferred taxes

 

 

 

 

Benefit plan

  41,112

  39,582

  41,112

  39,582

Provision for contingencies

  54,773

  28,365

  55,161

  28,877

Employees’ profit sharing

           -

  12,161

           -

  12,161

Allowance for doubtful accounts

    7,252

  19,975

    7,370

  20,120

Goodwill amortization

  12,349

    7,794

  12,349

    7,794

Provision for loss on property, plant and equipment

    5,382

    5,389

    5,382

    5,389

Tax loss carryforwards and negative basis of social

  contribution


269,105


  26,483

 

 271,243

  

29,600

Summer Plan depreciation

       414

       612

       414

       612

Provision for market value

  34,225

    7,135

           -

           -

Others

    1,771

    3,996

  11,147

    8,671

 

 

 

 

 

Total assets deferred taxes

426,383

151,492

404,178

152,806

 

 

 

 

 

Assets short-term portion

  38,294

  50,393

  42,297

  51,370

Assets long-term portion

388,089

101,099

361,881

101,436

 

 

 

 

 

Liabilities

 

 

 

 

Deferred taxes

 

 

 

 

Depreciation on rural activities

109,267

107,094

109,267

107,094

Gains in foreign subsidiary

       976

-

       976

-

Others

       101

           -

    1,535

    1,189

 

 

 

 

 

Total liabilities deferred taxes

110,344

107,094

111,778

108,283

 

 

 

 

 

Liabilities short-term portion

  12,003

  10,709

  13,437

  11,898

Liabilities long-term portion

  98,341

  96,385

  98,341

  96,385

 

 

 

 

 

Net

316,039

  44,398

292,400

  44,523



56


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 


The Management considers that the deferred assets arising from temporary differences will be realized in proportion to the final solution of the contingencies and to the payment of the liabilities forecast for the employees’ benefit plans.


With respect to the deferred tax assets resulting from the tax loss and negative basis of social contribution in the amount of R$271,243, represented by R$269,105 in the parent company and R$2,138 in the subsidiaries, the realization of these credits will be carried out through the generation of future profits in the respective companies. Based on a technical viability study prepared by Management the realization of these tax assets will be estimated in the following manner:


Period

Realization

2009

    8%

2010

  9%

2012

  10%

2013

  11%

2014 to 2016

  62%



22   Risk management and financial instruments


Due to the nature of its operations, the Company is exposed to market risks, especially with respect to variations in exchange rates and credit risks.  The Company’s treasury policy establishes that these risks are managed by the Risk Management Department, through identifying the exposures and the correlations between the different risk factors, through the VAR (Value at Risk) calculation methodology and simulations of scenarios (stress tests), monitored by the Financial and Investments Committee, from the Executive Finance Committee, comprising officers of the Company, which includes in its responsibilities defining the management of these risks within the parameters of exposure limits and areas of decision-making authority proposed by the Finances Committee and Investor Relations  (IR) of the Board of Directors, approved by the Board, itself.  At September 30, 2008, due to the high volatility of the financial assets and to the miss-matching of the financial policy, the Value at Risk (VAR) of the operating assets and liabilities and financial instruments exposed to the variations of the foreign exchange and interest rates, for one year, with 95% reliability, was R$2,783,889 (Information not reviewed by the auditors).



57


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



The objective of the treasury policy is to determine parameters for use of derivative instruments in the hedging of operating and financial assets and liabilities exposed to variations in foreign exchange and interest rates and prices of commodities, as well as to establish credit limits with financial institutions.  The responsibility for compliance with this policy is the job of the Executive Finances Committee.


a. Exchange rate risk


The Company is exposed to market risks arising from the volatility of exchange and interest rates. The exchange and interest rate risks on loans, financings and other liabilities denominated in foreign currency are managed jointly with the financial investments also denominated in foreign currency, and by derivative financial instruments, such as interest rate swaps (Libor for pre rate or vice versa) and future market contracts (Non Deliverable Forwards – NDFs and Options), as well as accounts receivable in foreign currencies arising from exports, which also reduce the foreign exchange exposure as a natural hedge.


The treasury policy for exchange determines that the limit of exchange exposure must respect the lower of the following amounts: (i) 20% of the Company’s net equity, or (ii) for the three months following the base date, the limit of up to 10 days of exports or for the 12 months following the base date, 50% of the net cash generation. The control and management of the exposures are conducted dynamically and are updated by market quotations in real-time, through quotation systems and the adjustments are made whenever necessary.  In the operations that involve options, the control and management of the exposure take into consideration the likelihood of exercise.


Within its exchange hedge strategy the Company uses exchange futures contracts (non deliverable forwards, target forwards and options, mainly in US dollars), as a way of mitigating the impacts of exchange rate variations on recognized assets and liabilities and expected transactions, under financial results and gross margin.




58


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



The notional amounts of these contracts are not recorded in the quarterly information. The technical definition of these contracts is summarized as follows:


“Non deliverable forward”


Over the counter operations for sale and/or purchase of dollars with future maturity, without initial disbursement of cash, based on a notional amount in dollars and a future strike rate. Upon maturity of the operation the result will be the difference between the contracted rate and the Ptax on maturity, multiplied by the notional base amount.


“Target forward” - Short


Over the counter operations for sale of dollars with future maturities, without initial disbursement of cash, with the following conditions: If the Ptax on the fixing date is below the strike rate for the dollar, the Company will receive the difference between the contracted rate and the Ptax, multiplied by the original base amount, where there may be a gain limiter for the Company when the difference between the Ptax and the strike rate during the maturities reaches an average R$0,50, knocking out subsequent maturities. If the dollar is above the strike rate, the Company will pay the difference between the contracted dollar and the Ptax, multiplied by double the base amount.


 “Target forward” - Long


They are over the counter purchases of dollars with future maturities, without initial disbursement of cash, with the following conditions: If the Ptax on the fixing date is higher than the strike rate for the dollar, the Company will receive the difference between the contracted rate and the Ptax, multiplied by the original base amount, where there may be a gain limiter for the Company when the difference between the Ptax and the strike rate during the maturities reaches an average R$0.50, knocking out the subsequent maturities. If the dollar is below the strike rate, the Company will pay the difference between the contracted dollar and the Ptax, multiplied by double the base amount.




59


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)


 

 

 


Call and put options (European)


They are across the counter or stock exchange operations where the purchaser of the call option or put option pays an initial premium upon maturity, if the difference between the contracted dollar (exercise price) and if the Ptax is positive (in the event of a call option) or negative (in the event of a put option), it will exercise its right. Not exercising the options will result in the loss of the initial premium paid on the part of the purchaser. It is the seller of the option that receives an initial premium and assumes the risk of a limited gain and an unlimited loss.


The exchange futures contracts have monthly maturities of up to 12 months and establish a margin call or bank guarantee in case the position is unfavorable to the Company. At September 30, 2008, the amounts deposited as margin and bank guarantee were R$701,150 and R$269,007, respectively.


The results of the over the counter operations on the exchange future market, realized and not settled financially and the daily adjustments of positions of exchange futures contracts on the Futures and Commodities Exchange (BM&F) are recorded under “Amounts receivable from futures contracts” and “Amounts payable for futures contracts”, respectively.


The results to be realized from over the counter operations on the exchange future market are not recognized in the accounting.  These contracts are separated and defined as operating or financial according to their specific objective.  At September 30 and June 30, 2008, the nominal amounts and the average contracted rates outstanding, exposed to the variation of the US dollar, as well as the respective fair value, are presented as follows:




60


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



 

Consolidated

 

September 30, 2008

 

Notional

Average

Fair

 

Original (1)

Exposure (2)

rate

Value

 

US$ thousand

US$ thousand

R$/US$

R$ thousand

Future contracts - US$

 

 

 

 

Non Deliverable Forward

   317,500

   317,500

1.96

    (6,549)

Target Forward

2,286,666

4,518,333

1.77

(755,478)

Short call option

1,531,667

1,531,667

1.84

(144,002)

Short position - US$

4,135,833

6,367,500

1.81

(906,029)

 

 

 

 

 

Non Deliverable Forward

2,508,333

2,508,333

1.88

111,764

Target Forward

  473,333

   473,333

1.78

  82,300

Long call option

1,021,667

1,021,667

1.81

  74,770

Long position - US$

4,003,333

4,003,333

1.85

268,834

 

 

 

 

 

Net position - US$

  132,500

2,364,167

 

(637,195)

 

 

 

 

 

Options - US$

 

 

 

 

Long put option - US$

1,800,000

             -

1.76

  (17,326)

 

 

 

 

 

 

 

 

 

 

Future contracts - Euro

€ thousand

 

 

Short futures - Euro

     62,000

     62,000

1.59

  20,215

Long futures - Euro

     (80,000)

     (80,000)

1.47

    (8,277)

 

 

 

 

 

 

 

 

 

 

Future contracts - Pound

£ thousand

 

 

Short futures - Pound

     25,000

     25,000

2.05

  12,330

 

 

 

 

 

Fair value

 

 

 

(630,253)

 

 

 

 

 

Payable/Receivable amounts of realized future contracts

R$ thousand

 

 

 

   Receivable

238,651

 

 

 

   Payable

276,137

 

 

 

 

 

 

 

 

(1) Original notional

(2) Considers the likelihood of settlement based on the foreign currency futures


61


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 



 

Consolidated

 

As disclosed in the 2nd quarter Interim Financial Information

June 30, 2008 (1)

 

Notional

Average

Fair

 

Original (2)

Exposure (3)

rate

Value

 

US$ thousand

US$ thousand

R$/US$

US$ thousand

Future contracts - US$

 

 

 

 

 

Non Deliverable Forward

 

   181,500

   117,500

1.92

  52,159

Target Forward

 

3,760,000

2,045,000

1.76

221,540

Short call options

       5,000

       5,000

       5,000

1.95

      422

Short position - US$

3,941,500

3,946,500

2,167,500

1.76

274,121

 

 

 

 

 

 

Target Forward

 

1,062,500

1,775,000

1.68

  (52,015)

Long call option

   200,000

   200,000

   200,000

1.70

      (154)

Long position - US$

1,062,500

1,262,500

1,975,000

1.68

  (52,169)

 

 

 

 

 

 

Net position - US$

 

2,684,000

   192,500

 

221,952

 

 

 

 

 

 

Options - US$

 

 

 

 

 

Long put option - US$

100,000

   100,000

   100,000

1.60

    900

 

 

 

 

 

 

Future contracts - Euro

€ thousand

 

 

Short futures - Euro

266,000

   266,000

   230,000

1.73

(18,787)

Long futures - Euro

  60,000

     60,000

     (55,000)

1.47

17,784

 

 

 

 

 

 

Future contracts - Pound

£ thousand

 

 

Short futures - Pound

  87,500

     87,500

     80,000

2.03

(9,628)

 

 

 

 

 

 

Fair value

 

 

 

 

212,221

 

 

 

 

 

 

Payable/Receivable amounts of realized future contracts

R$ thousand

 

 

 

   Receivable

59,770

59,770

 

 

 

   Payable

38,761

38,761

 

 

 

 

 

 

 

 

 

(1) Disclosed in accordance with CVM 550/08

(2) Original notional

(3) Considers the likelihood of settlement based on the foreign currency futures


If the exchange futures contracts were recorded at their fair value on September 30, 2008, the Company would have a loss of R$630,253 (R$20,984 in the same period of 2007), which is a loss of R$480,626 in financial results (a gain of R$11,431 in the same period 2007) and a loss of R$149,627 in operating results (a loss of R$32,415 in the same period of 2007).



62


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



The maturities of the exchange futures contracts and US dollar options, put and call positions, outstanding on the base date of September 30, 2008 presented:


 

Short position - Original notional

 

Long position - Original notional

Maturity

Non

Deliverable Forward

Target

Forward

Short call options

Short position

 

Non

Deliverable Forward

Target

Forward

Long call options

Long position

 

 

 

 

 

 

 

 

 

 

October, 2008

   30,000

   212,500

    325,000

   567,500

 

2,081,669

   46,667

   266,667

2,395,003

November, 2008

   45,000

   230,833

    225,000

   500,833

 

            -

   46,667

   166,667

   213,334

December, 2008

   37,500

   235,833

    230,000

   503,333

 

            -

   46,667

   221,667

   268,334

January, 2009

   35,000

   235,833

    378,333

   649,166

 

     53,333

   46,667

   316,666

   416,666

February, 2009

   25,000

   235,833

      53,333

   314,166

 

     53,333

   46,665

    50,000

   149,998

Mach, 2009

   25,000

   235,833

      53,333

   314,166

 

     53,333

   40,000

            -

    93,333

April, 2009

   20,000

   235,833

      53,333

   309,166

 

     53,333

   40,000

            -

    93,333

May, 2009

   20,000

   235,833

      53,333

   309,166

 

     53,333

   40,000

            -

    93,333

June, 2009

   20,000

   230,833

      53,334

   304,167

 

     53,333

   40,000

            -

    93,333

July, 2009

   20,000

   130,833

      53,334

   204,167

 

     53,333

   40,000

            -

    93,333

August, 2009

   20,000

     66,669

      53,334

   140,003

 

     53,333

   40,000

            -

    93,333

September, 2009

   20,000

              -

              -

    20,000

 

            -

         -

            -

            -

 

317,500

2,286,666

1,531,667

4,135,833

 

2,508,333

473,333

1,021,667

4,003,333


Sensibility Analysis of the Company – Cash effect


At September 30, 2008, the Company’s hedge position presented put and call options in US dollars, with maturities overt the next 12 months. For the purposes of this sensibility analysis, we considered the doubled notional amount of the forward targets, based on the future market scenarios. Considering that 50% of the Company’s gross billing results from exports made based on US dollars, we have, on past bases, a gross income in dollars of approximately US$3,000 million for the next 12 months. If we consider three scenarios (information not reviewed by auditors), we would have the following sensibility table:




63


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



 

US$ thousand

R$ thousand

 


12 months

Scenario 1

(1)

R$/US$ - R$1.95

Scenario 2

R$/US$ - R$2.20

 

 

 

 

Short future contracts US$ - 12 months – average strike R$1.81


6,367,500


(891,450)


(2,483,325)

 

 

 

 

Long future contracts US$ - 12 months – average strike R$1.85


4,003,333


400,333


1,401,166

 

 

 

 

Net effect

 

(491,117)

(1,082,159)

 

 

 

 

Historicall gross export revenues - 12 months – average exchange rate for 2008 - R$1.70


3,000,000


750,000


1,500,000

 

 

 

 

Net cash effect

 

258,883

   417,841

 

 

 

 

(1) According to the Focus market report disclosed by the Central Bank on October 24

 


The Company’s exposure to foreign currency variations (particularly US dollars), recorded in the quarterly information, is shown as follows:


 

Consolidated

 

September 30, 2008

June 30, 2009

 

Current

Non current

Current

Non current

Assets and liabilities in foreign currency

 

 

 

 

Cash and cash equivalents and short-term investments

1,445,838

              -

1,267,494

             -

Trade accounts receivable, net

   355,959

              -

   308,803

             -

Suppliers

   (101,998)

              -

     (42,945)

             -

Loans and financing

(1,650,767)

(2,408,015)

(491,358)

(1,850,081)

Swap contracts

          884

              -

       3,607

             -

 

     49,916

(2,408,015)

1,045,601

(1,850,081)


The Company uses swap contracts as a way of mitigating the impacts of the interest rate variations on financial assets and liabilities, recorded under financial results, as well as Libor swap range accrual contracts for financial arbitration.




64


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)


 

 

 


The difference in interest payable or receivable, both from assets and liabilities, are recognized in the quarterly information under financial investments, and loans and financing, respectively.  The technical definition of these contracts is summarized as follows:


Rate exchange swap- pre vs. CDI


A structured over the counter operation for exchange of indexes on a notional base amount, or where the Company receives fixed interest upon maturity of the contract, paying on the liability the CDI, or vice versa. The risk of this instrument is associated or with the increase of the the CDI.


Libor swap range accrual - Arbitration


Structured over the counter operations on a notional base amount where the Company receives on a six month basis interest when the six-month Libor is within the range of 2.60% to 6.32% p.a., paying on on a six-month basis prefixed interest.  In the event the Libor is outside the range, there is no receipt of interest.


At September 30 and June 30, 2008, the notional amounts, contracted rates and amounts receivable and payable outstanding, as well as their respective fair values, are shown as follows:


 

Consolidated

 

September 30, 2008

 

Notional

 

Fair

 

Original

Original

 

Value

 

US$ thousand

R$ thousand

Rate

R$ thousand

Interest swaps

 

 

 

 

  Interest swap CDI x Pré

             -

   256,715

Pré x CDI

     563

  Range accrual swap – US$ - Arbitrage

   400,000

              -

Libor x Pré

(36,811)

  Interest swap CDI x CDI - Arbitrage

   100,000

             -

CDI x CDI

     731

Fair Value

 

 

 

(35,517)

 

 

 

 

 

Amonts receivable/payable

R$ thousand

 

 

 

   Receivable

10,715

 

 

 

   Payable

  9,627

 

 

 





65


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 


 

Consolidated

 

June 30, 2008

 

Notional

 

Fair

 

Original

Original

 

Value

 

US$ thousand

R$ thousand

Rate

R$ thousand

Interest swaps

 

 

 

 

  Interest swap CDI x Pré

       1,215

       1,215

CDI x Pré

         -

  Range accrual swap – US$ - Arbitrage

   700,000

   700,000

Libor x Pré

(56,546)

  Interest swap CDI x CDI - Arbitrage

     59,407

     59,407

CDI x CDI

         -

Fair Value

 

 

 

(56,546)

 

 

 

 

 

Amonts receivable/payable

R$ thousand

 

 

 

   Receivable

  2,222

 

 

 

   Payable

13,473

 

 

 


The results realized from exchange futures contracts and interest rate swaps  for the period ended September 30, 2008 generated a loss of R$331,200 (a gain of R$135,228 in the same period of 2007), which is a net loss in the amount of R$509,521, recorded as a financial loss under exchange variations on derivative instruments (a gain of R$62,340 in the same period of 2007) and a gain in the amount of R$178,321 as operating results under gross operating income (a gain of R$72,888 in the same period of 2007).


b.   Credit risk


The Company is potentially exposed to credit risk in relation to its trade accounts receivable, long and short-term investments and derivative instruments. The Company limits the risk associated with these financial instruments by subjecting them to the control of highly rated financial institutions that operate within the limits pre-established by the risk, credit and financing committees. The criteria for maximum net exposure per financial institution (financial assets less financial liabilities) may not be greater than the lower of 10% of the financial institution’s net equity or the company’s equity.


The concentration of credit risk with respect to accounts receivable is minimized due to the spread of its client base, since the Company does not have any customer or group representing 10% or more of its consolidated revenues, as well as granting credits for customers with solid financial and operational ratios. Generally, the Company does not require a guarantee for sales, however it has contracted an insurance credit policy to its domestic receivables.



66


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)


 

 

 


c.   Grain purchase price risks


The Company’s operations are exposed to the volatility in prices of grain (corn and soybean) used in the preparation of animal feed for its breeding stock, where the price variation results from factors beyond the control of management, such as climate, the size of the harvest, transport and storage costs and government agricultural policies, among others. The Company maintains its risk management strategy, operating preponderantly through physical control, which includes acquiring grain at fixed prices and fixing it, pegged to commodity futures contracts (grain). The Company has a Commodities Committee and Risk Management, composed by the chief executive officer and financial and operational executives, whose aim is to discuss and decide on the company’s strategies and positioning with respect to the various risk factors that impact the operating results.


The results realized with futures contracts for grain in the period ended September 30, 2008 generated a loss of R$26,692 were inventoried and a gain in the amount of R$18,665 was already amortized as Operating results under Costs of goods sold.


The unrealized results of futures contracts for grain are not recognized in the accounting. These contracts are defined as operating, according to the objective of the hedge. The amounts of these contracts, if they were recorded in the period ended September 30, 2008, would result in a loss of R$31,848 recorded as inventories.


d.   Estimated market values


The Company used the following methods and assumptions to estimate the disclosure of the fair value of its financial instruments as of September 30, 2008 and June 30, 2008:


      •  Cash and cash equivalents - The book values of cash and banks recorded in the balance sheet
         are similar to the respective fair values.


      •  Short-term financial investments - The fair value of short-term financial investments is



67


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 




estimated based on the market quotations of comparable contracts or cash flows.


·

Accounts receivable and payable - The book values of accounts receivable and payable recorded in the balance sheet are similar to their respective fair values.


·

Investments - The market values of the investments were obtained from their market quotations.


·

Short and long-term loans and financing - The market values of loans and financing were calculated based on their present value calculated through the future cash flows and using interest rates applicable to instruments of similar nature, terms and risks, or based on the market quotation of these securities. The market values of BNDES financing are similar to the book values, since there are no similar instruments with comparable maturities and interest rates.


·

Forward futures contracts: The fair values of the forward futures contracts were estimated based on the use of future values that considers same maturity discounted at present value using future discount rates. The effective cash settlement of the contracts occurs on the respective maturities.  The Company does not intend to settle these contracts before their maturity date.  


·

Interest rate swap contracts: The fair values of the interest rate contracts were estimated based on the market quotations for similar contracts. The effective cash settlement of the contracts occurs on the respective maturity dates.  The Company does not intend to settle these contracts before their maturity date.   


·

Options contracts: In the case of options, the pricing is done through the Black & Scholes model, which is widely used for valuing options and which takes into consideration the volatility, exercise price, interest rates and maturity period.  


The market values were estimated on the balance sheet date, based on “relevant market information”. Changes in the assumptions may significantly affect these estimates.




68


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



The book values and the estimated fair values of the Company’s financial instruments as of September 30, 2008 and June 30, 2008  are presented in the table below. The fair value of a financial instrument is the amount for which the instrument could be traded between interested parties under current market conditions.


 

Consolidated

 

September 30, 2008

June 30, 2008

 

Book value

Market value

Book value

Market value

 

 

 

 

 

Cash and cash equivalents

   138,928

   138,928

     60,017

    60,017

Short-term investments - Local Currency

2,062,242

2,162,903

   730,770

   921,162

Short-term investments - Foreign Currency

1,332,038

1,332,038

1,214,418

1,214,418

Trade accounts receivable

   539,416

   539,416

   493,260

   493,260

Inventories

1,983,390

1,925,264

              -

               -

Investments

       2,086

       2,086

       2,106

       2,106

Loans and financing

7,491,139

7,284,776

4,155,622

4,139,761

Suppliers

   993,460

   993,460

   844,578

   844,578

Future contracts, net

     (37,486)

    (37,486)

     21,009

    21,009





69


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 


e.   Financial indebtedness


 

Consolidated

 

September 30, 2008

June 30, 2008

 

Currency

Currency

 

Local

Foreign

Total

Local

Foreign

Total

Assets

 

 

 

 

 

 

Cash and cash equivalents

     25,128

   113,800

   138,928

      6,941

        53,076

     60,017

Short-term investments

1,931,783

1,332,038

3,263,821

  609,767

  1,214,418

1,824,185

Accounts receivable from future contracts


              -


    238,651


    238,651

            -

        59,770

     59,770

Total current assets

1,956,911

1,684,489

3,641,400

616,708

1,327,264

1,943,972

 

 

 

 

 

 

 

Long-term investments

   130,459

               -

   130,459

121,003

-

   121,003

Total noncurrent assets

   130,459

               -

   130,459

121,003

-

   121,003

Total assets

2,087,370

1,684,489

3,771,859

737,711

1,327,264

2,064,975

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Short-term financing

1,909,003

1,650,767

3,559,770

   514,699

      491,358

  1,006,057

Accounts payables from future contracts


               -


   276,137


   276,137


              -

      38,761

     38,761

Swap contracts - short-term

          884

          (884)

            -

       3,607

       (3,607)

       -

Total current liabilities

1,909,887

1,926,020

3,835,907

    518,306

    526,512

1,044,818

 

 

 

 

 

 

 

Long-term financing

1,523,354

2,408,015

3,931,369

1,299,484

1,850,081

3,149,565

Total noncurrent liabilities

1,523,354

2,408,015

3,931,369

1,299,484

1,850,081

3,149,565

Total liabilities

3,433,241

4,334,035

7,767,276

1,817,790

2,376,593

4,194,383

Net debt

(1,345,871)

(2,649,546)

(3,995,417)

(1,080,079)

(1,049,329)

(2,129,408)


70


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 



23   Insurance


The Company and its subsidiaries adopt insurance engagement policy at levels that Management considers adequate to cover risks resulting from the claims of its assets.  Due to the characteristics of multilocated operations, Management engages its policies with a limit of maximum loss possible in the same event, with amounts calculated based on risk inspections and potential losses.  The policies engaged guarantee coverage against fire, general civil liability, windstorms, disorders and electric damage, as well as insurance for merchandise transport, personal and vehicle damage.  The amount currently insured guarantees the comprehensive coverage of the Company’s fixed assets.


The assumptions adopted, given their nature, are not part of the scope of an audit of financial statements and, accordingly, they were not examined by our independent auditors.



24  Private pension plan


a.

Defined benefit plan


The Company and its subsidiary Concórdia S.A. C.V.M.C.C. are the sponsors of a defined contribution pension plan for employees, managed by “Fundação Attílio Francisco Xavier Fontana”.


The supplementary pension benefit is defined as the difference between (i) the benefit wage (updated average of the last 12 participation salaries, limited to 80% of the last participation salary) and (ii) the amount of the pension paid by the National Institute of Social Security. The supplementary benefit is updated every year by the National Consumer Price Index - INPC.


The actuarial system is that of capitalization for supplementary retirement and pension benefits and of simple apportionment for supplementary disability compensation. The Company’s contribution is based on a fixed percentage of the payroll of active participants, as annually recommended by independent actuaries and approved by the trustees of “Fundação Attilio Francisco Xavier Fontana”.



71


Sadia S.A.


Publicly-held Company




Notes to the interim financial information


(In thousands of Reais)

 

 

 

 

 

 

According to the Foundation’s statutes, the sponsoring companies are jointly liable for the obligations undertaken by the Foundation on behalf of its participants and dependents.


At September 30, 2008 the Foundation had a total of 18,837 participants (19,042 on June 30, 2008), of which 14,801 were active participants (15, 055 on June 30, 2008).


The contributions of the parent company, on September 30, 2008 and 2007, amounted to R$1,577 and R$1,489 and R$1,648 and R$1,535 in the consolidated, respectively.


b.

Defined contribution plan


As from January 1, 2003, the Company began to adopt new supplementary pension plans under the defined contribution modality for all employees hired by Sadia and its subsidiaries. As from January 1, 2007 these plans are only available to employees earning over R$1,800 per month. Under the terms of the regulations, plans are funded on an equitable basis so that the portion paid by the Company is equal to the payment made by the employee in accordance with a contribution scale based on salary bands that vary between 1,5% and 6% of the employee’s remuneration, observing a contribution limit that is updated annually. The contributions made by the Company on September 30, 2008 and 2007 totaled R$1,780 and R$1,070 respectively. As of Septeber 30, 2008 this plan had 1,806 participants (1,713 participants on June 30, 2008).




72


Sadia S.A.


Publicly-held Company





Board of Directors



Walter Fontana Filho

Chairman


Eduardo Fontana D'Ávila

Vice-president


Cássio Casseb Lima

Member


Diva Helena Furlan

Member


Everaldo Nigro dos Santos

Member


Francisco Silvério Morales Céspede

Member


José Marcos Konder Comparato

Member


Luiza Helena Trajano Inácio Rodrigues

Member


Norberto Fatio

Member


Roberto Faldini

Member


Vicente Falconi Campos

Member




73


Sadia S.A.


Publicly-held Company



Officers

Gilberto Tomazoni

Chief Executive Officer

Gilberto Meirelles Xandó Baptista

Domestic Market Vice-president

Sérgio Carvalho Mandin Fonseca

International Market Vice-president

Valmor Savoldi

Operations Vice-president

Alexandre de Campos

International Sales Director

Alfredo Felipe da Luz Sobrinho

Institutional Relations and Legal Matters Director

Amaury Magalhães Maciel Filho

Agribusiness Operations Director

Andelaney Carvalho dos Santos

IT and Shared Services Director

Antonio Paulo Lazzaretti

Guarantee of quality and sustainability Director

Eduardo Bernstein

Marketing Director

Eduardo Nunes de Noronha

Human Resources and Management Director

Ely David Mizrahi

National Food Service Director

Ernest Sícoli Petty

Sustainability Director

Flávio Luís Fávero

Center for Innovation and Industrial Excellence Director

Guilhermo Henderson Larrobla

International Operations Director

Helio Rubens Mendes dos Santos Jr.

Industrial Technology Director

Hugo Frederico Gauer

Russia Operations Director

Jean Alphonse Karr

International Sales Director

José Augusto Lima de Sá

International Relationships Director

Jun Celso Eguti

Competitive Strategy Director

Licinio Antonio Huffenbaecher Jr.

Bovine Activities Director

Nelson Ricardo Teixeira

National Sales Director

Osório Dal Bello

Center for Innovation and Agribusiness Excellence Director

Paulo Francisco Alexandre Striker

Logistics Director

Ralf Piper

Quality Assurance Director

Ricardo Lobato Faucon

Supply Director

Ricardo Fernando T. Fernandes

Grain Purchase Director

Roberto Banfi

International Sales Director

Ronaldo Korbag Muller

Industrial Operations Director

Welson Teixeira Junior

Controller, Administrative, Information Technology and Investor Relations Director and Chief Financial Officer

Augusto Ribeiro Junior

Controllership Manager

Giovanni F. Lipari Accountant

CRC 1SP201389/0-7-S-SC




74