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JBS S.A.
Financial
statements
and
Report
of
Independent auditors
As of March 31, 2012 and 2011
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KPMG Auditores Independentes
R. Dr. Renato Paes de Barros, 33
04530-904 - São Paulo, SP - Brasil
Caixa Postal 2467
01060-970 - São Paulo, SP - Brasil
Central Tel
55 (11) 2183-3000
Fax Nacional
55 (11) 2183-3001
Internacional
55 (11) 2183-3034
Internet
www.kpmg.com.br
KPMG Auditores Independentes, uma sociedade simples brasileira e
firma-membro da rede KPMG de firmas-membro independentes e
afiliadas à KPMG International Cooperative ("KPMG International"),
uma entidade suíça.
KPMG Auditores Independentes, a Brazilian entity and a member
firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative ("KPMG International"), a
Swiss entity.
2






Report on the quarterly information review


To
The Board of Directors and Shareholders of
JBS S.A.
São Paulo - SP


Introduction

We have reviewed the individual and consolidated interim financial information of JBS S.A.
("Company") contained within the Quarterly Information - ITR for the three-month period ended
on March 31, 2012, which comprise the balance sheet and the related statements of operations,
comprehensive income, changes in equity and cash flows for the three-month period then ended,
including the notes to these interim financial information.

Management is responsible for the preparation of the individual interim financial information in
accordance with Technical Pronouncement (CPC) 21 (R1) ­ Interim Financial Reporting and the
consolidated interim financial information in accordance with the CPC 21 (R1) and with the
International Accounting Standard (IAS) 34 - Interim Financial Reporting, issued by the
International Accounting Standards Board (IASB), and for the presentation of these interim
financial information in accordance with the standards issued by the Brazilian Securities and
Exchange Commission (CVM) applicable to the Quarterly Information - ITR. Our responsibility
is to express a conclusion on this interim financial information based on our review.

Scope of the review

We conducted our review in accordance with Brazilian and International Standard on Review of
interim financial information (NBC TR 2410 and ISRE 2410 -
Review of Interim Financial
Information Performed by the Independent Auditor of the Entity, respectively). A review of
interim information consists of making inquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review procedures. A review is
substantially less in scope than an audit conducted in accordance with International Standards on
Auditing and consequently does not enable us to obtain assurance that would become aware of all
significant matters that might be identified in an audit. Accordingly, we do not express an audit
opinion.
Conclusion about the individual interim financial information
Based on our review, we are not aware of any fact that causes us to believe that the individual
interim financial information included in the quarterly information referred to above is not
prepared, in all material respects, in accordance with CPC 21 (R1) applicable to Quarterly
Information and presented in accordance with the standards issued by the Brazilian Securities and
Exchange Commission.
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3
Conclusion about the consolidated interim financial information

Based on our review, we are not aware of any fact that causes us to believe that the consolidated
interim financial information included in the quarterly information referred to above is not
prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34 applicable to
Quarterly Information and presented in accordance with the standards issued by the Brazilian
Securities and Exchange Commission.

Other issues

Interim statement of value added

We have also reviewed the individual and consolidated Interim Statement of Value added for the
period ended March 31, 2012,
which are the responsibility of its Management,
which
presentation
in the interim financial statements is required in accordance with the standards
issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the
preparation of the Quarterly Information and considered as supplemental information by IFRS,
which do not require the disclosure of the Statement of Value Added. This statement was
submitted to the same review procedures previously described and based on our review, we are
not aware of any fact that would lead us to believe that they have not been
fairly stated, in all
material respects, in relation to the Individual and Consolidated interim financial information
taken as a whole.

Review of the prior period amounts

KPMG Auditores Associados (incorporated in December 2, 2011 by KPMG Auditores
Independentes) reviewed the ínterim financial information for the period ended March 31, 2011,
and issued report dated May 9, 2011, unmodified.


São Paulo, May 14, 2012


KPMG Auditores Independentes
CRC 2SP014428/O-6




Orlando Octávio de Freitas Júnior
Contador CRC 1SP178871/O-4
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JBS S.A.
Balance sheets
(In thousands of Reais)
Note
March 31, 2012
December 31, 2011
March 31, 2012
December 31, 2011
ASSETS
CURRENT ASSETS
Cash and cash equivalents
4
3,177,231
3,612,867
5,150,828
5,288,194
Trade accounts receivable, net
5
1,840,663
1,883,093
4,431,010
4,679,846
Inventories
6
1,691,558
1,544,261
5,594,857
5,405,705
Biological assets
7
-
-
171,295
209,543
Recoverable taxes
8
1,421,441
1,330,609
1,916,537
1,690,311
Prepaid expenses
13,099
8,148
138,013
131,033
Other current assets
219,142
256,225
467,021
526,649
TOTAL CURRENT ASSETS
8,363,134
8,635,203
17,869,561
17,931,281
NON-CURRENT ASSETS
Long-term assets
Credits with related parties
9
611,629
88,505
498,069
552,197
Judicial deposits and others
167,347
104,207
411,653
389,947
Recoverable taxes
8
560,558
562,027
622,664
626,126
Total long-term assets
1,339,534
754,739
1,532,386
1,568,270
Investments in subsidiaries
10
6,254,220
7,561,574
-
-
Property, plant and equipment, net
11
8,057,574
7,803,582
15,364,157
15,378,714
Intangible assets, net
12
9,531,393
9,531,506
12,478,965
12,532,619
23,843,187
24,896,662
27,843,122
27,911,333
TOTAL NON-CURRENT ASSETS
25,182,721
25,651,401
29,375,508
29,479,603
TOTAL ASSETS
33,545,855
34,286,604
47,245,069
47,410,884
The accompanying notes are an integral part of the financial statements
Company
Consolidated
2
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JBS S.A.
Balance sheets
(In thousands of Reais)
Note
March 31, 2012
December 31, 2011
March 31, 2012
December 31, 2011
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable
13
838,313
666,375
3,193,850
3,323,886
Loans and financings
14/15
4,226,873
4,574,702
5,018,748
5,339,433
Income taxes
17
-
-
10,193
211,528
Payroll, social charges and tax obligation
17
429,565
347,863
1,182,422
1,167,163
Payables related to facilities acquisitions
19
136,040
10,589
136,040
10,589
Other current liabilities
443,724
466,402
423,232
343,100
TOTAL CURRENT LIABILITIES
6,074,515
6,065,931
9,964,485
10,395,699
NON-CURRENT LIABILITIES
Loans and financings
14/15
6,210,233
7,095,193
13,667,344
13,532,761
Convertible debentures
16
1,283
1,283
1,283
1,283
Payroll, social charges and tax obligation
17
-
-
673,041
683,812
Payables related to facilities acquisitions
19
48,881
2,048
48,881
2,048
Deferred income taxes
20
413,298
289,798
797,598
678,372
Provision for lawsuits risk
18
142,325
140,975
197,295
251,560
Other non-current liabilities
26,412
27,554
243,696
266,161
TOTAL NON-CURRENT LIABILITIES
6,842,432
7,556,851
15,629,138
15,415,997
SHAREHOLDERS' EQUITY
21
Capital stock
21,506,247
21,506,247
21,506,247
21,506,247
Capital transaction
(10,127)
(10,212)
(10,127)
(10,212)
Capital reserve
373,366
985,944
373,366
985,944
Revaluation reserve
100,100
101,556
100,100
101,556
Profit reserves
1,440,799
1,440,799
1,440,799
1,440,799
Treasury shares
-
(610,550)
-
(610,550)
Valuation adjustments to shareholders' equity in subsidiaries
126,972
127,071
126,972
127,071
Accumulated translation adjustments in subsidiaries
(3,025,984)
(2,877,033)
(3,025,984)
(2,877,033)
Retained earnings
117,535
-
117,535
-
Attributable to controlling interest
20,628,908
20,663,822
20,628,908
20,663,822
Attributable to noncontrolling interest
-
-
1,022,538
935,366
TOTAL SHAREHOLDERS' EQUITY
20,628,908
20,663,822
21,651,446
21,599,188
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
33,545,855
34,286,604
47,245,069
47,410,884
The accompanying notes are an integral part of the financial statements
Company
Consolidated
3
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JBS S.A.
Statements of income for the three months period ended March 31, 2012 and 2011
(In thousands of Reais)
Note
2012
2011
2012
2011
NET SALE REVENUE
22
3,350,379
3,172,007
16,011,080
14,672,740
Cost of goods sold
(2,451,641)
(2,493,902)
(14,357,175)
(12,984,313)
GROSS INCOME
898,738
678,105
1,653,905
1,688,427
OPERATING INCOME (EXPENSE)
General and administrative expenses
(162,472)
(145,423)
(427,891)
(418,917)
Selling expenses
(327,025)
(298,505)
(816,404)
(737,451)
Financial expense, net
25
(38,775)
(303,081)
(155,821)
(351,130)
Equity in earnings of subsidiaries
10
(130,962)
195,505
-
-
Other income (expenses), net
26
75
2,894
(12,185)
(8,769)
(659,159)
(548,610)
(1,412,301)
(1,516,267)
NET INCOME BEFORE TAXES
239,579
129,495
241,604
172,160
Current income taxes
20
750
748
16,643
(194,595)
Deferred income taxes
20
(124,250)
16,725
(128,728)
112,360
(123,500)
17,473
(112,085)
(82,235)
NET INCOME OF THE PERIOD
116,079
146,968
129,519
89,925
ATTRIBUTABLE TO:
Controlling interest
116,079
146,968
Noncontrolling interest
13,440
(57,043)
129,519
89,925
Net income basic per thousand shares - in reais
23
39.16
59.17
39.16
59.17
The accompanying notes are an integral part of the financial statements
Company
Consolidated
4
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JBS S.A.
Statement of comprehensive income for the three months period ended March 31, 2012 and 2011
(In thousands of Reais)
2012
2011
2012
2011
Net income of the period
116,079
146,968
129,519
89,925
Other comprehensive income
Valuation adjustments to shareholders' equity in subsidiaries
(99)
(98)
(99)
(98)
Accumulated adjustment of conversion in subsidiaries
(558)
17,336
(558)
17,336
Exchange variation in subsidiaries
(148,393)
(185,973)
(148,393)
(185,973)
Total of comprehensive income
(32,971)
(21,767)
(19,531)
(78,810)
Total of comprehensive income attributable to:
Controlling interest
(32,971)
(21,767)
(17,504)
(48,221)
Noncontrolling interest
-
-
(2,027)
(30,589)
(32,971)
(21,767)
(19,531)
(78,810)
The accompanying notes are an integral part of the financial statements
Company
Consolidated
5
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JBS S.A.
Statements of changes in shareholders' equity for the three months period ended March 31, 2012 and 2011
(In thousands of Reais)
Valuation
adjustments to
Accumulated
Total
Capital
Capital
Capital Revaluation
For
Retained
Noncontrolling
shareholders'
stock
transactions
reserve
reserve
Legal
expansion
Earnings
Total
interest
equity
BALANCE AS OF DECEMBER 31, 2010
18,046,067
(9,949)
985,944
106,814
7,768
1,329,796
(485,169)
(1,719)
(2,385,181)
-
17,594,371
1,100,478
18,694,849
Capital transaction
-
2
-
-
-
-
-
-
-
-
2
-
2
Treasury shares
-
-
-
-
-
-
(55,398)
-
-
-
(55,398)
-
(55,398)
Realization of revaluation reserve
-
-
-
(1,452)
-
-
-
-
-
1,452
-
-
-
Valuation adjustments in subsidiaries shareholders´ equity
-
-
-
-
-
-
-
(98)
-
-
(98)
-
(98)
Accumulated translation adjustments in subsidiaries shareholders' equity
-
-
-
-
-
-
-
-
17,336
-
17,336
-
17,336
Investments exchange rate variations, net
-
-
-
-
-
-
-
-
(185,973)
-
(185,973)
-
(185,973)
Net income of the period
-
-
-
-
-
-
-
-
-
146,968
146,968
(57,043)
89,925
Noncontrolling interest
-
-
-
-
-
-
-
-
-
-
-
(26,216)
(26,216)
BALANCE AS OF MARCH 31, 2011
18,046,067
(9,947)
985,944
105,362
7,768
1,329,796
(540,567)
(1,817)
(2,553,818)
148,420
17,517,208
1,017,219
18,534,427
BALANCE AS OF DECEMBER 31, 2011
21,506,247
(10,212)
985,944
101,556
7,768
1,433,031
(610,550)
127,071
(2,877,033)
-
20,663,822
935,366
21,599,188
Capital transactions
-
85
-
-
-
-
-
-
-
-
85
-
85
Purchase of treasury shares
-
-
-
-
-
-
(2,028)
-
-
-
(2,028)
-
(2,028)
Cancellation of treasury shares
-
-
(612,578)
-
-
-
612,578
-
-
-
-
-
-
Realization of revaluation reserve
-
-
-
(1,456)
-
-
-
-
-
1,456
-
-
-
Valuation adjustments to shareholders equity in subsidiaries
-
-
-
-
-
-
-
(99)
-
-
(99)
-
(99)
Accumulated translation adjustments in subsidiaries
-
-
-
-
-
-
-
-
(558)
-
(558)
-
(558)
Investments exchange rate variations, net
-
-
-
-
-
-
-
-
(148,393)
-
(148,393)
-
(148,393)
Net income of the period
-
-
-
-
-
-
-
-
-
116,079
116,079
13,440
129,519
Noncontrolling interest
-
-
-
-
-
-
-
-
-
-
-
73,732
73,732
BALANCE AS OF MARCH 31, 2012
21,506,247
(10,127)
373,366
100,100
7,768
1,433,031
-
126,972
(3,025,984)
117,535
20,628,908
1,022,538
21,651,446
The accompanying notes are an integral part of the financial statements
Profit reserves
shareholders'
equity
translation
adjustments
Treasury
shares
6
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JBS S.A.
(In thousands of Reais)
2012
2011
2012
2011
Cash flow from operating activities
Net income of the period attributable to controlling interest
116,079
146,968
116,079
146,968
Adjustments to reconcile loss to cash provided on operating activities
. Depreciation and amortization
105,084
97,270
285,043
311,161
. Allowance for doubtful accounts
-
1,128
(2,086)
7,851
. Equity in earnings of subsidiaries
130,962
(195,505)
-
-
. Loss (gain) on assets sales
(75)
(1,525)
6,114
(1,863)
. Deferred income taxes
124,251
(16,725)
128,728
(112,360)
. Current and non-current financial charges
(297,993)
86,527
(219,501)
164,524
. Provision for lawsuits risk
1,350
2,108
(15)
2,692
. Impairment
-
-
4,144
-
179,658
120,246
318,506
518,973
Decrease (increase) in operating assets
Trade accounts receivable
43,934
33,627
210,061
31,632
Inventories
(147,297)
44,596
(273,759)
(105,371)
Recoverable taxes
(44,593)
(76,027)
(225,116)
(84,412)
Other current and non-current assets
(31,007)
(46,039)
2,440
(90,819)
Related party receivable
(347,365)
(87,495)
44,691
68,268
Biological assets
-
-
33,374
(10,642)
Increase (decrease) operating liabilities
Trade accounts payable
167,155
(33,372)
(104,951)
(430,175)
Other current and non-current liabilities
100,559
(217,471)
21,961
(264,225)
Noncontrolling interest
-
-
13,440
(57,043)
Valuation adjustments to shareholders' equity in subsidiaries
-
-
(77,156)
(72,655)
Net cash provided by (used in) operating activities
(78,956)
(261,935)
(36,509)
(496,469)
Cash flow from investing activities
Additions to property, plant and equipment and intangible assets
(226,991)
(104,355)
(291,965)
(315,305)
Increase in investments in subsidiaries
-
(552,356)
-
-
Decrease in investments in subsidiaries
871,887
-
-
-
Proceeds received from termination agreement of Inalca JBS
-
504,002
-
504,002
Net effect of working capital of acquired (merged) company
-
-
151
-
Net cash provided by (used in) investing activities
644,896
(152,709)
(291,814)
188,697
Cash flow from financing activities
Proceeds from loans and financings
453,764
1,381,281
4,421,162
2,727,498
Payments of loans and financings
(1,453,397)
(1,739,270)
(4,211,525)
(2,860,053)
Capital transactions
85
-
(263)
-
Shares acquisition of own emission
(2,028)
(55,398)
(1,680)
(55,398)
Net cash provided by (used in) financing activities
(1,001,576)
(413,387)
207,694
(187,953)
Effect of exchange variation on cash and cash equivalents
-
-
(16,737)
(21,573)
Variance in cash and cash equivalents
(435,636)
(828,031)
(137,366)
(517,298)
Cash and cash equivalents at the beginning of the year
3,612,867
3,000,649
5,288,194
4,074,574
Cash and cash equivalents at the end of the period
3,177,231
2,172,618
5,150,828
3,557,276
The accompanying notes are an integral part of the financial statements
Statements of cash flows for the three months period ended March 31, 2012 and 2011
Company
Consolidated
7
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JBS S.A.
(In thousands of Reais)
2012
2011
2012
2011
Revenue
Sales of goods and services
3,583,442
3,372,684
16,328,561
15,186,861
Other net income (expenses)
2,798
2,159
(1,142)
(6,034)
Allowance for doubtful accounts
-
(1,128)
2,086
(7,851)
3,586,240
3,373,715
16,329,505
15,172,976
Goods
Cost of services and goods sold
(1,939,996)
(1,868,575)
(11,170,260)
(7,919,552)
Materials, energy, services from third parties and others
(536,984)
(539,505)
(2,374,063)
(4,730,729)
Losses/Recovery of amounts
-
-
(92)
22,969
Others
-
-
-
1,456
(2,476,980)
(2,408,080)
(13,544,415)
(12,625,856)
Gross added value
1,109,260
965,635
2,785,090
2,547,120
Depreciation and Amortization
(105,084)
(97,270)
(285,043)
(311,161)
Net added value generated by the company
1,004,176
868,365
2,500,047
2,235,959
Net added value by transfer
Equity in earnings of subsidiaries
(130,962)
195,505
-
-
Financial income
449,591
694,388
567,038
821,970
Others
597
1,879
7,184
908
-
-
-
-
NET ADDED VALUE TOTAL TO DISTRIBUTION
1,323,402
1,760,137
3,074,269
3,058,837
Distribution of added value
Labor
Salaries
283,829
255,194
1,400,705
1,195,235
Benefits
32,155
47,246
320,106
83,718
FGTS (Brazilian Labor Social Charge)
14,326
18,293
17,147
20,181
330,310
320,733
1,737,958
1,299,134
Taxes and contribution
Federal
185,040
113,597
203,845
238,886
State
190,978
177,119
212,123
246,144
Municipal
4,559
552
4,931
788
380,577
291,268
420,899
485,818
Capital Remuneration from third parties
Interests
456,846
973,333
684,887
1,160,128
Rents
13,150
14,388
64,734
19,170
Others
26,440
13,447
36,272
4,662
496,436
1,001,168
785,893
1,183,960
Owned capital remuneration
Net income of the period attibutable to controlling interest
116,079
146,968
116,079
146,968
Noncontrolling interest
-
-
13,440
(57,043)
116,079
146,968
129,519
89,925
ADDED VALUE TOTAL DISTRIBUTED
1,323,402
1,760,137
3,074,269
3,058,837
The accompanying notes are an integral part of the financial statements.
Company
Consolidated
Economic value added for the three months period ended March 31, 2012 and 2011
8
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JBS S.A.
(Expressed in thousands of reais)
1
a) Activities in Brazil
In Company
In subsidiaries
b) Activities abroad
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
JBS S.A ( "JBS", the "Company") is a listed company in the "Novo Mercado" segment, based in the city of São Paulo, Brazil, which requires the highest level of
corporate governance in the Brazilian market and its shares are traded on the BM&F Bovespa S.A - Stock Exchange, Commodity and Forward.
The Company performs slaughter facility, cold storage of cattle meat, meat processing operations for the production of beef, by-products of meat and canned
goods, through forty-three industrial facilities based in the States of Acre, Bahia, Goiás, Minas Gerais, Mato Grosso do Sul, Mato Grosso, Pará, Rio de Janeiro,
Rondônia and São Paulo.
JBS Embalagens Metálicas Ltda (JBS Embalagens) produces metal packing in its plant based in the State of São Paulo, for the Company use.
The Company distributes its products through nine distribution centers based in the States of Amazonas, Bahia, Espírito Santo, Minas Gerais, Pernambuco,
Paraná, Rio de Janeiro, Rio Grande do Sul, and São Paulo.
JBS Confinamento Ltda. (JBS Confinamento) is based in Castilho and Guaiçara - State of São Paulo, Nazário and Aruanã - State of Goiás and Lucas do Rio
Verde - State of Mato Grosso, operates the activity of buying and reselling for fattening beef and providing services of fattening beef of its own and third party
cattle for slaughtering.
The Company and its subsidiaries develop the following operational activities:
The indirect subsidiary S.A. Fábrica de Produtos Alimentícios Vigor (Vigor), based in the City of São Paulo engages in the processing and distribution of dairy
products in general, fresh milk and milk products and the refining, processing and distribution of oils, vegetable products derived, instant noodles and yogurt.
Vigor, through the concession of registration on "Foods and Drug Administration - FDA, " is qualified to export its entire product line to the United States of
America".
Operating activities
Due the unfavorable scenario in the meat industry in Argentina since the year 2008, the Company has decided temporarily to discontinue its operations of the
following plants: San Jose (Province of Entre Rios) in the year of 2009, Colonia Caroya (Province of Córdoba), Consignaciones Rurales (Province of Buenos
Aires) on the year 2010 and definitely Venado Tuerto (Province of Santa Fé) on the year ended 2011.
The indirect subsidiary Meat Snacks Partner do Brasil Ltda (Meat Snacks), a joint venture with shared control between the JBS´s subsidiary JBS Handels GMBH
and the third party company Jack Link Beef Jerky, is based in Santo Antônio da Posse, State of São Paulo, produces Beef Jerky since May 2011, purchasing
fresh meat in the domestic market and exports to the United States of America. As of March 2012, Meat Snacks opened a unit in the city of Lins, also in the State
of São Paulo, in order to expand its operations.
Cascavel Couros Ltda. (Cascavel), based in Cascavel, State of Ceará, whose activity is the production, distribution, import and export of hides and leather
products, preparation finishing and manufacture mainly upholstery leather and other leather artifacts. It is specialized in the processing of cattle leather and
products, engaged in producing leather on the stages of Wet Blue, Semi Finished and Finished. Cascavel buys leather from slaughter facilities of JBS Group,
selling especially to the foreign market, to Europe and United States of America .
In the United States of America, JBS USA owns eight beef processing facilities, three pork processing facilities, one lamb slaughter facility services, one value-
added facility, and twelve feedlots. JBS USA operates eleven processing facilities, two value added facilities and five feedlots in Australia.
The Company has strong operations of leather tanning, most of its production intended to export in the segments of leather for furniture, automotive, footwear and
artifacts, in the stages of Wet Blue, Semi Finished and Finished. The structure is composed of fourteen industrial facilities based in the States of Espirito Santo,
Goiás, Minas Gerais, Mato Grosso, Mato Grosso do Sul, Pará, Rio Grande do Sul, Rondônia, São Paulo and Tocantins. JBS has one distribution center based in
the State of Mato Grosso do Sul.
Novaprom Food Ingredients Ltda. (Novaprom) based in Guaiçara, State of São Paulo, operates the exploration, production, distribution, export and import of food
products and ingredients. It is the pioneer in the production of natural collagen fiber and protein, collagen in its purest form, extracted from the suede and with the
minimum of 99% protein content, it is the largest company in the world in production and distribution of natural collagen fiber. Novaprom sells its products
throughout Brazil and exports to continents such as Europe, Latin America, Asia and Oceania.
JBS Argentina S.A. (JBS Argentina), an indirect wholly-owned subsidiary of the Company, based in Argentina, operates slaughter facilities and cold storage
facilities for the production of beef, canned goods, fat, pet food and beef products, and has seven industrial facilities based in the provinces of Buenos Aires, Entre
Rios, Santa Fé and Córdoba.
Additionally, the Company operates in the segment of aluminum cans production, industrial waste management and plastic resin manufacturing; bar soap and
soap production for its own brands of cleaning and hygiene segment; production of biodiesel, glycerin, olein and fatty acid; purchase and sale of soybeans, tallow,
palm oil, caustic soda, stearin; industrialization and sale of tripe; own transport operations for retail sale, cattle for slaughter and export products. The Company
also has stores named "Beef Shopping" that sell meat and barbecue related items directly to consumers. With the merger of Biolins, the Company is also engaged
in the production and distribution of electric power, cogeneration and storage of hot water for heating, with the permission of the proper government authorities.
JBS USA Holdings Inc. (JBS USA) and its subsidiaries process, prepare, package and deliver fresh, further processed and value-added beef, pork, chicken and
lamb products for sale to customers in the United States of America and in international markets.
9
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
2
a. Declaration of conformity
The JBS Leather Paraguay, based in Assunção, Paraguay, operate in the leather segment, buying fresh leather from the local market and producing and export to
the foreign market, on the stages of Wet Blue
The indirect subsidiary Rigamonti Salumificio SpA (Rigamonti), based in Italy, consists of the leadership of the Italian market in production and sales of Bresaola
(bovine cured beef). It is part of its operation also the production and sales of beef jerky and flat cured pork belly (bacon), as well as the commercialization of
cured ham.
The indirect JBS Leather Europe s.r.o. (JBS Leather), has one administrative and sales office based in the city of Prague, and a warehouse based in the city of
Borsov, both in the Czech Republic. JBS Leather buys leather from JBS Group and trades finished leathers in foreign markets, with focus on Eastern Europe,
once Poland and Germany are the major consumer countries.
Elaboration and presentation of consolidated financial statements
These financial statement includes:
-The Company consolidated financial statements were prepared and in accordance with International Financing Reporting Standards (IFRS) issued by the
International Accounting Standards Board (IASB), and also in accordance with pronouncements, interpretations and orientations of Brazilian Accounting
Pronouncements Committee ( Comitê de Pronunciamentos Contábeis) - CPC approved by resolutions of the Brazilian Federal Accounting Council (Conselho
Federal de Contabilidade) - CFC and requirements of the Brazilian Securities Commission - CVM.
-The individual financial statements were prepared in accordance with accounting practices adopted in Brazil, in compliance with the Law of joint stock companies
(Lei das sociedades por ações - Leis das SA's), considering the amendments made by Brazilian Laws 11.638/07 and 11.941/09 and pronouncements,
interpretations and orientations of Brazilian Accounting Pronouncements Committee ( Comitê de Pronunciamentos Contábeis) - CPC approved by resolutions of
the Brazilian Federal Accounting Council (Conselho Federal de Contabilidade) - CFC, and requirements of the Brazilian Securities Commission - CVM.
JBS Italia s.r.l. (JBS Italia), based in the city of Arzignano, and its subsidiary JBS Matera (Matera), based in the city of Matera, both in Italy, operate in the leather
segment, buying leather from JBS Group and trading in domestic and European market, producing leather in Semi Finished and Finished stages.
The indirect subsidiary JBS Paraguay S.A (JBS Paraguay), based in Assunção, as well as in San Antonio, both in Paraguay, slaughters and processes chilled and
frozen beef and raw leather. Most of its production is destined to export to others subsidiaries of JBS Group. It is licensed to export to the European Union, Chile,
Russia and other markets.
Lesstor LLC is a warehouse based in Russia whose activity is the storage of its own and third parties products through rental agreements and storage services.
The indirect subsidiary JBS Middle East FZE (Middle East), based in Dubai in the Emirates Arab United, and its subsidiary Sanaye Ghazaei Saeid Taam
Co.(Sanaye) based in the city of Tehram Iran, sell food products of bovine origin acquired from the JBS Group for the Middle East market.
The indirect subsidiary Frigorífico Canelones S.A (Frigorífico Canelones), based in Canelones, Uruguay, slaughters and processes "in natura" beef to export and
for local markets. Also sells meat cuts with bones, mainly to the local market.
The indirect subsidiary Egygate Distribution (Egygate), based in Egypt, is a wholesaler of food products.
The indirect subsidiary Misr Cold Centers and Storage (Misr Cold), based in Egypt, is a storage of fruits, meats and other kind of products that need to be frozen
or chilled.
The indirect subsidiary Trump Asia Enterprises Limited (Trump), based in China, has a leather processing plant, whose activity consists of the process of leather
industrialization to be sold mainly for the local production of bags and shoes. It has three sales offices in Hong Kong, focused on the Asian market, and buys most
of its products from JBS Group and third party.
In JBS USA, Pilgrim's Pride - PPC based in Greeley, Colorado, United States of America is one of the largest chicken processing in the United States of America,
with operations in Mexico and Puerto Rico. Exporting commodities to over ninety countries, the main products are "in-natura", whole chilled or chilled parts. The
main customers are restaurant chains, food processors, distributors, supermarkets, wholesalers, distributors and other retail, and export to Eastern Europe
(including Russia), Far East (including China), Mexico and other world markets. Operates twenty nine processing chicken facilities, supported by thirty one feed
mills, thirty - seven hatcheries, nine rendering facilities, eight further processing facilities and three pet food facilities in the United States and Mexico.
In JBS USA, JBS Trading USA, Inc. also based in the United States of America distributes processed beef products mainly in U.S. market.
JBS USA divides its operation into three categories: Beef, operating the segment of bovine products, Pork, operating the segment of pork and lamb products and
Poultry, operating the segment of poultry acquired through the business combination of Pilgrim´s Pride (PPC).
The indirect subsidiary Toledo International NV (Toledo) based in Belgium, has basically trading operations for the European, African, South American, Dutch and
Belgian markets, selling cooked meat and other products. Additionally, develops logistics operations, warehousing, customization and new products development.
In JBS USA, its subsidiary Sampco, Inc. (Sampco), based in Chicago, in the United States of America, imports processed meats primarily from South America for
resale to United States of America, Canada and the Caribbean. Sampco also imports other foods such as canned food, fruits and vegetables from other regions,
including the Far East, for sale in North America and Europe.
CJSC Prodcontract (Prodcontract) based in Russia, is an importer and distributor of fresh, chilled and frozen beef for the Russian Market, among the three
largest importers of beef from the Russian market.
Global Beef Trading Sociedade Unipessoal Lda (Global Beef Trading), an indirect wholly-owned subsidiary of the Company, based in Ilha da Madeira, Portugal,
sells food products such as beef, lamb, chicken and pork. Global Beef Trading imports the products from Latin America and exports to several countries in
Europe, Africa and Asia.
10
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Functional and presentation currency
3
The approval of these consolidated financial statements was given at the Board of Directors' meeting held on May 14, 2012.
In the income statement revenue is net of taxes, returns, rebates and discounts, as well as of intercompany sales, on note 22 is presented net revenue
reconciliation.
In the process of applying the Company's accounting policies, Management made the following judgments which can eventually have a material impact on the
amounts recognized in the financial statements:
· impairment of non-financial assets;
· loss on the reduction of recoverable taxes;
· retirement benefits;
· measurement at fair value of items related to business combinations;
· fair value of financial instruments;
· provision for tax, civil and labor risks;
· estimated losses on doubtful receivables;
· biological assets; and
· useful lives of property, plant and equipment.
The Company reviews its estimates and underlying assumptions used in its accounting estimates on a quarterly basis. Revisions to accounting estimates are
recognized in the financial statements in the period in which the estimates are revised.
a) Statements of income
The Company applied the accounting practices defined in Note 3 for the period presented, although it considers the terms of the CPC 21(R1) /IAS 34 - Interim
Financial Reporting , the Company is publishing the complete table of financial statements in its interim quarterly financial statements in accordance with the
requirements of the CPC 26 / IAS 1 - Presentation of financial statements.
The expenses are recorded on the accrual basis.
Revenue and expenses are recorded on the accrual basis. Revenue is measured at the fair value of the payment received or receivable for sale of products and
services in the Company normal course of business and its subsidiaries.
These consolidated financial statements are presented in Reais, which is the Company's functional currency. All financial information is presented in thousands of
reais.
The settlement of transactions involving these estimates may result in different amounts due to potential inaccuracies inherent in the process of its determination.
b) Accounting estimates
The main accounting practices used in the preparation of these consolidated financial statements, as described below, have been consistently applied over all the
reported periods, unless otherwise stated.
The financial statements of subsidiaries presented prior to the first time adoption of IFRS are adjusted to the policies adopted by the Group - International
Financing Reporting Standards (IFRS).Thus, the balance sheets of subsidiaries have been prepared with international accounting uniform policies and practices.
Similarly, for the new investments acquisitions after adoption of IFRS, IFRS 3 (R)/ CPC 15 - Business Combinations is applied, which presents investment of fair
value, subsequently, evaluating its investments.
c) Cash and cash equivalents
Cash and cash equivalents include cash balances, banks and financial investments with original maturities of three months or less from the date of the contract.
Significant accounting practices
According to IAS 18/CPC 30 - Revenues, the Company recognizes revenue when, and only when:
(i) the amount of revenue can be measured reliably;
(ii) the entity has transferred to the buyer the significant risks and rewards incidental to ownership over the goods;
(iii) it is probable that the economic benefits will flow to the Company and its subsidiaries;
(iv) the entity neither maintains involvement in the Management of product sold at levels normally associated with ownership nor effective control of such cost of
good sold.
(v) expenses incurred or to be incurred related to the transaction, can be reliably measured.
Since there is no difference between the consolidated shareholders' equity and the consolidated profit/loss attributable to shareholders of Company, presented in
the consolidated financial statements prepared in accordance with IFRSs and the practices adopted in Brazil, and shareholders' equity and profit/loss of the
Company, presented in the individual financial statements prepared in accordance with accounting practices adopted in Brazil, the Company has decided to
present individual and consolidated financial statements into a single set side by side.
Transitional Tax Regime (Regime Tributário Transitório - RTT) - The amounts presented in financial statements as of March 31, 2012 are considering the adoption
of the Tax Regime Transition (RTT) by the Company as allowed by Law n° 11.941/09, which aims to maintain neutrality tax changes in the Brazilian corporate law,
introduced by Law n° 11.638/07 and by the Law n° 11.941/09.
The individual financial statements present the evaluation of investments in subsidiaries by the equity method, according to Brazilian legislation. Thereby the
financial statements are not in accordance with the IFRS, which requires the evaluation of these investments in the individual company's financial statements
measured at their fair value or at cost.
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
h) Interests in Joint Ventures
In accordance with IAS 41/CPC 29 - Biological Assets, companies that operate with agricultural activities, such as grain crops, increased herd (of cattle feedlot
operations or livestock grazing), and various agriculture crops are required to mark to market these assets, which effect shall be recorded in the income
statement of the year.
An item is disposed when of there is no future economic benefits resulting from its continued use. Any gains or losses on sale or disposal of fixed assets are
determined by the difference between the amounts received against the book value and are recognized in the income statement.
The depreciation is recorded using the straight-line method over the estimated useful lives of the assets, so that the value of cost less its residual value after the
useful life is fully depreciated (except for land and construction in progress). The estimated useful lives, residual values and depreciation methods are reviewed at
the end of the financial statement date and the effect of any changes in estimates are accounted for prospectively.
e) Allowance for doubtful accounts
In the individual financial statements of the Company, the information of the subsidiaries are measured by the equity method.
Exchange differences on foreign currency investments are recognized in shareholders' equity in the accumulated translation adjustments.
d) Trade accounts receivable
According to IFRS 1/CPC 37 - First-time adoption of International Financial Reporting Standards - IFRS, an entity may elect to measure an item of PP&E at the
date of transition to IFRS at its fair value and use that fair value as its deemed cost at that date.
Thus, the PP&E are recorded at fair value, presented at historical acquisition cost plus spontaneous revaluations performed up to December 31, 2007 for a
significant portion PP&E based on reports of specialized company.
The interest on loans that are directly attributable to fixed assets acquisition or construction of assets are capitalized as part of the costs of these assets.
Borrowing costs that are not directly related to specific assets (but related to more than one asset) are capitalized based on average interest rate on the balance of
construction in progress. These costs are amortized according to the estimated useful lives of the related assets.
i) Property, plant and equipment - PP&E
Trade accounts receivable correspond to amounts owed by customers in the ordinary course of business of the Company. If the due date is equivalent to one year
or less, the account receivable is classified as current assets. Otherwise, the corresponding amount is classified as noncurrent assets.
In accordance with IAS 2/CPC 16 - Inventories, the inventories are stated at the lower of the average cost of acquisition or production, and the net realizable value.
The cost of inventories is recognized in the income statement when inventories are sold.
Allowance for doubtful accounts is calculated based on the analysis of the aging list, provisioning the items of long standing, and considering the probable
estimated losses, which the amount is considered sufficient by the Management to cover probable losses on accounts receivable.
Bad debits expenses are recorded under the caption "Selling Expenses" in the consolidated statement of income. When no additional recovery is expected, the
allowance for doubtful accounts is usually reversed against the definitive write-off of the account receivable.
The evaluation of biological assets is done quarterly by the Company, and the gain or loss on change in fair value of biological assets is recognized in the income
statement in the period in which it occurs, in specific line as a reduction of gross revenue and cost of products sold.
According to IAS 31/CPC 19- Interests in joint venture, Joint ventures are entities jointly controlled by the Company and one or more partners.
Investments in joint ventures are recognized under the proportionate consolidation method, from the date the joint control is acquired. Under this method, the
components of a joint venture's assets and liabilities, and income and expenses are added to the consolidated accounting positions proportionally to the their
participation in its capital as described in note 11.
f) Inventories
g) Biological assets
Biological assets are stated at fair value.
Accounts receivable are initially recognized at fair value less any allowance for doubtful accounts when necessary, subsequently measured at amortized cost, less
any allowance for doubtful accounts. In practice, they are recognized at the invoiced amount, adjusted by any provision of loan losses.
12
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
j) Assets leased
Leases under which the Company assumes the risks and benefits of ownership are classified as financial leases. After initial recognition, the asset is in
accordance with the accounting policy applicable to the asset.
Other leases are operating leases and the leased assets are not recognized on the balance sheet of the Company, being recorded in the Statement of income as
an expense in accordance with the payments. The Company has only operating leases.
n) Loans and financings
Correspond to the amounts owed to suppliers in the ordinary course of business of the Company. If the payment period is equivalent to one year or less, suppliers
are classified as current. Otherwise, the corresponding amount is classified as noncurrent. When applicable, are added interest, monetary or exchange rate.
l) Other current and noncurrent assets
o) Income tax and social contribution
Impairment of tangible and intangible assets, excluding goodwill
If the recoverable amount of an asset is lower than its carrying value, the asset is reduced to its recoverable amount. The loss on the impairment is recognized
immediately in the statement of income and is reversed if there has been a change in the estimates used to determine the recoverable amount. When an
impairment loss is subsequently reversed, there is an increase in amount of the asset due to the revised estimate of its recoverable amount, but it does not exceed
carrying amount that would have been determined if no loss on the impairment had been recognized for the asset in prior years. Reversal of loss on the
impairment is recognized directly in the income statement.
Current taxes are computed based on taxable income at tax rates in effect, according to prevailing legislation.
m) Trade accounts payable
Deferred income tax (deferred tax) is calculated on the temporary differences between the tax bases of assets and liabilities and their carrying amounts. Deferred
tax is determined using tax rates enacted and expected to be applied when the deferred tax assets are realized or when the income tax liability is settled.
Current taxes
Goodwill arising from business combination
Goodwill resulting from business combinations is stated at cost at the date of business combination, net of accumulated impairment.
Goodwill is annually subjected to impairment testing or more frequently when impairment indications are identified. If the recoverable amount of the cash-
generating unit is less than the carrying value, the impairment loss is recorded. Any impairment loss on the recoverable amount of goodwill is directly recognized
in income statement. The impairment loss is not reversed in subsequent periods.
At the sale of the corresponding cash-generating unit, the goodwill is included in the calculation of profit or loss on disposal.
Property, plant and equipment, intangible assets with defined useful life and other assets (current and noncurrent) are tested for impairment, if indications of
potential impairment exist. Intangible assets are tested for impairment when an indication of potential impairment exists or on an annual basis, regardless of
whether or not there is any indication of impairment, pursuant to IAS 38/CPC 4 - Intangible Assets.
After each year end a review is made of the book value of tangible and intangible assets to determine whether there is some indication that those assets have
suffered any impairment. If such indication is indentified, the recoverable amount of the asset is estimated in order to measure the amount of such loss, if any.
Deferred taxes
Loans and financings are recognized at fair value upon receipt of the proceeds, net of transaction costs, when applicable, plus charges, interests and monetary
and exchange rate variation contractually defined, incurred until the end of each period, as shown in note 14.
k) Intangible assets
Other current and noncurrent assets are stated at cost or realizable value including, if applicable, income earned through the balance sheet date.
Deferred tax assets are recognized only in proportion to the expectation or likelihood that future taxable income will be available against which the temporary
differences, tax losses and tax credits can be used.
Consist mostly of goodwill recorded in accordance with IAS 38/CPC 4 - Intangible assets by cost or formation, less amortization and any applicable losses due to
impairment. Amortization is recognized using straight-line method based on the useful lives of assets. The estimated useful lives and amortization method are
reviewed at the end of each financial year and the effect of any changes in estimated are accounted for prospectively.
The recoverable amount is the higher amount between fair value less costs to sell and value in use. In evaluation of value in use, the estimated future cash flows
are discounted to present value by the discount rate before tax that reflects current market assessment of the time value of money and the specific risks to the
asset.
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Functional and reporting currency
Transactions in foreign currencies are translated to the respective functional currencies of the Company entities at exchange rates at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date.
The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period, adjusted for
effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the reporting period.
The items of the financial statements of the subsidiaries are measured using the currency of the primary economic environment in which the subsidiaries operate
("functional currency"), being translated to IFRS and Brazilian Real at the corresponding exchange rate of the reporting period for assets and liabilities, the
historical rate for equity and the average exchange rate of the period for the income statement. With the exchange rate effects recognized in comprehensive
income.
Consolidated financial statements include individual financial statements of the Company, its subsidiaries and joint controlled entities (proportionally consolidated).
Control is obtained when the Company has the power to control financial and operating policies of an entity so as to obtain benefits from its activities.
When necessary, the financial statements of subsidiaries are adjusted according to the accounting policies established by the Group. All transactions, balances,
income and expenses between Group companies are eliminated in the consolidated financial statements. Consolidated subsidiaries are detailed described on
note 11.
According to IAS 37/CPC 25 -Provisions, Contingent Liabilities and Contingent Assets, contingent assets are recognized only when their realization is "virtually
certain", based on favorable final judicial decision. Contingent assets are disclosed where an inflow of economic benefits is probable.
Contingent liabilities are accrued when losses are probable and the amounts can be estimated reliably. Contingent liabilities classified as possible are only
disclosed and contingent liabilities classified as remote are neither accrued nor disclosed.
q) Current and noncurrent liabilities
The Company presents, when applicable, assets and liabilities at present value long-term assets and liabilities, according to CPC12- Present value adjustment.
The present value long-term assets and liabilities are adjusted to present value, but the adjustment on the short-term balances occurs only when the fact is
considered material in relation to the consolidated financial statements.
Current and noncurrent liabilities are stated at known or estimated amounts, including, if applicable, charges and monetary or exchange rate variations.
u) Consolidation
The dividend distribution, when occured, proposed by Management is equivalent to the mandatory minimum dividend of 25% and is recorded under the caption
"Declared Dividends" in liabilities since it is considered a legal obligation established by the Company's by laws. However, the amount of dividends higher than the
mandatory minimum dividend, declared after the period covered by the consolidated financial statements but before the date of authorization for release of the
consolidated financial statements, is recorded under the caption "Proposed Additional Dividends" in shareholders' equity, with a disclosure in the notes to the
financial statements.
p) Dividends
Deferred tax assets and liabilities are offset if there is a legal right to offset current tax assets and liabilities, and they are related to income taxes levied by the
same taxation authority on the same taxable entity.
The discount rate assumption relies on current market valuations as to time value of money and specific risks for each asset and liability.
In the present value calculation adjustment the Company considered the following assumptions: (i) the amount to be discounted; (ii) the dates of realization and
settlement; and (iii) the discount rate.
v) Foreign currency translation
The financial statements of the foreign subsidiaries are originally prepared in the currency of the country in which they are based and, subsequently, are converted
into IFRS and Brazilian reais using the exchange rate in effect at the balance sheet date for assets and liabilities, the historical exchange rate for changes in
shareholders' equity and the average exchange rate for the period for income and expenses when it is appropriate. Exchange gains and losses are recognized in
shareholders' equity under the caption "accumulated translation adjustments" in accordance with IAS 21/CPC 2 - The effects of changes in foreign exchange
rates.
r) Noncontrolling interest
s) Contingent assets and liabilities
t) Adjustment of assets and liabilities to present value
According to IAS 1/CPC 26, Presentation of financial statements, noncontrolling interests shall be presented in the consolidated financial statements within
shareholders' equity, with respective effects included in the statement of income.
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
· Financial assets at fair value through profit or loss
· Derivatives
The financial asset carrying value is reduced directly by the loss of the impairment for all financial assets, except accounts receivable in which the carrying value is
reduced by provision. Subsequent recoveries of amounts previously written off are credited to the provision. Changes in the carrying value of the provision are
recognized in statement of income.
The Company and subsidiaries recognize and disclose financial instruments and derivatives according to IAS 39/CPC 38 - Financial Instruments: Recognition and
Measurement, IFRIC 9 - Assessment of embedded derivatives and IFRS 7/CPC 40 - Disclosure of Financial Instruments. The financial instruments are
recognized after the Company and its subsidiaries become a party to the contractual provisions at the instruments.
· Impairment of financial assets
Financial assets, except those designated at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period.
Impairment loss is recognized if, and only if there is any indication that an asset may be impaired as a result of one or more events that occurred after initial
recognition, and had an impact on the future cash flows estimated of this asset.
According to with IAS 33/CPC 41 - Earnings per share, the Company presents the basic and diluted earnings per share data for its common shares:
Basic: Calculated by dividing net income allocated to common shareholders of the Company by the weighted average number of common shares outstanding
during the period.
Diluted: Calculated by dividing net income attributable to common shareholders of the Company by the weighted average number of common shares outstanding
during the period, adjusted for the effects of all dilutive potential common shares, adjusted for own shares held.
Loans and receivables are financial assets with fixed or estimated payment amounts that are not quoted in an active market. Such assets are initially recognized at
fair value plus any attributable transaction costs. After initial recognition, loans and receivables are measured at amortized cost using the effective interest method,
decreased by any loss on the impairment. The main assets of the Company classified in this category are "trade accounts receivables" and "related parties".
The fair value of derivative instruments is calculated by the treasury department, based on information of each contracted transaction and market information on
the dates of closure of the financial statements, such as interest rates and exchange rates.
The Company has the following non-derivative financial liabilities: loans, financing, trade accounts payable, debts with related parties and other payables.
Based on a risk management policy of the JBS Group, the Company and/its subsidiaries, contract financial derivatives instruments in order to minimize the risk of
losses due to the exposure to fluctuation in exchange rates, interest rates, commodities prices, credit risks and liquidity, which can affect the valuation of current
and noncurrent assets, future cash flow and profit.
x) Financial instruments
According to IFRS 3/CPC 15 - Business Combination, business acquisitions are accounted for using the acquisition method at the acquisition date, which is the
date on which control is transferred to the Group . The consideration transferred in a business combination is measured at fair value, which is calculated by adding
the fair values of assets transferred, liabilities incurred on the acquisition date to the previous owners of the acquired shares issued in exchange for control of the
acquired. The acquisition-related costs are generally recognized in income when incurred.
· Held to maturity
y) Business combinations
The Company recognizes debt securities and subordinated debt on the date on which they originated. All other financial liabilities (including liabilities designated at
fair value recorded in income) are initially recognized on the trade date on which the Company becomes a party to the contractual provisions of the instrument.
The Company derecognizes a financial liability when its contractual obligations canceled or expired.
Financial asset are classified by its fair value on the financial report if it is classified as held for trading or designated as such upon initial recognition. Financial
assets are designated at fair value through profit or loss if the company manages such investments and makes purchase and sale decisions based on their fair
values in accordance with a documented risk management and investment strategy of the Company. Transaction costs, after initial recognition are recognized in
income statement as incurred. Financial assets recorded at fair value through profit or loss are measured at fair value and changes in fair value of these assets
are recognized in statement of income of the period. The financial instruments classified in this category are " Cash and cash equivalente" and "Derivatives
payables".
· Loans and receivables
Subsequent measurement of financial instruments occurs at each balance sheet date, according to the rules for each category of financial assets and liabilities.
w) Earning per share
· Non derivative financial liabilities
In the case when the Company intends and is able to hold bonds to maturity, then such financial assets are classified as held to maturity. Investments held to
maturity are initially recognized at fair value plus any directly attributable transaction costs. After initial recognition, investments held to maturity are measured at
amortized cost using the effective interest method, decreased by any loss on the impairment. The Company has no financial instruments in this category.
15
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
z) Employee benefits
Defined Contribution Plans:
Defined benefit plans
The statements of cash flows have been prepared by the indirect method in accordance with the instructions contained in IAS 7/CPC 3 - Statement of Cash Flows.
ad) Economic Value Added
All actuarial gains and losses arising from defined benefit plans are accounted for in other comprehensive income
ac) Statement of comprehensive income
aa) Segment reporting
According to IAS 1/CPC 26 - Presentation of Financial Statements - This statement reconciles net income to total comprehensive income.
ab) Statements of Cash flow
ae) Discontinued operations
In accordance with IFRS 8/CPC 22 - Segment reporting - Segment reporting is presented consistently with the internal reports provided to the entity's chief
operating decision maker to make decisions about resources allocations, performance evaluation by segment and strategic decision making process.
Goodwill is measured as the excess of the sum of the consideration transferred, the recognized amount of noncontrolling interests in the acquired business plus
the fair value of the existing equity interest in the acquired less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities
assumed. If the excess is negative, a bargain purchase gain is recognized immediately in income as a gain.
A discontinued operation is a component of the Group's business that represents a separate major line of business or geographical area of operation that has
been disposed of or is held for sale or distribution, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs
upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the
comparative statement of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative year.
When the calculation results in a benefit for the indirect subsidiary, the asset to be recognized is limited to the total cost of any unrecognized past service and
present value of economic benefits available in the form of future refunds from the plan or reductions in future contributions to the plan . To calculate the present
value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in indirect subsidiary. An economic benefit is
available to the indirect subsidiary if it is achievable during the life of the plan or the liquidation of the plan liabilities.
A defined benefit plan is a plan for post-employment benefits other than defined contribution plan. The net liability with regard to pension plans of defined benefit is
calculated individually for each plan by estimating the amount of future benefit that employees earned in return for services rendered in the current period and prior
periods, that benefit is discounted to present value. Any past service costs not recognized and the fair values of any plan assets is deducted.
In accordance with CPC 9 (No correlation to IFRS) - Statement of Economic Value Added, the Company included in the financial statements, the Statement of
Value Added (EVA), and as additional information in the consolidated financial statements, because it is not a compulsory statement according to IFRS.
The Economic Value Added Statement, aims to demonstrate the value of the wealth generated by the Company and its subsidiaries, its distribution among the
elements that contributed to the generation of it, such as employees, lenders, shareholders, government and others, as well as the share of wealth not distributed.
The discount rate is yield at the reporting date on funds that have maturity dates approximating the terms of the appropriate subsidiary's obligation and that are
denominated in the same currency in which benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit
credit method.
When the benefits of a plan are increased, the portion of the increased benefit relating to past service by employees is recognized in the straight-line method over
the average period until the benefits become vested. To the extent the benefits become vested immediately, the expense is recognized immediately in income.
A defined contribution plan is a plan for post-employment benefits under which an entity pays fixed contributions into a separate entity (Provident Fund) and shall
have no legal or constructive obligation to pay additional amounts. Obligations for contributions to pension plans to defined contribution plans are recognized as
expenses for employee benefits in income in the periods during which services are rendered by employees. Prepaid contributions are recognized as an asset upo
condition that reimbursement of cash or a reduction in future payments is available. Contributions to a defined contribution plan that are due more than 12 months
after the end of the period in which the employee renders service are discounted to their present values.
If the initial accounting for a business combination is incomplete at the closing of the period in which the business combination has occurred, the recording of the
temporary values of items whose accounting is incomplete are made. These temporary figures are adjusted during the measurement period (which shall not
exceed one year from the date of acquisition), or additional assets and liabilities are recognized to reflect new information relating to facts and circumstances
existing at the acquisition date which, if known, would have affected the amounts recognized on that date.
16
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
- IFRS 7 ­ Financial instrument: Disclosures (annual periods beginning on or after July 1, 2011).
- IAS 1 ­ Presentation of Items of Other Comprehensive Income (annual periods beginning on or after July 1, 2012).
- IAS 12 ­ Deferred Tax: Recovery of Underlying Assets (annual periods beginning on or after January 1, 2012).
- IAS 19 ­ Employee benefits (annual periods beginning on or after January 1, 2013).
- IAS 27 ­ Consolidated and Separate Financial Statements (annual periods beginning on or after January 1, 2013).
4
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Cash and banks
1,252,331
1,483,479
2,456,479
2,247,919
CDB-DI (bank certificates of deposit)
1,240,844
1,928,422
1,486,016
2,155,037
Investment funds
-
494
524,277
554,523
LCA-DI (Agribusiness Letters of Credit)
-
200,472
-
330,715
Investments in Debentures
632,492
-
632,492
-
National treasury bill - LFT
51,564
-
51,564
-
3,177,231
3,612,867
5,150,828
5,288,194
CDB-DI (bank certificates of deposit) are held by financial institutions, with floating-rate and yield an average of 100% of the variation of the interbank deposit
certificate (Certificado de Depósito Interbancário - CDI).
Company
Consolidated
· IFRS 11 Joint Arrangements - IFRS 11 provides for a more realistic reflection of joint ventures by focusing on the rights and obligations of the arrangement,
rather than its legal form. The standard addresses inconsistencies in the reporting of joint ventures by requiring a single method to account for interests in jointly
controlled entities. IFRS 13 supersedes IAS 31 Interests in Joint Ventures and SIC-13 Jointly Controlled Entities - Non-Monetary Contributions by Ventures, and is
effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The Company is currently analyzing any possible effects arising
from the adoption of IFRS 11.
· IFRS 13 Fair Value Measurement - IFRS 13 establishes new requirements on how to measure fair value and the related disclosures for IFRSs and others
generally accepted accounting principles. The standard is effective for annual periods beginning on or after January 1, 2013. Earlier application is permitted. The
Company is currently analyzing any possible effects arising from the adoption of IFRS 13.
· IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine - IFRIC 20 is regarding the recognition of the production stripping costs as an assets; initial
measurement of the assets of removal activity, and subsequent measurement of the activity of the removal activity. Is effective for annual periods beginning on or
after January 1, 2013. Until the present moment the Company does not foresee any impact as a result of it.
af) New Pronouncements of IFRS, emissions, amendments and interpretations issued by IASB applicable to the consolidated financial statements
· IFRS 9 Financial Instruments ­ Classification and measurement - It reflects the first phase of the IASB work on the replacement of IAS 39 Financial Instruments:
Recognition and Measurement. IFRS 9 uses a simplified approach to determine whether a financial asset should be measured at amortized cost or fair value,
based on the manner in which an entity manages its financial instruments (business model) and the typical contractual cash flow of financial assets. The standard
also requires the adoption of only one method for determining losses in recoverable value of assets. The standard is effective for annual periods beginning on or
after January 1, 2015. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
· IFRS 10 Consolidated Financial Statements - IFRS 10 as issued establishes principles for the presentation and preparation of consolidated financial statements
when an entity controls one or more other entities. IFRS 10 replaces the consolidation requirements in SIC-12 Consolidation--Special Purpose Entities and IAS
27 Consolidated and Separate Financial Statements and is effective for annual periods beginning on or after January 1, 2013. Early application is permitted. The
Company is currently analyzing any possible effects arising from the adoption of IFRS 10.
Cash and cash equivalents
Cash, bank accounts and short-term investments are the items of the balance sheet presented in the statements of the cash flows as cash and cash equivalents
as described below:
· IAS 32 - Financial instruments - Changes in the pronouncement aims to clarify the requirements for compensation of financial instruments. These changes
shows inconsistencies found in practice when applied the criteria for compensation in IAS 32 Financial Instruments: Presentation. The changes are effective for
periods beginning on / or after January 1, 2014. Anticipated application is permitted.
Not effective yet :
Other improvements :
The Brazilian Accounting Pronouncement Committee (CPC) has not yet issued these standards or amendments equivalent to the IFRS mentioned above. The
Company is currently evaluating the impact of such standards in its financial statements.
- IAS 28 - Investments in associates (annual periods beginning on or after January 1, 2013).
New accounting pronouncements from the IASB and IFRIC interpretations have been published and / or reviewed and have the optional adoption in March 31,
2012. The Management assessed the impact of these new pronouncements and interpretations and does not anticipate that its adoption will lead to a significant
impact on the annual information of the Company and its subsidiaries in the year of initial application. The mains pronouncements and interpretations are
presented as follows:
· IFRS 12 Disclosures of Interests in Other Entities - IFRS 12 is a new and comprehensive standard on disclosure requirements for all forms of interests in other
entities, including subsidiaries, joint arrangements, associates and unconsolidated structured entities. IFRS 12 is effective for annual periods beginning on or after
January 1, 2013. Earlier application is permitted. The Company is currently analyzing impacts on its disclosures arising from the adoption of IFRS 12.
17
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Investments funds - Consolidated
5
Trade accounts receivable, net
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Current receivables
1,704,251
1,729,425
3,849,236
3,939,255
Overdue receivables:
From 1 to 30 days
107,433
120,142
432,045
569,126
From 31 to 60 days
18,203
23,297
58,141
91,406
From 61 to 90 days
12,007
20,755
32,706
44,389
Above 90 days
107,927
102,656
195,089
185,589
(109,158)
(113,182)
(136,207)
(149,919)
136,412
153,668
581,774
740,591
1,840,663
1,883,093
4,431,010
4,679,846
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Initial balance
(113,182)
(109,497)
(149,919)
(142,074)
Additions
-
(10,020)
(2,086)
(16,390)
Exchange variation
-
-
124
225
Write-offs
4,024
6,335
15,674
8,320
Final balance
(109,158)
(113,182)
(136,207)
(149,919)
6
Inventories
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Finished products
1,317,515
1,161,418
3,593,057
3,332,844
Work in process
53,474
53,879
914,258
900,597
Raw materials
203,856
188,722
522,567
527,046
Warehouse spare parts - other inventories
116,713
140,242
564,975
645,218
1,691,558
1,544,261
5,594,857
5,405,705
7
Biological assets
Mar 31, 2012
Dec 31, 2011
Cattle
62,368
83,978
Hogs and Lamb
57,292
73,790
Poultry
49,355
49,489
Plants for harvest
2,280
2,286
171,295
209,543
209,543
1,605
(1,402)
24,991
(125,411)
63,441
(3,751)
3,731
(1,452)
171,295
Pursuant to IFRS 7/CPC 39 - Financial Instruments, below are the changes in the allowance for doubtful accounts:
National treasury bill (LFT)­ Are daily applications of profitability post-fixed, linked to the Selic rate.
The investments in Debentures are remunerated by CDI. These investments yield an average 98% of CDI and has daily liquidity.
Cost appropriating on plants for harvest
Consolidated
Domestic consumption on plants for harvest (feed)
Allowance for doubtful accounts
Company
Consolidated
LCA-DI (Agribusiness Letters of Credit) are short term investment remunerated by a percentage of interbank deposit certificate (Certificado de Depósito
Interbancário - CDI) , with a nominative credit , originated by agribusiness receivable and issued exclusively by public or private banks. LCA is issued in a form in
the chamber of custodian and settlement (Câmara de Custódia e Liquidação - CETIP). These short term investments yield an average 100% of the variation of the
interbank deposit certificate - (Certificado de Depósito Interbancário - CDI).
It consists principally of investments in the direct subsidiary of JBS Project Management GMBH (subsidiary of JBS Holding GMBH) on mutual investment fund, the
administration and management is held by JP Morgan
Company
Consolidated
Mark to market
Sale
Consolidated
Changes in biological assets in the period
Amount on December 31, 2011
Born
Company
Death
Purchase
Exchange rate variation
Amount on March 31, 2012
18
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Mar 31, 2012
Dec 31, 2011
35,591
46,954
57,292
73,790
49,355
49,489
142,238
170,233
Mar 31, 2012
Dec 31, 2011
26,777
37,024
2,280
2,286
29,057
39,310
8
Recoverable taxes
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Value-added tax on sales and services (ICMS / IVA / VAT / GST)
1,084,987
1,075,566
1,280,251
1,264,118
Excise tax - IPI
60,354
59,772
125,364
124,459
Social contribution on billings - PIS and COFINS
660,129
616,957
785,935
745,376
Withholding income tax - IRRF
138,391
90,826
270,796
96,840
Other
38,138
49,515
76,855
85,644
1,981,999
1,892,636
2,539,201
2,316,437
Current and Long-term:
Current
1,421,441
1,330,609
1,916,537
1,690,311
Noncurrent
560,558
562,027
622,664
626,126
1,981,999
1,892,636
2,539,201
2,316,437
Consolidated
As mentioned on the assumption above, the biological assets of the company JBS USA can not be valued at market, adopting the procedures of recovery by
absorption costing.
Cattle - A subsidiary of JBS USA in Australia keeps cattle in feedlot, there is no active market for cattle in confinement between the period (75-100 days) just over
180 days (item 30 of CPC 29 Biological Assets).
Hogs and Lamb - JBS USA keeps hogs and lambs in the feedlot system and there is no active market for such activities. For biological assets hogs and lamb,
there is no active market independently because there are few competitors in the market (item 30 of CPC 29 Biological Assets).
Poultry ­ PPC is engaged in the poultry activity, however, due to the "maturation" period, which covers the period between the egg until the time of slaughter, is
less than 45 days, the cost is close to fair value (item 24 of CPC 29 Biological Assets).
a) the market price of the most recent transaction, considering that no significant economic change had occurred between the date of the transaction and the
closing of the consolidated financial statements;
b) market price of similar assets with adjustments to reflect any difference;
c) industry standards, such as the value of orchard expressed by the value of standard packing for export, acres or hectares, and the value of cattle expressed
per kilogram of meat or arroba.
COMPANIES IN BRAZIL
Total biological assets stated at market price
Hogs and Lamb
Operations relating to biological assets of activities in Brazil are integrally represented bovine cattle under feedlot system (intensive), whose valuation at market
price is reliably measured due to the existence of an active market.
Poultry
COMPANIES IN UNITED STATES OF AMERICA
Cattle
Plants for harvest
Cattle
Total biological assets stated at cost
The balances plants for harvest, consist of corn, soybeans and grass, which will be used in the preparation of ration for cattle. The Management chose to keep the
measurement of biological assets at their cost values, due to the immateriality of the balances, since the efforts needed to develop and measure these assets at
their fair values overcome the benefits expected by Management.
According to IAS 41 /CPC 29 - Biological Assets, companies that own agricultural activities, such as grain crops, increased herd (cattle feeding operations and
livestock grazing), and various agriculture crops are subject to realize the value of their assets in order to determine the fair value thereof, based on the concept of
market value to "Mark to Market - MtM" at least quarterly or annually, recognizing the effects of these comments directly in the income the year. However, the
standard shows that, for cases where there is no active market, such as those presented by JBS USA, one or more of the following alternatives for determining the
fair value should be adopted:
Company
Biological assets are composed mainly of live animals, mostly in feedlots which remain in a period about of 90 to 120 days confined to maturity and thereafter sent
for slaughtering units. For this reason, they are classified as current assets.
Although the requirements describe these three assumption that the fair value of biological assets can be measured reliably, this assumption can be rejected in
case of biological assets whose value should be determined by the market, but this is not available and the alternatives for estimating them are clearly not reliable.
In such situations, the biological asset should be measured at cost, as presented by JBS USA, less depreciation and any accumulated impairment loss.
19
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Value-added tax on sales and services (ICMS / IVA / VAT/GST)
Social contribution on billings - PIS and COFINS
Withholding income tax - IRRF
9
Related parties transactions
Mar 31, 2012
Dec 31, 2011
COMPANY
Currency
Maturity
Mutual contracts Mutual contracts
Direct subsidiaries
Mouran Alimentos Ltda.
R$
Sept 13, 2012
54,494
53,207
JBS Confinamento Ltda.
R$
Apr 1, 2012
76,577
87,528
JBS Embalagens Metálicas Ltda.
R$
Aug 16, 2012
56,301
58,936
JBS USA, Inc
US$
Aug 16, 2012
271,762
(97,606)
JBS Slovakia Holdings s.r.o.
US$
Mar 12, 2013
(42,501) (43,284)
R$
-
15,861
-
Cascavel Couros Ltda
R$
Dec 31, 2012
56,724
29,300
Novaprom Food Ingredients Ltda
R$
Dec 31, 2012
14,069
12,115
Indirect subsidiaries
Beef Snacks Brasil Ind.Com. Ltda.
R$
Jan 24, 2013
97,812
96,761
Beef Snacks International BV
US$
Dec 31, 2012
4,310
4,371
JBS HU Ltd
US$
May 19, 2012
-
(119,117)
JBS Paraguay
US$
Aug 24, 2014
6,220
6,294
611,629 88,505
COMPANY
Trade accounts
receivable
Trade accounts
payable
Trade accounts
receivable
Trade accounts
payable
Direct subsidiaries
JBS Confinamento Ltda.
624
7,426 252
33,384
JBS Embalagens Metálicas Ltda.
-
- -
94
JBS USA, Inc
15,361
- 13,521
-
JBS Itália SRL
20,212
- 7,268
-
S.A. Fabrica de Prod. Alimentícios Vigor
26
- 17,538
3,431
Cascavel Couros Ltda
17,266
942 16,917
2,704
Novaprom Food Ingredients Ltda
1,399
425 1,661
681
Indirect subsidiaries
JBS Global (UK) Limited
24,340
- 32,149
4
JBS Argentina S.A.
-
923 -
2,017
Global Beef Trading SU Lda.
473
- 715
-
Austrália Meat
-
1,568 -
741
Toledo International NV
9,762
1 6,360
319
Weddel Limited
3,580
- -
-
Sampco Inc.
4,682
- 1,655
-
Frigorífico Canelones S.A.
-
1,021 -
7
Rigamonti Salumificio Spa
8,365
19 10,334
19
Itaholb International
-
375 1,414
1,192
Wonder Best Holding Company
15,043
- 11,929
-
March 31, 2012
December 31, 2011
Intercompany balances shown in the balance sheet and statement of operations are as follows:
Libor + 2.5% to 3%
CDI + 12%
Mutual contracts between related parties recorded on the balance sheet as receivables and debts with related parties:
Libor + 5%
CDI + 4%
12%
4.5%
Company and JBS Embalagens recorded the monetary adjustment of their PIS, COFINS and IPI tax credits based on SELIC (Central Bank overnight rate), in the
amount of R$ 151,608. As of this amount the Company received R$ 28,987, and the remaining balance of R$ 122,621.
Refers basically to withholding income tax levied on short-term investments deductions and remittance of dividends to its subsidiary JBS USA, which can be offset
against income tax payable on profits.
JBS Holding International
-
CDI + 12%
Recoverable ICMS refers to excess of credits derived from purchases of raw materials, packaging and other materials over tax charges due on domestic sales,
since exports are tax-exempted.
Annually, Company's management, supported by its legal counsel, evaluate the segregation between current and noncurrent of such ICMS credits according to
their attainment.
General comments
Refers to non-cumulative PIS and COFINS credits arising from purchases of raw materials, packaging and other materials used in the products sold in the foreign
market.
Annual rate
CDI
CDI
Libor + 2% to 3%
CDI + 6%
The Company expects to recover the total amount of the tax credit, including the ICMS credits from other states (difference between the statutory rate for tax
bookkeeping and the effective rate for ICMS collection in the state of origin).
20
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Trump Asia Enterprise Ltd
12,008
- 20,070
-
Trustful Leather
6,451
- 4,203
-
JBS Paraguay
24
8,784 24
-
Other related parties
JBS Agropecuária Ltda.
36
243 178
2,984
Flora Produtos de Hig. Limp. S.A.
7,830
109 682
1
Flora Dist. Produtos de Hig. Limp. S.A.
25,901
256 18,439
190
173,383 22,092 165,309 47,768
Financial
income
(expenses)
Purchases
Sales of
products
Financial income
(expenses)
Purchases
Sales of products
Direct subsidiaries
Mouran Alimentos Ltda.
1,288 -
-
2,064 -
-
JBS Confinamento Ltda.
3,576 29,046
739
4,469 78,351
397
JBS Embalagens Metálicas Ltda.
2,498 2,354
-
2,503 7,630
710
JBS USA, Inc
(527) -
73,270
(10,691) -
4,189
JBS Slovakia Holdings s.r.o.
(441) -
-
(410) -
-
JBS Itália SRL
- 2,330
14,477
- -
12,268
S.A. Fabrica de Prod. Alimentícios Vigor
- -
81
(9,067) 36
22,062
Cascavel Couros Ltda
607 2,492
19,855
(1,473) 574
60,358
Novaprom Food Ingredients Ltda
416 1,338
1,921
448 548
2,499
Indirect subsidiaries
JBS Global (UK) Limited
- -
18,792
- -
25,705
JBS Argentina S.A
- 5,083
-
- 2,783
-
Global Beef Trading SU Lda.
- -
1,862
- -
37,964
Beef Snacks Brasil Ind.Com. Ltda.
2,311 -
-
2,969 -
-
Beef Snacks International
18 -
-
1 -
-
JBS HU Ltd
(868) -
-
(14) -
-
Australia Meat
- 5,341
-
- 3,514
-
Toledo International BV
- -
25,595
- -
28,399
JBS Leather Europe
- -
3,040
- -
1,807
Weddel Limited
- -
4,374
- -
2,409
Sampco Inc.
- -
29,362
- -
8,746
Frigorífico Canelones S.A.
- 1,010
-
- 1,952
-
Rigamonti Salumificio Spa
- -
8,584
- -
8,219
Wonder Best Holding Company
- -
12,516
- -
6,817
Trump Asia Enterprise Ltd
- -
12,074
- -
5,806
Trustful Leather
- -
9,391
- -
9,393
JBS Paraguay
103 5,341
3
48 -
2
Itaholb International
- -
104
- -
422
Other related parties
JBS Agropecuária Ltda.
- 271
-
- 705
467
Flora Produtos de Hig. Limp. S.A.
- 109
16,724
- -
12,160
Flora Dist. Produtos de Hig. Limp. S.A.
- -
54,639
- 2
704
8,981 54,715 307,403 (9,153) 96,095 251,503
The main assets and liabilities balances, as well as the transactions that had impact on income statements related with related parties transactions, which
Management considers that were accomplished in the usual market conditions for similar types of operations.
Impacts of related party transactions on Income Statements:
Guarantees provided and / or received
March 31, 2011
JBS USA together with its subsidiaries, JBS USA, LLC and Swift Beef Company, guarantee, in an unsecured way, US$ 300 million of notes issued by the
Company in 2016 as a result of commitment contained in the indenture governing such notes.
Among the transactions between related parties more representative, we emphasize the purchase of cattle for slaughter between the Company and it subsidiary
JBS Confinamento, related party JBS Agropecuária and Leather sales operation to the subsidiary Cascavel. Such transactions are made at regular price and
market conditions in their region because it takes the market prices applied with other suppliers (third parties not JBS Group). The number of cattle supplied by
these related parties is irrelevant comparing to the demanded volume by the Company.
No allowance for doubtful accounts or bad debts expenses relating to related-party transactions were recorded for the periods ended March 31, 2012 and
December 31, 2011.
The Company guarantees US Bonds operation of the subsidiary JBS USA in the amount of US$ 700 million with final maturity in 2014.
March 31, 2012
Details of transactions with related parties
On the mutual contracts are calculated exchange rate and interests, when applicable.
21
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Mar 31, 2012
Dec 31, 2011
Beef Snacks do Brasil Ltda.
48,906
48,396
Beef Snacks International BV.
4,285
4,306
Jerky Snack Brands, Inc.
7,867
8,030
61,058 60,732
Members
Mar 31, 2012
Dec 31, 2011
Executive Board and Board of Directors
15
1,797
6,791
15
1,797
6,791
In accordance with IAS 24(R)/CPC 05 (R1) - Related parties, except for those described above, the other members of the Executive Board, and Management
Board are not part of any employment contract or any other contracts for additional business benefits such as post-employment benefits or other long-term
benefits, termination of work that does not conform to those requested by the CLT , where applicable, or payment based on shares.
The amount of R$ 61,058 (R$ 60,732 as of December 31, 2011 ) refers to credits of subsidiaries partially consolidated, as follows :
Consolidated - Credits with related parties
b) Companies partially consolidated
a) Not consolidated Companies
The alternate members of the Board of Directors are paid for each meeting of Council in attendance
The Institutional Relations Executive Officer, Administrative and Control Director and Investor Relations Director are part of the employment contract regime CLT
(which is the Consolidation of Labor Laws), which follows all the legal prerogatives of payments and benefits. Not included any remuneration bonuses of the
Company or other corporate benefits to additional employees or that should be extended to their family.
On December 23, 2010 the Company received an advance of its indirect subsidiary Sampco Inc in the amount of US$ 135.0 million (R$ 224,937) regarding a
contract for future sale of meat with expected delivery in up to three years. The advance is registered under the rubric of "other liabilities" in the financial
statements of the Company, and its being eliminated in the consolidation.
The unamortized balance at March 31, 2012 and December 31, 2011 was approximately US$ 77,270 (R$ 140,793) and US$ 94.3 million (R$ 176,888) .
Company's management includes the Executive Board and the Board of Directors. The aggregate amount of compensation received by the members of
Company's management for the services provided in their respective areas of business in the period ended on March 31, 2012 and 2011 is the following:
The consolidated balance of related parties, on the amount of R$ 498,069 as of March 31, 2012 (R$ 552,197 as of December 31, 2011), has the following
composition:
J&F Oklahoma is still part in 2 commercial agreements with subsidiaries of the Company:
i) Cattle supply and feeding agreement with JBS Five Rivers, where it takes the responsibility for the cattle from J&F Oklahoma and collects the medicinal and
adding value costs, besides a daily fee of rent in line with market terms;
ii) Sales and purchase cattle agreement with JBS USA of at least 500,000 animals/year, starting from 2009 up to 2016.
JBS Five Rivers also guarantee in third degree, after warranty of the assets from J&F Oklahoma and its parent company, up to US$ 250 million in a line of credit
of J&F Oklahoma.
On June 2011, J&F Australia became party to a cattle purchase and sale agreement with JBS Australia. Under this agreement, J&F Australia agreed to sell to JBS
Australia, and JBS Australia has agreed to purchase from J&F Australia, at least 200,000 cattle during each year.
Remuneration of key management
The Company, by it subsidiary JBS USA, has to receive the amount of R$ 437,011 (R$ 491,465 as of December 31, 2011) regarding the credit line up to US$ 375
million, with market interests, between the indirect subsidiary JBS Five Rivers and J&F Oklahoma, subsidiaries of J&F Participações S.A., not consolidated, where
J&F Oklahoma uses this credit for adding value to cattle placed in the feedlot of JBS Five Rivers to be prepared for the slaughter.
22
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
10
Investments in subsidiaries and joint ventures
Mar 31, 2012
Dec 31, 2011
Investments in subsidiaries
5,548,750
5,995,157
Goodwill
705,470
1,566,417
6,254,220
7,561,574
Relevant information about subsidiaries in the period of March 31, 2012:
Participation
Total assets
Capital stock
Shareholders'
equity
Net revenue
Net income (loss)
JBS Embalagens Metálicas Ltda.
99.00%
83,344
2
22,996
1,713
(6,838)
JBS Global Investments S.A.
100.00%
40,617
169,455
40,617
-
(1,685)
JBS Holding Internacional S.A.
100.00%
523,939
1,108,467
257,177
159,464
(48,667)
JBS Global A/S (Denmark)
100.00%
231,877
489,409
67,498
111,751
(1,409)
Mouran Alimentos Ltda.
100.00%
7,058
120
(47,711)
-
(1,288)
JBS USA, Inc.
99.96%
15,585,500
1,824,968
2,219,919
11,844,652
(100,890)
JBS Confinamento Ltda.
100.00%
510,008
467,401
416,857
26,856
(7,666)
JBS Slovakia Holdings, s.r.o.
100.00%
135,861
159,474
64,167
11,860
524
JBS Italia S.R.L.
100.00%
89,701
19,642
11,647
35,508
338
CJSC Prodcontract
70.00%
8,137
1
(20,442)
25,209
2,919
LLC Lesstor
70.00%
39,888
9
39,643
1,119
(151)
JBS Middle East
100.00%
118
456
83
109
(90)
JBS Leather Paraguay
97.50%
740
17
23
83
4
JBS Holding GMBH
100.00%
1,375,930
85
374,096
321,390
15,519
Novaprom Foods e Ingredientes Ltda
60.00%
31,688
792
(2,805)
7,692
(270)
Cascavel Couros Ltda
100.00%
407,563
240,861
302,215
89,493
(3,046)
Vigor Alimentos S.A.
100.00% 1,982,453 1,191,378 1,213,082 314,176 22,348
Dec 31, 2011
Addition
(disposal)
Exchange rate
variation (i)
Shareholders'
Equity (ii)
Income Statements
Mar 31, 2012
JBS Embalagens Metálicas Ltda.
29,536
-
-
-
(6,769)
22,767
JBS Global Investments S.A.
43,602
-
(1,300)
-
(1,685)
40,617
JBS Holding Internacional S.A.
320,912
-
-
(15,068)
(48,667)
257,177
JBS Global A/S (Denmark)
68,677
-
(187)
417
(1,409)
67,498
Mouran Alimentos Ltda.
(46,423)
-
-
-
(1,288)
(47,711)
JBS USA, Inc.
(1)
3,356,247
(917,332)
(140,885)
21,849
(100,850)
2,219,029
JBS Confinamento Ltda
.
424,523
-
-
-
(7,666)
416,857
JBS Slovakia Holdings, s.r.o.
(2)
184,829
(111,304)
(7,025)
(2,858)
524
64,166
JBS Italia S.R.L
11,312
-
(3)
-
338
11,647
CJSC Prodcontract
(15,492)
-
(860)
-
2,043
(14,309)
LLC Lesstor
26,203
-
1,653
-
(106)
27,750
JBS Middle East
44
130
(1)
-
(90)
83
JBS Leather Paraguay
16
-
2
-
4
22
JBS Holding GMBH
893,569
893
213
(4,353)
15,519
905,841
Novaprom Foods e Ingredientes Ltda
(1,521)
-
-
-
(162)
(1,683)
S.A.Fábrica de Produtos Alimentícios Vigor
(3)
330,427
(330,427)
-
-
-
-
Cascavel Couros Ltda
305,261
-
-
-
(3,046)
302,215
Vigor Alimentos S.A.
(4)
-
1,191,378
-
(644)
22,348
1,213,082
63,435
-
-
-
-
63,702
Total
5,995,157
(166,662)
(148,393)
(657)
(130,962)
5,548,750
Company
Equity in subsidiaries
Transfer to Other current liabilities (Negative
equity)
Goodwill: According to technical interpretation ICPC 09 - Individual Financial Statements, Separate Statements, Consolidated Statements and Application of
Equity Method, in the consolidated statements goodwill is recorded in the Intangible assets due to expected profitability of the acquired subsidiary, assets and
liabilities are consolidated in the Company. In the balance sheet of the Individual Statements, this goodwill is recorded in Investments, the same group of
noncurrent assets, because, for the Company it is part of its investment on subsidiary acquisition, not being its intangible assets (as stated above, the expectation
of future earnings - the genuine intangible - is the subsidiary).
In the Company the goodwill will be only goodwill of the Bertin merger and the other goodwill are allocated as investments.
For details of goodwill, see Note 12 - Intangible Assets.
(i) - As defined in CPC 2/IAS 21 - The effects of changes in foreign exchanges rates, refers to the exchange rate variation of foreign currency investments that are
accounted under the equity method, which was accounted directly to shareholders' equity of the Company on the line "Accumulated translation adjustments".
23
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Joint ventures (jointly controlled entities)
Interests in joint ventures include:
Mar 31, 2012
Dec 31, 2011
Beef Snacks International
50%
50%
Meat Snacks USA
(a)
50%
50%
Dan Vigor
50%
50%
ASSETS
Beef Snacks
International
Meat Snacks
USA
Dan Vigor
Beef Snacks
International
Meat Snacks USA
Dan Vigor
Current
9,543
21,516
32,959
5,393
16,196
29,295
Non current
39,528
1,365
20,121
45,238
927
20,970
TOTAL ASSETS
49,071
22,881
53,080
50,631
17,123
50,265
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
5,989
6,365
11,111
24
4,165
10,409
Non current
124,934
-
2,635
130,289
-
3,484
Shareholder´s equity
(81,852)
16,516
39,334
(79,682)
12,958
36,373
49,071
22,881
53,080
50,631
17,123
50,265
STATEMENTS OF NET INCOME
Beef Snacks
International
Meat Snacks
USA
Dan Vigor
Beef Snacks
International
Meat Snacks USA
Dan Vigor
Net sales revenue
-
20,879
22,158
-
-
17,205
Cost of goods sold
-
(16,103)
(15,805)
(122)
-
(12,730)
GROSS INCOME (LOSS)
-
4,776
6,353
(122)
-
4,475
(13)
(1,932)
(1,870)
(690)
(8)
(2,672)
Financial income, net
(3,117)
(148)
(54)
(3,623)
-
296
Other income expenses, net
-
3
(35)
(112)
-
(25)
-
(958)
(1,486)
-
-
(705)
(3,130)
1,741
2,908
(4,547)
(8)
1,369
(4)
Vigor Alimentos - The Company has capitalized R$ 1,191,373 in Vigor Alimentos, by transferring the carrying amounts of investment (R$ 330,427) and goodwill
(R$ 860,946) in S.A. Fábrica de Produtos Alimentícios Vigor. Additionally, there was also the initial capital contribution in the amount R$5.
Goodwill transferred to Vigor Alimentos, in the amount of R$ 860,946, results of a transaction under common control, occurred in January 17, 2012. On that date,
through this assignment, Vigor Alimentos became the shareholder of 100% of Vigor's capital, thus there has been no change in its ultimate control, as the
Company holds 100% of the capital of Vigor Alimentos, occurring only a corporate restructuring.
Goodwill on acquisition of Vigor was originated in November 2007, by the incorporated Bertin S.A. After the subsequent merger of Bertin by the Company in
December 2009, goodwill accounted in the acquisition of Vigor was allocated among the various cash-generating units of the Company, having been assigned a
value of R$ 860,946 to the operations of Vigor.
(ii) - Refers to the reflex of valuation adjustments and exchange rate variation of foreign investments, accounted in valuation adjustments to shareholders' equity in
the subsidiaries, whose effect is being recognized when calculating the equity in subsidiaries, directly to shareholders' equity of the Company.
Below is presented the breakdown of main additions and dispositions of investments during the period:
(1)
- JBS USA, Inc. ­ On February 2012, the Company received from JBS USA the amount of R$ 917,337 in dividends.
(2)
- JBS Slovakia Holdings, s.r.o.- During year 2009, Company received remittances from its indirect subsidiary JBS HU Ltd, wholly owned subsidiary of JBS
Slovakia, being considered as mutual contracts, and at February 2012 such amounts were settled by a capital reduction on it subsidiary.
(3)
- S.A.Fábrica de Produtos Alimentícios Vigor ­ In January 2012, the Company reduced its direct investment in Vigor, by transferring such investment as a capital
increase in its direct subsidiary Vigor Alimentos.
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY
March 31, 2012
December 31, 2011
March 31, 2012
Equity interests - %
(a)
As described in the operational context, the joint venture began operations in May 2011
According to CPC 19 / IAS 31 - Joint ventures (jointly controlled entities), the condensed financial information of the joint ventures was consolidated under the
proportionate consolidation method, considering the joint control exercised under shareholders agreements. All the balances of the joint ventures
assets and
liabilities are as follows:
General and administrative expenses and
selling
Current income taxes
NET INCOME (LOSS) OF THE PERIOD
December 31, 2011
24
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
11
Cost Revaluation
Accumulated
depreciation
Mar 31, 2012
Dec 31, 2011
Buildings
2,757,407
116,615
(312,842)
2,561,180
2,557,025
Land
914,579
9,305
-
923,884
953,614
3,585,219
44,938
(684,382)
2,945,775
2,983,112
Facilities
791,195
21,815
(145,153)
667,857
641,365
190,092
721
(56,059)
134,754
139,685
Vehicles
374,660
63
(183,034)
191,689
183,941
507,454
-
-
507,454
238,236
Other
147,594
1,254
(23,867)
124,981
106,604
9,268,200
194,711
(1,405,337)
8,057,574
7,803,582
Cost Revaluation
Accumulated
depreciation
Mar 31, 2012
Dec 31, 2011
Buildings
5,870,023
116,615
(734,784)
5,251,854
5,278,135
Land
2,329,467
9,305
(107,987)
2,230,785
2,270,694
7,901,199
44,938
(2,375,536)
5,570,601
5,684,510
Facilities
883,572
21,815
(194,415)
710,972
682,273
338,972
721
(132,074)
207,619
208,511
Vehicles
594,647
63
(335,411)
259,299
253,133
924,724
-
(12)
924,712
808,045
Other
247,984
1,254
(40,923)
208,315
193,413
19,090,588
194,711
(3,921,142)
15,364,157
15,378,714
Company
Consolidated
Buildings
3.00%
3.66%
Land
0.00%
1.57%
6.19%
8.17%
Facilities
5.13%
5.14%
11.57%
13.98%
Vehicles
10.86%
10.95%
Other
2.88%
5.44%
Changes in property, plant and equipment
Dec 31, 2011
Additions
Disposals
Depreciation
Borrowings costs
adjustments
Mar 31, 2012
Buildings
2,557,025
26,492
(750)
(21,587)
-
2,561,180
Land
953,614
1,138
(30,868)
-
-
923,884
2,983,112
29,937
(11,087)
(56,187)
-
2,945,775
Facilities
641,365
36,921
-
(10,429)
-
667,857
139,685
620
(30)
(5,521)
-
134,754
Vehicles
183,941
24,683
(6,763)
(10,172)
-
191,689
238,236
265,846
(46)
-
3,418
507,454
Other
106,604
19,552
(103)
(1,072)
-
124,981
7,803,582
405,189
(49,647)
(104,968)
3,418
8,057,574
The joint venture Meat Snacks USA has in its consolidated subsidiary the subsidiary Meat Snacks. The investment of the joint venture Meat Snacks USA is
proportionally consolidated at JBS Holding GMBH, direct subsidiary, of the Company.
Machinery and equipment
Company
Company
Machinery and equipment
Computer equipment
Machinery and equipment
Property, plant and equipment, net
Computer equipment
The joint venture Beef Snacks International has in its consolidated statements the subsidiaries Beef Snack and Jerky Snacks. The investment of the joint venture
Beef Snacks International is proportionally consolidated at JBS Global A/S, direct subsidiary, of the Company.
Net amount
According to IAS 16/CPC 27 - Fixed Assets, on March 31, 2012 the Company made a review of the useful lives of fixed assets, resulting in different rates of
depreciation for each asset, which hinders the disclosure of annual depreciation rate for each group of assets. Because of the above, annually is calculated, for
the purpose of disclosure and to provide additional information to readers, the calculation of the weighted average depreciation rates of assets that make up each
group.
Computer equipment
Machinery and equipment
Average annual
depreciation rates as of March 31,
2012
Construction in progress
Consolidated
Construction in progress
Computer equipment
Net amount
Investment in joint venture Dan Vigor is proportionally consolidated in Vigor, indirect subsidiary of the Company.
Construction in progress
25
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Consolidated
Dec 31, 2011
Additions
Disposals
Depreciation
Exchange rate
variation
Borrowings costs
adjustments
Mar 31, 2012
Buildings
5,278,135
93,762
(3,744)
(54,760)
(61,539)
-
5,251,854
Land
2,270,694
16,796
(32,023)
(9,198)
(15,484)
-
2,230,785
Machinery and
equipment
5,684,510
129,483
(13,160)
(162,307)
(67,925)
-
5,570,601
Facilities
682,273
40,611
-
(11,626)
(286)
-
710,972
Computer
equipment
208,511
12,952
(44)
(11,870)
(1,930)
-
207,619
Vehicles
253,133
31,127
(7,006)
(16,284)
(1,671)
-
259,299
Construction in
progress
808,045
121,168
(46)
-
(12,406)
7,951
924,712
Other
193,413
23,192
(2,904)
(3,395)
(1,991)
-
208,315
15,378,714
469,091
(58,927)
(269,440)
(163,232)
7,951
15,364,157
Interest capitalization - Borrowing costs
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Construction in progress
467,868
199,441
874,902
762,645
(+) capitalized borrowing costs
39,586
38,795
49,810
45,400
507,454 238,236 924,712 808,045
12
Intangible assets, net
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Goodwill
9,069,926
9,069,926
11,176,928
11,189,867
Trademarks
452,575
452,575
658,965
665,005
Software
8,892
9,005
15,788
16,406
Water rights
-
-
59,254
60,840
Client portfolio
-
-
564,962
597,016
Other
-
-
3,068
3,485
9,531,393
9,531,506
12,478,965
12,532,619
Company
The Company and its subsidiaries reviewed the useful lives of their property, plant and equipment. Significant differences were not found in comparison with the
useful lives adopted as of December 31, 2009. From January 1, 2010 new acquisitions are made with estimated useful lives, annually the useful lives are
reviewed and when applicable adjusted.
Until December 2007, revaluations were performed on property, plant and equipment items of several Company's plants, and offsetting entries were made to the
revaluation reserve account and the provision for deferred income and social contribution taxes. The method and assumption applied to estimate the fair value of
the assets were determined based on current market prices. As of March 31, 2012, the total amount of property, plant and equipment revaluation is R$ 194,711
which the revaluation reserve is R$ 100,100 and the provision for income and social contribution taxes is R$ 46,992. For revalued property, plant and equipment,
the Company recorded accumulated depreciation of R$ 47,619.
Company
Consolidated
The depreciation expenses are booked under "Cost of goods sold" and "General and administrative expenses".
Pursuant to IAS 23/CPC 20 ­ Borrowing costs, the Company capitalized those borrowing costs directly attributable to the construction of qualifying assets, which
are exclusively represented by construction in progress. The borrowing costs allocated to the qualifying assets as of March 31, 2012 and December 31, 2011 are
shown below:
The balance of construction in progress refers to investments for expansion, modernization and adaptation of meat-packing plants, aiming to maintain current and
obtain new certifications required by the market. When these assets are concluded and start operating, they will be transferred to a proper property, plant and
equipment account and then will be subject to depreciation.
In compliance with the requirements of IAS 36/CPC 01 - Presentation of financial statement, the Company performed the annual impairment test of the tangible
and intangible assets on March 31, 2012, which were estimated based on the values in use of its various cash-generating units using the discounted cash flows,
and showed that the estimated market value is higher than the net book value at the valuation date and, during the year there was no evidence of loss of value of
individual assets or group of relevant assets. Potential impacts of loss recover them are highlighted in the notes, where relevant. The assumptions of the annual
test of recovery are described in note 12.
Impairment test of assets
Consolidated
The increase in construction in progress in the Company as reflected in the consolidated, is result of recent acquisitions of assets by the Company, the assets are
recorded as construction in progress and during the year of 2012 will be transferred to their account equity referred to, see note 19.
26
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Changes in intangible assets
Company
Dec 31, 2011
Amortization
Mar 31, 2012
Goodwill
9,069,926 -
9,069,926
Trademarks
452,575 -
452,575
Software
9,005 (113) 8,892
9,531,506
(113)
9,531,393
Consolidated
Dec 31, 2011
Additions
Amortization
Exchange rate
variation
Mar 31, 2012
Goodwill
11,189,867 - (65) (12,874) 11,176,928
Trademarks
665,005 - (210) (5,830) 658,965
Software
16,406 20 (401) (237) 15,788
Water rights
60,840 - (19) (1,567) 59,254
Client portfolio
597,016 - (14,600) (17,454) 564,962
Other
3,485 - (308) (109) 3,068
12,532,619
20
(15,603)
(38,071)
12,478,965
Amortization expenses are recorded in the accounts of "Cost of goods sold" and "General and administrative expenses".
Detailing of the Goodwill
Company- Recorded as intangible
Company- Recorded as investment
Consolidated- Recorded as goodwill
(1)
- Refers to amortization of intangible assets with useful lives defined in business combinations.
In April 2011 the Company acquired 70% interest in LLC Lesstor, with goodwill of R$ 13,461, based on expected future earnings of the acquired business
In 2007, JBS Holding International S.A., through its subsidiaries JBS Argentina S.A. and JBS Mendoza S.A., acquired 100% of the capital stock of Consignaciones
Rurales S.A. and Argenvases S.A.I.C. and, in 2008, through the same subsidiaries, acquired 100% of the capital stock of Colcar S.A., with total goodwill of $
31,796 thousand Argentinean pesos, equivalent to R$ 13,240 as of March 31, 2012. Goodwill is based upon expected future earnings of the acquired businesses.
JBS Global A/S has goodwill of 5,188 thousands of Euros, equivalent to R$ 12,607 as of March 31, 2012, arising from the acquisition of the Toledo Group , based
on the appreciation of the assets.
In December 2009 the Company merged Bertin. The market value of this operation was ascertained based on an appraisal report prepared by a valuation
company. The fair value of share exchange between the companies amounted to R$ 11,987,963, generating goodwill of R$ 9,069,926. Pursuant to IFRS 3
(R)/CPC 15 ­ Business combinations, in 2010 the purchase price was allocated to the respective asset accounts, based on the fair value of identifiable assets and
liabilities.
In July 2007 the Company acquired a 100% interest in Swift Foods Company, currently known as JBS USA , with goodwill of R$ 906,481,based on expected future
earnings, which was being amortized over 5 years. Accumulated amortization until December 31, 2008 was R$ 248,655, showing a net carrying amount of R$
657,826 as of March 31, 2012.
In July 2010 the Company acquired 70% interest in CJSC Prodcontract, with goodwill of R$ 18,140, based on expected future earnings of the acquired business
Trademarks, the water right and goodwill have indefinite lives and their recoverable amounts are tested annually for impairment.
JBS USA has goodwill of US$ 224,923 thousand, equivalent to R$ 409,832 as of March 31, 2012, arising mainly from the acquisition in 2008 of Smithfield beef,
Tasman and Five Rivers, based on the appreciation of the acquired assets.
On January 2012, the Company transferred the goodwill through its merged company Bertin that acquired 99.06% of interest in S.A. Fabrica de Produtos
Alimenticios Vigor, in the amount of R$ 860,943, based on expected future earning, as a capital increase in it subsidiary Vigor Alimentos S.A.
The Company through its acquired company Bertin, has other smaller representation of goodwill arising from companies acquisition based on expected future
profitability of R$ 16,044, which related the following investments:
i) Novaprom Foods Ingredients - R$ 12,000
ii) Phitoderm - R$ 4,044
Goodwill: According to technical interpretation ICPC 09 - Individual Financial Statements, Separate Statements, Consolidated Statements and Application of
Equity Method, in the consolidated goodwill is recorded in the Intangible assets due to expected profitability of the acquired subsidiary, assets and liabilities are
consolidated in the Individual Statement. In the balance sheet of the Company, this goodwill is recorded on Investments, the same group of noncurrent assets,
because, for the Company it is part of its investment on subsidiary acquisition, not being its intangible assets (as stated above, the expectation of future earnings -
the genuine intangible - is the subsidiary).
In the company the intangible goodwill arising from the merger of Bertin, and the rest allocated to investments. Consolidated all goodwill re recorded as intangible.
The Company presents only the intangible goodwill arising from the merger of Bertin and the remaining amounts are allocated in investments.
27
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
13
Trade accounts payable
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Commodities - cattle
427,990
358,129
1,154,308
1,237,805
Materials and services
368,384
293,258
1,710,561
1,830,650
Finished products
41,939
14,988
328,981
255,431
838,313
666,375
3,193,850
3,323,886
· Operating costs and expenses - The costs and expenses were projected accordance with historical performance of the Company and, with the historical growth
in revenues. In addition, we considered efficiency gains derived from business combinations of synergies and process improvements.
The Company's subsidiaries have other smaller representation of goodwill arising from companies acquisition, based on expected future profitability of R$ 104,909
which related the following investments:
i) JBS Holding Inc - R$ 20,310
ii) Misr Cold - R$ 20,770
iii) Rigamonti - R$ 56,220
iv) Serrabella - R$ 1,459
v) Wonder Best - R$ 1,793
vi) IFPSA - R$ 4,357
Company tested the recovery of the goodwill using the concept of "value in use" through models of discounted cash flow, representing the group of tangible and
intangible assets used in the development and sale of products to its customers.
The growth rates used to extrapolate the projections after the period of 10 years ranged from 3% to 4% at year in nominal values. The estimated future cash flows
were discounted using discount rates ranging from 8.9% to 10.6% at year, also in nominal values. The principal assumptions used in estimating the value in use
are as follows:
In accordance with CVM decision No. 565, dated December 17, 2008, and CVM Decision No. 553, dated November 12, 2008, since January 1, 2009 the Company
has adopted the criteria of not amortize goodwill based upon expected future earnings, which is in line with IFRS 3 (R) /CPC 15 - Business combination. Under
these CVM decisions and the IFRS, intangible assets with indefinite life can no longer be amortized.
· Sales Revenue - Revenues are projected from 2012 to 2021 considering the growth in volume of different products of Cash Generating Units.
Consolidated
· Capital investment - Investment in capital goods were estimated considering the maintenance of existing infrastructure and expectations required to enable the
supply of products.
The key assumptions were based on historical performance of the Company and reasonable macroeconomic assumptions reasoned basis on projections of the
financial market, documented and approved by management.
Company
The process of determining the value in use involves the use of assumptions, judgments and estimates about cash flows, such as rates of revenue growth, costs
and expenses, estimates of investment, working capital and discount rates. The assumptions about growth projections, cash flow and future cash flows are based
on Management's best estimates, as well as comparable information from market, economic conditions that will exist during the economic life of the group of
assets that provides the generation of the cash flows. The future cash flows were discounted based on the representative rate of the cost of capital (WACC).
Based on the annual test for impairment of the Company's intangible assets, prepared based on the projections made on the financial statements of December 31,
2011, growth prospects and then follow the projections and results of operations for the three months period ended on March 31, 2012, there were no indications
of possible losses or losses, as the estimated market value is higher than the carrying amount at the valuation date.
Consistent with the techniques of economic evaluation, assessment of the value in use is effected for a period of 10 years, and after, considering the perpetuity of
the premises in view of the indefinite business continuity capability. The Management judged appropriate to use the period of 10 years based on their past
experience in designing accurately projected cash flows. This understanding is in accordance with paragraph 35 of IAS 36/CPC 01 (R) - Impairment of Assets.
Impairment test of goodwill
Goodwill and intangible assets with no estimated useful lives are tested for impairment at least once a year, in accordance with IFRS 3 (R)CPC 15 ­ Business
combinations.
28
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
14
Loans and financings
Current liabilities
Type
Mar 31, 2012
Dec 31, 2011
Foreign currency
ACC - (advances on exchange contracts)
2,078,824
2,078,290
Euro Bonds
32,684
16,637
Prepayment
737,023
824,925
144-A
29,109
82,161
Credit note - Export
37,423
36,648
Resolution 63
10,533
10,859
2,925,596
3,049,520
National currency
FINAME
68,838
80,853
EXIM - export credit facility
114,484
225,926
BNDES automatic
125,102
153,456
BNDES automatic
6,282
6,308
Working capital- Brazilian Reais
92,057
257,186
Credit note - export
887,720
796,672
FCO - Middle West Fund
609
612
FNO - North Fund
4,179
4,150
CDC
2,006
-
Others
-
19
1,301,277
1,525,182
4,226,873
4,574,702
Noncurrent liabilities
Type
Mar 31, 2012
Dec 31, 2011
Foreign currency
Euro Bonds
637,735
656,530
Prepayment
712,496
894,849
144-A
2,174,782
2,238,629
Credit note - Export
15,456
15,912
3,540,469
3,805,920
National currency
FINAME
131,960
132,854
EXIM - export credit facility
58,333
83,333
BNDES automatic
21,256
33,755
BNDES automatic
2,561
4,329
Working capital- Brazilian Reais
1,702,653
1,842,188
Credit note - Export
731,984
1,171,540
FCO - Middle West Fund
500
650
FNO - North Fund
19,628
20,624
CDC
889
-
2,669,764
3,289,273
6,210,233 7,095,193
Breakdown:
Current liabilities
4,226,873
4,574,702
Noncurrent liabilities
6,210,233
7,095,193
10,437,106
11,669,895
Maturities of long-term debt are as follows:
2013
1,069,451
1,883,106
2014
1,170,589
1,163,976
2015
945,100
945,160
2016
1,364,611
1,394,493
2017
7,521
7,318
2018
1,648,846
1,697,233
2019
2,880
2,689
2020
1,046
1,045
2021
189
173
6,210,233
7,095,193
TJLP and interest from 2.11% to 6.82%
Interest of 10.00%
Currency basket BNDES + interest from 2% to 3.1%
Interest from 1.2% to 14% or 100% to 125% of CDI
TJLP and interest of 5.19% to 5.81%
Exchange variation + Libor and interest from 0.7% to 6%
Interest from 11.25% or 100% to 114.4% of CDI
Exchange variation, Interest of 2.5% + Libor 6 months
Exchange variation and interest of 10.25%
The Company disclosers below the operations in foreign and national currency, considering the functional currency of each subsidiary. National currency indicates
loans denominated in the same currency as functional currency.
Exchange variation + interest from 8.25% to 10.50%
Exchange variation + interest from 2.5 % to 5.1%
Company
Interest of 10.00%
Currency basket BNDES + interest from 2% to 3.1%
Exchange variation + interest from 6.3% to 7.85%
Exchange variation + interest from 6.3% to 7.85%
Interest from 11.25% or 100% to 114.4% of CDI
TJLP and interest from 3.1% to 5.44%
Exchange variation + interest from 8.25% to 10.50%
Exchange variation + Libor and interest from 0.7% to 6%
TJLP and interest from 3.1% to 5.44%
TJLP and interest of 5.19% to 5.81%
TJLP and interest from 1.26% to 8.5%
Interest of 10.00%
TJLP and interest from 2.11% to 6.82%
Exchange variation and interest of 10.25%
TJLP and interest from 1.26% to 8.5%
Interest from 1.2% to 14% or 100% to 125% of CDI
Average annual rate of interest and commissions
Company
Average annual rate of interest and commissions
Interest of 10.00%
29
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Current liabilities
Type
Mar 31, 2012
Dec 31, 2011
Foreign currency
ACC - (advances on exchange contracts)
2,201,150
2,216,128
Euro Bonds
34,500
22,758
Prepayment
748,092
836,276
144-A
29,109
82,161
Credit note - Import
7,186
7,110
Credit note - Export
37,423
36,648
PPC - México revolver
93
54
Tasman Government Loan
1,578
1,249
Resolution 63
10,533
10,859
3,069,664
3,213,243
National Currency
FINAME
69,021
81,037
FINAME
241
152
Installment note corp aircraft (payable notes)
1,676
1,726
JBS Mortgage
2,974
3,001
EXIM - export credit facility
114,484
225,926
EXIM - export credit facility
67,269
92,495
BNDES automatic
125,102
153,456
BNDES automatic
6,282
6,308
US revolver
2,724
2,339
JBS Term Loan
16,889
17,514
Five Rivers term loan
10,592
11,816
Senior note due 2014
59,721
23,318
16,368
-
Senior note due 2021
27,430
6,139
PPC - US Senior note 2018
20,129
2,257
849
1,780
41,393
42,931
PPC - US bonds
397
229
Plainwell Bond
3,441
3,554
Working capital- Brazilian Reais
99,083
264,107
Working capital - US dollars
122,479
133,462
Working capital - EUROS
58,709
28,305
Credit note - Export
887,720
796,672
FCO - Middle West Fund
1,551
1,362
FNO - North Fund
4,179
4,150
Working capital - Egyptian pound
15,861
17,168
EGF
30,849
30,351
Credit note - Import
72,154
108,056
Finep
23
24
CDC
2,006
-
Others
67,488
66,555
1,949,084
2,126,190
5,018,748 5,339,433
Currency basket + interest from 2% to 3.1%
Average annual rate of interest and commissions
Exchange variation and interest of 10.25%
Interest from 10.00%
Interest of 4.44% ( LIBOR and interest of 2.80%)
Libor + Interest of 2% and commission of 0,1%
TJLP and interest of 5.19% to 5.81%
Euribor +interest from 0.15% to 1.75%
PPC - US credit facility - term loans
Senior note due 2020
Interest of 8.25%
Interest from 4.5% to 10%
Interest of 2.75% + Libor
Libor or Prime and pre determinate rate
Alternate Base Rate (ABR) or Eurodollar
PPC - US credit facility - revolving credit facility
Interest from 1.2% to 14% or 100% to 125% of CDI
Interest of 11.25% or 100% to 114.4% of CDI
Libor +interest from 1.10% to 3.20%
Interest of 11.625%
Exchange variation + interest from 6.3% to 7.85%
Exchange variation + interest from 8.25% to 10.50%
TIIE+ interest of 2.25%, Overnight +4.5%
TJLP and interest from 1.26% to 8.5%
TJLP and interest from 3.1% to 5.44%
Interest from 5.75% to 8.35%
Interest of 10.00%
Libor and interest from 1.75%
Consolidated
Interest of 7.25%
Interest of 6.75%
Exchange variation + Interest of 2.5% + Libor 6 months
Interest from 4.8% to 9.00%
Exchange variation + Libor and interest from 0.7% to 6%
TJLP and interest from 2.11% to 6.82%
Exchange variation + interest from 2.5 % to 5.1%
Exchange variation + interest of 11.25%
Interest of 4.5%
Exchange variation + Interest of 0% until 2013
Interest from 7% to 11.19%
Interest from 7.625% to 9.25%
Interest of 4.3% to 6.3%
Interest of 4.39%
Interest of 7.875%
30
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Noncurrent liabilities
Type
Mar 31, 2012
Dec 31, 2011
Foreign currency
Euro Bonds
819,945
844,110
Prepayment
712,496
894,849
144-A
2,174,782
2,238,629
Credit note - Export
15,456
15,912
Tasman Government Loan
22,880
22,851
3,745,559
4,016,351
National currency
FINAME
132,227
133,138
FINAME
1,091
1,172
Installment note corp aircraft (payable notes)
11,630
12,405
JBS Mortgage
30,134
31,812
EXIM - export credit facility
58,333
83,333
BNDES automatic
21,256
33,755
BNDES automatic
2,561
4,329
US revolver
299,510
50,450
JBS Term Loan
836,639
865,534
Five Rivers term loan
137,942
144,590
Senior note due 2014
1,234,150
1,265,417
1,241,716
-
Senior note due 2021
1,149,076
1,182,157
PPC - US Senior note due 2018
888,594
913,999
332,854
631,389
987,939
1,022,148
PPC - US bonds
7,101
7,310
Plainwell Bond
24,538
26,059
Marshaltown
17,401
17,891
Working capital- Brazilian Reais
1,702,653
1,842,188
Working capital - US dollars
29,806
32,187
Working capital - Euro
1,657
2,071
Credit Note - export
731,984
1,171,540
FCO - Middle West Fund
1,358
1,693
FNO - North Fund
19,628
20,624
Finep
11,680
11,680
CDC
889
-
Others
7,438
7,539
9,921,785
9,516,410
13,667,344 13,532,761
Breakdown:
Current liabilities
5,018,748
5,339,433
Noncurrent liabilities
13,667,344
13,532,761
18,686,092
18,872,194
Maturities of long-term debt are as follows:
2013
1,087,474
1,949,326
2014
3,772,537
4,136,914
2015
985,760
980,346
2016
1,792,870
1,572,683
2017
201,041
199,347
2018
3,359,557
3,449,587
2019
3,004
4,148
2020
1,259,722
1,936
2021
1,149,265
1,182,330
Maturities thereafter 2021
56,114
56,144
13,667,344
13,532,761
PPC - US credit facility - term loans
CDC ­ Working Capital Financing contract (Contrato de financiamento de capital de giro), credit facilities obtained from financial institutions by the Company, to
finance the truck fleet of the transport operation.
Libor +interest from 1.10% to 3.20%
Interest from 4.8% to 9.00%
Interest of 2.34%
EUROBONDS - The incorporated Bertin who entered into a credits agreement in the amount of US$ 350 million on October 13, 2006 , with a coupon of 10.25%
per year, without guarantee.
TJLP and interest from 2.11% to 6.82%
Currency basket + interest from 2% to 3.1%
TJLP and interest of 5.19% to 5.81%
Interest of 7.875%
TJLP and interest from 1.26% to 8.5%
Alternate Base Rate (ABR) or Eurodollar
Average annual rate of interest and commissions
Libor or Prime and pre determinate rate
Interest from 5.75% to 8.35%
Interest from 7.625% to 9.25%
Interest of 11.625%
PPC - US credit facility - revolving credit facility
Interest of 10.00%
Interest of 8.25%
Exchange variation + interest from 6.3% to 7.85%
Interest of 4.39%
Interest from 1.2% to 14% or 100% to 125% of CDI
Interest of 10.00%
Euribor + interest from 0.15% to 1.75%
Consolidated
TJLP and interest from 3.1% to 5.44%
Interest of 11.25% or 100% to 114.4% of CDI
Interest of 2.75% + Libor
Exchange variation and interest of 10.25%
Exchange variation + Libor and interest from 0.7% to 6%
Libor and interest from 1.75%
Interest from 4.5% to 10%
Exchange variation + Interest of 0% until 2013
Interest of 7.25%
Exchange variation + interest from 8.25% to 10.50%
Interest of 4.3% to 6.3%
Interest of 4.5%
ACC (advances on exchange contracts) are credit facilities obtained from financial institutions by the Company, its subsidiary JBS Argentina S.A., in the amount of
US$ 1,208,030 as of March 31, 2012 (US$ 1,016,367 as of December 31, 2011), to finance export transactions.
Senior note due 2020
31
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
15
Credit operations, guarantees and covenants
Bertin's Notes 2016 - Bertin S.A., an enterprise of which the Company is the successor through merger, issued Bertin's Notes 2016 at the principal amount of
US$350 million on November 9, 2006 (under its former corporate name of Bertin Ltda.). The interest applicable to Bertin's Notes 2016 corresponds to 10.25% per
annum, paid semiannually on April 5 and October 5, beginning on April 5, 2007. The principal amount of the notes should be fully paid by October 5, 2016.
USBONDS - On April 27, 2009, the subsidiary JBS USA issued bonds in the amount of US$ 700 million, with a payment term of five years and coupon of
11.625% per year, with a discount of US$ 48.7, which will be added to the loan over its useful live. The operation is guaranteed by the Company and its subsidiary
JBS USA and the subsidiaries of JBS USA.
Term Loan B - On May 27, 2011 the subsidiary JBS USA, LLC entered into a credit agreement consisting of a term loan of US$ 475 million with a payment term
of 7 years and LIBOR + 3% per year.
FINAME / FINEM ­ Financing agreements with BNDES are secured by the assets subject matter of the financing.
ABL (Asset Based Loan) ­ On May 12, 2011 the subsidiary JBS USA, LLC entered into a credit agreement consisting of a term loan commitment of US$ 850
million, with a payment term of 5 years and LIBOR + 1.75% per year.
144-A - It refers to two capture operations by the issuance of 144-A notes in the international market, with a payment term of 10 years performed on the Company
as the following: on July 28, 2006, on the amount of R$ 300 million with a coupon of 10.5% p.a., guaranteed and endorsed by the Company; on July 29, 2010, on
the amount of R$ 900 million, with a coupon of 8.25% p.a., guaranteed endorsement by the Company.
Again, as mentioned above, Notes 2016 establish restrictions to the Company and its subsidiaries in the execution of certain actions, such as: (i) paying dividends
or making any other payments of securities; (ii) paying debts or other obligations; (iii) obtaining loans or advances; or (iv) transferring its properties or assets.
Despite that, such payments can be made in certain cases, such as, (a) when there are certain obligations incurred before the issuance of the notes; (b) they are
established in law; (c) when the transfer of assets takes place in the normal course of business, or under clauses usually accepted in joint venture agreements
executed by the subsidiaries; or (d) when imposed by standard documents of BNDES (National Bank of Economic and Social Development).
Additionally, according to Notes 2016, the Company will not be able, directly or indirectly, to declare or pay any dividends or make any distributions related to
securities issued by the Company (except for debt instruments convertible or exchangeable for such amounts), if (i) there has been default in relation to the notes
2016; (ii) the Company can incur in at least US$ 1.00 of debt under the terms of the net debt/EBITDA ratio test established in the indenture of the notes mentioned
in the paragraph above; and (iii) the total value to be paid does not exceed 50% of the accrued net income in a certain year or when in a determined year where
there is loss, the payment value does not exceed US$30 million.
Events of default: The indenture of Notes 2016 contains customary events of default. They include non-compliance with or violation of terms, restrictions and other
agreements contained in the mentioned instrument, besides default of other debt in case the effect leads to anticipated payment, lack of payment within the grace
periods applicable of other debt waived or extended, rendering of unfavorable sentences or court orders against the issuer or its subsidiaries, and certain events
related to bankruptcy and insolvency. If an event of default occurs, the trustee or holder of at least 25% of the principal amount of the notes outstanding at the time
is entitled to declare immediately payable the principal and accrued interest on the notes.
Term Loan A - On July 14, 2011 the indirect subsidiary JBS Five Rivers obtained an US$ 85 million term loan with a payment term of 5 years and LIBOR + 2.75%
per year.
On March 31, 2012, the Company was in compliance with all covenants. The main credit operations, guarantees and covenants of the Company and its
subsidiaries are described below.
Notes 2016 - JBS S.A. - On August 4, 2006, the Company issued Notes 2016 maturing in 2016, in the principal amount of US$300 million. The interest rate
applicable to the notes is 10.50% per annum and interest is paid semiannually on February 4 and August 4, beginning on February 4, 2007. The principal amount
of the notes should be fully paid by August 4, 2016. Pursuant to the additional indenture dated January 31, 2007, JBS Finance Ltd became a co-issuer of Notes
2016.
Guarantees: The indenture governing Notes 2016 requires that any significant subsidiary (as defined in the indenture governing the Notes 2016) guarantee all
obligations of the Company as stated in Notes 2016, subject to certain exceptions. Notes 2016 are guaranteed by JBS Hungary Holdings Kft (indirect wholly
owned subsidiary of the Company), by JBS USA Holdings, JBS USA, LLC and Swift Beef Company. Other subsidiaries of the Company may be required to
guarantee the Notes 2016 in the future.
Covenants: The indenture for the Notes 2016 contains customary negative covenants that limit the Company's ability and the ability of certain subsidiaries to,
among other things:
. incur additional debt, if the ratio net debt/EBITDA is higher than a determined index;
. incur liens;
. sell or dispose of assets;
. pay certain dividends and make other payments;
. permit restrictions on dividends and other restricted payments by its restricted subsidiaries;
. have certain transactions with related parties;
. Consolidate or enter into merger or transfer all assets to another company;
. execute lease transactions with repurchase option (sale/leaseback).
. change the control without making a purchase offer on Notes 2016.
As mentioned above, the terms and conditions for Notes 2016 include covenants. They restrict the Company and its subsidiaries, including JBS USA, to incur any
debts (subject to certain permitted exceptions) unless the pro forma net debt / EBITDA ratio of the Company (as defined in the indenture) at the date the debt is
incurred is lower than 4.75/1.0.
32
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
The indenture governing the Vigor's Notes 2017 restricts Vigor and its subsidiaries from incurring any debt (subject to certain permitted exceptions), unless on the
date of such incurrence, Vigor's pro forma net debt to EBITDA ratio is less than 4.75/1.0, each as defined and calculated in the indenture governing the Vigor's
Notes 2017.
On December 14, 2009, Bertin successfully concluded a consent solicitation relating to the 2016 Bertin Notes. The consent solicitation (1) amended certain
provisions in the indenture governing the 2016 Bertin's Notes 2016 to conform the provisions to the indenture governing Notes 2016 and (2) amended the change
of control provisions to exclude the Bertin merger as an event that would trigger a change of control under the Bertin's 2016 Notes. The supplemental indenture
implementing these amendments to the Bertin's 2016 Notes was executed on December 22, 2009.
Guarantees: The indenture that governs Bertin's Notes 2016 requires that any "material subsidiary" (as defined in the indenture governing Bertin's Notes 2016) to
guarantee all obligations of the Company established in Bertin's Notes 2016. They are guaranteed by JBS Hungary Holdings Kft. (indirect wholly-owned subsidiary
of the Company). Other subsidiaries of the Company may be required to guarantee the Bertin's Notes 2016 in the future.
Covenants: The indenture of Bertin's Notes 2016 contains customary negative covenants that limit the Company's ability and the ability of its subsidiaries to,
among other things:
. incur additional debt if the net debt/EBITDA ratio is higher than a determined index;
. incur liens;
. pay dividends or make certain payments to shareholders;
. sell or dispose of assets;
. have certain transactions with related parties;
. dissolve, consolidate, merge or acquire the business or assets of other entities;
. execute lease transactions with repurchase option (sale/leaseback);
. change the company's control without making a purchase offer on Bertin' Notes 2016.
. in a general manner, limits dividends or other payments to shareholders by restricted subsidiaries.
Additionally, according to the notes, the Company can only, directly or indirectly, declare or pay any dividends or make any distributions related to securities issued
by the Company (except for debt instruments convertible or exchangeable for such amounts), if (i) it is not in default in relation to the notes; (ii) the Company can
incur in at least US$ 1.00 of debt under the terms of the net debt/EBITDA ratio test established in the indenture of the notes mentioned in the paragraph above;
and (iii) the total value to be paid does not exceed 50% of the accrued net income in a certain year or when in a determined year where there is loss, the payment
value does not exceed US$ 30 million.
Events of default: The issuance instrument of Bertin's Notes 2016 contains customary events of default. They include non-compliance with or violation of terms,
restrictions and other agreements contained in the mentioned instrument, besides default of other debt in case the effect leads to anticipated payment, lack of
payment within the grace periods applicable of other debt waived or extended, rendering of unfavorable sentences or court orders against the issuer or its
subsidiaries, and certain events related to bankruptcy and insolvency. If an event of default occurs, the trustee or holder of at least 25% of the principal amount of
the notes outstanding at the time is entitled to declare immediately payable the principal and accrued interest on the notes.
Vigor's Notes 2017 - Vigor, a subsidiary following the Bertin merger, issued the Vigor's Notes 2017, in an aggregate principal amount of US$100.0 million, on
February 23, 2007. Interest on the Vigor's Notes 2017 accrues at a rate (i) of 9.25% per annum between the issue date of the Indenture and February 23, 2012
and (ii) of 10,25% per annum between February 23, 2012 and February 23, 2017 and is payable semiannually in arrears on February 23 and August 23 of each
year, beginning on August 23, 2007. The principal amount of the Vigor's Notes 2017 is payable in full on February 23, 2017.
On September 24, 2010, the Company successfully concluded a consent solicitation relating to the Vigor's Notes 2017. The consent solicitation (i) amended
certain provisions in the indenture governing the Vigor's Notes 2017 to conform the provisions to the indenture governing JBS S.A.'s Notes 2018 and (ii) amended
the definitions of "Change of Control" and "Permitted Holders" (among others) in the Indenture to substantially conform such definitions to the corresponding
definitions set forth in JBS S.A.'s Notes 2018; and (iii) provide for the ability of Vigor (or its successors) to be substituted as the issuer of the Notes, upon the
satisfaction of certain conditions. Vigor not characterized in a change of control.
Covenants. The indenture to the Vigor's Notes 2017 contains customary negative covenants that limit the Vigor's ability and the ability of certain of its subsidiaries
to, among other things:
. incur additional debt if the net debt/EBITDA ratio is higher than a determined index;
. incur liens;
. pay dividends or make certain payments to shareholders;
. permit restrictions on dividends and other restricted payments by restricted subsidiaries
. sell or dispose of assets;
. have certain transactions with related parties;
. execute lease transactions with repurchase option (sale/leaseback);
. change the company's control without making a purchase offer on Vigor's Notes 2017.
As indicated above, the terms and conditions for Bertin's Notes 2016 include covenants that restrict the Company (as legal successor of Bertin) and the
subsidiaries, to incur any debts (subject to certain permitted exceptions) unless the pro forma net debt / EBITDA ratio of the Company (as defined in the indenture)
at the date the debt is incurred is lower than 4.75/1.0.
Besides, Bertin's Notes 2016 restrict the Company and its subsidiaries from: (i) paying dividends or making any other payments of securities; (ii) paying debts or
other obligations; (iii) making loans or advances; or (iv) transferring its properties or assets. Despite that, such payments can be made in certain cases, such as,
(a) when there are certain obligations incurred before the issuance of the notes; (b) they are established in law; (c) when the transfer of assets takes place in the
normal course of the business, or under clauses usually accepted in joint venture agreements executed by the subsidiaries; (d) when imposed by standard
documents of BNDES or other international governmental agencies.
33
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
The indenture governing the Vigor's Notes 2017 restricts Vigor's ability and the ability of its subsidiaries to declare or pay any dividend or make any distribution on
securities issued by Vigor (excluding convertible or exchangeable debt instruments), in the event (1) that an event of default has occurred and continues under the
Vigor's Notes 2017; (2) Vigor can incur at least US$1.00 of debt under the terms of the net debt to EBITDA ratio test; and (3) the total value to be paid does not
exceed 50% of the accrued net income in a certain year or when in a determined year where there is loss, reduced 100% of the loss.
Events of default: The indenture also contains customary events of default, including for failure to perform or observe terms, covenants or other agreements in the
indenture, defaults on other indebtedness if the effect is to permit acceleration, failure to make a payment on other indebtedness waived or extended within the
applicable grace period, entry of unsatisfied judgments or orders against the issuer or its subsidiaries, and certain events related to bankruptcy and insolvency
matters. If an event of default occurs, the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding may declare such
principal and accrued interest on the notes to be immediately due and payable.
Notes 2018 - JBS S.A. - On July 29, 2010, JBS Finance II Ltd., a wholly-owned subsidiary of the Company, issued Notes 2018 maturing in 2018, at the principal
amount of US$700 million and on September 10, 2010, the company issued additional notes at the principal amount of US$200 million under the indenture of
Notes 2018. The interest rate applicable to the notes is 8.25% per annum and are semiannually paid on January 29 and July 29 of each year, beginning January
29, 2011. The principal amount of the Notes 2018 should be fully paid by January 29, 2018.
The Notes 2018 are guaranteed by JBS Hungary Holdings Kft. (indirect wholly-owned subsidiary of the Company) and by JBS S.A.
Covenants. The indenture of Notes 2018 contains customary negative covenants that limit the Company's ability and the ability of certain subsidiaries to, among
other things:
. incur additional debt if the net debt/EBITDA ratio is higher than a determined index;
. incur liens;
. pay dividends or make certain payments to shareholders;
. permit restrictions on dividends and other restricted payments by restricted subsidiaries
. sell or dispose of assets;
. have certain transactions with related parties;
. execute lease transactions with repurchase option (sale/leaseback);
. change the company's control without making a purchase offer on Notes 2018.
As mentioned above, the terms and conditions for Notes 2018 include covenants. They restrict the Company and its subsidiaries, including JBS USA, to incur any
debts (subject to certain permitted exceptions) unless the pro forma net debt / EBITDA ratio of the Company (as defined in the indenture) at the date the debt is
incurred is lower than 4.75/1.0.
Again, as mentioned above, Notes 2018 establish restrictions to the Company and its subsidiaries in the execution of certain actions, such as: (i) paying dividends
or making any other payments of securities; (ii) paying debts or other obligations; (iii) obtaining loans or advances; or (iv) transferring its properties or assets.
Despite that, such payments can be made in certain cases, such as, (a) when there are certain obligations incurred before the issuance of the notes; (b) they are
established in law; (c) when the transfer of assets takes place in the normal course of business, or under clauses usually accepted in joint venture agreements
executed by the subsidiaries; or (d) when imposed by standard documents of BNDES (National Bank of Economic and Social Development).
Additionally, according to Notes 2018, the Company will not be able, directly or indirectly, to declare or pay any dividends or make any distributions related to
securities issued by the Company (except for debt instruments convertible or exchangeable for such amounts), if (i) there has been default in relation to the notes
2018; (ii) the Company can incur at least US$ 1.00 of debt under the terms of the net debt/EBITDA ratio test established in the indenture of the notes mentioned in
the paragraph above; and (iii) the total value to be paid does not exceed 50% of the accrued net income in a certain year or when in a determined year where
there is loss, reduced 100% of the loss.
Events of default: The indenture of Notes 2018 contains customary events of default. They include non-compliance with or violation of terms, restrictions and other
agreements contained in the mentioned instrument, besides default of other debt in case the effect leads to anticipated payment, lack of payment within the grace
periods applicable of other debt waived or extended, rendering of unfavorable sentences or court orders against the issuer or its subsidiaries, and certain events
related to bankruptcy and insolvency. If an event of default occurs, the trustee or holder of at least 25% of the principal amount of the notes outstanding at the time
is entitled to declare immediately payable the principal and accrued interest on the notes.
Guarantee of J&F Oklahoma's revolving credit facility ­ On October 7, 2008, J&F Oklahoma entered into a US$600.0 million secured revolving credit facility.
This credit facility and the guarantee thereof are secured solely by the assets of J&F Oklahoma and the net assets of JBS Five Rivers. This credit facility is used to
acquire cattle which are then fed in the JBS Five Rivers' feed yards pursuant to the cattle supply and feeding agreement. The finished cattle are sold to JBS USA,
LLC under the cattle purchase and sale agreement. This facility was amended and restated on September 10, 2010 to provide availability up to US$800.0 million
and to extend maturity to September 23, 2014.
On June 14, 2011, J&F Oklahoma and JBS Five Rivers executed a third amended and restated credit agreement to increase the availability to US$1.0 billion and
to add J&F Australia as a borrower under the facility. The facility matures on June 14, 2015. On March 6, 2012 J&F Oklahoma and JBS Five Rivers executed an
amendment to the third amended and restated credit agreement to increase the availability up to US$1.2 billion. Borrowings under the facility bear interest at
variable rates based on applicable LIBOR plus 2.25%, or based on the prime rate plus 1%. The interest rate at March 31, 2012 was 2.73%. As of March 31, 2012,
US$1.9 million was used towards letters of credit and borrowing availability was US$54.8 million. As of December 31, 2011 and March 31, 2012, J&F Oklahoma
had US$915.2 million and $1.0 billion, respectively, in outstanding borrowings on the facility.
34
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
The credit agreement is collateralized by accounts receivable and inventories of J&F Oklahoma and by certain fixed assets, accounts receivable and inventories of
JBS Five Rivers. Among other requirements, the facility requires J&F Oklahoma to maintain certain financial ratios, minimum levels of net worth and establish
limitations on certain types of payments, including dividends, investments and capital expenditures. In most instances, covenants consider the combined position
and results of J&F Oklahoma along with JBS Five Rivers. J&F Oklahoma's parent company has entered into a keep-well agreement whereby it will make
contributions to J&F Oklahoma if J&F Oklahoma is not in compliance with its financial covenants under this credit facility. If J&F Oklahoma defaults on its
obligations under the credit facility and such default is not cured by its parent under the keep-well agreement, JBS Five Rivers is obligated for up to US$250.0
million of guaranteed borrowings plus certain other obligations and costs under this credit facility. J&F Oklahoma was in compliance with financial covenants
under this credit facility as of March 31, 2012.
Installment note payable ­ The installment note payable relates to JBS USA financing of a capital investment. The note bears interest at LIBOR plus a fixed
margin of 1.75% per annum with payments due on the first of each month. The note matures on August 1, 2013.
Credit facility to J&F Oklahoma ­ JBS Five Rivers is party to an agreement with J&F Oklahoma pursuant to which JBS Five Rivers has agreed to loan up to
US$200.0 million in revolving loans to J&F Oklahoma. The loans are used by J&F Oklahoma to acquire feeder animals which are placed in JBS Five Rivers' feed
yards for finishing. Borrowings accrue interest at a per annum rate of LIBOR plus 2.25% and interest is payable at least quarterly. On September 26, 2011, the
facility was amended to accrue interest at a per annum rate of LIBOR plus 2.75%. The interest rate at March 31, 2012 was 3.32%. The facility was amended on
September 10, 2010 to mature on September 11, 2016. The facility was amended on June 14, 2011 to increase availability under the loan to $375.0 million. As of
December 31, 2011 and March 31, 2012, outstanding borrowings were US$262.0 million and US$239,8 million, respectively.
Description of Indebtedness of JBS USA
ANZ credit line -- On March 2, 2011, JBS Australia executed a A$35.0 million facility to assist with working capital requirements. The facility had an interest rate
equal to the Bank Bill Swap Bid Rate ("BBSY") plus a 2% margin. The facility was canceled on February 10, 2012.
Senior Secured Credit Facility -- On November 5, 2008, JBS USA entered into a senior secured revolving credit facility (the "Credit Agreement") that allows
borrowings up to US$400.0 million. Up to US$75.0 million of the Credit Agreement is available for the issuance of letters of credit.
On June 30, 2011, JBS USA and JBS Australia executed the Revolving Syndicated Facility Agreement ("Revolving Facility") to amend and restate the Credit
Agreement. The facility provides a maximum borrowing availability of $850.0 million available in three tranches of $625.0 million, $150.0 million and $75.0 million.
The facility matures on June 30, 2016. Up to $250.0 million of the Revolving Facility is available for the issuance of letters of credit. On January 26, 2012, JBS
USA and JBS Australia executed the first amendment to the Revolving Facility agreement primarily to include a US$35.0 million swing line sub-facility for JBS
Australia which allows JBS Australia to obtain same day funding under the Revolving Facility. Loans bear interest at applicable LIBOR rates or the prime rate plus
applicable margins that are based on utilization of the facility.
Availability: Availability under the Revolving Facility is subject to a borrowing base. The borrowing base is based on certain JBS USA wholly-owned subsidiaries'
assets as described below, with the exclusion of JBS Five Rivers. The borrowing base consists of percentages of eligible accounts receivable, inventory and
supplies less certain eligibility and availability reserves. As of March 31, 2012, there were US$87.8 million of outstanding letters of credit and borrowing availability
was US$497.4 million.
Security and Guarantees: Borrowings made by JBS USA under the Revolving Facility are guaranteed by JBS S.A., JBS Hungary Holdings Kft., JBS USA Holdings
and all domestic subsidiaries of JBS USA except JBS Five Rivers and certain immaterial subsidiaries. In addition, all material subsidiaries of JBS Australia
guarantee JBS Australia borrowings. Furthermore, the borrowings are collateralized by a first priority perfected lien and interest in accounts receivable, finished
goods and supply inventories up to the limit amount of the indebtedness.
Covenants: The Revolving Facility contains customary representations, warranties and a springing financial covenant that requires a minimum fixed charge
coverage ratio of not less than 1.00 to 1.00. This ratio is applicable if borrowing availability causes a covenant trigger period, which only occurs when borrowing
availability falls below the greater of 10% of the maximum borrowing amount or $72.0 million. The Revolving Syndicated Facility also contains negative covenants
that may limit the ability of JBS USA and certain of its subsidiaries to, among other things:
· incur certain additional indebtedness;
· create certain liens on property, revenue or assets;
· make certain loans or investments;
· sell or dispose of certain assets;
· pay certain dividends and other restricted payments;
· prepay or cancel certain indebtedness;
· dissolve, consolidate, merge or acquire the business or assets of other entities;
· enter into joint ventures other than certain permitted joint ventures or create certain other subsidiaries;
· enter into new lines of business;
· enter into certain transactions with affiliates and certain permitted joint ventures;
· agree to restrictions on the ability of the subsidiaries to make dividends;
· agree to enter into negative pledges in favor of any other creditor; and
· enter into certain sale/leaseback transactions.
The Revolving Facility also contains customary events of default, including failure to perform or observe terms, covenants or agreements included in the Revolving
Facility, payment of defaults on other indebtedness, defaults on other indebtedness if the effect is to permit acceleration, entry of unsatisfied judgments or orders
against a loan party or its subsidiaries, failure of any collateral document to create or maintain a priority lien and certain events related to bankruptcy and
insolvency or environmental matters. If an event of default occurs the lenders may, among other things, terminate their commitments, declare all outstanding
borrowings to be immediately due and payable together with accrued interest and fees and exercise remedies under the collateral documents relating to the
Revolving Facility. At March 31, 2012, JBS USA was in compliance with all covenants.
35
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
US$10 million loan receivable from Weddel Limited - On May 10, 2011, JBS USA Holdings executed a US$10.0 million related party revolving promissory note
with Weddell Limited ("Weddell"), a wholly-owned subsidiary of JBS USA Holdings, with interest based on the U.S. prime rate plus a margin of 2.0% and a
maturity date of May 10, 2012. This note eliminate upon consolidation.
US$50 million loan receivable from JBS Five Rivers - On May 27, 2011, JBS USA issued a US$50.0 million intercompany loan to JBS Five Rivers with interest
based on the three-month LIBOR plus 225 basis points and a maturity date of May 27, 2012. While this loan eliminates upon consolidation, on June 22, 2011 the
outstanding principal and accrued interest were paid in full.
US$2.0 billion revolving intercompany note to JBS USA Holding - On June 2, 2011, JBS USA issued a US$2.0 billion revolving intercompany note to JBS
USA Holdings. The note bears interest at a variable per annum rate equal to LIBOR plus 300 basis points. On January 25, 2012, JBS USA Holdings amended the
revolving intercompany note with JBS USA to increase the maximum amount available under the note to US$3.0 billion. Principal and accrued interest are due and
payable upon demand by JBS USA at any time on or after June 30, 2015. The interest rate at March 31, 2012 was 3.58%. The revolving intercompany note
eliminates upon consolidation.
PPC entered into the Subordinated Loan Agreement with JBS USA Holdings - On June 23, 2011, PPC entered into the Subordinated Loan Agreement (the
"Subordinated Loan Agreement") with JBS USA Holdings which provided an aggregate commitment of US$100.0 million. On June 23, 2011, JBS USA Holdings
made a term loan to PPC in the principal amount of US$50.0 million. In addition, JBS USA Holdings agreed to make an additional one-time term loan of US$50.0
million if PPC's availability under the revolving loan commitment is less than US$200.0 million. In accordance with the PPC Rights Offering, on March 7, 2012, the
commitments under the Subordinated Loan Agreement were terminated and outstanding principal and accrued interest were paid in full.
JBS USA letters of credit - On October 26, 2011 and November 4, 2011, JBS USA agreed to provide letters of credit in the amount of US$40.0 million and
US$16.5 million, respectively to an insurance company serving PPC in order to allow that insurance company to return cash it held as collateral against potential
workers compensation, auto and general liability claims of PPC. In return for providing this letter of credit, PPC is reimbursing JBS USA for the cost PPC would
have otherwise incurred under its revolving credit agreement.
US$ 20 million note to Sampco - On March 15, 2012 Sampco executed a U$20.0 million revolving promissory note with JBS USA Holdings with interest based
on the three-month LIBOR plus a margin of 3.0%. Principal and interest are due and payable upon demand by Sampco at any time on or after March 31, 2014. At
March 25, 2012 the interest rate was 3.5%. The revolving promissory note eliminates upon consolidation.
4.39% secured notes due 2019 ­ On December 20, 2010, JBS USA Holdings' wholly-owned subsidiaries JBS USA and JBS Plainwell, Inc. issued 4.39% notes
due 2019 in an aggregate principal amount of US$16.0 million to finance the construction of a cold storage warehouse. Interest is payable quarterly beginning April
1, 2011. Principal is payable quarterly beginning October 1, 2011.
Unsecured credit facility ­ JBS Australia entered into an Australian dollar ("A$") denominated A$120.0 million unsecured credit facility on February 26, 2008 to
fund working capital needs and letter of credit requirements. This facility terminated on October 1, 2009; however, JBS Australia extended the letter of credit
portion of the facility. On May 5, 2010, the facility was revised to reflect current letters of credit requirements to a facility limit of A$1.9 million and is subject to an
annual review. On March 7, 2011 the credit facility has increased in A$ 32.5 million.
A$250 million revolving loan payable between JBS USA and JBS Australia ­ On May 4, 2010, JBS USA issued a long-term intercompany revolving
promissory note to JBS Australia for A$250.0 million with interest based on the three-month Bank Bill Swap Bid Rate ("BBSY") plus 3% and a maturity date of May
4, 2012 to fund working capital needs and general corporate purposes. On November 9, 2010, the note was amended to increase the maximum amount of
advances to A$350.0 million. On February 2, 2011, the note was amended to increase the maximum amount of advances to A$400.0 million. On July 6, 2011, the
note was amended to reduce the interest rate margin of 3% over the BBSY to 2%. On November 7, 2011, the note was amended to extend the maturity date to
December 31, 2013 and to make the interest rate margin on the note equal to the Revolver Bill Rate Spread as defined in the Revolving Facility in effect at the
time an advance is made. The interest rate margin in effect following this amendment is 1.75%. While these loans eliminate upon consolidation, the loans are
denominated in AUD, but reported by JBS USA in USD. Therefore, the loans generate foreign currency transaction gains or losses due to fluctuations in the period
end AUD to USD exchange rate. The average interest rate at March 25, 2012 was 6.08%.
US$50 million revolving loan receivable from JBS USA ­ On April 19, 2010, JBS USA Holdings issued an intercompany revolving promissory note to JBS USA
with borrowing availability of up to US$50 million with interest based on the three-month LIBOR plus a fixed margin of 2.5% to fund working capital needs and
general corporate purposes. This note matured on March 31, 2012 and JBS USA Holdings has no intent to renew it.
A$50 million revolving loan receivable from JBS Australia ­ On May 4, 2010, JBS USA Holdings issued an intercompany revolving promissory note to JBS
Australia for A$50.0 million with interest based on the three-month BBSY plus 3% and a maturity date of May 4, 2012 to fund working capital needs and general
corporate purposes. While these loans eliminate upon consolidation, the loans are denominated in AUD, but reported by JBS USA Holdings in USD. Therefore,
the loans generate foreign currency transaction gains or losses due to fluctuations in the period end AUD to USD exchange rate. There were no outstanding
borrowings at December 31, 2011 or March 31, 2012.
36
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Marshalltown new market tax credit ­ On March 10, 2011, Swift Pork entered into the Marshalltown NMTC transaction to finance construction of a distribution
center. Swift Pork borrowed US$9.8 million at 2.34% annual interest payable monthly for seven years. Of the total amount borrowed, US$7.2 million ("Loan A")
was indirectly funded by JBS USA through a leverage loan and is included in other assets within the Consolidated Balance Sheets. The remaining US$2.6 million
("Loan B") was funded by a local community development entity. At the end of the seven year period there is an option to dissolve the transaction through a put
option with an exercise price of US$1 thousand or a call option with an exercise price which will be calculated at its fair market value. If the put or call option is not
exercised then Loan A will begin to amortize over the remaining 28 years with principal and interest due monthly and a balloon payment for the remaining principal
due March 2046. Loan B will continue to have interest only payments through 2046 at which time principal and interest are due.
Tasmanian government loan ­ On September 2, 2010, JBS Australia and JBS Southern Australia Pty. Ltd. entered into a secured facility which provides up to
A$12.0 million with the Tasmanian Government (Tasmania Development and Reserve, the "Department"), to fund a capital investment at JBS Australia's
processing plant located in King Island, Tasmania. Funding is available in three tranches of A$3.6 million, A$3.6 million and up to A$4.8 million. Loans are payable
on the 22nd of the month following the 15th anniversary of each tranche's initial drawdown. Funds were drawn on October 4, 2010, November 8, 2010 and May 17,
2011, respectively.
Each loan is interest payment free for the initial three years, then bears interest at the Department's cost of funds for years four through nine and then bears
interest at the Department's variable commercial rate for years 10 through 15. Upon initial drawdown, interest expense is accrued monthly at the estimated
average rate for the life of the loan and is payable upon notice by the Department or in conjunction with the repayment of principal after the three year period. The
debt is secured by certain fixed assets at JBS Australia's processing plant located in Rockhampton, Queensland and is subject to standard debt covenants.
Corporate building loan assumption ­ In October 2010, JBS USA Holdings acquired its corporate headquarters in Greeley, Colorado. It paid US$9.2 million in
cash and assumed US$20.1 million in mortgage debt. The debt is comprised of two mortgages in the amounts of US$3.1 million and US$17.0 million. The
mortgages accrue interest at annual rates of 5.75% and 8.35%, respectively, and are repayable in monthly installments over 10 and 14 years, beginning
November 1, 2010. During three months period ended December 31, 2010, US$0.6 million of expenses related to this transaction were capitalized as part of the
building.
Credit facility to Sampco ­ On April 1, 2010, JBS USA Holdings executed a US$60.0 million related party revolving promissory note with Sampco, Inc.
("Sampco"), an indirect wholly-owned subsidiary of JBS S.A., with interest based on the three-month LIBOR plus a margin of 2.5% and a maturity date of March
31, 2012. This loan eliminates upon consolidation.
Credit facility to JBS USA Trading ­ On April 1, 2010, JBS USA Holdings executed a US$15.0 million related party revolving promissory note with JBS USA
Trading, Inc. ("JBS USA Trading"), an indirect wholly-owned subsidiary of JBS USA Holdings, with interest based on the three-month LIBOR plus a margin of 2.5%
and a maturity date of March 31, 2012. The note was amended and restated on April 15, 2010 to increase the maximum borrowings to US$25.0 million. This loan
eliminates upon consolidation. During three months period ended March 31, 2012, the outstanding principal and accrued interest were paid in full.
Credit facility to Bertin USA ­ On April 15, 2010, JBS USA Holdings executed an US$11.0 million related party revolving promissory note with Bertin USA, with
interest based on the three-month LIBOR plus a margin of 2.5% and a maturity date of March 31, 2012. This loan eliminates upon consolidation. During three
months period ended March 31, 2012, the outstanding principal and accrued interest were paid in full.
11.625% senior unsecured notes due 2014 ­ On April 27, 2009, JBS USA Holdings' wholly-owned subsidiaries JBS USA and JBS USA Finance, Inc. issued
11.625% notes due 2014 in an aggregate principal amount of US$700.0 million. These notes are guaranteed by JBS USA Holdings, JBS S.A., JBS Hungary
Holdings Kft., and each of the US restricted subsidiaries that guarantee the Revolving Facility (subject to certain exceptions). If certain conditions are met, JBS
S.A. may be released from its guarantees. Interest on these notes accrues at a rate of 11.625% per annum and is payable semi-annually in arrears on May 1 and
November 1 of each year, beginning on November 1, 2009. The principal amount of these notes is payable in full on May 1, 2014. The original issue discount of
approximately US$48.7 million is being accreted over the life of the notes.
Covenants. The indenture for the 11.625% senior unsecured notes due 2014 contains customary negative covenants that limit JBS USA and its restricted
subsidiaries' ability to, among other things:
· incur additional indebtedness;
· incur liens;
· sell or dispose of assets;
· pay dividends or make certain payments to our shareholders;
· permit restrictions on dividends and other restricted payments by its restricted subsidiaries;
· enter into related party transactions;
· enter into sale/leaseback transactions; and
· undergo changes of control without making an offer to purchase the notes.
Events of default. The indenture also contains customary events of default, including failure to perform or observe terms, covenants or other agreements in the
indenture, defaults on other indebtedness if the effect is to permit acceleration, failure to make a payment on other indebtedness waived or extended within the
applicable grace period, entry of unsatisfied judgments or orders against the issuer or its subsidiaries and certain events related to bankruptcy and insolvency
matters. If an event of default occurs, the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding may declare such
principal and accrued interest on the notes to be immediately due and payable. At march 31, 2012, JBS USA and JBS USA Finance, Inc. were in compliance with
all covenants.
37
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
US$85 million term loan due 2016 ­ On June 14, 2011, JBS Five Rivers obtained an US$85.0 million term loan which has a maturity date of June 14, 2016.
Repayment of the term loan is required to be made in 20 quarterly installments in the amount of US$1.4 million on the last day of each calendar quarter, with the
remaining unpaid principal balance due upon maturity. Borrowings under the term loan bear interest at variable rates based on applicable LIBOR rates plus
2.75%, or based on the prime rate plus 1.5%. The proceeds from the term loan were advanced to J&F Oklahoma Holdings, Inc. ("J&F Oklahoma") under the note
receivable from J&F Oklahoma. The term loan is secured by certain fixed assets, accounts receivable and inventories of JBS Five Rivers and accounts receivable
and inventories of J&F Oklahoma. J&F Oklahoma is a guarantor under the term loan agreement and while it is possible that J&F Oklahoma would be required to
repay the outstanding balance and certain other obligations and costs under the term loan as part of its guarantee, it is not probable at this time.
Covenants. The US$85.0 million term loan due 2016 contains customary negative covenants that limit JBS Five Rivers and its restricted subsidiaries' ability to,
among other things:
· incur certain additional indebtedness;
· create certain liens on property, revenue or assets;
· make certain loans or investments;
· sell or dispose of certain assets;
· pay certain dividends and other restricted payments;
· dissolve, consolidate, merge or acquire the business or assets of other entities;
· enter into new lines of business;
· enter into certain transactions with affiliates;
· issue, sell, assign, or otherwise dispose of certain equity interests;
· enter into certain hedging agreements;
· locate more than a certain number of owned cattle at locations not owned by JBS Five Rivers;
· enter into certain cattle feeding joint ventures that contain restrictions on pledges and transfers of rights under the joint venture agreement and
· make certain advances to customers above certain thresholds.
Events of default ­ The US$85.0 million term loan also contains customary events of default, including failure to perform or observe terms, covenants or
agreements included in the $85.0 million term loan agreement, payment of defaults on other indebtedness, defaults on other indebtedness if the effect is to permit
acceleration, entry of unsatisfied judgments or orders against a loan party or its subsidiaries, failure of any collateral document to create or maintain a priority lien,
certain events related to bankruptcy and insolvency, certain events related to the Employee Retirement Income Security Act of 1974 ("ERISA"), and failure to
comply with the terms of the Executive Succession Plan of J&F Oklahoma Holdings, Inc. If an event of default occurs the lenders may, among other things,
terminate their commitments, declare all outstanding borrowings to be immediately due and payable together with accrued interest and fees and exercise
remedies under the collateral documents relating to the US$85.0 million term loan. At March 31, 2011, JBS Five Rivers was in compliance with all covenants.
8.25% senior unsecured notes due 2020 ­ On January 30, 2012, JBS USA and JBS USA Finance, Inc. issued 8.25% notes due 2020 in an aggregate principal
amount of US$700.0 million. The proceeds were used (i) to make an intercompany loan to JBS USA Holdings, for further transfer to JBS S.A. to fund repayment of
short and medium-term debt of JBS S.A. and its subsidiaries and (ii) for general corporate purposes. These notes are guaranteed by JBS USA Holdings, JBS
S.A., JBS Hungary Holdings Kft., and each of the U.S. restricted subsidiaries that guarantee the Revolving Facility (subject to certain exceptions). If certain
conditions are met, JBS S.A. may be released from its guarantees. Interest on these notes accrues at a rate of 8.25% per annum and is payable semi-annually in
arrears on February 1 and August 1 of each year, beginning on August 1, 2012. The principal amount of these notes is payable in full on February 1, 2020. The
original issue discount of approximately US$10.0 million is being accreted over the life of the notes. The covenants for this note contain customary negative
covenants and customary events of default listed under the senior unsecured notes due 2014. At March 31, 2012, JBS USA was in compliance with all covenants.
7.25% senior unsecured notes due 2021 - On May 27, 2011 JBS USA and JBS USA Finance, Inc. issued 7.25% notes due 2021 in an aggregate principal
amount of US$650.0 million primarily to make an intercompany loan to the JBS USA Holdings, for further transfer to JBS S.A. to fund the repayment of short and
medium-term debt of JBS S.A. These notes are guaranteed by JBS USA Holdings, JBS S.A., JBS Hungary Holdings Kft., and each of the US restricted
subsidiaries that guarantee the Revolving Facility (subject to certain exceptions). If certain conditions are met, the JBS S.A. may be released from their
guarantees.
Interest on these notes accrues at a rate of 7.25% per annum and is payable semi-annually in arrears on June 1 and December 1 of each year, beginning on
December 1, 2011. The principal amount of these notes is payable in full on June 1, 2021. The original issue discount of approximately US$11.3 million is being
accreted over the life of the notes. The covenants for this note contain customary negative covenants and customary events of default listed under the senior
unsecured notes due 2014. At March 31, 2012, JBS USA was in compliance with all covenants.
US$475 million term loan due 2018 ­ On May 27, 2011, JBS USA entered into a credit agreement consisting of a term loan commitment of US$475.0 million
primarily to make an intercompany loan to JBS USA Holdings, for further transfer to JBS S.A. to fund the repayment of short and medium-term debt of JBS S.A.
The loan is guaranteed by JBS USA Holdings, JBS S.A., JBS Hungary Holdings Kft., and each of the U.S. restricted subsidiaries that guarantee the Revolving
Facility (subject to certain exceptions). Loans under this agreement may be either Alternate Base Rate ("ABR") loans or Eurodollar loans at the election of JBS
USA.
Interest on Eurodollar loans is payable at the end of the associated interest period while interest on ABR loans is payable the last day of each calendar quarter.
Commencing on September 20, 2011 and continuing until maturity, 0.25% of the initial principal amount of US$475.0 million will be payable on the last business
day of each calendar quarter. The outstanding principal is payable on May 25, 2018. The original issue discount of approximately US$2.4 million is being accreted
over the life of the loan. The covenants for this note contain customary negative covenants and customary events of default listed under the Revolving Facility. At
March 31, 2012, JBS USA was in compliance with all covenants.
38
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Description of Indebtedness of PPC
Mexico Credit Facility - On October 19, 2011, Avícola Pilgrim's Pride de México, S. de R.L. de C.V. and certain subsidiaries (the "Loan Parties"), entered into an
amended and restated credit agreement (the "Amended ING Credit Agreement") with ING Bank (México), S.A. Institución de Banca Múltiple, ING Grupo
Financeiro, as lender and ING Capital, LLC, as administrative agent. The Mexico Credit Facility has a maturity date of September 25, 2014. As of March 25, 2012,
the revolving commitment has a principal amount of 557.4 million Mexican pesos, a U.S. dollar-equivalent of $43.7 million.
US Credit Facility ­ PPC and certain of its subsidiaries entered into a credit agreement (the "US Credit Facility"), formerly referred to as the Exit Credit Facility,
with Co Bank ACB, as administrative agent and collateral agent, and other lenders party thereto, which currently provides a $700.0 million revolving credit facility
and a Term B facility ("Term B"). The US Credit Facility also includes an accordion feature that allows PPC, at any time, to increase the aggregate revolving loan
commitment by up to an additional $100.0 million and to increase the aggregate Term B loans commitment by up to an additional $400.0 million, in each case
subject to the satisfaction of certain conditions, including an aggregate cap on all commitments under the US Credit Facility of $1.9 billion.
On January 13, 2011, PPC increased the amount of the revolving loan commitments under the US Credit Facility to $700.0 million. On April 22, 2011, PPC
increased the amount of the sub-limit for swingline loans under the US Credit Facility to $100.0 million. The revolving loan commitment and the Term B loans will
mature on December 28, 2014.
Subsequent to the end of each fiscal year, a portion of PPC's cash flow must be used to repay outstanding principal amounts under the Term B loans. In April
2011, PPC paid approximately $46.3 million of its excess cash flow from 2010 toward the outstanding principal under the Term B loans. PPC did not have excess
cash flow from 2011 to be applied toward the outstanding principal under the Term B loans. After giving effect to the 2010 prepayment and other prepayments, the
Term B loans must be repaid in 16 quarterly installments of approximately $3.9 million beginning on April 15, 2011, with the final installment due on December 28,
2014. The US Credit Facility also requires PPC to use the proceeds it receives from certain asset sales and specified debt or equity issuances and upon the
occurrence of other events to repay outstanding borrowings under the US Credit Facility. The cash proceeds received by PPC from the PPC Rights Offering were
not required to be a mandatory prepayment under the US Credit Facility.
Actual borrowings by PPC under the revolving credit commitment component of the US Credit Facility are subject to a borrowing base, which is a formula based
on certain eligible inventory, eligible receivables and restricted cash under the control of CoBank ACB. As of March 25, 2012, the applicable borrowing base was
$671.0 million, the amount available for borrowing under the revolving loan commitment was $439.2 million.
The US Credit Facility contains financial covenants and various other covenants that may adversely affect PPC's ability to, among other things, incur additional
indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain assets sales, enter into certain transactions with the Company
and PPC's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of PPC's assets.
All obligations under the US Credit Facility are unconditionally guaranteed by certain of PPC's subsidiaries and are secured by a first priority lien on (i) the
accounts receivable and inventories of PPC and both its domestic and Puerto Rico subsidiaries, (ii) 100% of the equity interests PPC's US and Puerto Rico
subsidiaries and 65% of the equity interests in PPC's direct foreign subsidiaries, (iii) substantially all of the personal property and intangibles of PPC, its Puerto
Rico subsidiaries and the guarantor subsidiaries under the US Credit Facility and (iv) substantially all of the real estate and fixed assets of PPC and the guarantor
subsidiaries under the US Credit Facility.
Senior Unsecured Notes due 2018 - On December 15, 2010, On December 15, 2010, PPC issued $500.0 million of 7.875% Senior Notes due 2018 (the "2018
Notes"). The 2018 Notes are unsecured obligations of PPC and guaranteed by one of PPC's subsidiaries. Interest is payable on December 15 and June 15 of
each year, commencing on June 15, 2011. The indenture governing the 2018 Notes contains various covenants that may adversely affect PPC's ability, among
other things, to incur additional indebtedness, incur liens, pay dividends or make certain restricted payments, consummate certain asset sales, enter into certain
transactions with the Company and PPC's other affiliates, merge, consolidate and/or sell or dispose of all or substantially all of its assets. PPC has subsequently
exchanged these notes for substantially identical notes that are registered under the Securities Act of 1933.
Outstanding amounts under the Mexico Credit Facility bear interest at a rate per annum equal to the TIIE Rate, as applicable, plus the Applicable Margin (as those
terms are defined in the Mexico Credit Facility).
The Mexico Credit Facility is secured by substantially all of the assets of PPC's Mexico subsidiaries.
On June 23, 2011 and December 16, 2011, PPC entered into amendments to the US Credit Facility, which among other things (i) temporarily suspended the
requirement for PPC to comply with the fixed charge coverage ratio and senior secured leverage ratio financial covenants until September 24, 2012, (ii) modified
the fixed charge coverage ratio financial covenant so that when testing of this covenant resumes on September 24, 2012, PPC can calculate the fixed charge
coverage ratio based upon a specified number of fiscal quarters selected by PPC (iii) reduced the minimum allowable consolidated tangible net worth to the sum
of $450.0 million plus 50% of the cumulative net income (excluding any losses) of PPC from December 16, 2011 through such date of calculation and (iv)
increased the maximum allowable senior secured leverage ratio, determined for any period of four consecutive fiscal quarters ending on the last day of each fiscal
quarter, to be greater than 4.00:1.00 for periods calculated from September 24, 2012 and thereafter. PPC is currently in compliance with the modified tangible net
worth covenant.
39
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
16
Convertible debentures
17
Income taxes, payroll, social charges and tax obligation
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Payroll and related social charges
206,634
150,414
406,653
333,678
Accrual for labor liabilities
114,599
99,463
843,692
900,978
Income taxes
-
-
10,193
211,528
Withholding income taxes
627
757
1,356
1,616
ICMS / VAT / GST tax payable
12,034
11,826
25,734
23,799
PIS / COFINS tax payable
584
348
720
521
Taxes in installments (Law 11.941/2009)
-
-
272,640
271,762
Others
95,087
85,055
304,668
318,621
429,565
347,863
1,865,656
2,062,503
Breakdown:
Current liabilities
429,565
347,863
1,192,615
1,378,691
Noncurrent liabilities
-
-
673,041
683,812
429,565
347,863
1,865,656
2,062,503
18
Provision for lawsuits risk
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Labor
48,413
47,646
72,171
71,004
Civil
7,335
6,863
34,059
36,284
Tax and Social Security
86,577
86,466
91,065
144,272
Total
142,325
140,975
197,295
251,560
On July 14, 2011 was recognized the capital increase in the amount of R$ 3,477,568, reduced by spending with issuing debentures in the amount of R$ 17,388,
with net effect of R$ 3,460,180.
The Company had a payable of R$ 2,032 for the debenture holders who did not exercise the option of capitalizing on their debentures in the deadline for
redemption.
On March 31, 2012 the Company has a remaining balance to be paid to the debenture holders in the amount of R$ 1,283, which will be paid during the year of
2012.
Company
The Company and its subsidiaries are parties in several procedures arising in the regular course of business, for which provisions based on estimation of their
legal consultants were established. The main information related to these procedures on March 31, 2012 and March 31, 2012, areas follows:
Debentures capitalization
Consolidated
Company
Consolidated
On May 17, 2011, the Board of Directors approved the capital increase, in accordance with the authorized limit, in the amount of R$ 3,479,600, by issuing up to
494,261,363 common shares, nominative, without par value and the price of R$ 7.04 (seven reais and four cents) each.
On June 3, 2011, at a General Meeting of Debenture holders, 99.94% of the holders approved the use of the credits of the debentures to the capitalization up to
R$ 3,479,600 through the private issuing of up to 494,261,363 new common shares at a price of R$ 7.04 (seven reais and four cents) each.
During the statutory period, noncontrolling shareholders exercised their preemptive rights to subscribe shares and subscribed 5,410 shares in the total amount of
R$38. BNDESPAR, main debenture holder, subscribed 493,967,305 shares in total amount of R$ 3,477,530 through the capitalization of credits of the
Debentures held.

On July 14, 2011, the capital increase approved by the Board of Directors was approved in the amount of R$ 3,477,568 through the issuance of 493,972,715
common shares at a price of R$ 7.04 (seven reais and four cents).
The subsidiary Vigor joined the installment debts referred in Law No. 11.941 of May 27, 2009, and had the option to settle the penalties and default interest
amounts, including those related to debts of the Debt Union (Dívida Ativa da União) using the credits arising from tax loss and negative basis of the Social
Contribution (CSLL).
The minimum installment due from the Outstanding Installment (Parcelamento Excepcional - PAEX) described in the article 1 and 8 of MP No. 303/06 is
equivalent to 85% of the installment due payable in the month of November/2009 and R$100.00 for the other debts of the corporation, which will expire on the last
day of each month. The term was split in 161 installments. The first installment was paid in the month it was submitted an application for accession, having an
effect in the corresponding requirements formulated with the first installment in an amount not less than the described in the Act. The amount of each installment
will incurred interest corresponding to the variation of the Selic rate. Computed the benefits paid during the term of PAEX, the debts that make up the remaining
balances of installment payments will be reinstated to the date of application for subdivision, with the legal charges due at the time of occurrence of the respective
taxable events, the computed interest rate cuts, fines and legal charges, as well as the settlement of claims with interest and penalties resulting from tax losses
and negative basis of social contribution (CSLL).
40
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Changes in provisions
Dec 31, 2011
Additions
Reversals
Exchange rate
variation
Mar 31, 2012
Company
140,975
1,350
-
-
142,325
Consolidated
251,560
2,085
(55,213)
(1,137)
197,295
Tax Proceedings
b) Social contributions -- Rural Workers' Assistance Fund (FUNRURAL)
c) Other tax and social security procedures
Labor Proceedings
Civil Proceedings
a) Slaughter facility at Araputanga
As of March 31, 2012 the Company was party to 7,464 labor and accident proceedings, involving total value of R$ 849,067 Based on the opinion of the
Company's external legal counsel, the Company's management recorded a provision in the amount of R$ 48,413 for losses arising from such proceedings. Most
of these lawsuits were filed by former employees of the Company seeking overtime payments and payments relating to their exposure to health hazards.
This matter was the subject of a decision favorable to the taxpayer, issued by the Supreme Court - STF for a company whose activity is similar to the activity of the
Company. For this reason, and based on advice from legal counsel, the Company believes that the legality and enforceability of such taxation is quite low, which is
why the Management is not providing for this contingency. Currently, the Company is not obligated to make any rebate or payment. If a discount is made for
commercial reasons, the Company will deposit it in court and, fulfill a court order. Based on the opinion of legal advisors and based on case law in favor of the
Supreme Court in a similar case, management believes that its fundamentals will prevail and no provision was recorded for that contingency. The probability of
loss is considered remote.
The Company has presented its defense in those administrative proceedings, informing that it does not collect the amount due to a favorable court ruling, so those
processes are suspended until a final decision of the writ of mandamus.
The Tax Authority of the State of São Paulo (Secretaria da Fazenda do Estado de São Paulo) filed several administrative proceedings against the Company,
under which the Tax Authority challenges the amount of the Company's ICMS tax credits arising from the purchase of cattle and meat transfer by the Company in
other Brazilian states. The Tax Authority of the State of São Paulo claims that the tax incentives should be approved by Confaz , and are known as a "Tax War".
The Tax Authority of the State of São Paulo does not recognize the Company's ICMS tax credits up to the amount of the ICMS tax guaranteed in such other
states. The Company estimates that the claims under these administrative proceedings amount to R$ 1,224,731 in the aggregate. In addition to presenting its
defense in such administrative proceedings, the Company has filed legal proceedings seeking the payment of damages from such other states if the Tax Authority
of the State of São Paulo prevails in these administrative proceedings.
a) ICMS - Value Added Tax (Imposto sobre Operações Relativas à Circulação de Mercadorias e sobre a Prestação de Serviços de Transporte
Interestadual e Intermunicipal e de Comunicação)
In January 2001, the INSS (Brazilian Social Security Institute) filed two administrative proceedings (autos de infração) against the Company, seeking to collect
certain social security contributions (which are referred to as contributions to the Rural Workers' Assistance Fund (NOVO FUNRURAL) with regard to the period
from January 1999 to December 2003, in the amount of R$ 69,200, and from 2003 until 2006, in the amount of R$ 289,105 with the aggregate amount of R$
358,305.
As of March 31, 2012, the subsidiaries S.A. Fábrica de Produtos Alimentícios Vigor, Cia Leco de Produtos Alimentícios and Dan Vigor were party to 299 labor
proceedings filed by former employees, that were accrued by Vigor based on an estimate of loss prepared by its legal counsel and approved by the management
on the amount of R$ 2,132.
The Management believes, based on the advice of its legal counsel, that its arguments will prevail in these procedures, which is the reason why no provision has
been made.
As (i) Frigorífico Araputanga was a beneficiary of certain tax benefits granted by the Federal Government through an agency responsible for fostering the
development of the northern region of Brazil (Superintendência de Desenvolvimento da Amazônia ­ SUDAM) and (ii) the slaughter facility sold to the Company
was granted by Frigorífico Araputanga to SUDAM as collateral for these tax benefits the consent of SUDAM was required for the registration of the public deed
with the applicable real estate notary. In September 2004, Frigorífico Araputanga S.A. filed a lawsuit against the Company in a state court located in the City of
Araputanga, State of Mato Grosso, alleging that the Company breached the purchase agreement and seeking an injunction to prevent the Company from finalizing
the transfer of the slaughter facility and a declaratory judgment that the purchase agreement and the public deed registered with the real estate notary were null
and void.
In 2001, the Company (formerly known as Friboi Ltda.), entered into a purchase agreement for the acquisition of one slaughter facility located in the City of
Araputanga, State of Mato Grosso, from Frigorífico Araputanga S.A. ("Frigorífico Araputanga"). As a result of the payment of the purchase price by the Company
and the acknowledgement by Frigorífico Araputanga of compliance by the Company with its obligations under the purchase agreement, a public deed reflecting
the transfer of title of the slaughter facility from Frigorífico Araputanga to the Company was registered with the applicable real estate notary.
The Company is a Party in additional 474 tax and social security proceedings, in which the individual contingencies are not relevant for the Company's context.
We highlight that the ones with probable loss risk have contingencies for R$ 86,577 which are 100% provisioned.
The Tax Authority of the State of Goiás filed other administrative proceedings against the Company, due to interpretation divergences of the Law concerning the
export VAT credits. Based on the opinion of the Company's external legal counsel, the management of the Company believes the Company will prevail in most of
these proceedings, in the amount of R$ 204,094. The management believes, based on the advice of its legal counsel, that its arguments will prevail in these
procedures, which is the reason why no provision has been made. The probability of loss is considered remote.
41
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
b) Trademark Infringement
c) Other civil proceedings
Other proceedings
19
Debit with third parties for investment
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
136,040 10,589 136,040 10,589
48,881 2,048 48,881 2,048
184,921 12,637 184,921 12,637
20
Income taxes - Nominal and effective tax rate reconciliation
2012
2011
2012
2011
Income before income taxes
239,579
129,495
241,604
172,160
Income taxes
(81,457)
(44,028)
(82,145)
(58,534)
Adjust to demonstrate the effective rate
(42,043)
61,501
(29,940)
(23,701)
(123,500)
17,473
(112,085)
(82,235)
Effective rate
-51.55%
13.49%
-46.39%
-47.77%
In the defense, the amount of any damages under the lawsuit should be limited to a percentage of products sold by the Company under the trademark "Frigoara,"
pursuant to article 208 of the Intellectual Property Law. Almost all of the products manufactured by the Company were marketed under the trademark "Friboi."
The only product marketed by the Company under the trademark "Frigoara" was minced meat, in limited amounts. The expected loss on March 31, 2012, R$ 600,
has been provisioned.
Consolidated
Following a determination of the judge of the trial court, the lawsuit was submitted to the review of the Federal Court of Cáceres on January 17, 2007. The judge
of the Federal Court of Cárceres determined that this lawsuit be joined with the lawsuit relating to the purchase of the slaughter facility by the Company from
Frigorífico Araputanga. The Federal Government will be notified to issue an opinion on the matter under discussion in this lawsuit. Based on the Company's legal
counsel opinion supported by precedents of the Federal Brazilian Supreme Court (Supremo Tribunal Federal) and the Brazilian Superior Court of Justice (Superior
Tribunal de Justiça), the Company's management believes that the Company will prevail in these proceedings.
The Company is also part to other civil proceedings that in the evaluation of the Management and its legal advisers. The expected loss on March 31, 2012, R$
6,735, has been provisioned.
The parties are waiting for new appraisal. The first judicial expert appraisal was favorable to the company, that after evaluating the payments made by
Agropecuária Friboi, the appraisal concluded that the debt was already paid. The judicial appeal number 2006.01.00.024584-7 was judged favorably to the
Company, when the "TRF" Regional Federal Court declared valid the purchase title deeds of the property, object of discussion. Based on the Company's legal
advisers' opinion and based on Brazilian jurisprudence management of the Company believes that their arguments will prevail and no provision was registered.
The probability of loss is considered remote.
Income tax and social contribution are recorded based on taxable profit in accordance with the laws and applicable rates. Deferred Income tax and social
contribution-assets are recognized on temporary differences. Income tax and social contribution tax-liabilities were recorded on the revaluation reserves
established by the Company and on temporary differences.
The debit with third parties for investment, refers basically to acquisitions of various assets in the State of Mato Grosso do Sul, one industrial complex in the State
of Minas Gerais, four slaughter facilities in the State of Rondonia and one slaughter facilities in the states of Mato Grosso, Mato Grosso do Sul, Goiás and São
Paulo.
Also due to the barrier in Araputanga / MT, the seller distributed in the City of Araputanga / MT, filed a lawsuit for improper use of trademark, under the premise of
Friboi Ltda. was using the mark Frigoara without its authorization.
The amounts of the claim were based upon a report presented by Frigorífico Araputanga to the trial court, which appraised the value of the trademark "Frigoara" at
R$ 315,000, seeking damages in the amount of R$ 26,938 and punitive damages in the amount of R$100,000. The Company presented its defense against this
lawsuit alleging that (i) the lawsuit should be analyzed and reviewed together with the lawsuit relating to the purchase of the slaughter facility from Frigorífico
Araputanga by the Company, (ii) the trademark "Frigoara" was used by the Company for a limited period of time, with the written consent and upon the request of
Frigorífico Araputanga (the use of the trademark by the Company was a requirement of SUDAM to consent to the registration of the public deed contemplating.
Additions (write off), mostly result on equity subsidiaries (tax equivalents in
other countries)
Company
Expectation of income (expense) of the income taxes - Combined nominal of
34%
Income (expense) of the deferred income taxes
On March 31, 2012, the Company had other ongoing civil, labor and tax proceedings, on the approximately amounting of R$ 20,129 whose materialization,
according to the evaluation of legal advisors, it is possible to loss, but not probable, for which the Company's management does not consider necessary to set a
provision for possible loss, in line with the requirements of the IAS 37/CPC 25 - Provisions, Contingent Liabilities and Contingent Assets.
Company
Consolidated
Current
Noncurrent
42
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Explanative notes
2012
2011
2012
2011
Current income taxes
750
748
16,643
(194,595)
Deferred income taxes
(124,250)
16,725
(128,728)
112,360
(123,500)
17,473
(112,085)
(82,235)
Composition of deferred income tax and social contribution
Mar 31, 2012
December 31, 2011
Mar 31, 2012
December 31, 2011
ASSETS
. On tax losses and temporary differences
407,119
356,459
1,119,242
1,148,817
LIABILITIES
. On revaluation reserve and temporary differences
820,417
646,257
1,916,840
1,827,189
Net
413,298
289,798
797,598
678,372
Deferred income taxes
21
a) Capital Stock
b) Capital reserve
c) Profit reserves
Legal reserve
Reserve for expansion
d) Revaluation reserve
e) Dividends
f) Treasury shares
Company
Consolidated
The Capital Stock on March 31, 2012 is represented by 2,963,924,296 ordinary shares, without nominal value.
Company
Mandatory dividends corresponds to not less than 25% of the adjusted net income of the year, according to law.
The cancellation of treasury shares was recorded as a reduction in treasury against paid up reserve (capital reserve), by the average cost of treasury shares on
the date of cancellation.
Shareholders' equity
- When the deferred tax liability arises from initial recognition of goodwill, or when the deferred tax asset or liability asset from the initial recognition of an asset or
liability in a transaction that is not a business combination and, on the transaction date, does not affect the accounting net income or taxable profit or fiscal loss,
Deferred income taxes is generated by temporary differences at balance sheet date between the taxable basis of assets and liabilities and its accounting amounts.
Deferred taxes liability are recognized for all temporary tax differences, except:
On January 31, 2012 the Board of Directors of the Company, based on it by-law, approved the cancellation of 97,519,895 shares pursuant to Article 19, section
XVI of the Bylaws, without reduction of capital.
Consolidated
Consists of the remaining balance of the net income after the computation of legal reserve and dividend distribution. The purpose of this reserve is to provide
funds to investment in assets.
Computed based on 5% of the net income of the year.
- on the deductible temporary differences associated with investments in subsidiaries, when it is not probable that the temporary difference will reverse in the
foreseeable future and that taxable profit will be available for the temporary differences can be utilized.
The Company is authorized to increase its capital by an additional 1,376,634,735 ordinary nominative shares. According with the social statute the Board of
Directors shall determine the number, price, payment term and other conditions of the issuance of shares.
The Company may grant options to purchase shares to directors, employees or persons who will provide services, or the directors, employees or person providing
services companies under its control, excluding the preemptive rights of shareholders in issuing and exercise of stock options.
Composed of goodwill on issuance of shares, derivatives of the IPO in 2007.
- When taxable temporary differences related to investments in subsidiaries, can be controlled and it is probable that the temporary differences will not be
reversed in the foreseeable future.
Composition of expenses of income tax and social contribution presented income statements of the Company and Consolidated results for the period ended on
March 31, 2012 and 2011.
Refers to revaluations on fixed assets prior to CPC/IFRS adoption. Revaluation reserve reflects the appraisal effected by the Company, net of tax effects that are
progressively offset against retained earnings to the same extent that the increase in value of the revalued property is realized through depreciation, disposal or
retirement.
43
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Quantity
R$ thousand
97,186,795 610,550
333,100 2,028
(97,519,895) (612,578)
- -
g) The Effects of Changes in Foreign Exchange Rates
h) Capital Transactions
22
Net revenue
2012
2011
2012
2011
Gross sale revenue
Products sales revenues
Domestic sales
2,694,509
2,393,136
13,026,070
11,182,132
Foreign sales
1,026,815
1,136,648
3,605,703
4,085,468
3,721,324
3,529,784
16,631,773
15,267,600
Sales deduction
Returns and discounts
(137,882)
(156,509)
(303,212)
(311,232)
Sales taxes
(233,063)
(201,268)
(317,481)
(283,628)
(370,945)
(357,777)
(620,693)
(594,860)
NET REVENUE
3,350,379
3,172,007
16,011,080
14,672,740
23
Earnings per share
Basic
2012
2011
Loss attributable to shareholders - R$
116,079
146,968
Average of the shares in the period - thousands
2,996,431
2,567,471
Average of the shares in the Treasury - thousands
(32,507)
(83,484)
Average of shares circulating - thousands
2,963,924
2,483,987
Loss per thousand shares - Basic - R$
39.16
59.17
Diluted
According to CPC 2/IAS 21 -The Effects of Changes in Foreign Exchange Rates, basically records changes in foreign currency rates of the subsidiaries valued by
the equity method ( translation adjustments).
According to CPC 37 / IFRS 1 - First Time Adoption of International Accounting Standards, under the term of the CPC 02 before the date of initial adoption, the
adopting of IFRS for the first time should cancel the balances of exchange variation of investments recorded in equity (under the rubric of accumulated translation
adjustments) transferring it to retained earnings or loss( profits reserves) and divulge distribution policy applicable to such outstanding results. The Company does
not compute these adjustments to the distribution of profit
According to IAS 27/CPC 36 - Consolidated Financial Statements, the changes in the relative share of the parent over a subsidiary that do not result in loss of
control must be accounted as capital transactions (ie transactions with shareholders, as owners). Any difference between the amount by which the participation of
non-controlling has been adjusted and the fair value of the amount received or paid must be recognized directly in equity attributable to owners of the parent.
Therefore, if the parent acquire additional shares or other equity instruments of an entity that already controls, it should consider this value to reduce its
shareholder's equity (individual and consolidated).
Balance as of March 31, 2012
Cancellation
Consolidated
The basic loss per share is calculated through the division of the profit attributable to the shareholders of the Company by the weighted average amount of
shares of the fiscal year, reduced by the shares in treasury.
As required by the IAS 33/CPC 41 - Earnings per share, the following tables reconcile the net profit with the amounts used to calculate the basic per share.
Below is presented the changes on treasury shares:
Balance as of December 31, 2011
Consolidated
Company
Acquisition
The Company did not present the diluted profit per share as required in IAS 33/CPC 41 - Profit per share, due the fact it does not have potentially dilutive ordinary
shares since for the convertible debentures (note 17) is not possible to calculate the dilutive number of shares because it has projected future values of price, stop
and deferred income (note 29) through historical analysis and there is expectation that the advance were be honored by future delivery, does not characterize
potential dilutive shares.
44
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
24
EBITDA reconciliation
2012
2011
2012
2011
Loss before taxes
239,579
129,495
241,604
172,160
Financial expense, net
38,775
303,081
155,821
351,130
Depreciation and amortization
105,084
97,270
285,043
311,161
EBITDA
383,438
529,846
682,468
834,451
Equity in earnings of subsidiaries
130,962
(195,505)
-
-
Restructuring, reorganization and donation
-
-
6,871
-
Adjustment on bargain purchase gain
-
-
-
(3,400)
Indemnity
-
-
7,129
4,879
ADJUSTED EBITDA
514,400
334,341
696,468
835,930
25
Financial income (expense), net
2012
2011
2012
2011
219,116
183,565
230,004
216,014
(119,322)
(223,215)
(109,911)
(235,239)
(255,987)
(312,553)
(432,880)
(374,386)
124,746
72,628
173,403
77,580
(7,328)
(23,506)
(16,437)
(35,099)
(38,775)
(303,081)
(155,821)
(351,130)
26
Other income (expenses),
27
Transaction costs for the issuing of titles and securities
a) Initial Public Offering of shares - IPO (Follow on)
b) Senior Notes Offering (Bonds)
Other expenses, on March 31, 2012 in the amount of (R$ 12,185) relating mainly to:
i) JBS Argentina - Amount of (R$ 7,129) referring to indemnities due to units temporary suspension operations in Berazategui (Consignaciones Rurales), Colonia
Caroya (Col-Car) and San Jose;
ii) JBS USA - Amount of (R$ 6,871) restructuring and reorganization costs.
iii) Other income - Amount of R$ 1,815 referring to basically net income in the sale of fixed assets and rental.
In the year end on December 31, 2010, the Company had incurred expenses in the amount of R$ 37,477 related to the transaction costs of the related Public
Offering which was recorded directly in capital.
Interest - Loss
Company
In accordance with the prerequisites under IAS 39/CPC 38 ­ Financial Instruments - Recognition and assessment, the costs related to the transactions in the
issuing of titles and securities must be accounted deduction the liabilities that they refer to.
During the years of 2009 and 2010, the Company has carried out , respectively, transactions for the issuance of Bonds and Initial Public Offering of shares - IPO.
However, to render this transactions effective, the Company incurred transaction expenses, i.e., the expenses directly attributable to the activities that are
necessary to effect these transactions, exclusively.
Consolidated
Results on derivatives
Taxes, contribution, tariff and others
Company
Consolidated
Interest - Gain
In the year end on December 31, 2010, the Company had incurred in expenses of the order of R$ 17,789 related to the costs of the transaction for securing
resources to initial Public Offering (Bonds) ­ in the amounts of US$ 700,000 and US$ 200,000 realized on July and September of 2010, respectively, whose
recording is under in a reduction of liabilities, the amortization will occur according to the flow of debt payments. On September 30 , 2011, due to accumulated
amortization of the amount through the flow of debt payments, the Company has a residual amount of R$ 14,164 of cost of transaction tied to debt that will
continue to be amortized in accordance with the period of payment.
Exchange rate variation
The Company present below the EBITDA (Earnings before income taxes, interest, depreciation and amortization) reconciliation:
45
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
28
Defined contribution plans
JBS Plans
PPC Plans
·
·
·
·
·
·
·
·
PPC also assumed defined benefit postretirement medical and life insurance obligations, including the Insurance Plan, through its acquisition of Gold Kist in 2007.
In January 2001, Gold Kist began to substantially curtail its programs for active employees. On July 1, 2003, Gold Kist terminated medical coverage for retirees
age 65 and older, and only retired employees in the closed group between ages 55 and 65 could continue their coverage at rates above the average cost of the
medical insurance plan for active employees. These retired employees will all reach the age of 65 by 2012 and liabilities of the postretirement medical plan will
then end.
The Pilgrim's Pride Retirement Savings Plan (the "RS Plan"), a Section 401(k) salary deferral plan; and
the To-Ricos Employee Savings and Retirement Plan (the "To-Ricos Plan"), a Section 1165(e) salary deferral plan.
One of the Company's facilities participates in a multi-employer pension plan. The Company's contributions to this plan, which are included in cost of goods sold in
the Consolidated Statements of Income, were $111 thousand and $105 thousand for the three months period ended March 31, 2011 and March 31, 2012,
respectively. The Company also made contributions totaling $16 thousand and $17 thousand for the three months period ended March 31, 2011 and March 31,
2012, respectively, to a multi-employer pension plan related to former employees at the former Nampa, Idaho plant pursuant to a settlement agreement.
PPC also maintains three postretirement plans for eligible Mexico employees as required by Mexico law that primarily cover termination benefits. Separate
disclosure of the Mexican plan obligations is not considered material.
Under the RS Plan, eligible US employees may voluntarily contribute a percentage of their compensation. PPC matches up to 30.0% of the first 2.14% to 6.0% of
salary based on the salary deferral and compensation levels up to $245 thousand. The To-Ricos Plan is maintained for certain eligible Puerto Rican employees.
Under the To-Ricos Plan, eligible employees may voluntarily contribute a percentage of their compensation and there are various company matching provisions.
The Pilgrim's Pride Retirement Plan for Union Employees (the "Union Plan");
the Pilgrim's Pride Retirement Plan for El Dorado Union Employees (the "El Dorado" Plan); and
PPC assumed sponsorship of the SERP Plan and Directors' Emeriti Plan through its acquisition of Gold Kist in 2007. The SERP Plan provides benefits on
compensation in excess of certain Internal Revenue Code limitations to certain former executives with whom Gold Kist negotiated individual agreements. Benefits
under the SERP Plan were frozen as of February 8, 2007. The Directors' Emeriti Plan provides benefits to former Gold Kist directors.
the Pilgrim's Pride Pension Plan for Legacy Gold Kist Employees (the "GK Pension Plan").
The Union Plan covers certain locations or work groups within PPC. The El Dorado Plan was spun off from the Union Plan effective January 1, 2008 and covers
certain eligible locations or work groups within PPC. This Plan was settled in 2010. The GK Pension Plan covers certain eligible US employees who were
employed at locations that PPC acquired in its acquisition of Gold Kist, Inc. ("Gold Kist'") in 2007. Participation in the GK Pension Plan was frozen as of February
8, 2007, for all participants with the exception of terminated vested participants who are or may become permanently and totally disabled. The plan was frozen for
that group as of March 31, 2007.
Non-qualified Defined Benefit Retirement Plans:
The Former Gold Kist Inc. Supplemental Executive Retirement Plan (the "SERP Plan"); and
the Former Gold Kist Inc. Directors' Emeriti Retirement Plan (the "Directors' Emeriti Plan").
Defined Benefit Postretirement Life Insurance Plan:
The Gold Kist Inc. Retiree Life Insurance Plan (the "Insurance Plan").
PPC currently sponsors two defined contribution retirement savings plans:
Defined Contribution Plans:
One of the Company's facilities participates in a supplemental executive retirement plan. There were no expenses recognized by the Company for this plan during
the three months period ended March 31, 2011 or March 31, 2012
Employees of JBS Australia do not participate in the Company's 401(k) Savings Plan. Under Australian law, JBS Australia contributes a percentage of employee
compensation to a Superannuation fund. This contribution approximates 9% of employee cash compensation as required under the Australian "Superannuation
Act of 1997". As the funds are administered by a third party, once this contribution is made to the Superannuation fund, JBS Australia has no obligation for
payments to participants or oversight of the fund. The Company's expenses related to contributions to this fund totaled $7.1 million and $7.9 million for the three
months period ended March 31, 2011 and March 31, 2012, respectively.
PPC sponsors programs that provide retirement benefits to most of their employees. These programs include qualified defined benefit pension plans, non-
qualified defined benefit retirement plans, a defined benefit postretirement life insurance plan, defined contribution retirement savings plans and deferred
compensation plans. Under all of PPC's retirement plans, PPC's expenses were $2.3 million and $2.1 million for the three months period ended March 31, 2011
and March 31, 2012, respectively.
The pension and postretirement benefits plans have a fiscal year end which coincides with the Company's. Disclosures material to the consolidated financial
statements are included below.
Qualified Defined Benefit Pension Plans:
The Company sponsored tax-qualified employee savings and retirement plan (the "401(k) Savings Plan") covering its US based employees, both union and non-
union, excluding PPC and Bertin USA employees. Pursuant to the 401(k) Savings Plan, eligible employees may elect to reduce their current compensation by up
to the lesser of 75% of their annual compensation or the statutorily prescribed annual limit and have the amount of such reduction contributed to the 401(k)
Savings Plan. The 401(k) Savings Plan provides for additional matching contributions by the Company, based on specific terms contained in the 401(k) Savings
Plan. The trustee of the 401(k) Savings Plan, at the direction of each participant, invests the assets of the 401(k) Savings Plan in participant designated
investment options. The 401(k) Savings Plan is intended to qualify under Section 401 of the Internal Revenue Code. The Company's expenses related to the
matching provisions of these plans totaled $1.4 million and $1.5 million for the three months period ended March 31, 2011 and March 31, 2012, respectively.
46
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Pension
Other Benefits
Pension Benefits
Other Benefits
Service cost
21
-
87
-
Interest cost
3,587
42
4,110
57
Estimated return on plan assets
(2,537)
-
(3,095)
-
Amortization of net loss
612
-
7
-
Net periodic benefit cost
1,683
42
1,109
57
29
Deferred revenue
30
Operating segments
Bertin USA also provides certain health care and life insurance benefits for certain retired and terminated employees based on contractual obligations incurred by
the previous owners of JBS USA Trading, Inc. ("JBS USA Trading"), formerly known as SB Holdings, Inc., doing business as The Tupman Thurlow Co., Inc.
Bertin USA has elected immediate recognition of the unfunded accumulated postretirement benefit obligation in conjunction with the purchase of the common
stock of JBS USA Trading. The postretirement payments are funded in monthly installments. For the three months period ended March 31, 2011 and March 31,
2012, service cost, interest cost, estimated return on plan assets and net periodic benefit cost were immaterial.
Certain retirement plans that PPC sponsors invest in a variety of financial instruments. In response to the continued turbulence in global financial markets, PPC
has analyzed their portfolios of investments and, to the best of their knowledge, none of their investments, including money market funds units, commercial paper
and municipal securities, have been downgraded because of this turbulence, and neither PPC nor any fund in which PPC participates hold significant amounts of
structured investment vehicles, auction rate securities, collateralized debt obligations, credit derivatives, hedge funds investments, fund of funds investments or
perpetual preferred securities. Certain postretirement funds in which PPC participates hold significant amounts of mortgage-backed securities. However, none of
the mortgages collateralizing these securities are considered subprime.
The Supply Agreement contains affirmative and negative covenants which requires the Company to, among other things: maintain defined market share; maintain
certain tangible net worth levels; and comply in all material respects with the Supply Agreement. JBS USA was in compliance with all covenants as of March 31,
2012. The unamortized balance at March 31, 2012 and December 31, 2011 was approximately US$ 101.8 million (R$ 185.490) and US$ US$ 107.5 million (R$
201,649), other deferred revenue was US$4.6 million (R$ 8,382) e US$3.4 million (R$ 6,378), respectively.
The modalities of commercialized products include Beef, Poultry and Pork. Geographically, the Management takes into account the operational performance of
its unities in s o Brazil, USA (including Australia) and South America (Argentine, Paraguay and Uruguay).
The Poultry segment is represented by in natura products, refrigerated as a whole or in pieces, whose productive units are located in United States of America and
in Mexico, servicing restaurant chains, food processors, distributors, supermarkets, wholesale and other retail distributors, in addition to exporting to the Eastern
Europe (including Russia), the Eastern Hemisphere ( including China), Mexico and other international markets.
The following table provides the components of net periodic benefit cost:
On October 22, 2008, the JBS US received a deposit in cash from a customer of US$ 175 million for the customer to secure an exclusive right to collect a certain
by-product of the beef fabrication process in all of our U.S. beef plants. This agreement was formalized in writing as the Raw Material Supply agreement ("Supply
Agreement") on February 27, 2008. The customer advance payment was recorded as deferred revenue on JBS USA and as other liabilities on consolidated
financial statements. As the by-product is delivered to the customer over the term of the agreement, the deferred revenue is recognized within gross sales in the
Consolidated Statements of Income.
March 31, 2012
March 31, 2011
Bertin USA has a defined benefit and a supplemental benefit pension plan covering retirees meeting certain age and service requirements. The plan benefits are
based primarily on years of service and employee's compensation. The funding policy is to meet ERISA funding requirements and to accumulate plan assets,
which will, over time, approximate the present value of projected benefits payable. Plan assets are invested solely in a group annuity contract. The defined benefit
and supplemental benefit plans were frozen on December 31, 1995.
To provide the customer with security, in the unlikely event the JBS USA was to default on its commitment, the payment is evidenced by the Supply Agreement
which bears interest at the three-month LIBOR plus 200 basis points. The interest rate at March 31, 2012 was 2.5% In the event of default, the Supply Agreement
provides for a conversion into shares of common stock of JBS USA Holdings based on a formula stipulated in the Supply Agreement. Assuming default had
occurred on March 31, 2012, the conversion right under the Supply Agreement would have equaled 36,91% of the outstanding common stock, or 36,91 shares.
During the three months period ended March 31, 2012, PPC contributed $1.4 million to its defined benefit plans.
During the three months period ended March 31, 2012, Bertin USA funded $74 thousand to its defined benefit plans.
The Beef segment performs slaughter facility, cold storage and meat processing operations for the production of beef preservatives, fat, feed and derivate
products, with forty three industrial units located in Brazil, United States of America, Italy, Australia, Argentina, Uruguay, Paraguay, the latter three with
consolidated analyzes, as well as in United States of America and Australia.
According to IFRS 8/CPC 22 - Operating segments, Management has defined the operational segments that report to the Group, based on the reports use to
make strategic decisions, analyzed by the Executive Board of Officers, which are segmented as per the commercialized product point of view, and per
geographical location.
Bertin USA sponsored a tax-qualified employee savings and retirement plan (the "Bertin 401(k) Plan") covering its US based employees. The Bertin 401(k) Plan
provides for additional matching contributions by Bertin USA, based on specific terms contained in the Bertin 401(k) Plan. The trustee of the Bertin 401(k) Plan, at
the direction of each participant, invests the assets of the Bertin 401(k) Plan in participant designated investment options. The Bertin 401(k) Plan is intended to
qualify under section 401 of the Internal Revenue Code. Bertin USA's expenses related to the matching provisions of the Bertin 401(k) Plan totaled approximately
$103 thousand and $28 thousand for the three months period ended March 31, 2011 and March 31, 2012, respectively.
Bertin USA Plans
47
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
2012
2011
Net revenue of the segment
Beef
10,236,987
9,241,609
Pork
1,512,211
1,394,941
Poultry
3,325,302
3,140,128
Others
936,580
896,062
Total
16,011,080
14,672,740
2012
2011
Depreciation and amortization
Beef
137,182
139,888
Pork
14,356
12,247
Poultry
92,664
134,681
Others
40,841
24,345
Total
285,043
311,161
2012
2011
EBITDA
Beef
349,852
673,507
Pork
93,188
175,549
Poultry
172,019
(97,541)
Others
81,409
84,415
Total
696,468
835,930
March 31, 2012
December 31,
2011
Assets
Beef
31,677,783
32,394,892
Pork
1,075,356
1,169,460
Poultry
6,859,439
6,987,619
Others
7,632,491
6,858,913
Total
47,245,069
47,410,884
2012
2011
Net revenue
United States of America (including Australia)
11,839,311
10,707,469
South America
3,827,400
3,604,158
Others
344,369
361,113
Total
16,011,080
14,672,740
2012
2011
Depreciation and amortization
United States of America (including Australia)
166,868
200,928
South America
116,554
108,866
Others
1,621
1,367
Total
285,043
311,161
The information per businesses' operational segment, analyzed by the Executive Board of Officers, and related to the periods ended on March 31, 2012 and 2011,
are as following:
Due to the significant percentage of the above-mentioned operational segments, the remaining segments and activities in which the Company acts are not
relevant and are presented as "Others". In addition, all eliminations of operations, between segments will be eliminated in the group.
There are no revenues arising out of transactions with one only foreign client that represent 10% or more of the total revenues
Revenues by geographic area:
Net revenue by product line:
Assets by segment:
The accounting policies of the operational segments are the same as the ones described in the significant accounting policies summary. The
Company
evaluates its performance per segment, based on the profit or the losses before taxes, and it does not include the non-recurrent gains and losses and the
exchange losses ­ (EBITDA).
Depreciation by geographic area:
EBITDA by product line:
The Pork segment slaughters, processes and delivers "in natura" meet with one operational unit in United States of America servicing the internal and the foreign
market. The products prepared by JBS USA include, also, specific industrial standards cuts, refrigerated.
Depreciation by product line:
48
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
2012
2011
EBITDA
United States of America (including Australia)
182,531
529,375
South America
508,559
308,322
Others
5,378
(1,767)
Total
696,468
835,930
March 31, 2012
December 31,
2011
Assets
United States of America (including Australia)
14,616,044
14,684,699
South America
31,038,742
31,138,791
Others
1,590,283
1,587,394
Total
47,245,069
47,410,884
31
Expenses by nature
Classification by nature
2012
2011
Depreciation and amortization
(285,043)
(311,161)
Personnel expense
(1,737,958)
(1,299,134)
Raw material use and consumption materials
(13,544,323)
(12,650,281)
Taxes, fees and contributions
(738,380)
(769,446)
Third party capital remuneration
(785,893)
(1,183,960)
Other income, net
1,322,121
1,713,402
(15,769,476)
(14,500,580)
Classification by function
2012
2011
Cost of goods sold
(14,357,175)
(12,984,313)
Selling expenses
(816,404)
(737,451)
General and administrative Expenses
(427,891)
(418,917)
Financial expense, net
(155,821)
(351,130)
Other expense, net
(12,185)
(8,769)
(15,769,476)
(14,500,580)
32
Insurance coverage
33
Risk management and financial instruments
a) Market Risk
In particular, the exposure to market risk is continuously monitored, especially the risk factors related to foreign exchange, interest rates ad commodity prices,
which directly affect the value of financial assets and liabilities, future cash flow and net investments in operations abroad. In these cases the Company and its
subsidiaries may use financial hedge instruments, including derivatives, given the approval by the Risk Management Committee.
The Company has opted for the presentation of the Consolidated Result Statement per function. As per requested by the IFRS, the following, is the detailing of
the consolidated Statement per nature:
Regarding the indirect subsidiary JBS Argentina, located in the Republic of Argentina, the insurance policy has the same above-mentioned characteristics;
however, the maximum indemnification limit for March 31, 2012 was of US$ 32 million (equivalent to R$ 58,307).
The Company and its subsidiaries incur, during the regular course of their operations, exposures to market, credit and liquidity risks. Those exposures are
managed in an integrated way by the Risk Management Department, following directives from the Risk Management Policy defined by the Risk Management
Committee and the Company Directors.
The Risk Management Department is responsible for providing hedge instruments to all operational departments of the Company, centralizing all risk exposures
and managing those risks following the Risk Management Policy. It is the function of the Board of Control Risks ensure that other areas of operations are within
the exposure limits set by management, are financially protected against price fluctuations, centralizing the exhibits and applying the Risk Management Policy of
the Company.
EBITDA by geographic area:
Regarding the subsidiary JBS USA, located in the USA, the insurance policy has the same above-mentioned characteristics; however, the maximum
indemnification limit for March 31, 2012 was of US$ 200 million (equivalent to R$ 364,420).
The Risk Management Department is responsible for mapping all the risk factors that may bring adverse financial results for the Company and propose strategies
to mitigate those risks. The Risk Management Committee is responsible for approving the strategies and supervising their implementation, following competence
levels and the Risk Management Policy.
Assets by geographic area:
The assumptions of risk taken, by their nature, are not part of the scope of a annually audit, therefore, were not reviewed by independent auditors
As of March 31, 2012, the maximum individual limit for coverage was R$ 200,000. This coverage includes all types of casualties.
49
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
a.1) Interest rate risk
Net liabilities and assets exposure to CDI rate:
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
NCE / Compror / Others
3,335,451
4,067,586
3,342,477
4,074,507
CDB-DI
(1,873,336)
(2,035,784)
(2,118,508)
(2,262,399)
Investment funds, LCA-DI and national treasury bill
(51,564)
(93,604)
(575,841)
(777,876)
Total
1,410,551 1,938,198 648,128 1,034,232
Liabilities exposure to LIBOR/EURIBOR rate:
Working Capital - Euro
-
-
60,366
30,376
Working Capital - USD
-
-
152,285
165,649
Pre-payment
1,449,519
1,719,774
1,460,588
1,731,125
Others
10,533
10,859
562,715
359,463
Total
1,460,052 1,730,633 2,235,954 2,286,613
Liabilities exposure to TJLP rate:
FINAME / FINEM
200,798
213,707
202,580
214,175
BNDES Automatic
155,201
187,211
155,201
187,211
EXIM - export credit facility
251,779
309,259
319,048
309,259
Total
607,778 710,177 676,829 710,645
Sensitivity analysis
Risk
Probable
scenario (I)
Scenario (II)
Variation - 25%
Scenario (III)
Variation - 50%
-
(33,572) (67,143)
- (5,380) (10,761)
- (9,116) (18,233)
- (48,068) (96,137)
With the aim of providing information on sensitivity to interest rate risks to which the Company is exposed on March 31, 2012, below is a simulation of possible
changes of 25% and 50% in the relevant variables of risk in relation to the likely scenario. The Management believes that the closing prices used in measuring
assets and liabilities, based on the date of these consolidated financial statements represent a scenario likely to impact the outcome. Following are the net result
between the result of exposures for the period of one year:
Effect on income - Company
Exposure
Contracts indexed to CDI
Increase on interest rate CDI
Contracts indexed to Libor / Euribor
Increase on interest rate Libor / Euribor
Contracts indexed to TJLP
Increase on interest rate TJLP
The Company's operations are indexed to fixed rates by TJLP, CDI, Libor and Euribor. Thus, in general, the Company's management believes that any fluctuation
in interest rates, would create no significant impact on its income,so that preferably does not use derivative financial instruments to manage this risk, except in
terms of specific situations that may arise.
The interest rate exposure of the Company and its subsidiaries on March 31, 2012 and December 31, 2011 is described below.
Interest rate risk is related to potentially adverse results that may arise from oscillations in interest rates, which may be caused by economic crisis, sovereign
monetary policy alterations, or market movements. The Company has assets and liabilities exposed to interest rates like the CDI (Certificado de Depósito
Interbancário), TJLP (Taxa de Juros de Longo Prazo), UMBNDES (Unidade Monetária do BNDES), LIBOR (London Interbank Offer Rate) and EURIBOR (Euro
Interbank Offer Rate), among others. The Risk Management Policy does not define levels to the proportion between float and fixed exposures, but the Risk
Management Department follows market conditions and may propose to the Risk Management Committee strategies to rebalance the exposure.
Company
Consolidated
The Risk Management Department uses proprietary and third party information systems specially developed to control and manage market risk, applying stress
scenario and value at risk analysis to measure the net exposure as well as the specific exposure to the exchanges.
50
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Risk
Probable
scenario (I)
Scenario (II)
Variation - 25%
Scenario (III)
Variation - 50%
-
(15,425) (30,851)
- (8,239) (16,479)
- (10,152) (20,305)
- (33,816) (67,635)
9.52%
11.90%
14.28%
1.47%
1.84%
2.21%
6.00%
7.50%
9.00%
a.2) Exchange rate risk
EXPOSURE
Mar 31, 2012
Dec 31, 2011
OPERATING
Cash and cash equivalents - US$
991,436
932,153
Trade accounts receivable - US$ / / £
1,050,180
1,030,323
Inventories - US$
72,482
74,003
Sales Orders - US$ / / £
501,965
461,710
Suppliers - US$
(50,878)
(37,290)
Trade accounts payable - US$
(10,604)
(14,307)
Subtotal
2,554,580
2,446,592
FINANCIAL
Loans and financings - US$
(6,466,066)
(6,855,440)
Subtotal
(6,466,066)
(6,855,440)
DERIVATIVES
2,514,864
2,263,870
1,366,575
-
201,213
177,079
(234,136)
-
Subtotal
3,848,516
2,440,949
TOTAL EXPOSURE
(62,971)
(1,967,899)
Effect on income - Consolidated
Exposure
Contracts indexed to CDI
Increase on interest rate CDI
Contracts indexed to Libor / Euribor
Increase on interest rate Libor / Euribor
Contracts indexed to TJLP
Increase on interest rate TJLP
Premises
Interest rate CDI
Interest Libro / Euribor
Interest TJLP
Increase on interest rate
Increase on interest rate
Increase on interest rate
Exchange rate risk is related to potentially adverse results that may arise from oscillations in this risk factor, which may be caused by economic crisis, sovereign
monetary policy alterations, or market movements. The Company has assets and liabilities exposed to foreign currencies, however the Risk Management Policy
does not believe in natural hedging from those opposite exposures, since other important issues like expiry matching and market volatility are very relevant and
must be observed.
Below are presented the Company's assets and liabilities exposed to the exchange rate risk for the periods ended on March 31, 2012 and December 31, 2011.
The exposure in the subsidiaries are irrelevant for this analysis.
NDF's (Non deliverable forwards)
Swap (Assets US$)
Swap (Liabilities US$)
Future contracts - US$
The Risk Management Department applies approved hedge instruments to protect financial assets and liabilities, potential future cash flow from commercial
activities and net investments in foreign operations. Futures, NDFs (non deliverable forwards), options and swaps may be used to hedge loans, investments, flows
from interest payments, acquisition of raw material, and other flows, whenever they are quoted in currencies different than the Company's functional currency. The
main exposures to exchange rate risk are in US Dollars (US$), Australian Dollars (AUD), Euros () and the British Pound ( £).
Company
51
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
March 31, 2012
Future Contracts - BM&F
Risk factor
Instrument
Nature
Quantity
Notional
Market value
US$
Future
Purchase
26,250
2,410,820
(6,412)
2,410,820
(6,412)
Future Contracts - Chicago stock market
Risk factor
Instrument
Nature
Quantity
Notional
Market value
US$/British Pound
Future
Purchase
229
45,035
(1,146)
US$/Euro
Future
Purchase
352
59,009
(848)
104,044
(1,994)
December 31, 2011
Future Contracts - BM&F
Risk factor
Instrument
Nature
Quantity
Notional
Market value
US$
Future
Purchase
22,500
2,115,037
(9,399)
2,115,037
(9,399)
Future Contracts - Chicago stock market
Risk factor
Instrument
Nature
Quantity
Notional
Market value
US$/British Pound
Future
Purchase
229
41,517
(96)
US$/Euro
Future
Purchase
352
107,316
284
148,833
188
Initial date Swap
Notional US$
Expiry date
Fair value
(receivable) - R$
Fair value
(payable) - R$
Open balance Mar
31, 2012
(a)
Feb 14,2011
55,556
May 14, 2013
103,836
107,027
(3,191)
Dec 13, 2010
28,282
Dec 10, 2012
21,496
21,795
(298)
Feb 4, 2011
117,375
Feb 4, 2015
93,115
96,160
(3,045)
201,213
Total
(6,534)
Initial date Swap
Nocional - R$
Expiry date
Fair value
(receivable) - R$
Fair value
(payable) - R$
Open balance Mar
31, 2012
(a)
Jan 26, 2012 9,180
Aug 23, 2012 9,033 9,307 (274)
Jan 26, 2012 9,043
Feb 25, 2013 8,897 9,211 (314)
Jan 26, 2012 8,906
Aug 23, 2013 8,763 9,085 (322)
Jan 26, 2012 8,750
Feb 25, 2014 8,608 8,951 (343)
Jan 26, 2012 8,580
Aug 25, 2014 8,441 8,807 (366)
Jan 26, 2012 8,404
Feb 25, 2015 8,269 8,647 (378)
Jan 26, 2012 8,212
Aug 24, 2015 8,080 8,462 (382)
Jan 26, 2012 8,015
Feb 23, 2016 7,886 8,286 (400)
Jan 26, 2012 7,842
Aug 23, 2016 7,716 8,109 (393)
Jan 26, 2012 157,204
Mar 23, 2017 154,673 162,866 (8,193)
234,136
Total
(11,365)
a.2.1) Position balance in foreign exchange futures (Company)
Swap (Liabilities US$) - (b)
a.2.2) Position Balance in foreign exchange swaps (Company)
Swaps are derivatives used to hedge net exposures of assets and liabilities of the Company and its subsidiaries and are classified as financial assets or liabilities
measured at fair value through income. The Company has swap agreements with Credit Suisse and Citibank.
Swap (Assets US$)
52
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
(a)
(b)
Date of
operation
Due date
Notional - US$
Notional- R$
Position Mar 31,
2012
Position Dec 31,
2011
27/3/2012
2/5/2012 750,000 1,366,575 3,540 -
Sensitivity analysis
Exchange rate risk
Risk
Probable
scenario (I)
Scenario (II)
Variation - 25%
Scenario (III)
Variation - 50%
Financial
R$ Depreciation
-
(1,616,517)
(3,233,033)
Operation
R$ Depreciation
-
638,645
1,277,290
Hedge derivatives
R$ Appreciation
(22,765)
629,212
1,258,424
(22,765)
(348,660)
(697,320)
Premises
1.8221 2.2776
2.7332
a.3) Commodity price risk
a.3.1) Position balance in commodities contracts
The balance in commodities contracts are as follow:
EXPOSURE
Mar 31, 2012
Dec 31, 2011
OPERATING
Firm Contracts - R$
4,219,544
3,821,547
TOTAL
4,219,544
3,821,547
b) Credit risk
Consolidated
The result of swap refers to the difference of the asset and liability position at fair value
The operation was performed on the BM&F Bovespa and has as against the S.A. Fábrica de Produtos Alimentícios Vigor.
a.2.3) NDF's (Non deliverable forwards)
The Company is positioned purchased in future exchange through NDFs (fixed-term contract without physical delivery of currency) in the OTC market in Brazil.
The exposure period is 2 months on average and the operation is performed to hedges.
Effect on income - Company
With the aim of providing information on sensitivity to market risks to which the Company is exposed on March 31, 2012, below is a simulation of possible changes
of 25% and 50% in the relevant variables of risk in relation to the likely scenario. The Management believes that the closing prices used in measuring assets and
liabilities, based on the date of these consolidated financial statements represent a scenario likely to impact the outcome. Following are the net result between the
result of exposures and their derivatives:
The Company and its subsidiaries are potentially subject to credit risk related to accounts receivable, investments and hedging contracts. The Risk Management
Policy understands that the diversity of the portfolio contributes significantly to reduce the credit risk, but parameters are set to operations where credit is provided,
observing financial ratios and operational health, as well as consults to credit monitoring entities.
The Company held in March 31, 2012 hedging contracts with fair value larger than R$10,000 with the following institutions: Credit Suisse and Citibank.
Exposure
The Company is a global player in different areas related to the Agribusiness (the entire livestock protein chain, biodiesel, dairy products, among others) and the
regular course of its operations brings exposures to price oscillations in feeder cattle, live cattle, lean hogs, corn, soybeans, and energy, especially in the
American, Australian and Brazilian markets. Commodity markets are characterized by volatility arising from external factors like climate, supply levels,
transportation costs, agricultural policies, storage costs, among others. The Risk Management Department is responsible for mapping all the Company's
exposures to commodity prices oscillations and for proposing strategies to mitigate those risks to the Risk Management Committee. The Risk Management
Committee is responsible for approving the strategies and supervising their implementation, and analyzing their effectiveness, following competence levels and
the Risk Management Policy.
Exchange rate
A very important part of the Company's raw materials needs are biological assets sensitive to stockpiling. In order to guarantee future supply of these materials the
Company contracts anticipated purchases from suppliers. Aiming at mitigating price oscillations risks from these operations as well as from other exposures like
inventories and future sales orders, the Company and its subsidiaries use hedging instruments specific for each exposure, most notably futures contracts.
53
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JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
The book value of financial assets that represent the maximum exposure to credit risk at the financial statement date was:
Note
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Assets
Cash and cash equivalents
4
3,177,231
3,612,867
5,150,828
5,288,194
Trade accounts receivable
5
1,840,663
1,883,093
4,431,010
4,679,846
Credits with related parties
9
611,629
88,505
498,069
552,197
5,629,523
5,584,465
10,079,907
10,520,237
Loss on reduction of accounts receivable recoverable value
Mar 31, 2012
Dec 31, 2011
Mar 31, 2012
Dec 31, 2011
Current receivables
1,732,251
1,729,425
3,877,236
3,939,255
Overdue receivables:
From 1 to 30 days
87,433
120,142
412,045
569,126
From 31 to 60 days
13,203
23,297
53,141
91,406
From 61 to 90 days
9,007
20,755
29,706
44,389
Above 90 days
107,927
102,656
195,089
185,589
(109,158)
(113,182)
(136,207)
(149,919)
108,412
153,668
553,774
740,591
1,840,663
1,883,093
4,431,010
4,679,846
c) Liquidity risk
Mar 31, 2012
Dec 31, 2011
Cash and cash equivalents
5,150,828
5,288,194
Loans and financings - Current
5,632,534
5,339,433
Modified liquidity indicator
0.91
0.99
Leverage indicator
4,3x
4,0x
Company
March 31, 2012
Less than 1 year
Between 1 and 2
years
Between 3 and 5
years
More than 5 years
Fair Value
Trade accounts payable
838,313
-
-
-
838,313
Loans and financings
4,840,659
455,665
3,480,300
1,660,482
10,437,106
Derivatives financing liabilities (assets)
8,994
2,419
2,369
8,983
22,765
TOTAL
5,687,966
458,084
3,482,669
1,669,465
11,298,184
December 31, 2011
Less than 1 year
Between 1 and 2
years
Between 3 and 5
years
More than 5 years
Fair Value
Trade accounts payable
666,375
-
-
-
666,375
Loans and financings
4,574,702
1,883,106
3,503,629
1,708,458
11,669,895
Derivatives financing liabilities (assets)
16,984
2,045
793
-
19,822
TOTAL
5,258,061
1,885,151
3,504,422
1,708,458
12,356,092
Company
Based on the analysis of these indicators, the management of working capital has been defined to maintain the natural leverage of the Company and its
subsidiaries at levels equal to or less than the leverage ratio that we want to achieve.
The table below shows the fair value of financial liabilities of the Company and its subsidiaries according to their maturities.
The Company and its subsidiaries manage their capital based on parameters optimization of capital structure with a focus on liquidity and leverage metrics that
enable a return to shareholders over the medium term, consistent with the risks assumed in the transaction.
The Management of the Company's liquidity is done taking into account mainly the immediate liquidity indicator modified, represented by the level of cash plus
investments divided by short-term debt. It is also maintained a focus on managing the overall leverage of the Company and its subsidiaries to monitor the ratio of
net debt to "EBITDA" at levels we considered to be manageable for continuity of operations.
Consolidated
To calculate the leverage indicator the Company used the dollar and the euro correction rates of the last day of the quarter (closing rate). This criteria is intended
to equalize the net debt and EBITDA at the same exchange rate.
Company
Allowance for doubtful accounts
Liquidity risk arises from the management of working capital of the Company and its subsidiaries and amortization of financing costs and principal of the debt
instruments. It is the risk that the Company and its subsidiaries will find difficulty in meeting their financial obligations falling due.
The index of liquidity and leverage consolidated are shown below:
Consolidated
Consolidated
54
background image
JBS S.A.
(Expressed in thousands of reais)
Notes to the consolidated financial statements for the three months period ended March 31, 2012 and 2011
Consolidated
March 31, 2012
Less than 1 year
Between 1 and 2
years
Between 3 and 5
years
More than 5 years
Fair Value
Trade accounts payable
3,193,850
-
-
-
3,193,850
Loans and financings
5,632,534
473,688
6,551,167
6,028,703
18,686,092
Derivatives financing liabilities (assets)
115,482
2,419
2,369
8,983
129,252
TOTAL
8,941,866
476,107
6,553,536
6,037,686
22,009,194
December 31, 2011
Less than 1 year
Between 1 and 2
years
Between 3 and 5
years
More than 5 years
Fair Value
Trade accounts payable
3,323,886
-
-