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As of June 30, 2008 and 2007
Report of Independent auditors of
JBS S.A
ITR - Six months period
1
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SPECIAL REVIEW REPORT
To the Board of Directors and Shareholders of JBS S.A.
1.
2.
3.
4.
5.
6.
Ribeirão Preto, July 30, 2008
Estefan George Haddad
BDO Trevisan Auditores Independentes
Engagement Partner
CRC 2SP013439/O-5
CRC 1DF008320/O-5 "S" SP
The accompanying financial statements have been translated into English for the convenience of readers outside Brazil.
Based on our special review and on the other independent auditors' reports, we are not aware of any material changes
which should be made to the Quarterly Information referred to above for it to be in conformity with the standards issued
by CVM - Brazilian Securities and Exchange Commission applicable to the preparation of Quarterly Information,
including its Announcement to the Market of January 14, 2008 and CVM Instruction No. 469/08.
The balances of assets and liabilities (Company and consolidated) of JBS S.A. and its controlled companies for the
quarter ended as March 31, 2008, presented for comparative purposes, were rewied by us, and our special review
report, dated May 9, 2008, had an emphasis-of-a-matter paragraph with respect the application of procedures related to
Law No. 11.638/07. The balances of revenue and expense accounts for the quarter ended June 30, 2007, also
presented for comparative purposes, were reviewed by other independent auditors, who issued a special review report
on August 9, 2007 emphasizing the completion of the primary and secondary public offering of shares.
We have performed a special review of the accompanying Quarterly Information (Company and Consolidated) of JBS
S.A. (the "Company") consisting of the balance sheet as of June 30, 2008, and the related statement of income and
cash flows and the performance report for the quarter then ended, prepared under the responsibility of the Company's
management. The financial statements of JBS Holding Internacional S.A., its directly-controlled company, were
reviewed by us, and the financial statements of its indirectly-controlled company JBS Argentina S.A. and directly-
controlled company JBS USA, Inc, were reviewed by other independent auditors, member firms of BDO network. The
financial statements of Inalca JBS S.p.A., its directly-controlled company, were reviewed by other independent auditors.
Our opinion on the carrying values of the investments in these companies and the equity in their earnings is based on
the work of those auditors.
Our review was performed in accordance with specific standards established by IBRACON (Brazilian Institute of
Independent Auditors) together with the Federal Accounting Council, which consisted principally of: a) inquiry of and
discussion with the managers responsible for the accounting, financial and operating areas as to the main criteria
adopted in preparing the Quarterly Information and b) review of the information and subsequent events that have or may
have material effects on the financial situation and operations of the Company and its controlled companies.
As mentioned in note 3.m, on December 28, 2007 Law No. 11.638/07 was enacted to come into effect from January 1,
2008. This law has modified and revoked provisions and introduced new ones into Law No. 6.404/76 (Stock Corporation
Act), causing changes in Brazilian accounting practices. Although the Law has already come into effect, some of the
changes introduced by it depend on regulation by regulatory agencies to be fully applied by companies. Therefore, CVM
set forth on Instruction No. 469/08 that during the transition companies are not obliged to apply all provisions of Law No.
11.638/07 to prepare the Quarterly Information. Therefore, the accounting information included in the Quarterly
Information ­ ITR of the quarter ended June 30, 2008 has been prepared in accordance with CVM's specific
instructions, and do not include all changes in accounting practices introduced by Law No. 11.638/07.
2
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JBS S.A.
Balance sheets
(In thousands of Reais)
June, 2008
March, 2008
June, 2008
March, 2008
June, 2008
March, 2008
June, 2008
March, 2008
ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT ASSETS
CURRENT LIABILITIES
Cash and cash equivalents (Note 5)
82.476
1.818.412
318.054
1.999.129
Trade accounts payable ( Note 13)
257.552
216.434
1.303.079
995.446
Short-term investments (Note 6)
2.046.278
589.452
2.151.833
685.093
Loans and financings (Note 14)
1.298.887
1.414.759
2.322.907
2.396.607
Trade accounts receivable, net (Note 7)
561.742
537.890
1.828.260
1.412.286
Payroll, social charges and tax obligation (Note 15)
74.673
69.022
254.635
197.530
Inventories (Note 8)
828.692
652.904
2.144.677
1.922.830
Declared dividends (Note 19)
-
17.465
-
17.465
Recoverable taxes (Note 9)
405.228
363.198
559.451
513.188
Other current liabilities
96.595
119.160
212.094
155.931
Prepaid expenses
2.913
1.973
56.564
48.342
Other current assets
10.738
14.822
202.136
101.810
TOTAL CURRENT LIABILITIES
1.727.707
1.836.840
4.092.715
3.762.979
TOTAL CURRENT ASSETS
3.938.067
3.978.651
7.260.975
6.682.678
NON-CURRENT LIABILITIES
NON-CURRENT ASSETS
Loans and financings (Note 14)
2.221.459
2.186.048
2.344.707
2.370.172
Deferred income taxes (Note 18)
58.091
58.848
409.019
146.063
Long-term assets
Provision for contingencies (Note 16)
45.979
45.979
53.959
57.246
Credits with related parties (Note 10)
342.990
18.396
25.780
19.272
Debit with third parties for investment (Note 17)
162.909
179.439
162.909
179.439
Judicial deposits and others
9.532
8.405
41.498
51.073
Other non-current liabilities
22.050
22.612
172.970
157.784
Deferred income taxes (Note 18)
17.666
16.529
290.123
35.171
Recoverable taxes (Note 9)
35.064
30.521
51.682
44.221
TOTAL NON-CURRENT LIABILITIES
2.510.488
2.492.926
3.143.564
2.910.704
Total long-term assets
405.252
73.851
409.083
149.737
Permanent assets
MINORITY INTEREST
-
-
(1.300)
(1.249)
Investments in subsidiaries (Note 11)
3.531.627
3.514.823
1.036.849
1.081.822
Other investments
10
10
5.456
5.370
Property, plant and equipment, net (Note 12)
1.457.037
1.427.685
3.440.831
3.202.305
SHAREHOLDERS' EQUITY (Note 19)
Intangible assets, net
9.615
9.615
183.342
223.619
Deferred charges
2.650
1.400
4.506
3.172
Capital stock
4.495.581
3.676.132
4.495.581
3.676.132
Capital reserve
858.204
883.410
858.204
883.410
Total Permanent assets
5.000.939
4.953.533
4.670.984
4.516.288
Revaluation reserve
121.643
123.113
121.643
123.113
Retained earnings
(369.365)
(6.386)
(369.365)
(6.386)
TOTAL NON-CURRENT ASSETS
5.406.191
5.027.384
5.080.067
4.666.025
5.106.063
4.676.269
5.106.063
4.676.269
TOTAL SHAREHOLDERS' EQUITY
TOTAL ASSETS
9.344.258
9.006.035
12.341.042
11.348.703
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
9.344.258
9.006.035
12.341.042
11.348.703
The accompanying notes are an integral part of the financial statements
Company
Company
Consolidated
Consolidated
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JBS S.A.
Statements of income for the period of six months ended June 30, 2008 and 2007
(In thousands of Reais)
2008
2007
2008
2007
GROSS OPERATING REVENUE
Sales of products:
Domestic Sales
1.204.629
1.011.343
8.566.214
1.127.400
Foreign Sales
1.165.275
1.083.661
4.733.329
1.367.799
2.369.904
2.095.004
13.299.543
2.495.199
SALES DEDUCTIONS
Returns and discounts
(76.197)
(72.152)
(150.739)
(87.572)
Sales taxes
(135.766)
(126.824)
(160.203)
(150.273)
(211.963)
(198.976)
(310.942)
(237.845)
NET SALE REVENUE
2.157.941
1.896.028
12.988.601
2.257.354
Cost of goods sold
(1.724.598)
(1.391.653)
(11.784.579)
(1.718.832)
GROSS INCOME
433.343
504.375
1.204.022
538.522
OPERATING INCOME (EXPENSE)
General and administrative expenses
(46.014)
(30.984)
(176.202)
(48.471)
Selling expenses
(216.626)
(183.649)
(669.022)
(206.524)
Financial income (expense), net (Note 20)
(396.967)
(93.477)
(585.598)
(129.640)
Equity in subsidiaries (Note 11)
(61.087)
(41.400)
-
-
Goodwill amortization
(89.444)
(867)
(89.444)
(867)
Initial Public Offering expenses
-
(50.591)
-
(50.591)
(810.138)
(400.968)
(1.520.266)
(436.093)
OPERATING INCOME (LOSS)
(376.795)
103.407
(316.244)
102.429
NON-OPERATING INCOME (EXPENSE), NET
2.764
(10)
3.652
832
INCOME (LOSS) BEFORE TAXES
(374.031)
103.397 (312.592)
103.261
Current income taxes
1.551
(54.698)
(33.864)
(56.574)
Deferred income taxes
1.415
672
(25.179)
1.257
2.966
(54.026)
(59.043)
(55.317)
INCOME (LOSS) BEFORE MINORITY INTEREST
(371.065)
49.371
(371.635)
47.944
Minority interest (expense) income
-
-
570
1.427
NET INCOME (LOSS)
(371.065)
49.371
(371.065)
49.371
NET INCOME (LOSS) PER THOUSAND SHARES
(261,60)
58,08
Statement of EBITDA (Earnings before income taxes,
interest, depreciation and amortization and non-operating
income (expense), net
Income (loss) before taxes
(374.031)
103.397
(312.592)
103.261
Financial income (expense), net (Note 20)
396.967
93.477
585.598
129.640
Depreciation and amortization
31.611
27.819
108.257
37.899
Non-operating income (expense), net
(2.764)
10
(3.652)
(832)
Equity in subsidiaries (Note 11)
61.087
41.400
-
-
Initial Public Offering expenses
-
50.591
-
50.591
Goodwill Amortization
89.444
867
89.444
867
AMOUNT OF EBITDA
202.314
317.561
467.055
321.426
The accompanying notes are an integral part of the financial statements
Company
Consolidated
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JBS S.A.
Statements of income for the period of three months ended June 30, 2008 and 2007
(In thousands of Reais)
2008
2007
2008
2007
GROSS OPERATING REVENUE
Sales of products:
Domestic Sales
681.089
516.363
4.617.110
576.634
Foreign Sales
584.144
560.782
2.676.912
716.192
1.265.233
1.077.145
7.294.022
1.292.826
SALES DEDUCTIONS
Returns and discounts
(42.747)
(34.179)
(78.639)
(41.305)
Sales taxes
(73.582)
(64.628)
(85.847)
(80.305)
(116.329)
(98.807)
(164.486)
(121.610)
NET SALE REVENUE
1.148.904
978.338
7.129.536
1.171.216
Cost of goods sold
(960.262)
(721.607)
(6.435.740)
(890.337)
GROSS INCOME
188.642
256.731
693.796
280.879
OPERATING INCOME (EXPENSE)
General and administrative expenses
(25.412)
(16.131)
(96.380)
(27.904)
Selling expenses
(116.467)
(94.576)
(363.876)
(106.630)
Financial income (expense), net (Note 20)
(392.367)
(53.620)
(508.796)
(72.657)
Equity in subsidiaries (Note 11)
17.131
(19.689)
-
-
Goodwill amortization
(45.131)
(867)
(45.131)
(867)
Initial Public Offering expenses
-
(27)
-
(27)
(562.246)
(184.910)
(1.014.183)
(208.085)
OPERATING INCOME (LOSS)
(373.604)
71.821
(320.387)
72.794
NON-OPERATING INCOME (EXPENSE), NET
2.326
(78)
4.176
772
INCOME (LOSS) BEFORE TAXES
(371.278)
71.743 (316.211)
73.566
Current income taxes
5.692
(32.884)
(18.274)
(34.500)
Deferred income taxes
1.137
(131)
(30.128)
(1.232)
6.829
(33.015)
(48.402)
(35.732)
INCOME (LOSS) BEFORE MINORITY INTEREST
(364.449)
38.728
(364.613)
37.834
Minority interest (expense) income
-
-
164
894
NET INCOME (LOSS)
(364.449)
38.728
(364.449)
38.728
NET INCOME (LOSS) PER THOUSAND SHARES
(256,94)
45,56
Statement of EBITDA (Earnings before income taxes,
interest, depreciation and amortization and non-operating
income (expense), net
Income (loss) before taxes
(371.278)
71.743
(316.211)
73.566
Financial income (expense), net (Note 20)
392.367
53.620
508.796
72.657
Depreciation and amortization
16.220
13.946
57.250
18.852
Non-operating income (expense), net
(2.326)
78
(4.176)
(772)
Equity in subsidiaries (Note 11)
(17.131)
19.689
-
-
Initial Public Offering expenses
-
27
-
27
Goodwill Amortization
45.131
867
45.131
867
AMOUNT OF EBITDA
62.983
159.970
290.790
165.197
The accompanying notes are an integral part of the financial statements
Company
Consolidated
5
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
1
a) Activities in Brazil
b) Foreign activities
Operating activities
The Company operates slaughterhouses, cold storage and food processing operations for the production of beef, canned goods, fat,
animal rations and beef by-products, which are produced in the manufacturing units located in the States of São Paulo, Goiás, Mato
Grosso, Mato Grosso do Sul, Rondônia, Minas Gerais, Acre and Rio de Janeiro. The Company distributes its products through
distribution centers located in the State of São Paulo, and a container terminal for export in the city of Santos.
In order to minimize transportation costs, the Company is responsible for the transportation of cattle to its slaughterhouses and the
transportation of its export products.
Swift-Armour Sociedad Anónima Argentina, presently known JBS Argentina S.A. (JBS Argentina), an indirect wholly-owned subsidiary of
the Company, operates slaughterhouses and cold storage facilities for the production of beef, canned goods, fat, animal food and by-
products, with industrial units located in the province of Buenos Aires, Entre Rios and Santa Fé.
JBS Argentina has two subsidiaries acquired in 2007, one of which is a meat-packing slaughterhouse in Berezategui (Consignaciones
Rurales) and the other is a can factory located in Zavate, both located in the province of Buenos Aires.
Mouran Alimentos Ltda.. (Mouran) is a subsidiary, organized in July 2006, and conducts slaughterhouse and cold storage business
operations for the production of beef, canned goods, fat, animal rations and beef by-products in its facilities located in the State of São
Paulo.
The Company has indirect subsidiaries located in England and Egypt, which are responsible for the sales and distribution of the
Company's products in Europe, Asia, and Africa.
Beef Snacks do Brasil Indústria e Comércio de Alimentos Ltda (Beef Snacks), an indirect subsidiary of the Company, located in Santo
Antônio da Posse, State of São Paulo, in operation since August 2007 produces Beef Jerky. Beef Snacks purchases meat in the local
market and exports to the United States of America.
JBS Embalagens Metálicas Ltda. (JBS Embalagens) produces metallic cans in its plant located in the State of São Paulo, which are
purchased by the Company.
JBS S.A (Company) is a listed company in the Novo Mercado segment, which requires the highest level of corporate governance in the
Brazilian market and its shares are traded on the BOVESPA - Stock Exchange of São Paulo.
The operations of the Company and its subsidiaries consists of:
The subsidiary JBS Confinamento Ltda. (JBS Confinamento), located in Castilho, State of São Paulo, renders fattening service of bovine
for slaughter.
SB Holdings, Inc. (SB Holdings) and its subsidiaries, Tupman Thurlow Co., Inc. (Tupman) and Astro Sales International, Inc. (Astro)
located in the United States and acquired by the Company in January 2007, sale processed beef products in the North-American market.
Global Beef Trading Sociedade Unipessoal Lda (Global Beef Trading), an indirect wholly-owned subsidiary of the Company, located in
Ilha da Madeira, Portugal, sells bovine meat, birds and porks products. Global Beef Trading imports the products from Latin America and
exports to several countries, in Europe, Africa, Asia and the Middle East.
Jerky Snacks Brands, Inc (Jerky Snacks), an indirect wholly-owned subsidiary of the Company, located in the United States of America,
produces and sells meat snacks (Beef Jerky, Smoked Meat Sticks, Kippered Beef Steak, Meat&Cheese, Turkey Jerky and Hunter
Sausage). Jerky Snacks purchases meat from Brazil and in the local market and its sales are mainly in the United States of America.
In July 2007, the Company acquired Swift Foods Company, presently known as JBS USA Inc. (JBS USA). JBS USA has feedlots and
processes, packages and delivers fresh, further processed and value-added beef and pork "in natura" products for sale to customers in
the United States and international markets. The fresh meat products prepared by JBS USA include refrigerated beef and pork processed
to standard industry specifications.
In the United States, JBS USA operates four beef processing facilities, three pork processing facilities, one lamb slaughter facility and
one value-added facility for pork. In Australia, JBS USA operates ten beef and small animals processing facilities.
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
2
Presentation of financial information
3
Significant accounting policies
a) Accounting Estimates
JBS USA divides its business into three segments: Swift Beef, through which it conducts its U.S. domestic beef processing business;
Swift Pork, through which it conducts its U.S. domestic pork processing business; and JBS Australia, through which it conducts its
Australian beef and smalls animals, the last business in Australia since May 2008, with the acquisition of Tasman, which operates six
beef and small animals slaughterhouses and one cattle feedlot unit.
With respect to the Company's investment in JBS Argentina and its subsidiaries and Inalca JBS and its subsidiaries, we have compared
the generally accepted accounting principles in Argentina and Italy with the corresponding principles in Brazil applied by the Company,
and we have noted that there were no material differences.
The accounting principles adopted by Tupman and Astro, both subsidiaries of SB Holdings, located in the United States of America, do
not differ significantly from those adopted in Brazil.
The market value of derivative instruments is computed daily, and the resulting receivables or payables are recorded based on their fair
market value.
The integral subsidiary Montana Alimentari S.p.A. (Montana) is one of the leading Italian companies in the production, marketing and
distribution of cured meats, snack and ready-to eat products with over 230 products. Montana owns the well-known brands "Montana"
and "IBIS", and Montana owns four facilities, specialized by type of production and located in the area distinguished by the Protected
Denomination of Origin (P.D.O.) and Protected Geographic Indication (P.G.I.) brands. Montana is also one of the main operators in the
Italian canned meat market and pre-sliced products.
b) Swap Receivables or Payables
The accounting practices adopted in the United States of America by JBS USA (US GAAP) are adjusted to Brazilian GAAP, according to
the following differences:
- Finished goods inventories: valued using market price, and are adjusted to production average cost method;
- Permanent assets: includes R$ 580.467, related to intangible assets and fixed assets goodwill, calculated according to applicable
purchasing accounting, and it was adjusted reducing the shareholder´s equity;
- Derivatives designated as a hedge and used to hedge an anticipated transaction, changes in fair value of the derivatives are deferred in
the balance sheet within accumulated other comprehensive income and were recognized in the statement of earnings for Brazilian GAAP
purposes.
The preparation of financial statements in accordance with generally accepted accounting principles in Brazil requires the Company's
management to (i) make estimates and assumptions that affect the reported amounts of assets and liabilities and (ii) disclose (a)
contingent assets and liabilities as of the date of the financial statements and (b) the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
JBS USA in Australia operates five feedlots that provide grain-fed cattle for its processing operations.
Since January 2008, the Company owns 50% of Inalca S.p.A. social capital, presently known as Inalca JBS S.p.A, (Inalca JBS).
The individual and consolidated financial statements, were prepared in accordance with the generally accepted accounting principles in
Brazil, and they are presented in accordance with NPC rule No. 27 issued by the Brazilian Institute of Independent Auditors (Instituto dos
Auditores Independentes do Brasil -
IBRACON) and rule No. 488 issued by the Brazilian Securities and Exchange Commission
(Comissão de Valores Mobiliários ­ CVM) , both dated October 3, 2005.
Inalca S.p.A. is Italy´s leading beef company and one of the main operators in the European processing beef sector. It produces and
markets a complete range of fresh and frozen meat, packed under vacuum or portioned in a protective atmosphere, canned meat, ready-
to-serve products, fresh and frozen hamburger, minced meats and, pre-cooked products. Inalca JBS owns six facilities in Italy,
specialized by production line, and nine foreign facilities in Europe and Africa.
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
j) Income Tax and Social Contribution
Current taxes
Deferred taxes
k) Profit by share
Current and long-term liabilities are accounted for at their known or computed amounts, including, if applicable, the related income,
charges and monetary variations.
Allowance for doubtful accounts is computed based on the probable loss, the profile of the customers, overall economic and financial
condition and specific risks relating to the relevant customers. The Company's management believes that the allowance for doubtful
accounts is sufficient to cover the exposure to possible losses.
g) Other Current and Long-term Assets
The Company's inventories are valued based on their cost of acquisition, creation or production, which cost is lower than the market or
net realizable value.
e) Investments
The Company's investments in subsidiaries are accounted according to the equity method.
Current and long-term assets are accounted for at their realization value, including, if applicable, the related income, charges and
monetary variations.
d) Inventories
c) Allowance for Doubtful Accounts
The Company records deferred income tax assets and liabilities based on temporary differences between the carrying amounts on the
Company's financial statements and the tax basis of assets and liabilities.
The profit by share is calculated based on the shares in circulation on the date of the financial statements.
i) Contingent assets and liabilities
Contingent assets are recognized only when there are final judments or favorable judicial decisions rendered. Contingent assets with
probable gain are only published in accompanying notes.
Contingent liabilities are provisioned when the losses are appraised as probable and the involved amounts are measurable with enough
certainty. The contingent liabilities appraised as possible losses are only published in accompanying notes and the contingent liabilities
appraised as remote losses are not provisioned and not published.
Provisions for income tax and social contribution are based on rates and laws and regulations in force.
f) Property, plant and equipment
Property, plant and equipment are stated at an amount equivalent to the sum of their historical acquisition cost and the amount resulting
from the increase in the value of these assets as determined by revaluations performed by independent appraisal firms. Depreciation is
computed pursuant to the straight-line method, using rates described in Note 12, which take into account the useful and economic lives of
the assets.
h) Current Liabilities and Long-term Liabilities
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
4
On December 28, 2007, Law 11.638/07 was enacted (new Law) , which modified some aspects of Law no. 6404/76 (the "Brazilian
Corporation Law"). In general terms, the new law requests the harmonization of the accounting practices adopted in Brazil with some
international accounting pratices derived from IASB - International Accounting Standard Board, with application starting from January 1,
2008.
Some of the alterations requested in the accounting practices adopted in Brazil are: the substitution of the Statements of financial position
for the Statements of cash flow; the inclusion of the Demonstration of the Added Value; the creation of new accounts subgroups; and the
introduction of new criteria for classification and evaluation of financial instruments, valorization of certain assets to market value and the
concept of adjusting to the present value for the operations (assets and liabilities) of long term, and for the current period if relevant. The
Company already adopts the practice of publishing the Statements of cash flow.
The main impact of the alterations introduced by the Law 11.638/07 in the individual and consolidated financial statements for the three
and six months period ended June 30, 2008 is due to the conversion adjustments relating to the investments exchange variation to the
Company and subsidiaries, in foreign countries, that if were calculated based on the Technical Pronouncement CPC 02 of the Committee
of Accounting Pronouncements, of November 9, 2007, approved by the Deliberation CVM n° 534, of January 29, 2008 would produce the
following effects, that would be recognize directly in the Shareholders´ Group, in the subgroup of Adjustments of Evaluation:
The Company opted to maintaining the revaluation reserve amounts booked until December 31, 2007 and is still evaluating other possible
impacts of the changes introduced by the new Law, which will be recognized during the year of 2008.
All assets and liabilities of JBS S.A. and its subsidiaries and revenues and expenses from transactions between JBS S.A. and its
subsidiaries were eliminated. No inter-company profits were recorded on the consolidated balance sheet of the Company. Accordingly,
the shareholders' equity of JBS S.A. individually is equal to its consolidated shareholders' equity. The financial statements of the
subsidiaries of JBS S.A. located outside of Brazil were originally prepared using the local currency of the country in which they are
located. Subsequently, these amounts were converted into Reais using the applicable commercial exchange rates reported by the
Central Bank of Brazil on the date of the consolidated balance sheet for assets and liabilities, and the average exchange rate of the
period to revenues and expenses. The gains and losses due to the conversion are recognized in the financial income (loss).
The subsidiaries companies included in the consolidation are mentioned in the Note 11.
- a reduction in the loss in the three month period of R$ (364.449) to R$ (145.030), that would be reflected in an increase in the positive
equity of R$ 17.131 to R$ 35.578 in the Company and a reduction of the financial income of R$(392.367) to R$ (191.395) in the Company
and R$ (508.796) to R$ (289.377) in the consolidated; and
- a reduction in the loss in the six month period of R$ (371.065) to R$ (190.650), that would be reflected in an reduction in the negative
equity of R$ (61.087) to R$ (35.458) in the Company and a reduction of the financial income of R$(396.967) to R$ (242.181) in the
Company and R$ (585.598) to R$ (366.179) in the consolidated.
Due the significance of these investments in the consolidation in the financial statements of the Company for the three and six months
period ended June 30, 2008, and the comparability loss with previous periods, we are presenting below the combined balance sheet and
income statements to allow a comparison of the consolidated financial statements before the investment in JBS USA and Inalca JBS, and
we are presenting these financial statements.
In July of 2007, the Company acquired 100% of Swift Foods Company (presently JBS USA) and since January 2008 the Company owns
50% of Inalca S.p.A. social capital, presently Inalca JBS S.p.A, (Inalca JBS).
m) Changes in Brazilian corporate legislation
Aquisitions of Swift Foods Company (Presently JBS USA) and Inalca S.p.A (Presently Inalca JBS)
l) Consolidation
The Company opted to publish the effects of the new Law in the accompanying notes. With respect to the requirement to adjust to the
present value of the operating long term assets and liabilities, or current when there are material impacts, requested by the Instruction
CVM n° 469, there were not identified any matterial impacts.
The Instruction CVM n° 469, issued on May 2, 2008 setting forth the application of the new Law, allowed the companies listed on the
BOVESPA to immediately apply in the quarterly information in 2008 all of the accounting dispositions contained in the new Law, or
publishing in accompanying note the changes that can impact the financial statements, valuating, if possible, the effects in the equity and
in the income statements of the period.
Part of the changes proposed by the new Law still requires regulation, that needs to be issued by the CVM.
9
background image
JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
BALANCE SHEET
March 2008
ASSETS
Consolidated
JBS USA
INALCA JBS
JBS and other
subsidiaries
Consolidated
Cash, cash equivalents and short-term investments
2.469.887
173.582
81.903
2.214.402
2.684.222
Trade accounts receivable, net
1.828.260
1.009.230
161.562
657.469
1.412.286
Inventories
2.144.677
956.972
168.426
1.019.278
1.922.830
Other current and non current assets
1.227.234
424.401
57.133
745.700
813.077
Investments in subsidiaries
1.036.849
-
-
2.961.503
1.081.822
Property, plant and equipment, net
3.440.831
1.127.938
555.295
1.757.599
3.202.305
Other permanent assets
193.304
127.973
36.967
28.365
232.161
TOTAL ASSETS
12.341.042
3.820.095
1.061.286
9.384.315
11.348.703
LIABILITIES AND SHAREHOLDERS' EQUITY
Trade accounts payable
1.303.079
797.091
195.852
310.136
995.446
Loans and financings
4.667.614
703.543
290.471
3.673.599
4.766.779
Other current and non current liabilities
1.265.586
862.151
103.912
299.523
911.458
Minority interest
(1.300)
-
3.707
(5.007)
(1.249)
Shareholders' equity
5.106.063
1.457.310
467.344
5.106.063
4.676.269
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
12.341.042
3.820.095
1.061.286
9.384.315
11.348.703
INCOME STATEMENTS
2007
Consolidated
JBS USA
INALCA JBS
JBS and other
subsidiaries
Consolidated
Net sales revenue
12.988.601
9.585.925
706.887
2.695.789
2.257.354
Cost of goods sold
(11.784.579)
(8.920.130)
(631.637)
(2.232.811)
(1.718.832)
GROSS INCOME
1.204.022
665.794
75.250
462.978
538.522
General, administrative and selling expenses
(845.224)
(471.691)
(58.307)
(315.226)
(254.995)
Financial income (expense), net
(585.598)
(31.339)
(23.188)
(531.071)
(129.640)
Equity in subsidiaries
-
-
-
85.257
-
Other operating expenses
(89.444)
-
-
(89.444)
(51.458)
Non-operating income (expense), net
3.652
165
(236)
3.724
832
Income taxes
(59.043)
(68.341)
(2.574)
11.872
(55.317)
Minority interest (expense) income
570
-
(275)
845
1.427
NET INCOME (LOSS)
(371.065)
94.588
(9.331)
(371.065)
49.371
AMOUNT OF EBITDA
467.055
239.891
36.281
190.883
321.426
June 2008
2008
Six month period ended June 30,
10
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
INCOME STATEMENTS
2007
Consolidated
JBS USA
INALCA JBS
JBS and other
subsidiaries
Consolidated
Net sales revenue
7.129.536
5.303.000
402.017
1.424.519
1.171.216
Cost of goods sold
(6.435.740)
(4.852.666)
(359.324)
(1.223.750)
(890.337)
GROSS INCOME
693.796
450.334
42.693
200.768
280.879
General, administrative and selling expenses
(460.256)
(261.227)
(34.046)
(164.983)
(134.534)
Financial income (expense), net
(508.796)
(16.991)
(4.517)
(487.289)
(72.657)
Equity in subsidiaries
-
-
-
116.123
-
Other operating expenses
(45.131)
-
-
(45.131)
(894)
Non-operating income (expense), net
4.176
196
(206)
4.186
772
Income taxes
(48.402)
(58.555)
(1.285)
11.437
(35.732)
Minority interest (expense) income
164
-
(275)
439
894
NET INCOME (LOSS)
(364.449)
113.758
2.365
(364.449)
38.728
AMOUNT OF EBITDA
290.790
213.285
19.319
58.186
165.197
5
6
30.06.2008
31.03.2008
30.06.2008
31.03.2008
Certificates of bank deposits - CDB-DI
1.614.758
299.983
1.616.325
300.129
Investment funds
431.520
289.469
535.508
384.964
2.046.278
589.452
2.151.833
685.093
7
Trade accounts receivable, net
30.06.2008
31.03.2008
30.06.2008
31.03.2008
Receivables not yet due
526.725
507.301
1.472.775
1.078.774
Overdue receivables:
From 1 to 30 days
32.991
17.241
283.848
254.629
From 31 to 60 days
1.405
4.976
42.909
39.256
From 61 to 90 days
1.969
7.030
11.681
14.859
Above 90 days
3.524
6.008
31.945
38.886
Allowance for doubtful accounts
(4.872)
(4.666)
(14.898)
(14.118)
35.017
30.589
355.485
333.512
561.742
537.890
1.828.260
1.412.286
Cash and Cash equivalents
The Company and the consolidated balance of cash and cash equivalents on March 31, 2008, includes R$ 1,730,551 as cash
equivalents, relating to payment of the capital increase in the amount of R$ 2,550,000, approved by the Extraordinary General Meeting,
through the private issue of 360,678,926 new common, registered shares, without par value, at the price of R$ 7.07 per share, in
accordance with the investment agreement signed on March 18, 2008 between the founding shareholders J&F Participações S.A. and
ZMF Fundo de Investimentos em Participações, and the investors BNDES Participações S.A. ­ BNDESPAR and PROT ­ Fundo de
Investimentos em Participações.
Company
Short-term investments
Consolidated
Certificates of bank deposits-CDB-DI are fixed income securities that provide yields of approximately 100% of the Brazilian interbank rate.
The Investment Funds are supported by investments in Multi-Market funds, to the qualified public.
Consolidated
Company
Three month period ended June 30,
2008
11
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
8
Inventories
30.06.2008
31.03.2008
30.06.2008
31.03.2008
Finished products
717.126
573.059
1.583.787
1.445.732
Work-in-progress
820
568
94.811
81.247
Raw-materials
65.032
41.187
98.280
68.707
Livestock
-
-
205.373
182.304
Warehouse spare parts
45.714
38.090
162.426
144.840
828.692
652.904
2.144.677
1.922.830
9
Recoverable taxes
30.06.2008
31.03.2008
30.06.2008
31.03.2008
Value-added tax on sales and services (ICMS / IVA / VAT)
338.237
307.252
413.088
381.105
Excise tax - IPI
51.648
51.674
111.689
110.229
Social contribution and taxation on billings - PIS and Cofins
26.766
25.587
41.227
39.488
Income tax withheld at source - IRRF
6.789
3.803
10.527
7.596
Others
16.852
5.403
34.602
18.991
440.292
393.719
611.133
557.409
Current and Long-term:
Current
405.228
363.198
559.451
513.188
Non-current
35.064
30.521
51.682
44.221
440.292
393.719
611.133
557.409
Value-added tax on sales and services (ICMS / IVA / VAT)
PIS and COFINS (social contribution on net income)
IRRF (withholding income tax)
Company
Consolidated
IRFF corresponds to withholding income tax levied upon the redemption of marketable securities by the Company. The Company expects
to set off such withholding income taxes against income taxes on net income paid for the applicable period.
Company
Consolidated
The Tax Authority of the State of São Paulo (Secretaria da Fazenda do Estado de São Paulo ) filed administrative proceedings against
the Company challenging the amount of the Company's ICMS tax credits arising from the purchase of cattle by the Company in other
Brazilian states. The Tax Authority of the State of São Paulo claims that the tax incentives granted by such other states were not based
upon an agreement with the State of São Paulo, and accordingly, the Tax Authority of the State of São Paulo only recognizes the
Company's ICMS tax credits up to the amount of the ICMS tax paid in such other states.The Company's management believes that its
accounting of the ICMS tax credit is in accordance with Brazilian law, and expects to be reimbursed of such credits.
Brazilian law authorizes manufacturers of goods to set off the ICMS tax paid upon the purchase of raw materials against the taxes
charged upon the sale of the finished goods manufactured with such raw materials. Recoverable ICMS derives from tax credits received
by the Company in connection with ICMS taxes paid upon its purchase of raw-materials, packaging materials and other goods, which are
offset against ICMS taxes resulting from the sale of the Company's products. As export sales are exempt from ICMS and a relevant
portion of the Company's sales are export sales, a tax credit is generated.
PIS and COFINS tax credits are generated as a result of PIS/COFINS taxes paid by the Company upon its purchase of raw-materials,
packaging and other materials used in the manufacturing of its products against the PIS/COFINS taxes paid by Company upon the sale of
its finished products. Similarly to ICMS and IPI, as exports of the Company's products are exempt from such taxes, a tax credit is created.
12
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
10 Related parties transactions
Trade accounts
receivable
Trade accounts
payable Purchases
Sales of
products
Credits
Mouran Alimentos Ltda.
- -
-
-
3.822
JBS Confinamento Ltda.
365 -
-
208 11.832
JBS Embalagens Metálicas Ltda.
1 3.740 26.522 -
66.003
JBS Global Beef Company SU Lda.
- -
-
-
(37.410)
Friboi Egypt Company L.L.C
- -
-
-
-
JBS Global (UK) Limited
14.530 -
-
119.292 -
JBS Argentina S.A.
- 31 3.508 -
-
The Tupman Thurlow Co.
2.607 60 -
22.960 15.131
JBS Global A/S (Denmark))
- -
-
-
(675)
Global Beef Trading SU Lda.
741 -
-
17.501 -
Beef Snacks Brasil Ind.Com.Alimento Ltda
1.899 -
7 10.372 40.510
Beef Snacks International BV
- -
-
-
2.927
Inalca JBS S.p.A
- -
-
10.436 -
JBS USA, Inc
- -
-
-
240.850
JBS Agropecuária Ltda.
- 1.274 5.426 -
-
Flora Produtos de Higiene e Limpeza S.A.
12.216 -
-
65.329 -
32.359
5.105
35.463 246.098
342.990
Trade accounts
receivable
Trade accounts
payable Purchases
Sales of
products
Credits
Mouran Alimentos Ltda.
- -
-
-
654
JBS Confinamento Ltda.
-
-
-
-
1.013
JBS Embalagens Metálicas Ltda.
29 1.371 9.881 -
67.055
JBS Global Beef Company SU Lda.
- -
-
-
(41.104)
Friboi Egypt Company L.L.C
447 -
-
-
-
JBS Global (UK) Limited
107.709 -
-
106.402 -
JBS Argentina S.A.
- 1.368 2.523 -
-
The Tupman Thurlow Co.
27.092 601 -
16.953 -
JBS Global A/S (Denmark))
- -
-
-
(41.409)
Global Beef Trading SU Lda.
2.013 -
-
8.781 -
Beef Snacks Brasil Ind.Com.Alimento Ltda
1.280 7 7 3.953 29.031
Beef Snacks International BV
- -
-
-
3.156
Inalca JBS S.p.A
1.852 -
-
6.178 -
JBS Agropecuária Ltda.
- 197 2.238 -
-
Flora Produtos de Higiene e Limpeza S.A.
10.774 -
-
25.851 -
151.196
3.544
14.649 168.118
18.396
Transactions with related parties are mainly represented by sales operations from the parent company to its subsidiaries
abroad, under normal market prices and terms, and by inter-company loans with controlled and related subsidiaries with
interests. Balances between related parties in the balance sheet and income statement are the following:
March 31, 2008
June 30, 2008
General comments
Based upon final administrative decisions by the Câmara Superior do Conselho de Contribuintes and on the opinion of its legal counsels,
the Company and JBS Embalagens has performed a monetary adjustment of its tax credits of PIS, COFINS and IPI based on the SELIC
rate (which is the reference rate published by the Central Bank of Brazil). After such monetary adjustments, the total PIS, COFINS and
IPI tax credits totaled R$ 115.463.
13
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
11 Investments in subsidiaries
a) Relevant information about subsidiaries
Company's
share quantity
(Thousand)
Participation
Capital stock
Shareholders'
equity
Net income
(loss)
JBS Embalagens Metálicas Ltda.
10.002
99,00%
2
39.502
(109)
JBS Global Investments S.A.
90.000
100,00%
143.271
44.902
(75.751)
JBS Holding Internacional. S. A.
569.079
100,00%
569.079
373.765
(24.862)
JBS Global A/S (Denmark))
222
100,00%
72.488
108.909
3.432
Mouran Alimentos Ltda.
120
70,00%
120
(18.271)
(1.459)
JBS USA, Inc.
100
100,00%
1.507.394
1.457.310
113.757
SB Holdings, Inc
20
100,00%
16
2.216
(122)
JBS Confinamento Ltda
30.001
100,00%
30.001
29.371
(618)
Inalca JBS S.p.A
280.000
50,00%
876.407
934.688
7.701
Company's
share quantity
(Thousand)
Participation
Capital stock
Shareholders'
equity
Loss
JBS Embalagens Metálicas Ltda.
10.002
99%
2
39.611
(231)
JBS Global Investments S.A.
38.000
100%
66.466
43.863
(22.769)
JBS Holding Internacional. S. A.
544.075
100%
544.075
373.622
(21.156)
JBS Global A/S (Denmark))
222
100%
79.844
116.387
(2.098)
Mouran Alimentos Ltda.
120
70%
120
(16.812)
(1.360)
JBS USA, Inc.
100
100%
1.656.249
1.478.121
(19.170)
SB Holdings, Inc
20
100%
18
2.582
(134)
JBS Confinamento Ltda
30.001
100%
3.001
29.989
(12)
Inalca JBS S.p.A
238.148
44%
800.066
858.453
(26.364)
Balance as of
March 31, 2008
Goodwill
(amortization)
Addition
(realization)
Exchange rate
variation
Equity
Balance as of
June 30, 2008
JBS Embalagens Metálicas Ltda.
39.215
-
-
-
(108)
39.107
JBS Global Investments S.A.
43.863
88.007
-
(11.216)
(75.751)
44.903
JBS Holding Internacional. S. A.
373.622
25.004
-
-
(24.862)
373.764
JBS Global A/S (Denmark))
116.387
(59)
-
(10.909)
3.491
108.910
Mouran Alimentos Ltda.
(11.768)
-
-
-
(1.021)
(12.789)
JBS USA, Inc.
2.238.715
-
(43.880)
(134.569)
113.757
2.174.023
SB Holdings, Inc
22.184
-
(1.251)
(244)
(122)
20.567
JBS Confinamento Ltda.
29.989
-
-
-
(618)
29.371
Inalca JBS S.p.A
650.848
125.084
28.495
(65.810)
2.365
740.982
11.768
12.789
Total
3.514.823
238.036
(16.636)
(222.748)
17.131
3.531.627
March 31, 2008
b) Investments movement
In the third quarter of 2007, the Joint Venture operation between JBS S.A (through the subsidiary JBS Global A/S) and Jay Earl Link
(through the company Link International Meat Products LTD) was finalized to operate the company Beef Snacks International BV, which
became the holding company of Beef Snacks and Jerky Snacks, both integrally. JBS Global A/S is the owner of 50% of the social capital
of Beef Snacks International BV.
June 30, 2008
Transfer to Other current liabilities
(Negative equity Mouran)
14
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
c) Goodwill
In the Company
In subsidiary
12
Company
Annual
Depreciation
Rates
Cost
Revaluation
Accumulated
Depreciation
June 2008
March 2008
Buildings
4%
359.768
116.742
(30.452)
446.058
448.250
Land
-
107.469
9.352
-
116.821
117.821
Machinery & equipment
10%
268.539
45.643
(55.352)
258.830
245.499
Installations
10%
85.768
21.815
(18.202)
89.381
90.450
Computer equipment
20%
14.031
730
(6.650)
8.111
8.241
Vehicle and airplanes
20%
75.033
460
(44.137)
31.356
33.111
Construction in progress
-
492.602
-
-
492.602
470.881
Others
10 to 20%
17.888
3.880
(7.890)
13.878
13.432
1.421.098
198.622
(162.683)
1.457.037
1.427.685
Consolidated
Annual
Depreciation
Rates
Cost
Revaluation
Accumulated
Depreciation
June 2008
March 2008
Buildings
3 to 20%
1.274.569
81.988
(124.244)
1.232.313
1.160.681
Land
-
384.611
8.714
(5.868)
387.457
385.238
Machinery & equipment
8 to 10%
1.395.710
45.643
(484.047)
957.306
822.379
Installations
10%
87.844
21.815
(18.692)
90.967
92.077
Computer equipment
20 to 100%
62.650
730
(32.360)
31.020
35.918
Vehicle and airplanes
14 to 50%
102.644
460
(51.639)
51.465
52.820
Construction in progress
-
644.688
-
-
644.688
604.079
Others
10 to 100%
66.511
3.880
(24.776)
45.615
49.113
4.019.227
163.230
(741.626)
3.440.831
3.202.305
Property, plant and equipment, net
In March of 2008 the Company acquired 50% of the capital stock of Inalca S.p.A., presently known as Inalca JBS, and paid a goodwill of
EUR 109.181, which correspond as of June 30, 2008 to R$ 273.639, based on the expectation of future profitability. The goodwill will be
amortized as long as such profits are earned, during a period not exceeding ten years.
Net amount
As described in note 19 d), the Company intends to exclude permanently the goodwill from the dividends calculation base.
In 2007, JBS Holding Internacional 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 a total goodwill in these acquisition of $56.765 thousand argentinean pesos, that corresponds as of June
30, 2008 to R$ 29.872. These goodwill are based on the expectation of future profitability and it will be amortized during the period and
extension of the projections that determined it, not to exceed ten years.
Net amount
In January 2007 the Company acquired 100% of the capital stock of SB Holdings, Inc., and paid a goodwill of R$ 20.881 based on the
expectation of future profitability of the subsidiary. The goodwill will be amortized as long as such profits are earned, during a period not
exceeding ten years. During the three and six months period ended June 30, 2008 the goodwill was amortized in the amount of R$ 1,251
and R$ 1.684, and the actual accumulated goodwill amortization is R$ 3.374.
In July 2007 the Company acquired 100% of the capital stock of Swift Foods Company, actual JBS USA, Inc., and paid a goodwill of R$
877.609, based on the expectation of future profitability. The goodwill will be amortized as long as such profits are earned, during a period
of five years. During the three and six months period ended June 30, 2008 the goodwill was amortized in the amount of R$ 43.880 and R$
87.760, respectively, and the actual accumulated goodwill amortization is R$ 160.894.
15
background image
JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
13 Trade accounts payable
30.06.2008
31.03.2008
30.06.2008
31.03.2008
Commodities
171.171
121.057
630.634
488.348
Materials and services
82.026
91.608
644.163
479.692
Finished products
4.355
3.769
28.282
27.406
257.552
216.434
1.303.079
995.446
14
Loans and financings
a)
Company
Modality
June 2008
March 2008
Financing for purchase of fixed assets
FINAME / FINEM - Enterprise financing
231.672
244.482
231.672
244.482
Loans for working capital purposes
ACC - Exchange advance contracts
369.866
361.160
EXIM - BNDES export credit facility
267.003
372.443
444.499
488.268
Export prepayment
358.706
220.446
498.464
533.760
NCE / COMPROR
1.350.136
1.294.912
Others
-
85.336
3.288.674
3.356.325
Total Loans and Financings
3.520.346
3.600.807
Current and Long-term
Current
1.298.887
1.414.759
Non-current
2.221.459
2.186.048
3.520.346
3.600.807
Long-term installments have the following maturities:
2009
70.277
100.259
2010
280.952
286.963
2011
921.673
911.801
2012
258.568
185.398
2013
212.419
176.897
2016
477.570
524.730
2.221.459
2.186.048
Company
As of June 30 2008, the balance of the Company's revaluation of fixed assets account was R$198,622, the balance of the Company
revaluation reserve account was R$ 121,643, and the balance of the Company income tax and social contribution account was R$
58,091. The Company recorded accrued depreciation of R$ 18,888 with respect to the Company's revaluation of fixed assets as of June
30, 2008.
Consolidated
Until December 2007, supported by appraisal reports from SETAPE- Serviços Técnicos de Avaliações do Patrimônio e Engenharia S/C
Ltda., the Company made an appraisal of its facilities, resulting in an increase in the value of these assets, and the creation of the
revaluation reserve and the related deferred income tax and social contribution provisions.
Exchange rate variation and
interest rate of Libor + 1.0%
CDI and interest rate of 2.0%
Fixed Rate Notes with final maturity in February 2016 (144-A)
Exchange rate variation and
Interest rate of 10.5%
Fixed Rate Notes with final maturity in February 2011 (Eurobonds)
Exchange rate variation and
interest rate of 9.375%
TJLP and interest rate of 3.0%
Annual
average
rate
of
interest and commissions
TJLP-UMBNDES index rate
and interest rate of 3.0%
Exchange rate variation and
interest rate LIBOR + 0.45%
16
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
b)
Consolidated
Modality
June 2008
March 2008
Financing for purchase of fixed assets
FINAME / FINEM - Enterprise financing
231.672
244.482
16.995
18.878
248.667
263.360
Loans for working capital purposes
ACC - Exchange advance contracts
439.986
435.601
EXIM - BNDES export credit facility
267.003
372.443
444.499
488.268
Working Capital - American Dollars
621.953
755.540
Working Capital - Australian Dollars
122.860
18.759
Working Capital - Euros
290.471
357.204
Export prepayment
358.706
220.446
498.464
533.760
NCE / COMPROR
1.375.005
1.321.398
4.418.947
4.503.419
Total
4.667.614
4.766.779
Current and Long-term
Current
2.322.907
2.396.607
Non-current
2.344.707
2.370.172
4.667.614
4.766.779
Long-term installments have the following maturities:
2009
82.952
129.264
2010
305.689
321.303
2011
942.019
940.963
2012
277.326
212.027
2013
212.419
176.897
2016
524.302
589.718
2.344.707
2.370.172
BBSY + 0.35%
Euribor + Interests 0.15% -
1.75%
NCE (Notas de Crédito à Exportação) /COMPROR are an export finance credit facility linked to COMPROR used to finance the purchase
of raw materials used in the Company's export products.
Exchange rate variation and
interest rate of Libor + 1.0%
CDI and interest rate of 2.0%
Fixed Rate Notes with final maturity February 2016 (144-A)
TJLP-UMBNDES index rate
and interest rate of 3.0%
TJLP and interest rate of 3.0%
Exchange Contract Advances (ACCs) are credits funded by financial institutions to JBS S.A., amounting to US$ 232.342 thousands on
June 30, 2008 (US$ 206.483 thousands as of March 31, 2008) and are used to finance the Company´s export sales.
Exchange rate variation and
Interest rate of 10.5%
Outstanding amounts of export pre-payment loans were US$ 225.332 thousands on June 30, 2008 (US$ 126.034 thousands on March
31, 2008). Such loans were funded by financial institutions.
Annual
average
rate
of
interest and commissions
Notes Payable
Interest rate Libor + 1.1%
Fixed Rate Notes with final maturity in February 2011 (Eurobonds)
Exchange rate variation and
interest rate of 9.375%
Interest rate Libor + 1.75%
Exchange rate variation and
interest rate LIBOR + 0.45%
EUROBONDS - JBS S.A. issued 9.375% fixed rate notes due in 2011 in total aggregate amounts of US$200 million on February 6, 2006
and US$75 million on February 14, 2006. These notes are guaranteed by JBS S.A. and J&F Participações S.A.
144-A - JBS S.A. also issued the 10.5% fixed rate notes due on 2016 in the total aggregate amount of US$300 million on
July 28, 2006. These notes are also guaranteed by the Company.
17
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
15 Payroll, social charges and tax obligation
30.06.2008
31.03.2008
30.06.2008
31.03.2008
Payroll and related social charges
25.817
29.137
74.739
70.238
Accrual for labor liabilities
43.079
34.216
118.794
101.207
Income tax
4
-
37.177
2.189
ICMS taxes payable
2.475
2.094
2.501
2.094
Others
3.298
3.575
21.424
21.802
74.673
69.022
254.635
197.530
16 Provision for contingencies
Consolidated
Labor
1.120
5.994
8.481
Civil
483
15.065
20.137
Tax
189
24.920
25.341
Total
1.792
45.979
53.959
Tax Proceedings
b) PIS (Programa de Integração Social) and COFINS (Contribuição para Financiamento da Seguridade Social)
Based on the opinion of the Company's legal counsels, the Company's management established a provision for losses arising from such
administrative and legal proceedings in the amount of R$ 826 as of June 30, 2008.
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 do not recognizes
the Company's ICMS tax credits up to the amount of the ICMS tax paid in such other states. The Company estimates that the claims
under these administrative proceedings amount to R$ 118,000 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. The legal proceedings filed by the Company suspended
the requirements of the State of São Paulo.
Type of Proceedings
The Company and its subsidiaries are parties in several legal and administrative proceedings arising from the ordinary course of their
respective businesses, including labor proceedings, civil proceedings and tax proceedings based on the estimative of its legal advisors.
The Company has established provisions in its financial statements for the contingencies arising from these proceedings based on the
estimates provided by its legal advisors. The table below sets forth the main information about the legal and administrative proceedings
as of June 30, 2008:
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)
Provision
Number of
lawsuits/admini
strative
proceedings
Company
Company
Provision
Consolidated
The Company has filed administrative proceedings challenging the calculation method used in the assessment of PIS and COFINS by the
Federal Tax Authority (Secretaria da Receita Federal). The Company's management estimates that the contingencies arising from these
legal proceedings amount to R$6,969 in the aggregate. Based on the opinion of the Company's legal counsels and recent decisions
granted by the Brazilian Federal Supreme Court (Supremo Tribunal Federal), the Company's management has recorded a provision for
losses arising from such legal proceedings in the amount of R$3,793 as of June 30, 2008.
18
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
c) CSLL - Social contribution on net profit (Contribuição Social sobre o Lucro Líquido)
d) INSS - National Social Security Institute (Instituto Social de Seguridade Social)
e) Other Tax Proceedings
In order to preserve its claims under the administrative proceeding and to avoid the lapse of the applicable statute of limitations period
relating to these claims, the INSS sent the Company tax default notices (notificações fiscais de lançamento de débito ) with respect to the
contributions allegedly owed by the Company for the period from January 1999 to December 2003 in the aggregate amount of R$69,194.
In its defense to these default notices, the Company argued that it did not pay the contributions with respect to the period described in
such notices in light of the favorable decision issued by the trial court reviewing the writ of mandamus action, which ordered the stay of
the administrative proceedings and enjoined the INSS from collecting the contributions from the Company until a final decision is reached
under such action.
In September 2002, the INSS 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) in the
aggregate amount of R$69,194, that the Company should have allegedly withheld in connection with purchases of cattle from individual
ranchers. As a result of a decision by a lower court in a proceeding to adjudicate a writ of mandamus action filed by the Company in
order to challenge the constitutionality of such social security contributions, the administrative proceedings have been stayed and the
INSS has been enjoined from collecting these social security contributions from the Company.
Based on this and other precedents and on the opinions of its external legal counsel, the Company's management believes the Company
will prevail in these proceedings. Accordingly, the Company's management has not established any provision for contingencies arising
from these proceedings as of June 30, 2008. Currently, the Company does not pay or deposit with any court any amounts in connection
with contributions to the Rural Workers' Assistance Fund.
The Company is also party to 100 other tax lawsuits and administrative proceedings. Contingencies arising from these proceedings are
not material to the Company if considered on an individual basis. We highlight the proceedings with probable risk of loss, which have
been provisioned for in the aggregate amount of R$ 20,301.
Social Security Contributions ­ Third-party Entities. The INSS filed several administrative proceedings against the Company with claims
totaling approximately R$11,000, seeking to collect certain social security contributions with respect to third-party entities (contribuições
previdenciárias ­ terceiras entidades) allegedly owed by the Company. These proceedings are based on a wrongful interpretation by the
INSS of the Social Security Fund Code (Código do Fundo de Previdência e Assistência Social). Based on the opinion of the Company's
external legal counsel, the management of the Company believes the Company will prevail in these proceedings. Accordingly, the
management of the Company has not established any provision for contingencies arising from these proceedings as of June 30, 2008.
Based on an amendment to the Brazilian Federal Constitution that exempted profits from exports from federal contributions, the Company
has filed a lawsuit against the Federal Tax Authority (Secretaria da Receita Federal) seeking to exclude its profits from exports from the
calculation of the Social Contribution on Net Profit (Contribuição Social Sobre o Lucro Líquido ­ CSLL) payable by the Company. The
management believes, based on the opinion of the Company´s legal counsels, that it will obtain success in the claim. Accordingly, the
management of the Company has not established any provision for contingencies arising from these proceedings as of June 30, 2008.
The INSS has not timely appealed from this decision and, accordingly, the proceeding has been submitted to the review of the Regional
Federal Court of the 3
rd
Region as a matter of law. Currently, the proceedings await a ruling by such appellate court. Based on the
opinion of the Company´s legal counsel supported by precedents of the Federal Supreme Court in a similar case, the Company's
management believes that the Company will prevail in these proceedings. Accordingly, the Company has not established any provision
for contingencies arising from these proceedings.
An ongoing legal proceeding arguing as to the unconstitutionality of the contribution to the Rural Workers' Assistance Fund, with issues
and factual circumstances similar to the writ of mandamus action is currently under review by the Brazilian Federal Supreme Court
(Supremo Tribunal Federal ). Up to the present moment, five of the ten judges opining on this proceeding have voted to declare this
contribution unconstitutional and no judge has issued a dissenting opinion on this matter.
19
background image
JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
Labor Proceedings
Civil Proceedings
a) Slaughterhouse at Araputanga
b) Trademark Infringement
In the lawsuit, Frigorífico Araputanga claimed that the sale of the slaughterhouse should be nullified as the Company did not obtain the
consent of SUDAM in order to register the public deed with the applicable real estate notary. In January 2005, the court of appeals
(Tribunal de Justiça do Mato Grosso ) held that the Company had complied with all material terms of the purchase agreement. The
lawsuit was subsequently submitted to the review of the Federal Court of Cáceres, under No. 2005.36.01.001618-8, in light of the
inclusion of the Federal Government as a party to the lawsuit. The Company obtained the consent of Unidade de Gerenciamento dos
Fundos de Investimento -
UGFIN, the successor of SUDAM, according to the Federal Regional Court of the 1
st
Region (Tribunal Federal
da 1ª Região ) decision, under Proceedings No. 2006.01.00.024584-7.
As of June 30, 2008, the Company was party to (i) 1,120 labor lawsuits and administrative proceedings (autos de infração ) filed by the
Regional Labor Offices (Delegacias Regionais do Trabalho ) involving claims in the total aggregate amount of R$33,743 and (ii) 2
administrative proceedings filed by the Labor Department of Justice (Ministério Público do Trabalho ) involving claims in the total
aggregate amount of R$258. Based on the opinion of the Company's external legal counsel, the Company's management recorded a
provision in the amount of R$5,994 for losses arising from such proceedings.
The parties are waiting for ruling following a judicial expert appraisal favorable to the company, that after evaluating the payments made
by Agropecuária Friboi, the appraisal concluded that the debit 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 tittle 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.
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
slaughterhouse 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 June 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
slaughterhouse and a declaratory judgment that the purchase agreement and the public deed registered with the real estate notary were
null and void.
Most of these lawsuits were filed by former employees of the Company seeking overtime payments and payments relating to their
exposure to health hazards.
In 2001, the Company (formerly known as Friboi Ltda.), entered into a purchase agreement for the acquisition of one slaughterhouse
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 slaughterhouse from Frigorífico
Araputanga to the Company was registered with the applicable real estate notary.
In July 2005, Frigorífico Araputanga filed a lawsuit against the Company seeking damages in the amount of R$26,938 and punitive
damages in the amount of R$100,000 for the use by the Company of the trademark "Frigoara" without Frigorífico Araputanga's consent.
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.
20
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
c) Others
17
Debit with third parties for investment
18
Income taxes
a) Reconciliation of income tax and social contribution
2008
2007
2008
2007
(374.031)
103.397
(312.592)
103.261
Addition (Exclusion), NET:
225.961
55.540
487.389
55.540
Temporary differences
4.160
1.975
(71.294)
3.645
(143.910)
160.912
103.503
162.446
Income tax and CSLL
-
(54.698)
(35.415)
(56.574)
1.551
-
1.551
-
1.551
(54.698)
(33.864)
(56.574)
Temporary differences
(4.160)
(1.975)
71.294
(3.645)
Deferred income tax and social contribution
1.415
672
(25.179)
1.257
Permanent differences (Mainly: Equity in subsidiaries and
exchange variation of investments)
In light of the foregoing, the Company's management established a provision for losses arising from this lawsuit in the amount of R$600
in June 30, 2008. 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 slaughterhouse 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.
Income tax and social contribution are recorded based on taxable net income pursuant to the rates set forth in the
applicable laws. Deferred income tax and social contribution are recorded based on the temporary differences between
the carrying amounts on the Company's financial statements and the tax basis of assets and liabilities, as well as on the
tax loss carry forward credits.
Refers to the amount of 65 million Euros that will be increased in Inalca´s purchase price in case the Company achieves at least one of
the following economic targets: EBITDA average over business year 2008, 2009 and 2010 equal or greater than Euro 75 million, or
alternatively, EBITDA over business year 2010 equal or greater than Euro 90 million.
Calculation basis for income tax and social contribution
The Company is party in several civil lawsuits, mainly, pursuant to which certain of the Company's former and current employees are
seeking damages from accidents that occurred in the workplace, in amounts varying based on their salaries. Based on the opinion of the
Company's legal counsel, the Company's management recorded a provision for losses arising from these lawsuits in the amount of
R$14,465 as of June 30, 2008.
Company
Consolidated
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 slaughterhouse 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 the transfer of
the slaughterhouse from Frigorífico Araputanga to the Company) and (iii) 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.
Six month period ended
June 30,
Six month period ended
June 30,
Income before income tax and social contribution
Write-off of deferred income tax and social contribution under
revaluation
21
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
b) Deferred income tax and social contribution
30.06.2008
31.03.2008
30.06.2008
31.03.2008
Assets:
. Over provision for contingencies
1.415
278
25.179
4.949
. Over tax losses and temporary differences
16.251
16.251
264.944
276.256
17.666
16.529
290.123
281.205
Liabilities:
. Over revaluation reserve
58.091
58.848
58.091
58.848
. Over depreciation, amortization and others
-
-
350.928
333.249
58.091
58.848
409.019
392.097
19
a) Capital Stock
Through the Extraordinary Shareholders Meeting held on June 29, 2007 shareholders approved the subscription of 227,400,000 new
common shares, nominative, without nominal value by at the share price of R$ 8.1523 per share, corresponding to R$ 1,853,833
generating a capital reserve of R$ 207. BNDES Participações S.A. ­ BNDESPAR ("BNDESPAR") subscribed to a significant portion of
the new common shares representing the Company's capital. The subscription of the shares by BNDESPAR occurred through an
assignment of a portion of the preemptive rights of the shareholders of J&F and/or ZMF in the subscription of new shares.
Through the Extraordinary Shareholders Meeting held on January 2, 2007, shareholders approved amendments of the by-laws and the
deployment of the 52,523,990 existing shares into 350,000,000 common shares and without nominal value. Through the Extraordinary
Shareholders Meeting held on March 7, 2007, the shareholders approved a new amendment of the by-laws and the deployment of these
350.000.000 shares into 700,000,000.
Shareholders' equity
The Company is authorized to increase its capital by more 22.600.000 ordinary nominative shares.
On March 28, 2007, the Company increased its Capital Stock through an initial public offering of 150,000,000 of ordinary common shares
at the share price of R$ 8.00 per share, being the amount of R$ 39,224 considered as capital increase and R$ 1,160,776 considered as
capital reserve (premium on shares issued).
The Company and its subsidiaries have a track record of future taxable net income. The Company expects to recover the tax credits
arising there from within eight years due to the termination of the causes of their contingencies.
Consolidated
Company
Through the Extraordinary General Meeting of April 11, 2008 shareholders approved the private issue of 360,678,926 new common,
registered shares, without par value, at the price of R$ 7,07 per share, corresponding to R$ 2,550,000, generating a capital reserve of R$
279. BNDES Participações S.A. - BNDESPAR ( BNDESPAR ) and PROT - Fundo de investimentos em Participações (PROT) issued a
significant portion of these new common shares. The subscription of shares by BNDESPAR and PROT occured through the cession of
part of the preference right of the shareholders J&F and ZMF in the subscription of those new shares, pursuant to an investment
agreement executed on March 18, 2008.
The Social Capital, subscribed and integralized on June 30, 2008 is represented by 1.438.078.926 ordinary shares, without nominal
value. From the total shares, as described in letter e) below, 19.650.100 shares are maintained as shares in treasury.
22
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
b) Retained earnings reserves
Mandatory
Computed based on 5% of the net income of the year.
Reserve for expansion
c) Revaluation reserve
d) Dividends
e) Treasury Shares
20
Financial income (expense), net
2008
2007
2008
2007
(74.580)
110.878
(104.333)
73.596
(233.937)
(123.364)
(342.447)
(112.124)
(190.381)
(117.674)
(237.379)
(120.121)
120.501
57.319
125.069
54.518
(18.570)
(20.636)
(26.508)
(25.509)
(396.967)
(93.477)
(585.598)
(129.640)
21 Management's compensation
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.
Six month period ended
June 30,
Exchange variation
It refers to the remaining balance of the net income after the computation of mandatory reserve and dividend distribution. The purpose of
this reserve is to provide funds to investment in assets.
The Board of Directors of the Company, based on the amendment of it by-laws and according to the normative instructions of CVM
numbers 10/80, 268/97 and 390/03, authorized the acquisition of, not more, 39,230,164 shares of own emission for maintenance in
treasury and subsequent alienation for payment of new investments, without reduction of the social capital.
Six month period ended
June 30,
Results on derivatives
Interest - Loss
For the six month period ended June 30, 2008 and 2007, the aggregate compensation paid by the Company to the Company's
management was R$ 1,500.
Interest - Gain
Taxes, contribution, tariff and others
The financial income for the six month period ended June 30, 2008 is negatively affected, by a significant amount, by exchange variation
rate of the permanent investments in foreign currency and by losses with derivative financial instruments for exchange rate variation
protection of the amount to be invested in Smithfield Beef and National Beef, companies that are in the acquisition process as described
in the explanatory note 24. The impact of the referred exchange variation rate in the consolidated financial income is R$ 180.415 and the
impact of the consolidated losses with derivative financial instruments for exchange rate variation protection is R$ 260.627, both did not
affected the EBITDA.
Company
Consolidated
The Company, considering that it has been generating positive EBITDA, deliberated that for the dividends calculation base, the foreign
permanent investments exchange loss and the amortization of the goodwill of the foreign investments will be excluded.
Mandatory dividends correspond to 25% of the adjusted net income of the year, according to article 202 of Law 6.404/76.
The market value of the shares according to the negotiation as of June 30, 2008 was R$ 8.10.
On June 30, 2008, the Company maintained 16,650,100 treasury shares, with an average unit cost of R$ 6.50, and the minimum and
maximum acquisition prices were R$ 4.42 and R$ 8.53, respectively, not having happened alienation of the acquired shares.
23
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
22 Insurance coverage
23 Risk management and derivative instruments
a) Exchange Rate and Interest Rate Risk
b) Credit risks
c) Purchase Price of Cattle
d) Estimated Market Value
The market amount of the financial instruments and derivatives contracts as of June 30, 2008 were estimate based on the quotation
market price.
The financial assets and liabilities of the Company are accounted in the balance sheet based on their respective acquisition cost, and the
related classification of revenue and expenses in the income statement is accounted for based on its expected realization or liquidation
value.
The results of over-the-counter trades in the futures market and daily adjustments of currency future contracts are made realized and
liquidated; on the BM&F, and, as of June 30, 2008, are accounted for as "Amounts receivable from or payable to future contracts".
The Company adopts the policy of maintaining insurance coverage for property, plant and equipment and inventories that are subject to
risks, in the amounts considered sufficient to cover any loss arising from such risks. Due to the multi-location aspect of its business, the
Company contracts insurance covering the maximum possible loss per operational unit. The insurance covers the following events: fire,
flooding and landslide.
The insurance coverage related to the controlled Company JBS USA, Inc. has the same characteristics as explained above, and the
maximum coverage as of June 30, 2008 and 2007 was US$200 million (equivalent to R$ 318,380 as of June 30, 2008).
The exchange rate and interest rate risks related to financings and loans, marketable securities and accounts receivable from clients
denominated in foreign currencies are hedged on a transaction by transaction basis, through derivative instruments, such as swap
contracts (dollar to CDI or LIBOR to fixed interest rates or vice-versa), futures contracts traded on the Bolsa de Mercadorias e Futuros -
BM&F and forward contracts.
As of June 30, 2008 the maximum individual coverage was R$ 99,000, considering all types of risks.
The Company is exposed to volatility with respect to the price of cattle, caused by climate factors, supply, transportation cost and
agricultural policies. According to its inventory policy, the Company maintains individual physical control of its livestock, which includes
anticipated purchases combined with operations on the future markets.
The Company is exposed to credit risks in respect of accounts receivable, which are partially mitigated through the diversification of the
credit profile of the Company's portfolio. The Company does not have a client that represents more than 10% of its combined net sales
revenue, and its clients have good financial and operating indicators.
The results of over-the-counter trades contracted with a future maturity date are recorded on the balance sheet.
The notional value of the contracts is only accounted for in memorandum accounts.
The Company's operations are exposed to market risks primarily related to exchange rates, the credit worthiness of its customers,
interest rates and cattle prices. These types of risks are monitored by its treasury area, which manages these risks through a system of
statistical computation of the Value at Risk (VAR) and its technical committee. This committee is composed of board members and by
the Company's financial executives, who monitor the risks, limits on financial positions and overall level of risk exposure.
The insurance coverage related to the controlled Company Inalca JBS has the same characteristics as explained above, and the
maximum coverage as of June 30, 2008 was Euros 141 million (equivalent to R$ 353,387 as of June 30, 2008).
The insurance coverage related to the controlled company JBS Argentina has the same characteristics as explained above, and the
maximum coverage as of June 30, 2008 and 2007 was US$ 32 million (equivalent to R$ 50,941 as of June 30, 2008).
24
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
24 Aquisition contracts in process
Smithfield Beef
National Beef
In March 4, 2008, the Company executed the Membership Interest Purchase Agreement ("National Beef Agreement"), to acquire all of the
membership interests representing the entire ownership of National Beef, a limited liability company organized under the laws of the state
of Delaware, United States of America, which slaughters and trades boxed beef, case-ready beef and beef byproducts. Closing of the
transaction contemplated in the National Beef Agreement is subject to customary regulatory approvals and other customary closing
conditions.
National Beef owns (i) three beef slaughter plants, one located in Dodge City, Kansas, one in Liberal, Kansas and the other in Brawley,
California; (ii) two case-ready beef processing plants, specializing in products for sale to retailers destined to the end consumer, located
in Hummels Wharf, Pennsylvania, and Moultrie, Georgia; (iii) one plant located in Kansas City, Kansas specializing in portioned products
for commercial establishments and end consumers; and (iv) one transportation company, with approximately 1,200 vehicles including
refrigerated transportation and transportation of live stock, headquartered in Liberal, Kansas.
Pursuant to the agreement, the Company shall pay US$ 560 million to the members of National Beef, approximately US$ 465 million of
which shall be paid in cash and US$ 95 million with JBS existing shares. At closing, the Company shall assume the debt and other
liabilities of National Beef, resulting in an enterprise value of approximately US$ 970 million. JBS intends to use shares held in treasury to
effect the payment of the portion of the acquisition price to be paid with shares, and, for this reason, JBS will seek the due authorization
of the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários), pursuant to the terms of the CVM Ruling No.
10, of February 14, 1980.
On March 4, 2008, the Company executed a Stock Purchase Agreement ("Smithfield Beef Agreement"), to acquire all of the shares of
Smithfield Beef Processing, including full ownership of its subsidiary Five Rivers Ranch Cattle Feeding ("Five Rivers" and, together with
Smithfield Beef Processing, "Smithfield Beef"). Smithfield Beef Processing is a company incorporated in Delaware, United States of
America, which includes all of the beef producing unit of Smithfield Foods, Inc. The live cattle inventory is excluded from the Smithfield
Beef acquisition, however JBS will continue to render the service of fattening the cattle. Closing of the transaction contemplated in the
Smithfield Beef Agreement is subject to customary regulatory approvals and other customary closing conditions.
Smithfield Beef Processing owns (i) four beef slaughter plants, located in Green Bay, Wisconsin, Plainwell, Michigan, Souderton,
Pennsylvania and Tolleson, Arizona; (ii) one grease producing plant located in Elroy, Pennsylvania; (iii) one cattle feedlot unit in South
Charleston, Ohio; and (iv) one transportation division, with approximately 120 refrigerated transportation vehicles. Smithfield Beef
Processing processes approximately 680 thousand tons of fresh beef annually. Five Rivers owns ten cattle feedlot units with a one time
feeding capacity of 811,000 cattle units, located in the States of Colorado, Idaho, Kansas, Oklahoma and Texas.
Pursuant to the Smithfield Beef Agreement, the purchase price for Smithfield Beef is US$ 565 million which will be fully paid in cash. The
purchase price is subject to adjustments, pursuant to fluctuations in the Smithfield Beef's working capital. Additionally, the Company
intends to capitalize Five Rivers with an additional US$ 200 million after the closing of the transaction.
In order to fulfill all of the obligations established in the agreements of the acquisitions of Smithfield, National Beef and Tasman, as well
as the expenses incurred by the Company in connection with those acquisitions, a subscription of new shares of the Company was
realized in the approximate amount of R$ 2,550,000, at the issue price of R$ 7.07 per share, according to the terms of the article 170,
paragraph §1st, interruption III, of the Law no. 6.404/76 (the "Brazilian Corporation Law").
25
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
25
2008
2007
2008
2007
Cash from operating activities
. Net income (loss) of the period
(371.065)
49.371
(371.065)
49.371
Adjustments to reconcile net income (loss) to cash provided
. Depreciation and amortization
31.611
27.819
108.257
37.899
. Allowance for doubtful accounts
1.025
1.363
1.931
1.043
. Goodwill amortization
89.444
867
89.444
867
. Minority interest
-
-
(570)
1.689
. Equity in subsidiaries
61.087
41.400
-
-
. Write-off of fixed assets
825
11.170
826
13.273
. Deferred income taxes
(1.415)
(2.025)
25.179
(2.203)
. Current and non-current financial charges
226.387
(6.779)
55.713
(26)
. Net effect of the working capital of acquired company
-
-
(147.353)
-
. Provision for contingencies
-
1.975
(3.287)
2.189
37.899
125.161
(240.925)
104.102
Variation in operating assets and liabilities
. Decrease (increase) in trade accounts receivable
(206.604)
33.034
(546.880)
(51.729)
. Decrease (increase) in inventories
(224.467)
(12.403)
(481.046)
(92.573)
. Decrease (increase) in recoverable taxes
(57.173)
(1.876)
(72.703)
41.705
. Decrease (increase) in other current and non-current assets
18.666
(24.695)
(384.621)
2.181
. Decrease (increase) in credits with related parties
(285.554)
30.327
(7.470)
-
. Increase (decrease) in trade accounts payable
(97.926)
(4.069)
26.183
53.426
. Increase (decrease) in other current and non-current liabilities
160.951
46.849
619.780
51.713
Total cash provided by (used in) operating activities
(654.208)
192.328
(1.087.682)
108.825
Cash used in investing activities
. Additions to property, plant and equipment and intangible assets
(161.458)
(236.531)
(483.327)
(325.988)
. Additions to deferred charges
(1.250)
-
(1.509)
-
. Increase in investments
(1.689.689)
(184.051)
(324.843)
(20.917)
Total cash used in investing activities
(1.852.397)
(420.582)
(809.679)
(346.905)
Cash from financing activities
. Loans and financings
2.256.082
468.531
2.363.229
546.190
. Payments of loans and financings
(913.047)
(902.774)
(1.800.224)
(952.798)
. Increase in capital stock and goodwill in subscription
2.550.279
1.200.000
2.550.279
1.200.000
. Shares acquisition of own emission
(127.739)
-
(127.739)
-
Total cash provided by financing activities
3.765.575
765.757
2.985.545
793.392
Net increase (decrease) in cash
1.258.970
537.503
1.088.184
555.312
869.784
199.721
1.381.703
261.071
2.128.754
737.224
2.469.887
816.383
Relevant information - Statements of cash flows for the six month period ended June 30, 2008 and 2007
Cash, cash equivalents and short-term investments at the beginning
of the period
Company
Consolidated
Cash, cash equivalents and short-term investments at the end
of the period
26
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JBS S.A.
Notes to the financial statements for the three and six months period ended June 30, 2008
(Expressed in thousand of reais)
26
2008
2007
2008
2007
Cash from operating activities
. Net income (loss) of the period
(364.449)
38.728
(364.449)
38.728
Adjustments to reconcile net income (loss) to cash provided
. Depreciation and amortization
16.220
13.946
57.250
18.852
. Allowance for doubtful accounts
207
(441)
699
(761)
. Goodwill amortization
45.131
867
45.131
867
. Minority interest
-
-
(164)
-
. Equity in subsidiaries
(17.131)
19.689
-
-
. Write-off of fixed assets
320
4.799
321
4.799
. Deferred income taxes
(1.137)
(541)
30.128
967
. Current and non-current financial charges
202.145
(17.338)
(33.398)
(15.706)
. Provision for contingencies
-
(386)
(3.287)
(273)
(118.694)
59.323
(267.769)
47.473
Variation in operating assets and liabilities
. Decrease (increase) in trade accounts receivable
(69.946)
89.417
(464.900)
17.159
. Decrease (increase) in inventories
(175.788)
55.426
(227.242)
34.939
. Decrease (increase) in recoverable taxes
(46.573)
10.588
(55.996)
19.720
. Decrease (increase) in other current and non-current assets
2.017
(14.697)
(384.744)
13.329
. Decrease (increase) in credits with related parties
(328.812)
(7.345)
(7.404)
-
. Increase (decrease) in trade accounts payable
41.197
(12.590)
308.826
21.914
. Increase (decrease) in other current and non-current liabilities
(53.249)
(52.759)
413.535
(47.242)
Total cash provided by (used in) operating activities
(749.848)
127.363
(685.694)
107.292
Cash used in investing activities
. Additions to property, plant and equipment and intangible assets
(45.892)
(81.461)
(268.067)
(112.677)
. Additions to deferred charges
(1.250)
-
(1.509)
-
. Increase in investments
(266.531)
(43.293)
(28.581)
958
Total cash used in investing activities
(313.673)
(124.754)
(298.157)
(111.719)
Cash from financing activities
. Loans and financings
658.410
16.246
746.525
24.489
. Payments of loans and financings
(668.242)
(675.325)
(771.252)
(672.551)
. Increase in capital stock and goodwill in subscription
819.728
-
819.728
-
. Shares acquisition of own emission
(25.485)
-
(25.485)
-
Total cash provided by financing activities
784.411
(659.079)
769.516
(648.062)
Net increase (decrease) in cash
(279.110)
(656.470)
(214.335)
(652.489)
2.407.864
1.393.694
2.684.222
1.468.872
2.128.754
737.224
2.469.887
816.383
* * * * *
Company
Consolidated
Cash, cash equivalents and short-term investments at the end
of the period
Relevant information - Statements of cash flows for the three month period ended June 30, 2008 and
2007
Cash, cash equivalents and short-term investments at the beginning
of the period
27