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As of June 30, 2007
JBS S.A
ITR - Six month period
1
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Report of Independent Auditors
1.
2.
3.
4.
São Paulo, August 9, 2007
Auditores Independentes - S/S
Luiz Cláudio Fontes
CRC 2 SP 018.196/O-8
Sócio-contador
CRC 1 RJ-032.470/O-9 "T"-PR-"S"-SP
As described in note 4, the JBS S.A. (Company) has closed its primary and secondary public offering of sales of shares
as of March 28, 2007 and started its negotiation on Brazilian Stock Exchange (New Market) as of March 29, 2007. This
primary public offering has generated a capitalization of R$ 1,200,000 thousand in the Cash and Cash Equivalents and
the counterpart was the Capital Stock and Premium on Shares Issued and the receipt of this amount occurred as of
April 2, 2007.
To the shareholders and management of JBS S.A.
We have performed a special (limited) review of balance sheet and the related statements of income of JBS S.A.
(Company) and JBS S.A. and its subsidiaries (Consolidated) and the performance report for the three-month period and
six-month period ended June 30, 2007 and 2006, prepared under the responsibility of the Companies's management.
Our responsibility is to issue our special report, without expressing an opinion on these individual and consolidated
financial statements. The interim financial information of Swift-Armour Sociedad Anónima Argentina, a wholly-owned
subsidiary of the Company, for the three-month period and six-month period ended June 30, 2007 and 2006 were
subjected to a special review by other independent auditors and our special review was also based on its review.
We conducted our special review in accordance with specific standards established by the Brazilian Institute of
Independent Auditors (IBRACON), together with the Federal Accounting Council, which consisted principally of: (a)
inquiring of and discussing with executive officers responsible for the accounting, financial and operating areas of the
JBS S.A. (Company) and JBS S.A. and its subsidiaries relating the criteria adopted in preparing the interim individual
and consolidated financial information, and (b) reviewing the information and subsequent events that had or might have
had material effects on the financial position and results of operations of JBS S.A. (Company) and JBS S.A. and its
subsidiaries.
Based on our special review and on the special review report of the other independent auditors of Swift-Armour
Sociedad Anónima Argentina as described in the first paragraph hereof, we are not aware of any material modifications
that should be made to the interim JBS S.A. (Company) and JBS S.A. and its subsidiaries individual and consolidated
financial information referred to in paragraph 1 for them to be in accordance with generally accepted accounting
principles in Brazil, specially applicable to the preparation of the individual and consolidated interim financial information
of JBS S.A. (Company) and JBS S.A. and its subsidiaries.
2
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JBS S.A. and its Subsidiaries
BALANCE SHEETS
(In thousands of Reais)
June, 2007
March, 2007
June, 2007
March, 2007
June, 2007
March, 2007
June, 2007
March, 2007
ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT ASSETS
CURRENT LIABILITIES
Cash and cash equivalents (Note 4)
60,732
1,187,581
97,351
1,221,931
Trade accounts payable ( Note 12)
248,152
279,981
343,481
340,806
Short-term investments (Note 5)
676,492
206,113
719,032
246,941
Loans and financings (Note 13)
449,175
981,276
543,970
1,073,432
Trade accounts receivable, net (Note 6)
568,655
708,215
636,757
747,879
Payroll and social charges (Note 14)
103,485
90,466
121,564
114,045
Inventories (Note 7)
576,338
631,764
750,077
785,016
Other current liabilities
69,394
114,385
80,242
117,405
Recoverable taxes (Note 8)
423,690
437,405
522,245
546,361
Prepaid expenses
2,575
7,639
6,549
10,336
Other current assets
64,881
46,063
102,525
68,184
TOTAL CURRENT LIABILITIES
870,206
1,466,108
1,089,257
1,645,688
TOTAL CURRENT ASSETS
2,373,363
3,224,780
2,834,536
3,626,648
NON-CURRENT LIABILITIES
NON-CURRENT ASSETS
Loans and financings (Note 13)
1,676,778
1,868,978
1,685,013
1,868,978
Deferred income taxes (Note 16)
61,312
61,984
61,312
61,984
Long-term assets
Provision for contingencies (Note 15)
49,182
49,568
55,194
55,467
Credits with related parties (Note 9)
48,227
34,067
-
-
Other non-current liabilities
23,670
25,255
29,069
26,626
Judicial deposits and others
6,608
5,665
9,173
8,915
Deferred income taxes (Note 16)
16,722
16,853
23,933
25,572
Recoverable taxes (Note 8)
27,256
24,129
38,066
33,670
TOTAL NON-CURRENT LIABILITIES
1,810,942
2,005,785
1,830,588
2,013,055
Total long-term assets
98,813
80,714
71,172
68,157
MINORITY INTEREST
-
-
(2,119)
(1,280)
Permanent assets
Advances for investments in subsidiaries (Note 9)
44,114
-
-
-
Investments in subsidiaries (Note 10)
490,931
516,460
20,050
20,988
Other investments
10
10
10
10
SHAREHOLDERS' EQUITY (Note 17)
Property, plant and equipment, net (Note 11)
1,096,718
1,034,002
1,401,504
1,311,542
Intangible assets, net
9,615
9,615
22,870
23,806
Capital stock
91,748
91,748
91,748
91,748
Capital reserve
1,160,776
1,160,776
1,160,776
1,160,776
Total Permanent assets
1,641,388
1,560,087
1,444,434
1,356,346
Revaluation reserve
127,475
129,199
127,475
129,199
Retained earnings
52,417
11,965
52,417
11,965
TOTAL NON-CURRENT ASSETS
1,740,201
1,640,801
1,515,606
1,424,503
TOTAL SHAREHOLDERS' EQUITY
1,432,416
1,393,688
1,432,416
1,393,688
TOTAL ASSETS
4,113,564
4,865,581
4,350,142
5,051,151
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
4,113,564
4,865,581
4,350,142
5,051,151
The accompanying notes are an integral part of the financial statements
Company
Company
Consolidated
Consolidated
3
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JBS S.A. and its Subsidiaries
STATEMENTS OF INCOME FOR THE PERIOD OF SIX MONTHS ENDED JUNE 30, 2007 AND 2006
(In thousands of Reais)
2007
"Pro Forma"
2006
2007
"Pro Forma"
2006
GROSS OPERATING REVENUE
Sales of products:
Domestic Sales
1,011,343
781,800
1,127,400
877,502
Foreign Sales
1,083,661
978,956
1,367,799
1,087,701
2,095,004
1,760,756
2,495,199
1,965,203
SALES DEDUCTIONS
Returns and discounts
(72,152)
(34,480)
(87,572)
(57,509)
Sales taxes
(126,824)
(85,745)
(150,273)
(85,745)
(198,976)
(120,225)
(237,845)
(143,254)
NET SALE REVENUE
1,896,028
1,640,531
2,257,354
1,821,949
Cost of goods sold
(1,391,653)
(1,216,050)
(1,718,832)
(1,375,581)
GROSS INCOME
504,375
424,481
538,522
446,368
OPERATING INCOME (EXPENSE)
General and administrative expenses
(30,984)
(26,084)
(48,471)
(36,357)
Selling expenses
(183,649)
(168,201)
(206,524)
(182,513)
Financial income (expense), net (Note 18)
(93,477)
(89,073)
(129,640)
(113,549)
Equity in subsidiaries
(41,400)
(24,667)
-
-
Initial Public Offering expenses
(50,591)
-
(50,591)
-
Goodwill amortization
(867)
-
(867)
-
(400,968)
(308,025)
(436,093)
(332,419)
OPERATING INCOME
103,407
116,456
102,429
113,949
NON-OPERATING INCOME (EXPENSE), NET
(10)
(6,301)
832
(5,700)
INCOME BEFORE TAXES
103,397
110,155
103,261
108,249
Current income taxes
(54,698)
(45,839)
(56,574)
(43,907)
Deferred income taxes
672
-
1,257
-
(54,026)
(45,839)
(55,317)
(43,907)
INCOME BEFORE MINORITY INTEREST
49,371
64,316
47,944
64,342
Minority interest (expense) income
-
-
1,427
(26)
NET INCOME
49,371
64,316
49,371
64,316
NET INCOME PER SHARE
58,08
Statement of EBITDA (Earnings before income taxes,
interest, depreciation and amortization and non-operating
income (expense), net
Income before taxes
103,397
110,155
103,261
108,249
Financial income (expense), net (Note 18)
93,477
89,073
129,640
113,549
Depreciation and amortization
27,819
20,194
37,899
32,694
Non-operating income (expense), net
10
6,301
(832)
5,700
Equity in subsidiaries
41,400
24,667
-
-
Initial Public Offering expenses
50,591
-
50,591
-
Goodwill Amortization
867
-
867
-
AMOUNT OF EBITDA
317,561
250,390
321,426
260,192
The accompanying notes are an integral part of the financial statements
Company
Consolidated
4
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JBS S.A. and its Subsidiaries
STATEMENTS OF INCOME FOR THE PERIOD OF THREE MONTHS ENDED JUNE 30, 2007 AND 2006
(In thousands of Reais)
2007
"Pro Forma"
2006
2007
"Pro Forma"
2006
GROSS OPERATING REVENUE
Sales of products:
Domestic Sales
516,363
374,718
576,634
427,711
Foreign Sales
560,782
565,549
716,192
578,142
1,077,145
940,267
1,292,826
1,005,853
SALES DEDUCTIONS
Returns and discounts
(34,179)
(18,291)
(41,305)
(30,914)
Sales taxes
(64,628)
(39,101)
(80,305)
(39,101)
(98,807)
(57,392)
(121,610)
(70,015)
NET SALE REVENUE
978,338
882,875
1,171,216
935,838
Cost of goods sold
(721,607)
(653,809)
(890,337)
(693,914)
GROSS INCOME
256,731
229,066
280,879
241,924
OPERATING INCOME (EXPENSE)
General and administrative expenses
(16,131)
(10,022)
(27,904)
(13,200)
Selling expenses
(94,576)
(98,437)
(106,630)
(104,927)
Financial income (expense), net (Note 18)
(53,620)
(68,617)
(72,657)
(71,359)
Equity in subsidiaries
(19,689)
1,781
-
-
Initial Public Offering expenses
(27)
-
(27)
-
Goodwill amortization
(867)
-
(867)
-
(184,910)
(175,295)
(208,085)
(189,486)
OPERATING INCOME
71,821
53,771
72,794
52,438
NON-OPERATING INCOME (EXPENSE), NET
(78)
(6,120)
772
(5,829)
INCOME BEFORE TAXES
71,743
47,651
73,566
46,609
Current income taxes
(32,884)
(15,596)
(34,500)
(14,512)
Deferred income taxes
(131)
-
(1,232)
-
(33,015)
(15,596)
(35,732)
(14,512)
INCOME BEFORE MINORITY INTEREST
38,728
32,055
37,834
32,097
Minority interest (expense) income
-
-
894
(42)
NET INCOME
38,728
32,055
38,728
32,055
NET INCOME PER SHARE
45,56
Statement of EBITDA (Earnings before income taxes,
interest, depreciation and amortization and non-operating
income (expense), net
Income before taxes
71,743
47,651
73,566
46,609
Financial income (expense), net (Note 18)
53,620
68,617
72,657
71,359
Depreciation and amortization
13,946
11,887
18,852
15,796
Non-operating income (expense), net
78
6,120
(772)
5,829
Equity in subsidiaries
19,689
(1,781)
-
-
Initial Public Offering expenses
27
-
27
-
Goodwill Amortization
867
-
867
-
AMOUNT OF EBITDA
159,970
132,494
165,197
139,593
The accompanying notes are an integral part of the financial statements
Company
Consolidated
5
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
1
The operations of JBS S.A. and its subsidiaries (the "Company") consists of:
a) Activities
b) Corporate reorganization
Merger
R$
Current assets
557,997
Current Liabilities
(64,519)
Working Capital
493,478
Permanent assets
775,040
Long-Term Liabilities
(760,383)
14,657
Shareholders' equity
508,135
JBS Embalagens Metálicas Ltda.. (JBS Embalagens) produces metallic cans in its plant located in the State of São Paulo, which are
primarily purchased by the Company.
The Company, until December 31, 2006, operated also in the hygiene and cleaning products segment, manufacturing and selling bar
of soap, toilet cleaners, detergents, disinfectants, softeners, pharmaceutical glycerin, coconut soap, multi-functional degreaser and
stain remover, shampoos, conditions, deodorant and liquid soap.
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.
SB Holdings, Inc. and its subsidiaries, Tupman Thurlow Co., Inc. (Tupman) and Astro Sales International, Inc. (Astro) located in The
United States acquired in January 2007, distributes processed beef products in the north-american market.
On March 2, 2006, the quotaholders of Friboi Ltda. approved a proposal to (1) transform Friboi Ltda. into a corporation (Sociedade
Anônima
), (2) exchange their quotas for 515,635,240 common shares, without par value and (3) change Friboi Ltda.'s name to JBS
S.A.
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
centers of distribution located in the States of São Paulo and Minas Gerais.
As described in letter b) the hygiene and cleaning products segment were assigned to Flora Produtos de Higiene e Limpeza Ltda.. as
a result of a partial spin-off.
As of March 1, 2006, Friboi Ltda. merged JBS S.A., assuming all of the assets and liabilities of JBS S.A., which prior to this merger
was a holding company with an indirect 100% interest in the total capital stock of Swift-Armour. After giving effect to the merger,
Friboi Ltda.'s capital stock increased from R$7,500 thousand to R$508,135 totaling R$515,635 represented by 515,635,240 quotas.
The following table shows the increase (decrease) in Friboi Ltda.'s assets and liabilities resulting from the merger, based on an
appraisal report prepared by specialized accountants:
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 (Swift Armour), 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.
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.
6
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
Partial spin-off
Current assets
Current liabilities
Cash and cash equivalents
43
Trade accounts payable
16,589
Short-term investments
439,631
Loans and financings
7,522
Trade accounts receivable, net
53,348
Payroll and social charges
8,187
Inventories
33,842
Other current liabilities
28,045
Recoverable taxes
4,323
60,343
Other current assets
9,016
540,203
Long-term liabilities
Loans and financings
11,669
Long-term assets
Other Long-term liabilities
364
Credits with related parties
265,882
12,033
Judicial deposits
461
Other investments
6,516
Total current and Long-term Liabilities
72,376
Property, plant and equipment, net
278,600
Intangible assets, net
5,694
Net assets transferred
1,024,980
557,153
Total assets
1,097,356
Total liabilities and transferred net assets
1,097,356
Net operating sales
85,694
Cost of goods sold
(57,561)
Gross income
28,133
Operational expenses:
General and administrative expenses
(41,747)
Selling expenses
(10,397)
Operating Loss
(24,011)
2
Presentation of financial information
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.
According to article 229 of Law no. 6404/76 (the "Brazilian Corporation Law"), the Company has conducted a partial spin-off on
December 31, 2006, under which the Company's assets relating to its hygiene and cleaning products division were assigned to Flora
Produtos de Higiene e Limpeza Ltda. The following chart describes the items of the Company's balance sheet that were assigned to
Flora Produtos de Higiene e Limpeza Ltda. as a result of the partial spin-off:
The operating loss recorded by the hygiene and cleaning products division for the period of three months ended on June 30, 2006, is
summarized as follows:
With respect to the Company's investment in Swift Armour, we have compared the generally accepted accounting principles in
Argentina 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 the Companies Tupman and Astro, both subsidiaries of SB Holdings, Inc., do not differ
significantly from those adopted in Brazil.
The individual and consolidated statements of income for the three and six-month period ended in June 30, 2006, presented for
comparability purposes, were prepared excluding the net income of the hygiene and cleaning products division, which was separated
from the Company through a partial spin-off occurred in December 31, 2006, as explained in Note 1. Accordingly, such statements of
income are denominated as "Pro Forma".
The "Pro Forma" statements of income are not entitled to be used as a basis for the calculation of dividends, nor for any other
purpose rather than to provide comparable information about the financial performance of the Company.
7
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
3
Significant accounting policies
a) Accounting Estimates
i) Statements of Income
e) Investments
Fixed assets are stated at an amount equivalent to the sum of their historical acquisition cost and to 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 the straight-line method, at the rates described in Note 11, which take into account the useful and economic lives
of the assets.
g) Other Current and Long-term Assets
h) Current Liabilities and Long-term Liabilities
The Company's investments in subsidiaries are accounted according to the equity method. Other investments of the Company are
valued at their acquisition cost.
Current and long-term assets are accounted for at their realization value, including, if applicable, the related income, charges and
monetary variations.
f) Property, plant and equipment
Current and long-term liabilities are accounted for at their known or computed amounts, including, if applicable, the related income,
charges and monetary variations.
The income statement transactions are reported in accordance with the accrual method of accounting.
The Company's inventories are valued based on their cost of acquisition or production, which is lower than their market or net
realizable value.
d) Inventories
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.
Allowance for doubtful accounts is computed based on the probable loss, the profile of the clients, overall economic and financial
condition and specific risks relating to the relevant client. The Company's management believes that the allowance for doubtful
accounts is sufficient to cover the losses if such allowances materialize.
The market value of derivative instruments is computed daily, and the resulting receivables or payables are recorded based on their
fair market value.
b) Swap Receivables or Payables
c) Allowance for Doubtful Accounts
The significant accounting policies adopted by the Company in preparing its financial statements are described below:
8
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
j) Income Tax and Social Contribution
Current taxes
Deferred taxes
4
5
June, 2007
March, 2007
June, 2007
March, 2007
Certificates of bank deposits - CDB-DI
461,485
142,389
462,063
142,390
Investment funds
215,007
63,724
241,720
94,679
Certificates of deposits - CD
-
-
15,249
9,872
676,492
206,113
719,032
246,941
Provisions for income tax and social contribution are based on rates and laws and regulations in force.
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 balance of cash and cash equivalents as of March 31, 2007 includes R$ 1,151,457 relating to the initial public offering of
150,000,000 of ordinary nominative shares at the share price of R$ 8.00 per share, occurred in March 28, 2007, and whose financial
settlement was in April 2, 2007.
k) Supplemental information
In order to provide a better understanding of its financial statements, the Company has presented, as supplementary information, its
consolidated statements of cash flows.
l) Consolidation
All balances of assets and liabilities accounts 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 currency of the
country in which they are located. Subsequently, these amounts were converted into Reais using the applicable commercial selling
exchange rates reported by the Central Bank of Brazil on the date of the consolidated balance sheet.
Consolidated
The subsidiaries companies included in the consolidation are mentioned in the Note 10.
Cash and cash equivalents
Short-term investments
Certificates of bank deposits-CDB-DI are fixed income securities that provides yield of approximately 100% of the Brazilian interbank
rate, and certificates of deposit-CD provide a yield equal to exchange rate variation plus a spread of 3.5% per year. The Investment
Funds are supported by applications in Multi-Market funds.
Company
9
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
6
Trade accounts receivable, net
June, 2007
March, 2007
June, 2007
March, 2007
Receivables not yet due
552,184
689,806
586,237
694,286
Overdue receivables:
From 1 to 30 days
12,605
6,670
36,134
30,377
From 31 to 60 days
2,706
7,501
8,905
17,253
From 61 to 90 days
624
6,025
2,138
8,545
Above 90 days
3,914
2,032
8,989
3,751
Allowance for doubtful accounts
(3,378)
(3,819)
(5,646)
(6,333)
16,471
18,409
50,520
53,593
568,655
708,215
636,757
747,879
7
Inventories
June, 2007
March, 2007
June, 2007
March, 2007
Finished products
523,711
587,816
647,565
698,661
Work-in-progress
-
-
10,687
7,859
Raw-materials
19,976
12,333
46,796
44,596
Warehouse spare parts
32,651
31,615
45,029
33,900
576,338
631,764
750,077
785,016
8
Recoverable taxes
June, 2007
March, 2007
June, 2007
March, 2007
ICMS (value added tax)
255,835
240,680
278,676
263,081
IPI (excise tax)
112,364
118,648
161,326
181,507
PIS and COFINS (social contribution on net income)
76,616
80,717
88,162
90,562
IRRF (withholding income tax)
1,333
21,468
3,967
24,103
IVA (Argentinian value added tax)
-
-
11,961
11,033
Others
4,798
21
16,219
9,745
450,946
461,534
560,311
580,031
Current and Long-term:
Current
423,690
437,405
522,245
546,361
Non-current
27,256
24,129
38,066
33,670
450,946
461,534
560,311
580,031
Company
Consolidated
Consolidated
Company
Consolidated
Company
10
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
ICMS (value added tax)
IPI (excise tax)
PIS and COFINS (social contribution on net income)
IRRF (withholding income tax)
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. An amount of R$ 46,000 of these tax credits were reviewed and approved by the Federal Tax Authority. The Company
expects to be reimbursed for these tax credits during 2007.
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.
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$122,466 on June 30, 2007.
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.
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 for a significant
part of such credit during 2007.
IPI tax credits are generated as a result of social contributions (PIS and COFINS) included in the acquisition cost of raw-materials,
packaging and other materials used in the manufacturing of the Company's products, which are offset against the IPI tax paid by the
Company upon the sale of finished products. Due to the fact that the exports of the Company's products are exempt from IPI, a tax
credit is generated. These tax credits were reviewed and approved by the Federal Tax Authority (Secretaria da Receita Federal ). The
Company expects to be reimbursed for these tax credits during 2007.
11
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
9
Related parties transactions
Trade accounts
receivable
Trade accounts
payable
Purchases
Sales of
products
Mutual contrats
Mouran Alimentos Ltda.
1,805
172 296 5,587 -
JBS Embalagens Metálicas Ltda.
31,293
2,878 14,318 1,629 80,253
- -
-
-
(45,266)
Friboi Egypt
49,539
-
-
29,355 -
Friboi UK
10,546
-
-
12,792 -
Swift Armour Sociedad Anónima Argentina
- 867 1,490 -
-
The Tupman Thurlow Co.
26,884
394 -
24,889 -
Transmundo Company Inc
81 -
-
-
-
Beef Snacks Brasil Ind.Com.Alimento Ltda
- -
-
-
13,240
120,148
4,311 16,104 74,252 48,227
Trade accounts
receivable
Trade accounts
payable
Purchases
Sales of
products
Mutual contrats
Mouran Alimentos Ltda.
2,122
83 233 4,577 6,899
JBS Embalagens Metálicas Ltda.
4,281
2,559 13,876 9,441 75,352
- -
-
-
(48,184)
Friboi Egypt
49,219
-
-
27,106 -
Friboi UK
12,144
-
-
9,080 -
Swift Armour Sociedad Anónima Argentina
- 180 1,078 -
-
The Tupman Thurlow Co.
22,960
-
-
13,344 -
90,726
2,822 15,187 63,548 34,067
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 an interest rate of 1% per month. Balances between related parties in the balance sheet and income
statement are the following:
March, 2007
June, 2007
JBS Global Beef Company SU Lda.
JBS Global Beef Company SU Lda.
12
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
10 Investments in subsidiaries
a) Relevant information about subsidiaries
Company's
share quantity
Participation
Capital stock
Shareholders'
equity
Net income
(loss)
JBS Embalagens Metálicas Ltda.
9,902
99,00%
2
33,855
(7,397)
Friboi Investments S. A.
19,000
100,00%
34,672
53,170
7,205
JBS Holding Internacional. S. A.
391,459
100,00%
391,459
292,279
(21,143)
JBS Global A/S (Dinamarca)
200
100,00%
29,460
72,688
2,480
Mouran Alimentos Ltda.
84
70,00%
120
8,399
(2,755)
Beef Snacks do Brasil Ltda.
22,735
100,00%
22,737
22,737
-
SB Holding, Inc
20
100,00%
19
2,372
(224)
Company's
share quantity
Participation
Capital stock
Shareholders'
equity
Net income
(loss)
JBS Embalagens Metálicas Ltda.
9,902
99,00%
2
41,252
454
Friboi Investments S. A.
19,000
100,00%
38,958
50,739
3,709
JBS Holding Internacional. S. A.
391,459
100,00%
391,459
313,422
(23,755)
JBS Global A/S (Dinamarca)
200
100,00%
29,578
71,140
(1,243)
Mouran Alimentos Ltda.
84
70,00%
120
(5,645)
(1,788)
Beef Snacks do Brasil Ltda.
22,735
100,00%
22,597
22,597
-
SB Holding, Inc
20
100,00%
10
2,738
380
Balance as of
March 31, 2007
Addition
(realization)
Exchange rate
variation
Equity
Balance as of
June 30, 2007
JBS Embalagens Metálicas Ltda.
40,839
-
-
(7,323)
33,516
Friboi Investments S. A.
48,689
-
(2,723)
7,205
53,171
JBS Holding Internacional. S. A.
313,422
-
-
(21,143)
292,279
JBS Global A/S (Dinamarca)
71,140
-
(2,175)
3,723
72,688
Mouran Alimentos Ltda.
(3,952)
-
-
(1,927)
(5,879)
Beef Snacks do Brasil Ltda.
22,597
138
-
-
22,735
SB Holding, Inc
23,725
(1,825)
745
(224)
22,421
Total
516,460
(1,687)
(4,153)
(19,689)
490,931
c) Goodwill
June, 2007
March, 2007
In January, 2007 the Company acquired 100% of the capital stock of SB Holdings, Inc., and paid a goodwill of R$ 20,917 based on
the expectation of future profits of the subsidiary. The goodwill will be amortized as long as such profits are earned, in a period not
exceeding 10 years. During the first six month period of 2007, an amount of R$ 867 of the goodwill was amortized.
b) Investments movement
13
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
11
Company
Annual
Depreciation
Rates
Cost
Revaluation
Accumulated
Depreciation
June, 2007
March, 2007
Buildings
3,92%
291,937
116,746
(17,388)
391,295
390,751
Land
0,00%
76,732
9,352
-
86,084
86,084
Machinery & equipment
10,37%
214,097
44,597
(33,963)
224,731
212,195
Installations
7,88%
71,787
21,823
(11,365)
82,245
83,375
Computer equipment
18,45%
11,737
849
(4,548)
8,038
7,847
Vehicle and airplanes
19,54%
74,512
400
(33,559)
41,353
45,038
Construction in progress
0,00%
250,936
-
-
250,936
196,490
Others
10,00%
13,177
4,302
(5,443)
12,036
12,222
1,004,915
198,069
(106,266)
1,096,718
1,034,002
Consolidated
Annual
Depreciation
Rates
Cost
Revaluation
Accumulated
Depreciation
June, 2007
March, 2007
Buildings
3,92%
494,645
116,746
(75,436)
535,955
494,652
Land
0,00%
89,796
9,352
-
99,148
89,069
Machinery & equipment
10,37%
562,551
44,597
(284,714)
322,434
295,897
Installations
7,88%
71,800
21,823
(11,366)
82,257
83,387
Computer equipment
18,45%
12,400
849
(4,648)
8,601
8,160
Vehicle and airplanes
19,54%
76,070
400
(34,675)
41,795
45,428
Construction in progress
0,00%
296,652
-
-
296,652
281,161
Others
10,00%
20,001
4,302
(9,641)
14,662
13,788
1,623,915
198,069
(420,480)
1,401,504
1,311,542
Net amount
Net amount
As of June 30 2007, the balance of the Company's revaluation of fixed assets account was R$198,069, the balance of the Company
revaluation reserve account was R$127,475, and the balance of the Company income tax and social contribution account was
R$61,312. The Company recorded accrued depreciation of R$9,282 with respect to the Company's revaluation of fixed assets as of
June 30, 2007.
Other revaluations of fixed assets are scheduled to occur between 2007 and 2010, in conformity with the rules issued by IBRACON
and the Rule No. 183/95 issued by CVM.
During the last three years, 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.
Property, plant and equipment, net
14
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
12 Trade accounts payable
June, 2007
March, 2007
June, 2007
March, 2007
Commodities
160,885
187,085
184,622
206,020
Materials and services
84,133
89,091
110,175
106,534
Finished products
3,134
3,805
48,684
28,252
248,152
279,981
343,481
340,806
13
Loans and financings
a)
Company
Modality
June, 2007
March, 2007
Financing for purchase of fixed assets
FINAME / FINEM - Enterprise financing
249,950
256,960
249,950
256,960
Loans for working capital purposes
ACC - Exchange advance contracts
64,777
99,020
EXIM - BNDES export credit facility
483,172
514,520
537,568
571,349
Export prepayment
187,682
250,581
602,804
625,341
NCE / COMPROR
-
532,483
1,876,003
2,593,294
Total Loans and Financings
2,125,953
2,850,254
Current and Long-term
Current
449,175
981,276
Non-current
1,676,778
1,868,978
2,125,953
2,850,254
Long-term installments have the following maturities:
2008
267,428
386,117
2009
175,196
178,079
2010
102,876
105,202
2011
553,003
584,355
2012
415
105
2016
577,860
615,120
1,676,778
1,868,978
Exchange rate variation and
interest rate of 9,375%
TJLP and interest rate of 3,0%
Exchange rate variation and
interest rate of Libor + 1,0%
CDI and interest rate of 2,0%
Exchange rate variation and
Interest rate of 10,5%
Annual
average
rate
of
interest and commissions
TJLP-UMBNDES index rate
and interest rate of 3,0%
Company
Consolidated
Exchange rate variation and
interest rate LIBOR + 0,20%
Fixed Rate Notes with final maturity in February 2011
(Eurobonds)
Fixed Rate Notes with final maturity in February 2016 (144-A)
15
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
b)
Consolidated
Modality
June, 2007
March, 2007
Financing for purchase of fixed assets
FINAME / FINEM - Enterprise financing
249,950
256,960
249,950
256,960
Loans for working capital purposes
ACC - Exchange advance contracts
93,471
99,020
EXIM - BNDES export credit facility
483,172
514,520
537,568
571,349
Working Capital
37,867
76,264
Export prepayment
187,682
250,581
602,804
625,341
NCE / COMPROR
36,469
548,375
1,979,033
2,685,450
Total
2,228,983
2,942,410
Current and Long-term
Current
543,970
1,073,432
Non-current
1,685,013
1,868,978
2,228,983
2,942,410
Long-term installments have the following maturities:
2008
270,999
386,117
2009
177,833
178,079
2010
104,903
105,202
2011
553,003
584,355
2012
415
105
2016
577,860
615,120
1,685,013
1,868,978
TJLP and interest rate of 3,0%
Annual
average
rate
of
interest and commissions
TJLP-UMBNDES index rate
and interest rate of 3,0%
Interest rate Libor + 2,0%
Exchange rate variation and
interest rate of Libor + 1,0%
CDI and interest rate of 2,0%
Exchange rate variation and
Interest rate of 10,5%
Exchange rate variation and
interest rate LIBOR + 0,20%
Fixed Rate Notes with final maturity February 2016 (144-A)
Fixed Rate Notes with final maturity in February 2011
(Eurobonds)
Exchange rate variation and
interest rate of 9,375%
16
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
14 Payroll and social charges
June, 2007
March, 2007
June, 2007
March, 2007
Payroll and related social charges
37,037
37,573
44,058
48,849
Accrual for labor liabilities
36,666
27,379
41,879
27,721
Income tax
8,638
6,839
8,638
6,839
Social contribution
3,110
2,463
3,110
2,463
ICMS taxes payable
16,387
14,626
21,372
14,629
Others
1,647
1,586
2,507
13,544
103,485
90,466
121,564
114,045
15 Provision for contingencies
Consolidated
Labor
816
4,546
7,160
Civil
806
13,566
13,566
Tax
198
31,070
34,468
Total
1,820
49,182
55,194
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.
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, 2007:
Outstanding amounts of export pre-payment loans were US$ 97.436 on June 30, 2007 (US$ 117,203 on March 31, 2007). Such
loans were funded by financial institutions.
Company
Consolidated
EUROBONDS - JBS S.A. issued 9.375% fixed rate notes due on 2011 in total aggregate amounts of US$200 million on February 6,
2006 and US$75 million on February 14, 2006. These notes are secured 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$300 million
on July 28, 2006. These notes are also secured by the Company.
The financings provided by BNDES are secured by fixed assets. The ACC's are secured by export contracts.
PROGEREM is a financing program of the Brazilian National Economic and Social Development Bank (Banco Nacional de
Desenvolvimento Econômico e Social ­
BNDES) established to fund the expansion of industrial capacity and to foster the social
benefits arising from such expansion.
Exchange Contract Advances (ACCs) are credits funded by financial institutions to JBS S.A., amounting to US$ 48.526 on June 30,
2007 (US$ 48.293 on March 31, 2007) and are used to finance Company's export sales.
Number of
lawsuits/admini
strative
proceedings
Provision
Provision
Type of Proceedings
Company
17
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
Tax Proceedings
b) PIS (Programa de Integração Social) and COFINS (Contribuição para Financiamento da Seguridade Social)
c) CSLL - Social contribution on net profit (Contribuição Social sobre o Lucro Líquido)
d) INSS - National Social Security Institute (Instituto Social de Seguridade Social)
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 June 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.
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 Company's legal counsel opinion 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.
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$69,194. In its defense to these default notices, the Company argued that it did not pay the contributions with respect to the period
described in such notices in light of the favorable decision issued by the trial court reviewing the writ of mandamus action, which
ordered the stay of the administrative proceedings and enjoined the INSS from collecting the contributions from the Company until a
final decision is reached under such action.
The Tax Authority of the State of São Paulo (Secretaria da Fazenda do Estado de São Paulo ) filed several administrative
proceedings against the Company, under which the Tax Authority challenges the amount of the Company's ICMS tax credits arising
from the purchase of cattle by the Company in other Brazilian states. The Tax Authority of the State of São Paulo claims that the tax
incentives granted by such other states were not based upon interstate agreements, and accordingly, the Tax Authority of the State of
São Paulo only recognizes the Company's ICMS tax credits up to the amount of the ICMS tax paid in such other states. The
Company estimates that the claims under these administrative proceedings amount to R$ 22,547 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.
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$ 1,354 as of June 30, 2007.
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$2,065 as of June 30, 2007.
Based on an amendment to the Brazilian Federal Constitution that exempted revenues from exports from federal contributions, the
Company has filed a lawsuit against the Federal Tax Authority (Secretaria da Receita Federal ) seeking to exclude its revenues from
exports from the calculation of the Social Contribution on Net Profit (Contribuição Social Sobre o Lucro Líquido ­ CSLL) payable by
the Company. Although there are no judicial precedents supporting the exclusion of revenues from exports from the calculation of
CSLL, the Company has historically excluded these amounts from the calculation of the CSLL payable by it. Despite the Company's
management belief that the Company will prevail in these proceedings, the Company's management has established a provision for
losses arising from these lawsuits in the amount of R$16,596 as of June 30, 2007.
18
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
e) Other Tax Proceedings
*
*
*
*
*
*
Labor Proceedings
Proceeding filed against the Company with claims totaling R$845, seeking to collect contributions to the National
Service of Industrial Learning (Serviço Nacional de Aprendizagem Industrial - SENAI) allegedly owed by the
Company;
The Company is also party of other 100 tax lawsuits and administrative proceedings. Contingencies arising from these proceedings
are not material to the Company if considered on an individual basis. Set forth below are the details of these proceedings:
Proceeding filed against the Company with claims totaling R$1,071, seeking to collect certain taxes allegedly owed by
the Company in connection with the irregular remittance of goods by the Company to the Manaus Free Trade Area
(Zona Franca de Manaus );
An ongoing legal proceeding arguing 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.
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, 2007. Currently, the Company does not pay or deposit with any court
any amounts in connection with contributions to the Rural Workers' Assistance Fund.
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, 2007.
Proceeding filed against the Company with claims totaling R$2,277, seeking to collect amounts allegedly owed by the
Company in connection with tax credits for fuel used in the transportation of cattle to slaughterhouses;
Proceeding filed against the Company with claims totaling R$1,243, seeking to collect amounts allegedly owed by the
Company with respect to an irregular invoice for the sale of certain products of the Company;
Most of these lawsuits were filed by former employees of the Company seeking overtime payments and payments relating to their
exposure to health hazards. Approximately 8,0% of these lawsuits were filed by employees of third-party companies that provide
outsourced services to the Company. Pursuant to Brazilian labor laws, the Company is jointly liable for failure of these third-party
companies to comply with applicable labor laws.
Proceeding filed against the Company with claims totaling R$453, seeking to collect amounts allegedly owed by the
Company for not presenting evidence of the delivery of products sold by the Company to the applicable tax authority;
Other administrative tax proceedings with individual claims in amounts below R$200, which total R$5,166 in the
aggregate.
As of June 30, 2007, the Company was party to (i) 734 labor lawsuits and 80 administrative proceedings (autos de infração ) filed by
the Regional Labor Offices (Delegacias Regionais do Trabalho ) involving claims in the total aggregate amount of R$16,561 and (ii)
two 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$4,546 for losses arising from such proceedings.
19
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
Civil Proceedings
a) Slaughterhouse at Araputanga
b) Trademark Infringement
In July 2005, Frigorífico Araputanga also 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.
In light of the foregoing, the Company's management established a provision for losses arising from this lawsuit in the amount of
R$600 as of June 30, 2007. 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.
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.
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.
This proceeding is in accounting experts confirmation about the amount of the payments made in connection with the proceeding. The
appeal proceeding 2006.01.00.024584-7, was not yet judged. Based on the opinion of the Company's legal counsel, 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. Accordingly, the
Company's management has not established any provision for contingencies arising from these proceedings.
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.
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.
20
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
c) Administrative Council of Economic Defense (Conselho Administrativo de Defesa Econômica), or CADE
d) Accidents in the Workplace
16
Income taxes
a) Reconciliation of income tax and social contribution
2007
"Pro Forma"
2006
2007
"Pro Forma"
2006
103,397
110,155
103,261
108,249
Plus:
Permanent differences
55,540
27,728
55,540
27,728
Temporary differences
1,975
-
3,645
-
57,515
27,728
59,185
27,728
160,912
137,883
162,446
135,977
Income tax and CSLL - 34%
(54,698)
(45,839)
(56,574)
(43,907)
Temporary differences
1,975
-
3,645
-
Deferred income tax and social contribution
672
-
1,257
-
Calculation basis for income tax and social contribution
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.
Company
Consolidated
Income before income tax and social contribution
Six month period ended on
June 30,
Based on the evidence presented in connection with these proceedings and on the arguments of its defense (that will be presented
together with the opinion of a renowned Economics professor), the Company's management believes that CADE will grant the
Company a favorable decision under these proceedings. In particular, the Company believes that there can be no standard discount
prices for cattle carcass. Based on the opinion of the Company's legal counsel supported by favorable domestic and international
precedents, the Company's management believes that the Company will prevail in these proceedings. Accordingly, the Company's
management has not established any provision for contingencies arising from these proceedings.
The Company is party in several civil lawsuits, under 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$12,966 as of June 30, 2007.
Six month period ended
on June 30,
The SDE submitted these proceedings to the review of the Brazilian Antitrust Authority (Conselho Administrativo da Defesa
Econômica ­
CADE) with a recommendation to impose fines on the beef producers which are party to the proceedings. If CADE
ultimately confirms such recommendation, CADE may impose administrative penalties on the Company in accordance with articles 23
and 24 of Law No. 8,884/84, including an administrative fine that may range from 1.0% to 30.0% of the Company's annual gross
revenues for the years prior to the proceeding.
In 2005, the Economic Law Secretariat (Secretaria de Direito Econômico ) initiated administrative proceedings against 11 Brazilian
beef processing companies, including the Company (formerly Friboi Ltda.) and other large beef producers. The proceedings relate to
allegations made by the Brazilian Confederation of Agriculture and Cattle Raising (Confederação da Agricultura e Pecuária do Brasil )
that these beef companies may have breached Brazilian antitrust regulations by entering into agreements to establish the price of
cattle purchased by them for slaughter.
21
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
b) Deferred income tax and social contribution
June, 2007
March, 2007
June, 2007
March, 2007
Assets:
Over provision for contingencies
. Current year
672
803
1,257
2,489
. Prior years
16,050
16,050
22,676
23,083
16,722
16,853
23,933
25,572
Liabilities:
Over revaluation reserve
61,312
61,984
31,312
61,984
61,312
61,984
31,312
61,984
June, 2007
March, 2007
June, 2007
March, 2007
2008
409
413
2,268
2,424
2209
409
413
2,268
2,424
2010
409
413
2,268
2,424
2011
409
413
2,268
2,424
15,086
15,201
14,861
15,876
16,722
16,853
23,933
25,572
17
a) Capital Stock
b) Retained earnings reserves
Mandatory
Computed based on 5% of the net income of the year.
Reserve for expansion
c) Revaluation reserve
d) Dividends
Company
Consolidated
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.
Shareholders' equity
The Company is authorized to increase its capital in more 50.000.000 ordinary nominative shares.
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 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, as follows:
Company
Consolidated
2012 to 2014
On March 28, 2007, the Company increased its Capital Stock through an initial public offering of 150.000.000 of ordinary nominative
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 capital stock as of June 30, 2007 is composed by 850.000.000 of
ordinary shares, without nominal value (515.635.240 in 2006).
Mandatory dividends correspond to 25% of the adjusted net income of the year, according to article 202 of Law 6.404/76.
22
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
18
Financial income (Expense), net
2007
"Pro Forma"
2006
2007
"Pro Forma"
2006
Financial expenses:
(73,510)
(74,704)
(117,815)
(109,388)
(120,660)
(88,641)
(127,178)
(88,759)
(5,787)
(13,375)
(5,787)
(13,375)
(18,061)
(8,309)
(19,017)
(8,312)
(195,234)
(163,199)
(175,601)
(187,188)
(1,665)
(2,916)
(1,665)
(4,998)
(2,390)
-
(2,390)
-
(1,540)
(2,082)
(4,817)
-
(40,756)
-
(40,756)
-
(459,603)
(353,226)
(495,026)
(412,020)
Financial Income:
184,388
48,185
203,998
55,800
32,226
21,375
32,239
21,375
113,150
190,844
92,780
217,547
3,021
3,749
3,028
3,749
33,341
-
33,341
-
366,126
264,153
365,386
298,471
Net
(93,477)
(89,073)
(129,640)
(113,549)
19 Management's compensation
20 Insurance coverage (unaudited)
As of June 30, 2007 the maximum individual coverage was R$ 99,000, considering all types of risks.
The insurance coverage related to the controlled Company Swift Armour has the same characteristics as explained above, and the
maximum coverage as of June 30, 2007 and 2006 was US$ 65,000 (equivalent to R$ 125.203 as of June 30, 2007).
Monetary variations
Bank service charges and other expenses
Loss in investment funds
Interest
Taxes on financial transactions-CPMF
Exchange and monetary variation
Interest on derivatives
Discounts
Earnings in investment funds
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.
Interest on derivatives
Discounts
Interest
Company
Consolidated
Six month period ended on
June 30,
Six month period ended
on June 30,
Income tax on interest - fixed rates notes with final maturity in
February 2011
Income tax on interest - fixed rates notes with final maturity in
February 2016
For the period of six months ended June 30, 2007 and 2006, the aggregate compensation paid by the Company to the Company's
management was R$ 1,500 and R$ 2,590, respectively.
23
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
21 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 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.
The financial assets and liabilities of the Company are accounted for in the consolidated balance sheet and in the "pro forma" balance
sheets of JBS S.A. 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 fair market or liquidation value.
The results of over-the-counter trades contracted with a future maturity date are recorded on the balance sheet.
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, 2007, are accounted for as "Amounts receivable from or payable to future contracts".
The Company is exposed to credit risks in respect of accounts receivable from customers, which are partially mitigated through the
diversification of the credit profile of the Company's customer 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 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 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.
24
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
22
June, 2007
March, 2007
June, 2007
March, 2007
Cash from operating activities
. Net income of the period
38,728
10,643
38,728
10,643
Adjustments to reconcile net income (loss) to cash provided
. Depreciation and amortization
13,946
13,873
18,852
19,047
. Allowance for doubtful accounts
(441)
1,804
(761)
1,804
. Goodwill amortization
867
-
867
-
. Variation on non-current assets and liabilities
(65,222)
6,313
(65,365)
6,832
. Minority interest
-
-
-
1,689
. Equity
19,689
21,711
-
-
. Write-off of fixed assets
4,799
6,371
4,799
8,474
. Deferred income taxes
131
(803)
1,639
(2,489)
. Financial charges of current and non-current assets
47,884
4,246
49,659
8,848
. Provision for contingencies
(386)
2,361
(273)
2,462
59,995
66,519
48,145
57,310
Variation in operating assets and liabilities
. Decrease (increase) in trade accounts receivable
89,417
(56,383)
17,159
(68,888)
. Decrease (increase) in inventories
55,426
(67,829)
34,939
(127,512)
. Decrease (increase) in recoverable taxes
10,588
(12,464)
19,720
21,985
. Decrease (increase) in other current and non-current assets
(14,697)
(9,998)
13,329
(11,148)
. Decrease (increase) in credits with related parties
(7,345)
37,672
-
-
. Increase (decrease) in trade accounts payable
(12,590)
8,521
21,914
31,512
. Increase (decrease) in other current and non-current liabilities
(52,759)
99,608
(47,242)
98,955
. Increase (decrease) in income taxes
(672)
(681)
(672)
(681)
127,363
64,965
107,292
1,533
Cash used in investing activities
. Additions to property, plant and equipment and intangible assets
(81,461)
(155,070)
(112,677)
(213,311)
. Increase in investments
(43,293)
(140,758)
958
(21,875)
(124,754)
(295,828)
(111,719)
(235,186)
Cash from financing activities
. Loans and financings
16,246
452,285
24,489
506,857
. Payments of loans and financings
(675,325)
(227,449)
(672,551)
(265,403)
. Increase in capital stock
-
1,200,000
-
1,200,000
(659,079)
1,424,836
(648,062)
1,441,454
Net increase (decrease) in cash
(656,470)
1,193,973
(652,489)
1,207,801
1,393,694
199,721
1,468,872
261,071
737,224
1,393,694
816,383
1,468,872
Total cash provided by (used in) financing activities
Cash, cash equivalents and short-term investments at the beginning of
the period
Total cash provided by operating activities
Total cash used in investing activities
Company
Consolidated
Supplementary information - Cash flows statements for the period of three months ended June 30,
2007 and March 31, 2007
Cash, cash equivalents and short-term investments at the end of
the period
25
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JBS S.A. and its Subsidiaries
Notes to the financial statements for the period of three and six months ended on June 30, 2007
(Expressed in thousands of reais, except when indicated)
22
Subsequent events
A substantial portion of the financing proceeds for the acquisition of Swift by JBS is related to the capital increase, as approved in the
Extraordinary Shareholders Meeting held on June 29, 2007, in the total amount of R$ 1,853,833 through the issuance, for private
subscription of 227,400,000 (two hundred and twenty seven million and two hundred thousand) new common shares, nominative,
without nominal value, in all identical to the existing shares, having the same rights given upon the remaining common shares issued
by the Company, under the terms outlined in its by-laws (Estatuto Social) and according to applicable legislation. The issue price of
each of the new common shares was R$ 8.1523 per share, which was determined based on the average closing stock quotes for the
Company's common shares at the Bolsa de Valores de São Paulo during the period from April 20, 2007 until June 1, 2007, added of a
goodwill of R$ 0,50 per share.
The Company's current shareholders were given preemptive rights in the subscription of new shares, under the terms of article 171 of
Law # 6.404/76. Additionally, the Extraordinary Shareholders Meeting approved the dismissal of the obligation to execute a public
offering for the acquisition of the totality of shares issued by the Company, in the possibility that a shareholder may hold, after the
homologation of the approved capital increase, shares representing more than 10% (ten percent) of the Company's capital, since it
was in the Company's best interest, as stated under article 52, § 8º of its by-laws (Estatuto Social).
As published in the Relevant Fact of June 27, 2007, BNDES Participações S.A. ­ BNDESPAR ("BNDESPAR") will subscribe a
relevant portion of the new common shares representing the Company's capital, allowing for a relevant participation by BNDESPAR
in the proceeds that will be raised by the Company for the acquisition of the Swift. The investment commitment of BNDESPAR is of
up to R$1,463,552 and the investment commitment of J&F Participações S.A. (J&F) and/or ZMF Fundo de Investimento em
Participações (ZMF), both shareholders of the Company, is of up to R$390,281, totaling R$1,853,833, or the total proposed for the
capital increase, through the issuance of 227,400,000 new shares. The subscription of the shares by BNDESPAR will occur through
an assignment of a portion of the preemptive rights of J&F and/or ZMF in the subscription of new shares. The remaining proceeds
were obtained through new debt at Swift at the moment of the acquisition.
The conclusion of the Swift acquisition results in the creation of the world's largest company in the beef protein sector and the largest
Brazilian company in the food sector, consolidating the Company in the national and global beef markets and making it an important
competitor in the global market for pork meat. With this, the Company will be able to produce and distribute in Brazil, Argentina, the
United States of America and Australia, the four main beef consuming countries in the world. This position will enable the Company to
(i) have access to the two blocks of commercial barriers: Atlantic and Pacific; (ii) diversify its risk with regards to sanitary barriers; and
(iii) unify and strengthen the Swift brand globally.
On July 11, 2007 the Company, through its full subsidiary J&F Acquisition Co., created specifically for this purpose, concluded the
acquisition of the controlling interest of Swift Foods Company ("Swift"), company headquartered in Delaware, United States of
America, for the total amount US$1,458,872,836.55, being US$225,000,000.00 paid to HM Capital Partners LLC, former controlling
shareholder of Swift, and US$1,233,872,836.55 used for the liquidation of financial debt at Swift. The Company estimates that Swift
may also pay amounts related to expenses in connection to the acquisition process, such as service fees and commissions,
employee retention expenses and other transaction costs, which as soon as identified, will be informed to the market.
26
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27
IR Contact
Sérgio Longo
Director of Finance and IR
José Paulo Macedo
Director
André Menezes
IR Manager
Email: ir@jbs.com.br
Phone: (11) 3144 - 4055
Website:
www.jbs.com.br
Conference Call 2Q07
Date: Thursday, August 16,
2007
> Portuguese
10h00 (Brasília time)
09h00 (NY time)
Phone: (11) 4688-6301
Code: JBS

> English
12h00 (Brasília time)
11h00 (NY time)
Phone: +1 (973) 935-8893
Code: 9096199
JBS S.A. reports net revenue growth of 25.2% and
EBITDA margin of 14.1% in 2Q07
São Paulo, August 14, 2007 ­ JBS S.A. ("JBS") (Bovespa: JBSS3), the world's largest beef producer
and exporter, announces today its results for the second quarter of 2007 (2Q07).
The financial and
operating information herein is presented on a consolidated basis in BR GAAP and in Brazilian real
(R$). The accounting statements for the quarter ended June 30, 2006, presented for comparison
purposes, were prepared excluding the asset and financial situations and the result of the operations
from the Hygiene and Cleaning division due to the partial spin-off carried out on December 31, 2006,
as described in the explanatory notes to the financial statements. Accordingly, the accounting
statements are referred to as "pro-forma" and should not be used as a base for dividend calculations
or for any corporate purpose other than providing comparative information on the Company's
operating performance. The presented information and statements do not include the results from
Swift Foods Company, whose acquisition was concluded on July 11, 2007. The results from Swift Foods
Company will be presented to the market on a consolidated basis starting in the third quarter of 2007.

Growth in consolidated net revenue of 25.2%, compared to the 2Q06
and of 7.8% in comparison to 1Q07;

Growth in net export revenues of 20.5% compared to the 2Q06 and
9.2% in comparison to the 1Q07. In the domestic market, net
revenues grew by 32.3% compared to the 2Q06 and by 6.0% in
comparison to the 1Q07;

EBITDA growth of 18.3% in comparison to the 2Q06, amounting
R$165.2 million. For the quarter, the Company posted an EBITDA
margin of 14.1%, compared to 14.9% in the same period of last year
and 14.4% in the 1Q07;

Growth in the amount of cattle slaughtered of 14.1% compared to
the 2Q06 and 6.8% in comparison to the 1Q07;

Net income growth of 20.8%, totaling R$38.7 million in the 2Q07,
compared to R$32.1 million in the 2Q06;

Start-up of the industrial unit for the production of beef jerky in the
city of Santo Antonio da Posse, state of São Paulo;

Beginning of operations in the units of Teófilo Otoni, state of Minas
Gerais, Brazil, Pontevedra and Berazategui, Argentina;


Acquisition of a cattle confinement unit in the state of São Paulo with
an annual capacity for 150,000 animals.
PERIOD HIGHLIGHTS
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28
FINANCIAL HIGHLIGHTS ­ 2Q07
Consolidated Financial Indicators

R$ million
2Q07
2Q06
Var.%
2Q07/2Q06
1Q07
Var.%
2Q07/1Q07
1H07
1H06
Var.%
1H07/1H06
Net Sales Revenue
1,171.2
935.8
25.2%
1,086.1
7.8%
2,257.4
1,821.9
23.9%
Domestic Market
487.9
368.8
32.3%
460.2
6.0%
948.1
753.4
25.8%
Exports
683.3
567.0
20.5%
626.0
9.2%
1,309.2
1,068.5
22.5%
Gross Profit
280.9
241.9
16.1%
257.6
9.0%
538.5
446.4
20.6%
Gross Margin
24.0%
25.8%
23.7%
23.9%
24.5%
Net Income
38.7
32.1
20.8%
10.6
263.9%
49.4
64.3
-23.2%
Net Margin
3.3%
3.4%
1.0%
2.2%
3.5%
EBITDA
165.2
139.6
18.3%
156.2
5.8%
321.4
260.2
23.5%
EBITDA Margin
14.1%
14.9%
14.4%
14.2%
14.3%
Slaughtered Cattle
1
947.0
829.9
14.1%
886.4
6.8%
1,833.4
1,647.4
11.3%
Sales Volumes
2
Domestic Market
210.0
161.9
29.7%
189.2
11.0%
399.2
329.8
21.0%
Exports
112.2
90.5
23.9%
103.6
8.3%
215.7
166.7
29.4%
Total Volume
322.2
252.4
27.6%
292.7
10.1%
614.9
496.5
23.8%
1
In thousands of heads
2
In thousands of tons

Volume of Cattle Slaughtered

In 2Q07, the amount of cattle slaughtered grew by 14.1% to 947 thousand heads, compared to 830
thousand heads of cattle slaughtered in the same period of last year. Compared to the 1Q07, the
amount of cattle slaughtered grew by 6.8%, while on an year-to-date basis the Company posted an
increase of 11.3% in comparison to the 1H06. Highlights for the period include the growth in the
amount of cattle slaughtered in Argentina, which was positively impacted by the beginning of
operations of the Pontevedra, Venado Tuerto and Berazategui plants, which were not owned by the
Company in 2Q06. The graph below shows the Company's historical slaughter volumes in each quarter
for the past three years (in thousands of heads):





Cattle Slaughtered ­ `000 Heads of Cattle
Cattle Slaughtered ­ `000 Heads of Cattle
701
760
596
530
724
809
745
758
831
936
830
817
947
886
1Q
2Q
3Q
4Q
2004
2005
2006
2007
Cattle Slaughtered ­ `000 Heads of Cattle
Cattle Slaughtered ­ `000 Heads of Cattle
701
760
596
530
724
809
745
758
831
936
830
817
947
886
1Q
2Q
3Q
4Q
2004
2005
2006
2007
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29

Net Revenues (R$ million)






















Net operating revenue increased by 25.2% to R$1,171.2 million in the 2Q07, from R$ 935.8 million in
the 2Q06, mainly due to the volume growth of 27.6% posted for the period. The increase in volume is
mainly a result of higher exports, which grew by 23.9%, and to higher volumes in the domestic
market, which increased by 29.7% in comparison to the 2Q06.

Compared to the 1Q07, net operating revenue grew by 7.8% in the 2Q07, while total sales volume
climbed by 10.0%. In the first half of 2007, net revenue increased by 23.9% in comparison to the
1H06, while volumes rose by 23.8%.

Export revenues as a percentage of the Company's total net revenue varied from 61% in the 2Q06 to
58% in the 2Q07, while the domestic market accounted for 39% of net revenue in the 2Q06,
compared to 42% in the 2Q07, as shown in the chart below. The result reflects the Company's
strategy of optimizing the sales mix between markets, commercializing its products in the market that
offers the highest profitability. The percentage contributions of the domestic and export markets to net
operating revenue remained stable when compared to the 1Q07.



Net Revenues (R$ million)
Net Revenues (R$ million)
935,8
1.171,2
1.086,1
1.821,9
2.257,4
2Q06
2Q07
1Q07
1H06
1H07
25,2
%
23
,9
%
Net Revenues (R$ million)
Net Revenues (R$ million)
935,8
1.171,2
1.086,1
1.821,9
2.257,4
2Q06
2Q07
1Q07
1H06
1H07
25,2
%
23
,9
%
Domestic
Market
39%
Export
61%
2Q06: R$936 million
Domestic
Market
42%
Export
58%
2Q07: R$1,171 million
Domestic
Market
42%
Export
58%
1Q07: R$1,086 million
Source: JBS
Net Revenue Distribution ­ Consolidated
Net Revenue Distribution ­ Consolidated
Domestic
Market
39%
Export
61%
2Q06: R$936 million
Domestic
Market
42%
Export
58%
2Q07: R$1,171 million
Domestic
Market
42%
Export
58%
1Q07: R$1,086 million
Source: JBS
Net Revenue Distribution ­ Consolidated
Net Revenue Distribution ­ Consolidated
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30
Domestic Market

Domestic Market
2Q07
2Q06
Var.%
2Q07/2Q06
1Q07
Var.%
2Q07/1Q07
1H07
1H06
Var.%
1H07/1H06
Net Sales Revenue
1
Fresh and Chilled Beef
330.6
240.7
37.4%
312.4
5.8%
643.0
508.1
26.6%
Processed Beef
68.7
63.0
9.0%
67.3
2.0%
136.0
116.7
16.5%
Others
88.6
65.2
36.0%
80.5
10.1%
169.1
128.6
31.5%
TOTAL
487.9
368.8
32.3%
460.2
6.0%
948.1
753.4
25.8%
Volume
2
Fresh and Chilled Beef
157.7
116.8
35.1%
138.5
13.9%
296.2
239.4
23.7%
Processed Beef
11.2
8.7
28.8%
12.6
-11.0%
23.8
18.6
28.5%
Others
41.0
36.4
12.7%
38.1
7.7%
79.1
71.9
10.1%
TOTAL
210.0
161.9
29.7%
189.2
11.0%
399.2
329.8
21.0%
Average Sales Price
3
Fresh and Chilled Beef
2.10
2.06
1.7%
2.26
-7.1%
2.17
2.12
2.3%
Processed Beef
6.12
7.22
-15.3%
5.34
14.6%
5.70
6.29
-9.4%
Others
2.16
1.79
20.7%
2.11
2.3%
2.14
1.79
19.5%
TOTAL
2.32
2.28
2.0%
2.43
-4.5%
2.38
2.28
4.0%
1
In millions
2
In thousands of tons
3
In R$/Kg


In the 2Q07, JBS' net revenue in the domestic market totaled R$487.9 million, a 32.3% increase in
comparison to the 2Q06. This result was mainly due to the growth of 29.7% in total sales volume to
210.0 thousand tons, up from 161.9 thousand tons in the 2Q06, and to a lesser degree, to an average
sales price increase of 2.0% in comparison to the 2Q06. Revenues in the domestic market rose by
6.0% when compared to the 1Q07 and by 25.8% in the first half of 2007 versus the 1H06.










Others
18%
Fresh Beef
65%
Processed
Beef
17%
2Q06: R$369 million
Others
18%
Fresh Beef
68%
Processed
Beef
14%
2Q07: R$488 million
Others
18%
Fresh Beef
67%
Processed
Beef
15%
1Q07: R$460 million
Source: JBS
Net Revenue Distribution ­ Domestic Market
Net Revenue Distribution ­ Domestic Market
Others
18%
Fresh Beef
65%
Processed
Beef
17%
2Q06: R$369 million
Others
18%
Fresh Beef
68%
Processed
Beef
14%
2Q07: R$488 million
Others
18%
Fresh Beef
67%
Processed
Beef
15%
1Q07: R$460 million
Source: JBS
Net Revenue Distribution ­ Domestic Market
Net Revenue Distribution ­ Domestic Market
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31

Fresh and chilled beef volumes climbed 35.1% to 157.7 thousand tons, from 116.8 thousand tons in
the 2Q06. As it also occurred in the 1Q07, the increase in volumes was mainly due to higher slaughter
volumes and the recovery in the average sales price of fresh beef in Brazil during the period, which
had been negatively impacted by the outbreak of the avian flu in several countries in 2006. In
comparison to the 1Q07, fresh and chilled beef volumes sold in the domestic market grew by 13.9%,
while the average sales price declined by 7.1%, mainly due to a change in product mix, which in the
first quarter tends to include higher value added cuts. On an year-to-date basis, net revenue grew by
26.6% and volumes increased by 23.7% in comparison to the 1H06.

In the processed beef segment, the Company posted a volume growth of 28.8% for the quarter to
11.2 thousand tons, from 8.7 thousand tons in the 2Q06. The average sales price declined by 15.3%
against the 2Q06, mainly due to the product mix sold during the period, with no reductions in product
prices when analyzed on an individual basis. As a result, the share of processed products as a
percentage of domestic revenues declined from 17.1% in the 2Q06 to 14.1% in the 2Q07.

When compared to the 1Q07, processed beef volumes declined by 11.0%, while average sales price
increased by 14.6%, reflecting a revision of the strategy to better positioning higher value-added
brands. It is worth highlighting that JBS has been making important investments in marketing and
point-of-sale campaigns with the objective of incrementing sales of the new Swift product line, as well
as further consolidating the brand in the processed foods industry. Therefore, in spite of the decrease
in volume, net revenue from domestic sales of processed beef grew in the domestic market by 2.0% in
comparison to the 1Q07.

In the first half of 2007, processed beef volumes increased by 28.5% when compared to the same
period of last year. In general, the increases in revenue and volume posted for the quarter were
primarily due to the growth in the amount of cattle slaughtered and to the sales evolution of the new
line of ready-to-eat meals launched in Brazil at the end of 2006 and of products for the foodservice
sector.

In the 2Q07, with regards to the line for "others", which is mainly comprised of leather sales, the
volume grew by 12.7% in comparison to the 2Q06 mainly as a result of the increase in the amount of
cattle slaughtered during the period. The average sales price increased by 20.7% when compared to
the same period of last year, representing a growth of leather market prices.













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32

Exports

Exports
2Q07
2Q06
Var.%
2Q07/2Q06
1Q07
Var.%
2Q07/1Q07
1H07
1H06
Var.%
1H07/1H06
Net Sales Revenue
1
Fresh and Chilled Beef
486.1
431.5
12.6%
436.3
11.4%
922.3
754.2
22.3%
Processed Beef
197.2
135.5
45.6%
189.7
4.0%
386.9
314.3
23.1%
TOTAL
683.3
567.0
20.5%
626.0
9.2%
1,309.2
1,068.5
22.5%
Volume
2
Fresh and Chilled Beef
75.8
66.4
14.2%
73.0
3.8%
148.8
115.2
29.2%
Processed Beef
36.4
24.2
50.6%
30.5
19.2%
66.9
51.5
29.9%
TOTAL
112.2
90.5
23.9%
103.6
8.3%
215.7
166.7
29.4%
Average Sales Price
3
Fresh and Chilled Beef
6.41
6.50
-1.4%
5.97
7.3%
6.20
6.55
-5.3%
Processed Beef
5.42
5.61
-3.4%
6.21
-12.8%
5.78
6.10
-5.2%
TOTAL
6.09
6.26
-2.7%
6.04
0.8%
6.07
6.41
-5.3%
Average Sales Price
4
Fresh and Chilled Beef
3.24
2.97
8.9%
2.83
14.2%
3.03
2.99
1.5%
Processed Beef
2.73
2.56
6.7%
2.95
-7.2%
2.83
2.78
1.6%
TOTAL
3.07
2.86
7.3%
2.87
7.2%
2.97
2.92
1.5%
1
In millions
2
In thousands of tons
3
In R$/Kg
4
In US$/Kg

In the export market, JBS posted net revenues of R$683.3 million for the quarter, 20.5% higher than
the R$567.0 million registered in the 2Q06. This growth reflects an increase in export volumes of
23.9%, combined with an increase of 7.3% in average sales price in U.S. dollar terms, which was
partially offset by the appreciation in the average exchange rate of the Brazilian real against the U.S.
dollar of 9.4% in comparison to the 2Q06.

When compared to the 1Q07, net export revenues grew by 9.2%, reflecting an 8.3% increase in sales
volumes and the recovery in the average sales price in U.S. dollars of 7.2%, partially offset by the
appreciation in the average exchange rate of the Brazilian real against the U.S. dollar of 6.0%. This
recovery was marked by strong growth in the average sales price of fresh and chilled beef in U.S.
dollar terms of 14.2%. Average sales price of processed beef declined by 7.2%, mainly due to the
product mix sold during the period, with no significant changes in product prices when analyzed on an
individual basis.

On an year-to-date basis, net revenues from exports increased by 22.5% in comparison to the same
period of last year.


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33









Total export volumes grew by 23.9%, from 90.5 thousand tons in the 2Q06 to 112.2 thousand tons in
the 2Q07. In comparison to the 1Q07, export volumes rose by 8.3% and by 29.4% when comparing
the 1H07 with the 1H06. The following factors can be highlighted as the main drivers for the presented
results:

Growth in exports to the European Union, markedly to the United Kingdom, Holland and Italy;

Increased exports to Russia in comparison to the 2Q06, due to a gradual reduction of its cattle
herd and the consequent decrease in its production capacity, as commented during the 1Q07;

Higher export volumes to Africa, especially to Algeria;

Growth in markets which are being developed by the Company, such as the Philippines,
Venezuela and other countries in Latin America;

Increased exports of higher value added products, representing a growth of 50.6% in export
volumes of processed beef in comparison to the 2Q06;

In addition, it is important to highlight the strong growth of exports to Hong Kong, which now
represents 9% of total export revenues from 5% in the 2Q06. In the 2Q07, Europe remained as JBS'
main export destination.

The average sales price in U.S. dollar increased by 7.3% in the 2Q07 comparison to the 2Q06,
reflecting higher prices in the international market for both fresh/chilled and processed beef, which
minimized the impact generated by the appreciation in the average exchange rate of the Brazilian real
against the U.S. dollar of 9.4% during the period, when compared to the 2Q06.



Fresh Beef
76%
Processed
Beef
24%
2Q06: R$567 million
Fresh Beef
71%
Processed
Beef
29%
2Q07: R$683 million
Fresh Beef
70%
Processed
Beef
30%
1Q07: R$626 million
Source: JBS
Net Revenue Distribution ­ Exports
Net Revenue Distribution ­ Exports
Fresh Beef
76%
Processed
Beef
24%
2Q06: R$567 million
Fresh Beef
71%
Processed
Beef
29%
2Q07: R$683 million
Fresh Beef
70%
Processed
Beef
30%
1Q07: R$626 million
Source: JBS
Net Revenue Distribution ­ Exports
Net Revenue Distribution ­ Exports
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34












































Source : JBS
Exports Destinations ­ 2Q07
Exports Destinations ­ 2Q07
United
Kingdom
12%
Holland
11%
Russia
10%
Italy
9%
Others
29%
Spain
3%
Hong
Kong
9%
Egypt
4%
USA
9%
Germany
4%
United
Kingdom
11%
Russia
10%
Holland
8%
Italy
8%
USA
7%
Egypt
7%
Others
29%
Saudi
Arabia
5%
Hong Kong
5%
Bulgaria
5%
Germany
5%
Exports Destinations ­ 2Q06
Exports Destinations ­ 2Q06
Source: JBS
Source : JBS
Exports Destinations ­ 2Q07
Exports Destinations ­ 2Q07
United
Kingdom
12%
Holland
11%
Russia
10%
Italy
9%
Others
29%
Spain
3%
Hong
Kong
9%
Egypt
4%
USA
9%
Germany
4%
United
Kingdom
11%
Russia
10%
Holland
8%
Italy
8%
USA
7%
Egypt
7%
Others
29%
Saudi
Arabia
5%
Hong Kong
5%
Bulgaria
5%
Germany
5%
Exports Destinations ­ 2Q06
Exports Destinations ­ 2Q06
Source: JBS
Source: JBS
Exports Destinations ­ 1H07
Exports Destinations ­ 1H07
United
Kingdom
12%
Russia
10%
Holland
7%
Others
29%
Egypt
7%
Saudi
Arabia
4%
Bulgaria
4%
Germany
5%
Hong Kong
5%
USA
10%
Italy
7%
Exports Destinations ­ 1H06
Exports Destinations ­ 1H06
Source: JBS
Russia
12%
United
Kingdom
11%
Holland
10%
USA
9%
Italy
8%
Hong Kong
7%
Egypt
4%
Germany
4%
Spain
4%
Others
31%
Source: JBS
Exports Destinations ­ 1H07
Exports Destinations ­ 1H07
United
Kingdom
12%
Russia
10%
Holland
7%
Others
29%
Egypt
7%
Saudi
Arabia
4%
Bulgaria
4%
Germany
5%
Hong Kong
5%
USA
10%
Italy
7%
Exports Destinations ­ 1H06
Exports Destinations ­ 1H06
Source: JBS
Russia
12%
United
Kingdom
11%
Holland
10%
USA
9%
Italy
8%
Hong Kong
7%
Egypt
4%
Germany
4%
Spain
4%
Others
31%
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35

Income Statement Analysis

R$ million
2Q07
%
2Q06
%
1Q07
%
1H07
1H06
Net Sales Revenue
1,171.2
100.0%
935.8
100.0%
1,086.1
100.0%
2,257.4
1,821.9
Cost of Goods Sold
-890.3
-76.0%
-693.9
-74.1%
-828.5
-76.3%
-1,718.8
-1,375.6
Gross Margin
280.9
24.0%
241.9
25.9%
257.6
23.7%
538.5
446.4
Selling Expenses
-106.6
-9.1%
-104.9
-11.2%
-99.9
-9.2%
-206.5
-182.5
General and Adm. Expenses
-27.9
-2.4%
-13.2
-1.4%
-20.6
-1.9%
-48.5
-36.4
Net Financial Income (Expenses)
-72.7
-6.2%
-71.4
-7.6%
-57.0
-5.2%
-129.6
-113.5
Initial Public Offering Expenses
0.0
0.0%
0.0
0.0%
-50.6
-4.7%
-50.6
0.0
Amortization of Goodwill
-0.9
-0.1%
0.0
0.0%
0.0
0.0%
-0.9
0.0
Operating Income
72.8
6.2%
52.4
5.6%
29.6
2.7%
102.4
113.9
Non-Operating Income
0.8
0.1%
-5.8
-0.6%
0.1
0.0%
0.8
-5.7
Taxes and Social Contribution
-35.7
-3.1%
-14.5
-1.6%
-19.6
-1.8%
-55.3
-43.9
Minority Interest
0.9
0.1%
0.0
0.0%
0.5
0.0%
1.4
0.0
Net Income
38.7
3.3%
32.1
3.4%
10.6
1.0%
49.4
64.3


For the quarter, net operating revenue increased by 25.2% to R$1,171.2 million, from R$935.8 million
in the 2Q06, mainly due to a volume growth of 27.6% posted for the period. The increase in volume is
mainly a result of higher exports, which grew by 23.9%, and to higher volumes in the domestic
market, which increased by 29.7% in comparison to the 2Q06.

Compared to the 1Q07, net operating revenue grew by 7.8%, while in the first half of 2007, net
revenue increased by 23.9% in comparison to the same period of last year.

Cost of goods sold increased by 28.3% to R$890.3 million, from R$693.9 million in the 2Q06, mainly
due to an increase in the amount of cattle slaughtered during the period and to the higher sales
volumes posted for the quarter. As a percentage of net revenue, the cost of goods sold increased from
74.1% in the 2Q06 to 76.0% in the 2Q07, mainly as a result of an increase in the average cattle
acquisition cost in Brazil. Nevertheless, it is important to highlight that through the presented volume
growth and the optimization of its sales mix between the domestic and international markets, the
Company was able to realign its businesses in spite of the increase in costs and maintain the
profitability level close to the ones posted during previous periods.

As a result of the higher net operating revenue, gross profit grew by 16.1% to R$280.9 million in the
2Q07, from R$241.9 million in the 2Q06. Gross margin declined from 25.9% in the 2Q06 to 24.0% in
the 2Q07, as a consequence of the factors described above. In the 1Q07, the company posted a gross
margin of 23.7%.

Selling expenses increased from R$104.9 million in the 2Q06 to R$106.6 million in the 2Q07 as a
result of the growth in sales volumes in the period. As a percentage of net revenue, selling expenses
declined to 9.1% in the 2Q07, from 11.2% in the 2Q06. This decrease was mainly due to efficiencies
obtained during the period.
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36

Administrative expenses increased as a percentage of net revenue to 2.4% in the 2Q07, from 1.4% in
the 2Q06, mainly as a result of (i) non-recurring expenses related to services, such as advisory and
legal services, related to the acquisition of Swift Foods Company; and (ii) administrative expenses
related to the units not owned by the Company in the same period of last year, such as SB Holdings in
the United States and the Pontevedra, Venado Tuerto and Berazategui plants in Argentina. In the
1Q07, administrative expenses represented 1.9% of net revenue.

As a result of the factors described above, the Company's net income posted an increase of 20.8% to
R$38.7 million in the 2Q07, from R$32.1 million in the 2Q06.

For the quarter, EBITDA increased by 18.3% to R$165.2 million, compared to R$139.6 million in the
2Q06, while EBITDA margin declined to 14.1% compared to 14.9% in the same quarter of last year.

















CAPITAL EXPENDITURES
The Company's aggregate capital expenditures in property, plant and equipment, including
acquisitions, were R$112.7 million and R$77.2 million for the 2Q07 and 2Q06, respectively. On an
year-to-date basis, these expenditures amount to R$326.0 million.

During the quarter, JBS invested primarily in the sequence of the following projects, which began in
2006 and continued in the 1Q07:
EBITDA and EBITDA margin
EBITDA and EBITDA margin
139,6
165,2
156,2
260,2
321,4
14,2%
14,4%
14,3%
14,1%
14,9%
2Q06
2Q07
1Q07
1H06
1H07
EBITDA Margin (%)
18,3
%
23
,5
%
EBITDA and EBITDA margin
EBITDA and EBITDA margin
139,6
165,2
156,2
260,2
321,4
14,2%
14,4%
14,3%
14,1%
14,9%
2Q06
2Q07
1Q07
1H06
1H07
EBITDA Margin (%)
18,3
%
23
,5
%
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37

Increase of the production capacity of its processed beef plant located in Andradina, São Paulo
from 30 tons to 100 tons per day;

Increase of the production capacity of its plant located in Barra do Garças, Mato Grosso from
1,300 head of cattle slaughtered and deboned per day to 2,500 head of cattle slaughtered and
deboned per day;

Increase of the production capacity of its plant located in Campo Grande, Mato Grosso do Sul
from 1,300 head of cattle slaughtered and deboned per day to 3,000 head of cattle slaughtered
and deboned per day;

Increase of the production capacity of its plant located in Vilhena, Rondônia, from 900 head of
cattle slaughtered and deboned per day to 2,200 head of cattle slaughtered and deboned per
day;

Conclusion of a beef jerky production plant in Santo Antônio da Posse, São Paulo, which started
its operations in June with a production capacity of 250 tons per month;

Increase of the production capacity of its plant located in Barretos, São Paulo from 1,600 head
of cattle slaughtered and deboned per day to 2,500 head of cattle slaughtered and deboned per
day;

Other investments such as acquisition of new equipment and maintenance of the Company's
facilities;

DEBT LEVEL

R$ million
2Q07
1Q07
Var.%
2Q07/1Q07
Short-term Loans
544.0
1,073.4
-49.3%
Long-term Loans
1,685.0
1,869.0
-9.8%
Total Debt
2,229.0
2,942.4
-24.2%
Cash and Marketable Securities
816.4
1,468.9
-44.4%
Net Debt
1,412.6
1,473.5
-4.1%
Net Debt/EBITDA
2,3X
2,5x

The Company's total indebtedness is primarily comprised of credit lines with BNDES (Brazilian National
Development Bank), export financing transactions and Notes (Reg. S and 144A) with a face value of
US$575 million, with maturity in 2011 and 2016, of which US$275 million were issued at an interest
rate of 9.375% per annum, payable on a quarterly basis, and US$300 million at an interest rate of
10.50% per annum, payable on a semiannual basis. In the 2Q07, the Company's total debt declined
mainly due to the payment of some short-term obligations, as described in the explanatory notes to
the financial statements.
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38
RECENT EVENTS
In line with its expansion strategy and taking advantage of opportunities to consolidate the industry,
on April 30, 2007, JBS acquired a plant located in Maringá, state of Paraná, Brazil, with a slaughtering
capacity of approximately 1,000 heads of cattle per day. The total value of the acquisition was R$80
million. The Maringá plant is receiving investments of approximately R$10 million to expand its
slaughtering capacity to 1,500 heads per day.

Additionally, during the quarter, the Company inaugurated an industrial plant for the production of
beef jerky in Santo Antonio da Posse, state of São Paulo, with production capacity for 250 tons of
finished goods per month. Operations also began in the units of Teófilo Otoni, state of Minas Gerais,
with a slaughtering capacity of 700 heads of cattle per day, Pontevedra and Berazategui, Argentina,
both with a slaughtering capacity of 1,000 heads of cattle per day.

On June 5, 2007, JBS entered into the activity of cattle confinement, through the acquisition of a
confinement unit located in the city of Castilho, state of São Paulo, with an annual capacity to fatten
up to 150 thousand animals. The transaction amounted to R$30 million reais.

With the objective of strengthening its relationship with shareholders, investors and the market in
general and facilitating the flow of information, at the end of June, 2007, JBS decided to make the
Investor Relations Department independent. Investor Relations was previously a part of the Financial
Department, which will remain under the management of Mr. Sérgio Longo. The new department,
which will report directly to the CEO of JBS, will be led, upon the approval of the split of the
departments to be discussed on the next Extraordinary Shareholders Meeting, by Mr. José Paulo
Macedo, who holds a bachelor's degree in business administration from the Economics and Business
Administration School (FEA) of the University of São Paulo (USP), with more than 20 years of
experience at large financial institutions. JBS takes this opportunity to reiterate its long-term
commitment to the capital markets with the transparency and equality that have always guided its
relationship with investors.

SUBSEQUENT EVENT
As published on the relevant fact dated May 29, 2007, J&F Participações S.A. ("J&F"), the controlling
shareholder of JBS, entered into the Agreement and Plan of Merger ("Contract") with the objective of
acquiring the controlling interest of the Swift Foods Company
("Swift"), a company headquartered in
Delaware, United States. The acquisition of Swift was initially made by J&F so that JBS could adequate
its capital structure to the obligations and restrictions of the financial contracts in force, given that it
was never the intention of J&F, nor of its controlling shareholders, to maintain a beef business in
parallel to that of JBS.
On June 1, 2007, after examining the justifications and reasons for the acquisition of the controlling
interest of Swift by JBS, the Company's Board of Directors approved the investment recommendation
through the assignment by J&F to JBS of all rights and obligations assumed by J&F in the Contract
signed on May 25, 2007.
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39

On July 11, 2007, JBS concluded the acquisition of the controlling interest of Swift for
US$1,458,872,836.55, of which US$225,000,000.00 was paid to HM Capital Partners LLC, the former
controlling shareholder of Swift, and US$1,233,872,836.55 was used to retire the old debt of Swift
existing prior to the acquisition, in addition to fees, commission and expenses associated with the
acquisition process.

A substantial part of the funds used in the acquisition of Swift by JBS originates from the capital
increase of JBS approved at the Extraordinary Shareholders Meeting held on June 29, 2007, while the
remaining funds were obtained through new debt assumed by Swift upon the acquisition.

The conclusion of the Swift acquisition creates the world's largest company in the beef sector and the
largest Brazilian food company, consolidating JBS in the domestic and international beef markets and
making it an important player in the world pork industry. As a result, JBS will have production and
distribution capacity in Brazil, Argentina, United States and Australia, the four main beef producing
countries in the world. This position will enable the Company to (i) access the two blocks of trade
barriers: Atlantic and Pacific; (ii) diversify its risk regarding sanitary barriers; (iii) unify and strengthen
the Swift brand globally; (iv) capture value through the turnaround of Swift's operating performance
and take advantage of existing synergies within the businesses.

CAPITAL INCREASE
Given the importance of the investment by JBS in Swift, on June 8, 2007, after an examination by JBS'
administration of the alternatives for financing the investment in Swift, the Company's Board of
Directors understood that the best alternative was to finance the investment through a capital increase
at JBS.

On the Extraordinary Shareholders Meeting held on June 29, 2007, with a favorable vote from all
present shareholders, the Company's capital increase was approved for the amount of
R$1,853,833,020.00 (one billion, eight hundred fifty-three million, eight hundred thirty-three thousand
and twenty reais), through the issuance, for private subscription, of 227,400,000 (two hundred
twenty-seven million, four hundred thousand) new common shares with no par value, identical to the
existing shares, with the same rights conferred to the other common shares issued by the Company,
pursuant to the Company's bylaws and applicable legislation. The sole issue price of each of the new
common shares was R$8.1523 per share. Shareholders of JBS up until the date of the Extraordinary
Shareholders Meeting were given preemptive rights to the subscription of the new shares, pursuant to
Article 171 of Law 6,404/76. Furthermore, approval was obtained for the waiving of the obligation to
hold a public tender offer for the acquisition of the totality of shares issued by the Company in the
event that a shareholder may reach a position, after the formalization of the approved capital increase,
of shares representing more than 10% (ten percent) of the Company's capital stock, given that the
transaction is in the Company's best interest, as provided by Article 52, Paragraph 8, of the bylaws of
JBS.



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40

As published in the relevant fact dated June 27, 2007, BNDES Participações S.A. ­ BNDESPAR
("BNDESPAR", the private equity arm of BNDES) committed to subscribe to a significant portion of the
new common shares representative of the capital stock of JBS, providing for a significant interest by
BNDESPAR in the funds raised by JBS for the acquisition of Swift through the capital increase of JBS.
The investment commitment of BNDESPAR in JBS was of up to R$1,463,552,345.17 and the
commitment of J&F Participações S.A. ("J&F") and/or ZMF Fundo de Investimento em Participações
("ZMF"), both shareholders in JBS, was of up to R$ 390,280,674.83, or the total value of the proposed
capital increase. The subscription of shares of JBS by BNDESPAR was effected through the assignment
of a portion of the preemptive rights of J&F and/or ZMF in the subscription of new shares of JBS.

The period for the exercise of the preemptive rights by minority shareholders ended on July 31, 2007,
while the period for the subscription of remaining shares by interested shareholders is currently in
course and will end on August 21, 2007. The table below shows the subscription results of the capital
increase of JBS until July 31, 2007, as published on the notice to the market released on August 6,
2007.

After the conclusion of the period for the subscription of the remaining shares, JBS will communicate
its shareholders and the market in general of the Company's new capital structure.

Shareholders
Amount of Shares
% of Capital
Increase
J&F Participações S.A.
36,491,360
16.05%
BNDES Participações S.A. - BNDESPAR
136,842,600
60.18%
Other Shareholders
49,783,821
21.89%
Remaning Unsubscribed shares
4,282,219
1.88%
Total
227,400,000
100.00%
















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41
CONTACTS







Corporate Headquarters
Avenida Marginal Direita do Tietê, 500
Cep: 05111-100 São Paulo ­ SP
Brazil
Phone: (5511) 3144-4000
Fax: (5511) 3144-4279
www.jbs.com.br
Sérgio Longo
Director of Finance and Investor Relations
Phone: (5511) 3144-4224
Email: sergiolongo@jbs.com.br
José Paulo Macedo
Director
Phone: (5511) 3144-4224
Email: jpmacedo@jbs.com.br
André Gustavo Menezes
Investor Relations Manager
Phone: (5511) 3144-4055
Email: ir@jbs.com.br






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42
FINANCIAL STATEMENTS
in thousands of Reais
30.06.07
31.03.07
30.06.07
31.03.07
ASSETS
CURRENT ASSETS
Cash and cash equivalents
60.732
1.187.581
97.351
1.221.931
Short-term investments
676.492
206.113
719.032
246.941
Trade accounts receivable, net
568.655
708.215
636.757
747.879
Inventories
576.338
631.764
750.077
785.016
Recoverable taxes
423.690
437.405
522.245
546.361
Prepaid expenses
2.575
7.639
6.549
10.336
Other current assets
64.881
46.063
102.525
68.184
TOTAL CURRENT ASSETS
2.373.363
3.224.780
2.834.536
3.626.648
NON-CURRENT ASSETS
Long-term assets
Credit with related parties
48.227
34.067
0
0
Judicial deposits and others
6.608
5.665
9.173
8.915
Deferred income taxes
16.722
16.853
23.933
25.572
Recoverable taxes
27.256
24.129
38.066
33.670
Total Long-term assets
98.813
80.714
71.172
68.157
Permanent assets
Advances for investments in subsidiaries
44.114
0
0
0
Investments in subsidiaries
490.931
516.460
20.050
20.988
Other investments
10
10
10
10
Property, plant and equipment, net
1.096.718
1.034.002
1.401.504
1.311.542
Intangible assets, net
9.615
9.615
22.870
23.806
Total Permanent assets
1.641.388
1.560.087
1.444.434
1.356.346
TOTAL NON-CURRENT ASSETS
1.740.201
1.640.801
1.515.606
1.424.503
TOTAL ASSETS
4.113.564
4.865.581
4.350.142
5.051.151
The accompanying explanatory notes are an integral part of the financial information
Company
Consolidated
Balance Sheet - Assets
JBS S.A. and its Subsidiaries
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43
in thousands of Reais
30.06.07
31.03.07
30.06.07
31.03.07
LIABILITIES AND SHAREHOLDER´S EQUITY
CURRENT LIABILITIES
Trade accounts payable
248.152
279.981
343.481
340.806
Loans and financings
449.175
981.276
543.970
1.073.432
Payroll and social charges
103.485
90.466
121.564
114.045
Other current liabilities
69.394
114.385
80.242
117.405
TOTAL CURRENT LIABILITIES
870.206
1.466.108
1.089.257
1.645.688
NON-CURRENT LIABILITIES
Loans and financings
1.676.778
1.868.978
1.685.013
1.868.978
Deferred income taxes
61.312
61.984
61.312
61.984
Provision for contingencies
49.182
49.568
55.194
55.467
Other non-current liabilities
23.670
25.255
29.069
26.626
TOTAL NON-CURRENT LIABILITIES
1.810.942
2.005.785
1.830.588
2.013.055
MINORITY INTEREST
0
0
(2.119)
(1.280)
SHAREHOLDERS' EQUITY
Capital stock
91.748
91.748
91.748
91.748
Capital reserve
1.160.776
1.160.776
1.160.776
1.160.776
Revaluation reserve
127.475
129.199
127.475
129.199
Retained earnings
52.417
11.965
52.417
11.965
TOTAL SHAREHOLDERS' EQUITY
1.432.416
1.393.688
1.432.416
1.393.688
TT LIABILITIES AND SHAREHOLDERS' EQUITY
4.113.564
4.865.581
4.350.142
5.051.151
The accompanying explanatory notes are an integral part of the financial information
Company
Consolidated
Balance Sheet - Liabilities and shareholders' equity
JBS S.A. and its Subsidiaries
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44
in thousand of Reais
2007
"Pro Forma"
2006
2007
"Pro Forma"
2006
GROSS SALES REVENUE
Sales of products:
Domestic sales
516.363
374.718
576.634
427.711
Foreign sales
560.782
565.549
716.192
578.142
1.077.145
940.267
1.292.826
1.005.853
SALES DEDUCTIONS
Returns and discounts
(34.179)
(18.291)
(41.305)
(30.914)
Sales taxes
(64.628)
(39.101)
(80.305)
(39.101)
(98.807)
(57.392)
(121.610)
(70.015)
NET SALE REVENUE
978.338
882.875
1.171.216
935.838
Cost of goods sold
(721.607)
(653.809)
(890.337)
(693.914)
GROSS INCOME
256.731
229.066
280.879
241.924
OPERATING INCOME (EXPENSE)
General and administrative expenses
(16.131)
(10.022)
(27.904)
(13.200)
Selling expenses
(94.576)
(98.437)
(106.630)
(104.927)
Financial income (expense), net
(53.620)
(68.617)
(72.657)
(71.359)
Equity
(19.689)
1.781
-
-
Initial Public Offering expenses
(27)
-
(27)
-
Goodwill amortization
(867)
-
(867)
-
(184.910)
(175.295)
(208.085)
(189.486)
OPERATING INCOME
71.821
53.771
72.794
52.438
NON-OPERATING INCOME (EXPENSE), NET
(78)
(6.120)
772
(5.829)
INCOME (LOSS) BEFORE TAXES
71.743
47.651
73.566
46.609
Current income taxes
(32.884)
(15.596)
(34.500)
(14.512)
Deferred income taxes
(131)
-
(1.232)
-
(33.015)
(15.596)
(35.732)
(14.512)
INCOME (LOSS) BEFORE MINORITY INTEREST
38.728
32.055
37.834
32.097
Minority interest (expense) income
-
-
894
(42)
NET INCOME (LOSS)
38.728
32.055
38.728
32.055
NET INCOME (LOST) PER SHARE
45,56
Statement of EBITDA (Earnings before income taxes,
interest, depreciation and amortization and non-operating
income (expense), net
2007
"Pro Forma"
2006
2007
"Pro Forma"
2006
Income (loss) before income taxes
71.743
47.651
73.566
46.609
Financial income (expense), net
53.620
68.617
72.657
71.359
Depreciation and amortization
13.946
11.887
18.852
15.796
Non-operating income (expense), net
78
6.120
(772)
5.829
Equity
19.689
(1.781)
-
-
Initial Public Offering expenses
27
-
27
-
Goodwill Amortization
867
-
867
-
AMOUNT OF EBITDA
159.970
132.494
165.197
139.593
The accompanying explanatory notes are an integral part of the financial information
Company
JBS S.A. and its Subsidiaries
STATEMENTS OF INCOME FOR THE PERIOD OF THREE MONTHS ENDED
JUNE 30, 2007 AND 2006
Consolidated
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45
in thousand of Reais
2007
"Pro Forma"
2006
2007
"Pro Forma"
2006
GROSS SALES REVENUE
Sales of products:
Domestic sales
1.011.343
781.800
1.127.400
877.502
Foreign sales
1.083.661
978.956
1.367.799
1.087.701
2.095.004
1.760.756
2.495.199
1.965.203
SALES DEDUCTIONS
Returns and discounts
(72.152)
(34.480)
(87.572)
(57.509)
Sales taxes
(126.824)
(85.745)
(150.273)
(85.745)
(198.976)
(120.225)
(237.845)
(143.254)
NET SALE REVENUE
1.896.028
1.640.531
2.257.354
1.821.949
Cost of goods sold
(1.391.653)
(1.216.050)
(1.718.832)
(1.375.581)
GROSS INCOME
504.375
424.481
538.522
446.368
OPERATING INCOME (EXPENSE)
General and administrative expenses
(30.984)
(26.084)
(48.471)
(36.357)
Selling expenses
(183.649)
(168.201)
(206.524)
(182.513)
Financial income (expense), net
(93.477)
(89.073)
(129.640)
(113.549)
Equity
(41.400)
(24.667)
-
-
Initial Public Offering expenses
(50.591)
-
(50.591)
-
Goodwill amortization
(867)
-
(867)
-
(400.968)
(308.025)
(436.093)
(332.419)
OPERATING INCOME
103.407
116.456
102.429
113.949
NON-OPERATING INCOME (EXPENSE), NET
(10)
(6.301)
832
(5.700)
INCOME (LOSS) BEFORE TAXES
103.397
110.155
103.261
108.249
Current income taxes
(54.698)
(45.839)
(56.574)
(43.907)
Deferred income taxes
672
-
1.257
-
(54.026)
(45.839)
(55.317)
(43.907)
INCOME (LOSS) BEFORE MINORITY INTEREST
49.371
64.316
47.944
64.342
Minority interest (expense) income
-
-
1.427
(26)
NET INCOME (LOSS)
49.371
64.316
49.371
64.316
NET INCOME (LOSS) PER SHARE
58,08
Statement of EBITDA (Earnings before income taxes,
interest, depreciation and amortization and non-operating
income (expense), net
2007
"Pro Forma"
2006
2007
"Pro Forma"
2006
Income (loss) before taxes
103.397
110.155
103.261
108.249
Financial income (expense), net
93.477
89.073
129.640
113.549
Depreciation and amortization
27.819
20.194
37.899
32.694
Non-operating income (expense), net
10
6.301
(832)
5.700
Equity
41.400
24.667
-
-
Initial Public Offering expenses
50.591
-
50.591
-
Goodwill Amortization
867
-
867
-
AMOUNT OF EBITDA
317.561
250.390
321.426
260.192
The accompanying explanatory notes are an integral part of the financial information
Company
JBS S.A. and its Subsidiaries
STATEMENTS OF INCOME FOR THE PERIOD OF SIX MONTHS ENDED
JUNE 30, 2007 AND 2006
Consolidated
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46








































This release contains forward-looking statements relating to the prospects of the business, estimates
for operating and financial results, and those related to growth prospects of JBS. These are merely
projections and, as such, are based exclusively on the expectations of JBS' management concerning
the future of the business and its continued access to capital to fund the Company's business plan.
Such forward-looking statements depend, substantially, on changes in market conditions, government
regulations, competitive pressures, the performance of the Brazilian economy and the industry, among
other factors and risks disclosed in JBS' filed disclosure documents and are, therefore, subject to
change without prior notice.