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RAO 2008 English
 

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    RAO 2008 English RAO 2008 English Document Transcript

    • AnnuAl RepoRt 2008 theRe is one thing thAt is devAstAting when lAcking but, if developed And encouRAged, hAs the potentiAl of bReeding unpRecedented success in All dimensions of life. this thing is tRust. “no chAin cAn be stRongeR thAn its weAkest link. ” Jbs suppoRts the sustAinAble development of the livestock chAin.
    • indicAtoRs net profit . R$ million ebitdA . R$ million consolidated gross profit . R$ million 1,156.1 31,106 158 25 -165 602 547.8 14,727 4,749 06 07 08 06 07 08 06 07 08 total Assets . R$ million cash flow final net debt/ebitdA 2008 balance . R$ million 16,096 2,292 2.89x 2.77x 2.31x 1.95x 1,382 8,448 3,464 261 06 07 08 06 07 08 1º tri 2º tri 3º tri 4º tri .2.
    • mission, cReed And vAlues the mission of Jbs s.A. “Maximise the value of each animal in a sustainable way”. compAny cReed “As we believe that one of the main competitive differences is the quality of our people, and as we believe that, no matter how simple the position may be, well-prepared and motivated personnel make the difference, we consider Human Capital as the main asset of our company. Mainly through our people we manage to innovate, create, improve and grow. This capital, when well used and with adequate support, enables us to achieve the results necessary for the perpetuation of JBS”. ouR vAlues : Planning : Determination : Discipline : Availability : Frankness : Simplicity .3.
    • history of Jbs the history of Jbs has been marked by the acquisition of more than 30 units over the last 15 years, with appropriate capital and management structure. Inalca – ITA Swift Foods Co. – EUA/AUST. Maringá (Amambai) – BR Berazategui (Rio Platense) – ARG Colonia Caroya – ARG SB Holdings – EUA JV Beef Jerky – BRA/EUA Tasman – AUST Smithfield Beef – EUA Five Rivers – EUA Rio Branco – BR Cacoal 1 – BR Barretos Cacoal 2 – BR Venado – ARG (Anglo) – BR Porto Velho – BR Tuerto – ARG Pres. Epitácio Vilhena Pontevedra – ARG (Bordon) – BR (Frigovira) – BR (CEPA) – ARG Barra do Garças Campo Grande (Sadia) – BR (Bordon) – BR 19.8 Cáceres Pedra Preta (Frigosol) – BR (Frigo Marca) – BR Goiânia Andradina Araputanga Iturama Rosário (Anglo) – BR (Sadia) – BR (Frigoara) – BR (Frigosol) – BR (Swift) – ARG 12.7 San Jose (Swift) – ARG Anápolis (Bordon) – BR 1.5 1.9 0.7 1.2 0.3 0.4 0.4 0.5 0.5 0.4 93 96 97 99 00 01 02 03 04 05 06 07* 08** R$/US$ exchange rate at the end of the year. R$/US$: 2,337 2.337 Source: JBS * Pro forma JBS S.A. LTM Dec07 (includes JBS USA) ** Pro Forma JBS S.A. LTM Dec08 (includes JBS USA, Tasman and 50% of Inalca); Smithfield Beef LTM Dec08 growth in slaughtering capacity (head/day) Acquisitions ensuRe An 65,700 51,400 5 500 5,800 22,600 incReAse in 53 70 02 06 07 08 slAughteRing cApAcity .4.
    • index AnnuAl RepoRt 2008 Jbs historical overview Jbs today .6. .7. who Jbs is . 14 . message from the president . 16 . message from the . 18 . board of directors segments of Activity . 20 . Acquisitions . 27 . corporate governance . 30 . operations and . 39 . commercial Relationships financial performance . 46 . consolidated brands . 49 . sustainability . 53 . corporate information . 65 . financial statements . 67 . .5.
    • Jbs oveRview 55 yeARs of impoRtAnt Acquisitions And stRong inteRnAtionAl JBS have expanded the Company business based on the business spirit in management, the vocation for leadership and the quality of employees and collaborators. Innovative pResence actions have turned this company into the largest world producer of meat and the largest Brazilian food company. 1953 1968 1970 1981 a 2002 Significant expansion of the Brazilian operation through the José Batista Sobrinho purchase of slaughtering units starts operation of a small With the purchase of another and also units producing fresh Acquisition of the first slaughterhouse in the city cattle-slaughtering unit in and industrialised meat, as also slaughtering unit in of Anápolis (GO), with a Luziânia (GO), production as investments in increasing Planaltina (DF). capacity of handling five soars to 500 heads a day. the production capacity. In heads of cattle per day. this period, the slaughtering capacity reaches 5.8 thousand heads per day. 2005 2007 2008 Internationalization. IPO. Consolidation of Acquisition of Swift Acquisition of Swift EUA. globalization. Constant Argentina. Start of globalization search for efficiency. .6.
    • Jbs todAy JBS is now the largest beef producer in the world, with The operations in the United States have a total of a capacity to slaughter 65.7 thousand heads of cattle per 17,900 employees and production is distributed among day. The Company is also the largest world exporter of beef, 18 units with a total slaughtering capacity of 28,600 heads with access to all world markets, and also has production of bovine cattle per day, 48,500 pigs per day, 4,500 small platforms in the four largest world producers, namely Brazil, animals per day, and 11 confinement pens with a static Argentina, Australia and the United States. capacity to fatten 820,000 thousand heads of cattle. The Company produces both fresh and processed The JBS operations in Australia are distributed among beef, ready meals, preserved vegetables, beef by-products, 10 plants with a total capacity to slaughter 8,500 heads of and also fresh pork meat. The Company is market leader for cattle per day and 15,000 small animals daily. beef on the Brazilian, Argentinean and Australian markets, In Italy, Inalca JBS has more than 2 thousand and also the third largest beef-producing company on employees, 8 production plants and the capacity to slaughter the American market. With a slaughtering capacity of 48.5 3,000 heads of bovine cattle per day. This Company has thousand heads per day, JBS has become the third largest an additional distribution platform in countries such as the producer of pork in the United States. United Kingdom, Russia, Angola, the Congo, Algeria, the The Company operations are carried out in several Democratic Republic of the Congo and Poland. different units in Brazil, Argentina, the United States, Italy and Australia, and this has provided access to all the consumer markets of the world, operational flexibility in production, low distribution of production units in 2008 transport costs, both for transporting the cattle to the units and for transporting the products to the end clients, and a Brazil lower risk of phytosanitary problems. Australia JBS has a structure of low cost, efficient operating USA cycle and high-quality products. All platforms have a Argentina sustainable and long-term relationship with clients around Italy the world. JBS Brazil serves these clients through the Company’s 22 Production Units, with a capacity to slaughter 8 18,900 heads of cattle per day and with a total workforce of 16,900 employees in Brazil. 22 In JBS Argentina, there are six slaughterhouses with 6 a total capacity of 6,700 heads/day as well as production of industrialised products and one tin packaging factory, with a total of 5 thousand employees in that country. 18 10 .7.
    • Jbs woRldwide globalized production and distribution platform JBS NO MUNDO Slaughterhouse (Beef) Slaughterhouse and Industry Distribution Center Vegetable Canning Plant Beef Canning Plant JBSBeefMUNDO NO Jerky Plant (Beef Snack’s) Slaughterhouse (Pork) Abatedouro Slaughterhouse (Lamb) Abatedouro ePork Processing Plant Beef and Indústria Centros de Distribuição Plant Wet Blue Processing Indústria de Vegetais em Conserva Headquarters Office Indústria de Carne Enlatada Feed Lot Indústria de beef Jerky (Beef Snack’s) Package Industry Indústria de Carne Suína Inland Container Terminal Indústria de Carne Ovina Commercial Office Processamento de Carne Bovina e Suína Curtume Sede Administrativa .8. Confinamento Indústria de Embalagens
    • Jbs bRAzil description : 19 slaughtering units situated in Brazil, in the States : The operations of JBS Brazil are carried out by 22 of Acre, Goiás, Mato Grosso, Mato Grosso do Sul, production units, with a total capacity of slaughtering Minas Gerais, Rondônia, São Paulo and Paraná, 18,900 heads of cattle per day, and more than five of which also have the capacity to produce 16,900 employees; industrialised products; : The clients of JBS in Brazil are essentially sellers, : One plant for tin packaging, in the State of Rio de restaurants and leather tanning units (curtumes). The Janeiro, Brazil; current client portfolio of JBS includes more than : One plant for tin packaging for vegetables, in Minas 6,000 companies on the internal market; and Gerais, Brazil; : JBS is the largest Brazilian exporter of bovine : One plant for jerked beef in São Paulo, Brazil; and products, with a turnover of US$1.1 billion in 2007, : One confinement site in the State of São Paulo, Brazil. according to the Secretariat for Foreign Trade (SECEX). The Company is also the 22nd largest exporter in Brazil, considering all segments. clients In 2008, a total of 11,240 clients were served on the platform domestic market, and 436 on the overseas market, in more At this moment, the Company plants are distributed than 100 countries, especially Russia, the United Kingdom, as follows: Iran, Hong Kong and Saudi Arabia. AC RO AC ROMT JBS IN BRAZIL GO MT MG MS Slaughterhouses GO JBS NO BRASIL Slaughterhouses and Industry SP RJ MG PR MS Distribuition Centres Units AbatedourosVegetables for Preserved SP RJ Units AbatedourosBeef for Preserved e Indústria : total kill capacity: 18,900 Administrative Office Centros de Distribuição PR heads of cattle/day. Container Yard de Vegetais em Conserva : 16,900 employees. Indústria Confinement Unit : amount of plants: 22 Indústria de Carne em Conserva Sede Administrativa Pátio de Containers Confinamento .9.
    • Jbs ARgentinA description platform : In 2005, JBS acquired Swift, now known as JBS At this moment, the Company plants in Argentina are Argentina, with a capacity to slaughter 6,700 heads distributed as follows: of cattle per day and more than 5,000 collaborators; : Six slaughtering units in Four provinces (Buenos Aires, : The Company was the first packaging industry in Entre Ríos, Santa Fé and Córdoba), of which five also Argentina to receive the ISO 9001:2000 certification for have the capacity to produce industrialised meats; the whole process of production of processed meats; : One plant for tin packaging, in the province of : In Argentina, the Company is absolute market leader Buenos Aires. in the segment of industrialised meats for the internal market, with a market participation of 77% of all clients sales of 2007. The client portfolio consists of 786 JBS Argentina has a total of more than 650 clients companies; and internally and 140 clients on the export market, serving 43 : Last year, JBS Argentina was responsible for 87% of countries, especially the European Union, the United States, all the industrialised beef sold in the country, which Uruguay, Israel and Canada. exported to the United States, Europe and about 190 other clients. SF SF CO ER CO ER BA BA JBS NA ARGENTINA JBS IN ARGENTINA Abatedouros Slaughterhouses Abatedouros e Indústria Industry : total kill capacity: 6,700 Slaughterhouses and heads of cattle/day. Escritório Administrative Office : 5,000 employees. : amount of plants: 7 . 10 .
    • Jbs united stAtes description : 3 pig-slaughtering plants in Minnesota, Iowa and : The operations of JBS USA are carried out by 18 Kentucky; production units, with a total capacity of slaughtering : 1 sheep-slaughtering plant in the state of Colorado; 28,100 heads of cattle per day, 47,900 pigs per day, : 1 leather tanning unit in Texas; and 4,000 heads of sheep per day, as well as 11 : 2 units for production of preserved meat (jerked beef) confinement units with a total capacity of fattening in Minnesota and Texas; 820,000 heads of cattle. : 2 grease units in Pennsylvania; and : The operation has more than 24,200 employees; and : 11 confinement units in the states of Colorado, Texas, : The Company has been well known as a supplier of Oklahoma, Kansas, Ohio and Idaho. prime-quality beef and pork for more than 150 years. clients platform JBS Argentina has a total of more than 3,900 At this moment, the Company plants in the United clients in the United States and some 500 clients on the States are distributed as follows: export market, serving 37 countries, especially Mexico, : 8 slaughtering units in the states of Colorado, Utah, Canada, Taiwan, South Korea and Hong Kong. Texas, Nebraska, Wisconsin, Michigan, Pennsylvania and Arizona; MN MN WL WL CT IA NE NJ CT IA IL UT NE NJ CA CO KY IL CA AZ UT CO KY AZ TX FL JBS IN EUA TX FL Cattle Slaughterhouses JBS NOS EUA Distribution Centres : total kill capacity: 80,000 Pig Slaughterhouses heads of cattle/day. Abatedouros Bovinos Pig and Cattle Slaughterhouses : 24,200 employees. Centros de Distribuição Sheep Slaughterhouses : amount of plants: 18. Abatedouro Bovino e Suíno Administrative Headquarters Abatedouro Suíno Offices Abatedouro Ovino Sede Administrativa . 11 . Case Ready (pratos prontos)
    • Jbs AustRAliA description platform : The operations of JBS Australia are carried out by 10 At this moment, in Australia, the Company plants are production units, with a total capacity of slaughtering distributed as follows: 8,500 heads of cattle per day and 16,500 heads : 10 slaughtering units for cattle, sheep and pigs; and of sheep and pigs. In addition, the Company has : 5 confinement units in Queensland and New South some 6,900 employees; Wales. : TBS Australia is the largest meat processor and exporter on the Australian market, having a commercial clients relationship with more than 30 countries, mostly on the JBS Australia has a total of 185 clients in the United Pacific coast and in North America. States and some 400 clients on the export market, serving 35 countries, especially South Korea, China, Japan, Taiwan and Indonesia. Queensland Queensland Western Australia Southn Australia Western Australia New South Wales Southn Australia New South Wales Victoria Victoria JBS IN AUSTRALIA : total kill capacity: 25,000 heads of cattle/day. Cattle Slaughterhouses : 6,900 employees. Distribution Centres : amount of plants: 10 Administrative Headquarters Confinement Units JBS NA AUSTRÁLIA . 12 . Abatedouros Centros de Distribuição
    • inAlcA Jbs itAly description distribution : The Italian operation is responsible for the : Moscow (Russia) production of fresh bovine meat, as also as : St. Petersburg (Russia) processed and smoked meats and snacks, through : Luanda (Angola) a jointventure with the Cremonini Group; : Lobito (Angola) : Turnover of US$1,039 million and assets of US$771 : Melangie (Angola) million; : Brazzaville (Congo) : The production division is responsible for two : Point-Noire (Congo) companies: NALCA SpA and Montana Alimentari SpA; : Algiers (Algeria) : Largest producer of beef in Italy; : Largest producer of industrialised beef in Europe; production units : Largest producer of hamburgers in Italy; : Poland – Slaughterhouse : The Company is the only non-American supplier of : Moscow – Logistics and Distribution McDonald’s; : Capillarity in distribution throughout Europe, Africa clients and Russia; INALCA JBS has a base of more than 8,000 clients : Benchmark in technology in the market for cattle internally and also 660 on the external market, serving 65 countries, slaughtering; especially France, Spain, Greece, England and Germany. : 10 production plants; : Production capacity of 800,000 heads of cattle per year; : 40,000 tonnes of hamburgers per year; and : 2,019 collaborators. : total kill capacity: 800,000 heads of cattle/day. JBS IN ITALY : 2,019 employees. : amount of plants: 10 Slaughterhouses NA JBS ITÁLIA Abatedouros . 13 .
    • who Jbs is pioneeRism hAs been the mARk of the The year of 2007 has been important in the history of JBS as the start of the globalisation of the Company, while the year of 2008 has seen the consolidation of this movement. In pAth tRAiled 2007, JBS purchased the Swift Foods Company, in the USA, with units in that country and also in Australia, now known as JBS USA and JBS Australia. In 2008, JBS announced the by Jbs completion of purchase of a 50% stake in Inalca, the largest producer of beef in Italy, as also of Smithfield Beef Group, Inc. and the Tasman Group, the former being situated in the United States and the latter in Australia. The success of the Company is backed up by The acquisitions in 2008 have consolidated the business spirit and by a pioneer approach, both very strongly globalisation of the Company and also strengthen the JBS present in JBS management. strategy of geographical diversification of their production JBS S.A. was the first company to be structured and distribution units, thereby reaffirming the Company’s professionally, in the meat industry in Brazil. The strategic vision, global presence in the main meat-producing countries, focused on an expansion policy, started the internationalisation and with access to 100% of the consumer markets. This of the Company in 2005 with the purchase of Swift Argentina. production platform makes JBS a company that holds The following year, the Company became a sociedade global leadership in the beef segment, and which exports to anônima (like a PLC in the United Kingdom) and, in March the most important importing countries in this segment. 2007, promotes a new milestone on the São Paulo Stock The JBS management style also includes a search for Exchange. With the opening of the Company’s capital in 2007, modernity, quality of products and raw materials, construction JBS strengthened its pioneer spirit, being the first company in of relationships with partners, clients, collaborators and society the meat-packing segment to trade its shares on the Stock in general, satisfaction of shareholders, and a commitment to Exchange. The opening of the Company’s capital shows the issues of social and environmental responsibility. advances made by JBS, which thus consolidates the best JBS is dedicated to the production of fresh and chilled practices of Corporate Governance which the Company has beef, processed beef, fresh and chilled pork, and also beef always practiced, making the market more transparent. and pork by-products. . 14 .
    • JBS is present in all the world’s consumer markets thanks volume sold . thousand tonnes – 2008 to its productive strategy, with plants in the main beef-producing domestic market (1,343) countries – Brazil, Argentina, the United State, Italy and Australia Fresh – and also leadership in terms of exports, serving 110 countries. Processed JBS also has, as their strategy for the consolidation of global Others presence, a strong and well-structured policy of acquisitions. 6.9% In 2008, they tightened their grip on the North American market 2.4% with the purchase of Australian company Tasman for some US$150 million, and also the takeover of Smithfield Beef, which operates in the United States. JBS analyses companies throughout the world, to identify those that have good market potential but which are not able to establish an efficient management system. On takeover, the companies go through a period of financial cleansing and then the JBS standards of management are enforced. This means that there has been the start of a process of optimisation of the results of these production units and also the unification of Company culture. 90.7% Nowadays, JBS is active in the food and transport segments, and, in all the countries where the Company is volume sold . thousand tonnes – 2008 present, has a total of 48.9 thousand collaborators which export market (419) contribute towards the success of the Company. Fresh The JBS operations are structured in five segments: Processed : JBS Brazil : JBS Argentina 6.2% : JBS United States : JBS Australia : JBS Italy (Inalca) 93.8% . 15 .
    • messAge fRom the pResident Joesley mendonça batista President of JBS S.A. We kept at 2008 the same growing rate that Not less important, at 2008 JBS retaken the newly characterized Company’s management on last years, with USA’S purchased company results, between fixed costs worldwide presence in the main producer and customer reduction, operational efficiency improvement, larger scale markets for our products. Our global production platform and focus on details. Those points, due they are inside factors is consolidated, with many challenges as our culture – not exposed to market conditions – created a scenario to implantation in those unities, processes integration and Company continue presenting sustainable results. costs structure revision, that resulted in efficiency and Positive results were ensured thanks to excellent improvement increasing – we optimize our resources on JBS positioning on its main markets. EBITDA margin production processes managing, speed up our production maintenance in the 4% rate probes JBS solidity and risk unities supplying and fresh products delivery, with quality to management capacity. our customers. Company also work on is de-leverage, reducing the Company attitudes were a preparation for worldwide relation between liquid debt on EBITDA from 3.64 at 2007 to economic crisis. With the turnover in worldwide credit 1.95 at 2008. Worked with debt basically funding its working market and lower funding lines availability on international capital, not having problem to refund its short time debts in financial markets, we turn our focus to the Company the moments of low liquidity market. At 2008 also began to economic health, rather than to continue growing, as was balance geographically its debt, with incomes generation on occurring to this moment. Between adversities we were each operation country. in face of there are strong increase on cattle prices, low The Company belief in its values reflect on management cattle availability due a cyclic herd deterioration and the attitudes, as the adoption of additional corporative governance high appreciation of Brazilian currency, Real, in the first half practices in relation to that is required by law and the own of year - that prejudices our products competitiveness on regulation of New Market from BM&FBovespa, as the existence international market. of audit, Finances, People Management and Enterprise Strategy Although in face of this scenario, we close 2006 with committees,. On this last comittee, a detach for Sustainability R$ 30.3 billion of net income, that represents more tan two quaestions. We have sustainability programs suitable to each times last year income, a 114.5% growing and R$ 1.2 billion production unities, that includes environment, natural resources of EBITDA, 95.6% higher than 2007. use, wastes treatment and social actions. . 16 .
    • with Although pointing to 2009 as a year to conservative business management movements, JBS demonstrates that its growing strategy has been being correct. Company conseRvAtive is taking advantage of opportunities as firms acquisitions, where its management model, between efficiency improvement and costs reduction, can increase its resuls. At mAnAgement 2008 we incorporate to our portfolio Inalca operations, Italian firm responsible by fresh beef, manufactured, smoked and snacks production, between Association with Cremonini And A focus group, Tasman Australian group, and Smithfield Group beef unity (Smithfield Beef), in United States, and its confining operations known as Five Rivers, are now respectively on Results, named as: “ JBS Packerland” and “JBS Five Rivers”. Those acquisitions represents the conclusion of investments plan to build a slaughtering, production and Jbs envisAges trading platform sustainable, on EUA and Australia, that began at July, 2007, between Swift & Company acquisition. The next years, we believe, Will be marked by JBS oppoRtunities distribution global platform integration and expansion, to consolidate each more our strategy to create the largest world company of direct distribution of beef, cooled and Amid moments freeze dairy products. This report shows JBS’S management solidity and the trust that company entrust on its more than 48.9 thousand of tuRbulence employees around the world. . 17 .
    • messAge fRom the boARd of diRectoRs constAnt JBS is structured to grow by replicating its business model and taking opportunities that place the Company closer to the supplier markets and producers. The Company gRowth, is therefore in an excellent position to take on the current phase of the world economy, with solid financial health and a conservative management in the main markets. And solidity JBS has its main asset in its team of collaborators. The innovation capacity and the ability to meet even the strictest consumer expectations have led JBS to levels of excellence which make the Company look to the future with confidence. Even with the negative factor of the world financial crisis, which hit the markets as from October 2008, JBS managed to build a solid base to make their business permanent. The geographical expansion has ensured presence close to the Ever since the Company was set up in 1951, with clients, thereby bringing significant reductions of operational a slaughtering capacity of five heads a day, until reaching and logistics costs. The Company has been keeping up its 60 thousand heads per day, with units on six continents, margins, this clearly showing that it is possible to establish JBS has always trailed a path of excellence in business performance targets and to have security in business. management, administration of human resources and risk The Management of JBS in 2008 has shown itself assessment. Nowadays these qualities are more important to be competent and conservative in the light of a scenario than ever before. The world is changing, and business of turbulence, and this has reaffirmed its excellence of scenarios are more and more volatile. management, and credibility before the market. . 18 .
    • globAlisAtion cAttle is the most impoRtAnt commodity in the stAte of coloRAdo, And is Responsible foR moRe thAn 60% of ouR AgRicultuRAl income. Jbs bRings An inteRnAtionAl peRspective to this industRiAl segment, which will benefit the pRoduceRs And Also mAke AgRicultuRe in coloRAdo feAsible in yeARs to come. betsy markey Congresswoman from the Fourth District of Colorado . 19 .
    • segment of Activity Jbs is Active in The year 2008 was marked by the global financial crisis. As from September 2008, the world felt the pinch with the effects of this scenario. the pRoduction The speculations about the duration and the impact of the current global crisis have led to a high volatility as yet unseen in the capital markets. For JBS, this situation And commeR- of instability was regarded as an opportunity to prove the solidity of the Company and also the ability to manage risks, which gave the Company reasonable financial stability even ciAlisAtion of in the most adverse conditions. The experience of JBS in statistical studies on elasticity have shown that, during previous global crises the consumption beef, And is of bovine protein was not reduced, meaning that the Company believed that the demand for their products would continue to grow and that there would be good results at the end of 2008. pResent in Some effects of this crisis, such as exchange rate operations, brought important benefits. This movement led to the financial deleverage of JBS, as currently more than 80% of cash flow is the lARgest in American currency while almost all the debt in Brazilian Reais. It also provided operational gains through the global production and distribution platform, directing Company resources pRoducing between the markets for each region. In 2008, the first impact on business came in the form of suspension of credit lines for exports. JBS, well positioned with And consumeR the main producing and consumer markets, sought to strengthen their activities in the domestic markets where they have their units. In this way, the Company reduced its dependence on mARkets of international markets when there was lack of credit for importers. Once again, the strategy of expanding Company business throughout the world and getting closer to the main markets this segment proved to be correct. Lower costs and improvement to efficiency were key factors for the success of the Company. . 20 .
    • The position of JBS on the markets in the United States and also for the full retaken of the results obtained by and in Australia were important factors for the Company JBS USA. In addition to the good results obtained on the business not being contaminated by the world financial crisis. American market, exports have stood out through the strong The United States are the largest world market for beef, while global demand. The turnaround of operations in the USA Australian has strategic closeness to the Asian markets. In has once again proved the experience and the competence the United States, the Company also has strong operations of the Management of JBS, guided by your efficient strategy with pigs as well as cattle, this being a diversification that of seeking opportunities in purchases. also helped to ensure positive results in the year. In 2008, JBS thus consolidated the Company’s JBS obtained satisfactory results in 2008. The globalisation and also confirmed to the market its capacity Company closed the year with a positive performance. for management. The third quarter, for example, had the best quarterly result consolidated in the history of the Company, with an EBITDA pRoduction of R$470.5 million, a net turnover of R$7,771.5 million, and a net profit of R$694.0 million. In this same period, JBS USA, Brazil has the 2nd largest bovine herd and In terms considering its activities in the beef segment, also obtained of the herd commercially used, Brazil has the largest cattle its best historical result and confirmed the expected increase herd in the world, by number of cattle heads. in EBITDA margin, from 5.1% in 2Q08 to 5.6% in 3Q08. In the ranking of world production of beef, Brazil is in The year 2008 was important for JBS to confirm its 2 position, behind the United States which yonder USA are nd stability and leadership in the beef segment, even in the light the largest consumer of this product. of an adverse scenario. Australia is the second largest exporter of beef as The year has also been relevant because JBS has it has many productive advantages: exceptional sanitary confirmed its stability and leadership in the beef segment conditions, as it is a large island without borders onto any other countries, which means there is no risk of infection by animals from other countries; good weather conditions; and proximity to Asia, an important consumer market for beef. bRAziliAn mAcRoeconomic scenARio Argentina is the fourth largest beef producer. 2007 2008 Argentinean meat is in itself a very strong brand on the Growth in GDP 3,7 5,4 international market through its tradition, native pastures and Inflation (IGP – M) 3,8 1,76 also its climate similar to that of Europe. These benefits allow Inflation (IPCA – M) 3,1 4,47 the development of a product which is highly competitive on Selic (Official Interest Rate) 15,0 11,25 the European market. Sources: IBGE and FGV . 21 .
    • total scenario - herd & production - 1960 to 2009 Total Herd Production (equivalent carcass weight) 1,200.0 70.0 1,100.0 60.0 production . million tonnes herd . million head 1,000.0 50.0 900.0 40.0 800.0 30.0 700.0 20.0 600.0 10.0 60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 Source: USDA main beef exporters main beef importers Brazil United States Australia Russia United States Japan India Mexico New Zealand European Union Canada South Korea Argentina Canada Uruguay Venezuela European Union Egypt Others 11 Others 18 1 26 5 29 6 6 15 3 6 17 4 4 10 10 5 12 6 6 . 22 .
    • consumption Beef is an important source of protein, and for this expectAtions reason it is the third most commonly eaten meat in the world, after pork and chicken. USDA statistics show that the consumption of beef of steAdy has been rising steadily since 1960. The same source shows that since 2001 the world consumption of beef has grown at a rate of 1.1% per year, on average. gRowth in For the next few years, we expect a steady growth in the world consumption of beef, as a result of the population growth, mainly in countries like China, Brazil, other Latin consumption American countries, the Middle East and Eastern Europe. The maintenance in the growth of the population in developed markets and the constant growth of population of beef in the emerging markets show a strong demand for the Company’s products in both the short and the long term. world population growth and consumption of beef Population of Developed Countries Population of Developing Countries Consumption of Beef* 10,000.0 140.0 120.0 consumption . million tonnes 8,000.0 cAgR 2.0% 100.0 population . million 6,000.0 80.0 60.0 4,000.0 40.0 2,000.0 20.0 0.0 - 60 65 70 75 80 85 90 95 00 05 10* 15* 20* 25* 30* 35* 40* 45* 50* Source: United Nations and USDA * UN Estimate ** Trend for beef consumption considering CAGR of 2% per annum (between 1960 and 2009) . 23 .
    • consumption of beef per caput . in kilos per year 65.6 52.4 40.7 37.3 34.7 31.7 24.1 15.9 16.3 9.4 4.7 Argentina uruguay usA brazil Australia canada mexico eu Russia Japan china commeRce In the export ranking, Brazil has been in the lead since 2004, mainly thanks to the increase of the national herd and The United States, even as the largest beef producer in also efficiency in livestock husbandry, together with the the world, has a shortage of production of lower-value cuts, in occurrence of BSE in some beef-exporting countries – this contrast to a surplus of high-value cuts, which makes the USA being an illness which does not affect the national herd, and the largest importer of subgrade beef (as the production does which therefore opened the markets formerly covered by not meet the high demand of the country) and an important these countries to the export of Brazilian meat. exporter of choice and prime cuts. The country’s exports Argentina has been significantly increasing their fall after 2003, in the wake of the outbreak of BSE (popularly exports in recent years. The beef industry in the country has known as “mad cow disease”), but started an important obtained great success through the international marketing recovery as from 2008, suggesting that the volumes exported made with the aim of placing the country’s meat with a prime should return to the levels of before 2003. perception by the international market. In Australia, export of beef is a strong activity. The country has been one of the leaders in this segment for more than a decade now. About 75% of the exports of Australian beef have been made to Japan, South Korea, Russia, Taiwan and Mexico, among other countries, and this figure is developing further, so that there may be a record growth in 2009. . 24 .
    • beef deficit and surplus . thousand tonnes the beef industRy: bRAzil, ARgentinA, the united stAtes And AustRAliA 1999 2009* With the largest beef herd for commercial purposes, Brazil has also become the largest world exporter of beef, brazil thanks to the stepping up of production, characterized by low cost, which allows the widening of the range of destination markets for exports. The reduction of sanitary Argentina and commercial barriers has also played a part in bringing about the average growth of 25.5% in Brazilian beef exports since the year 2000. Australia In 2008, considering the total between January and October, Brazil exported just over 1.89 million tonnes of fresh united states beef equivalent, with a turnover of US$4.67 million. Compared with the same period for 2007, we see that there has been a rise in turnover by 26%, in contrast to a 13% fall in volume. china The largest buyer of Brazilian fresh beef has been Russia, with 38% participation, followed by Venezuela (9%), Iran (7%), european Hong Kong (5%), Egypt (5%), Algeria (4%) and Israel (4%). union For processed meats, 20% of the total exported goes to the United States, followed by the United Kingdom (14%), Italy Russia (6%), the Netherlands (6%), Germany (2%), Belgium (1%) and Jamaica (1%). The according to data released by the Brazilian Meat Exporting Industries Association (ABIEC). south korea This year, with the tightening of European restrictions on fresh Brazilian meat, there was a significant rise in the Japan sales of processed meats (sales of fresh beef fell), even in the case of Europe itself. More specifically, at the end of 2008, the international financial crisis has had a negative (-1,500) (-500) 500 1,500 2,500 impact on shipments, particularly in the case of Russia. The restrictions set by the Argentinean Government Production - Consumption Source: USDA on beef exports in 2008 removed the country from the 4th Estimate for 2009 place among the largest world exporters, bringing it down to 7th place. In 2005, Argentina was the 3rd largest world exporter of beef. The crisis between the Government and the rural globAl leAdeRship of Jbs beef producers had an important impact on the segment. This scenario was made even worse as from September, when the world financial crisis broke out. : Production platform which leads in countries with production surplus. : Leader in exports to the most important beef-importing countries. : Access to 100% of beef consumer markets. : Sustainable and long-term relationship with global clients. . 25 .
    • the Jbs The United States are the largest world producer of beef, even though the country has only the third largest commercial herd. The country is also the largest world consumer of beef, opeRAtions ARe with significant consumption of cheaper cuts and a lower consumption of prime cuts. In this way, the country stands out for exports of prime and choice beef and, at the same time, is in confoRmity the largest importer of second-grade beef. For JBS, the United States is the most strategic market of their operations, as this is the most important consumer centre with lAws And and also a producer of beef protein. This is also a market which warrants lots of attention, through seasonality and also due to the high competitivity of the segment in the country. RegulAtions Australia is now the second largest beef exporter in the world. Australia has kept its position as leader in beef exports to Asia, making the most of the excellent economic performance of the mARkets of this region, and China is the main target, destination of two thirds of Australia’s production. wheRe the RegulAtion of the segment The production and commercialization of beef is compAny is subject to extensive regulation from Government authorities at municipal, state and federal level and also foreign institutions, with regard to the processing packaging, Active storage, distribution, advertising and labelling of the products, including food safety requirements. Recently, practices and procedures for food safety in the beef processing industry have subjected the companies to a more intense analysis and supervision. JBS seeks to remain aligned with the requirements set by the Governments and also by the regulatory bodies in the countries where the Company is active, to make sure that the Company operations comply with all laws and regulations regarding food safety. . 26 .
    • gRowth i hAve followed the tRAJectoRy of Jbs gRoup foR oveR fouR decAdes now. fRom A humble oRigin, this compAny gRew to gigAntic pRopoRtions in the scenARio of its stAte, of bRAzil And oveRseAs thRough its competence And the eARnestness it AlwAys fAced its commitments with. Jbs gRoup’s tRump cARd is the solidity in its commeRciAl tRAnsActions; its cRedibility, theRefoRe, is Above dispute. in conclusion, we cAn it is A compAny thAt inspiRes confidence, which is An edge in the globAlized woRld. iris Rezende Mayor of Goiânia . 27 .
    • Acquisitions the puRchAses US$1.4 billion, consolidated the Company’s position as the largest world producer of beef and the third largest producer of pork. mAde in 2008 In 2008, with the purchases of the JBS operations in Australia, Italy and the United States, the Company consolidated its globalisation process. hAve consoli- In March 2008, the Company clinched an agreement with Cremonini SpA (“Cremonini”), for the acquisition of a 50% stake in the capital stock of Inalca SpA (“Inalca”), one dAted the of the most important beef producers in Europe, for a total of 225 million Euros, based on an enterprise value for Inalca set at 600 million Euros. The acquisition of Inalca, which globAlisAtion now bears the name of Inalca JBS, established important synergies between products and sales channels of JBS and Cremonini, both leaders in their respective markets. On of the compAny the one hand, JBS with its production and distribution in the markets of South America, the United States and Australia, and, on the other hand, Cremonini, through Inalca, with its presence in Europe, Russia and Africa. For JBS, this operation was a unique opportunity to access, through Inalca, new markets and clients, including large multinationals in the JBS has constructed a solid business management fast-food business, producers of processed foods, large model in the food segment. The Company seeks to expand retail chains, and food service companies. This alliance also its presence on the global market through a strategy of offered JBS access to Inalca’s cutting-edge technology, assessment of opportunities and acquisition of companies widely acclaimed, as also to the products with highest that could benefit from a “management shock” based on added value, traded under the Montana brand name. the JBS model. In this way, the Company has sought to For Cremonini, this transaction gave privileged consolidate a position of leadership in strategic markets and access to the main world sources of supply of beef, as well ensure god results for the Company’s investments. as strengthening its supply chain. This Association in Italy, The Company started its internationalisation in 2005 together with the acquisitions made in the United States and with the purchase of Swift Armour, an Argentinean company, in Australia, have confirmed the global leadership enjoyed and then, as from 2007, JBS embarked on an expansion and by JBS. globalisation plan, moving towards the largest producing and The acquisitions of the American company Smithfield consuming markets for their products. In 2007, the purchase Beef and Australian company Tasman were closed at R$565 of Swift Foods, of the United States, in an operation worth million and US$150 million respectively. . 28 .
    • In March 2008, JBS announced the purchase of The acquisition of Smithfield Beef Processing included the Tasman Group, an Australian company, and also of 100% of the shares issued by subsidiary Five Rivers Ranch. Smithfield Beef, an American company. The confirmation With the purchase of Smithfield Beef Processing, that authorization had been received from the Australian JBS USA started to have four more slaughtering units in that Competition & Consumer Commission (ACCC), the country, located in Green Bay (Wisconsin), Plainwell (Michigan), Australian regulator, for the purchase of the Tasman Group Souderton (Pennsylvania) and Tolleson (Arizona); a grease- was received by JBS on 23 April 2008. The new structure producing unit in Elroy (Pennsylvania) and a bovine confinement gave JBS Australia an additional 5,000 employees and unit in South Charleston (Ohio); and a transport company, with 15 units, including slaughterhouses for bovines and small some 120 refrigerated lorries. Five Rivers has ten confinement animals (sheep and calves) with a capacity of slaughtering units for bovines, with a total capacity of 811,000 heads, in the 8,500 heads of cattle per day and also 16,500 small animals states of Colorado, Idaho, Kansas, Oklahoma and Texas. per day. With the purchases in the United States, currently this As part of JBS’s globalisation strategy, the acquisition platform accounts for about 75% of the consolidated net of Smithfield Beef in 2008 was an important step in the turnover of JBS. completion of the investment plan for the construction of a With these operations, JBS, which were already sustainable slaughtering platform, and also the production leaders in beef production, also became the leader in the and commercialization of beef, in the United States and sale of beef-based products. The Company obtained a Australia, which started in July 2007 with the purchase of significant advantage with the proximity to the largest beef- Swift & Co. This purchase shall increase JBS’s capacity producing and consuming markets in the world. After this to meet specific demands made by the clients, and shall business integration, JBS had 14% of world beef production, also provide economies of scale and operational efficiency, and a capacity to kill 15 million heads per year, as well as thereby generating value for the shareholders. 31% of meat sales on the international market. the integRAtion of the tAsmAn gRoup smithfield beef And , the confinement units of five RiveRs hAve incReAsed the pRoduction plAtfoRm And intRoduced syneRgies thAt hAve Reduced costs . 29 .
    • tRust the ARgentineAn beef industRy hAs Added poweR to its Activities with the pARticipAtion of bRAziliAn cApitAl. the significAnt development of the Jbs fRiboi gRoup , the owneR of 8 industRiAl plAnts in the countRy, cleARly expRess the decision tAken by this business gRoup A leAdeR in the segment, to boost And enhAnce , the ARgentineAn beef industRy, which shAll bRing concRete benefits foR the countRy, foR the woRkeRs And Also foR the technology of the sectoR. dr. mario dario Ravettino President | Consortium of Argentinean Beef Exporters (ABC) . 30 .
    • coRpoRAte goveRnAnce Jbs conducts JBS follows a model of Corporate Governance with the aim of implementing the best practices in the Company, that should be reflected in transparency and trust from a range of publics, its business in and also ensure the best products and services to the Company clients, solidity to suppliers, satisfactory yield for shareholders, and the certainty of a better future, for all collaborators. A tRAnspARent Corporate Governance is the very essence of the Company, which makes use of best market practices and also acts in line with currently effective laws, in a natural way. And ethicAl Governance is a reality within JBS, something dynamic and natural, which is part of the daily activities of the Company. The conduct of JBS is represented by the pillars of corporate mAnneR, this governance. This means that the view of organizational behaviour based on Governance guides JBS in the strict compliance with laws and also respect for all segments of being the the public. coRpoRAte goveRnAnce in the essence of Jbs bAse of the The corporative responsibility of JBS is shown in the transparency and equity with which the Company carries out compAny’s its business. JBS believes that, through collaborators who are both committed and motivated, the Company may constantly grow coRpoRAte and innovate, thus achieving the desired results. JBS believes that people are the same, anywhere on the planet and in any business environment, regardless of their social, goveRnAnce intellectual or hierarchical level, and only brings to the Company those people who enjoy prosperity, who seeks firm commitment to work, availability, learning, growth and expansion. For JBS, after all, their greatest asset is human capital. Indeed, it is the capacity of human work that makes a success of the Company and also sustains all possibilities for future growth and innovation. . 31 .
    • In terms of operational focus, JBS believes that everything (Bovespa). JBS S.A. discloses relevant facts and starts at the plants, as the harmony and the precision of the notifications as per CVM instructions, which requires quality of the “cattle” raw material, together with the capacity that the data about Company business are published of human work, make a success of the Company and also in a way that gives investors and the market enough back up and prop up the possibilities of growth and investment time to make decisions concerning their investments. in the future. JBS monitors external factors to make strategic JBS also, through press releases, makes the Company’s decisions and always focuses on what is within their reach and quarterly results available to the market and also holds a what can be controlled. The Company is obstinate in controlling conference for investors and market analysts, as also a costs, in increasing the slaughtering and production capacity, press conference every three months to comment on and also in the steady improvement of yield and the guarantee Company performance, events and also shed light on of the best quality of their products. possible doubts shown by the market. Risk control identifies and classifies the events that cause Commitment to efficient corporate governance is strategic risks to JBS business, according to the probability reflected in the option to register the Company in the listing thereof, and establishes the respective control procedures. The segment of the New Market of the São Paulo Stock Exchange Company conscientiously deals with possible risks that could (Bovespa), which has a strict commitment to good practices involve the Company’s segments of activity, and sets targets of corporate governance. JBS shows its commitment to and guidelines for the management thereof. transparency and also quality in business management through The Company creates and sustains different public commitments inherent to the New Market, namely: Commissions to ensure correct implementation of all : Grant to all shareholders the right to joint sale (“tag Company activities. At present, JBS has Audit, Finance, People along”), in cases of alienation of the share control of Management and Corporate Strategy Commissions. For the Company, in which case the acquirer of the control example, the Corporate Commission manages sustainability should make a public offering of share purchase to at JBS. JBS believes that its development and corporate the other shareholders; growth must be associated to the sustainability of Company : Take up supply procedures that favour scattering of actions. With this belief, JBS supports and invests in the shares; improvement of the production chain to which it belongs. : Comply with minimum standards for quarterly JBS shares are traded on the New Market, a segment of disclosure of information; Bovespa made up of companies which have committed them- : Follow stricter disclosure procedures with regard to selves, on a voluntary basis, to the adoption of corporate govern- deals made by the controlling shareholders of the ment policies in addition to those required by relevant legislation. Company, as also Board Members and Directors, involving securities of their issuance; infoRmAtion AppRAisAl policy : Submit any existing shareholder agreements and programmes with share purchase options to Bovespa; The policy for disclosure of information is another : Prepare annual financial statements, including cash key issue in meeting the rules for transparency and flow statements, in the English language, as according the requirements of regulators of the financial market, to international accounting standards like the Generally such as the Brazilian Central Bank, the Securities Accepted Accounting Principles (GAAP) of the USA, or Commission (CVM) and the São Paulo Stock Exchange the International Financial Reporting Standards (IFRS); . 32 .
    • : Use exclusively the arbitration rules of Bovespa, : Give an opinion on the proposal for distribution of by which Bovespa, the Company, the controlling dividends and tax planning; shareholder, the managers, and the members of : Monitor quarterly results; and the Fiscal Board of the Company, if installed, agree : Seek to protect the internal financial control systems. to solve any dispute or controversy concerning the listing regulations through arbitration; and people management commission : Help the Board of Directors with issues regarding To ensure correct conduct in all JBS activities, in addition remuneration and identification of directors; to the Tax and Management Commission, JBS also has : Give an opinion on the mechanisms for variable Audit, Finance, People Management and Corporate Strategy remuneration and long-term incentives; commissions. Each of these commissions plays a relevant : Help with the process of executive appraisal; role in the guarantee of JBS management processes. : Give support to the Board of Directors, for the management of the executive succession plan; Audit commission : Monitor the Company policy for retaining talent; and : Give opinions about hirings, remuneration, retaining : Give opinions about the organizational structure of the and replacement of the external auditor; Company and also the general Human Resources : Contribute to the preparation of the scope and the policies. schedule of the annual auditing activities and also to the review of current internal risk controls, seeking to corporate strategy commission improve the quality of the information supplied to the : Mr. Marcus Vinicius Pratini de Moraes is the current Board of Directors; president; : Identify and suggest actions in support of the monitoring : Develop, and propose to the Board, policies of the activities of the internal and external auditors, and regarding corporate strategy and the sustainability of establish a channel of communication between internal the Company operations; institutions for accounting controls and the Board of : Advise the Board of Directors in all matters concerning Directors; and sustainability, by means of identification, addressing : Try to solve possible controversies between the and treatment of critical issues that amount to risks, or Auditors, Board and Fiscal Commission about the which could have a negative impact on business; financial statements of accounts. : Make recommendations to the Board of Directors, and accompany the implementation of policies, finance commission strategies and actions that concern the sustainability : Give an opinion about the appropriate capital of business at the Company; and structure, and prepare studies about market capital : Assess the proposals for strategic investments of the costs vis-à-vis costs of Company debts; Company from the standpoint of sustainability, and : Study the projects for investments and adaptation of make recommendations to the Board of Directors the Company’s financial structure in depth; regarding making decisions about these investments. . 33 .
    • boARd of diRectoRs José batista sobrinho: Mr. José Batista is a member of our Board of Directors and is the founder of the JBS Group. The Board of Directors is the highest institution of He has experience in beef production in the JBS Group Company management and is responsible, among other spanning more than half a century. Mr. José Batista was points, for establishment of policies and guidelines for elected to this position on 2 January 2007. Mr. José Batista Company business. The Board of Directors also supervises is the father of Mr. Joesley Mendonça Batista, Mr. Wesley the Management and also oversees the implementation, by Mendonça Batista and Mr. José Batista Jr. the Management, of the policies and guidelines regularly established by the Board of Directors. José batista Junior: Mr. Batista is a member of our Board of The Administration Committee of JBS currently Directors, having been elected to this post on 2 January 2007, consists of seven members, three of which are independent having more than 25 years of experience in beef production committee members. within the JBS Group. Mr. Batista is one of the sons of Mr. José The term of the first Administration Committee after the Batista, the founder of the JBS Group, and brother of Mr. Joesley opening of capital, which occurred in 2007, is three years. This Mendonça Batista and Mr. Wesley Mendonça Batista. means that the term of the current members of the Administration Committee is due to expire in 2009. As from 2009, the members marcus vinicius pratini de moraes: Mr. Pratini de Moraes has been of the Administration Committee shall be voted for a unified term a member of our Independent Administration Committee since 2 of two years, with the right to unlimited re-elections. January 2007. He is an Economics graduate from the Faculty of The Administration Committee meets once a quarter, Economic Science of the University of Rio Grande do Sul (1963), or at any moment when a special meeting is called by the with graduate studies in Public Administration from the Deutsche President or by any other member. Stiftung für Entwicklungsländer, in Berlin, Germany (1965) and in Business Administration by Pittsburgh University & Carnegie Tech Joesley mendonça batista: Mr. Joesley Batista is the current – Carnegie Institute of Technology (1966). Mr. Pratini de Moraes President of the Administration Committee, having been elected held the posts of Interim Minister of Planning and General Co- to this post on 2 January 2007, and has more than 20 years of ordination (1968-1969), Minister for Industry and Commerce experience with the production of beef within the JBS Group. He (1970-1974), Minister of Mines and Energy (1992) and Minister is also the Executive President of JBS S.A. Joesley Batista has for Agriculture, Livestock and Supplies (1999-2002). worked for the JBS Group since 1988 and is one of the sons of Mr. José Batista Sobrinho, founder of the JBS Group, and brother demósthenes marques: Born in Passo Fundo, Rio Grande do Sul, of Mr. José Batista Júnior and Mr. Wesley Mendonça Batista. he is a graduate in Civil Engineering from the Federal University of Santa Maria, and completed post-graduate studies in Urban wesley mendonça batista: Mr. Wesley Batista is the current Development by the Cândido Mendes Integrated Faculties, a Vice-President of our Board of Directors, having been elected specialist in Audits of Public Works from the University of Brasília to this post on 2 January 2007, and also has more than 20 (UnB) and in Geographical Information Systems by the Federal years of experience with the production of beef within the JBS University of São Carlos (UFSCar). Group. He is also a Member of the Board, and has worked for He has been an Investments Director at FUNCEF since the JBS Group since 1987. He is one of the sons of Mr. José July 2004. He has been an employee of the Brazilian Federal Batista Sobrinho, founder of the JBS Group, and brother of Mr. Savings Bank (Caixa Econômica Federal) since 1989, and at José Batista Júnior and Mr. Joesley Mendonça Batista. this institution he carried out executive roles in the areas of Urban Development and also Social and Economic Development. membeRs of the boARd of diRectoRs post held date elected term ends Joesley Mendonça Batista President 2/1/2007 August 2009 Wesley Mendonça Batista Vice-President 2/1/2007 August 2009 José Batista Sobrinho Board Member 2/1/2007 August 2009 José Batista Jr. Board Member 2/1/2007 August 2009 Marcus Vinicius Pratini de Moraes(1) Board Member 2/1/2007 August 2009 Demósthenes Marques(1) Board Member 11/4/2008 August 2009 Humberto Pires Grault Vianna de Lima(1) Deputy Member 11/4/2008 August 2009 (1) Independent Board Member . 34 .
    • He has also been a Board Member at Litel S/A (the wesley mendonça batista: Mr. Wesley Batista is the current holding company of the society structure controlled by Vale Vice-President of our Board of Directors, having been elected do Rio Doce), Brazil Railways (Brasil Ferrovias), Ferronorte, to this post on 2 January 2007. He has more than 20 years of Ferroban, Novoeste and ALL – América Latina Logística. experience with the production of beef within the JBS Group. He is also a Member of the Board, and has worked for the humberto pires grault vianna de lima: Brazilian, graduated in JBS Group since 1987. He is one of the sons of Mr. José Economics at the Faculty of Political and Economic Science in Batista Sobrinho, founder of the JBS Group, and brother of Rio de Janeiro, in 1979. He also has post-graduate studies in Mr. José Batista Júnior and Mr. Joesley Mendonça Batista. Economics from the Economic Research Institute Foundation (FIPE) of the University of São Paulo (USP), and in Economics francisco de Assis: Francisco has been on the Management from the School of Economics of the Getúlio Vargas Team since 2 January 2007. He is a qualified lawyer, qualified Foundation (FGV), between January 1990 and December from the Catholic Pontifical University of Paraná. He took a lato 1991. He simultaneously holds the posts of Manager of New sensu post-graduate course in Environmental Law, at the Catholic Projects and that of Participations Manager, at the Petrobrás Pontifical University of Paraná; also a lato sensu post-graduate Social Security Foundation (Petros), since March 2008. course in Company Law, at the Mackenzie University in São Paulo; a master’s degree course (stricto sensu), at the Mackenzie mAnAgement teAm University in São Paulo and the Catholic Pontifical University of Paraná, in the areas of State Law, with a master’s dissertation on The Management Team at JBS is its executive institution. Constitutional Tax System, with all the credits for a Doctorate; he The executive directors are their legal representatives and are also took an MBA course at the University of São Paulo (USP) in also responsible for internal organization, decision-making Labour Economics. He has carried out his professional activities process, daily operations, and implementation of policies at the JBS Group since December 2001. and general guidelines as established at regular intervals by the Board of Directors. sérgio longo: Mr. Longo was the Financial Director at JBS The members of the Management Team of the between 2003 and January 2009, when he resigned. In April Company are elected by the Board of Directors for terms of 2009, he was elected as a member of the Fiscal Commission three years, and are entitled to be re-elected. The Management at JBS S.A. Mr. Longo has more than 25 years of experience Team of JBS meets whenever called up to do so, either by the working in financial institutions, and before joining our Company, President or by the majority of its members. worked for 18 years at the Sudameris Bank and four years at the Rural Bank. Joesley mendonça batista: Mr. Joesley Batista is the current President of the Board of Directors, having been elected to this Jeremiah Alphonsus o’callaghan: Mr. O’Callaghan was born in post on 2 January 2007. He has more than 20 years of experience Cork, Republic of Ireland, in 1953. He read Engineering at UCC with the production of beef within the JBS Group, and is also the (University College Cork) and immigrated to Brazil in 1979. He Executive President of JBS S.A. Joesley Batista has worked for entered the meat industry in 1983, developing global commerce the JBS Group since 1988 and is one of the sons of Mr. José for the Brazilian beef segment. He first worked at Mouran (1983 Batista Sobrinho, founder of the JBS Group, and brother of Mr. to 1989), then at Bordon (1989 to 1995) and finally joined JBS in José Batista Júnior and Mr. Wesley Mendonça Batista. 1996, to develop the area of International Business. diRectoRs post held date elected term ends Joesley Mendonça Batista President 2/1/2007 2/1/2010 Wesley Mendonça Batista Executive Operations Manager 2/1/2007 2/1/2010 Francisco de Assis Legal Affairs Manager 2/1/2007 2/1/2010 Sérgio Longo Financial Manager 2/1/2007 2/1/2010 Jeremiah O‘Callaghan Investor Relations Manager 14/5/2008 2/1/2010 . 35 .
    • stRAtegies And competitive AdvAntAges Risk mAnAgement The solid performance from JBS and the Company’s JBS anticipates possible problems that could affect the growing productivity indices allow the Company to show segment of production and commercialization of beef, especially constant growth, and also present steady improvement of concerning trade barriers. their operational margins. The aim so the strategies adopted The Company’s strategy of expanding their operations in by JBS are the following: units located in different Brazilian states is fundamental to protect : Stay as market leader in the beef segment; the Company against risks comcerning phytosanitary barriers in : Boost profitability and also financial solidity; the international beef trade. : Make the Company business perennial. Should there be any commercial or sanitary blocks against bovine-origin food produced in certain regions, JBS can To ensure that this goal is achieved, JBS has adopted a keep up the export of their products through production in areas strategy based on the following principles: that are not under the effects of the embargo. : Search for opportunities for investments and Another factor that helps with Risk Management related acquisitions; to commercial barriers of a political or phytosanitary area is the : Sound financial structure; internationalisation of production, with plants scattered around : An experienced and efficient management team; other countries (Argentina, United States, Italy and Australia). : Constant search for cost reduction; : Increase in productivity and expansion of participation in products that bring higher yield and have higher added value, thus maximising financial returns for the Company; : Search for better margins; and : Diversification of production platforms. Examples: Frigoríficos Brasileiros SwiftArmour Swift & Company Inalca Mitigate potential risks such as sanitary barriers JBS NO MUNDO Abatedouro Tasman SmithfieldBeef Abatedouro e Indústria and seasonality. pportunities Seek o Centros de Distribuição Indústria de Vegetais em Conserva Indústria de Carne Enlatada Indústria de beef Jerky (Beef Snack’s) Indústria de Carne Suína or investments Indústria de Carne Ovina Processamento de Carne Bovina e Suína f Curtume Sede Administrativa Confinamento cquisitions Indústria de Embalagens and a Pátio de Containers Escritórios Comerciais l ca Fin cture y i dive raph str an c g u geo rsit ial geneRAte Create sAtisfActoRy And consistent ment RetuRn to the rgins shAReholdeRs team n a ge er B et t ma Ma Red e pro reas tion duc uce costs, inc tivity du c Administration with more of pro and expand pro value d uct d than 50 years of experience s with greatest adde in the beef industry. . 36 .
    • With the uncertainties of the international money markets, For the Company, the environment shall be seen the pressure of foreign exchange rates in Brazil, with the volatility of as a factor of business stability and, as such, treated in a the Brazilian Real during 2008, JBS has been active in minimising sustainable fashion. For the Company, the excellence in the Company’s exposure to financial risks. Conservative environmental management shall be based on economic governance principles have enabled the Company to face the feasibility and ecological correctness. reduction of the global supply of credit with minimum impact, The JBS units are evolving in their management of and keep their consolidated margins. natural resources. For this purpose, they act in a responsible fashion when using the materials, and have issues related to enviRonmentAl policy mitigation of global warming in their internal policies, so much so that this is the first company from this segment to succeed JBS is a Company that has its success largely based on in approving a carbon-credit programme in accordance with the management of products with environmental responsibility the rules established by the Kyoto Protocol. The treatment of residue in all JBS units is considered a priority issue, both from the environmental standpoint as in terms of public health. JBS invests in technologies to make their industrial residues inert and minimize the impact on the Jbs Adopts A environment. The Company has programmes in place for the reduction of water consumption, and treats its effluents so Responsible the water may be returned to nature within the standards of quality required by normative institutions. There are also programmes for reduction of use of stAnd energy and for the search for alternative sources of energy, that reduce the impact of the Company on the need to generate electricity in the countries where the Company is active. RegARding the cApitAl mARkets use of nAtuRAl The Company shares traded on Bovespa, under the code JBSS3, in 2008 had a performance of -15.5%, while the overall Bovespa index had a performance of -40,2%. ResouRces, JBS believes that the good performance of their shares compared with the overall index is a consequence of the acknowledgement of the Company’s solidity and transparency, theReby by the general market. The Company has become established as the largest producer and exporter of beef in the world, with the market capitalization having exceeded the level of R$7.6 billion. ensuRing the At the end of 2008, the total free float available for trading on the stock market was a total of 683,167,775 shares, corresponding to 47.5% of the Company capital. In December 2007, the free feAsibility of float stood at 36.4%. In line with the expansion that has been observed, mainly in the American market, this being the region where the compAny’s the Company makes most of its income, in 2008 JBS completed its programme for American Depositary Receipt (ADR) Level I, aiming at the increase of liquidity and visibility business of the Company shares. The Level I ADRs are traded under the code JBSAY. . . 37 .
    • Jbss3 vs. ibovespa JBSS32009* Ibovespa Index Announcement of Ibovespa: Payment of R$ 17.5 million Public Meetings with acquisitions of Smithfield 200 in dividends Investors: Beef, National Beef and Tasman Group, and São Paulo New York 180 increase of capital stock by R$ 2.5 billion 160 Publication 140 of Results for 3Q08 120 100 80 Publication Publication Announcement 60 of Results of Results of ADR for 2007 for 1Q08 Programme 40 jan/08 feb/08 mar/08 apr/08 may/08 june/08 july/08 aug/08 sep/08 oct/08 nov/08 dec/08 Source: Bloomberg (base 100 = 02/01/08) shareholders on 31 december 2008 shAReholdeRs no. of shares % J&F Participações S/A 632,781,603 44.0% ZMF Investment Fund Participation 87,903,348 6.1% Shares held by the treasury 34,226,200 2.4% Shares in circulation BNDES Participations S/A – BNDESPAR 186,891,800 13.0% FRDT – FP 205,365,101 14.3% Minority Shareholders 290,910,874 20.2% Total Shares in circulation 683,167,775 47.5% totAl 1,438,078,926 100.0% . 38 .
    • pRide this impoRtAnt fAmily gRoup opeRAting on A woRld , scAle, is A mAtteR of pRide foR ARgentinA, A countRy which hAs eight plAnts And investments totAlling us$400 million. i Am pRoud foR this, And Am gRAteful foR the tRust. these busines speople hAve been Able to conciliAte the inteRests of the inteRnAl And the expoRt mARket, And i must congRAtulAte them on this. we would like All compAnies in ARgentinA to be like this, Just like the compAny of the bAtistA fAmily. cristina kirchner President of Argentina . 39 .
    • opeRAtions And commeRciAl RelAtionships With a focus on growth and on geographical expansion The strategic location of the units is one of the factors of Company activities, JBS distributes its operations among that place the Company at an advantage on the market, 22 units in nine Brazilian States, six units in Argentina, 18 in as this provides a production strategy with low costs and the United States and 10 in Australia. The acquisition of all operational efficiency. In Brazil the suppliers of livestock on the units reflected the strategy of being active in regions with the JBS portfolio are a total of 15,000 breeders. Following the heavy presence of livestock and, in so doing, manage to get principles of guarantee of the security of the livestock and the operational flexibility for production, reduction of the costs of quality of the meat, the cattle breeders are located within a transporting the livestock and also the ready product, as also radius of 500 kilometres of the slaughtering units. the reduction of phytosanitary risks. with A pRoduction plAtfoRm with moRe thAn 60 units And globAlised distRibution, Jbs hAs Access to 100% of the consumeR mARkets foR beef . 40 .
    • In the Argentinean operations, the livestock is purchased The whole production process follows strict quality control in specialised fairs, from a total of some 1,600 breeders that are and also meets international phytosanitary standards. within a radius of 350 kilometres from the slaughtering units. The handling of the beef is made in climatised rooms, The suppliers of JBS USA make up a select portfolio, while the cold storage chambers or freezer compartments have with breeding confinements centres that are part of the largest temperatures controlled by fully computerised systems. meat suppliers in that country. Control programmes for Cleansing and Hygiene (PPHO In the Australian operations, the cattle are purchased from – Standardised Operational Hygiene Programme), Personnel a portfolio of more than 10,000 suppliers. In all operations, JBS Training (GMP – Good Manufacture Practice), Analysis of Hazard has a team specialised in the purchase of cattle. The breeders Points and Critical Control Points (HACCP – Hazard Analysis are selected through strict criteria, including the requirement for and Critical Control Points), as well as the Friboi Total Quality documents that show the quality of the operations, and also Programme (TQF), are carried out on a permanent basis, to confirmation that the use of antibiotics and agricultural pesticides make sure of the quality of the products. follows the respective standards established by the industry. In addition, the carcases are inspected by veterinary doctors from the Federal Inspection Service of the Ministry Jbs bRAzil for Agriculture (SIF), for the issuance of the authorisation for production and processing. The Company exploits the segment of the slaughtering and As a complement to the accompaniment of the sanity cold storage of bovines, as also processing of meats, preserves, and trackability of raw materials, the processes are subjected to a fats, animal feed and derived products, with industrial units situated control process made by modern laboratories and experienced in the states of São Paulo, Goiás, Mato Grosso, Mato Grosso do technicians, at the JBS industrial units. Sul, Rondônia, Minas Gerais, Acre, Rio de Janeiro and Paraná. In 2008, JBS Brazil closed the year with 22 units to serve The Company produces a wide range of produdcts industrialised their clients, with a total capacity to slaughter 18,900 heads of products and also prime cuts of beef, with significant penetration cattle/day and 16,900 collaborators in Brazil. in both Brazilian and international markets. Jbs bRAzil fresh meat tailored products processed meat matured organic beef friboi swift Anglo . 41 .
    • Jbs ARgentinA The productive units are distributed in a strategic manner, in the provinces which have the highest production of The JBS Argentina was established with the purchase livestock. They also have modern technology in the processing of Swift Armour S/A, a company which had been founded of chilled and frozen meats and also industrialised products. in 1907 and which in 2005 was purchased by JBS, being The purpose of JBS Argentina is to develop, produce composed of six industrial units: Rosário, Venado Tuerto, and commercialise meat-based foods with high added São José, Pontevedra, Berazategui and Col-Car, as well as value, which are healthy, safe and tasty. The main publics one unit for production of tin packaging, in Zarate. are final consumers and also large food companies. The JBS Argentina is dedicated to the exploitation of JBS seeks quality in all stages of its processes. the cattle slaughtering and cold storage industries, as also With this in mind, the Company makes use of trackability of meat processing, preserves, fats, animal feed and derived the animals and also strict systems for sanitary and quality products, with industrial units in the provinces of Buenos control, as well as special care with the packaging, which not Aires, Entre Rios, Santa Fé and Córdoba. JBS Argentina has only ensures the quality of the products in transport but also three subsidiaries, of which two were purchased in 2007, a reinforces the Company image of competence, as regarded slaughter and cold-storage unit in the town of Berezategui by the clients. (Consignaciones Rurales), a tin factory situated in Zarate JBS Argentina closed 2008 with six slaughtering (Argenvases), both in the province of Buenos Aires, and plants, with a slaughtering capacity of 6,700 heads of cattle one purchased in 2008, a slaughtering and cold-storage per day, and also production of processed meats and one unit in Córdoba (Col-car). JBS Argentina enjoys leadership factory to produced tin packaging, and has more than five in the production of meat-based foodstuffs in the country, thousand collaborators in that country. and is also the first in beef exports, being well renowned for the high quality of the products, not only by the demanding Argentinean internal market, as also by the international market. The total volume slaughtered by JBS Argentina was 474 thousand heads in 2008, compared with 608 thousand in 2007, which is a rise of 22%. Jbs ARgentinA fresh meat tailored products processed meat cabaña plate swift swift exeter la blanca Ace las lilas . 42 .
    • Jbs usA Since 2007, JBS has been the largest Company The total number of head slaughtered in 2008, at the operating with bovine products in the North American market. USA Business Strategy Unity of JBS USA, was 12,576 thousand, This was possible with the purchase, in July of that year, of which is an increase of 4.02% when compared with 2007, when Swift Foods & Company, a Company which is well known for it came to 12,071 thousand. supplying beef and pork products of high quality over more In the United States JBS carries out company than 150 years. operations through eight beef processing units, three units for Swift & Company, now known as JBS USA, is the processing pork meat, one unit for lamb slaughter, selected leader in world beef exports, and the focus of the Company’s beef and pork products processing unity, one leather tanning activities is on the development and supply of beef-based unit, seven rented centres for regional distribution, two units and pork-based foods with practicality and flavour. for grease production, and 11 farms for fattening cattle, Aside from supplying the largest world consumer operated by JBS Five Rivers. of meats and industrialised dishes. The JBS USA is also a At the end of 2008, the operations in the United States diversification of the operations of the Company, with the had 17,900 employees and production is distributed among opportunity to exploit the pork segment. 18 units with a total slaughtering capacity of 28,600 head of cattle/day. 48,500 pigs/day, 4,500 head of small animals/ day, and 11 confinement units, with a static fattening capacity of 820,000 head of cattle. Jbs euA cattle pork g.f swift 1855 swift’s Angus swift® swift swift® Angus swift guaranteed brand black black Angus guaranteed natural fresh premium® select premium® tender® Angus tm tender® pork . 43 .
    • Jbs AustRAliA With nine slaughtering units and another five units for America is worthy of mention. The sophisticated care cattle confinement in Australia, JBS stands in one of the main about hygiene and health have made possible a significant beef-producing markets in the world. This contributes towards expansion towards new clients around the world. the consolidation of the Company’s world leadership. At the end of 2008, the operations of JBS Australia JBS Australia is the largest and most encompassing were distributed among 10 production plants, with a total beef processor and exporter in Australia. It has commercial slaughtering capacity of 8,500 cattle/day and 15,000 small relationships with more than 30 countries. The Company’s animals/day. activities in the markets of the Pacific Coast and North Jbs AustRáliA cattle long fed swift fed Amh middle fed e marbling beef city scores . 44 .
    • inAlcA Jbs Inalca JBS in Italy already has more than 2 thousand employees, 8 production plants, and the capacity to kill 3,000 bovines per day. The Company also has an additional distribution platform in the United Kingdom, Russia, Angola, the Congo, Algeria, the Democratic Republic of the inAlcA Jbs Congo and Poland. The acquisition of Inalca, now known as Inalca JBS, created important synergies between products and sales channels of JBS and Cremonini, both leaders in their respective Jbs cRemonini segments. On the one hand, JBS, with their production and distribution in markets such as South America, the United States and Australia, and on the other hand Cremonini, 50% 50% through Inalca, with presence in Europe, Russia and Africa. inAlcA Jbs cattle inalca ibise montana . 45 .
    • sales and market internal markets brazil sales and market JBS clients in Brazil are retailers, restaurants and also leathers, distributors and food industry. The Company Domestic Market has created the Swift Butcher (Açougue Swift) programme, Export to establish a solid relationship with clients and also to consolidate the brand among the end consumers. JBS is also actively investing in the Swift, Maturatta and Friboi brands, as also in the publicising of the concept of Organic 32% Beef, with traders and consumers. Currently, JBS Brazil has a book with small, mean and large customers. Argentina 68% In Argentina, JBS commercialises own brands and also those of third parties, including: Swift, Cabaña Las Lilas, Armour, Plate, Fray Bentos, Safra, Exeter and Corte Buona. The client portfolio in Argentina consists of several companies, including the most important hypermarket and supermarket chains in the country, as well as wholesalers and distributors which are present in the whole country. usA distribution of income by business unit JBS USA commercialises brands that are well known at a global level for the high quality of the products, always Beef - Italy focused on innovation to add value to the clients’ sales Beef - Argentina by making available tasty and practical products for the Beef - Brazil consumers. The client portfolio is made up of large retail Beef - United States networks, some of which are present in many countries. From Pork - United States the portfolio of wholesalers, the main clients account for a Beef - Australia significant part of Company sales, all well consolidated in their respective segments of activity. 5% 12% 3% Australia In Australia, the domestic market is strategically 19% relevant and shows great growth potential. JBS is present in this market with strong brands and diversified products, aimed at a demanding consumer public, growing and with a high consumption power. 14% 47% . 46 .
    • export market exportations Jbs 12m08 – us$ 5.6 bilhões brazil Mexico JBS is the largest beef-exporting Company in Brazil, Russia according to data released by SECEX (Development Ministry EU Foreign trade Secretariat), and also holds an important position Japan among the most important Brazilian exporters, considering all Canada segments. As in the case of domestic business, there is no MIddle East market concentration. Hong Kong South Korea Argentina Taiwan In Argentina, JBS is also in first place for beef exports. USA In the last business year, JBS Argentina was responsible for China most of the exports of industrialised beef in the country, with Others the main destination markets being the United States and Europe, which have a base of some 172 clients. 15% 18% usA For the export market, JBS USA offers products with 3% the same standard of quality and brand recognition, as 3% shown in the domestic market. 4% At 2008, JBS USA exported 50% more than American 13% industry average. Main USA firm exportation customers were 4% México, Canada, Japan, South Chorea and Hong Kong. 5% Australia 11% 7% The leadership in beef exports is also repeated in Australia, which obtained a high yield in the products traded on the foreign 8% 9% market in 2008. Have a strong share on Asian market, which supplies customised products. . 47 .
    • finAnciAl peRfoRmAnce in 2008, the ebitdA . R$ million – ebitdA margin . % EBITDA Margin Results of EBITDA 1,156.1 Jbs ReinfoRce 14,2% 9,6% 602.3 the compAny’s 564.9 345.1 gRowth 4.0% 3.8% stRAtegy 05 06 07 08 net tuRnoveR net turnover . R$ billion In 2008, the consolidated Net Turnover came to 30.3 R$30,340 million, which is a growth of 114.5% compared 114.5% with the R$14,141.6 million of 2007. 14.1 ebitdA 3.6 4.0 The EBITDA came to R$1,156.1 million, 91.9% more than the EBITDA of 2007, which came to R$602.3 million. The EBITDA margin for the period was 3.8%. 05 06 07 08 . 48 .
    • expenses The operational expenses came to a total of R$2,907 the pRo-foRmA million in 2008, which is an increase of 45.1% compared with 2007, when they came to R$1,596 million. This increase occurred due to the strong growth of the Company over this pRofit in 2008 period. Sales expenses rose by R$730 million, strengthening the relationship channels with the clients and also with prospective clients of JBS. cAme to R$1.05 debt billion, if Ad- The total debt of JBS in 2008 came to R$5,616 million, of which 60.6% is long-term debt with the extension of liquidation until 2016. With available funds equivalent to Justed by the R$2,291.6 million, the net debt of the Company comes to R$3,324.9 million, which represents a debt over EBITDA ratio (last twelve months pro-forma) of 1.95 times. exchAnge RAte net pRofit vARiAtion foR In 2008, there was a net pro-forma profit of R$1.05 billion, when adjusted by the exchange rate variation for investments abroad and after the amortisation of the agio investments is excluded. investments AbRoAd, And if The total value of the capital expenditure incurred by JBS in goods, industry and equipment, not including the AmoRtisA- purchases, was R$994.1 million in 2008. This total sum was invested during the year in maintenance and also in improvements to the distribution platform. tion of the Agio is excluded . 49 .
    • quAlity “the pARtneRship between the bAtistA fAmily And the “fAmily” of the AustRAliAn beef industRy And its dedicAted collAboRAtoRs hAs pRoved to be A foRmidAble foRce, to pRovide ReliAble pRoducts of high quAlity foR consumeRs ARound the woRld. in Addition, these two gRoups seek to be the best in eveRything they pRopose to do.” don heatley Chairman Meat & Livestock Australia, North Queensland cattle producer. . 50 .
    • quAlity, innovAtion And stRong bRAnds focus on more than 16,900 collaborators. The clients of this platform include points of sale, wholesalers, supermarkets, industrial firms, production of foodstuffs which have its composition, innovAtion restaurants, leather tanning units, and others. The current client portfolio of JBS in Brazil has more than 11,240 clients on the internal market and 436 on the export market. And quAlity Through customised products and brands, or own brands such as Friboi, Swift, Friboi Grill, Anglo, Organic Beef and Maturatta, JBS Brazil serves the domestic market and of pRoducts also exports to more than 100 countries, especially Russia, Hong Kong, the European Union and Saudi Arabia. The focus on excellence of quality can also be perceived in JBS Argentina. In this country, the Company was the first Having been on the market for five decades, JBS packaging industry to earn the ISO 9001:2000 certification for the has always stood out for the excellence of their products, whole process of production of processed meats. Through six the satisfaction of the needs of clients and also the final slaughtering plants, of which five producing processed meats consumers around the world. With this in mind, the Company and one producing tin packaging, JBS Argentina develops its knows that it is necessary to take care of all details of all portfolio of innovative products with brands that are well known processes, of each stage, and of all operational segments on the market, such as Plate, Cabaña Las Lilas and Swift, to of the different Company units. serve a client base comprising more than 650 clients on the This means the need to constantly invest in the domestic market and some 140 clients abroad. collaborators, in machinery and technology to develop what is JBS USA has been recognised as a provider of high most modern in the food segment, to meet the specific demands quality beef and pork meat for more than 150 years. With brands of each client in a customised way, and innovate through the such as Swift & Company, Angus Select, Premium Black, launch of products that meet the needs of the final consumer. Hereford, La Herencia, Swift Premium, 1885, among others, In the Company’s platform in Brazil, the service to the in the United States JBS serves more than 3,900 domestic clients is provided by the 22 production units, with a total clients as well as 500 clients in 37 countries, especially Mexico, slaughtering capacity of 18,900 heads of cattle per day and Canada, Taiwan, South Korea and Hong Kong. . 51 .
    • With a production platform based in Italy, Poland and Jbs And its bRAnds also in Moscow, Inalca, an Italian company in which JBS has a 50% stake, is recognised in Europe for its high technology JBS seeks to strengthen its brands with highest and product innovation. This operation is responsible for the added value and profitability. This is a strategy that enables production of fresh beef, as well as processed and smoked the maintenance of operational results. The Company is meats and snacks. For its quality, Inalca JBS is considered by structured to offer high-quality products focused on the the whole world as a benchmark in technology within the market preferences of local consumers. for slaughter of bovines and meat processing. Inalca JBS serves a base of 8 thousand clients on the Italian market and also 660 product lines clients abroad, with the Montana, Inalca and Ibisè brands. With 185 clients internally and 400 abroad, JBS JBS is a food company focused on the production of fresh Australia stands out as the largest beef processor and and processed beef, handled within strict standards of hygiene exporter on the Australian market. JBS Australia offers the and commercialised in practical and hygienic packaging, in following brands to the market: Seattle Meat, Beef City, Royal, portions appropriate for consumption. All JBS platforms produce Your Choice, AMH and Tasman Meats, among others. beef – Argentina, Brazil, Italy, Australia and the USA. On all JBS production platforms, the Company recognises the importance of keeping the standard procedure, from the fresh beef: chilled or frozen cuts, including picanha, ribs, filet choice of raw materials, through the industrial processes, for mignon, front cuts and beef giblets, among others. hygiene, training and care with refrigerated transport. processed beef: meat products such as cooked and In all countries, there is a Quality Assurance area and frozen meats, preserved meat and meat extracts, as well also a department for Research and Development of products, as industrialised meats (beefburgers, kibe, sausages responsible for the study of possible launches and for preparing and mortadella) and ready meals. With installations and the standards of quality for all items offered to the clients. processes well suited to the international market, JBS exports Focused on innovation and excellence of quality, JBS processed meat to all five continents and is market leader for seeks to be recognised by clients and consumers as a global beef exports. Company which serves with full credibility. For this purpose, The Company is also present in the pork and JBS has customised brands or own brands to serve each lamb segments through the Company operations in the client, with respect for cultural and religious considerations United States, where 47,900 pigs are slaughtered every of the variety of regions where the Company products day. There are three pork slaughtering units in the United are consumed. States, in Minnesota, Iowa and Kentucky. JBS is also active in the slaughter of small animals, in the United States and in Australia. Some 20,500 of these animals are killed daily, including 4,000 lambs at JBS USA at a plant in Colorado, and 16,500 heads at JBS Australia. . 52 .
    • Jbs bRAnds: woRldwide Recognition . 53 .
    • sAnitARy The excellence of JBS products also has fundamental tools: a logistic and information technology structure for data management and optimisation of processes. stAndARds ARe Jbs quAlity policy consideRed “To conquer recognition and trust in the JBS brands, through the quality of the products and also the perfect service to the clients, thereby ensuring the morale of the pARt of the collaborators and the security of the consumers, with respect for the law and for the environment.” The excellence in JBS activities in their markets of business interest has arisen from an attention focused on the interests of the clients, the heavy investment in quality programmes, the permanent monitoring of their installations with strict stRuctuRe criteria for hygiene and sanitary controls, permanent physical, chemical and microbiological analyses and quality control, that accompany the product from the entry in the units until delivery to the clients. The requirements assessed by JBS go well beyond just the compliance with the legislation of each mAnAgement tools And excellence of quAlity country where the Company is present. The Company considers that sanitary guarantees are a structural part To ensure the quality of the final product, JBS has of the business, such as the implementation of specific an efficient system for controlling the origin of the cattle, as Quality Programmes such as: Allergens, Genetically also transport and industrial production with sanitary care Modified Organisms (GMO), Specific Risk Materials, and hygiene. From the purchase of raw materials through Animal Welfare and so forth; certification by the British to commercialisation, the products with the JBS brand go Retail Consortium (BRC), World Technical Standards for through efficient processes of industrialisation, preservation food; and others. and transport. To make sure of the quality and the food safety of JBS invests in the trackability of the animals, which are the products, JBS internally disseminates programmes and processed in their units as a way of ensuring the application procedures such as Best Production Practice, Standard of strict health procedures and control of origin, including Procedures for Operational Hygiene, Operational Sanitary environmental and social concerns. Procedures, and Analysis of Hazards and Critical Control. . 54 .
    • sustAinAbility the ARgentine RefRigeRAtion industRy stRengthened its Activities with the pARticipAtion of bRAziliAn cApitAl investments. the substAntiAl development of gRupo fRigoRífico Jbs fRiboi, which owns eight industRiAl plAnts in the countRy, expRess A decision of this industRy-leAding coRpoRAte gRoup to boost And impRove the ARgentineAn RefRigeRAtion industRy, which will Result in concRete benefits to the countRy, the woRkeRs And technology of the sectoR. dr. mario dario Ravettino President | Argentinean Beef Exporters Consortium: A.B.C . 55 .
    • sustAinAbility Jbs believes JBS has a sustainability policy, as the Company is well aware of its responsibility as the largest beef-producing company in the world, and of all the impact generated by thAt peRenniAl its operations in each region. Thus, the Company has a sustainability programme suited to each of the Company’s units, including Environmental Policy, Procedures Adopted, compAny Information Policy, Relationships and Investments, Usage of Natural Resources, social and environmental actions and treatment of residue. Activity is The premises of sustainability, including those of being ecologically feasible and correct, socially fair and culturally accepted, have always been part of the development and AssociAted to growth of JBS in all the countries where the Company is active. The vast experience of the Company proves the importance of the reduction of the environmental impact to sustAinAble keep up a close relationship with the communities where the Company is present. In its activities, JBS prioritises the sustainable use of materials, the climactic factors, treatment development of residues, partnerships with fair organisations, for health, ethics and quality of life. For JBS, whose corporate governance includes concepts of social responsibility, respect for the environment, ethical conduct and economic performance, sustainability is an important value. The Company believes that its development JBS is the first and the only company and corporate growth may be linked to sustainability of actions. from this segment to have registered an MDL project at the United Nations Convention Thus, JBS follows best governance practices and uses, as on Climate Change (UNFCCC). The project is master lines, the transparency before all segments of the currently being assessed by a designated authority. public that the Company has a relationship with, constantly investing in the improvement of the production chain in its units, with a focus on the reduction of environmental impact, as well as seeking ways of establishing closer relationships with collaborators, family members and also the community in general, through social initiatives. . 56 .
    • ethicAl behAviouR of bribes, rewards, illegal payments and other corrupt practices, among other themes. With regard to ethics, JBS adopts this behaviour in all The full content of the ethical conduct manual may be Company decisions and relationships. For this reason, since found on the Company’s institutional website (www.jbs.com.br) 2004 the Company has had a manual, well aligned with the and also in the Investor Relations website (www.jbs.com.br/ri). principles of sustainability, which reflects the ethical activity of JBS S.A. in the Company’s relationships with strategic RelAtionship with the inteRnAl public segments of the public. This manual has guidelines to help to make integrity For JBS, the valuing of the Company’s collaborators the nucleus of everything that JBS proposes to do. For JBS, is a creed, and the policy of people management is integrity shall not be an ideal but rather a real process, live and structured in a way that sustains the business. JBS believes dynamic, and active within the Company. that well-prepared and motivated professional people make The Ethical Conduct Manual of JBS, updated five the difference in a Company, so that the Company may years ago, also seeks to shed light on, and avoid, situations constantly grow and innovate. that could lead to doubts or raise suspicion about procedures The morale of the employees, as also their participation adopted in Company operations, thus seeking to make it easier and the sense of participation in the Company are essential to communicate cases that may be, or come to be, conflicting so that the Company may attain targets and overcome with the ethical conduct expected by the Company. challenges. The importance that JBS assigns to its Human Among all formative principles, JBS believes that none Capital can be proved through a transparent relationship of is as important as ethics, as they consider that this is the base mutual growth. for prolonged success and also the main ingredient in the Nowadays, JBS is active in different countries construction and maintenance of relationships based on through communication tools, provision of lectures and trust, both internally and externally. For JBS, trust and ethics events; disseminates the organisational culture for all are essential to do business. business platforms, thus implementing and strengthening The Manual highlights JBS ethical standards, the personal the Company’s way of being and management culture. responsibilities of each collaborator, the policy of non-retaliation, The values, creeds and conducts of JBS are informed instructions about what the employees should do when faced to all collaborators. In this way, as soon as a Company is with a possible violation of some ethical standard, guidance about purchased, JBS carries out a process of integration so that communication with the media, company assets, treatment of the organisational culture may be implemented and followed confidential information, including information with exclusive rights by all business units, thus preserving and strengthening the and commercial secrets. The material also addresses the use of Company guidelines, which JBS calls the DNA. the Internet and the Intranet, as well as other electronic media, Human Resources Management at JBS is focused on maintenance and storage of records, conflicts of interests, the development of policies that allow the attraction, development relationships with suppliers and third parties, minimum age for and retaining of talent, thus setting up a highly motivated team, hiring – mainly with regard to child labour, support for the balance committed to results. The main aim of HR policies is to integrate between work and personal life, diversity in the workplace to the employees at units throughout the world with the culture of provide equal opportunities of employment, harassment in the the Company so that they may be part of the JBS family, thus workplace, policies about presents and entertainment, prohibition creating their way of being. . 57 .
    • selection, development development and Retention And RetAining of tAlent Seeking professional development, JBS promotes training sessions, giving priority to internal recruitment, gives selection grants and offers other benefits according to the needs of JBS promotes the recruitment and selection of each business platform – medical assistance, food, crèche candidates on a local basis, thus generating jobs in the regions assistance and transport. where the Company is present. In 2008, JBS employed a total For the Company, the sustainable growth of JBS S.A. of 12,103 people in the United States, 2,109 in Italy, 6,995 is linked to the human development with regard to quality of in Australia, 16,993 in Brazil and 5,059 in Argentina, giving a life, prosperity in the profession, commitment to work, learning total of 48,991 direct jobs. The policy at JBS prioritises internal and growth. In this way, JBS establishes with their collaborators recruitment, thus giving opportunities to the professional in Brazil, Argentina, Italy, Australia and the United States a people who already work at the Company, regardless of the partnership in which each of the parties complies with its duties country or the state that has an available vacancy. and is guaranteed its rights. A responsible form of activity in In this way, the Company offers a wide Opportunity Human Resources, with respect for individual rights and the Plan for their collaborators, who have the chance to migrate labour legislation, and also constructing a work environment to another area or even to another country. JBS believes that which is safe and healthy, based on equal opportunities. if the collaborator has the values of the Company, then he To hold on to the Company collaborators, JBS often or she is able to learn any technical skill. This shows that carries out internal surveys to assess the motivation of the JBS firmly believes in its collaborators and prioritises internal collaborators. This mensuration is made among all collaborators, recruitment to thus offer opportunities to the Company’s so that JBS may make the necessary adjustments to keep the Human Capital. high motivation which is a feature of the Company’s team of 48.991 collaborators throughout the world. In 2008, the Company launched a distinctive Programme for selection and training in Brazil. Through participation in University career fairs and also through holding lectures, JBS selects and recruits young University students or recent graduates to participate in the Our People Programme. The initiative consists of three months of training at one of the 22 units of JBS Brazil. The training is theoretical and also practical, and JBS seeks to train specialists in the meat packing segment. The aim of the Company is to focus on the formation and development of professionals starting their career (recent graduates) who have been identified as having a potential future in the Preparation of Successors; Professionalisation of the Workforce and filling vacancies for new collaborators in Brazil or in the other countries where JBS is active. This project was piloted in Brazil and, in 2008, produced 140 collaborators. The intention is now to migrate this idea to all the JBS platforms throughout the world. . 58 .
    • benefits offeRed RelAtionships with supplieRs JBS offers remuneration compatible with market levels, JBS has sustainable partnerships with suppliers in all as well as benefits offered by the law in each country where platforms where the Company is active, whether in Argentina, the Company is active. JBS also plans additional assistance Brazil, the United States, Australia or Italy. The Company as a way of valuing the relationship with employees and has adopted the internal procedure of assessment of construction of a healthy work environment, as well as keeping suppliers with regard to criteria related to quality, punctuality, good relations with institutions representing the workers. sustainability and trust in products and services. This posture seeks to ensure that the global production chain for beef is tRAining And heAlth And sAfety policy sustainable in all aspects, and offers the end clients a product with guaranteed origin and that respects best practices. JBS invests in the professional enhancement of the JBS cultivates transparency between the Company and Company employees, with the adoption of a training policy its cattle suppliers in the United States, Australia, Argentina, that is well aligned with Company Culture. The activities are Italy and Brazil, as a way of promoting the long-term growth planned in line with demand. in the segment, through the strengthening of the livestock The quest for the health of the employees in all production chain, including industry and the distributor. countries where JBS is active is also incorporated into The Company seeks to offer the livestock farmer the Company’s daily routine, with initiatives that seek conditions to commercialise the livestock, so that the supplier improvement in the quality of life in the work environment, as may plan sales in advance, making negotiations easier and also encouragement of changes in habits, that bring positive optimising results. results from the behaviour standpoint. The relationship policy includes a programme of visits With regard to the initiatives that seek to guarantee to industrial units and accompaniment of production, as also security in the workplace, JBS seeks to promote preventive advice on sanitary issues, animal nutrition or sale of livestock. action, such as collective awareness-building in search for To ensure transparency in the acquisition process, a safe work environment, discipline for the use of Personal JBS S.A. publicises and makes clear to the suppliers that Protection Equipment, and for work safety regulations. they have commercial relationships with companies that The good practices for health and safety include have commitment and engagement with the social and labour gymnastics for prevention of repetitive strain injury environmental issues that affect the chain. The JBS conduct (RSI) and other osteomolecular disorders related to work. is constantly publicised to the suppliers through the Ethical The collaborators have Personal Protection Equipment Conduct of the Company and also environmental practices. and also a process of awareness building, concerning In all countries where JBS is active, the Company behavioural security, in an attempt to mitigate incidents. The seeks to encourage best practices from the suppliers. Based presence of security technicians in the factory increases the on programmes, JBS discloses, encourages and supports positive feeling of each worker at the necessary moment of their suppliers in the adoption of sustainable conduct. minimising risk problems within the work environment. . 59 .
    • One example is the Friboi Quality Farms Programme then contacted and, when they agree to participate in the of JBS, set up to support the mission of JBS to be the best in Friboi Quality Farms programme, they are put through a everything they propose to do, and is an example of valuing preliminary audit and then the adaptation work is started. suppliers. In yet another initiative, it was the first Brazilian The Global Gap/EurepGAP is a management tool that gives meat producer to implement a tool for quality management information about strong points of the property and also on the farms that supply the animals. points that warrant further attention. Friboi Quality Farms seek to prepare producers for Thus, it makes it possible to have efficient planning, the Global Gap/EurepGAP (Eurep – Euro-Retailer Produce together with reallocation of resources and allocation of Working Group and GAP – Good Agricultural Practice) and gains, thereby strengthening the business. ensure 100% of acquisitions involving certified animals. With this programme, JBS seeks the joining for forces The normative document is based on best in favour of the supply of meat produced ethically and agricultural practices. The aim here is to ensure the integrity, professionally. The Friboi Quality Farms programme means transparency and harmony of global standards. The food that the Brazilian products can be competitive on the market, shall be produced with respect for health, safety and also adding value to the producers and ensuring quality to clients the well-being of the employees, without forsaking the care and the satisfaction of the end consumer. for the animals and for the environment. RelAtionships with clients And consumeRs Active in the most important and largest platforms for woRking in beef production in the world – Brazil, Argentina, the United States, Italy and Australia – JBS S.A. ensures that the global clients are served with quality. This geographical activity tRAnspARent enables the Company to have some flexibility, so that possible external factors, whether commercial or sanitary, among others, do not affect the service to clients, this because JBS fAshion with has mobility to produce in different platforms, and thus ensure that the clients’ demands are met. Having close relationships with clients, JBS manages supplieRs to observe needs with greater ease and thus develop specific products and services for each region, thus respecting the habits and customs of each country. is pARt of To keep this close relationship, the Company participates in trade fairs and events in the beef segment, on a global level; these fairs include SIAL, Anuga and Gulfood. Jbs cultuRe Apart from these events, JBS includes invitation to events that may interest the clients, and visits to industrial plants in the United States, Australia, Brazil, Argentina and Italy, so that these may be fully aware of the JBS global operations. To measure the satisfaction of this external public, the The trend is for markets, especially those abroad, to sales team is in constant contact with the clients to measure the seek more and more products with the certainty that they have rate of satisfaction and also look into possible improvements. been produced within the strictest regulations and ethical and It is worth pointing out that for JBS the cultivation of a quality standards, accepted throughout the world. good relationship starts with the efficient care of all production JBS has qualified a team of professionals qualified stages, to ensure the quality of the final product – the main to guide and train livestock farmers to that they may be tool for the Company to attain the highest levels of satisfaction entitled to request certification. The pre-selected farms are and trust by the clients and consumers – and ensure the preference and loyalty for the Company brands. . 60 .
    • In the relationship with the end consumer, JBS In its relationship with authorities, the Company has complies with all legal requirements for production and a strict principle of transparency, and does not get involved commercialisation, making product information available on in any activities which could lead to mistaken interpretations. the labels, which describe the correct methods of handling, JBS gives value to relationships based on mutual respect, as also ingredients and origin. compliance with the laws, and ethical commitments. With the end consumer, the Company make global surveys to identify needs and food habits of the public, and investoR RelAtions thus develop products that meet this demand. In addition, at regular intervals special publicity campaigns and promotions For JBS, the base of any relationship is trust, and are launched, with a focus on the approximation and this is the kind of relationship that the Company establishes identification of JBS brands by the consumer. with its investors. To serve the investor, JBS has an area for The Company keeps contact with consumers through Investor Relations structured to inform the shareholders and channels on all business platforms, such as the Client Service market analysts in a swift and transparent manner, and also Hotline (SAC), sites, telephone lines, publicity announcements, to keep a close relationship with this public. The Company informative leaflets and action at the points of sale. has public meetings to present its results, in institutions like the Association of Investment Analysts and Professionals of RelAtionship with the goveRnment the Capital Markets (APIMEC). In 2008, JBS held a public meeting with a total of 80 participants. The Company calls JBS’s conduct before the Government has the the market over every quarter to show the Company results, principle of spreading the best practices that the Company when the Executive President presents the results obtained has adopted in the light of compliance with legislation in all by JBS and also the outlook for the segment, in public. the countries where the Company is present (Italy, the United In 2008, JBS held these meetings on a regular basis States, Brazil and Australia). JBS S.A. has a commitment to to make the figures public. There were also two roadshows the execution of its labour, tax and environmental obligations with banks and shareholders. At the end of 2008, eight as established by the legislation of each country. financial institutions were accompanying and disclosing the JBS has activities in several countries around the world. performance of JBS S.A. The Company’s relationships with the governments of these countries is based on strict ethical standards. In addition, the RelAtionships with the pRess Company seeks to understand the cultural characteristics of each people, so as to respect the local values and laws With the Press, has a relationship of transparency, ethics applicable to Company activities in each country. and professional respect. For JBS, the media is essential so Being a global company, JBS keeps a permanent that the market and society in general may be informed about watch on the political and social demands of each country everything that happens with regard to Company actions. where the Company is active and to where it exports. In this The relationship with the press is the base on which the way, the Company is always prepared to respond to changes news can be taken to the final public in a correct and truthful in regulations and keep their products and units within strict manner. Through the Press Relations Department of JBS, criteria of legality, whether in relation to environmental, labour, the communication media is served globally, and are always social or tax issues. brought up to date about all actions and news concerning the . 61 .
    • Company in real time. JBS makes use of communication tools to take a clear stand, efficiently and objectively, with the vehicles of communication, whether through press releases, press An ethicAl conferences, interviews with the Company spokespeople, and disclosure of news on the company website, where there is a dedicated space for journalists. RelAtionship For the Company, the means of communications are essential to ensure transparency in relationships between companies and communities. For this reason, with the JBS has a transparent, ethical and professional relationship with journalists and vehicles. For JBS, the means of communication are the link through which the market and pRess is the society in general may be informed about all events with regard to the actions of the Company. The relationship with the press is the base so that the guARAntee relevant information may be taken to the public and also all the Company stakeholders in a correct and truthful manner. To make sure that the media and journalists have access to all of quAlity the information about JBS, the Company has a professional structure for dealing with the Press. This structure is active in an ethical manner and is firmly committed to the truth, so that communicAtion they can offer relevant information in reasonable time, so that the general public, clients, suppliers and shareholders may always be informed about the JBS actions and commitments, with the in all markets where the Company is active. The relationship between JBS and the press makes use of the more traditional disclosure methods, including shAReholdeRs press releases, a specific area on the Company website, press conferences, interviews with spokespeople and other JBS also helps towards the development of the means necessary to make the relevant information public regions where the Company is active, employing thousands for society and for the Company. This relationship follows of people throughout the world. Currently the total workforce principles of transparency, clarity and objectivity in the flow is more than 55 thousand, if we add together the collaborators of information. in Brazil, Argentina, the USA, Australia and Italy. RelAtionship with the community enviRonment Well aware of its role, JBS carries out a range of All productive JBS units in Brazil and around the world activities with the communities surrounding the factory units, are in conformity with applicable environmental Laws and whether supporting cultural events or charity institutions, Regulations. This means that all the units have an environmental carrying out social actions or volunteer programmes to meet licence in accordance with regulations currently in force. To the needs of society, or giving lectures about environmental control the environmental impact of the Company operations, awareness. JBS has a programme of preventive maintenance of machines, equipment and also gas filtering systems, as also programmes for the efficient use of water, energy and recycling of materials used in the routine activities of the Company. At regular intervals, the environmental impact of products, processes, operations and services are assessed, to identify possible factors causing relevant environmental damage, as well as developing and implementing sustainable processes. . 62 .
    • initiAtives of sociAl And enviRonmentAl Responsibility tAken up by Jbs s.A. Jbs brazil social and environmental Activities : Physical Activities: Stretching exercises are performed by the collaborators before the start of their work activities; : Health Care: Access to a private health insurance plan at reduced prices, including preventive medical examinations and several prevention campaigns; : Crisis Management Commission: To deal with accidents of any kind; : Environmental Education Programme: Aimed at the collaborators through different types of informative campaigns; : Selective Refuse Collection: The Company has a programme for selective refuse collection, to educate the collaborators; : 5S Quality Control Programme (Tidiness, Orderliness, Cleanliness, Standards and Self-Discipline) noise and tReAtment of Residues solid waste effluents emissions vibrations Monitoring with indicators • • • • Use of reuse targets • • - - Use of recycling targets • • - - Use of programmes to reduce generation • • • • Use of selective collection or unitary treatment • • - - Investment in technology to reduce generation • • • • Use of process to reduce environmental impact • - • • Use of guarantee of legal conformity in handling, transport and destination • • - - Jbs Argentina social and environmental Activities : Gymnastics programme implemented in all units; : Injury Prevention programme; : First Aid Units in all business units; : The Company carries out medical examinations and check-ups once a year (clinical examination, blood, urine, X-rays, hearing and sight) on all employees; : Vaccination of all employees against certain diseases; : Incentive Programmes for people to stop smoking; : The Company is a founder member of an NGO known as “Food Bank” which donates food to those in need; : 5S Quality Control Programme (Tidiness, Orderliness, Cleanliness, Standards and Self-Discipline). noise and tReAtment of Residues solid waste effluents emissions vibrations Monitoring with indicators • • • • Use of reuse targets • • - - Use of recycling targets • • - - Use of programmes to reduce generation • • • • Use of selective collection or unitary treatment • • - - Investment in technology to reduce generation • • • • Use of process to reduce environmental impact • - • • Use of guarantee of legal conformity in handling, transport and destination • • - - . 63 .
    • Jbs united states social and environmental Activities : The Company has implemented guidance classes for all new employees, and has also organised stretching classes; : Insurance available for all full-time employees; : Direct communication so that the collaborators may get in contact with the corporate offices and also industrial managers; : JBS Swift recycles most of the waste generated. Each unit has its own mechanism for management of waste, according to the kind of waste that is generated. These programmes are based on the selective management of the flow of solid waste; : The Company has partnerships with United Way, Relay for Life, American Cancer, Hob for Life, Boy/Girl Scouts, state schools and local food banks. noise and tReAtment of Residues solid waste effluents emissions vibrations Monitoring with indicators • • • • Use of reuse targets • - - - Use of recycling targets • • - - Use of programmes to reduce generation - - - - Use of selective collection or unitary treatment • • - - Investment in technology to reduce generation • • • • Use of process to reduce environmental impact • - • • Use of guarantee of legal conformity in handling, transport and destination • • - - Jbs Australia social and environmental Activities : Collaborators are given special reduced prices for use of the Gym; : The Company offers an on-site medical team to solve illnesses or other health problems that the Collaborators may have; : Access to a private health insurance plan at reduced rates; : There is a formal procedure with the OHS Manual, which deals with management of injuries at the workplace; : Crisis Management Training for all collaborators; : There is a programme for collaborator guidance, in addition to selective refuse collection; : Partnership with Healthy Waterways Partnership, dedicated to improvement of the health of the river systems in Southeastern Queensland; : Member of the Fitzroy Basin Association in Rockhampton, seeking the sustainable development of the Fitzroy Basin. noise and tReAtment of Residues solid waste effluents emissions vibrations Monitoring with indicators • • • • Use of reuse targets • - - - Use of recycling targets • - - - Use of programmes to reduce generation - - - - Use of selective collection or unitary treatment • • - - Investment in technology to reduce generation • • • - Use of process to reduce environmental impact • • • - Use of guarantee of legal conformity in handling, transport and destination • • - - . 64 .
    • coRpoRAte infoRmAtion Jbs s.A. Av. Brigadeiro Faria Lima, 2.391 2º andar, conjunto 22, sala 2 postcode: 01452-000 São Paulo – SP – Brasil Telephone: (+ 55 11) 3144-4000 www.jbs.com.br investoR RelAtions Director: Jerry O’Callaghan Manager: Rodrigo Gagliardi Av. Marginal Direita do Tietê, 500 postcode: 05118-100 São Paulo – SP – Brasil Telephone: (+ 55 11) 3144-4055 E-mail: ir@jbs.com.br shAReholdeR RelAtions Banco Bradesco BBI S/A Avenida Paulista, 1.450, 3º andar São Paulo – SP www.shopinvest.com.br independent AuditoRs Terco Grant Thornton Auditores Independentes Av. das Nações Unidas, 13.797, Bloco II, 18º andar postcode 04794-000 – São Paulo – SP Telephone: (+ 55 11) 3054-0007 . 65 .
    • cRedits Published by the Investment Relations Department and Corporate Communication Department published by Corporate Communication Department JBS S.A. pRinting design TheMediaGroup – Financial Communication and Sustainability imAgens JBS Image Bank . 66 .
    • financial statements .2. Report of independent auditors .4. Balance sheets .6. statements of income .8. statements of changes in shareholders’ equity . 10 . statements of cash flows 12 . economic Value added . 14 . notes to the financial statements . 67 .
    • RepoRt of independent auditoRs to the Board of directors and shareholders of JBs s.a.: 1.We have audited the individual (Company) and consolidated balance sheets of JBS S.A and controlled companies (Companies) as of December 31, 2008 and the respective individual (Company) and consolidated statements of income, changes in shareholders’ equity, cash flows and value added for the year then ended, prepared under the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements. The financial statements of JBS Argentina S.A., an indirectly- controlled company, and of JBS USA Inc., a directly-controlled company, were reviewed by other independent auditors, member firms of BDO network. The financial statements of Inalca JBS S.p.A , JBS Global A/S (Denmark) and SB Holdings, Inc,. directly-controlled companies, were audited by other independent auditors. Our opinion, insofar as it relates to the carrying value of the investments in these companies and the equity in their earnings, is based on the report of those other auditors. As from October 23, 2008, the financial statements of JBS USA include the accounts of JBS Parkland (formerly Smithfield) and JBS Five Rivers (formerly Five Rivers). 2.Our audit was conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control systems of the Companies, (b) checking, on a test basis, the evidence and records that support the amounts and accounting information disclosed, and (c) evaluating the significant accounting practices and estimates adopted by management, as well as the presentation of the financial statements taken as a whole. . 68 .
    • 3.In our opinion, based on our audits and on the opinion of other independent auditors, as mentioned in paragraph 1, the financial statements referred to in that paragraph present fairly, in all material respects, the individual and consolidated financial position of JBS S.A. and controlled companies as of December 31, 2008, and the results of its operations, the changes in shareholders’ equity, the cash flows and value added to its operations for the year then ended, in conformity with Brazilian accounting practices. 4.The audit of the financial statements for the year ended December 31, 2007, originally prepared before the adjustments resulting from the changes in accounting practices described in note 2, was conducted under the responsibility of other independent auditors, who issued an unqualified report on March 10, 2008 emphasizing the presentation of the statement of cash flows as supplementary information and the early application of procedures to recognize exchange variations of foreign investments, pursuant to Technical Pronouncement No. 2 issued by the Committee of Technical Pronouncements, whose application is expected for the fiscal years ending as from December 2008, in accordance with Brazilian Securities and Exchange Commission (CVM) Resolution No. 534. In connection with our audit of the financial statements for the year ended December 31, 2008, we also analyzed the adjustments resulting from the changes in accounting practices described in note 2. In our opinion, these adjustments were adequate and properly made, considering all significant aspects. We were engaged only to analyze the adjustments described in note 2 and not to evaluate, review or apply any other procedures to the financial statements for the year ended December 31, 2007, and therefore we do not issue an opinion on these financial statements. As mentioned in note 2, the Brazilian accounting practices have been changed as from January 1, 2008. The financial statements for the year ended December 31, 2007, presented together with the 2008 financial statements, were prepared in accordance with Brazilian accounting practices in effect until December 31, 2007 and, as allowed by CPC Technical Pronouncement No. 13 – Initial Adoption of Law No. 11,638/07 and Executive Act No. 449/08, are not being republished with the adjustments for purposes of comparison between the years. Ribeirão Preto, February 16th, 2009. Estefan George Haddad BDO Trevisan Auditores Independentes Partner Accountant CRC 2SP013439/O-5 CRC 1DF008320/O-5 “S” SP . 69 .
    • Balance sheets as of decemBeR 31, 2008 and 2007 (in thousands of Reais) company consolidated assets 2008 2007 2008 2007 cuRRent assets Cash and cash equivalents (Note 5) 1,522,973 869,784 2,291,617 1,381,703 Trade accounts receivable, net (Note 6) 552,991 444,218 2,232,300 1,236,148 Inventories (Note 7) 539,510 604,225 2,549,674 1,511,595 Recoverable taxes (Note 8) 447,343 351,677 623,022 482,918 Prepaid expenses 1,754 4,388 70,881 44,468 Other current assets 166,275 30,612 493,372 102,910 total cuRRent assets 3,230,846 2,304,904 8,260,866 4,759,742 non-cuRRent assets long-term assets Credits with related parties (Note 9) 1,700,868 60,306 54,569 17,461 Judicial deposits and others 16,378 8,249 102,779 41,443 Deferred income taxes (Note 19) 22,626 16,251 481,485 23,758 Recoverable taxes (Note 8) 37,632 31,442 65,307 44,205 total long-term assets 1,777,504 116,248 704,140 126,867 permanent assets Investments in subsidiaries (Note 10) 3,803,669 2,149,919 - 829,975 Other investments 10 10 5,722 10 Property, plant and equipment, net (Note 11) 1,804,833 1,328,015 4,918,671 2,536,098 Intangible assets, net (Note 12) 959,230 9,615 2,205,347 193,917 Deferred charges - - 1,603 1,596 total permanent 6,567,742 3,487,559 7,131,343 3,561,596 total non-cuRRent assets 8,345,246 3,603,807 7,835,483 3,688,463 total assets 11,576,092 5,908,711 16,096,349 8,448,205 The accompanying notes are an integral part of the finantial statements . 70 .
    • company consolidated liaBilities and shaReholdeRs’ eQuity 2008 2007 2008 2007 cuRRent liaBilities Trade accounts payable (Note 13) 383,979 355,510 2,077,844 1,099,385 Loans and financings (Note 14) 1,494,690 858,975 2,214,788 2,384,836 Payroll, social charges and tax obligation (Note 15) 62,722 93,158 337,238 203,613 Declared dividends (Note 16) 51,127 17,465 51,127 17,465 Other current liabilities 76,772 50,294 248,344 70,536 total cuRRent liaBilities 2,069,290 1,375,402 4,929,341 3,775,835 non-cuRRent liaBilities Loans and financings (Note 14) 2,991,344 1,341,313 3,401,709 1,364,800 Deferred income taxes (Note 19) 83,453 59,642 884,927 99,755 Provision for contingencies (Note 17) 48,244 45,979 57,637 55,681 Debit with third parties for investment (Note 18) 210,480 - 210,480 - Other non-current liabilities 38,870 31,787 480,302 101,702 total non-cuRRent liaBilities 3,372,391 1,478,721 5,035,055 1,621,938 minoRity inteRest - - (2,458) (4,156) shaReholdeRs’ eQuity (note 20) Capital stock 4,495,581 1,945,581 4,495,581 1,945,581 Capital reserve 769,463 985,664 769,463 985,664 Revaluation reserve 118,178 123,343 118,178 123,343 Profit reseve 1,297 - 1,297 - Valuation adjustments of shareholders´ equity (2,920) - (2,920) - Accumulated exchange conversion adjustments 752,812 - 752,812 - total shaReholdeRs’ eQuity 6,134,411 3,054,588 6,134,411 3,054,588 total liaBilities and shaReholdeRs’ eQuity 11,576,092 5,908,711 16,096,349 8,448,205 The accompanying notes are an integral part of the finantial statements . 71 .
    • statements of income foR the yeaRs ended decemBeR 31, 2008 and 2007 (in thousands of Reais) company consolidated 2008 2007 2008 2007 GRoss opeRatinG ReVenue sales of products Domestic Sales 2,971,842 2,118,600 20,787,532 8,974,879 Foreign Sales 2,424,375 2,321,456 10,318,077 5,752,224 5,396,217 4,440,056 31,105,609 14,727,103 sales deductions Returns and discounts (206,162) (191,932) (369,178) (273,556) Sales taxes (323,649) (252,282) (396,176) (311,976) (529,811) (444,214) (765,354) (585,532) net sale ReVenue 4,866,406 3,995,842 30,340,255 14,141,571 Cost of goods sold (3,957,624) (2,915,674) (27,347,753) (12,609,093) GRoss income 908,782 1,080,168 2,992,502 1,532,478 opeRatinG income (eXpense) General and administrative expenses (137,568) (74,188) (570,147) (275,594) Selling expenses (470,620) (374,469) (1,517,591) (786,630) Financial income (expense), net (Note 21) (263,633) (276,283) (612,176) (403,113) Equity in subsidiaries (Note 10) 211,876 (276,591) - - Goodwill amortization (Note 12) (179,867) (74,824) (179,867) (74,853) Non-recurring expenses (Note 22) (35,693) (67,082) (35,693) (67,082) Other (expense) income, net 10,098 (171) 7,731 11,206 (865,407) (1,143,608) (2,907,743) (1,596,066) income (loss) BefoRe taXes 43,375 (63,440) 84,759 (63,588) Current income taxes 3,336 (101,793) (52,246) (107,104) Deferred income taxes (20,772) 201 (9,975) 2,201 (17,436) (101,592) (62,221) (104,903) . 72 .
    • company consolidated 2008 2007 2008 2007 income (loss) BefoRe minoRity inteRest 25,939 (165,032) 22,538 (168,491) Minority interest (expense) income - - 3,401 3,459 net income (loss) 25,939 (165,032) 25,939 (165,032) net income (loss) per thousand shares 18,48 -153,18 statement of eBitda (earnings before income taxes, interest, depreciation and amortization and non-operating income) (expense), net Income (loss) before taxes 43,375 (63,440) 84,759 (63,588) Financial income (expense), net (Note 21) 263,633 276,283 612,176 403,113 Depreciation and amortization 71,157 56,626 243,591 120,807 Equity in subsidiaries (Note 10) (211,876) 276,591 - - Non-recurring expenses (Note 22) 35,693 67,082 35,693 67,082 Goodwill Amortization (Note 12) 179,867 74,824 179,867 74,853 amount of eBitda 381,849 687,966 1,156,086 602,267 The accompanying notes are an integral part of the finantial statements . 73 .
    • statements of chanGes in shaReholdeRs’ eQuity foR the yeaRs ended decemBeR 31, 2008 and 2007 (in thousands of Reais) accu- Valuation mulated capital profit adjustments capital Revaluation exchange Retained reserve reserve of total stock reserve conver- earnings goodwill mandatory shareholders’ sion ad- equity justments Balance as of decemBeR 31, 2006 52,524 - 130,521 - - - - 183,045 Capital Increase 1,893,057 - - - - - - 1,893,057 Goodwill in shares issue - 1,160,983 - - - - - 1,160,983 Realization of revaluation reserve - - (7,178) - - - 7,178 - Loss for the year - - - - - - (165,032) (165,032) Declared dividends (R$16,21 to one thousand of shares) (Note16) - (17,465) - - - - - (17,465) Loss absorption - (157,854) - - - - 157,854 - Balance as of decemBeR 31, 2007 1,945,581 985,664 123,343 - - - - 3,054,588 Adjustments to initial adoption of Law 11.628/2007 and Executive Act 449/08 (Note 2) - - - - - - (87) (87) . 74 .
    • accu- Valuation mulated capital profit adjustments capital Revaluation exchange Retained reserve reserve of total stock reserve conver- earnings goodwill mandatory shareholders’ sion ad- equity justments Balance adJusted as of JanuaRy 1, 2008 1,945,581 985,664 123,343 - - - (87) 3,054,501 Capital Increase 2,550,000 - - - - - - 2,550,000 Goodwill in shares issue - 279 - - - - - 279 Realization of revalua- tion reserve - - (5,165) - - - 5,165 - Treasury Shares - (195,073) - - - - - (195,073) Valuation adjustments in subsidiaries share- holders´ equity - - - - (2,920) - - (2,920) Accumulated ex- change conversion adjustments in subsid- iaries shareholders´ equity - - - - - 4,794 - 4,794 Investiments exchange rate variations, net - - - - - 748,018 - 748,018 Net income - - - - - - 25,939 25,939 Proposal for destina- tion of the net income Mandatory - - - 1,297 - - (1,297) - Declared dividends (R$36,42 to one thousand of shares) (Note 16) - (21,407) - - - - (29,720) (51,127) Balance as of decemBeR 31, 2008 4,495,581 769,463 118,178 1,297 -2,920 752,812 - 6,134,411 . 75 .
    • statements of cash floWs foR the yeaRs ended decemBeR 31, 2008 and 2007 (in thousands of Reais) company consolidated 2008 2007 2008 2007 cash flow from operating activities Net income (loss) of the year 25,939 (165,032) 25,939 (165,032) Adjustments to reconcile net income (loss) to cash provided Depreciation and amortization 71,157 56,626 243,591 120,807 Allowance for doubtful accounts 4,423 1,819 10,393 1,589 Goodwill amortization 179,867 74,824 179,867 74,853 Minority interest - - (3,401) (3,459) Equity in subsidiaries (211,876) 276,591 - - Write-off of fixed assets 2,949 2,412 9,964 3,310 Deferred income taxes 20,771 (201) 9,975 (2,201) Current and non-current financial charges 487,668 107,134 758,914 100,689 Provision for contingencies 2,265 (1,228) (1,074) 2,676 Adjustment to present value of assets and liabilities 339 - 339 - 583,502 352,945 1,234,507 133,232 Variation in operating assets and liabilities Decrease (increase) in trade accounts receivable (1,512) 49,304 (169,660) (726,332) Decrease (increase) in inventories 64,715 (40,290) (294,794) (863,281) Decrease (increase) in recoverable taxes (103,038) 65,951 (135,969) 71,167 Decrease (increase) in other current and non-current assets (141,158) 41,975 (329,459) (111,738) Decrease (increase) in credits with related parties (1,178,154) 30,686 (22,395) (17,460) Increase (decrease) in trade accounts payable 18,521 95,617 (170,440) 807,020 Increase (decrease) in other current and non-current liabilities 194,960 49,236 849,785 269,925 net cash provided by (used in) operating activities (562,164) 645,424 961,575 (437,467) . 76 .
    • company consolidated 2008 2007 2008 2007 cash flow used in investing activities Additions to property, plant and equipment and intangible assets (806,687) (487,877) (1,237,702) (1,748,088) Increase in investments (1,511,441) (2,216,321) (3,645) (904,828) Net effect of the working capital of acquired company - - (1,721,877) - net cash used in investing activities (2,318,128) (2,704,198) (2,963,224) (2,652,916) cash flow from financing activities Loans and financings 3,147,323 1,325,046 3,614,242 4,987,313 Payments of loans and financings (1,917,921) (1,632,784) (3,926,026) (3,812,873) Increase in capital stock and goodwill in subscription 2,550,279 3,054,040 2,550,279 3,054,040 Declared dividends / distribution of retained earnings (51,127) (17,465) (51,127) (17,465) Shares acquisition of own emission (195,073) - (195,073) - Valuation adjustments of shareholders´ equity - - 749,725 - net cash provided by financing activities 3,533,481 2,728,837 2,742,020 4,211,015 effect of exchange rates on cash and cash equivalents - - 169,543 - Net increase (decrease) in cash 653,189 670,063 909,914 1,120,632 Cash and cash equivalents at the beginning of the year 869,784 199,721 1,381,703 261,071 cash and cash equivalents at the end of the year 1,522,973 869,784 2,291,617 1,381,703 The accompanying notes are an integral part of the finantial statements . 77 .
    • economic Value added foR the yeaR ended decemBeR 31, 2008 (in thousands of Reais) company consolidated Revenue Sales of goods and services 5,190,054 30,736,430 Other income 10,098 7,611 Own assets building income (4,423) (9,364) 5,195,729 30,734,677 Goods Cost of services and goods sold (3,236,824) (22,458,475) Materials, energy, services from third parties and others (1,049,273) (4,341,198) Losses/Recovery of amounts - 50,443 Other costs 852 852 (4,285,245) (26,748,378) Gross added value 910,484 3,986,299 depreciation and amortization (71,157) (243,591) net added value generated by the company 839,327 3,742,708 net added value by the company Equity in subsidiaries 211,876 - Financial income 1,546,876 1,700,735 Others (176,689) (174,743) net added Value to distRiBution 2,421,390 5,268,700 . 78 .
    • company consolidated distRiBution of added Value labor Salaries 378,937 2,173,072 Benefits 33,449 464,479 F.G.T.S (Brazilian Social Charge) 21,711 21,847 434,097 2,659,398 taxes and contribution Federal 108,265 190,526 State 45,540 74,480 Municipal 1,966 3,162 155,771 268,168 capital remuneration from third parties Interests 1,573,678 2,061,032 Rents 14,666 32,346 Others 217,239 225,218 1,805,583 2,318,596 owned capital remuneration Dividends 25,939 25,939 Minority interests participation on retained income - (3,401) 25,939 22,538 added Value distRiButed 2,421,390 5,268,700 . 79 .
    • notes to the financial statements foR the yeaRs ended decemBeR 31, 2008 and 2007 (eXpRessed in thousand of Reais) 1 opeRatinG actiVities JBS S.A (Company) is a listed company in the Novo Mercado segment, which requires the highest level of corporate governance in the Brazilian market and its shares are traded on the BM&F Bovespa S.A. – Stock Exchange, Commodity and Forward. The operations of the Company and its subsidiaries consists of: a) activities in Brazil The Company operates slaughterhouses, cold storage and food processing operations for the production of beef, canned goods, fat, animal rations and beef by-products, which are produced in the manufacturing units located in the States of São Paulo, Goiás, Mato Grosso, Mato Grosso do Sul, Rondônia, Minas Gerais, Acre and Rio de Janeiro. The Company distributes its products through distribution centers located in the State of São Paulo, and a container terminal for export in the city of Santos. In order to minimize transportation costs, the Company is responsible for the transportation of cattle to its slaughterhouses and the transportation of its export products. Mouran Alimentos Ltda.(Mouran) is a subsidiary which 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. JBS Embalagens Metálicas Ltda. (JBS Embalagens) produces metallic cans in its plant located in the State of São Paulo, which are purchased by the Company. The subsidiary JBS Confinamento Ltda. (JBS Confinamento), located in Castilho, State of São Paulo, renders fattening service of bovine for slaughter. Beef Snacks do Brasil Indústria e Comércio de Alimentos Ltda. (Beef Snacks), an indirect subsidiary of the Company, located in Santo Antônio da Posse, State of São Paulo, in operation since August 2007 produces Beef Jerky. Beef Snacks purchases meat in the local market and exports to the United States of America. b) foreign activities 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. JBS Argentina S.A. (JBS Argentina), an indirect wholly-owned subsidiary of the Company, operates slaughterhouses and cold storage facilities for the production of beef, canned goods, fat, animal food and by-products, with industrial units located in the province of Buenos Aires, Entre Rios, Santa Fé and Córdoba. . 80 .
    • JBS Argentina has three subsidiaries, beeing two acquired in 2007, one meat-packing slaughterhouse in Berezategui (Consignaciones Rurales) and other can factory located in Zavate (Argenvases), both located in the province of Buenos Aires, and one acquired in 2008, one meat-packing slaughterhouse in Cordoba (Col-car). SB Holdings, Inc. (SB Holdings) and its subsidiaries, Tupman Thurlow Co., Inc. (Tupman) and Astro Sales International, Inc. (Astro) located in the United States and acquired by the Company in January 2007, sale processed beef products in the North-American market. Jerky Snacks Brands, Inc (Jerky Snacks), an indirect wholly-owned subsidiary of the Company, located in the United States of America, produces and sells meat snacks (Beef Jerky, Smoked Meat Sticks, Kippered Beef Steak, Meat&Cheese, Turkey Jerky and Hunter Sausage). Jerky Snacks purchases meat from Brazil and in the local market and its sales are mainly in the United States of America. Global Beef Trading Sociedade Unipessoal Ltda. (Global Beef Trading), an indirect wholly-owned subsidiary of the Company, located in Ilha da Madeira, Portugal, sells bovine meat, birds and porks products. Global Beef Trading imports the products from Latin America and exports to several countries, in Europe, Africa and Asia. In July 2007, the Company acquired Swift Foods Company, presently known as JBS USA Holdings Inc. (JBS USA). JBS USA has feedlots and processes, packages and delivers fresh, further processed and value-added beef and pork in natura products for sale to customers in the United States and international markets. The fresh meat products prepared by JBS USA include refrigerated beef and pork processed to standard industry specifications. In the United States, JBS USA operates eight beef processing facilities, three pork processing facilities, one lamb slaughter facility, one value-added facility for pork and eleven confinement. In Australia, JBS USA operates ten beef and small animals processing facilities and JBS USA in Australia operates five feedlots that provide grain-fed cattle for its processing operations. JBS USA completed in October of 2008 the acquisition of the cattle meat unit of Smithfield group and also the fattening confinement operations known as Five Rivers. Smithfield, actually JBS Packerland, own four cattle units and one confinement cattle unit, and Five Rivers, known as JBS Five Rivers, own ten cattle confinement units. JBS USA divides its business into three segments: Swift Beef, through which it conducts its U.S. domestic beef processing business; Swift Pork, through which it conducts its U.S. domestic pork processing business; and JBS Australia, through which it conducts its Australian beef and small animals, the last business in Australia since May 2008, with the acquisition of Tasman, which operates six beef and small animals slaughterhouses and one cattle feedlot unit. Since January 2008, the Company owns 50% of Inalca S.p.A. social capital, presently known as Inalca JBS S.p.A, (Inalca JBS). Inalca S.p.A. is Italy’s leading beef company and one of the main operators in the European processing beef sector. It produces and markets a complete range of fresh and frozen meat, packed under vacuum or portioned in a protective atmosphere, canned meat, ready-to-serve products, fresh and frozen hamburger, minced meats and, pre-cooked products. Inalca JBS owns six facilities in Italy, specialized by production line, and nine foreign facilities in Europe and Africa. The integral subsidiary Montana Alimentari S.p.A. (Montana) is one of the leading Italian companies in the production, marketing and distribution of cured meats, snack and ready-to-eat products with over 230 products. Montana owns the well-known brands “Montana” and “IBIS”, and Montana owns four facilities, specialized by type of production and located in the area distinguished by the Protected Denomination of Origin (P .D.O.) and Protected Geographic Indication (P .G.I.) brands. Montana is also one of the main operators in the Italian canned meat market and pre-sliced products. . 81 .
    • 2 elaBoRation and pResentation of financial infoRmation and initial adoption to laW n° 11.638/07 and eXecutiVe act n° 449/08 The individual and consolidated financial statements, were prepared in accordance with the generally accepted accounting principles in Brazil, that embraces the corporate Brazilian legislation, the Pronouncements, Orientations and Interpretations emitted by the Brazilian Accounting Pronouncements Committee – CPC and approved by the Brazilian Securities and Exchange Commission (Comissão de Valores Mobiliários – CVM). In the elaboration of the individual and consolidated financial statements of 2008 the Company adopted, by the first time, the alterations in the corporate legislation introduced by the Law n° 11.638 approved on December 28, 2007, with the respective modifications introduced by the Executive Act n° 449, of December 3, 2008. The conclusion authorization for these financial statements was given by the Board of Directors on February 18, 2009. The Company included in the financial statements the Economic Added Value (EVA) report. The objective of this report is to demonstrate the wealth generated by the Company, and the distribution of this wealth among the elements that contributed to its generation, such as employees, lenders, shareholders, government and others, as well as the wealth portion not distributed. According to the choose option foreseen in the pronouncement CPC 13 the Company is presenting the Economic Value Added exclusively for the year ended on December 31, 2008. Initial adoption of the Law n° 11.638/07 and Executive Act n° 449/08 According to the Deliberation CVM no. 565, of December 17, 2008, that approved the accounting pronouncement CPC 13 – Initial Adoption of the Law no. 11.638/07 and of the Executive Act no. 449/08, the Company established the transition date for the adoption of the new accounting practices on January 1, 2008, being the transition date for the adoption of the changes in the accounting practices adopted in Brazil, representing the preparation date of the initial financial statements adjusted by the referred changes. The Company chose the option foreseen in pronouncement CPC 13 and reflected the adjustments related to the changes of accounting practice directly in the retained earnings on January 1, 2008. The financial statements referring the year ended on December 31, 2007, presented with the financial statements of 2008, were prepared according to the effective accounting practices adopted in Brazil until December 31, 2007, and, as allowed by the pronouncement CPC 13 – Initial Adoption of the Law no 11.638/07 and of the Executive Act no 449/08, are not being restated with the adjustments for comparison purposes between the years. The balance sheet adjustments in the transition date due to the initial adoption of the Law no 11.638/07 and Executive Act n 449/08, the summary of profit & loss effects in 2008, and the effects in the shareholders’ equity as of December 31, o 2008 due to the adoption of the referred legislation are presented below: Balance sheet adjustments in the transition date company consolidated dec 31, 2007 adjustments Jan 1, 2008 dec 31, 2007 adjustments Jan 1, 2008 Trade accounts receivable (a) 444,218 (738) 443,480 1,236,148 (738) 1,235,410 Recoverable taxes – Current (a) 351,677 (196) 351,481 482,918 (196) 482,722 Recoverable taxes – Long Term (a) 31,442 (1,056) 30,386 44,205 (1,056) 43,149 Investiments in subsidiaries (b) 2,149,919 (823,666) 1,326,253 829,975 (829,975) - Intangible (b) 9,615 823,666 833,281 193,917 829,975 1,023,892 Trade accounts payable (a) 355,510 1,903 357,413 1,099,385 1,903 1,101,288 Retained earnings - (87) (87) - (87) (87) (a) – Adjustment to present value (b) – Goodwill in investments acquisition . 82 .
    • Effects in the profit & loss of 2008 and in the shareholders’ equity as of December 31, 2008 net income of the yeaR shaReholdeRs’ eQuity company consolidated company consolidated through law 11.638/07 and executive act 449/07 25,939 25,939 6,134,411 6,134,411 Exchange variation in foreign investments, net 748,018 845,519 - - Equity in subsidiaries 97,501 - - - Adjustment to present value of assets and liabilities (339) (339) (252) (252) Valuation adjustments in subsidiaries shareholders’ equity 2,920 2,920 - - Orders of sales exchange variation (77,896) (77,896) (77,896) (77,896) Income taxes due to the adjustments above 26,600 26,600 26,600 26,600 through effective accounting principles in 2007 822,743 822,743 6,082,863 6,02,863 There was no tax effect due to the adjustments of the adoption of the Law n° 11.638/07 and Executive Act n° 449/08 3 siGnificant accountinG policies a) profit and loss calculation The operations results is in conformity with the accounting regime of competence. b) accounting estimates 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. c) financial instruments The financial instruments are recognized in the moment that the Company becomes part of the contractual dispositions of the instrument. When a financial asset or liability is initially recognized, it is registered by the fair value, added by the transaction costs that are directly attributable to the acquisition or emission of the financial asset or liability. In case of financial assets and liabilities classified in the category of fair value through the result, the transaction costs are directly accounted in the profit and loss of the exercise. The subsequent measurement of the financial instruments happens in each date of the financial statements according to the rules established for each classification of financial assets and liabilities in: (i) assets and liabilities measured to the fair value through the result, (ii) maintained until the expiration date, (iii) loans and receivables (iv) available for sale. d) allowance for doubtful accounts Allowance for doubtful accounts is computed based on the probable loss, the profile of the customers, overall economic and financial condition and specific risks relating to the relevant customers. The Company’s management believes that the allowance for doubtful accounts is sufficient to cover the exposure to possible losses. e) inventories The Company’s inventories are valued based on their cost of acquisition, creation or production, which cost is lower than the market or net realizable value. . 83 .
    • f) investiments The Company’s investments in subsidiaries are accounted according to the equity method. g) property, plant and equipment, net Property, plant and equipment are stated at an amount equivalent to the sum of their historical acquisition cost and the amount resulting from the increase in the value of these assets as determined by revaluations performed by independent appraisal firms until December 31, 2007. Depreciation is computed pursuant to the straight-line method, using rates described in Note 11, which take into account the useful and economic lives of the assets. h) intangible assets The intangible assets are demostrated by the acquisition or formation cost, deducted by the amortization. The intangible assets with indefinite usefull life are not amortized. i) Reduction to recovery amount (impairment) The items of property, plant and equipment, intangible assets and deferred charges are tested by its recoverability amounts, at least, annually, in case there are indications of loss of value. The goodwill and the intangible assets with indefinite useful life are tested annually independently of there is (or not) indication of loss of value. j) other current and long-term assets Current and long-term assets are accounted for at their realization value, including, if applicable, the related income, charges and monetary variations. k) currrent liabilities and long-term liabilities Current and long-term liabilities are accounted for at their known or computed amounts, including, if applicable, the related income, charges and monetary variations. l) contingent assets and liabilities Contingent assets are recognized only when there are final judgements or favorable judicial decisions rendered. Contingent assets with probable gain are only published in accompanying notes. Contingent liabilities are provisioned when the losses are appraised as probable and the involved amounts are measurable with enough certainty. The contingent liabilities appraised as possible losses are only published in accompanying notes and the contingent liabilities appraised as remote losses are not provisioned and not published. m) income tax and social contribution Current taxes Provisions for income tax and social contribution are based on rates and laws and regulations in force. Deferred taxes 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. . 84 .
    • n) profit by share The profit by share is calculated based on the shares in circulation on the date of the financial statements. o) consolidation All assets and liabilities of JBS S.A. and its subsidiaries and revenues and expenses from transactions between JBS S.A. and its subsidiaries were eliminated. No inter-company profits were recorded on the consolidated balance sheet of the Company. Accordingly, the shareholders’ equity of JBS S.A. individually is equal to its consolidated shareholders’ equity. The financial statements of the subsidiaries of JBS S.A. located outside of Brazil were originally prepared using the local currency of the country in which they are located. Subsequently, these amounts were converted into Reais using the applicable commercial exchange rates reported by the Central Bank of Brazil on the date of the consolidated balance sheet for assets and liabilities, and the average exchange rate of the period to revenues and expenses. The gains and losses due to the conversion are recognized in the shareholders’ equity in 2008 and in the financial income (loss) in 2007. With respect to the Company’s investment in JBS Argentina and its subsidiaries and Inalca JBS and its subsidiaries, we have compared the generally accepted accounting principles in Argentina and Italy with the corresponding principles in Brazil applied by the Company, and we have noted that there were no material differences. The accounting principles adopted by Tupman and Astro, both subsidiaries of SB Holdings, located in the United States of America, do not differ significantly from those adopted in Brazil. The accounting practices adopted in the United States of America by JBS USA (US GAAP) are adjusted to Brazilian GAAP , according to the following differences: – Finished goods inventories: valued using market price, and are adjusted to production average cost method; – Permanent assets: includes R$794,059 related to intangible assets and fixed assets goodwill, calculated according to applicable purchasing accounting, and it was adjusted reducing the shareholder’s equity. The subsidiary companies included in the consolidation are mentioned in the Note 10. p) adjustments to present value of assets and liabilities The financial long term assets and liabilities are adjusted by its present value, and the short term, when the effect is considered relevant in the financial statements. The adjustment to present value is calculated considerating the contractual cash flows and the market interest rate. 4 acQuisitions of sWift foods company (pResently JBs usa) and inalca s.p (pResently inalca JBs) .a In July of 2007, the Company acquired 100% of Swift Foods Company (presently JBS USA Holdings, Inc.) and since January 2008 the Company owns 50% of Inalca S.p.A. social capital, presently Inalca JBS S.p.A, (Inalca JBS). Due to the significance of these investments in the consolidation in the financial statements of the Company for years ended as of December 31, 2008, and the comparability loss with previous periods, we are presenting below the combined income statements to allow a comparison of the consolidated financial statements before the investment in JBS USA and Inalca JBS, and we are presenting these referred financial statements. . 85 .
    • Balance sheet 2008 2007 JBs and other JBs and other assets consolidated inalca JBs subsidiaries subsidiaries Cash, cash equivalents and short-term investments 2,291,617 83,539 2,208,078 1,381,703 Trade accounts receivable, net 2,232,300 229,530 2,002,770 1,236,148 Inventories 2,549,674 274,053 2,275,621 1,511,595 Other current and non current assets 1,891,415 60,733 1,830,682 757,163 Investments in subsidiaries - - 600,167 829,975 Property, plant and equipment, net 4,918,671 732,839 4,185,832 2,536,098 Other permanent assets 2,212,672 46,450 2,166,222 195,523 total assets 16,096,349 1,427,143 15,269,372 8,448,205 liaBilities and shaReholdeRs’s eQuity Trade accounts payable 2,077,844 277,994 1,799,850 1,099,385 Loans and financings 5,616,497 418,241 5,198,256 3,749,636 Other current and non current liabilities 2,270,055 127,173 2,142,882 548,752 Minority interest (2,458) 3,568 (6,026) (4,156) Shareholders’ equity 6,134,411 600,167 6,134,411 3,054,588 total liaBilities and shaReholdeRs’ eQuity 16,096,349 1,427,143 15,269,372 8,448,205 income statements 2008 2007 JBs and other JBs and other consolidated JBs usa inalca JBs subsidiaries subsidiaries Net sales revenue 30,340,255 22,680,498 1,544,249 6,115,508 4,891,944 Cost of goods sold (27,347,753) (20,877,360) (1,384,410) (5,085,983) (3,709,197) GRoss income 2,992,502 1,803,139 159,839 1,029,525 1,182,747 General, administrative and selling expenses (2,087,738) (1,190,824) (124,224) (772,690) (569,706) Financial income (expense), net (612,176) (206,119) (32,080) (373,977) (369,962) Equity in subsidiaries - - - 349,116 (160,976) Goodwill amortization (179,867) - - (179,867) (141,935) Other (expenses) income (27,962) (1,985) (1,112) (24,865) (5,217) Income taxes (62,221) (54,982) (4,043) (3,196) 3,459 Minority interest (expense) income 3,401 - 1,508 1,893 - net income (loss) 25,939 349,229 (114) 25,939 (61,589) amount of eBitda 1,156,086 715,041 78,558 362,487 692,453 . 86 .
    • 5 cash and cash eQuiValents and shoRt-teRm inVestments Cash, bank accounts and short-term investments are the items of the balance sheet presented in the statements of the cash flows as cash and cash equivalents and are described as below: company consolidated 2008 2007 2008 2007 Cash and cash equivalents 236,432 109,221 975,194 323,709 Certificates of bank deposits – CDB-DI 1,147,326 339,029 1,150,604 348,472 Investment funds 139,215 421,534 165,819 709,522 1,522,973 869,784 2,291,617 1,381,703 Certificates of bank deposits – CDB-DI, with first-line banks, are fixed income securities that provide yields of approximately 100% of the Brazilian interbank rate. The Investment Funds are supported by investments in Multi-Market funds, to the qualified public. 6 tRade accounts ReceiVaBle, net company consolidated 2008 2007 2008 2007 Receivables not yet due 505,910 427,746 1,654,871 990,611 Overdue receivables From 1 to 30 days 35,802 7,904 449,001 154,709 From 31 to 60 days 6,277 4,941 71,726 71,993 From 61 to 90 days 6,589 4,978 24,236 10,513 Above 90 days 7,875 2,497 63,050 17,516 Adjustment to present value (1,191) - (1,191) - Allowance for doubtful accounts (8,271) (3,848) (29,393) (9,194) 47,081 16,472 577,429 245,537 552,991 444,218 2,232,300 1,236,148 7 inVentoRies company consolidated 2008 2007 2008 2007 Finished products 489,953 513,492 1,770,199 1,072,732 Work-in-progress 674 745 157,745 71,514 Raw-materials 1,978 55,242 70,213 68,688 Livestock - - 282,591 171,552 Warehouse spare parts 46,905 34,746 268,926 127,109 539,510 604,225 2,549,674 1,511,595 . 87 .
    • 8 RecoVeRaBle taXes company consolidated 2008 2007 2008 2007 Value-added tax on sales services (ICMS/IVA/VAT) 379,678 295,362 476,761 353,100 Excise tax – IPI 51,657 39,920 111,447 97,805 Social contribution and taxation on billings – PIS and Cofins 19,330 42,427 32,957 55,623 Income tax withheld at source – IRRF 25,556 4,072 29,612 7,485 Others 9,936 1,338 38,734 13,110 Adjustment to present value (1,182) - (1,182) - 484,975 383,119 688,329 527,123 current and long-term: Current 447,343 351,677 623,022 482,918 Non-current 37,632 31,442 65,307 44,205 484,975 383,119 688,329 527,123 Value-added tax on sales and services (icms / iVa / Vat) 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 of such credits. pis and cofins (social contribution on net income) 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. iRRf (withholding income tax) 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$134,073. During the exercise of 2008 was received an amount of R$17,045, remaining receivable an amount of R$117,028. . 88 .
    • 9 Related paRties tRansactions Balances between related parties in the balance sheet and income statement are the following: trade accounts trade accounts sales of credits decemBeR 31, 2008 receivable payable purchase products (debits) Mouran Alimentos Ltda. - - - - 5,719 JBS Confinamento Ltda. 215 8 17,537 408 14,959 JBS Embalagens Metálicas Ltda. - 2,735 49,734 - 57,282 JBS Global Beef Company SU Ltda. - - - - (54,920) JBS Global (UK) Limited 24,625 - - 165,589 - JBS Argentina S.A. - 677 13,165 - - The Tupman Thurlow Co. 34,258 715 - 69,322 18,488 JBS Global A/S (Dinamarca) - - - - (531) Global Beef Trading SU Ltda. - - - 20,943 - Beef Snacks Brasil Ind.Com.Alimento Ltda. 5 - 24 14,941 72,135 Beef Snacks International BV - - - - 4,463 Inalca JBS S.p.A 6,798 - - 24,568 - JBS USA, Inc. - - - - 1,580,340 JBS Agropecuária Ltda. 143 7,540 52,704 3,072 - Flora Produtos de Higiene e Limpeza S.A. 1,813 83 855 93,620 - Marr Russia L.L.C . - - - 21,049 2,933 JBS Banco S.A. 61 - - 5 - SARL Inalca Algerie 129 - - 2,027 - J&F Participações S.A. 1 1 - 6 - Frimo S.A.M. - 4 - 2,370 - Swift & Company Trade Group - - - 893 - 68,048 11,763 134,019 418,813 1,700,868 trade accounts trade accounts sales of credits decemBeR 31, 2007 receivable payable purchase products (debits) Mouran Alimentos Ltda. - - 2,292 10,164 - JBS Embalagens Metálicas Ltda. 401 2,346 63,559 11,418 69,695 JBS Global Beef Company SU Ltda. - - - - (41,626) Friboi Egypt Company L.L.C. 8,667 - - 72,382 - JBS Global (UK) Limited 11,554 - - 44,784 - JBS Argentina S.A. - 595 6,569 - - The Tupman Thurlow Co. 25,900 609 - 70,770 - Global Beef Trading SU Ltda. 587 - - 2,527 - Beef Snacks Brasil Ind.Com.Alimento Ltda. 805 84 9 4,890 22,095 Beef Snacks International BV - - - - 10,142 47,914 3,634 72,429 216,935 60,306 . 89 .
    • The Company and its subsidiaries mantain comecial transaction between then, mainly sales operations, realized wtith normal price and market conditions, when existing. The credits and debits are presented, mainly, by mutual contracts which are calculated interests and exchange rate variation. The parent company J&F participações S.A warranty Eurobonds loans caption operation of the Company in the amount of US$200 million which the longest due is in 2011. 10 inVestments in suBsidiaRies a) Relevant information about subsidiaries company’s share quantity capital shareholders’ net income decemBeR 31. 2008 (thousand) participation stock equity (loss) JBS Embalagens Metálicas Ltda. 10,002 99.00% 2 38,949 (896) JBS Global Investments S.A. 93,000 100.00% 217,341 109,421 (84,893) JBS Holding Internacional. S. A. 679,153 100.00% 679,153 582,180 (38,725) JBS Global A/S (Dinamarca) 1,232 100.00% 103,370 137,865 (8,205) Mouran Alimentos Ltda. 120 70.00% 120 (21,699) (6,247) JBS USA, Inc. 0,1 100.00% 2,212,940 2,301,887 349,229 SB Holdings, Inc 20 100.00% 23 4,170 425 JBS Confinamento Ltda. 30,001 100.00% 30,001 29,420 (581) Inalca JBS S.p.A 280,000 50.00% 1,132,326 1,200,334 (227) company’s share quantity capital shareholders’ net income decemBeR 31. 2007 (thousand) participation stock equity (loss) JBS Embalagens Metálicas Ltda. 10,000 99.00% 2 39,844 (1,011) JBS Global Investments S.A. 23,000 100.00% 40,740 40,908 (6,804) JBS Holding Internacional. S. A. 535,128 100.00% 535,128 385,831 (95,015) JBS Global A/S (Dinamarca) 212 100.00% 71,648 108,106 (5,362) Mouran Alimentos Ltda. 84 70.00% 120 (15,452) (11,595) JBS USA, Inc. 100.0 100.00% 880,186 719,210 (160,976) SB Holdings, Inc 20 100.00% 18 2,751 684 JBS Confinamento Ltda. 30,001 100.00% 30,001 30,001 - . 90 .
    • b) investments movement eQuity in suBsidiaRies december addition exchange shareholders’ income december 31, 2007 (disposal) rate variation equity statements 31, 2008 JBS Embalagens Metálicas Ltda. 39,446 - - - (887) 38,559 JBS Global Investments S.A. 40,909 118,599 58,056 (23,250) (84,893) 109,421 JBS Holding Internacional. S. A. 385,831 144,025 - 91,049 (38,725) 582,180 JBS Global A/S (Dinamarca) 108,106 11,052 29,469 (2,557) (8,205) 137,865 Mouran Alimentos Ltda. (10,816) - - - (4,373) (15,189) JBS USA, Inc. 719,210 772,223 509,121 (47,896) 349,229 2,301,887 SB Holdings, Inc 2,750 - 879 116 425 4,170 JBS Confinamento Ltda. 30,001 - - - (581) 29,420 Inalca JBS S.p.A - 465,542 150,327 (15,588) (114) 600,167 Transfer to Other current liabilities (Negative equity Mouran) 10,816 15,189 Goodwill transfered to Intangible 823,666 - total 2,149,919 1,511,441 747,852 1,874 211,876 3,803,669 11 pRopeRty, plant and eQuipment, net company net amount annual accumulated depreciation Rates cost Revaluation depreciation 2008 2007 Buildings 4% 407,162 116,742 (37,235) 486,669 387,867 Land - 107,469 9,352 - 116,821 114,004 Machinery & equipment 10% 307,603 45,846 (68,135) 285,314 229,619 Installations 10% 93,523 21,815 (22,318) 93,020 79,614 Computer equipment 20% 14,856 736 (7,629) 7,963 8,162 Vehicle and Airplanes 20% 84,817 215 (43,658) 41,374 35,777 Construction in progress - 759,028 - - 759,028 459,809 Others 10 to 20% 20,071 3,883 (9,310) 14,644 13,163 1,794,529 198,589 (188,285) 1,804,833 1,328,015 consolidated net amount annual accumulated depreciation Rates cost Revaluation depreciation 2008 2007 Buildings 3 to 20% 1,643,770 116,742 (187,648) 1,572,864 862,953 Land - 637,186 9,352 (14,408) 632,130 233,226 Machinery & equipment 8 to 10% 1,963,331 45,846 (674,611) 1,334,566 691,535 Installations 10% 98,625 21,815 (23,151) 97,289 84,393 Computer equipment 20 to 100% 71,715 736 (35,405) 37,046 40,395 Vehicle and Airplanes 14 to 50% 136,356 215 (56,470) 80,101 54,043 Construction in progress - 1,090,190 - - 1,090,190 526,422 Others 10 to 100% 117,618 3,883 (47,016) 74,485 43,131 5,758,791 198,589 (1,038,709) 4,918,671 2,536,098 . 91 .
    • Until December 2007, supported by appraisal reports from SETAPE – Serviços Técnicos de Avaliações do Patrimônio e Engenharia S/C Ltda., the Company made an appraisal of its facilities, resulting in an increase in the value of these assets, and the creation of the revaluation reserve and the related deferred income tax and social contribution provisions. As of December 31 2008, the balance of the Company’s revaluation of fixed assets account was R$198,589, the balance of the Company revaluation reserve account was R$118,178, and the balance of the Company income tax and social contribution account was R$56,306. The Company recorded accrued depreciation of R$24,105 with respect to the Company’s revaluation of fixed assets as of December 31, 2008. 12 intanGiBle assets, net company consolidated 2008 2007 2008 2007 Goodwill 949,615 - 1,331,283 170,656 Other intangible assets 9,615 9,615 874,064 23,261 959,230 9,615 2,205,347 193,917 a) Goodwill In the Company In July 2007 the Company acquired 100% of the capital stock of Swift Foods Company, actual JBS USA Holdings, Inc., and paid a goodwill of R$877,609, based on the expectation of future profitability. The goodwill will be amortized as long as such profits are earned, during a period of five years. During the year ended December 31, 2008 the goodwill was amortized in the amount of R$175,522, and the actual accumulated goodwill amortization is R$248,656. In January 2007 the Company acquired 100% of the capital stock of SB Holdings, Inc., and paid a goodwill of R$21,725 based on the expectation of future profitability of the subsidiary. The goodwill will be amortized as long as such profits are earned, during a period not exceeding ten years. During the year ended December 31, 2008 the goodwill was amortized in the amount of R$4,345 and the actual accumulated goodwill amortization is R$6,035. In March of 2008 the Company acquired 50% of the capital stock of Inalca S.p.A., presently known as Inalca JBS, and paid a goodwill of EUR 94,181, which correspond as of December 31, 2008 to R$304,972, based on the expectation of future profitability. The goodwill will be amortized as long as such profits are earned, during a period not exceeding ten years. As described in note 20 d), the Company intends to exclude permanently the goodwill amortization from the dividends calculation base. In Subsidiary In 2007, JBS Holding International S.A., through its subsidiaries JBS Argentina S.A. and JBS Mendoza S.A., acquired 100% of the capital stock of Consignaciones Rurales S.A. and Argenvases S.A.I.C. and in 2008, through the same subsidiaries, acquired 100% of the capital stock of Colcar S.A., with a total goodwill in these acquisition of $53,341 thousand argentinean pesos, that corresponds as of December 31, 2008 to R$36,133. These goodwill are based on the expectation of future profitability and it will be amortized during the period and extension of the projections that determined it, not to exceed 10 years. JBS USA has a goodwill in the amount of US$147,855 thousand, corresponding as of December 31, 2008 to R$345,537 represented, mainly, by the acquisition in 2008 of Smithfield, Tasman and Five Rivers, preliminary calculated and subject to adjustments. The goodwill is represented by the excess of the aggregate purchase price over the fair value of the net identifiable assets acquired in the purchase business combination. b) other intangible assets Represented, mainly, by customers’ list, trademarks and patents, commercialization rights, and others, of the subsidiary JBS USA. . 92 .
    • 13 tRade accounts payaBle company consolidated 2008 2007 2008 2007 Commodities 313,316 242,688 1,044,142 588,230 Materials and services 70,586 109,078 916,293 470,830 Finished products 2,024 3,744 119,356 40,325 Adjustment to present value (1,947) - (1,947) - 383,979 355,510 2,077,844 1,099,385 14 loans and financinGs a) company annual average rate of modality interest and commissions 2008 2007 financing for purchase of fixed assets TJLP-UMBNDES index rate and FINAME / FINEM – Enterprise financing interest rate of 3.0% 231,700 227,561 231,700 227,561 loans for working capital purposes Exchange rate variation and ACC – Exchange advance contracts interest rate LIBOR + 1.00% 591,990 288,761 EXIM – BNDES export credit facility TJLP and interest rate of 3.0% 177,407 426,891 Fixed Rate Notes with final maturity Interest rate of 9.375% 651,713 494,338 in February 2011 (Eurobonds) Working Capital CDI and interest rate of 6.0% 51,113 - Exchange rate variation and interest Export prepayment rate of LIBOR + 1.0% 516,838 167,810 Fixed Rate Notes with final maturity Exchange rate variation in February 2016 (144-A) and Interest rate of 10.5% 731,569 554,638 NCE / COMPROR CDI and interest rate of 2.0% 1,533,704 40,289 4,254,334 1,972,727 total loans and financings 4,486,034 2,200,288 current and long-term Current 1,494,690 858,975 Non-current 2,991,344 1,341,313 4,486,034 2,200,288 long-term installments have the following maturities: 2009 - 180,121 2010 636,327 105,744 2011 1,122,953 519,210 2012 298,308 4,848 2013 232,656 - 2016 701,100 531,390 2,991,344 1,341,313 . 93 .
    • b) consolidated annual average rate of modality interest and commissions 2008 2007 financing for purchase of fixed assets TJLP-UMBNDES index rate and FINAME / FINEM – Enterprise financing interest rate of 3.0% 231,700 227,561 Interest rate LIBOR + 1.75% and Notes Payable interests of 3.0% to 7.25% 26,380 19,325 258,080 246,886 loans for working capital purposes Exchange rate variation and interest ACC – Exchange advance contracts rate LIBOR + 1.00% 714,885 340,879 EXIM – BNDES export credit facility TJLP and interest rate of 3.0% 177,407 426,891 Fixed Rate Notes with final maturity Exchange rate variation and interest in February 2011 (Eurobonds) rate of 9.375% 651,713 494,338 Working Capital – American Dollars LIBOR + Interest rate of 1.1% to 3.2% 377,253 1,402,371 Working Capital – Australian Dollars BBSY + 0,975% to 1.60% 160,166 47,030 Working Capital – Euro Euribor + Interests 0.15% – 1.75% 418,241 - Working Capital – Reais CDI and interest rate of 6.0% 51,113 - Exchange rate variation and Interest Export prepayment rate of LIBOR + 1.0% 516,838 167,810 Fixed Rate Notes with final maturity 731,569 554,638 in February 2016 (144-A) CDI and Interest Rate of 10.5% NCE / COMPROR CDI and Interest Rate of 2.0% 1,559,232 68,793 5,358,417 3,502,750 total 5,616,497 3,749,636 current and long-term Current 2,214,788 2,384,836 Non-current 3,401,709 1,364,800 5,616,497 3,749,636 long-term installments have the following maturities: 2009 797 184,379 2010 666,020 110,004 2011 1,416,958 520,840 2012 322,770 6,477 2013 248,111 - 2016 747,053 543,100 3,401,709 1,364,800 Exchange Contract Advances (ACCs) are credits funded by financial institutions to JBS S.A. and subsidiary, amounting to US$302,844 thousands on December 31, 2008 (US$192,446 thousands as of December 31, 2007) and are used to finance the Company´s export sales. Outstanding amounts of export pre-payment loans were US$221,155 thousands on December 31, 2008 (US$94,738 thousands on December 31, 2007). Such loans were funded by financial institutions. . 94 .
    • 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. EUROBONDS – JBS S.A. issued 9.375% fixed rate notes due in 2011 in total aggregate amounts of US$200 million on February 6, 2006 and US$75 million on February 14, 2006. These notes are guaranteed by JBS S.A. and J&F Participações S.A. 144-A – JBS S.A. also issued the 10.5% fixed rate notes due on 2016 in the total aggregate amount of US$300 million on July 28, 2006. These notes are also guaranteed by the Company. 15 payRoll, social chaRGes and taX oBliGation company consolidated 2008 2007 2008 2007 Payroll and related social charges 23,240 35,638 86,157 55,577 Accrual for labor liabilities 28,590 27,125 182,521 94,502 Income Tax - 8,727 15,960 8,727 Social contribution - 2,298 119 2,298 ICMS/VAT taxes payable 3,088 15,504 3,095 15,513 Others 7,804 3,866 49,386 26,996 62,722 93,158 337,238 203,613 16 declaRed diVidends company consolidated 2008 2007 2008 2007 Declared dividends 51,127 17,465 51,127 17,465 51,127 17,465 51,127 17,465 The Company, considering that it has generate positive EBITDA, deliberated that for the dividends calculation base the goodwill in investments acquisition of JBS USA and SB Holdings will be permanently excluded. Based on the above, the Company declared dividends of R$51,127 (R$17,465 in 2007), that will be submitted to the General Assembly of the Shareholders for approval, as calculation demonstrated below: 2008 2007 net income (loss) of the year 25,939 (165,032) Mandatory reserve (5%) (1,297) - Investments exchange rate variations - 160,030 Investments amortization – JBS USA 175,522 73,134 Investments amortization – SB Holdings 4,345 1,690 adjusted base for dividends calculation: 204,509 69,822 declared dividends (25%) 51,127 17,465 . 95 .
    • 17 pRoVision foR continGencies 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 December 31, 2008: company consolidated number of lawsuits/ type of proceedings administrative proceedings provision provision Labor 1,268 5,799 9,208 Civil 503 15,663 21,216 Tax 191 26,782 27,213 total 1,962 48,244 57,637 tax proceedings a) ICMS – Value Added Tax (Imposto sobre Operações Relativas à Circulação de Mercadorias e sobre a Prestação de Serviços de Transporte Interestadual e Intermunicipal e de Comunicação) The Tax Authority of the State of São Paulo (Secretaria da Fazenda do Estado de São Paulo) filed several administrative proceedings against the Company, under which the Tax Authority challenges the amount of the Company’s ICMS tax credits arising from the purchase of cattle and meat transfer by the Company in other Brazilian states. The Tax Authority of the State of São Paulo claims that the tax incentives should be approved by Confaz , and are known as a “Tax War”. The Tax Authority of the State of São Paulo does not recognize the Company’s ICMS tax credits up to the amount of the ICMS tax paid in such other states. The Company estimates that the claims under these administrative proceedings amount to R$118,000 in the aggregate. In addition to presenting its defense in such administrative proceedings, the Company has filed legal proceedings seeking the payment of damages from such other states if the Tax Authority of the State of São Paulo prevails in these administrative proceedings. The legal proceedings filed by the Company suspended the requirements of the State of São Paulo. Based on the opinion of the Company’s legal counsels, the Company’s management established a provision for losses arising from such administrative and legal proceedings in the amount of R$826. The Tax Authority of the State of Goiás filed other administrative proceedings against the Company, due to interpretation divergences of the Law concerning the export VAT credits. Based on the opinion of the Company’s external legal counsel, the management of the Company believes the Company will prevail in most of these proceedings. The Company’s management has recorded a provision for losses arising from such administrative proceedings in the amount of R$4,185. b) PIS (Programa de Integração Social) and COFINS (Contribuição para Financiamento da Seguridade Social) The Company has filed administrative proceedings challenging the calculation method used in the assessment of PIS and COFINS by the Federal Tax Authority (Secretaria da Receita Federal). The Company’s management estimates that the contingencies arising from these legal proceedings amount to R$6,969 in the aggregate. Based on the opinion of the Company’s legal counsels and recent decisions granted by the Brazilian Federal Supreme Court (Supremo Tribunal Federal), the Company’s management has recorded a provision for losses arising from such legal proceedings in the amount of R$3,793. c) CSLL – Social contribution on net income (Contribuição Social sobre o Lucro Líquido) Based on an amendment to the Brazilian Federal Constitution that exempted profits from exports from federal contributions, the Company has filed a lawsuit against the Federal Tax Authority (Secretaria da Receita Federal) seeking to exclude its profits from exports from the calculation of the Social Contribution on Net Income (Contribuição Social Sobre o . 96 .
    • Lucro Líquido – CSLL) payable by the Company. The management believes, based on the opinion of the Company´s legal counsels, that it will obtain success in the claim. Accordingly, the management of the Company has not established any provision for contingencies arising from these proceedings. d) INSS - National Social Security Institute (Instituto Social de Seguridade Social) In September 2002, the INSS filed two administrative proceedings (autos de infração) against the Company, seeking to collect certain social security contributions (which are referred to as contributions to the Rural Workers’ Assistance Fund (NOVO FUNRURAL) in the aggregate amount of R$69,194, that the Company should have allegedly withheld in connection with purchases of cattle from individual ranchers. As a result of a decision by a lower court in a proceeding to adjudicate a writ of mandamus action filed by the Company in order to challenge the constitutionality of such social security contributions, the administrative proceedings have been stayed and the INSS has been enjoined from collecting these social security contributions from the Company. 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 3rd Region as a matter of law. Currently, the proceedings await a ruling by such appellate court. Based on the opinion of the Company’s legal counsel supported by precedents of the Federal Supreme Court in a similar case, the Company’s management believes that the Company will prevail in these proceedings. Accordingly, the Company has not established any provision for contingencies arising from these proceedings. 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. An ongoing legal proceeding arguing as to the unconstitutionality of the contribution to the Rural Workers’ Assistance Fund, with issues and factual circumstances similar to the writ of mandamus action is currently under review by the Brazilian Federal Supreme Court (Supremo Tribunal Federal). Up to the present moment, five of the ten judges opining on this proceeding have voted to declare this contribution unconstitutional and no judge has issued a dissenting opinion on this matter. 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. Currently, the Company is not forced to proceed any discount, or pay the amount. In case any discount is made, due to commercial negociation, the Company proceeds the discount and deposits it in Judgement, accomplishing the judicial decision. 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. e) Other Tax Proceedings The Company is also party to 100 other tax lawsuits and administrative proceedings. Contingencies arising from these proceedings are not material to the Company if considered on an individual basis. We highlight the proceedings with probable risk of loss, which have been provisioned for in the aggregate amount of R$17,978. . 97 .
    • laBoR pRoceedinGs As of December 31, 2008 the Company was part in 1,050 labor proceedings, 218 tax proceedings filed by the work regional police stations and 2 proceedings established by the work public prosecution service, involving the total value in discussion of R$34,020. Based on the opinion of the Company’s external legal counsel, the Company’s management recorded a provision in the amount of R$5,606 for losses arising from such proceedings. Most of these lawsuits were filed by former employees of the Company seeking overtime payments and payments relating to their exposure to health hazards. ciVil pRoceedinGs a) Slaughterhouse at Araputanga 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. 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 1st Region (Tribunal Federal da 1ª Região) decision, under Proceedings no 2006.01.00.024584-7. The parties are waiting for ruling following a judicial expert appraisal favorable to the company, that after evaluating the payments made by Agropecuária Friboi, the appraisal concluded that the debit was already paid. The judicial appeal number 2006.01.00.024584-7 was judged favorably to the Company, when the “TRF” Regional Federal Court declared valid the purchase tittle deeds of the property, object of discussion. Based on the Company´s legal advisers’ opinion and based on Brazilian jurisprudence management of the Company believes that their arguments will prevail and no provision was registered. b) Trademark Infringement In July 2005, Frigorífico Araputanga filed a lawsuit against the Company seeking damages in the amount of R$26,938 and punitive damages in the amount of R$100,000 for the use by the Company of the trademark “Frigoara” without Frigorífico Araputanga’s consent. The amounts of the claim were based upon a report presented by Frigorífico Araputanga to the trial court, which appraised the value of the trademark “Frigoara” at R$315,000. 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 . 98 .
    • 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. In light of the foregoing, the Company’s management established a provision for losses arising from this lawsuit in the amount of R$600. 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. c) Others The Company is party in several civil lawsuits, mainly, pursuant to which certain of the Company’s former and current employees are seeking damages from accidents that occurred in the workplace, in amounts varying based on their salaries. Based on the opinion of the Company’s legal counsel, the Company’s management recorded a provision for losses arising from these lawsuits in the amount of R$15,063 as of December 31, 2008. 18 deBit With thiRd paRties foR inVestment Refers to the amount of 65 million Euros that will be increased in Inalca´s purchase price in case the Company achieves at least one of the following economic targets: EBITDA average over business year 2008, 2009 and 2010 equal or greater than Euro 75 million, or alternatively, EBITDA over business year 2010 equal or greater than Euro 90 million. In case none of these economical objectives is reached, the debit will be reverted against the goodwill of the acquisition. 19 income taXes 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. a) Reconciliation of income tax and social contribution of the comnpany 2008 2007 Income before income tax and social contribution 43,375 (63,440) addition (exclusion), net: Permanent differences (Mainly equity in subsidiaries) (9,671) 362,311 Temporary differences (61,092) 590 calculation basis for income tax and social contribution (27,388) 299,461 Income tax and CSLL - (101,793) - (101,793) Temporary differences 61,092 (590) deferred income tax and social contribution (20,772) 201 . 99 .
    • b) deferred income tax and social contribution company consolidated 2008 2007 2008 2007 assets: • Over tax losses and temporary differences 22,626 16,251 481,485 23,758 22,626 16,251 481,485 23,758 liabilities: • Over revaluation reserve 83,453 59,642 884,927 99,755 83,453 59,642 884,927 99,755 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. 20 shaReholdeRs’ eQuity a) capital stock Through the Extraordinary Shareholders Meeting held on January 2, 2007, shareholders approved amendments of the by-laws and the deployment of the 52,523,990 existing shares into 350,000,000 common shares and without nominal value. Through the Extraordinary Shareholders Meeting held on March 7, 2007, the shareholders approved a new amendment of the by-laws and the deployment of these 350,000,000 shares into 700,000,000. On March 28, 2007, the Company increased its Capital Stock through an initial public offering of 150,000,000 of ordinary common shares at the share price of R$8.00 per share, being the amount of R$39,224 considered as capital increase and R$1,160,776 considered as capital reserve (premium on shares issued). Through the Extraordinary Shareholders Meeting held on June 29, 2007 shareholders approved the subscription of 227,400,000 new common shares, nominative, without nominal value by at the share price of R$8.1523 per share, corresponding to R$1,853,833 generating a capital reserve of R$207. BNDES Participações S.A. – BNDESPAR (BNDESPAR) subscribed to a significant portion of the new common shares representing the Company’s capital. The subscription of the shares by BNDESPAR occurred through an assignment of a portion of the preemptive rights of the shareholders of J&F and/ or ZMF in the subscription of new shares. Through the Extraordinary General Meeting of April 11, 2008 shareholders approved the private issue of 360,678,926 new common, registered shares, without par value, at the price of R$7.07 per share, corresponding to R$2,550,000, generating a capital reserve of R$279. BNDES Participações S.A. - BNDESPAR (BNDESPAR) and PROT – Fundo de investimentos em Participações (PROT) issued a significant portion of these new common shares. The subscription of shares by BNDESPAR and PROT occured through the cession of part of the preference right of the shareholders J&F and ZMF in the subscription of those new shares, pursuant to an investment agreement executed on March 18, 2008. The Social Capital, subscribed and integralized on December 31, 2008 is represented by 1,438,078,926 ordinary shares, without nominal value. From the total shares, as described in letter e) below, 34,226,200 shares are maintained in treasury. The Company is authorized to increase its capital by more 22,600,000 ordinary nominative shares. b) Retained earnings reserves Mandatory Computed based on 5% of the net income of the year. Reserve for expansion 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. . 100 .
    • c) Revaluation reserve 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. d) dividends Mandatory dividends correspond to 25% of the adjusted net income of the year, according to article 202 of Law 6.404/76. The Company, considering that it has generate positive EBITDA, deliberated that for the dividends calculation base the goodwill in investments acquisition of JBS USA and SB Holdings will be permanently excluded. e) treasury shares The Board of Directors of the Company, based on the amendment of its by-laws and according to the normative instructions of CVM numbers 10/80, 268/97 and 390/03, authorized the acquisition of, not more, 41,113,898 shares of own emission for maintenance in treasury and subsequent cancel or alienation without reduction of the social capital. On December 31, 2008, the Company maintained 34,226,200 treasury shares, with an average unit cost of R$5.70, and the minimum and maximum acquisition prices were R$2.68 and R$8.54, respectively, not having happened alienation of the acquired shares. The market value of the shares according to the negotiation as of December 31, 2008 was R$4.93. 21 fincancial income (eXpense), net company consolidated 2008 2007 2008 2007 Exchange variation (86,013) 87,544 (223,595) 14,506 Results on derivatives 56,401 (180,877) (30,383) (180,678) Interest – Loss (435,481) (220,422) (553,370) (283,681) Interest – Gain 228,605 68,041 236,757 85,102 Taxes, contribution, tariff and others (27,145) (30,569) (41,585) (38,362) (263,633) (276,283) (612,176) (403,113) The financial income for year ended ended December 31, 2007 is negatively affected, by a significant amount, by exchange variation rate of the permanent investments in foreign currency. The impact of the referred exchange variation rate in the compay financial income is R$82,809 (R$160,030 in the consolidated) and did not affect the EBITDA. In 2008 the exchange variation rate of the permanent investments in foreign currency is beeing registered em specific account in the shareholder’s equity. 22 non-RecuRRinG eXpenses company consolidated 2008 2007 2008 2007 BONDS Expenses (35,693) - (35,693) - CADE Agreement - (13,769) - (13,769) Initial public offering - (53,313) - (53,313) (35,693) (67,082) (35,693) (67,082) In 2008 refers to non-recurring expenses referring to the “consent solicitation” process of the EURO BONDS and notes of the 144-A rule, as described in note 14. In 2007 refers to non-recurring expenses with the initial public offering in Mew Market and payment to CADE. . 101 .
    • 23 manaGement’s compensation For the years ended December 31, 2008 and 2007, the aggregate compensation paid by the Company to the Company’s management was R$3,000. 24 insuRance coVeRaGe 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. As of December 31, 2008 the maximum individual coverage was R$99,000, considering all types of risks. The insurance coverage related to the controlled company JBS Argentina has the same characteristics as explained above, and the maximum coverage as of December 31, 2008 was US$32 million (equivalent to R$74,784). The insurance coverage related to the controlled Company JBS USA, Inc. has the same characteristics as explained above, and the maximum coverage as of December 31, 2008 was US$200 million (equivalent to R$467,400). The insurance coverage related to the controlled Company Inalca JBS has the same characteristics as explained above, and the maximum coverage as of December 31, 2008 was Euros 141 million (equivalent to R$456,579). 25 Risk manaGement and deRiVatiVe instRuments 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 and uses derivatives financial instruments to reduce the expositure to those risks. The Company has a formal risk administration politics, controled by the administration treasury department, that uses control instruments through appropriate systems and qualified professionals in the risk measurement, analysis and administration, that make possible the reduction of the daily risk exhibition. Additionally, operations with speculative financial instruments character are not allowed. This politics is permanently monitored by the financial committee and for Directors of the Company, that have the responsibility of the strategy definition to the risk administration, determining the position limits and exhibition. a) exchange Rate and interest Rate Risk The exchange rate and interest rate risks related to financings and loans, and accounts receivable from clients denominated in foreign currencies, inventories, 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 notional value of the contracts is only accounted for in memorandum accounts. 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 are recognized as financial income or expense, in the profit and loss accounts. b) credit Risks The Company is exposed to credit risks in respect of accounts receivable, which are partially mitigated through the diversification of the credit profile of the Company’s portfolio. The Company does not have a client that represents more than 10% of its combined net sales revenue, and its clients have good financial and operating indicators. c) purchase price of cattle 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. . 102 .
    • d) estimated market Value The financial assets and liabilities of the Company are accounted in the balance sheet based on their respective acquisition cost, and the related classification of revenue and expenses in the income statement is accounted for based on its expected realization or liquidation value. The market amount of the financial instruments not derivatives and derivatives contracts were estimate based on the available market information. e) financial instriments information Below are presented the assets and liabilities exposed to risks, which are subject to derivative instruments, as well as, the effects of those accounts in the income statements of the year ended on December 31, 2008: income statements effects eXposuRe 2008 2007 exchange variation derivatives opeRatinG Accounts receivable – US$ / € / £ 321,068 263,700 112,875 (108,462) Investments – US$ / € 3,892,644 1,694,641 - - Inventories destined to export – @ cattle 53,960 71,903 - 5,464 Order of sales – US$ / € / £ 442,583 405,917 77,895 (164,832) subtotal 4,710,255 2,436,161 190,770 (267,830) financial Credits with subsidiaries – US$ / € 1,550,774 (9,389) 392,153 Loans and financings – US$ (2,740,319) (2,040,064) (666,975) Imports payable – US$ (4,816) (3,537) (1,961) Amounts receivable (payable) of forward contracts, NET 60,205 538 - 324,231 subtotal (1,134,156) (2,052,452) (276,783) 324,231 total 3,576,099 383,709 (86,013) 56,401 Investments – Was deliberated, in the Council of Administration meeting, that the Hedge of the investments in overseas companies should not be done. Order of sales – The notional is not registered in the balance sheet. Starting from the year of 2008, according to the methodology denominated hedge accounting, introduced by the pronouncement CPC 14, the Company started to account the sales orders exchange variation to oppose the effects of the hedge of these same orders. f) sensibility analysis Considering that the Company is subject, mainly, to the exchange rates and interests risks on your assets and liabilities in foreign currency, and uses derivative instruments for protection of these referred assets and liabilities, the variations of sceneries are followed by the respective protection objects, generating almost null effects. 26 acQuisition contRact in pRoGRess national Beef In March 4, 2008, the Company executed the Membership Interest Purchase Agreement (“National Beef Agreement”), to acquire all of the membership interests representing the entire ownership of National Beef, a limited liability company organized under the laws of the state of Delaware, United States of America, which slaughters and trades boxed beef, case-ready beef and beef by-products. Closing of the transaction contemplated in the National Beef Agreement is subject to customary regulatory approvals and other customary closing conditions. The Department of Justice of the United States filed a complaint in the Federal District Court challenging the acquisition. The Company look forward to defending this matter in court. . 103 .
    • National Beef owns (i) three beef slaughter plants, one located in Dodge City, Kansas, one in Liberal, Kansas and the other in Brawley, California; (ii) two case-ready beef processing plants, specializing in products for sale to retailers destined to the end consumer, located in Hummels Wharf, Pennsylvania, and Moultrie, Georgia; (iii) one plant located in Kansas City, Kansas specializing in portioned products for commercial establishments and end consumers; and (iv) one transportation company, with approximately 1,200 vehicles including refrigerated transportation and transportation of live stock, headquartered in Liberal, Kansas. Pursuant to the agreement, the Company shall pay US$560 million to the members of National Beef, approximately US$465 million of which shall be paid in cash and US$95 million with JBS existing shares. At closing, the Company shall assume the debt and other liabilities of National Beef, resulting in an enterprise value of approximately US$970 million. JBS intends to use shares held in treasury to effect the payment of the portion of the acquisition price to be paid with shares, and, for this reason. eXecutiVe manaGement Joesley Mendonça Batista Wesley Mendonça Batista Chief Executive Officer Chief Operation Officer Jeremiah Alphonsus O’Callaghan Francisco de Assis e Silva Investor Relations Director Legal Director José Paulo da Silva Filho Accountant CRC: 1PE011318/O-0 'T' SP BoaRd of diRectoRs Joesley Mendonça Batista Wesley Mendonça Batista Board President Vice-President José Batista Sobrinho José Batista Júnior Marcus Vinicius Pratini de Moraes Demósthenes Marques RepoRt of fiscal council The Infra-signed members of JBS S.A.’S Fiscal Council, in the exercise of its legal and statutory attributions, having examined the Report of the Directors and the Financial Statements of the year ended on December 31, 2008, and based on the Audit Report of Terco Grant Thornton Independent Auditors, expressing an unqualified opinion, have an opinion that the mentioned financial statements, audited based on the Corporate legislation in place, presents fairly JBS S.A.’s financial position, approved by the Ordinary General Meeting. São Paulo, February 19, 2009. Divino Aparecido dos Santos Florisvaldo Caetano de Oliveira Ricardo Antunes Agostini . 104 .