0001292814-16-003610.txt : 20160226 0001292814-16-003610.hdr.sgml : 20160226 20160226061110 ACCESSION NUMBER: 0001292814-16-003610 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 20151231 FILED AS OF DATE: 20160226 DATE AS OF CHANGE: 20160226 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRF S.A. CENTRAL INDEX KEY: 0001122491 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 000000000 STATE OF INCORPORATION: D5 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-15148 FILM NUMBER: 161457848 BUSINESS ADDRESS: STREET 1: 1400 RUA HUNGRIA 5TH FLOOR STREET 2: JARDIM EUROPA 01455 000 CITY: SAO PAULO SP BRAZIL STATE: D5 ZIP: 00000 BUSINESS PHONE: 551123225061 MAIL ADDRESS: STREET 1: 1400 RUA HUNGRIA 5TH FLOOR STREET 2: JARDIM EUROPA 01455 000 SAO PAULO SP CITY: BRAZIL STATE: D5 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: BRF-BRASIL FOODS S.A. DATE OF NAME CHANGE: 20090708 FORMER COMPANY: FORMER CONFORMED NAME: PERDIGAO SA DATE OF NAME CHANGE: 20000823 6-K 1 brffs2015_6k.htm FORM 6-K brffs2015_6k.htm - Generated by SEC Publisher for SEC Filing

 

FORM 6-K
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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

dated February 26, 2016

Commission File Number 1-15148

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

N/A
 
 
 
 
 
 
 
(Translation of Registrant’s Name)

1400 R. Hungria, 5th Floor
Jd América-01455000-São Paulo – SP, Brazil
 
 
 
 
 
 
 
(Address of principal executive offices) (Zip code)

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

Form 20-F x   Form 40-F o

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

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

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

Yes o   No x

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

 


 
 

 

 

*             *             *

This material includes certain forward-looking statements that are based principally on current expectations and on projections of future events and financial trends that currently affect or might affect the Company’s business, and are not guarantees of future performance.  These forward-looking statements are based on management’s expectations, which involve a number of known and unknown risks, uncertainties, assumptions and other important factors, many of which are beyond the Company’s control and any of which could cause actual financial condition and results of operations to differ materially fom those set out in the Company’s forward-looking statements.  You are cautioned not to put undue reliance on such forward-looking statements.  The Company undertakes no obligation, and expressly disclaims any obligation, to update or revise any forward-looking statements.  The risks and uncertainties relating to the forward-looking statements in this Report on Form 6-K, including Exhibit 1 hereto, include those described under the captions “Forward-Looking Statements” and “Item 3. Key Information — D. Risk Factors” in the Company’s annual report on Form 20-F for the year ended December 31, 2012.

 


 
 

 

SIGNATURES

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

Date: February 26, 2016

 

 

 

 

BRF S.A.

 

 

 

 

 

By:

/s/ Augusto Ribeiro Junior

 

 

Name:

Augusto Ribeiro Junior

 

 

Title:

CFO AND IRO

 

 

 


 
 

 

EXHIBIT INDEX

Exhibit

Description of Exhibit

 

1

FINANCIAL STATEMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EX-1 2 exhibit_1.htm FINANCIAL STATEMENTS exhibit_1.htm - Generated by SEC Publisher for SEC Filing

 

 

 

 

 

 

 

 

Financial Statements

 

 

Years ended December 31, 2015 and 2014

 

 


 

 

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

 

 

Index

 

1. Independent Auditors’ Report  3 
2. Balance Sheets  5 
3. Statements of Income  7 
4. Statements of Comprehensive Income  8 
5. Statements of Changes in Shareholders’ Equity  9 
6. Statements of Cash Flows  10 
7. Statements of Added Value  11 
8. Management Report  12 
9. Explanatory Notes to the Financial Statements  36 
10.Opinion of the Fiscal Council  159 
11.Opinion of the Audit Committee  161 
12.Opinion of the Executive Board  162 

 

 

 

 

 

 


 

             

A free translation from Portuguese into English of Independent Auditor´s Report on financial statements prepared in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS)

 

INDEPENDENT AUDITOR’S REPORT ON FINANCIAL STATEMENTS

 

The Shareholders and Officers

BRF S.A.

Itajaí - SC

 

We have audited the accompanying individual and consolidated financial statements of BRF S.A., identified as Parent Company and Consolidated, which comprise the balance sheet as at December 31, 2015, and the statements of income, comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information.

 

Management’s responsibility for the financial statements

 

Management is responsible for the preparation and fair presentation of the individual and consolidated financial statements in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS), as issued by the International Accounting Standards Board (IASB), as well as for the internal controls management determined as necessary to enable the preparation of these financial statements that are free from material misstatement, whether due to fraud or error.

 

Independent auditors’ responsibility

 

Our responsibility is to express an opinion on these financial statements based on our audit, conducted in accordance with the Brazilian and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

 

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the preparation and fair presentation of the Company’s financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

 

Opinion

 

In our opinion, the individual and consolidated financial statements referred to above present fairly, in all material respects, the individual and consolidated financial position of BRF S.A. as of December 31, 2015, and the individual and consolidated results of its operations and its cash flows for the year then ended in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

 

3

 


 

 

A free translation from Portuguese into English of Independent Auditor´s Report on financial statements prepared in accordance with the accounting practices adopted in Brazil and International Financial Reporting Standards (IFRS)

 

 

Other matters

 

Statements of valued added

 

We have also audited the individual and consolidated statements of value added for the year ended December 31, 2015, prepared under the responsibility of the Company´s management, which presentation is required by the Brazilian Corporate Law for public companies, and as supplemental information by IFRS, which do not require the presentation of the statement of value added. These statements have been subject to the same audit procedures previously described and, in our opinion, are fairly presented, in all material respects, in relation to the financial statements taken as a whole.

 

 

São Paulo, February 25, 2016.

 

ERNST & YOUNG

Auditores Independentes S.S.

CRC-2SP015199/F-6

 

 

Antonio Humberto Barros dos Santos                      Patricia Nakano Ferreira      

Accountant CRC-1SP161745/O-3                           Accountant CRC-1SP234620/O-4

 

4

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

BRF S.A.

BALANCE SHEETS

 
 
                   
     

Parent company

 

Consolidated

ASSETS

Note

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

CURRENT ASSETS

                 

Cash and cash equivalents

7

 

845,085

 

1,979,357

 

5,362,890

 

6,006,942

Marketable securities

8

 

197,807

 

283,623

 

734,711

 

587,480

Trade accounts receivable, net

9

 

4,948,745

 

4,663,193

 

3,876,308

 

3,046,871

Notes receivable

9

 

281,516

 

170,029

 

303,716

 

215,067

Interest on shareholders' equity receivable

30

 

23,138

 

13,369

 

21,586

 

10,248

Inventories

10

 

2,703,330

 

2,204,822

 

4,032,911

 

2,941,355

Biological assets

11

 

1,322,317

 

1,122,350

 

1,329,861

 

1,130,580

Recoverable taxes

12

 

1,074,175

 

914,720

 

1,231,759

 

1,009,076

Other financial assets

22

 

118,680

 

42,922

 

129,387

 

43,101

Restricted cash

16

 

-

 

-

 

1,346,274

 

-

Other current assets

   

665,582

 

501,549

 

778,198

 

539,518

     

12,180,375

 

11,895,934

 

19,147,601

 

15,530,238

                   

Assets of discontinued operations and held for sale

13

 

32,442

 

1,957,565

 

32,448

 

1,958,007

Total current assets

   

12,212,817

 

13,853,499

 

19,180,049

 

17,488,245

                   

NON-CURRENT ASSETS

                 

Marketable securities

8

 

456,038

 

62,104

 

456,038

 

62,104

Trade accounts receivable, net

9

 

4,133

 

6,486

 

4,133

 

7,706

Notes receivable

9

 

228,090

 

336,815

 

230,781

 

361,673

Recoverable taxes

12

 

942,147

 

898,174

 

968,705

 

912,082

Deferred income and social contribution taxes

14

 

1,248,880

 

751,932

 

1,255,976

 

714,015

Judicial deposits

15

 

725,324

 

612,286

 

732,106

 

615,719

Biological assets

11

 

760,267

 

681,823

 

761,022

 

683,210

Restricted cash

16

 

479,828

 

115,179

 

479,828

 

115,179

Other non-current assets

   

199,421

 

310,557

 

206,821

 

317,387

Investments in associates and joint ventures

17

 

7,210,114

 

3,999,729

 

185,892

 

438,423

Property, plant and equipment, net

18

 

10,100,986

 

9,424,609

 

10,915,752

 

10,059,349

Intangible

19

 

3,451,557

 

3,445,090

 

5,010,911

 

4,328,643

Total non-current assets

   

25,806,785

 

20,644,784

 

21,207,965

 

18,615,490

                   

TOTAL ASSETS

   

38,019,602

 

34,498,283

 

40,388,014

 

36,103,735

 

See accompanying notes to the financial statements.

 

5

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

BRF S.A.

                   

BALANCE SHEETS

 
 
                   
     

Parent company

 

 

 

Consolidated

LIABILITIES

Note

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

CURRENT LIABILITIES

                 

Short-term debt

20

 

2,525,646

 

2,601,022

 

2,628,179

 

2,738,903

Trade accounts payable

21

 

4,024,725

 

3,136,860

 

4,744,993

 

3,522,207

Supply chain finance

31

 

1,174,594

 

455,120

 

1,174,594

 

455,120

Payroll and related charges

   

399,450

 

378,093

 

477,935

 

427,058

Tax payable

   

196,780

 

216,256

 

353,278

 

299,951

Interest on shareholders' equity

27

 

518,450

 

430,909

 

518,450

 

430,909

Employee and management profit sharing

   

264,633

 

374,575

 

296,292

 

395,767

Other financial liabilities

22

 

619,874

 

216,057

 

666,602

 

257,438

Provision for tax, civil and labor risks

26

 

223,766

 

233,636

 

231,389

 

242,974

Pension and other post-employment plans

25

 

67,264

 

56,096

 

67,264

 

56,096

Advances from related parties

30

 

17,492

 

16,403

 

-

 

-

Other current liabilities

   

317,524

 

159,918

 

462,137

 

234,439

     

10,350,198

 

8,274,945

 

11,621,113

 

9,060,862

Liabilities of discontinued operations

13

 

-

 

508,264

 

-

 

508,264

Total current liabilities

   

10,350,198

 

8,783,209

 

11,621,113

 

9,569,126

                   

NON-CURRENT LIABILITIES

                 

Long-term debt

20

 

11,054,455

 

7,429,599

 

12,551,104

 

8,850,432

Tax payable

   

7,581

 

6,005

 

25,990

 

25,902

Provision for tax, civil and labor risks

26

 

957,149

 

919,446

 

974,460

 

942,759

Deferred income and social contribution taxes

14

 

-

 

-

 

188,320

 

90,184

Liabilities with related parties

30

 

36,567

 

19,738

 

-

 

-

Advances from related parties

30

 

1,171,440

 

796,860

 

-

 

-

Pension and other post-employment plans

25

 

231,780

 

257,974

 

231,780

 

257,974

Other non-current liabilities

   

693,655

 

694,975

 

959,394

 

677,415

Total non-current liabilities

   

14,152,627

 

10,124,597

 

14,931,048

 

10,844,666

                   

SHAREHOLDERS' EQUITY

27

               

Capital

   

12,460,471

 

12,460,471

 

12,460,471

 

12,460,471

Capital reserves

   

6,978

 

109,446

 

6,978

 

109,446

Income reserves

   

6,076,775

 

3,945,825

 

6,076,775

 

3,945,825

Treasury shares

   

(3,947,933)

 

(304,874)

 

(3,947,933)

 

(304,874)

Other comprehensive loss

   

(1,079,514)

 

(620,391)

 

(1,079,514)

 

(620,391)

Equity attributable to interest of controlling shareholders

 

13,516,777

 

15,590,477

 

13,516,777

 

15,590,477

Equity attributable to non-controlling interest

   

-

 

-

 

319,076

 

99,466

Total shareholders' equity

   

13,516,777

 

15,590,477

 

13,835,853

 

15,689,943

                   

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

   

38,019,602

 

34,498,283

 

40,388,014

 

36,103,735

 

See accompanying notes to the financial statements.

6

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

BRF S.A.

                   

STATEMENTS OF INCOME

 
 
                   
     

Parent company

 

Consolidated

 

Note

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

CONTINUED OPERATIONS

                 

NET SALES

32

 

26,725,791

 

25,934,135

 

32,196,601

 

29,006,843

Cost of sales

36

 

(19,740,350)

 

(18,901,439)

 

(22,107,692)

 

(20,497,430)

GROSS PROFIT

   

6,985,441

 

7,032,696

 

10,088,909

 

8,509,413

OPERATING INCOME (EXPENSES)

                 

Selling expenses

36

 

(3,912,289)

 

(3,654,697)

 

(4,805,931)

 

(4,216,500)

General and administrative expenses

36

 

(313,105)

 

(289,388)

 

(506,097)

 

(402,054)

Other operating expenses, net

34

 

(361,495)

 

(338,743)

 

(444,667)

 

(438,110)

Income from associates and joint ventures

17

 

3,116,292

 

673,343

 

(103,804)

 

25,570

OPERATING INCOME

   

5,514,844

 

3,423,211

 

4,228,410

 

3,478,319

Financial expenses

35

 

(4,405,164)

 

(1,755,007)

 

(5,025,455)

 

(2,571,454)

Financial income

35

 

1,420,166

 

780,366

 

3,355,313

 

1,580,756

INCOME BEFORE TAXES

   

2,529,846

 

2,448,570

 

2,558,268

 

2,487,621

Current

14

 

25,953

 

(77,467)

 

(17,085)

 

(117,361)

Deferred

14

 

372,283

 

(235,889)

 

406,587

 

(235,205)

INCOME FROM CONTINUED OPERATIONS

   

2,928,082

 

2,135,214

 

2,947,770

 

2,135,055

DISCONTINUED OPERATIONS

                 
                   

INCOME FROM DISCONTINUED OPERATIONS

13

 

183,088

 

89,822

 

183,088

 

89,822

NET PROFIT

   

3,111,170

 

2,225,036

 

3,130,858

 

2,224,877

                   

Attributable to

                 

Controlling shareholders

   

3,111,170

 

2,225,036

 

3,111,170

 

2,225,036

Non-controlling interest

   

-

 

-

 

19,688

 

(159)

     

3,111,170

 

2,225,036

 

3,130,858

 

2,224,877

EARNINGS PER SHARE

                 

Earnings per share - basic

   

842,000,012

 

870,412,068

 

842,000,012

 

870,412,068

Weighted average shares outstanding - basic

28

 

3.69498

 

2.55630

 

3.71836

 

2.55612

Earning per share - diluted

   

842,401,821

 

870,823,776

 

842,401,821

 

870,823,776

Weighted average shares outstanding - diluted

28

 

3.69321

 

2.55509

 

3.71659

 

2.55491

                   

EARNINGS PER SHARE FROM CONTINUED OPERATIONS

               

Earnings per share - basic

   

842,000,012

 

870,412,068

 

842,000,012

 

870,412,068

Weighted average shares outstanding - basic

28

 

3.47753

 

2.45311

 

3.50091

 

2.45292

Earning per share - diluted

   

842,401,821

 

870,823,776

 

842,401,821

 

870,823,776

Weighted average shares outstanding - diluted

28

 

3.47587

 

2.45195

 

3.49924

 

2.45176

 

 

See accompanying notes to the financial statements.

7

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

BRF S.A.

                   

STATEMENTS OF COMPREHENSIVE INCOME

 
 
                   
     

BR GAAP

 

BR GAAP and IFRS

     

Parent company

 

Consolidated

 

Note

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Net Profit

   

3,111,170

 

2,225,036

 

3,130,858

 

2,224,877

Other comprehensive income

                 

Gain (loss) on foreign currency translation adjustments

   

184,872

 

(120,337)

 

184,872

 

(120,337)

Unrealized gain (loss) on available for sale marketable securities

8

 

10,592

 

(11,931)

 

10,592

 

(11,931)

Taxes on unrealized gains (losses) on available for sale securities

8

 

(1,762)

 

41

 

(1,762)

 

41

Unrealized losses on cash flow hedge

4

 

(1,020,832)

 

(162,817)

 

(1,020,832)

 

(162,817)

Taxes on unrealized loss on cash flow hegde

4

 

346,388

 

55,752

 

346,388

 

55,752

Net other comprehensive income, to be reclassified to the statement of income in subsequent periods

   

(480,742)

 

(239,292)

 

(480,742)

 

(239,292)

Actuarial gains on pension and post-employment plans

25

 

48,635

 

8,731

 

48,635

 

8,731

Taxes on realized gains on pension and post-employment plans

25

 

(16,536)

 

(2,969)

 

(16,536)

 

(2,969)

Net other comprehensive income, with no impact into subsequent statement of income

   

32,099

 

5,762

 

32,099

 

5,762

Total comprehensive income, net

   

2,662,527

 

1,991,506

 

2,682,215

 

1,991,347

Attributable to

                 

Controlling shareholders

   

2,662,527

 

1,991,506

 

2,662,527

 

1,991,506

Non-controlling interest

   

-

 

-

 

19,688

 

(159)

     

2,662,527

 

1,991,506

 

2,682,215

 

1,991,347

 

 

See accompanying notes to the financial statements.

8

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

BRF S.A.

                                                               

STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

 
 
                                                               
     

Attributed to of controlling shareholders

       
         

Capital reserves

 

Income reserves

 

Other comprehensive income

               

Paid-in capital

 

Capital reserve

 

Treasury shares

 

Legal reserve

 

Reserve for expansion

 

Reserve for capital increases

 

Reserve for tax incentives

 

Acumulated foreign currency translation adjustments

 

Available for sale marketable securities

 

Losses on cash flow hedge

 

Actuarial gains (losses)

 

Retained earnings (losses)

 

Total equity

 

Non-controlling interest

 

Total shareholders' equity
(consolidated)

BALANCES AT DECEMBER 31, 2013

12,460,471

 

113,797

 

(77,379)

 

273,367

 

1,170,749

 

822,611

 

245,153

 

(32,258)

 

(5,406)

 

(341,687)

 

25,653

 

-

 

14,655,071

 

41,083

 

14,696,154

Comprehensive income

                                                         

Loss on foreign currency translation adjustments

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(120,337)

 

-

 

-

 

-

 

-

 

(120,337)

 

-

 

(120,337)

Unrealized loss in available for sale marketable securities

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(11,890)

 

-

 

-

 

-

 

(11,890)

 

-

 

(11,890)

Unrealized gain in cash flow hedge

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(107,065)

 

-

 

-

 

(107,065)

 

-

 

(107,065)

Actuarial gains (losses) on pension and post-employment plans

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(27,401)

 

33,163

 

5,762

 

-

 

5,762

Net income for the exercise

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

2,225,036

 

2,225,036

 

(159)

 

2,224,877

SUB-TOTAL COMPREHENSIVE INCOME

                           

(120,337)

 

(11,890)

 

(107,065)

 

(27,401)

 

2,258,199

 

1,991,506

 

(159)

 

1,991,347

Appropriation of income (loss)

                                                         

Dividends - R$0.09972393 per outstanding share at the end of exercise

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(86,489)

 

(86,489)

 

-

 

(86,489)

Interest on shareholders' equity - R$0.84863360 per outstanding share at the end of exercise

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(737,765)

 

(737,765)

 

-

 

(737,765)

Legal reserve

-

 

-

 

-

 

111,252

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(111,252)

 

-

 

-

 

-

Reserve for expansion

-

 

-

 

-

 

-

 

730,684

 

-

 

-

 

-

 

-

 

-

 

-

 

(730,684)

 

-

 

-

 

-

Reserve for capital increases

-

 

-

 

-

 

-

 

-

 

451,640

 

-

 

-

 

-

 

-

 

-

 

(451,640)

 

-

 

-

 

-

Reserve for tax incentives

-

 

-

 

-

 

-

 

-

 

-

 

140,369

 

-

 

-

 

-

 

-

 

(140,369)

 

-

 

-

 

-

Share-based payments

-

 

20,673

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

20,673

 

-

 

20,673

Gains on shares sold

-

 

(23,682)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(23,682)

 

-

 

(23,682)

Goodwill on the acquisition of non-controlling interest

-

 

(1,342)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,342)

 

-

 

(1,342)

Non-controlling interest

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

58,542

 

58,542

Treasury shares acquired

-

 

-

 

(350,942)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(350,942)

 

-

 

(350,942)

Treasury shares sold

-

 

-

 

123,447

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

123,447

 

-

 

123,447

BALANCES AT DECEMBER 31, 2014

12,460,471

 

109,446

 

(304,874)

 

384,619

 

1,901,433

 

1,274,251

 

385,522

 

(152,595)

 

(17,296)

 

(448,752)

 

(1,748)

 

-

 

15,590,477

 

99,466

 

15,689,943

Comprehensive income

                                                         

Gain on foreign currency translation adjustments

-

 

-

 

-

 

-

 

-

 

-

 

-

 

184,872

 

-

 

-

 

-

 

-

 

184,872

 

-

 

184,872

Unrealized gain in available for sale marketable securities

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

8,830

 

-

 

-

 

-

 

8,830

 

-

 

8,830

Unrealized loss in cash flow hedge

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(674,444)

 

-

 

-

 

(674,444)

 

-

 

(674,444)

Actuarial gains (losses) on pension and post-employment plans

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

21,619

 

10,480

 

32,099

 

-

 

32,099

Net income for the exercise

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

3,111,170

 

3,111,170

 

19,688

 

3,130,858

SUB-TOTAL COMPREHENSIVE INCOME

                           

184,872

 

8,830

 

(674,444)

 

21,619

 

3,121,650

 

2,662,527

 

19,688

 

2,682,215

Appropriation of income (loss)

                                                         

Dividends - R$0.112896461 per outstanding share at the end of exercise

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(91,443)

 

(91,443)

 

-

 

(91,443)

Interest on shareholders' equity - R$1.086894475 per outstanding share at the end of exercise

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(899,257)

 

(899,257)

 

-

 

(899,257)

Legal reserve

-

 

-

 

-

 

155,558

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(155,558)

 

-

 

-

 

-

Reserve for expansion

-

 

-

 

-

 

-

 

1,219,394

 

-

 

-

 

-

 

-

 

-

 

-

 

(1,219,394)

 

-

 

-

 

-

Reserve for capital increases

-

 

-

 

-

 

-

 

-

 

624,330

 

-

 

-

 

-

 

-

 

-

 

(624,330)

 

-

 

-

 

-

Reserve for tax incentives

-

 

-

 

-

 

-

 

-

 

-

 

131,668

 

-

 

-

 

-

 

-

 

(131,668)

 

-

 

-

 

-

Reserve for income retention

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Share-based payments

-

 

67,425

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

67,425

 

-

 

67,425

Gains on shares sold

-

 

(40,257)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(40,257)

 

-

 

(40,257)

Valuation of shares

-

 

111,247

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

111,247

 

-

 

111,247

Acquisition of non-controlling interest

-

 

(240,883)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(240,883)

 

-

 

(240,883)

Non-controlling interest

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

199,922

 

199,922

Treasury shares acquired

-

 

-

 

(3,765,753)

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

(3,765,753)

 

-

 

(3,765,753)

Treasury shares sold

-

 

-

 

122,694

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

122,694

 

-

 

122,694

BALANCES AT DECEMBER 31, 2015

12,460,471

 

6,978

 

(3,947,933)

 

540,177

 

3,120,827

 

1,898,581

 

517,190

 

32,277

 

(8,466)

 

(1,123,196)

 

19,871

 

-

 

13,516,777

 

319,076

 

13,835,853

 

See accompanying notes to the financial statements.

9

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

BRF S.A.

                   

STATEMENTS OF CASH FLOWS

 
 
                   
     

Parent company

 

Consolidated

     

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

OPERATING ACTIVITIES

                 

Net profit

   

2,928,082

 

2,135,214

 

2,928,082

 

2,135,214

Adjustments to reconcile net income to net cash provided by operating activities

                 

Non-controlling interest

   

-

 

-

 

19,688

 

(159)

Depreciation and amortization

   

668,534

 

652,197

 

771,647

 

704,184

Depreciation and depletion of biological assets

   

543,605

 

525,927

 

545,033

 

526,234

Equity in income of affiliates

   

(3,116,292)

 

(673,343)

 

103,804

 

(25,570)

Gain in business combination

   

-

 

-

 

-

 

(24,963)

Results on disposal on investments

   

(125,671)

 

(179,268)

 

(125,671)

 

(179,268)

Loss on disposal of property, plant and equipment

   

19,795

 

(103,291)

 

16,402

 

(111,410)

Deferred income tax

   

(372,283)

 

235,889

 

(406,587)

 

235,205

Provision for tax, civil and labor risks

   

106,022

 

302,016

 

98,947

 

306,632

Other provisions

   

317,487

 

15,349

 

345,120

 

70,273

Exchange rate variations and interest

   

3,634,434

 

1,323,603

 

2,853,862

 

1,173,758

Changes in operating assets and liabilities

                 

Investments in trading securities

   

(76,873)

 

(295,424)

 

(1,023,747)

 

(295,424)

Redemptions of trading securities

   

181,620

 

217,761

 

900,009

 

218,899

Interest received

   

11,054

 

-

 

13,216

 

-

Other financial assets and liabilities

   

(679,878)

 

(300,181)

 

(687,358)

 

(284,471)

Trade accounts receivable

   

(596,754)

 

(675,242)

 

(1,112,454)

 

459,197

Inventories

   

(524,462)

 

270,676

 

(1,066,189)

 

369,183

Biological assets - current assets

   

(199,967)

 

76,011

 

(199,281)

 

75,271

Trade accounts payable

   

577,287

 

198,868

 

882,212

 

202,946

Supply chain finance

   

719,474

 

-

 

719,474

 

-

Payment of tax, civil and labor provisions

   

(194,350)

 

(259,445)

 

(194,350)

 

(259,445)

Interest paid

   

(539,180)

 

(452,375)

 

(693,873)

 

(618,724)

Payroll and related charges

   

-

 

-

 

(6,931)

 

(5,556)

Interest on shareholders' equity received

   

56,895

 

114,572

 

15,889

 

54,674

Other rights and obligations

   

(333,782)

 

(1,522,672)

 

(562,704)

 

114,958

Net cash provided by operating activities from continued operations

   

3,004,797

 

1,606,842

 

4,134,240

 

4,841,638

Net cash provided by operating activities from discontinued operations

   

28,307

 

160,153

 

2,420

 

160,153

Net cash provided by operating activities

   

3,033,104

 

1,766,995

 

4,136,660

 

5,001,791

     

 

 

 

 

 

 

 

INVESTING ACTIVITIES

   

 

 

 

 

 

 

 

Investments in available for sale securities

   

-

 

-

 

(58,907)

 

(43,878)

Redemptions of available for sale securities

   

-

 

1,014

 

130,292

 

43,405

Investments in restricted cash

   

(364,649)

 

(15,967)

 

(1,710,923)

 

(15,967)

Capital increase in associates and joint ventures

 

 

(299,961)

 

-

 

-

 

-

Business combination, net of cash

 

 

-

 

-

 

(90,871)

 

(372,751)

Investments in associates and joint ventures

   

(1,724)

 

(3,420)

 

(61,604)

 

(53,520)

Goodwill on the acquisiton of non-controlling entities

   

-

 

(1,342)

 

-

 

(1,342)

Additions to property, plant and equipment

   

(1,169,974)

 

(771,100)

 

(1,296,712)

 

(1,020,964)

Additions to biological assets - non-current assets

   

(588,674)

 

(515,849)

 

(589,437)

 

(517,488)

Proceeds from disposals of property, plant and equipment

   

204,287

 

141,243

 

252,257

 

170,557

Additions to intangible assets

   

(36,099)

 

(47,257)

 

(205,416)

 

(50,410)

Receivable from discontinued operations, net of transferred cash

 

 

1,977,310

 

-

 

1,957,272

 

-

Net cash used in investing activities from continued operations

   

(279,484)

 

(1,212,678)

 

(1,674,049)

 

(1,862,358)

Net cash used in investing activities from discontinued operations

   

(28,307)

 

(51,161)

 

(12,305)

 

(51,161)

Net cash used in investing activities

   

(307,791)

 

(1,263,839)

 

(1,686,354)

 

(1,913,519)

     

 

 

 

 

 

 

 

FINANCING ACTIVITIES

   

 

 

 

 

 

 

 

Proceeds from debt issuance

   

5,096,663

 

3,985,631

 

6,290,122

 

5,116,839

Repayment of debt

   

(4,441,692)

 

(2,462,778)

 

(6,031,553)

 

(4,707,779)

Treasury shares acquired

   

(3,765,753)

 

(350,942)

 

(3,765,753)

 

(350,942)

Treasury shares disposal

   

82,437

 

99,765

 

82,437

 

99,765

Payments of dividends and interest on shareholders' equity

   

(889,113)

 

(726,013)

 

(889,113)

 

(726,013)

Net cash (used in) provided by financing activities from continued operations

   

(3,917,458)

 

545,663

 

(4,313,860)

 

(568,130)

Cash used in financing activities from discontinued operations

 

 

-

 

-

 

20,038

 

-

Net cash (used in) provided by financing activities

   

(3,917,458)

 

545,663

 

(4,293,822)

 

(568,130)

EFFECT ON EXCHANGE RATE VARIATION ON CASH AND CASH EQUIVALENTS

   

57,873

 

25,362

 

1,199,464

 

359,085

Net increase in cash

   

(1,134,272)

 

1,074,181

 

(644,052)

 

2,879,227

At the beginning of the period

   

1,979,357

 

905,176

 

6,006,942

 

3,127,715

At the end of the period

   

845,085

 

1,979,357

 

5,362,890

 

6,006,942

 

10

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

See accompanying notes to the financial statements.

 

BRF S.A.

                   

STATEMENT OF ADDED VALUE

 
 
                   
     

Parent company

 

Consolidated

     

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

1 - REVENUES

   

30,544,261

 

29,259,062

 

36,414,426

 

32,751,151

Sales of goods and products

   

29,550,380

 

28,570,547

 

35,343,447

 

31,895,159

Other income

   

(37,303)

 

11,675

 

(59,207)

 

(54,946)

Revenue related to construction of own assets

   

1,344,739

 

675,517

 

1,454,360

 

908,443

Allowance for doubtful accounts

   

(313,555)

 

1,323

 

(324,174)

 

2,495

2 - RAW MATERIAL ACQUIRED FROM THIRD PARTIES

   

(19,377,953)

 

(18,402,267)

 

(22,064,277)

 

(20,364,761)

Costs of products and goods sold

   

(15,506,976)

 

(15,180,278)

 

(17,461,432)

 

(16,530,170)

Materials, energy, third parties services and other

   

(3,845,023)

 

(3,234,668)

 

(4,559,875)

 

(3,851,677)

Recovery (loss) of assets values

   

(25,954)

 

12,679

 

(42,970)

 

17,086

3 - GROSS VALUE ADDED (1-2)

   

11,166,308

 

10,856,795

 

14,350,149

 

12,386,390

4 - DEPRECIATION AND AMORTIZATION

   

(1,212,139)

 

(1,178,124)

 

(1,316,680)

 

(1,230,418)

5 - NET VALUE ADDED (3-4)

   

9,954,169

 

9,678,671

 

13,033,469

 

11,155,972

                   

6 - RECEIVED FROM THIRD PARTIES

   

4,537,539

 

1,461,829

 

3,252,645

 

1,614,489

Income from associates and joint ventures

   

3,116,292

 

673,343

 

(103,804)

 

25,570

Financial income

   

1,420,166

 

780,366

 

3,355,313

 

1,580,756

Others

   

1,081

 

8,120

 

1,136

 

8,163

                   

7 - VALUE ADDED TO BE DISTRIBUTED (5+6)

   

14,491,708

 

11,140,500

 

16,286,114

 

12,770,461

                   

8 - DISTRIBUTION OF VALUE ADDED

   

14,491,708

 

11,140,500

 

16,286,114

 

12,770,461

Payroll

   

4,118,595

 

3,688,690

 

4,768,435

 

4,082,427

Salaries

   

3,170,044

 

2,850,479

 

3,722,771

 

3,188,374

Benefits

   

736,662

 

649,633

 

827,380

 

700,277

Government severance indemnity fund for employees
guarantee fund for lenght of services - F.G.T.S.

   

211,889

 

188,578

 

218,284

 

193,776

Taxes, Fees and Contributions

   

2,804,209

 

3,334,767

 

3,224,153

 

3,696,140

Federal

   

1,158,722

 

1,808,228

 

1,492,256

 

2,093,344

State

   

1,613,564

 

1,498,684

 

1,689,165

 

1,565,961

Municipal

   

31,923

 

27,855

 

42,732

 

36,835

Capital Remuneration from Third Parties

   

4,640,822

 

1,981,829

 

5,345,756

 

2,856,839

Interests

   

4,429,165

 

1,787,751

 

5,049,785

 

2,609,140

Rents

   

211,657

 

194,078

 

295,971

 

247,699

Interest on Own-Capital

   

2,928,082

 

2,135,214

 

2,947,770

 

2,135,055

Interest on shareholders' equity

   

899,257

 

737,765

 

899,257

 

737,765

Dividends

   

91,443

 

86,489

 

91,443

 

86,489

Retained earnings

   

1,937,382

 

1,310,960

 

1,937,382

 

1,310,960

Non-controlling interest

   

-

 

-

 

19,688

 

(159)

 

 

See accompanying notes to the financial statements.

 

 

 

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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 


Market Value

R$47,7 billion

US$12,5 billion

Prices

BRFS3 R$54,70

BRFS US$13,91

Shares

872.473.246 common shares

62.501.001 treasury shares

Base: 12.31.2015

Webcast

Date: 02.26.2016

09:00 Portuguese

10:30 English

Telephone:

Dial–in with

connections in

Brazil: +55 11

31931001 ou +55

11 28204001

Dial-in with

connections in the

United States: +1

8887000802

www.brf-br.com/ri

IR Contacts:

Augusto Ribeiro Júnior

CFO and IRO

 

André Mota

IR Manager

 

+55 11 23225398

acoes@brf-br.com

Dear Shareholders,

Even faced with an unstable outlook and an increasingly more competitive environment for the food industry in 2015, we created solid bases which allowed our operating result to grow. Thanks to the business model, we expanded our global presence, made progress in the strategy of forming partnerships and acquisitions, we ensured the expansion of the return on investments and cash generation and finally we were innovative in adapting to the different markets where we are present.

We also brought our organizational environment closer with the consolidation of VIVA BRF, a movementthat conveys our spirit and way of doing things, giving emphasis to the Company´s main asset which is our people. We are also moving ahead in the area of social and environmental controls for the operation by adhering to good international practices in terms of animal welfare and systemized our Suppliers Chain Monitoring Program.

We invested over R$ 2 billion in ensuring the execution of productive and energy, automation and support efficiency projects. Our efforts were fundamental in leading the main credit risk agencies to maintain our corporate rating. This development highlights the Company´s economic strength.

We maintained our sales volume in Brazil and outperformed expectations on the international markets, confirming the competitive advantage of our business model. Against this backdrop, we continue to think in the long term, investing in innovation and improving the level of service. We also launched new products and renewed our portfolio.

The return of the Perdigão brand in the important Ham and Smoked Sausages categories set a new stage for the Brazilian retail market and was a dream come true for the Company. Perdigão is a democratic brand and a leader in the categories of productsthat are more accessible in terms of price. As a result, faced with the current economic situation, the brand showed itself to be a “smart choice”, offering quality items with a tradition of more than 80 years at an accessible price.

The consolidation of Sadia as a truly global brand also brought positive results for the Company. Our sales in the Middle East, for example, were above expectations and we brought forward a project to expand productive capacity at the plant in Abu Dhabi, in the United Arab Emirates, from 70,000 to 100,000 tons/year. Besides serving the growing local demand, the initiative includes potential new clients in North Africa, Sub-Saharan Africa and Asia.

 

 

 

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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

We also announced a series of acquisitions as part of our strategy of having strong brands, local flexibility and leadership in the sales channels. In Argentina, we acquired highly regarded sausage brands and announced the acquisition of Campo Austral, a move that heralds the entry of BRF on the Argentinean pork market. In Asia, we announced the agreement to acquire the Thai company Golden Foods Siam (GFS), the third largest exporter of chicken by-products, with access to important export markets, including the European Union, Japan and countries in Southeast Asia. In Europe, we announced the acquisition of the British food distributor Universal Meats, as a way of expanding the current portfolio of European clients in the food service segment.

 

The performance of the Company´s global business and consolidated earnings met our expectations. This was due mainly to the considerable improvement in the return on the international market and the decentralization of the management, with the creation of an organizational structure that includes five regions: Brazil, Latin America, Europe/Eurasia, Asia and the Middle East/Africa.

 

As was the case in 2015, when we transformed our challenges into opportunities, we will continue to strive in 2016 to make BRF a more profitable company, that is admired, with strong brands and a presence in the most diversified regions of the globe.

 

Abilio Diniz                                                                                     Pedro Faria

Chairman of the Board of Directors                                            Global CEO

 

 

 

 

 

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BRF S.A.

Management Report on the Results in the Fourth Quarter and for the Year 2015

Financial Highlights

·      Net operating revenues in 4Q15 came to R$9.0 billion (+11.3% y/y). The NOR in the year was 11.0% higher, amounting to R$32.2 billion.

·      EBITDA was R$1,885 million in 4Q15 (+7.0% y/y), with a margin of 21.0%. The accumulated EBITDA in 2015 came to R$5,738 million (+21.9% y/y), with a margin of 17.8%.

·      Net income amounted to R$1,415 million (+42.8% y/y) in 4Q15, with a margin of 15.8% (+3.5 p.p. y/y) and R$3,118 million (+46.0% y/y) in 2015 as a whole, with a margin of 9,7%..

·      The financial cycle showed a new decline to 34 days in 4Q15 from 37 days in 4Q14.

·      Investments in 4Q15 came to R$714 million and to R$2,084 million for 2015 as a whole.

·      The ROIC (Return on Invested Capital) was 13.2% in 2015 compared with 11.7% in 2014.

·      The Free Cash Flow (FCF) in 4Q15 was R$1,214 million, bringing an accumulated total of R$3,422 million in 2015.

 

Main Financial Indicators

 

Results - R$ Million

4Q15

4Q14

%

2015

2014

%

Net Revenues

8,955

8,047

11.3%

32,197

29,007

11.0%

Gross Profit

2,799

2,687

4.2%

10,089

8,509

18.6%

Gross Margin (%)

31.3%

33.4%

(2.1) p.p.

31.3%

29.3%

2.0 p.p.

EBIT

1,560

1,406

10.9%

4,228

3,478

21.6%

EBIT Margin (%)

17.4%

17.5%

(0.1) p.p.

13.1%

12.0%

1.1 p.p.

EBITDA

1,885

1,762

7.0%

5,738

4,709

21.9%

EBITDA Margin (%)

21.0%

21.9%

(0.9) p.p.

17.8%

16.2%

1.6 p.p.

Net Income

1,415

991

42.8%

3,118

2,135

46.0%

Net Margin (%)

15.8%

12.3%

3.5 p.p.

9.7%

7.4%

2.3 p.p.

Earnings per share1

1.75

1.14

52.9%

3.85

2.46

56.4%

1 Consolidated Earnings per Share (in R$), excluding Treasury Shares.

The EBITDA in 2015 includes R$213 million from the operating gain in the sale of the dairy operations which, in turn, had a positive impact on the Net Income in 2015 of R$190 million.

 

 

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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

Results of 4th Quarter 2015 (4Q15)

 

Strategic Highlights

 

 

·         In 4Q15, we announced three acquisitions (Global Food Siam, Universal Meats and Campo Austral), totaling around US$500 million, continuing with our strategy of globalizing our operations, taking into consideration the whole supply chain  and bringing us increasingly closer to the final consumer.

 

·         In November 2015, the Company announced the expansion of production at the plant in Abu Dhabi (United Arab Emirates) from 70,000 tons/year to 100,000 tons/year. The original idea had been to conclude the expansion in 2020 but the increase was brought forward due to the success of the plant operation, aimed at serving the market demands in a more flexible and tailor-made way. 

·         In line with the Company´s strategy of expanding to new markets, we prepared four plants to export to Malaysia, where the Halal certification body is regarded as the strictest in the world, and five plants to export to Mexico, where we should begin to export in 2016.

·         Due to a strategic decision, BRF decided to no longer nominate members to the Board of Directors of Minerva. Based on this decision, and taking into consideration the small influence of the business, we reclassified the position in accounting terms to a “financial asset available for sale”, thereby creating a revenue of R$126 million in the Other Operating Results line.

 

Subsequent events

 

·         The Company also concluded the acquisition of Golden Foods Siam (GFS), on 01.26.2016, for approximately US$360 million. GFS is one of the leaders on the poultry production market in Thailand and has an integrated operation and presence in more than 15 global markets.

·         At the beginning of February 2016, the Company announced the conclusion of the acquisition for approximately £34 million of Universal Meats – a food distributor in the UK which focuses on the food services segment.

·         On 01.06.2016, BRF concluded the acquisition of part of the frozen food distribution business of Qatar National Import and Export Co., a company that has operated as a distributor for BRF in the state of Qatar for more than 40 years. The amount of the transaction was approximately US$140 million.

·         On 02.05.2016, BRF announced the conclusion ofthe qualificationprocess of three of its plants to export to China. The units in Toledo (Paraná) and Marau (Rio Grande do Sul) are ready to export fresh chicken while the plant in Campos Novos (Santa Catarina) can export pork.

·         On 01.11.2016, as part of the Company´s strategy of maximizing the allocation of capital, it announced the ending of the Share Buyback Program that was initiated on 10.29.2015 and expanded on 11.9.2015. Twenty-three million common shares, the total amount of the program, were acquired for an average price of R$57.04.

 

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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

 

Consolidated Result 4Q15

 

Net Operating Revenues (NOR)

 

NOR - R$ Million

4Q15

4Q14

%

2015

2014

%

Brazil

4,344

4,381

(0.8%)

16,038

15,424

4.0%

Europe

1,048

841

24.6%

3,640

3,093

17.7%

MEA

1,965

1,561

25.9%

7,097

5,710

24.3%

Asia

882

819

7.7%

3,290

3,073

7.1%

LATAM

717

445

61.1%

2,132

1,707

24.9%

Total

8,955

8,047

11.3%

32,197

29,007

11.0%

 

 

 

 

In 4Q15, the company reported growth in all its regions, bringing NOR of R$9.0 billion (+11.3% y/y). The regions that stood out were the MEA, LATAM and EUROPE. This growth was driven by the improvement in the sales mix and the strong increase in average prices in Reais, offsetting the lower volumes.

 

Gross Income

 

Gross Profit - R$ Million

4Q15

4Q14

%

2015

2014

%

Gross Profit

2,799

2,687

4.2%

10,089

8,509

18.6%

Gross Margin (%)

31.3%

33.4%

(2.1) p.p.

31.3%

29.3%

2.0 p.p.

 

The Company reported consolidated gross income in 4Q15 of R$2,799 billion (+4.2% y/y) but with a decline in the gross margin of 2.1p.p., reflecting an increase in the cost of production higher than the increase in the sales price. The main negative impacts on the margin were the currency variation in the price of grains, packaging and other imported input.

 

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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

Grains, which are the Company´s main cost components, rose in terms of Reais on an annual comparison by 26.0% for corn, 23.1% for soybeans and 28.4% for soy bran. For their part, packaging and other imported input costs, rose by 30% in the same period. As a result, the COGS as a percentage of the NOR came to 68.7% in 4Q15, compared to 66.6% in the 4Q14.

 

Operating Expenses

 

Operating Expenses - R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

Selling Expenses

(1,331)

(1,164)

14.3%

(4,806)

(4,217)

14.0%

% of the NOR

(14.9%)

(14.5%)

(0.2) p.p.

(14.9%)

(14.5%)

(0.4) p.p.

General and Administrative Expenses

(140)

(110)

27.3%

(506)

(402)

25.9%

% of the NOR

(1.6%)

(1.4%)

(0.2) p.p.

(1.6%)

(1.4%)

(0.2) p.p.

Operating Expenses

(1,471)

(1,274)

15.4%

(5,312)

(4,619)

15.0%

% of the NOR

(16.4%)

(15.8%)

(0.6) p.p.

(16.5%)

(15.9%)

(0.6) p.p.

 

 

The impacts on the operating expenses came mainly from the international regions, highlighted by: (i) investments in marketing and trade marketing in the MEA and LATAM regions (in line with the Company´s strategy of strengthening the presence of its brands in these markets); (ii) expenditure on freight, mainly in the MEA region (bearing in mind the increase in the Company´s own distribution in the region); and (iii) personnel expenses, due to the impact of the currency variation and integration of the acquisitions we carried out.

 

Other Operating Results

 

 

Other Operating Results - R$ Million

4Q15

4Q14

y/y

2015

2014

∆%

Other Operating Revenues

331

266

24.3%

567

482

17.5%

Other Operating Expenses

(105)

(266)

(60.7%)

(1,011)

(920)

9.9%

Other Operating Results

226

(0)

-

(445)

(438)

1.5%

% of the NOR

2.5%

(0.0%)

2.5 p.p.

(1.4%)

(1.5%)

0.1 p.p.

 

 

Non-Recurring

4T15

4T14

∆%

2015

2014

∆%

Net Income - Minerva

126

179

(29.9%)

126

179

(29.9%)

Recovery of Expenses

149

48

208.9%

241

64

278.1%

Restructuring Charges

(12)

(35)

(66.6%)

(93)

(215)

(56.7%)

Others non-Recurring

46

29

58.3%

(193)

117

-

Total

309

221

39.6%

81

145

(44.2%)

 

 

In 4Q15, the Company presented a positive result of R$226 million in the Other Operating Results line, impacted mainly by non-recurring revenues in the period.

 

The two main highlights of these revenues were: (i) the accounting reclassification of Minerva, which was classified from 4Q15 as a financial asset available for sale (so it was no longer accounted as equity income), due to the strategic repositioning for the company; and (ii) “recovery of expenses”, highlighting the recovery related to a legal case on compulsory loans to Eletrobrás and the recovery of PIS/COFINS tax credits on raw materials. 

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Operating Result (EBIT)

 

EBIT - R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

Gross Profit

2,799

2,687

4.2%

10,089

8,509

18.6%

Operating Expenses

(1,471)

(1,274)

15.4%

(5,312)

(4,619)

15.0%

Other Operating Results

226

(0)

-

(445)

(438)

1.5%

Equity Income

6

(7)

-

(104)

26

-

EBIT

1,560

1,406

10.9%

4,228

3,478

21.6%

EBIT Margin (%)

17.4%

17.5%

(0.1) p.p.

13.1%

12.0%

1.1 p.p.

 

 

 

 

 

Consolidated EBIT was R$1,560 million in 4Q15 (+10.9% y/y), with a margin of 17.4% (-0.1 p.p. y/y). The accumulated EBIT margin for the year expanded by 1.1 p.p. over 2014 to a total of R$4,228 million (+21.6%).

 

Financial Result

 

R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

Financial Income

124

377

(67.2%)

3,355

1,581

112.3%

Financial Expenses

(505)

(578)

(12.6%)

(5,025)

(2,571)

95.4%

Net Financial Result

(381)

(201)

90.0%

(1,670)

(991)

68.6%

 

 

The Company presented a Net Financial Result in 4Q15 that was negative in the amount of R$381 million which compared with a negative result of R$201 million in 4Q14, impacted mainly by the rise in interest rates on the debt denominated in foreign currency of R$110 million y/y.

 

The Company went from a currency exposure during this period with an impact on the result of US$65 million “short” in 3Q15 to US$40 million “short” in 4Q15.

 

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Net Income

 

Net Income - R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

Net Income

1,415

991

42.8%

3,118

2,135

46.0%

Net Margin (%)

15.8%

12.3%

3.5 p.p.

9.7%

7.4%

2.3 p.p.

 

The Net Income in 2015 included R$190 million referring to the operating gain from the sale of the dairy operations in the 3Q15. For more details, refer to Explanatory Note 13.3 of the Financial Statements of 12.31.2015.

 

The Company registered total net income of R$1,415 million in 4Q15 (+42.8% y/y), impacted positively by the Income Tax and Social Contribution line that came to R$255 million in positive terms compared with a tax expense of R$214 million in 4Q14.

 

As mentioned in the earnings release of the 3Q15, in the management report, BRF announced the conclusion of the sale of its dairy division to Lactalis in July 2015. The net result of that sale was R$190 million, which positively impacted the 3Q15 results, and, consequently, the full year. In 4Q15, there was not any impact related to this transaction.

 

EBITDA

 

EBITDA - R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

Net Income

1,415

991

42.8%

3,118

2,135

46.0%

Income Tax and Social Contribution

(255)

214

(219.0%)

(367)

353

(210.5%)

Net Financial

381

201

90.0%

1,670

991

68.6%

Depreciation and Amortization

344

357

(3.5%)

1,317

1,230

7.0%

EBITDA

1,885

1,762

7.0%

5,738

4,709

21.9%

EBITDA Margin (%)

21.0%

21.9%

(0.9) p.p.

17.8%

16.2%

1.5 p.p.

Considers R$213 million in the EBITDA and R$190 million in the Net Income in 2015, referring to the operating gain from the sale of the dairy operations in the 3Q15. For more details, refer to Explanatory Note 13.3 of the Financial Statements of 12.31.2015.

 

EBITDA – Quarterly Performance

(R$ Million)

 

 

 

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The Company registered EBITDA of R$1,885 million in 4Q15 (+7.0% y/y), driven mainly by the rise in the international operations. Despite this, the consolidated EBITDA margin  shrank by 0.9 p.p. y/y, due to pressure from the Brazil region.

 

As mentioned in net income, the sale of our dairy division impacted 3Q15’s EBITDA by R$213 million and, consequently, the year 2015. In 4Q15, there was not any impact related to this transaction.

 

Performance by Region

 

Brazil

 

Brazil

R$ Million

Thousand Tons

Average Price -R$

4Q15

4Q14

 ∆%

4Q15

4Q14

 ∆%

4Q15

4Q14

 ∆%

In Natura

787

831

(5.2%)

122

134

(8.8%)

6.46

6.22

3.9%

Poultry

620

603

2.8%

99

107

(7.3%)

6.25

5.64

10.9%

Pork

165

191

(13.6%)

23

24

(7.1%)

7.28

7.83

(7.0%)

Beef

2

36

(94.8%)

0

2

(97.6%)

34.14

16.10

112.0%

Others

0

1

(62.8%)

0

0

(19.9%)

19.95

42.96

(53.6%)

Processed Foods

3,326

3,346

(0.6%)

462

461

0.2%

7.20

7.26

(0.8%)

Total without Other Sales

4,113

4,177

(1.5%)

584

595

(1.8%)

7.04

7.02

0.3%

Others Sales

231

204

13.0%

52

83

(38.1%)

4.47

2.45

82.6%

Total

4,344

4,381

(0.8%)

635

678

(6.3%)

6.84

6.46

5.8%

                   

Brazil

R$ Million

Thousand Tons

Average Price -R$

2015

2014

 ∆%

2015

2014

 ∆%

2015

2014

 ∆%

In Natura

3,027

3,086

(1.9%)

499

491

1.6%

6.06

6.28

(3.5%)

Poultry

2,293

2,045

12.2%

401

364

10.2%

5.72

5.62

1.8%

Pork

697

702

(0.8%)

96

98

(1.7%)

7.23

7.16

0.9%

Beef

34

339

(90.0%)

2

29

(93.6%)

17.96

11.53

55.8%

Others

3

0

(3418.5%)

0

0

175.2%

20.06

(1.66)

(1305.8%)

Processed Foods

12,228

11,384

7.4%

1,713

1,644

4.2%

7.14

6.93

3.1%

Total without Other Sales

15,255

14,470

5.4%

2,212

2,135

3.6%

6.90

6.78

1.7%

Others Sales

783

955

(18.0%)

182

339

(46.2%)

4.29

2.82

52.4%

Total

16,038

15,424

4.0%

2,395

2,474

(3.2%)

6.70

6.23

7.4%

                   

EBIT - R$ Million

4Q15

4Q14

 ∆%

2015

2014

 ∆%

     

Brazil

702

808

(13.1%)

1,622

2,002

(19.0%)

     

EBIT Margin (%)

16.1%

18.4%

(2.3) p.p.

10.1%

13.0%

(2.9) p.p.

     

 

 

Faced with a more challenging macroeconomic situation, volumes in Brazil were 6.3% lower y/y at the end of 4Q15, mainly as a result of the performance of In Natura products (-8.8% y/y). The volume of processed products was the same as in 4Q14, (expanding by 4.2% in accumulated terms in the year) in line with the Company´s strategy of focusing on products with higher added value. It is worth mentioning that the volume from the commemorative products operation increased (+5% y/y), boosted mainly by the auto service and wholesale channels.

 

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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

However, the situation in terms of costs we saw in 2015 was caused mainly by the impact of the exchange rate and the margins continued to be squeezed in the last quarter. Moreover, the decision to postpone to 2016 the price readjustments (aimed to focus on the return of Perdigão and the commemoratives operation) ended up not helping to offset this effect. The result was a decline of 2.3 p.p. y/y in the EBIT margin.

 

 

The strategic highlights of the region were:

 

Ø  Return of Perdigão

 

With the return of Perdigão in important categories (ham and smoked sausages) in July 2015, BRF began to have a more complete portfolio of brands. The performance of these categories has been gradually improving, as we can see, for example, by the increase in the volume and number of clients in terms of ham. This shows that the cannibalization between the Sadia and Perdigão brands remains in line with expectation.

 

Ham Volume                           Client Movements per month

 

Having these two strong brands allowed us to begin a new market strategy, reinforcing the “premium positioning of the Sadia brand, and directing Perdigão towards the role of a “smart choice”, i.e. a strong brand and BRF quality standard but at a more accessible price.

 

Ø  Sales Team

 

4Q15 was an important quarter for BRF, as it marked the start of a new sales force. In October 2015, we concluded the process of merging the Sadia and Perdigão teams into a single BRF team, selling 100% of the Company´s portfolio.

 

Despite the reduction of 23% in the sales team, its productivity improved. The percentage of clients buyers of the total base increased by 4.2  p.p. from 3Q15 to 4Q15, while the average of buyer clients on a monthly basis rose from 196,000 to 197,000 in the same period.

 

 

 

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Ø  Level of service and GTM

 

The Company continued with the strategy of revising its logistical processes in 2015 in order to improve the relationship with its clients. As a result, BRF Brazil increased its level of service (measured by the OTIF – “on time in full”) by 6.5 p.p. y/y in 2015.

 

BRF also continued to make advances in the GTM project (Go To Market) aimed at enhancing the return of the operation. In 2016, GTM 2.0 will focus on: (i) improving the level of service, by changing the client segmentation, with regular visits and the right delivery; and (ii) reducing costs by optimizing the logistics network. The four pilot projects carried out in 4Q15 have already brought good results and increased the return over the average of the comparative bases.

 

Ø  Market Share

 

In order to give greater visibility and direction to the more important categories in the BRF Brazil business, we decided to: (i) separate the Specialty Meat category into Cold cuts and Filled products; and (ii) consider only the Ready Made Dishes category within the Frozen products.

 

 

 

Source: Nielsen Bimonthly Retail – Margarines and Ready Made dishes (Oct/Nov survey); Filled and Chilled (Nov/Dec survey)

 

 

 

 

 

 

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Sales by Channel – Brazil

(% of the Net Operating Revenues - NOR)

 

 

Wholesale

Distributors, wholesalers and small business representatives belonging to board route retail customers.

Supermarket

Accounts of large customers (key accounts) with national coverage from 1 to 50
checkouts, including the wholesaler branches known as "atacarejos".

Food Services

Clients of the Food Services channel, such as restaurants, hotels, pizzerias, industrial
kitchens, Government Agency, etc..

Retail

Smaller clients in the retail industry, such as supermarkets, butchers, grocery, bakery,
etc..

 

 

 

Middle East/Africa (MEA)

 

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MEA

R$ Million

Thousand Tons

Average Price -R$

4Q15

4Q14

 ∆%

4Q15

4Q14

 ∆%

4Q15

4Q14

 ∆%

In Natura

1,762

1,411

24.8%

253

268

(5.6%)

6.96

5.26

32.2%

Poultry

1,717

1,357

26.5%

246

259

(4.9%)

6.97

5.24

33.0%

Pork

34

45

(25.9%)

6

8

(27.5%)

5.48

5.37

2.2%

Beef

0

6

(98.2%)

0

1

(95.5%)

4.07

10.43

(60.9%)

Others

11

3

350.6%

1

0

334.4%

14.76

14.23

3.7%

Processed Foods

203

149

35.6%

28

30

(6.0%)

7.20

4.99

44.3%

Total

1,965

1,561

25.9%

281

298

(5.6%)

6.98

5.23

33.3%

                   

MEA

R$ Million

Thousand Tons

Average Price -R$

2015

2014

 ∆%

2015

2014

 ∆%

2015

2014

 ∆%

In Natura

6,515

5,163

26.2%

988

1,019

(3.1%)

6.59

5.06

30.2%

Poultry

6,365

4,910

29.6%

964

979

(1.5%)

6.60

5.02

31.6%

Pork

115

160

(28.1%)

22

32

(32.3%)

5.31

5.00

6.2%

Beef

2

73

(97.0%)

0

7

(96.0%)

7.56

10.13

(25.4%)

Others

33

21

58.9%

2

1

48.5%

15.48

14.47

7.0%

Processed Foods

582

547

6.5%

91

111

(17.8%)

6.37

4.91

29.7%

Total

7,097

5,710

24.3%

1,080

1,131

(4.5%)

6.57

5.05

30.2%

                   

EBIT - R$ Million

4Q15

4Q14

 ∆%

2015

2014

 ∆%

     

MEA

413

182

126.3%

1,214

315

285.9%

     

EBIT Margin (%)

21.0%

11.7%

9.3 p.p.

17.1%

5.5%

11.6 p.p.

     

 

 

 

The NOR in the MEA region came to R$1,965 million in 4Q15 (+25.9% y/y), driven by the improvement in the sales mix the expansion of 33.3% in average prices in Reais. The progress BRF made in its direct distribution in the Gulf region, along with the local production in the Gulf region, has been helping the Company to gain a bigger portion of the profitability in the chain and to reduce the volatility of prices in the region.

 

The total volume in the quarter shrank by 5.6% y/y, led by Africa (which is facing an adverse macroeconomic situation and shortage of dollars). Despite this, it is worth noting that the volumes of processed products in the Middle East rose sharply (+30.5% y/y), in line with the Company´s strategy.

 

The initiatives to enhance the profitability in the region, such as advances in the value chain, (acquiring distributors) and improving the mix of products, brought a hefty rise of 126.3% y/y in the EBIT in 4Q15 to R$413 million (with a margin of 21.0%).

 

 

Asia

 

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Asia

R$ Million

Thousand Tons

Average Price -R$

4Q15

4Q14

 ∆%

4Q15

4Q14

 ∆%

4Q15

4Q14

 ∆%

In Natura

855

799

7.0%

115

124

(7.3%)

7.43

6.44

15.4%

Poultry

719

708

1.5%

101

113

(10.8%)

7.15

6.28

13.8%

Pork

127

89

42.7%

14

11

23.9%

9.22

8.00

15.2%

Beef

9

2

474.1%

1

0

450.2%

14.48

13.88

4.3%

Processed Foods

27

20

33.0%

3

3

12.4%

8.82

7.45

18.3%

Total

882

819

7.7%

118

127

(6.8%)

7.47

6.46

15.6%

                   

Asia

R$ Million

Thousand Tons

Average Price -R$

2015

2014

 ∆%

2015

2014

 ∆%

2015

2014

 ∆%

In Natura

3,208

3,002

6.9%

454

496

(8.5%)

7.07

6.06

16.8%

Poultry

2,834

2,613

8.5%

411

444

(7.4%)

6.90

5.89

17.1%

Pork

350

354

(1.2%)

41

48

(15.3%)

8.53

7.31

16.7%

Beef

24

34

(29.8%)

2

4

(48.0%)

12.63

9.36

35.0%

Processed Foods

82

71

14.4%

10

10

(1.9%)

8.31

7.13

16.6%

Total

3,290

3,073

7.1%

464

506

(8.3%)

7.10

6.08

16.8%

                   

EBIT - R$ Million

4Q15

4Q14

 ∆%

2015

2014

 ∆%

     

Asia

170

213

(20.0%)

703

547

28.7%

     

EBIT Margin (%)

19.3%

26.0%

(6.7) p.p.

21.4%

17.8%

3.6 p.p.

     

 

 

The NOR in Asia came to R$882 million in 4Q15 (+7.7% y/y) and was impacted positively by the higher average prices in Reais which offset the fall of 6.8% in volumes. The impacts of the volumes came mainly from the higher inventories in Japan (main market in the region) and one-off issues linked to exports to the region. However, the higher average prices in Reais did not offset the rise in costs in the region which reduced the EBIT margin by 6.7p.p. y/y.

 

The Company continued to carry out investments in order to strengthen its presence in the region, by entering new countries and making advances in the value chain. The Company acquired GFS – the third largest exporter of cooked products in Thailand - in a bid to add value to the portfolio. GFS will strengthen BRF´s presence in important markets, such as Europe and Japan, and also serve as a base for a potential expansion in Southeast Asia. In line with this strategy, BRF managed to qualify four plants to export to Malaysia and three plants to export to China, which should boost volumes from 2016.

 

 

Europe/Eurasia

 

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MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

 

Europe/Eurasia

R$ Million

Thousand Tons

Average Price -R$

4Q15

4Q14

∆%

4Q15

4Q14

∆%

4Q15

4Q14

∆%

In Natura

481

404

19.0%

48

48

0.0%

10.06

8.46

18.9%

Poultry

248

151

64.4%

23

24

(5.5%)

10.88

6.26

74.0%

Pork

193

222

(13.1%)

24

23

5.2%

8.09

9.80

(17.4%)

Beef

41

32

27.4%

1

1

13.0%

33.57

29.78

12.7%

Processed Foods

567

436

29.8%

45

46

(3.7%)

12.69

9.41

34.8%

Total

1,048

841

24.6%

92

94

(1.8%)

11.33

8.93

26.9%

                   

 

 

 

 

 

 

 

 

 

 

Europa/Eurasia

R$ Million

Thousand Tons

Average Price -R$

2015

2014

∆%

2015

2014

∆%

2015

2014

∆%

In Natura

1,705

1,379

23.6%

178

160

11.5%

9.59

8.64

10.9%

Poultry

855

484

76.7%

95

81

16.8%

9.04

5.98

51.3%

Pork

703

729

(3.6%)

78

72

9.1%

8.99

10.16

(11.6%)

Beef

147

166

(11.5%)

5

7

(26.2%)

28.94

24.15

19.8%

Processed Foods

1,934

1,713

12.9%

175

189

(7.2%)

11.03

9.06

21.7%

Total

3,640

3,093

17.7%

353

349

1.3%

10.30

8.87

16.1%

                   

EBIT - R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

     

Europe

203

182

11.0%

572

553

3.5%

     

EBIT Margin (%)

19.3%

21.7%

(2.4) p.p.

15.7%

17.9%

(2.1) p.p.

     

 

 

The NOR in the region came to R$1,048 million (+24.6% y/y) in 4Q15. The main highlight in the period was the Europe sub-region, where the consolidation of Invicta (distributor of processed foods), plus a better mix of products/channels and the currency depreciation, led to an increase of 43.2% in average prices in Reais. 

 

On the other hand, Russia (the main Eurasian market) limited the growth of the NOR due to: (i) the worsening in the country´s macroeconomic outlook; (ii) the excess volumes; and (iii) the strong comparison price base with 4Q14 (due to the embargo on American and European imports).

 

Despite the growth of 11.0% y/y in the region´s EBIT (R$203 million) in 4Q15, the EBIT margin of 19.3% was 2.4 p.p. lower y/y, due mainly to a greater pressure of costs and the lower prices in Russia as already mentioned.

 

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Latin America (LATAM)

 

LATAM

R$ Million

Thousand Tons

Average Price -R$

4Q15

4Q14

∆%

4Q15

4Q14

∆%

4Q15

4Q14

∆%

In Natura

273

197

38.3%

28

28

1.2%

9.71

7.10

36.7%

Poultry

186

97

91.8%

22

17

26.8%

8.42

5.56

51.4%

Pork

12

9

33.0%

1

2

(5.6%)

7.90

5.61

40.8%

Beef

62

84

(25.4%)

3

7

(57.9%)

19.91

11.23

77.3%

Others

12

8

61.1%

1

1

4.7%

9.11

5.92

53.9%

Processed Foods

432

233

85.1%

37

31

21.7%

11.56

7.60

52.1%

Other Sales

13

15

(14.9%)

0

0

-

-

-

-

Total

717

445

61.1%

65

58

11.9%

10.96

7.61

43.9%

                   

LATAM

R$ Million

Thousand Tons

Average Price -R$

2015

2014

∆%

2015

2014

∆%

2015

2014

∆%

In Natura

797

851

(6.3%)

98

147

(33.3%)

8.15

5.80

40.5%

Poultry

502

537

(6.6%)

73

110

(33.1%)

6.84

4.90

39.6%

Pork

36

32

12.1%

5

6

(14.6%)

7.07

5.39

31.2%

Beef

217

255

(14.8%)

14

26

(46.2%)

15.36

9.71

58.3%

Others

42

27

56.4%

5

5

9.1%

8.12

5.66

43.4%

Processed Foods

1,284

806

59.3%

126

119

5.7%

10.18

6.76

50.7%

Other Sales

51

50

2.4%

0

0

-

-

-

-

Total

2,132

1,707

24.9%

224

266

(15.8%)

9.52

6.42

48.3%

                   

EBIT - R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

     

LATAM

73

21

247.7%

116

63

86.2%

     

EBIT Margin (%)

10.2%

4.7%

5.5 p.p.

5.5%

3.7%

1.8 p.p.

     

 

                                                                   

The NOR in the LATAM region came to R$717 million (+61.1% y/y) in the 4Q15. This growth was due to: (i) higher average prices in Reais (+43.9% y/y), influenced by the better mix of products in Argentina (with higher processed products); and (ii) the increase in volumes (+11.9% y/y), due to the entry into new markets and growth in the existence markets, particularly in the Caribbean, which more than offset the exit from Venezuela. (If we exclude Venezuela in the 4Q14, the volume growth would have amounted to 17.5%.) For 2016, we will still have an increase in volume coming from the five plants that will be able to export to Mexico.

 

The Company´s strategy of focusing on the final consumer in the Southern Cone has been bringing positive results. The bigger investments in marketing (relaunching the Paty brand, for example), the launch of new products, optimizing the portfolio and improving the execution at the sales points, translated into a record EBIT of R$73 million (+247.7% y/y) and an expansion of 5.5p.p. in the margin in 4Q15.

 

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Debt

 

R$ Million

12.31.2015

12.31.2014

∆ %

Current

Non-Current

Total

Total

Debt

 

 

 

 

 

Local Currency

(1,462)

(2,358)

(3,820)

(3,993)

(4.3%)

Foreign Currency

(1,833)

(10,194)

(12,026)

(7,854)

53.1%

Gross Debt

(3,295)

(12,551)

(15,846)

(11,847)

33.8%

Cash Investments

 

 

 

 

 

Local Currency

775

936

1,711

2,220

(23.0%)

Foreign Currency

6,799

0

6,799

4,594

48.0%

Total Cash Investments

7,573

936

8,509

6,815

24.9%

Net Debt

4,278

(11,615)

(7,337)

(5,032)

45.8%

Exchange Rate Exposure - US$ Million

-

-

(117)

567

(120.7%)

The Total Gross Debt of R$15,846 million, as shown above, accounts the total financial debt, plus the other financial liabilities amounting to R$667 million, as stated in Explanatory Note 20 of the Financial Statements of 12.31.2015.

 

 

Development of Net Debt/EBITDA

 

 


The EBITDA of 3Q15 includes R$213 million referring to the operating gain from the sale of dairy division.

 

The Company´s net debt came to R$7.3 billion in 4Q15, 5.6% above 09.30.15, bringing a net debt/EBITDA ratio (last twelve months) of 1.28x, slightly above the 3Q15 figure, impacted by the share buyback.

 

 

 

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Investments (CAPEX)

Investments of R$714 million were made in the quarter, of which R$538 million was directed at growth, efficiency and support and R$175 million at biological assets. We would also highlight R$177 million for other investments (including the acquisition of the Molinos brands in Argentina for US$43.5 million) and business leasing.

 

Among the main projects in the quarter were:

 

·         Footprint: besides optimizing our productive and distribution  network to reduce our cost of serving customers, the Footprint project investments are taking on an increasingly more global aspect. Part of our Footprint investment in 4Q15 was related to the expansion and optimization of our chicken plant in Argentina, diversifying our risk matrix and access to markets.

 

·         Automation: the focus on Automation continued in 4Q15 and was not just aimed at the financial return but also at reducing the turnover of the plants and dealing with possible ergonomics problems affecting employees.

 

Investments for the year (excluding acquisitions, business leasingand others) came to R$2,084 million (+42.2% y/y).

 

The Company will continue to focus on the Footprint and Automation projects in 2016. Furthermore, we will be directing more investments at innovation as well as maintenance and improving the quality of our products/processes.

 

 

Financial Cycle

 

Financial Cycle

(Accounts Receivable + Stocks – Accounts Payable)/NOR

 

The Company was seen in a new reduction in 4Q15 to 34.3 days against 36.9 in 4Q14. This is due mainly to the

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continuous monitoring of our accounts payable cycle, the result of projects implemented in 2014 and 2015, which more than offset the increase in inventories in transit due to the acquisition of distributors in the Middle East.

 

Free Cash Flow

 

 

The EBITDA of 3Q15 includes R$213 million referring to the operating gain from the sale of dairy division.

 

The free cash flow came to R$3.4 billion in accumulated terms over the last 12 months, 17,5% lower than the previous period. The better operating performance registered in the period was offset by higher investments and a growth in the operation that required working capital.

 

 

 

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Diffuse Control

Base: 12.31.2015

Number of shares: 872,473,246 (common shares)

Capital Stock: R$12.5 billion

 

Slaughtering and Production

 

Production

4Q15

4Q14

%

2015

2014

%

Poultry Slaughter (Million Heads)

448

423

5.9%

1,724

1,664

3.7%

Hog Slaughter (Thousand Heads)

2,407

2,364

1.8%

9,367

9,293

0.8%

Cattle Slaughter (Thousand Heads)

31

39

(21.4%)

144

328

(56.2%)

Production (Thousand Tons)

1,099

1,099

0.0%

4,358

4,307

1.2%

Meats

967

978

(1.1%)

3,864

3,825

1.0%

Other Processed Products

132

121

9.4%

494

482

2.6%

Feed and Premix (Thousand Tons)

2,589

2,619

(1.1%)

10,437

10,360

0.7%

 

 

Social Balance and Appreciation of Human Capital

 

BRF is continuing to capture synergies and operating efficiencies. The Company operates with a strategic geographical positioning and has 35 plants in Brazil, 6 industrial units in Argentina, 2 in Europe (England and Holland) and 1 in the United Arab Emirates (Abu Dhabi), 20 distribution centers in Brazil and 20 abroad, 23 offices on the international market along with Transit Shift Points (TSPs), poultry farms and sales associates. The Company currently has a workforce of over 96,000 employees throughout the world who are focused on continuously improving the quality indicators, the level of service and carrying out their work.

 

The strengthening of the VIVA BRF culture remained a priority throughout the whole of 2015. A new engagement survey was held in 4Q15 which showed that employees were increasingly identifying themselves with the attributes of the BRF culture as well as an awareness by the managers of their importance in campaigning for these attributes. The results of the survey highlight how VIVA BRF is becoming more mature, a development we believe is intrinsically linked to the employees´ performance and commitment to the Company. 

 

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Health, Safety and Environmental Management

 

The Health, Safety and Environmental Management supervision (HSE) continues to focus on reducing accidents at work and has been consolidating its performance every year. In 4Q15, there was an accident with lost time frequency rate of 1.54, an improvement over the rate of 1.62 registered in 3Q15. This compared with1.69 in 2014 and we registered a reduction of 9% for 2015. Meanwhile, the severity rate of accidents with lost time showed a reduction of 41% in 2015 over 2014.

 

Stock Options Plan

 

The Company currently has 17.360.870 stock options granted to 180 executives, with a maximum exercise period of five years, as established in the Regulations of the Remuneration Plan based on shares approved on 03.31.10 and amended on 04.24.2012, 04.09.2013, 04.03.2014 and 04.08.2015 at the Annual Ordinary and Extraordinary Shareholders´ Meetings. These apply to the CEO, vice-presidents and other BRF executives.

 

Relationship with the independent auditors

 

The Company announces that, under the Brazilian Securities and Exchange Commission (CVM) Instruction Nº 381 of January 14, 2003, its policy of contracting services not related to the external audit is based on principles that preserve the independence of the auditor.

 

Within the terms of the CVM Instruction 381/03, we announce that during the period of twelve months ending on December 31, 2015, Ernst & Young Auditores Independentes S.S. was hired to undertake services not related to the external audit (net assets evaluation report and comfort letter for the issue of Senior Notes, assistance in the development of the supply and support area for validation of the Company’s information in administrative proceedings). This project represented approximately 53% of the value of the consolidated fees related to the external auditor for BRF and its subsidiaries. Ernst & Young Auditores Independentes S.S. informed us that the provision of these services did not affect its independence and objectivity, under the description and scope of the procedures executed.

 

The management declares, within the terms of the CVM Instruction 480/09, that it discussed, reviewed and agreed with the information expressed in the audit report of the independent auditors´ report on the financial statements related to 12.31.2015, at a meeting held on 02.25.2016.

 

Disclaimer

 

The statements in this report related to the Company's business perspective, projections and results, and its growth potential are mere forecasts and have been based on the management's expectations of the Company's future. These expectations are highly dependent on market changes and the overall economic performance of the country, the sector and international markets; they are, therefore, subject to changes.

 

 



 

32

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

 

Financial Statement - R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

 

 

 

 

 

 

 

Net Operating Revenues

8,955

8,047

11.3%

32,197

29,007

11.0%

 

 

 

 

 

 

 

Cost of Sales

(6,155)

(5,359)

14.9%

(22,108)

(20,497)

7.9%

% of the NOR

(68.7%)

(66.6%)

(2.1) p.p.

(68.7%)

(70.7%)

2.0 p.p.

 

 

 

 

 

 

 

Gross Profit

2,799

2,687

4.2%

10,089

8,509

18.6%

% of the NOR

31.3%

33.4%

(2.1) p.p.

31.3%

29.3%

2.0 p.p.

 

 

 

 

 

 

 

Operating Expenses

(1,471)

(1,274)

15.4%

(5,312)

(4,619)

15.0%

% of the NOR

(16.4%)

(15.8%)

(0.6) p.p.

(16.5%)

(15.9%)

(0.6) p.p.

Selling Expenses

(1,331)

(1,164)

14.3%

(4,806)

(4,217)

14.0%

% of the NOR

(14.9%)

(14.5%)

(0.4) p.p.

(14.9%)

(14.5%)

(0.4) p.p.

Fixed

(852)

(699)

21.9%

(3,111)

(2,564)

21.3%

Variable

(478)

(465)

2.8%

(1,695)

(1,652)

2.6%

General and Administrative Expenses

(140)

(110)

27.3%

(506)

(402)

25.9%

% of the NOR

(1.6%)

(1.4%)

(0.2) p.p.

(1.6%)

(1.4%)

(0.2) p.p.

Honorary of our Administrators

(7)

(7)

1.3%

(26)

(26)

0.2%

% of the NOR

(0.1%)

(0.1%)

0.0 p.p.

(0.1%)

(0.1%)

0.0 p.p.

General and Administrative

(133)

(103)

29.0%

(480)

(376)

27.7%

% of the NOR

(1.5%)

(1.3%)

(0.2) p.p.

(1.5%)

(1.3%)

(0.2) p.p.

 

 

 

 

 

 

 

Operating Income

1,329

1,413

(6.0%)

4,777

3,891

22.8%

% of the NOR

14.8%

17.6%

(2.7) p.p.

14.8%

13.4%

1.4 p.p.

 

 

 

 

 

 

 

Other Operating Results

226

0

-

(445)

(438)

1.5%

 

 

 

 

 

 

 

Equity Income

6

(7)

-

(104)

26

-

 

 

 

 

 

 

 

EBIT

1,560

1,406

10.9%

4,228

3,478

21.6%

% of the NOR

17.4%

17.5%

(0.1) p.p.

13.1%

12.0%

1.1 p.p.

 

 

 

 

 

 

 

Net Financial Income

(381)

(201)

90.0%

(1,670)

(991)

68.6%

 

 

 

 

 

 

 

Income before Taxes

1,179

1,206

(2.2%)

2,558

2,488

2.8%

% of the NOR

13.2%

15.0%

(1.8) p.p.

7.9%

8.6%

(0.6) p.p.

Income Tax and Social Contribution

255

(214)

(219.0%)

390

(353)

-

% of Income before Taxes

21.6%

(17.8%)

39.4 p.p.

15.2%

(14.2%)

29.4 p.p.

 

 

 

 

 

 

 

Net Income

1,415

991

42.8%

3,118

2,135

46.0%

% of the NOR

15.8%

12.3%

3.5 p.p.

9.7%

7.4%

2.3 p.p.

 

 

 

 

 

 

 

EBITDA

1,885

1,762

7.0%

5,738

4,709

21.9%

% of the NOR

21.0%

21.9%

(0.9) p.p.

17.8%

16.2%

1.6 p.p.

Considers R$213 million in the EBITDA and R$190 million in the Net Income in 2015, referring to the operating gain from the sale of the dairy operations.

 

 

 

33

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

 

Cash Flow - R$ Million

4Q15

4Q14

∆%

2015

2014

∆%

Operating Activities

 

 

 

 

 

 

  Result for the Fiscal Year

1,415

991

42.8%

2,928

2,135

37.1%

  Adjustments to the Result

        (10)

792

(101.3%)

3,424

2,314

48.0%

 

 

 

 

 

 

 

  Changes in Assets and Liabilities

 

 

 

 

 

 

Accounts Receivable from Clients

      (490)

      (155)

216.3%

    (1,112)

        459

(342.3%)

Inventory

129

577

(77.7%)

    (1,066)

        369

(388.8%)

Biological Assets

        (59)

         (9)

525.3%

       (199)

         75

(364.8%)

Interest on Shareholders' Equity Received

1

9

(88.5%)

          16

         55

(70.9%)

Suppliers

      (157)

      (140)

12.1%

        882

        203

334.7%

Suppliers Chain Risk

303

         -  

-

        719

          -  

-

Payment of Contingencies

        (53)

       (36)

46.3%

       (194)

      (259)

(25.1%)

Interest Payments

      (249)

      (217)

14.8%

       (694)

      (619)

12.1%

Payment of Income Tax and Social Contribution

         (1)

         (1)

(34.3%)

          (7)

          (6)

24.7%

Salaries, Social Obligations and Others

      (485)

      (212)

128.7%

       (563)

        115

(589.5%)

Net Cash provided by the Continued Operating Activities

345

1,599

(78.4%)

4,134

4,842

(14.6%)

Cash and Cash Equivalents by Discontinued Operating Activities

         -  

48

-

            2

        160

(98.5%)

Net Cash provided by Operating Activities

345

1,647

(79.0%)

4,137

5,002

(17.3%)

 

 

 

 

 

 

 

Investment Activities

 

 

 

 

 

 

Financial Investments

         -  

       (23)

(100.0%)

          71

          (0)

 -

Investment in Restricted Cash

   (1,367)

         (5)

282

    (1,711)

        (16)

 -

Goodwill on Acquisition of Non-Controlling Shareholders

         -  

         -  

-

          -  

          (1)

 -

Acquisition of Companies

        (17)

      (314)

(94.7%)

         (91)

      (373)

(75.6%)

Acquisition of Interests in Joint Venture

         (0)

       (45)

(99.0%)

         (62)

        (54)

15.1%

  Acquisition of Fixed Assets/Investments

      (234)

      (224)

4.4%

    (1,297)

    (1,021)

27.0%

  Acquisition of Biological Assets

      (165)

      (136)

21.8%

       (589)

      (517)

13.9%

  Revenue from the Sale of Fixed Assets

         44

         39

12.3%

        252

        171

47.9%

  Intangible Investments

      (180)

         (7)

-

       (205)

        (50)

307.5%

Receivables in the sale of the discontinued op., net of the cash

         -  

         -  

-

      1,957

          -  

-

Net Cash provided by the Continued Investment Activities

 (1,919)

    (714)

168.9%

  (1,674)

  (1,862)

(10.1%)

Net Cash provided by the discontinued Investment Activities

         -  

       (15)

-

         (12)

        (51)

(75.9%)

Net Cash provided by Investment Activities

 (1,919)

    (729)

163.2%

  (1,686)

  (1,914)

(11.9%)

 

 

 

 

 

 

 

Financing Activities

 

 

 

 

 

 

Loans and Financing

592

297

98.9%

259

409

(36.8%)

Interest on Shareholders' Equity

         -  

         -  

-

       (889)

      (726)

22.5%

Sale of Treasury Shares

   (1,274)

      (234)

445.4%

    (3,766)

      (351)

973.0%

Disposal of Treasury Shares

         (8)

16

(146.8%)

      82.44

100

(17.4%)

Net Cash provided by Financing Activities

    (690)

        80

(960.1%)

  (4,314)

     (568)

659.3%

Cash generated (applied) in the financing of Discontinued Activities

         -  

         -  

-

          20

          -  

-

Cash generated (applied) in the financing activities

    (690)

        80

-

  (4,294)

     (568)

655.8%

Effect of Exchange Rate Variation on Cash and Cash Equivalents

      (97)

      215

(144.9%)

    1,199

       359

234.0%

Net Increase (Decrease) in Cash Held

 (2,361)

   1,214

(294.5%)

     (644)

    2,879

(122.4%)

Cash and Cash Equivalents at the Beginning of the Period

   7,724

   4,793

61.1%

6,007

3,128

92.1%

Cash and Cash Equivalents at the End of the Period

5,363

6,007

(10.7%)

5,363

6,007

(10.7%)

 

 

 

34

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

MANAGEMENT REPORT / COMMENTS ON THE PERFORMANCE

 

 

 

BRF S.A. Consolidado

       

Balance Sheet - R$ Million

12.31.15

09.30.15

12.31.14

Ativo

 

 

 

Circulante

 

 

 

Cash and Cash Equivalents

5,363

7,724

6,007

Financial Investments

735

703

587

Accounts Receivable

3,876

3,391

3,047

Recoverable Taxes

1,232

1,113

1,009

Dividends/Interest on shareholders' equity receivable

22

0

10

Securities Receivable

304

299

215

Inventories

4,033

4,201

2,941

Biological Assets

1,330

1,271

1,131

Other Financial Assets

129

71

43

Other Receivables

369

327

268

Anticipated expenses

409

235

271

Restricted Cash

1,346

-

-

Non-Current Assets held to sale and discontinued operation

32

108

1,958

Total Current Assets

19,180

19,444

17,488

 

 

 

 

Non-Current Assets

 

 

 

Long-term assets

5,095

4,352

3,789

Cash Investments

456

68

62

Accounts Receivable

4

5

8

Judicial Deposits

732

699

616

Biological Assets

761

720

683

Securities Receivable

231

203

362

Recoverable Taxes

969

848

912

Deferred Taxes

1,256

1,129

714

Restricted Cash

480

459

115

Other Receivables

207

222

317

 

 

 

 

Permanent Assets

16,113

16,193

14,826

Investments

186

457

438

Property, Plant and Equipment

10,916

10,702

10,059

Intangible

5,011

5,035

4,329

Total Non-Current Assets

21,208

20,545

18,615

       

Total Assets

40,388

39,990

36,104

 

 

 

 

Liabilities and Equity

 

 

 

Current Liabilities

     

Loans and Financing

2,628

2,154

2,739

Suppliers

4,745

5,069

3,522

Supply Chain Risk

1,175

417

455

Payroll and Mandatory Social Charges

478

614

427

Taxes Payable

353

297

300

Dividends/Interest on Shareholders’ Equity

518

2

431

Management and Staff Profit Sharing

296

239

396

Other Financial Liabilities

667

1,052

257

Provisions

231

253

243

Employee Pension Plan

67

56

56

Other Liabilities

462

479

234

Liabilities related to non-current assets held for sale and discontinued operations

-

-

508

Total Current Liabilities

11,621

10,633

9,569

       

Non-Current Liabilities

 

 

 

Loans and Financing

12,551

12,769

8,850

Suppliers

155

146

161

Taxes and Social Charges Payable

26

39

26

Provision for Tax, Civil and Labor Contingencies

974

930

943

Deferred Taxes

188

143

90

Employee Pension Plan

232

246

258

Other Liabilities

804

850

516

Total Non-Current Liabilities

14,931

15,124

10,845

       

Total Liabilities

26,552

25,757

20,414

 

 

 

 

Shareholders' Equity

 

 

 

Capital Stock

12,460

12,460

12,460

Capital Reserves

7

(79)

109

Profit Reserves

6,077

4,044

3,946

Other Related Results

(1,080)

(1,017)

(620)

Retained Profits

-

1,696

-

Interest on Shareholders’ Equity

-

(426)

-

Transfer Reserves and Tax Incentives

-

(98)

-

Treasury Shares

(3,948)

(2,675)

(305)

Non-Controling Shareholders

319

327

99

Total Shareholders' Equity

13,836

14,233

15,690

       

Total Liabilities and Shareholders' Equity

40,388

39,990

36,104

 

 

 

35

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

1.            COMPANY’S OPERATIONS

 

BRF S.A. (“BRF”) and its subsidiaries (collectively the “Company”) is one of Brazil’s largest companies in the food industry. BRF is a public company, listed on the New Market of Brazilian Securities, Commodities & Futures Exchange (“BM&FBOVESPA”), under the ticker BRFS3, and listed on the New York Stock Exchange (“NYSE”), under the ticker BRFS. It´s headquarter is located at 475, Rua Jorge Tzachel in the City of Itajaí, State of Santa Catarina. With a focus on raising, producing and slaughtering of poultry, pork for processing, production and sale of fresh meat, processed products, pasta, sauce, mayonnaise, frozen vegetables and soybean by-products, among which the following are highlighted:

 

·                Whole chickens and frozen cuts of chicken, turkey and pork;

·                Ham products, bologna, sausages, frankfurters and other smoked products;

·                Hamburgers, breaded meat products and meatballs;

·                Lasagnas, pizzas, cheese breads, pies and frozen vegetables;

·                Margarine, sauces and mayonnaise; and

·                Soy meal and refined soy flour, as well as animal feed.

 

As disclosed in the consolidated financial statement for the year ended December 31, 2014, the Company's Management decided to discontinue the sale of dairy products after analyzing an offer for acquisition made by a subsidiary of Groupe Lactalis, details of which are presented in note 13.

 

The Company's Management has also changed its management structure and thus, as of 2015, the Company’s activities become organized in 5 operating segments, being Brazil, Latin America (“LATAM”), Europe, Middle East and Africa (“MEA”) and Asia, as disclosed in note 5.

 

In Brazil, the Company operates 35 meat processing plants, 3 margarine processing plants, 3 pasta processing plants, 1 dessert processing plant and 3 soybean crushing plant, located close to the Company’s raw material suppliers or the main consumer centers.

 

The Company has 20 distribution centers to deliver its products to supermarkets, retail stores, wholesalers, restaurants and other institutional customers in Brazil and International markets.

 

In the foreign market, the Company operates 6 meat processing plants, 1 margarine and oil processing plant, 1 sauces and mayonnaise processing plant, 1 frozen vegetables processing plant, and 20 distribution centers, besides subsidiaries or sales offices in Argentina, Austria, Cayman Island, Chile, China, France, Germany, Hungary, Italy, Japan, Kuwait, Nigeria, Oman, Portugal, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, The Netherlands, United Arab Emirates, United Kingdom,

 

36

 


 

 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

Uruguay and Venezuela. The Company exports to more than 120 countries.

The table below summarizes the direct and indirect equity interests of the Company, as well as the activities of each entity:

 

 

 

 

37

 


 

 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

1.1.        Equity interest

 

 

                 

% equity interest

Entity

 

 

Main activity

 

Country

 

Participation

 

12.31.15

 

12.31.14

                       

Avipal Centro-Oeste S.A.

(a)

 

Industrialization and commercialization of milk

 

Brazil

 

Direct

 

100.00%

 

100.00%

BRF GmbH

   

Holding

 

Austria

 

Direct

 

100.00%

 

100.00%

Al Khan Foodstuff LLC

   

Import, commercialization and distribution of products

 

Oman

 

Joint venture

 

40.00%

 

40.00%

Al-Wafi Food Products Factory LLC

   

Industrialization and commercialization of products

 

United Arab Emirates

 

Indirect

 

49.00%

 

49.00%

Badi Ltd.

   

Holding

 

United Arab Emirates

 

Indirect

 

100.00%

 

100.00%

Al-Wafi Al-Takamol Imp.

   

Import and commercialization of products

 

Saudi Arabia

 

Indirect

 

75.00%

 

75.00%

BRF Al Yasra Food K.S.C.C.

   

Import and commercialization and distribution of products

 

Kuwait

 

Indirect

 

75.00%

 

75.00%

BRF Foods GmbH

   

Industralization, import and commercialization of products

 

Austria

 

Indirect

 

100.00%

 

100.00%

BRF Foods LLC

   

Import and commercialization of products

 

Russia

 

Indirect

 

90.00%

 

90.00%

BRF France SARL

(k)

 

Marketing and logistics services

 

France

 

Indirect

 

100.00%

 

100.00%

BRF Global Company Nigeria Ltd.

   

Marketing and logistics services

 

Nigeria

 

Indirect

 

99.00%

 

99.00%

BRF Global Company South Africa Proprietary Ltd.

   

Import and commercialization of products

 

South Africa

 

Indirect

 

100.00%

 

100.00%

BRF Global Company Nigeria Ltd.

   

Marketing and logistics services

 

Nigeria

 

Indirect

 

1.00%

 

1.00%

BRF Global GmbH

(b)

 

Holding and trading

 

Austria

 

Indirect

 

100.00%

 

100.00%

Qualy 5201 B.V.

(b)

 

Import, commercialization of products and holding

 

The Netherlands

 

Indirect

 

100.00%

 

100.00%

Xamol Consultores Serviços Ltda.

   

Import and commercialization of products

 

Portugal

 

Indirect

 

100.00%

 

100.00%

BRF Japan KK

   

Marketing and logistics services

 

Japan

 

Indirect

 

100.00%

 

100.00%

BRF Korea LLC

   

Marketing and logistics services

 

Korea

 

Indirect

 

100.00%

 

100.00%

BRF Shanghai Management Consulting Co. Ltd.

(v)

 

Advisory and related services

 

China

 

Indirect

 

100.00%

 

0.00%

BRF Singapore PTE Ltd.

   

Marketing and logistics services

 

Singapore

 

Indirect

 

100.00%

 

100.00%

BRF Germany GmbH

(j)

 

Import and commercialization of products

 

Germany

 

Indirect

 

100.00%

 

100.00%

BRF Holland B.V.

(g)

 

Import and commercialization of products

 

The Netherlands

 

Indirect

 

100.00%

 

100.00%

BRF B.V.

(f)

 

Industrialization, import and commercializations of products

 

The Netherlands

 

Indirect

 

100.00%

 

100.00%

BRF Hungary LLC

(c)

 

Import and commercialization of products

 

Hungary

 

Indirect

 

100.00%

 

100.00%

BRF Iberia Alimentos SL

(l)

 

Import and commercialization of products

 

Spain

 

Indirect

 

100.00%

 

100.00%

BRF Invicta Ltd.

(o)

 

Import and commercialization and distribution of products

 

England

 

Indirect

 

62.00%

 

-

Invicta Food Products Ltd.

(d)

 

Import and commercialization of products

 

England

 

Indirect

 

100.00%

 

100.00%

BRF Wrexham Ltd.

(e)

 

Industrialization, import and commercializations of products

 

England

 

Indirect

 

100.00%

 

100.00%

Invicta Food Group Ltd.

(b) (p)

 

Import and commercialization and distribution of products

 

England

 

Indirect

 

100.00%

 

-

Invicta Foods Ltd.

   

Import and commercialization and distribution of products

 

England

 

Indirect

 

100.00%

 

-

Invicta Foodservice Ltd.

   

Import and commercialization and distribution of products

 

England

 

Indirect

 

100.00%

 

-

BRF Italia SPA

(h)

 

Import and commercialization of products

 

Italy

 

Indirect

 

67.00%

 

67.00%

Federal Foods LLC

(w)

 

Import and commercialization and distribution of products

 

United Arab Emirates

 

Indirect

 

49.00%

 

49.00%

Federal Foods Qatar

   

Import and commercialization and distribution of products

 

Qatar

 

Indirect

 

49.00%

 

49.00%

Perdigão Europe Lda.

   

Import and commercialization of products

 

Portugal

 

Indirect

 

100.00%

 

100.00%

Perdigão International Ltd.

   

Import and commercialization of products

 

Cayman Island

 

Indirect

 

100.00%

 

100.00%

BFF International Ltd.

   

Financial fundraising

 

Cayman Island

 

Indirect

 

100.00%

 

100.00%

Highline International

(a)

 

Financial fundraising

 

Cayman Island

 

Indirect

 

100.00%

 

100.00%

Sadia Chile S.A.

   

Import and commercialization of products

 

Chile

 

Indirect

 

40.00%

 

40.00%

Sadia Foods GmbH

(a)

 

Import and commercialization of products

 

Germany

 

Indirect

 

100.00%

 

100.00%

BRF Foods LLC

   

Import and commercialization of products

 

Russia

 

Indirect

 

10.00%

 

10.00%

SATS BRF Food PTE Ltd.

(s)

 

Import, industrialization, commercialization and distribution of products

 

Singapore

 

Joint venture

 

49.00%

 

-

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

   

Import and commercialization of products

 

Portugal

 

Indirect

 

100.00%

 

100.00%

Elebat Alimentos S.A.

(i) (u)

 

Industrialization and commercialization of products

 

Brazil

 

Direct

 

-

 

99.00%

Establecimiento Levino Zaccardi y Cia. S.A.

 

 

Industrialization and commercializations of dairy products

 

Argentina

 

Direct

 

98.26%

 

98.26%

K&S Alimentos S.A.

 

 

Industrialization and commercialization of products

 

Brazil

 

Affiliate

 

49.00%

 

49.00%

Minerva S.A.

(t)

 

Industrialization and commercialization of products

 

Brazil

 

Affiliate

 

-

 

16.29%

Nutrifont Alimentos S.A.

(u)

 

Industrialization and commercialization of products

 

Brazil

 

Affiliate

 

-

 

50.00%

PP-BIO Administração de bem próprio S.A.

 

 

Management of assets

 

Brazil

 

Affiliate

 

33.33%

 

33.33%

PSA Laboratório Veterinário Ltda.

 

 

Veterinary activities

 

Brazil

 

Direct

 

99.99%

 

99.99%

Elebat Alimentos S.A.

(i) (u)

 

Industrialization and commercialization of products

 

Brazil

 

Indirect

 

-

 

1.00%

Sino dos Alpes Alimentos Ltda.

(a)

 

Industrialization and commercialization of products

 

Brazil

 

Indirect

 

99.99%

 

99.99%

PR-SAD Administração de bem próprio S.A.

 

 

Management of assets

 

Brazil

 

Affiliate

 

33.33%

 

33.33%

Quickfood S.A.

 

 

Industrialization and commercialization of products

 

Argentina

 

Direct

 

90.05%

 

90.05%

Sadia Alimentos S.A.

(n)

 

Holding

 

Argentina

 

Direct

 

43.10%

 

99.98%

Avex S.A.

(q)

 

Industrialization and commercialization of products

 

Argentina

 

Indirect

 

94.60%

 

95.00%

Flora Dánica S.A.

(r)

 

Industrialization and commercialization of products

 

Argentina

 

Indirect

 

-

 

95.00%

GB Dan S.A.

(r)

 

Industrialization and commercialization of products

 

Argentina

 

Indirect

 

-

 

5.00%

Flora San Luis S.A.

(r)

 

Industrialization and commercialization of products

 

Argentina

 

Indirect

 

-

 

95.00%

Flora Dánica S.A.

(r)

 

Industrialization and commercialization of products

 

Argentina

 

Indirect

 

-

 

5.00%

GB Dan S.A.

(r)

 

Industrialization and commercialization of products

 

Argentina

 

Indirect

 

-

 

95.00%

Flora San Luis S.A.

(r)

 

Industrialization and commercialization of products

 

Argentina

 

Indirect

 

-

 

5.00%

Sadia International Ltd.

   

Import and commercialization of products

 

Cayman Island

 

Direct

 

100.00%

 

100.00%

Sadia Chile S.A.

   

Import and commercialization of products

 

Chile

 

Indirect

 

60.00%

 

60.00%

Sadia Uruguay S.A.

(m)

 

Import and commercialization of products

 

Uruguay

 

Indirect

 

5.10%

 

100.00%

Avex S.A.

(q)

 

Industrialization and commercialization of products

 

Argentina

 

Indirect

 

5.40%

 

5.00%

Sadia Alimentos S.A.

(n)

 

Holding

 

Argentina

 

Indirect

 

56.90%

 

0.02%

Sadia Overseas Ltd.

 

 

Financial fundraising

 

Cayman Island

 

Direct

 

100.00%

 

100.00%

Sadia Uruguay S.A.

(m)

 

Import and commercialization of products

 

Uruguay

 

Direct

 

94.90%

 

-

UP Alimentos Ltda.

 

 

Industrialization and commercialization of products

 

Brazil

 

Affiliate

 

50.00%

 

50.00%

Vip S.A. Emp. Part. Imobiliárias

   

Commercialization of owned real state

 

Brazil

 

Direct

 

100.00%

 

100.00%

Establecimiento Levino Zaccardi y Cia. S.A.

   

Industrialization and commercialization of dairy products

 

Argentina

 

Indirect

 

1.74%

 

1.74%

Sino dos Alpes Alimentos Ltda.

(a)

 

Industrialization and commercialization of products

 

Brazil

 

Indirect

 

0.01%

 

0.01%

 

38

 


 
 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

(a)       Dormant subsidiaries.

 

(b)       The wholly-owned subsidiary BRF Global GmbH, started to operate as a trading in the European market as from May 1, 2013. In addition, it owns 101 direct subsidiaries in Madeira Island, Portugal, with an investment as of December 31, 2015 of R$4,046 (R$2,964 as of December 31, 2014) and a direct subsidiary in Den Bosch, The Netherlands, denominated Qualy 20 with an investment as of December 31, 2015 of R$8,162 (R$4,372 as of December 31, 2014). The wholly-owned subsidiary Qualy 5201 B.V. owns 213 subsidiaries in The Netherlands being the amount of this investment as of December 31, 2015 of R$22,258 (R$14,553 as of December 31, 2014).The indirect subsidiary Invicta Food Group Ltd. owns 118 direct subsidiaries in Ashford, England, with an investment of R$161,197 as of December 31, 2015. The purpose of these three subsidiaries is to operate in the European market to increase the Company’s market share, which is regulated by a system of poultry and turkey meat import quotas.

 

(c)       On January 20, 2015, change the corporate name from Plusfood Hungary Trade and Service LLC to BRF Hungary LLC.

 

(d)       On February 06, 2015, change the corporate name from Plusfood UK Ltd. to BRF UK Ltd.. On July 30, 2015, change the corporate name from BRF UK Ltd. to Invicta Food Products Ltd..

 

(e)       On February 06, 2015, change the corporate name from Plusfood Wrexham to BRF Wrexham Ltd.

 

(f)        On February 20, 2015, change the corporate name from Plusfood B.V. to BRF B.V.

 

(g)       On February 20, 2015, change the corporate name from Plusfood Holland B.V. to BRF Holland B.V.

 

(h)       On February 23, 2015, change the corporate name from Plusfood Italy SRL to BRF Italia SPA.

 

(i)        On February 27, 2015, change in equity interest through capital increase.

 

(j)        On March 16, 2015, change the corporate name from Plusfood Germany GmbH to BRF Germany GmbH.

 

(k)       On March 18, 2015, change the corporate name from Perdigão France SARL to BRF France SARL.

 

(l)        On March 23, 2015, change the corporate name from Plusfood Iberia SL to BRF Iberia Alimentos SL.

 

(m)      On April 08, 2015, acquisition of equity interest, through capital increase and disposal of equity interest by the wholly-owned subsidiary Sadia International Ltd.

 

(n)       On April 17, 2015, disposal of equity interest and acquisition of equity interest through a capital increase by the wholly-owned subsidiary Sadia Uruguay S.A..

 

(o)       On April 22, 2015, acquisition of 62% equity interest of BRF Invicta Ltd.

 

(p)       On April 22, 2015, Invicta Food Group Ltd., contributed with its current operation in BRF Invicta Ltd.

 

(q)       On April 30, 2015, change in equity interest through capital increase.

 

(r)        On June 01, 2015, merged into Avex S.A.

 

(s)       On June 03, 2015, acquisition of 49% of equity interest of SATS BRF Food PTE Ltd.

 

(t)        On May 25, 2015, June 15, 2015 and June 18, 2015, equity interest decreased due to a third party capital increase in Minerva S.A. without a corresponding increase from BRF S.A. On November 30, 2015 the investment in Minerva was transferred to marketable securities, being no longer considered as an equity interest (note 17.3).

 

(u)       On July 01, 2015, disposal of equity interest.

 

(v)       On December 11, 2014, establishment of BRF Shanghai Management Consult Co. Ltd..

 

39

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

(w)      The Company owns 49% of the equity interest with rights for 60% of the dividends, permitted by the Federal Law 8/1984, which is effective in the United Arab Emirates and according to the shareholder’s agreement, as well as 100% of the economic rights resulting in the consolidation of this wholly owned subsidiary.

 

 

1.2.        Business combination – Invicta Food Group Limited (“IFGL”)

 

On April 22, 2015, The Company concluded the transaction with IFGL to constitute a new company, which main objective is the distribution of processed food in the United Kingdom, Ireland and Scandinavia, on which BRF will hold 62% of share capital (note 6.1.1).

 

1.3.        Acquisition of share equity of SATS BRF Food Pte Ltd (“SATS BRF”)

 

On April 16, 2015, BRF signed with Singapore Food Industries Pte. Ltd. (“SFI”) the documents for the formation of a joint venture in Singapore (namely SATS BRF Food Pte. Ltd.), of which BRF would acquire 49% of the share capital (“transaction”). On June 02, 2015 BRF concluded the transaction (note 6.2.1).

 

1.4.        Conclusion of the sales contract of the dairy segment to Groupe Lactalis ("Parmalat")

 

On July 01, 2015, the Company concluded the sale of its dairy segment to Lactalis (“transaction”), through the disposal of 100% of the shares of Elebat Alimentos S.A., a BRF wholly-owned subsidiary, for which all were transferred the rights and obligations relative to the dairy segment were recorded (note 13).

 

1.5.        Trademarks acquisition in Argentina

 

On October 16, 2015, BRF, through its subsidiaries Avex S.A. and Quickfood S.A., concluded with Molinos Río de la Plata S.A. and one of its subsidiaries, the acquisition of certain sausage, hamburger and margarine trademarks (Vieníssima, GoodMark, Manty, Delícia, Hamond, Tres Cruces e Wilson), in the amount of US$43,500 (equivalent to R$167,136).

 

1.6.        Execution of a binding offer with Pampa Agribusiness Fund L.P. and Pampa Agrobusiness Follow-on Fund L.P. (collectively “Pampa”).

 

On December 01, 2015, BRF announced to the market that it has signed a binding offer with Pampa for the acquisition of the total shares issued by Eclipse Holding Cooperatief UA (“Business”), a Dutch entity that controls Campo Austral.

 

Subject to the satisfaction of the conditions precedent set forth in the offer, the parties will execute the documents providing for the acquisition of the Business, based on a total value of US$85,000.

 

1.7.        Seasonality

 

40

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The Company does not operate with any significant seasonality throughout the year. In general, during the fourth quarter of each year the demand in Brazil is slightly stronger than in the other quarters, mainly due to the year-end holiday season such as Christmas and New Years Eve. Our bestselling products are: turkey, Chester®, tender and pork cuts (ham/loin).

 

 

2.            MANAGEMENT’S STATEMENT AND BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS

 

The Company’s individual and consolidated financial statements are prepared in accordance with the International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and interpretations issued by the International Financial Reporting Interpretations Committee (“IFRIC”), introduced in Brazil through Brazilian Accounting Pronouncements Committee (“CPC”) and its technical interpretations  (“ICPC”) and guidelines (“OCPC”), approved by the Brazilian Securities Exchange Commission (“CVM”).

 

The Company’s individual and consolidated financial statements are expressed in thousands of Brazilian Reais (“R$”), as well as the amounts of other currencies disclosed in the financial statements, when applicable, were also expressed in thousands. Amounts disclosed in Brazilian Reais are informed when applicable.

 

The preparation of the Company’s financial statements requires Management to make judgments, use estimates and adopt assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, as well as the disclosures of contingent liabilities, as of the reporting date of these financial statements. However, the uncertainty inherent to these judgments, assumptions and estimates could lead to results requiring a material adjustments to the carrying amount of the affected asset or liability in future periods.

 

The Company reviews its judgments, estimates and assumptions quarterly.

 

The individual and consolidated financial statements were prepared on the historical cost basis except for the following items which are measured at fair value:

 

·           derivative and non-derivative financial instruments measured at fair value;

 

·           available for sale financial assets at fair value;

 

·           marketable securities classified as cash and cash equivalents measured at fair value;

 

·           share-based payments and employee benefits at fair value, and

 

41

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

·           biological assets at fair value.

As a result of the Company’s decision to discontinue the operating segment of dairy products the consolidated statements of income and cash flows for the year ended December 31, 2015 and 2014 are disclosed in accordance with the requirements of CVM Deliberation Nº 598/09 – Non-current Assets Held for Sale and Discontinued Operations.

 

The Company reclassified the supply chain finance transaction as of December 31, 2014, in the amount of R$455,120 (parent company and consolidated) in the presentation of the financial statements as of December 31, 2015. This balance was originally presented as “trade accounts payable” and was reclassified to “supply chain finance” in order to be comparable with the information as of December 31, 2015, as disclosed in note 31. There was no change in the total of current liabilities in the amount of R$8,783,209 (parent company) and R$9,569,126 (consolidated) as of December 31, 2014.

 

The statements of cash flows as of December 31, 2014 (parent company and consolidated) are not being restated as there were no changes to them.

 

 

3.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

3.1.        Consolidation: includes the BRF’s individual financial statements and the financial statements from subsidiaries where BRF has direct or indirect control. All transactions and balances between BRF and its subsidiaries have been eliminated upon consolidation, as well as the unrealized profits or losses arising from transactions between the Company and its subsidiaries. Non-controlling interest is presented separately.

 

 

3.2.        Functional currency: the financial statements of each subsidiary included in consolidation are prepared using the currency of the main economic environment where it operates.

 

The financial statements of foreign subsidiaries are translated into Brazilian Reais in accordance with their functional currency using the following criteria:

 

Foreign subsidiaries with functional currency – Dirham, Euro, Argentine Peso Chinese Yuan, Kuwaiti Dinar and Pound Sterling

 

·      Assets and liabilities are translated at the exchange rate in effect at year-end;

 

·      Statement of income accounts are translated based on the monthly average rate; and

 

42

 


 

 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

·      The cumulative effects of gains or losses upon translation are recognized as Accumulated Foreign Currency Translation Adjustments component of other comprehensive income.

 

Foreign subsidiaries with functional currency – Brazilian Reais

 

·      Non-monetary assets and liabilities are translated at the historical rate of the transaction;

 

·      Monetary assets and liabilities are translated at the exchange rate in effect at year-end;

 

·      Statement of income accounts are translated based on monthly average rate; and

 

·      The cumulative effects of gains or losses upon translation are recognized in the statement of income.

 

Goodwill arising from business combination with entities in foreign market is expressed in the functional currency of that entity and converted by the closing to exchange rate for the reporting currency of the parent company.

 

The accounting policies have been consistently applied by all subsidiaries included in consolidation.

 

3.3.        Investments: investments in associates and joint ventures are initially recognized at cost and adjusted thereafter for the equity method. In the investments in associates, the Company must have significant influence, which is the power to participate in the financial and operating policy decisions of the investee, without having the control or joint control of those policies. In investments in joint ventures there is the contractually agreed sharing control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

 

3.4.        Business combinations: are accounted for using the purchase method. The cost of an acquisition is the sum of the consideration paid, evaluated based on the fair value at acquisition date, and the amount of any non-controlling interests in the acquiree. For each business combination, the Company recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquirer’s net assets. Costs directly attributable to the acquisition are accounted for as an expense when incurred.

 

When acquiring a business, management evaluate the assets acquired and the liabilities assumed in order to classify and allocate them pursuant to the terms of the agreement, economic circumstances and conditions at the acquisition date.

 

43

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

Goodwill is initially measured as the excess of the consideration paid over the fair value of the net assets acquired.

 

After initial recognition, goodwill is measured at cost, net of any accumulated impairment losses. For purposes of impairment testing, the goodwill recognized in a business combination, as from the acquisition date, is allocated to each of the Company’s cash generating units.

 

3.5.        Segment information: an operating segment is a component of the Company that carries out business activities from which it can obtain revenues and incur expenses. The operating segments reflect how the Company’s management reviews financial information to make decisions. The Company’s management has identified reportable segments, which meet the quantitative and qualitative disclosure requirements. The segments identified for disclosure represent mainly sales channels. The information according to the characteristics of the products is also presented, based on their nature, as follows: poultry, pork, beef, processed products and other sales.

 

3.6.        Cash and cash equivalents: include cash on hand, bank deposits and highly liquid investments in fixed-income funds and/or securities with maturities, upon acquisition, of 90 days or less, which are readily convertible into known amounts of cash and subject to insignificant risk of change in value. The investments classified in this group, due to their nature, are measured at fair value through the profit and loss.

 

3.7.        Financial instruments: financial assets and liabilities are recorded when the Company becomes party to the contractual provisions of the instruments and classified into the following categories: marketable securities, loans and receivables, derivatives and other.

 

3.7.1.   Marketable securities: are financial assets that comprise public and private fixed-income securities, classified and recorded based on the purpose for which they were acquired, in accordance with the following categories:

 

·        Trading securities: acquired for sale or repurchase in the short term, recorded at fair value with variations directly recorded in the statement of income for the year within interest income or expense;

 

·           Held to maturity: when the Company has the intention and ability to hold them up to maturity, investments are recorded at amortized cost, plus interest, monetary and exchange rate changes, when applicable, and recognized in the statement of income when incurred, within interest income or expense; and

 

·           Available for sale: this category is for the remaining securities that are not classified in any of the categories above, which are measured at fair value, with changes to fair value recorded in other comprehensive income while the asset is not realized, net of taxes. Interest and monetary and exchange variation, when applicable, are recognized in the statement of income when incurred within interest income or expense.

44

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

3.7.2.  Derivatives financial instruments measured at fair value: are those actively traded on organized markets and fair value is determined based on the amounts quoted on an active market at the balance sheet date. These financial instruments are designated at initial recognition, classified as other financial assets and/or liabilities, with a corresponding entry in the statement of income within financial income or expenses or cash flow hedge, a component of other comprehensive income, net of taxes.

 

3.7.3.  Hedge transactions: the Company utilizes derivative and non-derivative financial instruments, to hedge the exposure to exchange rate and interest variations or to modify the characteristics of financial assets and liabilities and highly probable transactions, which are: (i) highly correlated to changes in the market value of the item being hedged, both at inception and throughout the term of the contract (effectiveness between 80% and 125%); (ii) supported by documents that identify the transaction, the hedged risk, the risk management process and the methodology used to assess effectiveness; and (iii) considered  effective in the mitigation of the risk associated with the hedged exposure. These transactions are accounted for in accordance with CVM Deliberation Nº 604/09, that permits the protection accounting methodology (“hedge accounting”) with measurement of effect of fair value in equity and its realization in income for the relevant heading.

 

Hedges that meet the criteria of hedge accounting are recorded as cash flow hedge.

 

In a cash flow hedge, the effective portion of the gain or loss on the hedging instrument is recognized as other comprehensive income, while the ineffective portion of the hedge is recognized immediately as financial income or expense. 

 

The amounts recorded as other comprehensive income are immediately transferred to the statement of income when the hedged transaction affects the statement of income.

 

If the occurrence of the forecasted transaction or firm commitment is no longer expected, the amounts previously recognized in other comprehensive income are transferred to the statement of income. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its classification as a hedge is revoked, the gains or losses previously recognized remain recorded in other comprehensive income until the forecasted transaction or firm commitment affect the statement of income.

45

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

3.7.4.   Loans and receivables: these are financial assets and liabilities with fixed or determinable payments which are not quoted on an active market. Such assets and liabilities are initially recognized at fair value plus any attributable transaction costs. After initial recognition, loans and receivables are measured at amortized cost under the effective interest rate method, less any impairment losses.

 

3.8.        Adjustment to present value: the Company and its subsidiaries measure the adjustment to present value of outstanding balances of non-current trade accounts receivable, trade payables, social obligations and other non-current liabilities, being recorded in accounts reducing their lines on the other hand financial result. The Company adopts the weighted average of the cost of funding to determine the adjustment to present value to those assets and liabilities, which corresponds to annual rate of 12.80% (11.20% p.a. on 2014).

 

3.9.        Trade accounts receivables: are recorded at the invoiced amount and adjusted to present value, when applicable, net of allowance for doubtful accounts.

 

The Company adopts procedures and analysis to establish credit limits and substantially does not require collateral from customers. In the event of default, collection attempts are made, which include direct contact with customers and collection through third parties. Should these efforts prove unsuccessful, court measures are considered and the notes are reclassified to non-current assets at the same time an allowance is recognized. The notes are written-off from the allowance when management considers that they are not recoverable after taking all appropriate measures to collect them.

 

3.10.     Inventories: are evaluated at average acquisition or formation cost, not exceeding market value. The cost of finished products includes raw materials, labor, cost of production, transport and storage, which are related to all process needed to make the products ready for sale. Provisions for obsolescence, adjustments to net realizable value, impaired items and slow-moving inventories are recorded when necessary. Usual production losses are recorded and are an integral part of the production cost of the respective month, whereas unusual losses, if any, are recorded as other operating expense.

 

3.11.     Biological assets: The consumables and production biological assets (live animals) and the forest are measured at their fair value, being applied to cost approach technique to live animals and market approach to the forest. In the determination of the live animal’s fair value, all the inherent losses to the production process were considered.

 

3.12.     Assets held for sale: Such assets are measured at carrying amount or fair value, whichever is lower, net of selling costs and are not depreciated or amortized.

 

46

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The income statement and cash flows from discontinued operations are presented separately from those of continuing operations of the Company.

 

3.13.     Property, plant and equipment: stated at the cost of acquisition or construction, less accumulated depreciation and impairment losses, when applicable. The borrowing costs are capitalized as a component of construction in progress, pursuant to with CVM Deliberation Nº 672/11, considering the weighted average interest rate of the Company’s debt at the capitalization date.

 

Depreciation is recognized based on the estimated economic useful life of each asset on a straight-line basis. The estimated useful life, residual values and depreciation methods are annually reviewed and the effects of any changes in estimates are accounted for prospectively. Land is not depreciated.

 

The Company annually performs an analysis of impairment indicators of property, plant and equipment along with goodwill impairment test. If an impairment indicator is identified, the corresponding assets are tested for impairment using the discounted cash flow methodology. Hence, when an impairment is identified, a provision is recorded. The recoverability of these assets was tested for impairment in 2015, and no adjustments were identified. The realization of the test involved the adoption of assumptions and judgments, as disclosed in note 19.

 

Gains and losses on disposals of property, plant and equipment items are calculated by comparing the proceeds of the disposals with their net book values and recognized in the statement of income at the disposal date.

 

3.14.     Intangible assets: Intangible assets acquired are measured at cost at the time they are initially recognized. The cost of intangible assets acquired in a business combination corresponds to the fair value at the acquisition date. After initial recognition, intangible assets are presented at cost less accumulated amortization and impairment losses, when applicable. Internally-generated intangible assets, excluding development costs, are not capitalized but recognized in the statement of income as incurred.

 

The useful life of intangible assets is assessed as finite or indefinite.

 

Intangible assets with a finite life are amortized over the economic useful life and reviewed for impairment whenever there is an indication that their carrying values may be impaired. The amortization period and method for an intangible asset with a finite useful life are reviewed at least at the end of each fiscal year. The amortization of intangible assets with a finite useful life is recognized in the statement of income as an expense consistently with the use of the intangible asset.

 

47

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

Intangible assets with an indefinite useful life are not amortized, but are tested annually for impairment on an individual basis or at the cash generating unit level. The Company records goodwill and trademarks as intangibles assets with in indefinite useful life.

                      

Goodwill recoverability was tested for fiscal year 2015 and no impairment loss was identified.  Such test involved the adoption of assumptions and judgments, disclosed in note 19.

 

3.15.     Income taxes: in Brazil, are comprised of corporate income tax (“IRPJ”) and social contribution tax (“CSLL”), which are calculated monthly on taxable income, at the rate of 15% plus 10% surtax for IRPJ, and of 9% for CSLL, considering the offset of tax loss carryforwards, up to the limit of 30% of annual taxable income.

 

The income from foreign subsidiaries is subject to taxation pursuant to the local tax rates and legislation.  In Brazil, these incomes are taxed according to the provisional measure 2.159-35/2001 and most recently the Law 12.973/14, respecting the tax treaty signed by each country with Brazil in order to avoid double taxation.

 

Deferred taxes are recorded on IRPJ and CSLL tax losses, assets and liabilities and temporary differences between the tax basis the carrying amount and classified as non-current assets, as required by CVM Deliberation nº 676/11. When the Company’s analysis indicates that the realization of these credits, is not probable, a valuation allowance is recorded.

 

Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and they relate to income taxes levied by the same tax authority on the same taxable entity. In the consolidated financial statements, the Company’s tax assets and liabilities can be offset against the tax assets and liabilities of the subsidiaries if, and only if, these entities have a legally enforceable right to make or receive a single net payment and intend to make or receive this net payment, or recover the assets and settle the liabilities simultaneously. Therefore, for presentation purposes, the balances of tax assets and tax liabilities are being disclosed separately.

 

Deferred tax assets and liabilities must be measured by rates that are expected to be applicable for the period when the assets are realized and liabilities settled.

 

3.16.     Accounts payable and trade accounts payable: are initially recognized at fair value plus any accrued charges, monetary and exchange variations incurred through the balance sheet date.

 

3.17.     Provision for tax, civil and labor risks and contingent liabilities: are established when the Company has a present obligation, formalized or not, as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation and its amount can be reliably estimated.

48

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The Company is part of various lawsuits, including, tax, labor and civil claims. The assessment of the likelihood of an unfavorable outcome in these lawsuits includes the analysis of the available evidence, the hierarchy of the laws, available former court decisions, as well as the most recent court decisions and their importance to the Brazilian legal system, as well as the opinion of external legal counsel. The provisions are reviewed and adjusted to reflect changes in the circumstances, such as the applicable statute of limitation, conclusions of tax inspections or additional exposures identified based on new claims or court decisions.

 

A contingent liability recognized in a business combination is initially measured at fair value and subsequently measured at the higher of:

 

·         the amount that would be recognized in accordance with the accounting policy for the provisions above that comply with CVM Deliberation Nº 594/09; or

 

·         the amount initially recognized less, if appropriate, cumulative amortization recognized in accordance with CVM Deliberation Nº 692/12.

 

As a result of the business combinations with Sadia, Avex and Dánica group the Company recognized contingent liabilities related to tax, civil and labor claims.

 

3.18.     Leases: lease transactions in which the risks and rewards of ownership are substantially transferred to the Company are classified as finance leases. When there is no significant transfer of the risks and rewards of ownership, lease transactions are classified as operating leases.

 

Finance lease agreements are recognized in property, plant and equipment and in liabilities at the lower of the present value of the minimum future payments of the agreement and the fair value of the asset, including, when applicable, the initial direct costs incurred in the transaction. The amounts recorded in property, plant and equipment are depreciated and the underlying interest is recorded in the statement of income in accordance with the terms of the lease agreement.

 

Operating lease agreements are recognized as expenses throughout the lease terms.

 

3.19.     Share based payments: the Company provides share based payments for its executives, which are settled with Company shares. The Company adopts the provisions of CVM Deliberation Nº 650/10, recognizing as an expense, on a straight-line basis, the fair value of the options granted, over the length of service required by the stock options plan, with a corresponding entry to equity. The accumulated expense recognized reflects the acquired vesting period and the Company's best estimate of the number of shares to be acquired.

49

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The expense or income arising from the movement during the year is recognized in the statement of income under other operating expense or income. No expense is recognized for options that have not completed their vesting period.

The dilution effect of outstanding options is reflected as additional dilution in the calculation of diluted earnings per share.

 

3.20.     Pension and other post-employment plans: the Company sponsors four supplementary defined benefit and defined contribution plans, as well as other post-employment benefits, for those, an actuarial appraisal is annually prepared by an independent actuary. The costing of defined benefits is established separately for each plan using the projected unit credit method.

The measurements comprise the actuarial gains and losses, the effect of a limit on contributions and yields on plan contributions and are recognized in the balance sheet with a contra entry in other comprehensive income when incurred. These measurements are not reclassified to statement of income in subsequent periods.

 

The Company recognizes the net defined benefit asset, when:

 

·         controls a resource and has the ability to use the surplus to generate future benefits;

 

·         the control is a result of past events; and

 

·         the future economic benefits are available to the Company in the form of a reduction in future contributions or a cash refund, either directly to the Company or indirectly to another deficitary plan. The asset ceiling is the present value of those future benefits.

 

The past service cost is recognized in the statement of income at the earliest of the following dates:

 

·         when the plan amendment or curtailment occurs, or

 

·         when the Company recognizes related restructuring costs.

 

The past service cost and net interest on net defined benefit liability or asset are recognized in the statement of income within other operating expense or income.

 

3.21.     Earnings per share: basic earnings per share are calculated by dividing the net profit attributable to the holders of ordinary shares of the Company by the weighted average number of ordinary shares during the year. Diluted earnings per share are calculated by dividing the net profit attributable to the holders of ordinary shares of the Company by the weighted average number of ordinary shares during the year, plus the weighted average number of ordinary shares that would be issued when converting all dilutive potential ordinary shares into ordinary shares.

 

50

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

3.22.     Determination of income: results from operations are recorded on an accrual basis.

 

3.23.     Revenue recognition: revenues comprise of the fair value of consideration received or receivable by the sale of products, net of taxes, returns, rebates and discounts.

 

Revenues are recognized in accordance with the accrual basis of accounting, when the sales value is reliably measurable and when the Company no longer has control over the goods sold, or otherwise related to the property, the costs incurred or to be incurred due to transaction can be reliably measured, it is probable that economic benefits will be received by the Company and the risks and benefits were fully transferred to the purchaser.

 

3.24.     Employee and management profit sharing: employees are entitled to profit sharing based on certain targets agreed upon on an annual basis, whereas managers are entitled to profit sharing based on the provisions of the bylaws, proposed by the Board of Directors and approved by the shareholders. The profit sharing amount is recognized in the statement of income for the period in which the targets are attained.

 

3.25.     Financial income: include interest earnings on amounts invested (including available for sale financial assets), dividend income (except for dividends received from equity investees), gains on disposal of available for sale financial assets, changes in fair value of financial assets measured at fair value through income and gains on hedging instruments that are recognized in income. Interest income is recognized in earnings through the effective interest method.

 

3.26.     Grants and government assistance: government subsidies are recognized at fair value when there is reasonable assurance that the conditions established are met and related benefits will be received. The amounts recorded in the statement of income when excluded from the income tax and social contribution calculation basis are reclassified to shareholders’ equity, as a reserve of tax incentives, unless there are accumulated losses.

 

3.27.     Dividends and interest on shareholders’ equity:  the proposal for payment of dividends and interest on shareholders’ equity made by the Company’s Management, which is within the portion equivalent to the mandatory minimum dividend, is recorded in current liabilities, as a legal obligation provided for in the bylaws; on the other hand, the dividends that exceed the mandatory minimum dividend, declared by management before the end of  the accounting period covered by the consolidated financial statements, not yet approved by the shareholders, is recorded as  additional dividend proposed in shareholders’ equity.

51

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

For financial statement presentation purposes, interest on shareholders’ equity is stated as an allocation of income directly in shareholders’ equity.

 

3.28.     Transactions and balances in foreign currency: the balances of assets and liabilities of foreign subsidiaries are translated into Brazilian Reais using the exchange rates in effect at the balance sheet date and statement of income accounts are translated based on monthly average rates.

 

The exchange rates in Brazilian Reais effective at the balance sheet dates were as follows:

  

Exchange rate at the balance sheet date

 

12.31.15

 

12.31.14

U.S. Dollar (US$ or USD)

 

3.9048

 

2.6562

Euro (€ or EUR)

 

4.2504

 

3.2270

Pound Sterling (£ or GBP)

 

5.7881

 

4.1405

Argentine Peso ($ or ARS)

 

0.3017

 

0.3172

Rial Omã (OMR)

 

10.1529

 

6.8992

Dirham (AED)

 

1.0631

 

0.7232

Saudi Riyal (SAR)

 

1.0406

 

0.7079

         

Average rates

       

U.S. Dollar (US$ or USD)

 

3.3315

 

2.3536

Euro (€ or EUR)

 

3.6929

 

3.1221

Pound Sterling (£ or GBP)

 

5.0931

 

3.8721

Argentine Peso ($ or ARS)

 

0.3601

 

0.2905

Rial Omã (OMR)

 

8.6563

 

6.1134

Dirham (AED)

 

0.9071

 

0.6408

Saudi Riyal (SAR)

 

0.8883

 

0.6275

 

3.29.     Accounting judgments, estimates and assumptions: as mentioned in note 2, in the process of applying the Company’s accounting policies, management made the following judgments which have a material impact on the amounts recognized in the consolidated financial statements:

 

·         fair value of financial instruments (see note 4);

·         impairment of non-financial assets (see note 5 and 19);

·         measurement of fair value of items related to business combinations (see note 6);

·         allowance for doubtful accounts (see note 9);

·         net realizable value provision for inventories (see note 10);

·         fair value of biological assets (see note 11);

52

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

·         loss on the reduction of recoverable value of taxes (see note 12 and 14);

·         useful lives of property, plant and equipment and intangible (see note 18 and 19);

·         share-based payment transactions (see note 24);

·         pension and post-employment plans (see note 25); and

·         provision for tax, civil and labor risks (see note 26).

 

The Company reviews the estimates and underlying assumptions used in its accounting estimates on a quarterly basis. Revisions to accounting estimates are recognized in the period in each the estimates are revised.

 

3.30.     Statement of added value: the Company prepared individual and consolidated statements of added value (“DVA”) in accordance with CVM Deliberation Nº 557/08, which are submitted as part of these financial statements in accordance with BR GAAP. It represents for IFRS additional financial information.

 

 

4.            FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

 

4.1.        Overview

 

In the normal course of its business, the Company is exposed to credit, liquidity and market risks, which are actively managed in conformity to the Financial Risk Management Policy and Strategy Papers (this set called hereafter as “Risk Policy”) and internal guidelines subject to such policy.

 

The Risk Policy is under the management of the Board of Directors, Risk Management Committee and Financial Risk Management, with clear and defined roles and responsibilities, as follows:

 

·         The Board of Directors is responsible for approving the Risk Policy and defining the limits of tolerance of the different risks identified as acceptable for the Company on behalf of its shareholders. The current risk policy was reviewed and approved on November 26, 2015, with maturity of two years, and is automatically renewed once for the same period if no change is expressed during the term of the agreement;

 

·         The Financial Risk Management Committee is in charge of the execution of the Risk Policy, which comprises the supervision of the risk management process, planning and verification of the impacts of the decisions implemented, as well as the evaluation and approval of hedging strategies and monitoring the risk exposure levels to ensure compliance with Risk Policy; and

 

53

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

·         The Risk Management area has as a crucial role in monitoring, evaluating and reporting of the financial risks taken by the Company.

 

The Risk Policy does not authorize the Company’s management to contract leveraged derivative transactions and determines that any individual hedge operations (notional amount) must not exceed 2.5% of the Company’s shareholders’ equity.

 

a.            Credit risk management

 

The Company is subject to the credit risk related to trade accounts receivable, financial investments and derivative contracts, as follows:

 

·         Credit risk associated with trade accounts receivable is actively managed through the use of specific systems. Furthermore, it should be noted the diversification of the customer portfolio and the concession of credit to customers with good financial and operational conditions. The Company does not usually require collateral for sales to customer, and has a contracted credit insurance policy for specific markets; and

·         Credit risk associated with financial investments and derivative contracts is mitigated by the Company’s policy of working with prime institutions.

 

On December 31, 2015, the Company had financial investments over R$100,000 at the following financial institutions: Banco Itaú, Banco Bradesco, Banco Santander, Deutsche Bank, Banco do Brasil, Caixa Econômica Federal, Standard Chartered e Banco BNP.

 

The Company also held derivative contracts with the following financial institutions: Banco Bradesco, Banco do Brasil, Banco HSBC, Banco Itaú, Banco Santander, Banco Votorantim, Barclays, Citibank, Deutsche Bank, ING Bank, Merrill Lynch, Morgan Stanley e Rabobank.

 

b.            Liquidity risk management

 

Liquidity risk management aims to reduce the impacts caused by events which may affect the Company’s cash flow. Thus, the Company utilizes the following metrics:

 

·         Cash Flow at Risk (“CFaR”), which aims to statistically estimates the cash flows for the next twelve months and the Company’s liquidity exposure. The Company determined that the minimum cash available should be equivalent mainly to the average monthly billing and EBITDA for the last twelve-month period; and

 

·         Value at Risk ("VaR") is used for derivative transactions that require payments of periodic adjustments. Currently, the Company holds only BM&F Bovespa operations with daily adjustments and in order to monitor them, such methodology is utilized, which statistically measures potential maximum adjustments to be paid at intervals of 1 to 21-days.

54

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The Company maintains its leverage levels in order to avoid any impact to its ability to settle commitments and obligations. As a guideline, the majority of the debt should be in long term. On December 31, 2015, the long term debt portion accounted for 82.7% (76.4% as of December 31, 2014) of the total outstanding debt with an average term greater than 5 years.

 

The table below summarizes the commitments and contractual obligations that may impact the Company’s liquidity:

 

 

 

Parent company

 

12.31.15

 

Book
value

 

Cash flow contracted

 

2016

 

2017

 

2018

 

2019

 

2020

 

After
5 years

Non derivative financial liabilities

                             

Loans and financing

5,494,505

 

6,401,641

 

2,657,511

 

986,939

 

2,009,755

 

284,917

 

451,075

 

11,444

BRF bonds

8,085,596

 

10,705,794

 

353,079

 

353,079

 

833,704

 

314,329

 

314,329

 

8,537,274

Trade accounts payable

4,024,725

 

4,024,725

 

4,024,725

 

-

 

-

 

-

 

-

 

-

Financial lease

186,618

 

275,098

 

59,109

 

35,822

 

27,213

 

23,945

 

22,539

 

106,470

Operational lease

-

 

687,269

 

461,475

 

99,430

 

35,408

 

16,893

 

13,591

 

60,472

                               

Derivative financial liabilities

                             

Financial instruments designated as cash flow hedge

                             

Interest rate and exchange rate derivatives

280,285

 

245,151

 

7,501

 

7,373

 

230,277

 

-

 

-

 

-

Currency derivatives (NDF)

66,703

 

54,894

 

54,894

 

-

 

-

 

-

 

-

 

-

Fixed exchange rate

33,765

 

40,109

 

40,109

 

-

 

-

 

-

 

-

 

-

Currency derivatives (options)

217,122

 

121,357

 

51,535

 

69,822

 

-

 

-

 

-

 

-

Commodities derivatives (NDF)

11,729

 

28,065

 

28,065

 

-

 

-

 

-

 

-

 

-

Financial instruments not designated as cash flow hedge

                             

Currency derivatives (NDF)

3,502

 

3,848

 

3,848

 

-

 

-

 

-

 

-

 

-

Interest rate and exchange rate derivatives

6,768

 

74,757

 

74,103

 

472

 

182

 

-

 

-

 

-

 

 

 

 

Consolidated

 

12.31.15

 

Book
value

 

Cash flow contracted

 

2016

 

2017

 

2018

 

2019

 

2020

 

After
5 years

Non derivative financial liabilities

                             

Loans and financing

5,889,347

 

6,830,639

 

2,674,020

 

1,002,569

 

2,406,614

 

284,917

 

451,075

 

11,444

BRF bonds

8,085,596

 

10,705,794

 

353,079

 

353,079

 

833,704

 

314,329

 

314,329

 

8,537,274

BFF bonds

475,299

 

612,558

 

33,486

 

33,486

 

33,486

 

33,486

 

478,614

 

-

Sadia bonds

443,332

 

485,712

 

30,271

 

455,441

 

-

 

-

 

-

 

-

Quickfood bonds

285,709

 

413,238

 

143,369

 

109,112

 

72,428

 

53,779

 

34,550

 

-

Trade accounts payable

4,744,993

 

4,744,993

 

4,744,993

 

-

 

-

 

-

 

-

 

-

Financial lease

186,618

 

275,098

 

59,109

 

35,822

 

27,213

 

23,945

 

22,539

 

106,470

Operational lease

-

 

698,331

 

463,641

 

101,596

 

37,574

 

19,175

 

13,591

 

62,754

                               

Derivative financial liabilities

                             

Financial instruments designated as cash flow hedge

                             

Interest rate and exchange rate derivatives

326,650

 

309,540

 

28,154

 

28,159

 

252,745

 

482

 

-

 

-

Currency derivatives (NDF)

66,703

 

54,894

 

54,894

 

-

 

-

 

-

 

-

 

-

Fixed exchange rate

33,765

 

40,109

 

40,109

 

-

 

-

 

-

 

-

 

-

Currency derivatives (options)

217,122

 

121,357

 

51,535

 

69,822

 

-

 

-

 

-

 

-

Commodities derivatives (NDF)

11,729

 

28,065

 

28,065

 

-

 

-

 

-

 

-

 

-

Financial instruments not designated as cash flow hedge

                             

Currency derivatives (NDF)

3,865

 

4,237

 

4,237

 

-

 

-

 

-

 

-

 

-

Interest rate and exchange rate derivatives

6,768

 

74,757

 

74,103

 

472

 

182

 

-

 

-

 

-

 

 

 

c.            Interest rate risk management

55

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Interest rates risk is the one the Company incurs in economic losses resulting from changes in these rates, which could affect its assets and liabilities.

 

The Company’s Risk Policy does not restrict exposure to different interest rates, neither establishes limits for fixed or floating rates. However, the Company continually monitors the market interest rates, in order to evaluate any need to enter into hedging transaction to protect from the exposure to fluctuation of such rates and manage the mismatch between its financial investments and debts. In these transactions the Company enters into contracts that exchange floating rate for fixed rate or vice-versa. Such transactions were designated by the Company as cash flow hedge.

 

The Company’s indebtedness is essentially tied to the London Interbank Offered rate ("LIBOR"), fixed coupon (“R$ and USD”), Long Term Interest Rate ("TJLP") and Monetary Unit of the Bank National Economic and Social Development ("UMBNDES") rates. In case of adverse changes in the market that result in LIBOR, TJLP and UMBNDES hikes, the cost of the floating indebtedness rises and on the other hand, the cost of the fixed indebtedness decreases in relative terms.

 

With regards to the Company's marketable securities, the main index is the Interbank Deposit Certificate ("CDI") for investments in Brazil and fixed coupon (“USD”) for investments in the International market.

 

d.            Foreign exchange risk management

 

Foreign exchange risk is the one related to variations of foreign exchange rates that may cause the Company to incur unexpected losses, leading to a reduction of assets or an increase in liabilities.

 

The Risk Policy is intended to protect the Company's results from these variations, in order to:

 

·         Protect operating revenues and costs that are related to transactions arising from commercial activities, such as estimated exports and purchases of raw materials, utilizing hedging instruments, that is, to protect its future cash flow denominated in foreign currency; and

 

·         Manage assets and liabilities denominated in foreign currencies in order to protect the balance sheet of the Company, through the use of over-the-counter and futures transactions.

 

The Company’s consolidated financial statements are mainly impacted by the following currencies: (i) U.S. Dollar, (ii) Euro, (iii) Iene, (iv) Pound Sterling and (v) Argentine Peso.

 

Assets and liabilities denominated in foreign currency are as follows:

 

56

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

12.31.15

 

12.31.14

 

Total exposure

Cash and cash equivalents and marketable securities

5,322,907

 

4,551,213

Trade accounts receivable

2,146,020

 

1,693,314

Accounts receivable from subsidiaries (unconsolidated)

250,766

 

1,243

Restricted cash

1,346,274

 

-

Future dollar agreements

741,912

 

252,339

Embedded derivative

-

 

1,853,379

Inventories

246

 

21,128

Exchange rate contracts (Swap)

968,780

 

(4,571)

Loans and financing

(11,359,658)

 

(7,596,191)

Bonds designated as cash flow hedge

1,171,440

 

796,860

Exports prepayments designated as cash flow hedge

1,171,440

 

796,860

Trade accounts payable

(1,496,833)

 

(794,832)

Supply chain finance

(488,997)

 

(162,369)

Other assets and liabilities, net

(232,146)

 

97,608

 

(457,849)

 

1,505,981

       

Foreign exchange exposure (in US$) (liabilities)/assets

(117,253)

 

566,968

       

Foreign exchange exposure impacting the statement of income (in US$)

(39,776)

 

550,542

Foreign exchange exposure included in other comprehensive income (in US$)

(77,477)

 

16,426

       

Foreign exchange exposure (in US$) (liabilities)/assets

(117,253)

 

566,968

 

 

On December 31, 2015, the net foreign exchange exposure is within the limit set by the Company's Risk Policy. 

 

e.            Commodity price risk management

 

In the normal course of its operations, the Company purchases commodities, mainly corn, soymeal, oil and live hog, which are some of the individual components of production cost.

 

Corn, soymeal and oil prices are subject to volatility resulting from weather conditions, crop yield, transportation and storage costs, government’s agricultural policy, foreign exchange rates and the prices of these commodities on the international market, among others factors. The prices of hog acquired from third parties are subject to market conditions and are influenced by internal availability and levels of demand in the international market, among other aspects.

 

The Risk Policy establishes limits for hedging the corn and soymeal purchase flow, aiming to reduce the impact resulting from a price increase of these raw materials, and may utilize derivative instruments or inventory management for this purpose. Currently, the management of inventory levels is used as a hedging instrument.

 

57

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

f.             Capital management

 

The Company’s definition of the adequate capital structure is essentially associated with (i) cash strength as a tolerance factor to liquidity volatility, (ii) financial leverage and (iii) maximization of the opportunity cost of capital.

 

The cash and liquidity strategy takes into consideration the historical scenarios of volatility of results as well as simulations of sectorial and systemic crises and is based on permitting the resilience in scenarios of restricted access to capital.

 

Financial leverage aims the balance between the different sources of funding and their conditions of allocation in order to maximize the opportunity cost to BRF in its business expansion initiatives. Moreover, the objective of maintaining the investment grade disciplines the weighting of using own and third party capital.

 

The Company monitors debt levels and net debt, which are shown below:

 

 

 

Consolidated

 

12.31.15

 

12.31.14

 

Current

 

Non-current

 

Total

 

Total

Foreign currency debt

(1,166,133)

 

(10,193,525)

 

(11,359,658)

 

(7,596,191)

Local currency debt

(1,462,046)

 

(2,357,579)

 

(3,819,625)

 

(3,993,144)

Other financial liabilities

(666,602)

 

-

 

(666,602)

 

(257,438)

Gross debt

(3,294,781)

 

(12,551,104)

 

(15,845,885)

 

(11,846,773)

               

Marketable securities and cash and cash equivalents

6,097,601

 

456,038

 

6,553,639

 

6,656,526

Other financial assets

129,387

 

-

 

129,387

 

43,101

Restricted cash

1,346,274

 

479,828

 

1,826,102

 

115,179

Net debt

4,278,481

 

(11,615,238)

 

(7,336,757)

 

(5,031,967)

 

 

4.2.        Derivative and non-derivative financial instruments designated as hedge accounting

 

As established by CVM Deliberation Nº 604/09, the Company applies hedge accounting to its derivative instruments classified as cash flow hedge, in accordance with the Risk Policy. The cash flow hedge consists of hedging the exposure to variations of the cash flow and firm commitment which is attributable to a particular risk associated with a recognized asset or liability, or a highly probable transaction that could affect profit and loss. The firm commitment hedge is a protection against fluctuations of a specific type of risk associated to a firm agreement to exchange a determined quantity for a determined price in a specific date, or in future determined dates.

 

The Risk Policy has also the purpose of determining parameters of use of financial instruments, including derivatives, which are designed to protect the operating and financial assets and liabilities, which are exposed to the variations of foreign exchange rates, the fluctuation of the interest rates and changes to the commodity prices. The Risk Management area is responsible for ensuring compliance to the requirements established by the Company’s Risk Policy.

58

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The Company formally designated its operations for hedge accounting treatment for the derivative financial instruments to protect cash flows and export revenues by documenting:

 

·         The relationship of the hedge;

 

·         The objective and risk management strategy of the Company to enter into a hedge transaction;

 

·         The identification of the financial instrument;

 

·         The hedge object or transaction;

 

·         The nature of the risk to be hedged;

 

·         The description of the hedge relationship;

 

·         The demonstration of the correlation between the hedge transaction and the hedge object, when applicable; and

 

·         The prospective demonstration of the effectiveness of the hedge.

 

The transactions for which the Company has designated hedge accounting are highly probable, present an exposure to variation in cash flow that could affect profit and loss and are highly effective in protecting changes in fair value or cash flows attributable to hedged risk, consistent with the risk originally documented in the Risk Policy.

 

The effectiveness tests are prepared prospectively and retrospectively at each period end.

 

The prospective test is based on the comparison between the critical terms of derivative and non-derivative financial instruments and the hedged items. The hedged items (e.g. future monthly export sales) and the hedge instruments have the same critical terms, as follows:

 

·         Both fair value change due to the exchange rate variation (spot or forward rate method);

 

·         Their nominal values (notional) are similar; and

59

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

·         Their maturities are identical and both the hedged item (revenue) and the settlement of the financial instrument will occur at the same period.

 

The retrospective test is based on the analysis of the coverage ratio. This ratio compares the fair value variation accumulated since the inception of the hedged item (date of hedge designation) with the accumulated variation of the derivative and non-derivative financial instrument since its inception.

 

The effectiveness of the hedge is determined at the settlement date of the financial instrument, by comparing the cumulative changes of highly probable revenues with the gains or losses arising from the financial instruments.

 

The Company, within its hedge accounting strategy, utilizes the following financial instruments:

 

a.            Non-deliverable forwards – NDF

 

Non-deliverable forward contract is the future commitment to purchase or sell certain currencies on a certain date in the future for a predetermined price. This contract does not require physical settlement of contracted positions, but the financial settlement of the difference between the settlement price and the predetermined price of the contract.

 

b.            Interest rate and currency swap

 

Similar to a non-deliverable forward contract, the swap is the future commitment to buy or sell certain interest rates or currency at a specified date in the future for a predetermined price. The particularity in this type of transaction is the possibility to exchange cash flows on various dates. The Company contracts swaps that do not require the physical settlement of contracted positions, but the financial settlement of the difference between the settlement price and the price established in the contract.

 

c.            Options

 

A put option gives the holder (option holder) the right to buy an asset at a certain price (strike) at certain future date (the exercise date). A call option gives the holder the right to sell an asset at a certain price at a certain future date. In addition, there is a possibility of buying (premium disbursement, with rights) or selling (premium receiving, with obligations).

 

d.            Fixed exchange rate

 

Fixed exchange rate is a non-derivative financial instrument contracted from financial institutions that allows the definition of a future rate to internalization of resources arising from foreign activities. Contractually, there is the requirement of submission of export invoices to prove the nature of resources which will be internalized trough closing of exchange rate. Such contract has similar characteristics of a non-deliverable forward derivative contract because it determines, at its inception, a future exchange rate. Nevertheless, the contract requires a physical settlement of the contracted positions.

 

60

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

e.            Export prepayments – PPEs

 

The Company utilizes the exchange rates variation of export prepayments contracts (“PPEs”) as a hedge instrument for the highly probable future sales in foreign currency.

 

f.             Senior unsecured notes – Bonds

 

The Company designates part of the transactions involving Senior Unsecured Notes as hedge accounting.

 

g.            Commodities non-deliverable forwards  – NFD

 

Non-deliverable forward contract is the future commitment to purchase or sell determined types of commodities in a certain future date for a predetermined price. This contract does not require physical settlement of contracted positions, but the financial settlement of the difference between the settlement price and the predetermined price of the contract.

 

 

 

 

61

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

4.2.1 Breakdown of the balances of derivative financial instruments

 

The positions of outstanding derivative financial instruments are as follows:

 

 

Parent company and Consolidated

12.31.15

 

12.31.14

Instrument

 

Hedge object

 

Reference currency (notional)

 

Reference
value (notional)

 

Fair value (1)

 

Reference
value (notional)

 

Fair value (1)

Financial instruments designated as hedge accounting

                       

NDF - Dollar sale (2)

 

Currency

 

USD

 

44,000

 

(17,858)

 

439,655

 

(62,699)

NDF - Euro sale (2)

 

Currency

 

EUR

 

31,800

 

(5,457)

 

74,042

 

184

NDF - Pound Sterling sale (2)

 

Currency

 

GBP

 

11,000

 

(1,566)

 

41,574

 

(2,097)

NDF - Iene sale (2)

 

Currency

 

JPY

 

6,799,981

 

(39,569)

 

16,993,208

 

(2,761)

Currency swap - US$ (2)

 

Currency

 

BRL

 

250,000

 

(248,456)

 

250,000

 

(90,328)

Interest rate swap - US$ (2)

 

Interest

 

USD

 

200,000

 

(31,829)

 

200,000

 

(29,060)

Fixed exchange rate - US$ (2)

 

Currency

 

USD

 

201,000

 

(33,765)

 

102,470

 

(2,848)

Fixed exchange rate - Euro (2)

 

Currency

 

EUR

 

-

 

-

 

8,000

 

299

Options (Collar) - US$ (2)

 

Currency

 

USD

 

1,227,000

 

(124,469)

 

164,000

 

(3,995)

Options (Collar) - Euro (2)

 

Currency

 

EUR

 

31,000

 

3,500

 

-

 

-

NDF - Corn purchase (2)

 

Commodities

 

Ton/USD

 

633,565

 

(11,729)

 

-

 

-

Total in Parent company

             

(511,198)

     

(193,305)

Interest rate swap - US$ (2)

 

Interest

 

USD

 

200,000

 

(46,365)

 

200,000

 

(38,587)

Total Consolidated

             

(557,563)

     

(231,892)

                         

Financial instruments not designated as hedge accounting

                   

NDF - Iene sale (2)

 

Currency

 

JPY

 

6,451,363

 

(1,152)

 

1,000,000

 

1,125

NDF - Purchase of US$ (2)

 

Currency

 

USD

 

50,000

 

(2,350)

 

-

 

-

Embedded derivative (2)

 

Currency

 

USD

 

-

 

-

 

697,756

 

27,955

Currency swap - US$ (2)

 

Currency

 

USD

 

250,000

 

(977)

 

2,798

 

(1,750)

Interest rate - R$ (2)

 

Interest

 

BRL

 

50,000

 

(2,341)

 

590,000

 

(1,466)

NDF - Corn purchase (2)

 

Commodities

 

Ton/USD

 

54,780

 

2,183

 

-

 

-

Future - BM&FBovespa (2)

 

Currency

 

USD

 

190,000

 

14,641

 

95,000

 

(5,694)

Total in Parent company

             

10,004

     

20,170

NDF - Purchase of Euro (2)

 

Currency

 

EUR

 

150,000

 

1,294

 

-

 

-

NDF - Euro (2)

 

Currency

 

EUR

 

-

 

-

 

150,000

 

87

NDF - Pound Sterling sale (2)

 

Currency

 

GBP

 

20,000

 

1,066

 

20,000

 

(2,638)

NDF - Argentine Peso sale (2)

 

Currency

 

USD

 

10,000

 

7,984

 

3,360

 

(64)

Total Consolidated

             

20,348

     

17,555

                         

Total in Parent company

             

(501,194)

     

(173,135)

Total Consolidated

             

(537,215)

     

(214,337)

 

(1)     The market value determination method used by the Company consists of calculating the future value based on the contracted conditions and determining the present value based on market curves, obtained from the database of Bloomberg and BM&F.

(2)     Cash flow hedge.

 

a.            Non-deliverable forwards – NDF

 

 i.             Currency non-deliverable forwards - NDF

 

The position of the currency non-deliverable forward – NDF, by maturity, as well as the weighted average exchange rates and the fair value, are presented as follows:

 

62

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Parent company and Consolidated

12.31.15

PUT

 

R$ x US$

 

R$ x EUR

Maturities

 

Notional (US$)

 

Average rate

 

Fair value

 

Notional (EUR)

 

Average rate

 

Fair value

Financial instruments designated as cash flow hedge

                       

January 2016

 

19,000

 

3.9019

 

(505)

 

5,000

 

3.7252

 

(2,875)

February 2016

 

-

 

-

 

-

 

4,500

 

3.8052

 

(2,560)

March 2016

 

-

 

-

 

-

 

5,000

 

4.0961

 

(1,551)

April 2016

 

25,000

 

3.3586

 

(17,353)

 

2,000

 

4.5070

 

91

May 2016

 

-

 

-

 

-

 

8,300

 

4.6333

 

973

June 2016

 

-

 

-

 

-

 

4,000

 

4.6300

 

261

July 2016

 

-

 

-

 

-

 

3,000

 

4.6790

 

204

   

44,000

 

3.5932

 

(17,858)

 

31,800

 

4.2848

 

(5,457)

                         
                         

PUT

 

R$ x GBP (1)

 

R$ x JPY (1)

Maturities

 

Notional (GBP)

 

Average rate

 

Fair value

 

Notional (JPY)

 

Average rate

 

Fair value

Financial instruments designed as hedge accounting

                       

January 2016

 

3,000

 

5.6571

 

(500)

 

2,324,067

 

0.0271

 

(13,164)

February 2016

 

2,500

 

5.5172

 

(1,074)

 

2,023,761

 

0.0273

 

(11,979)

March 2016

 

1,500

 

5.7905

 

(285)

 

2,029,407

 

0.0276

 

(11,912)

April 2016

 

1,500

 

6.1620

 

165

 

105,694

 

0.0278

 

(629)

May 2016

 

1,200

 

6.2570

 

170

 

105,684

 

0.0281

 

(625)

June 2016

 

1,300

 

6.1400

 

(42)

 

211,368

 

0.0283

 

(1,260)

   

11,000

 

5.8349

 

(1,566)

 

6,799,981

 

0.0274

 

(39,569)

 

(1)       Cash flow hedge.

 

CALL

 

USD x BRL

 

USD x EUR

Maturities

 

Notional (US$)

 

Average rate

 

Fair value

 

Notional (EUR)

 

Average rate

 

Fair value

Financial instruments not designated as cash flow hedge

                       

January 2016

 

50,000

 

4.0664

 

(2,350)

 

-

 

-

 

-

March 2016

 

-

 

-

 

-

 

150,000

 

1.0864

 

1,294

   

50,000

 

4.0664

 

(2,350)

 

150,000

 

1.0864

 

1,294

 

 

PUT

 

USD x GBP

 

R$ x JPY

Maturities

 

Notional (GBP)

 

Average rate

 

Fair value

 

Notional (JPY)

 

Average rate

 

Fair value

Financial instruments not designated as cash flow hedge

                       

January 2016

 

-

 

-

 

-

 

6,451,363

 

0.0329

 

(1,152)

March 2016

 

20,000

 

1.4877

 

1,066

 

-

 

-

 

-

   

20,000

 

1.4877

 

1,066

 

6,451,363

 

0.0329

 

(1,152)

 

 

PUT

 

ARS x USD

Maturities

 

Notional (USD)

 

Average rate

 

Fair value

Financial instruments not designated as cash flow hedge

           

March 2016

 

3,500

 

9.6730

 

1,729

April 2016

 

4,500

 

9.2879

 

4,378

May 2016

 

2,000

 

9.4290

 

1,877

   

10,000

 

9.4509

 

7,984

 

 

ii.             Commodities non-deliverable forwards – NDF

 

The position of the commodities non-deliverable forwards – NFD, by maturity,  as well as weighted average exchange rates and the fair value, are presented as follows:

 

63

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Parent company and Consolidated

12.31.15

Call

 

Quantity

 

Average rate

 

Fair

Maturities

 

Ton

 

US$/Ton

 

value

Designated as hedge accounting

           

January 2016

 

133,500

 

147.71

 

(3,377)

February 2016

 

159,449

 

145.49

 

(2,651)

March 2016

 

163,954

 

147.03

 

(2,262)

April 2016

 

99,252

 

146.87

 

(1,307)

May 2016

 

56,495

 

151.34

 

(1,209)

July 2016

 

4,743

 

159.04

 

(209)

August 2016

 

16,172

 

159.04

 

(714)

   

633,565

 

147.54

 

(11,729)

 

 

PUT

 

Quantity

 

Average rate

 

Fair

Maturities

 

Ton

 

US$/Ton

 

value

Not designated as hedge accounting

           

June 2016

 

49,199

 

156.41

 

2,028

July 2016

 

3,154

 

154.97

 

89

September 2016

 

2,427

 

157.79

 

66

   

54,780

 

156.39

 

2,183

 

 

b.            Interest rate and currency swap

 

The position of interest rate and currency swap is presented as follows:

 

 

 

 

 

 

 

 

 

Parent company

 

Consolidated

12.31.15

Instrument

 

Maturity

 

Assets
(Hedged object)

 

Liabilities (Protected risk)

 

Notional

 

Fair value

 

Notional

 

Fair value

Financial instruments designated as cash flow hedge

                   
                             

Interest rate

 

01.22.18

 

LIBOR 6M + 2.82% p.a.

 

5.86% p.a.

 

100,000

 

(15,929)

 

100,000

 

(15,929)

Interest rate

 

06.18.18

 

LIBOR 3M + 2.60% p.a.

 

5.47% p.a.

 

100,000

 

(15,900)

 

100,000

 

(15,900)

Interest rate

 

02.01.19

 

LIBOR 6M + 2.70% p.a.

 

5.90% p.a.

 

-

 

-

 

100,000

 

(23,299)

Interest rate

 

02.01.19

 

LIBOR 6M + 2.70% p.a.

 

5.88% p.a.

 

-

 

-

 

100,000

 

(23,066)

                   

(31,829)

     

(78,194)

                             

Currency swap

 

05.22.18

 

R$ + 7.75%

 

US$ + 1.60%

 

250,000

 

(248,456)

 

250,000

 

(248,456)

                             
                   

(280,285)

     

(326,650)

                             

Financial instruments not designated as cash flow hedge

                   

Interest rate - Bond

 

05.22.18

 

R$ (Fixed rate of 7.75% p.a.)

 

68.84% CDI

 

50,000

 

(2,341)

 

50,000

 

(2,341)

                             

Currency swap

 

10.28.16

 

US$ + 1,76 % p.a

 

86,60% CDI

 

100,000

 

(1,202)

 

100,000

 

(1,202)

Currency swap

 

12.02.16

 

US$ + L3M + 0,90 % p.a

 

85,95% CDI

 

50,000

 

3,449

 

50,000

 

3,449

Currency swap

 

12.16.16

 

US$ + L3M + 1,10 % p.a

 

88,95% CDI

 

50,000

 

(2,734)

 

50,000

 

(2,734)

Currency swap

 

12.23.16

 

US$ + 2,41 % p.a

 

90,50% CDI

 

50,000

 

(490)

 

50,000

 

(490)

                   

(977)

     

(977)

                             
                   

(3,318)

     

(3,318)

 

 

c.            Fixed exchange rate

 

The position of fixed exchange rate designated as hedge accounting is presented as follows:

 

64

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Parent company and Consolidated

12.31.15

 

 

R$ x US$

Maturities

 

Notional US$

 

Average US$

 

Fair value

January 2016

 

30,000

 

3.0070

 

(27,617)

February 2016

 

19,000

 

3.9687

 

(799)

March 2016

 

19,000

 

4.0044

 

(716)

April 2016

 

19,000

 

4.0538

 

(594)

May 2016

 

19,000

 

4.0929

 

(477)

June 2016

 

19,000

 

4.1441

 

(316)

July 2016

 

19,000

 

4.1867

 

(168)

August 2016

 

57,000

 

4.1688

 

(3,078)

   

201,000

 

3.9422

 

(33,765)

 

d.            Options

 

 i.             Currency options

 

The Company designates as a cash flow hedge only the variation in the intrinsic value of its options, recognizing the time value of the premium in the financial result. If the hedge is not effective and the option is not exercised due to devaluation of the Brazilian Real, the losses related to the options will be registered as financial expenses in the statement of income.

 

The Company has designated transactions involving options denominated collar where there is a purchase of a put option ("PUT") and a sale of a call option ("CALL"), simultaneously, such that the premium paid for the put is compensated by the premium received in the call.

 

When the market price of any of the options is not available in an active market, the fair value is based on an option pricing model (Black-Scholes or Binomial).

 

65

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Parent company and Consolidated

12.31.15

R$ x US$

Type

 

Maturities

 

Notional (US$)

 

Average US$

 

Fair value

                 

Financial instruments designated as cash flow hedge

           

Collar - Call (Sale)

 

January 2016

 

(191,000)

 

4.0698

 

(20,747)

Collar - Put (Purchase)

 

January 2016

 

191,000

 

3.7628

 

10,268

Collar - Call (Sale)

 

February 2016

 

(193,000)

 

3.9832

 

(40,807)

Collar - Put (Purchase)

 

February 2016

 

193,000

 

3.6411

 

10,156

Collar - Call (Sale)

 

March 2016

 

(130,000)

 

3.7593

 

(57,862)

Collar - Put (Purchase)

 

March 2016

 

130,000

 

3.4552

 

4,158

Collar - Call (Sale)

 

April 2016

 

(68,000)

 

4.2237

 

(16,236)

Collar - Put (Purchase)

 

April 2016

 

68,000

 

3.6841

 

4,953

Collar - Call (Sale)

 

May 2016

 

(110,000)

 

4.4852

 

(12,563)

Collar - Put (Purchase)

 

May 2016

 

110,000

 

3.8600

 

10,643

Collar - Call (Sale)

 

June 2016

 

(100,000)

 

4.7355

 

(10,117)

Collar - Put (Purchase)

 

June 2016

 

100,000

 

3.8970

 

11,858

Collar - Call (Sale)

 

July 2016

 

(85,000)

 

4.4626

 

(13,956)

Collar - Put (Purchase)

 

July 2016

 

85,000

 

3.7988

 

6,936

Collar - Call (Sale)

 

August 2016

 

(105,000)

 

4.6536

 

(15,589)

Collar - Put (Purchase)

 

August 2016

 

105,000

 

3.8476

 

10,486

Collar - Call (Sale)

 

September 2016

 

(90,000)

 

4.7569

 

(13,590)

Collar - Put (Purchase)

 

September 2016

 

90,000

 

3.8583

 

9,551

Collar - Call (Sale)

 

October 2016

 

(55,000)

 

4.8645

 

(8,176)

Collar - Put (Purchase)

 

October 2016

 

55,000

 

3.8345

 

5,525

Collar - Call (Sale)

 

November 2016

 

(40,000)

 

4.8996

 

(6,290)

Collar - Put (Purchase)

 

November 2016

 

40,000

 

3.7900

 

3,538

Total Option (Collar)

     

-

     

(127,861)

                 

Put (Purchase)

 

January 2016

 

30,000

 

3.9200

 

1,483

Put (Purchase)

 

February 2016

 

30,000

 

3.9200

 

1,909

Total Option (Put)

             

3,392

                 
               

(124,469)

                 

Parent company and Consolidated

12.31.15

R$ x EUR

Type

 

Maturities

 

Notional (EUR)

 

Average EUR

 

Fair value

                 

Financial instruments designated as cash flow hedge

           

Collar - Call (Sale)

 

January 2016

 

(8,000)

 

4.9250

 

(16)

Collar - Put (Purchase)

 

January 2016

 

8,000

 

4.3750

 

1,018

Collar - Call (Sale)

 

February 2016

 

(8,000)

 

4.9475

 

(241)

Collar - Put (Purchase)

 

February 2016

 

8,000

 

4.3950

 

1,286

Collar - Call (Sale)

 

March 2016

 

(7,000)

 

4.9894

 

(342)

Collar - Put (Purchase)

 

March 2016

 

7,000

 

4.3843

 

1,152

Collar - Call (Sale)

 

April 2016

 

(8,000)

 

5.0395

 

(591)

Collar - Put (Purchase)

 

April 2016

 

8,000

 

4.3450

 

1,234

Total Option (Collar)

     

-

     

3,500

 

 

4.2.2 Breakdown of the balances of non-derivative financial instruments

 

The position of non-derivative financial instruments is presented as follows:

 

66

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Parent company and Consolidated

 

 

 

 

 

 

12.31.15

 

12.31.14

Hedge Instrument

 

Hedge object

 

Reference currency (notional)

 

Value (notional)

 

Fair value
(1)

 

Value (notional)

 

Fair value
(1)

Financial instruments designated as cash flow hedge

                       
                         

Export prepayment - PPEs

 

Exchange

 

USD

 

300,000

 

1,171,440

 

300,000

 

796,860

Senior unsecured notes - Bonds

 

Exchange

 

USD

 

300,000

 

1,171,440

 

300,000

 

796,860

                         
           

600,000

 

2,342,880

 

600,000

 

1,593,720

 

(1)     Reference value converted by Ptax rate in effect at year-end.

 

a.            Export prepayments – PPEs

 

The position of PPEs is presented as follows:

 

 

Parent company and Consolidated

12.31.15

Hedge Instrument

 

Type of risk hedged

 

Maturities

 

Notional
(US$)

 

Average rate

 

Fair value

                     

Export prepayment - PPE

 

US$ (E.R.)

 

02.2017 to 02.2019

 

300,000

 

1.7796

 

1,171,440

 

 

b.            Senior unsecured notes – Bonds

 

The position of bonds designated as cash flow hedge is presented as follows:

 

Parent company and Consolidated

12.31.15

Hedge Instrument

 

Type of risk hedged

 

Maturities

 

Notional
(US$)

 

Average rate

 

Fair value

                     

BRF SA BRFSBZ5

 

US$ (E.R.)

 

06.2022

 

150,000

 

2.0213

 

585,720

BRF SA BRFSBZ3

 

US$ (E.R.)

 

05.2023

 

150,000

 

2.0387

 

585,720

                     
           

300,000

 

2.0300

 

1,171,440

 

 

4.3.        Gains and losses of derivative and non-derivative financial instruments

 

The unrealized gains and losses of derivative and non-derivative financial instruments designated as cash flow hedge are recorded as a component of other comprehensive income, as set forth below:

 

67

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Shareholders' Equity

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Derivatives designated as cash flow hedges

             

Foreign exchange risks

(420,649)

 

(152,670)

 

(420,649)

 

(152,670)

Interest risks

(27,725)

 

(26,072)

 

(66,597)

 

(59,300)

Commodity risks

3,604

 

-

 

3,604

 

-

 

(444,770)

 

(178,742)

 

(483,642)

 

(211,970)

               

Non derivatives designated as cash flow hedges

             

Foreign exchange risks

(1,200,000)

 

(450,840)

 

(1,200,000)

 

(450,840)

               

Gross losses

(1,644,770)

 

(629,582)

 

(1,683,642)

 

(662,810)

Deferred taxes on losses

560,446

 

214,058

 

560,446

 

214,058

OCI recognized by subsidiaries

(38,872)

 

(33,228)

 

-

 

-

Losses, net of taxes

(1,123,196)

 

(448,752)

 

(1,123,196)

 

(448,752)

               
               

Change in gross losses

(1,015,188)

 

(163,975)

 

(1,020,832)

 

(162,817)

Income taxes on financial instruments adjustments

346,388

 

55,752

 

346,388

 

55,752

OCI recognized by subsidiaries

(5,644)

 

1,158

 

-

 

-

Impact in other comprehensive income

(674,444)

 

(107,065)

 

(674,444)

 

(107,065)

 

 

On December 31, 2015, the realized transaction with derivative and non-derivative financial instruments designated as cash flow hedge resulted in a loss of R$476,897 (loss of R$77,100 as of December 31, 2014), composed by a net loss amounting to R$469,917 (loss of R$72,347 as of December 31, 2014) recorded as gross revenues and a net loss of R$6,980 (gain of R$4,753 as of December 31, 2014) recorded in the financial result.

 

 

4.4.        Breakdown of financial instruments by category – except derivatives

  

 

Parent company

 

12.31.15

 

Loans and receivables

 

Available for sale

 

Trading securities

 

Held to maturity

 

Financial liabilities

 

Total

Assets

                     

Amortized cost

                     

Marketable securities

-

 

-

 

-

 

70,338

 

-

 

70,338

Restricted cash

-

 

-

 

-

 

479,828

 

-

 

479,828

Trade accounts receivable

4,952,878

 

-

 

-

 

-

 

-

 

4,952,878

Other credits

509,606

 

-

 

-

 

-

 

-

 

509,606

Other receivables

152,965

 

-

 

-

 

-

 

-

 

152,965

Fair value

                     

Marketable securities

-

 

385,700

 

197,807

 

-

 

-

 

583,507

                       

Liabilities

                     

Amortized cost

                     

Trade accounts payable

-

 

-

 

-

 

-

 

(4,024,725)

 

(4,024,725)

Loans and financing

                     

Local currency

-

 

-

 

-

 

-

 

(3,819,625)

 

(3,819,625)

Foreign currency

-

 

-

 

-

 

-

 

(9,760,476)

 

(9,760,476)

Capital lease payable

-

 

-

 

-

 

-

 

(186,618)

 

(186,618)

 

5,615,449

 

385,700

 

197,807

 

550,166

 

(17,791,444)

 

(11,042,322)

 

68

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Parent company

 

12.31.14

 

Loans and receivables

 

Available for sale

 

Trading securities

 

Held to maturity

 

Financial liabilities

 

Total

Assets

                     

Amortized cost

                     

Marketable securities

-

 

-

 

-

 

62,104

 

-

 

62,104

Restricted cash

-

 

-

 

-

 

115,179

 

-

 

115,179

Trade accounts receivable

4,669,679

 

-

 

-

 

-

 

-

 

4,669,679

Other credits

506,844

 

-

 

-

 

-

 

-

 

506,844

Other receivables

195,481

 

-

 

-

 

-

 

-

 

195,481

Fair value

                     

Marketable securities

-

 

-

 

283,623

 

-

 

-

 

283,623

                       

Liabilities

                     

Amortized cost

                     

Trade accounts payable

-

 

-

 

-

 

-

 

(3,591,980)

 

(3,591,980)

Loans and financing

                     

Local currency

-

 

-

 

-

 

-

 

(3,454,444)

 

(3,454,444)

Foreign currency

-

 

-

 

-

 

-

 

(6,037,477)

 

(6,037,477)

Capital lease payable

-

 

-

 

-

 

-

 

(243,606)

 

(243,606)

Fair value

                     

Loans and financing - NCE

-

 

-

 

-

 

-

 

(538,700)

 

(538,700)

 

5,372,004

 

-

 

283,623

 

177,283

 

(13,866,207)

 

(8,033,297)

 

 

 

 

Consolidated

 

12.31.15

 

Loans and receivables

 

Available for sale

 

Trading securities

 

Held to maturity

 

Financial liabilities

 

Total

Assets

                     

Amortized cost

                     

Marketable securities

-

 

-

 

-

 

70,338

 

-

 

70,338

Restricted cash

-

 

-

 

-

 

1,826,102

 

-

 

1,826,102

Trade accounts receivable

3,880,441

 

-

 

-

 

-

 

-

 

3,880,441

Other credits

534,497

 

-

 

-

 

-

 

-

 

534,497

Other receivables

152,965

 

-

 

-

 

-

 

-

 

152,965

Fair value

                     

Marketable securities

-

 

744,849

 

375,562

 

-

 

-

 

1,120,411

                       

Liabilities

                     

Amortized cost

                     

Trade accounts payable

-

 

-

 

-

 

-

 

(4,744,993)

 

(4,744,993)

Loans and financing

                     

Local currency

-

 

-

 

-

 

-

 

(3,819,625)

 

(3,819,625)

Foreign currency

-

 

-

 

-

 

-

 

(11,359,658)

 

(11,359,658)

Capital lease payable

-

 

-

 

-

 

-

 

(186,618)

 

(186,618)

Fair value

                     

Loans and financing - NCE

-

 

-

 

-

 

-

 

-

 

-

 

4,567,903

 

744,849

 

375,562

 

1,896,440

 

(20,110,894)

 

(12,526,140)

 

 

69

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

12.31.14

 

 

 

 

 

 

 

 

 

 

 

Loans and
receivables

 

Available for
sale

 

Trading

securities

 

Held to
maturity

 

Financial
liabilities

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

Amortized cost

 

 

 

 

 

 

 

 

 

 

 

Marketable securities

                    -

 

                    -

 

                    -

 

           62,104

 

                    -

 

           62,104

Restricted cash

                    -

 

                    -

 

                    -

 

         115,179

 

                    -

 

         115,179

Trade accounts receivable

       3,054,577

 

                    -

 

                    -

 

                    -

 

                    -

 

       3,054,577

Other credits

         576,740

 

                    -

 

                    -

 

                    -

 

                    -

 

         576,740

Other receivables

         195,481

 

                    -

 

                    -

 

                    -

 

                    -

 

         195,481

Fair value

 

 

 

 

 

 

 

 

 

 

 

Marketable securities

                    -

 

         303,857

 

         283,623

 

                    -

 

                    -

 

         587,480

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Amortized cost

 

 

 

 

 

 

 

 

 

 

 

Trade accounts payable

                    -

 

                    -

 

                    -

 

                    -

 

      (3,977,327)

 

      (3,977,327)

Loans and financing

 

 

 

 

 

 

 

 

 

 

 

Local currency

                    -

 

                    -

 

                    -

 

                    -

 

      (3,454,444)

 

      (3,454,444)

Foreign currency

                    -

 

                    -

 

                    -

 

                    -

 

      (7,596,191)

 

      (7,596,191)

Capital lease payable

                    -

 

                    -

 

                    -

 

                    -

 

        (243,790)

 

        (243,790)

Fair value

 

 

 

 

 

 

 

 

 

 

 

Loans and financing - NCE

                    -

 

                    -

 

                    -

 

                    -

 

        (538,700)

 

        (538,700)

 

       3,826,798

 

         303,857

 

         283,623

 

         177,283

 

    (15,810,452)

 

    (11,218,891)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4.5.        Determination of the fair value of financial instruments

 

The Company discloses its financial assets and liabilities at fair value, based on the appropriate accounting pronouncements, which refers to concepts of valuation and disclosure requirements.

 

Particularly related to the disclosure, the Company applies the hierarchy requirements set out in CVM Deliberation 699/12, which involves the following aspects:

 

·         The fair value is the price that an asset could be exchanged and a liability could be settled, between knowledgeable willing parties in an arm’s length transaction; and

 

·         Hierarchy on three levels for measurement of the fair value, according to observable inputs for the valuation of an asset or liability on the date of its measurement.

 

The valuation established on three levels of hierarchy for measurement of the fair value is based on observable and non-observable inputs. Observable inputs reflect market data obtained from independent sources, while non-observable inputs reflect the Company’s valuation technics. These two types of inputs create the hierarchy of fair value set forth below:

 

·         Level 1 – Prices quoted (unadjusted) for identical instruments in active markets;

 

70

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

·         Level 2 – Prices quoted in active markets for similar instruments, prices quoted for identical or similar instruments in non-active markets and evaluation models for which inputs are observable; and

 

·         Level 3 – Instruments whose significant inputs are non-observable.

 

The table below presents the overall classification of financial assets and liabilities according to the valuation hierarchy. For the year ended on December 31, 2015, there were no changes between the 3 levels of hierarchy.

 

 

 

Parent company

 

 

 

 

 

 

 

12.31.15

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

Stocks

        385,700

 

                   -

 

                   -

 

        385,700

Held for trading

 

 

 

 

 

 

 

Bank deposit certificates

                   -

 

          42,545

 

                   -

 

          42,545

Financial treasury bills

        155,262

 

                   -

 

                   -

 

        155,262

Other financial assets

 

 

 

 

 

 

 

Derivatives designated as hedges

                   -

 

          98,406

 

                   -

 

          98,406

Derivatives not designated as hedges

                   -

 

          20,274

 

                   -

 

          20,274

 

        540,962

 

        161,225

 

                   -

 

        702,187

Liabilities

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

Loans and financing

                   -

 

                   -

 

                   -

 

                   -

Other financial liabilities

 

 

 

 

 

 

 

Derivatives designated as hedges

                   -

 

       (609,604)

 

                   -

 

       (609,604)

Derivatives not designated as hedges

                   -

 

         (10,270)

 

                   -

 

         (10,270)

 

                   -

 

       (619,874)

 

                   -

 

       (619,874)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Parent company

 

12.31.14

 

 

 

 

 

 

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

 

 

 

 

 

 

 

Financial assets

 

 

 

 

 

 

 

Held for trading

 

 

 

 

 

 

 

Bank deposit certificates

                   -

 

          64,820

 

                   -

 

          64,820

Financial treasury bills

        218,803

 

                   -

 

                   -

 

        218,803

Other financial assets

 

 

 

 

 

 

 

Derivatives designated as hedges

                   -

 

          13,842

 

                   -

 

          13,842

Derivatives not designated as hedges

                   -

 

          29,080

 

                   -

 

          29,080

 

        218,803

 

        107,742

 

                   -

 

        326,545

Liabilities

 

 

 

 

 

 

 

Financial liabilities

 

 

 

 

 

 

 

Loans and financing

                   -

 

       (538,700)

 

                   -

 

       (538,700)

Other financial liabilities

 

 

 

 

 

 

 

Derivatives designated as hedges

                   -

 

       (207,147)

 

                   -

 

       (207,147)

Derivatives not designated as hedges

                   -

 

           (8,910)

 

                   -

 

           (8,910)

 

                   -

 

       (754,757)

 

                   -

 

       (754,757)

 

 

 

71

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

Consolidated

 

12.31.15

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

             

Financial assets

             

Available for sale

             

Credit linked notes

        293,282

 

                   -

 

                   -

 

        293,282

Brazilian foreign debt securities

          65,867

 

                   -

 

                   -

 

          65,867

Stocks

        385,700

 

                   -

 

                   -

 

        385,700

Held for trading

             

Bank deposit certificates

                   -

 

          42,545

 

                   -

 

          42,545

Financial treasury bills

        155,262

 

                   -

 

                   -

 

        155,262

Investment funds

        177,755

 

                   -

 

                   -

 

        177,755

Other financial assets

             

Derivatives designed as hedges

                   -

 

          98,406

 

                   -

 

          98,406

Derivatives not designated as hedges

                   -

 

          30,981

 

                   -

 

          30,981

 

     1,077,866

 

        171,932

 

                   -

 

     1,249,798

Liabilities

             

Financial liabilities

             

Loans and financing

                   -

 

                   -

 

                   -

 

                   -

Other financial liabilities

             

Derivatives designed as hedges

                   -

 

       (655,969)

 

                   -

 

       (655,969)

Derivatives not designated as hedges

                   -

 

         (10,633)

 

                   -

 

         (10,633)

 

                   -

 

       (666,602)

 

                   -

 

       (666,602)

               
               
               
               
 

Consolidated

 

12.31.14

 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

             

Financial assets

             

Available for sale

             

Credit linked notes

        187,867

 

                   -

 

                   -

 

        187,867

Brazilian foreign debt securities

          92,356

 

                   -

 

                   -

 

          92,356

Investment funds

          23,634

 

                   -

 

                   -

 

          23,634

Held for trading

             

Bank deposit certificates

                   -

 

          64,820

 

                   -

 

          64,820

Financial treasury bills

        218,803

 

                   -

 

                   -

 

        218,803

Other financial assets

             

Derivatives designed as hedges

                   -

 

          13,842

 

                   -

 

          13,842

Derivatives not designated as hedges

                   -

 

          29,259

 

                   -

 

          29,259

 

        522,660

 

        107,921

 

                   -

 

        630,581

Liabilities

             

Financial liabilities

             

Loans and financing

                   -

 

       (538,700)

 

                   -

 

       (538,700)

Other financial liabilities

             

Derivatives designed as hedges

                   -

 

       (245,734)

 

                   -

 

       (245,734)

Derivatives not designated as hedges

                   -

 

         (11,704)

 

                   -

 

         (11,704)

 

                   -

 

       (796,138)

 

                   -

 

       (796,138)

 

  

 

The following is a description of the valuation methodologies utilized by the Company for financial instruments measured at fair value:

 

·         Investments in Brazilian foreign debt securities, Financial Treasury Notes (“LFT”), financial investment funds and stocks are classified at Level 1 of the fair value hierarchy, as the market prices are available in an active market;

 

72

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

·         Investments in Bank Deposit Certificates (“CDB”) are classified at Level 2, since the determination of fair value is based on the price quotation of similar financial instruments in non-active markets; and

 

·         Derivative financial instruments are valued through existing pricing models widely accepted by financial market and described in appendix III of the Risk Policy. Readily observable market inputs are used, such as interest rate forecasts, volatility factors and foreign currency rates. These instruments are classified at Level 2 in the valuation hierarchy, including interest rates swap and foreign currency derivatives.

 

 

4.6.        Comparison between book value and fair value of financial instruments

 

Except for the items presented below, the book value of all other financial instruments approximate fair value. The fair value of financial instruments presented below was based in prices observed in active markets, level 1 of the hierarchy for fair value measurement.

 

 

 

Parent company and Consolidated

 

 

 

12.31.15

 

12.31.14

 

Maturity

 

Book
value

 

Fair
value

 

Book
value

 

Fair
value

BRF bonds

                 

BRF SA BRFSBZ5

2022

 

        (656,068)

 

        (695,203)

 

     (1,995,163)

 

     (2,101,511)

BRF SA BRFSBZ4

2024

 

     (2,906,435)

 

     (2,718,636)

 

     (1,961,020)

 

     (1,953,912)

BRF SA BRFSBZ3

2023

 

     (1,881,569)

 

     (1,781,229)

 

     (1,245,013)

 

     (1,241,545)

BRF SA BRFSBZ7

2018

 

        (502,061)

 

        (427,016)

 

        (501,192)

 

        (439,461)

BRF SA BRFSBZ2

2022

 

     (2,139,463)

 

     (1,990,770)

 

                    -

 

                    -

Parent company

   

     (8,085,596)

 

     (7,612,854)

 

     (5,702,388)

 

     (5,736,429)

                   

BFF bonds

                 

Sadia Overseas BRFSBZ7

2020

 

        (475,299)

 

        (499,662)

 

        (595,372)

 

        (679,571)

Sadia bonds

                 

Sadia Overseas BRFSBZ6

2017

 

        (443,332)

 

        (461,999)

 

        (427,285)

 

        (457,477)

Quickfood bonds

                 

Quickfood

2016

 

        (285,709)

 

        (285,709)

 

        (190,139)

 

        (190,139)

Consolidated

   

     (9,289,936)

 

     (8,860,224)

 

     (6,915,184)

 

     (7,063,616)

 

 

4.7.        Table of sensitivity analysis

 

In preparation of the sensitivity analysis, Management considered the derivative financial instruments used to mitigate the currency risk and commodities as relevant risks and could impact the Company's results. Currently, Management believes that fluctuations in interest rates do not significantly affect its financial results, since have opted for fixing through derivative financial instruments (interest rate swap), a considerable part of its post fixed debt.

73

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The table below presents the possible impacts of derivative and non-derivative financial instruments considering scenarios of appreciation and depreciation of the main traded currencies by the Company with respect to its functional currency (Brazilian Real) and changes in corn prices on the Chicago Board of Trade (“CBOT”). The amount of exports utilized corresponds to notional value of derivative financial instruments entered into in order to hedge highly probable transaction.

 

Quantitative and qualitative information used in preparing these analyzes are based on the position for the period ended December 31, 2015. Future results to be measured may differ significantly from those estimates amounts, if the reality becomes different from the assumptions used.

 

74

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

                         
       

               3.9048

 

                 3.5143

 

                 2.9286

 

               4.8810

 

               5.8572

Parity - Brazilian Reais x U.S. Dollar

     

Current

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

Transaction/Instrument

 

Risk

 

Scenario

 

10% appreciation

 

25% appreciation

 

25% devaluation

 

50% devaluation

Financial instruments designated as hedge accouting

                       

Non-deliverable forward

 

Devaluation of R$

 

              (13,711)

 

                  3,471

 

                 29,242

 

              (56,663)

 

              (99,616)

Fixed exchange rate

 

Devaluation of R$

 

                 7,526

 

                 86,013

 

               203,743

 

            (188,690)

 

            (384,906)

Options - currencies

 

Devaluation of R$

 

                      -  

 

               295,189

 

            1,013,868

 

             647,587

 

           1,786,813

Export prepayments

 

Devaluation of R$

 

            (637,560)

 

              (520,416)

 

              (344,700)

 

            (930,420)

 

          (1,223,280)

Bonds

 

Devaluation of R$

 

            (562,440)

 

              (445,296)

 

              (269,580)

 

            (855,300)

 

          (1,148,160)

Swaps

 

Devaluation of R$

 

            (231,384)

 

              (183,246)

 

              (111,038)

 

            (351,730)

 

            (472,076)

Exports

 

Appreciation of R$

 

                 6,185

 

              (384,673)

 

           (1,246,853)

 

            (402,234)

 

          (1,302,291)

Financial instruments not designated as hedge accouting

                     

NDF - Purchase

 

Appreciation of R$

 

                (8,080)

 

                (27,604)

 

                (56,890)

 

               40,730

 

               89,540

Dollar Future sales - BM&FBovespa

 

Devaluation of R$

 

                   (912)

 

                 73,279

 

               184,566

 

            (186,390)

 

            (371,868)

Net effect

     

          (1,440,376)

 

           (1,103,283)

 

              (597,642)

 

          (2,283,110)

 

          (3,125,844)

Shareholders' equity

     

          (1,431,384)

 

           (1,148,958)

 

              (725,318)

 

          (2,137,450)

 

          (2,843,516)

Statement of income

     

                (8,992)

 

                 45,675

 

               127,676

 

            (145,660)

 

            (282,328)

                         
                         
       

               4.2504

 

                 3.8254

 

                 3.1878

 

               5.3130

 

               6.3756

Parity - Brazilian Reais x Euro

     

Current

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

Transaction/Instrument

 

Risk

 

Scenario

 

10% appreciation

 

25% appreciation

 

25% devaluation

 

50% devaluation

Financial instruments designated as hedge accouting

                       

Non-deliverable forward

 

Devaluation of R$

 

                 1,095

 

                 14,611

 

                 34,886

 

              (32,696)

 

              (66,486)

Currency options

 

Devaluation of R$

 

                 3,848

 

                 17,024

 

                 36,788

 

               10,481

 

               43,422

Exports

 

Appreciation of R$

 

                (4,943)

 

                (31,635)

 

                (71,674)

 

               22,215

 

               23,064

Financial instruments not designated as hedge accouting

                     

Non-deliverable forward

 

Devaluation of R$

 

                 1,210

 

                (62,545)

 

              (158,179)

 

             160,600

 

             319,989

Net effect

     

                 1,210

 

                (62,545)

 

              (158,179)

 

             160,600

 

             319,989

Shareholders' equity

     

                        -

 

                         -

 

                         -

 

                        -

 

                        -

Statement of income

     

                 1,210

 

                (62,545)

 

              (158,179)

 

             160,600

 

             319,989

                         
                         
       

               5.7881

 

                 5.2093

 

                 4.3411

 

               7.2351

 

               8.6822

Parity - Brazilian Reais x GBP

     

Current

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

Transaction/Instrument

 

Risk

 

Scenario

 

10% appreciation

 

25% appreciation

 

25% devaluation

 

50% devaluation

Non-deliverable forward

 

Devaluation of R$

 

                    514

 

                  6,881

 

                 16,432

 

              (15,403)

 

              (31,320)

Exports

 

Appreciation of R$

 

                   (514)

 

                 (6,881)

 

                (16,432)

 

               15,403

 

               31,320

Financial instruments not designated as hedge accouting

                     

NDF and Deliverable forward (hedge accouting)

 

Devaluation of R$

 

                   (422)

 

                (11,998)

 

                (29,362)

 

               28,519

 

               57,459

Net effect

     

                   (422)

 

                (11,998)

 

                (29,362)

 

               28,519

 

               57,459

Shareholders' equity

     

                        -

 

                         -

 

                         -

 

                        -

 

                        -

Statement of income

     

                   (422)

 

                (11,998)

 

                (29,362)

 

               28,519

 

               57,459

                         
                         
       

               0.0324

 

                 0.0292

 

                 0.0243

 

               0.0405

 

               0.0486

Parity - Brazilian Reais x JPY

     

Current

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

Transaction/Instrument

 

Risk

 

Scenario

 

10% appreciation

 

25% appreciation

 

25% devaluation

 

50% devaluation

Non-deliverable forward

 

Devaluation of R$

 

              (34,289)

 

                (12,237)

 

                 20,842

 

              (89,420)

 

            (144,551)

Exports

 

Appreciation of R$

 

               34,289

 

                 12,237

 

                (20,842)

 

               89,420

 

             144,551

Financial instruments not designated as hedge accouting

                     

Non-deliverable forward

 

Devaluation of R$

 

                 3,032

 

                 23,954

 

                 55,337

 

              (49,272)

 

            (101,577)

Net effect

     

                 3,032

 

                 23,954

 

                 55,337

 

              (49,272)

 

            (101,577)

Shareholders' equity

     

                        -

 

                         -

 

                         -

 

                        -

 

                        -

Statement of income

     

                 3,032

 

                 23,954

 

                 55,337

 

              (49,272)

 

            (101,577)

                         
                         
       

               142.80

 

                 128.52

 

                 107.10

 

               178.50

 

               214.20

Price parity CBOT - US$/Ton

     

Current

 

Scenario I

 

Scenario II

 

Scenario III

 

Scenario IV

Transaction/Instrument

 

Risk

 

Scenario

 

Decrease 10%

 

Decrease 25%

 

Increase 25%

 

Increase 50%

Designated as hedge accounting

                       

Non-deliverable forward

 

Increase in the price of corn

 

              (11,729)

 

                (47,057)

 

              (100,049)

 

               76,592

 

             164,912

Not designated as hedge accounting

                       

NDF - Corn purchase

 

Increase in the price of corn

 

                 2,907

 

                  5,962

 

                 10,544

 

                (4,729)

 

              (12,366)

Net effect

     

                (8,822)

 

                (41,095)

 

                (89,505)

 

               71,863

 

             152,546

Shareholders' equity

     

              (11,729)

 

                (47,057)

 

              (100,049)

 

               76,592

 

             164,912

Statement of income

     

                 2,907

 

                  5,962

 

                 10,544

 

                (4,729)

 

              (12,366)

 

75

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

5.            SEGMENT INFORMATION

 

The operating segments are reported consistently with the management reports provided to the Board of Directors and Directors for assessing the performance of each segment and allocating resources.

 

As disclosed in note 1, in order to reflect the management structure changes the segment information of 2015 and 2014 were prepared considering the five observable segments, as follows: Brazil, Latin America (“LATAM”), Europe, Middle East and Africa (“MEA”) and Asia, which primarily observe our geographical structure. The information as of December 31, 2014 was prepared in order to be comparable to the information as of December 31, 2015, according to the new segments of the Company.

 

Hence, these segments include the sales operations in all sales channels and are disclosed according to the nature of the products as described below:

 

·         Poultry: involves the production and sale of whole poultry and in-natura cuts.

 

·         Pork and beef cuts: involves the production and sale of in-natura cuts.

 

·         Processed products: involves the production and sale of processed foods, frozen and processed products derived from poultry, pork and beef.

 

·         Other processed products: involves the production and sale of processed foods like margarine and vegetable and soybean-based products.

 

·         Other sales: involves the production and trade of animal feed, soy meal, refined soy flour, cheese and cream cheese.

 

 

The net sales for each reportable operating segment are presented below:

 

76

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

   

Consolidated

Net sales

 

12.31.15

 

12.31.14

Brazil

       

Poultry

 

       2,293,385

 

       2,044,614

Pork and beef

 

          733,905

 

       1,041,064

Processed products

 

     12,227,512

 

     11,383,894

Other sales

 

          782,705

 

          954,875

   

     16,037,507

 

     15,424,447

         

Europe

       

Poultry

 

          854,902

 

          483,862

Pork and beef

 

          850,400

 

          895,593

Processed products

 

       1,934,313

 

       1,713,181

   

       3,639,615

 

       3,092,636

         

MEA

       

Poultry

 

       6,364,934

 

       4,909,920

Pork and beef

 

          150,233

 

          253,310

Processed products

 

          582,260

 

          546,590

Other sales

 

                  46

 

                    -

   

       7,097,473

 

       5,709,820

         

Asia

       

Poultry

 

       2,834,136

 

       2,613,180

Pork and beef

 

          373,815

 

          388,393

Processed products

 

           81,643

 

           71,371

   

       3,289,594

 

       3,072,944

   

 

 

 

LATAM

       

Poultry

 

          501,864

 

          537,119

Pork and beef

 

          294,937

 

          313,607

Processed products

 

       1,284,329

 

          806,167

Other sales

 

           51,282

 

           50,103

   

       2,132,412

 

       1,706,996

   

     32,196,601

 

     29,006,843

 

 

The operating income for each reportable operating segment is presented below:

 

 

 

 

Consolidated

 

 

12.31.15

 

12.31.14

 

 

 

 

 

Brazil

 

       1,622,322

 

       2,001,984

Europe

 

          572,160

 

          552,579

MEA

 

       1,214,196

 

          314,606

Asia

 

          703,333

 

          546,638

LATAM

 

          116,399

 

           62,512

 

 

       4,228,410

 

       3,478,319

 

 

 

No customer was individually or in aggregate responsible for more than 5% of net sales for the years ended December 31, 2015 and 2014.

 

77

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The goodwill and intangible assets with indefinite useful life (trademarks) arising from business combination were allocated to the reportable operating segments, considering the nature of the products manufactured in each segment (cash-generating unit), as presented below:

 

 

 

Consolidated

 

Goodwill

 

Trademarks

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Brazil

  1,151,498

 

  1,151,498

 

     982,478

 

     982,478

 

  2,133,976

 

  2,133,976

Europe

     481,658

 

     303,258

 

       20,149

 

       20,115

 

     501,807

 

     323,373

MEA

     834,368

 

     749,654

 

     170,407

 

     170,407

 

  1,004,775

 

     920,061

Ásia

       78,270

 

       78,270

 

             -  

 

             -  

 

       78,270

 

       78,270

LATAM

     232,308

 

     242,663

 

     198,984

 

       94,888

 

     431,292

 

     337,551

 

  2,778,102

 

  2,525,343

 

  1,372,018

 

  1,267,888

 

  4,150,120

 

  3,793,231

 

 

The Company performed the impairment test of the assets allocated to the reportable segments using the discounted cash flow methodology. The results and main assumptions used are disclosed in note 19.

 

Information referring to the total assets by reportable segments is not being disclosed, as it is not included in the set of information made available to the Company’s Management, which take investment decisions and determine allocation of assets on a consolidated basis.

 

 

6.            BUSINESS COMBINATION AND ACQUSITION OF ENTITIES INTEREST

 

6.1.        Business combination

 

6.1.1.   Business combination – Invicta Food Group Limited (“IFGL”)

 

On April 22, 2015, BRF, through its wholly-owned subsidiary BRF GmbH, has signed with the shareholders of the entire share capital of Invicta Food Group Limited ("IFGL"), the final documents for the formation of a new company (denominated BRF Invicta), which shall have as main objective the distribution of processed food in the United Kingdom, Ireland and Scandinavia.

 

The sellers contributed with IFGL operation and BRF GmbH contributed its current operation in Europe (represented by the business of BRF UK, former corporate name of Plusfood UK) at BRF Invicta and BRF GmbH paid to the sellers the amount of GBP25,558 (equivalent to R$115,994), such that BRF GmbH will hold 62% of BRF Invicta total share capital.

 

Additionally, BRF GmbH recorded a provision of GBP8,000 (equivalent to R$36,291) as contingent consideration, which can be adjusted in a range of GBP4,000 to GBP12,000, as it depends on the business operating performance and the appreciation of the shares of BRF S.A., and will be settled in January 2019.

78

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The agreement signed between BRF GmbH and IFGL also includes a call option held by BRF GmbH, to be exercised from January 01, 2019 to December 31, 2020 and a put option held by shareholders of the 38% remaining, to be exercised from January 01, 2023 to March 31, 2023. BRF recognized a liability, in non-current liabilities, related to the put option in the amount of GBP53,100 (equivalent to R$240,883) referring to the fair value of exercise price of put option in counterparty to the BRF GmbH’s shareholders’ equity to reflect the acquisition of non-controlling interest. On December 31, 2015, the amount of this obligation is R$307,348. This liability corresponds to R$307,348 as of December 31, 2015.

 

The fair value of the acquired assets and assumed liabilities for the determination of the price paid by BRF Invicta to acquire IFGL are as follows:

 

 

 

Fair value recognized

on acquisition date

Cash and cash equivalents

25,073

Trade accounts receivable, net

37,584

Inventories

68,336

Property, plant and equipment, net

4,986

Intangible

196,199

Customer relationship

147,424

Import Quotas

48,775

 

332,178

 

 

Trade accounts payable

30,231

Tax payable

1,093

Other liabilities

2,341

Deferred taxes

39,240

 

72,905

 

 

Net asset

259,273

 

 

Fair value of consideration

393,118

Cash

115,944

Earn-out

36,291

Transfer of shares of BRF Invicta at market value (1)

240,883

Fair value of consideration

393,118

 

 

Goodwill

133,845

 

The fair value of the consideration paid was determined as follows:

 

Cash

115,944

Earn-out

36,291

Transfer of shares of BRF Invicta at market value (1)

240,883

Fair value of consideration

393,118

 

(1)       A gain of R$111,247 corresponding to the difference of historical cost and market value of BRF Invicta shares recognized as capital reserve in shareholder’s equity.

79

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

IFGL contributed with net revenues of R$393,532 and net profit of R$20,308 from the acquisition date to 31.12.15 in the consolidate balances. If the acquisition had occurred at the beginning of year 2015, the consolidated net revenues for this year would be increased by R$109,404 and the consolidated net profit of year would be increased by R$4,270.

 

 

6.2.        Acquisition of Entities Interest

 

6.2.1.   Acquisition of entity interest of SATS BRF Food Pte. Ltd (“SATS BRF”)

 

On June 02, 2015, BRF, through its wholly-owned subsidiary BRF GmbH, signed an agreement with Singapore Food Industries Pte. Ltd. (“SFI”) for the formation of a joint venture in Singapore, of which BRF acquired 49% of the share capital. SFI is a wholly-owned subsidiary of SATS Ltd., which is the leading provider of airport food catering in Asia, and listed on the Singapore Exchange ("SGX").

 

The joint venture was named SATS BRF Food Pte. Ltd. ("SATS BRF"). The total consideration was SGD26,000 (R$59,883) (see below):

 

 

Cash – consideration paid

 

           60,637

 

 

 

Fair value of equity interest in SATS on the acquisition date

 

          (54,853)

 

 

 

Goodwill

 

             5,784

 

 

SATS BRF will focus on expand the offer of processed foods and semi-processed of high value added, initially for the Singapore market.

 

The SATS BRF’s investment is measured based on the equity method and classified as joint venture.

 

 

 

 

 

80

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

7.            CASH AND CASH EQUIVALENTS

 

 

 

Average rate (p.a.)

 

Parent company

 

Consolidated

   

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Cash and bank accounts

                 

U.S. Dollar

                -

 

          33,523

 

          13,049

 

        665,550

 

      1,309,800

Brazilian Reais

                -

 

          65,212

 

        101,422

 

          65,302

 

        101,654

Euro

                -

 

          76,681

 

        122,282

 

        556,440

 

        311,339

Other currencies

                -

 

          11,615

 

               626

 

        330,855

 

        115,719

     

        187,031

 

        237,379

 

      1,618,147

 

      1,838,512

Cash equivalents

                 

In Brazilian Reais

                 

Investment funds

15.12%

 

          14,553

 

          13,863

 

          14,553

 

          13,863

Savings account

5.66%

 

          10,990

 

                   -

 

          10,990

 

                   -

Bank deposit certificates

14.23%

 

        449,716

 

      1,617,420

 

        486,042

 

      1,644,069

     

        475,259

 

      1,631,283

 

        511,585

 

      1,657,932

In U.S. Dollar

                 

Term deposit

1.31%

 

        172,899

 

          39,888

 

      2,785,926

 

      1,521,420

Overnight

0.08%

 

            9,896

 

          22,267

 

        430,492

 

        901,851

In Euro

                 

Term deposit

                -

 

                   -

 

          48,540

 

                   -

 

          78,190

Other currencies

                 

Term deposit

5.24%

 

                   -

 

                   -

 

          16,740

 

            9,037

     

        182,795

 

        110,695

 

      3,233,158

 

      2,510,498

     

        845,085

 

      1,979,357

 

      5,362,890

 

      6,006,942

 

8.            MARKETABLE SECURITIES

 

 

         

Average interest rate (p.a.)

 

Parent company

 

Consolidated

 

WATM (1)

 

Currency

   

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Available for sale

                         

Credit linked note (a)

4.41

 

US$

 

3.92%

 

                  -

 

                  -

 

        293,282

 

        187,867

Brazilian foreign debt securities (b)

2.34

 

US$

 

2.98%

 

                  -

 

                  -

 

         65,867

 

         92,356

Stocks (f)

        -  

 

R$

 

                -  

 

        385,700

 

                  -

 

        385,700

 

                  -

Investment funds (c)

        -  

 

ARS

 

                -  

 

                  -

 

                  -

 

                  -

 

         23,634

             

        385,700

 

                  -

 

        744,849

 

        303,857

Held for trading

                         

Bank deposit certificates ("CDB") (d)

5.42

 

R$

 

13.97%

 

         42,545

 

         64,820

 

         42,545

 

         64,820

Financial treasury bills (e)

4.54

 

R$

 

14.15%

 

        155,262

 

        218,803

 

        155,262

 

        218,803

Investment funds (c)

1.00

 

ARS

 

29.31%

 

                  -

 

                  -

 

        177,755

 

                  -

             

        197,807

 

        283,623

 

        375,562

 

        283,623

Held to maturity

                         

Financial treasury bills (e)

     1.72

 

R$

 

14.15%

 

         70,338

 

         62,104

 

         70,338

 

         62,104

             

        653,845

 

        345,727

 

     1,190,749

 

        649,584

                           

Current

           

        197,807

 

        283,623

 

        734,711

 

        587,480

Non-current

           

        456,038

 

         62,104

 

        456,038

 

         62,104

 

(1)     Weighted average maturity in years.

 

(a)  The credit linked note is a structured operation with a first-class financial institution that bears periodic interest (LIBOR + spread) and corresponds to a credit note that contemplates the Company’s risk.

81

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

(b)  Brazilian foreign debt securities are denominated in U.S. Dollars and remunerated at pre and post-fixed rates.

 

(c)  The fund in foreign currency is basically represented of public and private securities

 

(d)  Bank Deposit Certificate (“CDB”) investments are denominated in Brazilian Reais and remunerated at rates varying from 98% to 100% of the Interbank Deposit Certificate (“CDI”).

 

(e)  Financial Treasury Bills (“LFT”) are remunerated at the rate of the Special System for Settlement and Custody (“SELIC”).

 

(f)   The stock balance comprises the market value of 29,000,000 stocks from Minerva (BEEF3) (note 17.3).

 

The unrealized loss by the change in fair value of the available for sale securities, recorded in other comprehensive income, corresponds to the accumulated amount of R$8,466 net of income tax of R$1,987 (loss of R$17,296 net of income tax of R$225 as of December 31, 2014).

 

Additionally, on December 31, 2015, of the total of marketable securities, R$99,264 (R$32,433 as of December 31, 2014)  were pledged as collateral (without restrictions for use) for operations with future contracts denominated in U.S. Dollars, traded on the Futures and Commodities Exchange (“BM&FBovespa”).

 

The Company also has restricted cash in the amount of R$479,828 in the parent company and R$1,826,102 in the consolidate balances on December 31, 2015 (R$115,179 in the parent company and consolidate balances on December 31, 2014), see note 16.

 

The marketable securities non-current balance as of December 31, 2015 matures in 2017.

 

The Company conducted an analysis of sensitivity to foreign exchange rate as presented in note 4.7.

 

 

 

 

 

 

 

 

 

82

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

9.            TRADE ACCOUNTS RECEIVABLE, NET AND OTHER RECEIVABLES

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Trade accounts receivable, net

             

Domestic customers

     1,928,197

 

     1,476,399

 

     1,928,197

 

     1,476,399

Domestic related parties

              645

 

            1,622

 

              645

 

            1,622

Foreign customers

        419,153

 

        410,943

 

     2,146,020

 

     1,693,314

Foreign related parties

     3,030,221

 

     2,889,486

 

        250,766

 

            1,243

 

     5,378,216

 

     4,778,450

 

     4,325,628

 

     3,172,578

( - ) Adjustment to present value

         (13,232)

 

         (10,220)

 

         (13,232)

 

         (10,220)

( - ) Allowance for doubtful accounts

       (412,106)

 

         (98,551)

 

       (431,955)

 

       (107,781)

               
 

     4,952,878

 

     4,669,679

 

     3,880,441

 

     3,054,577

               

Current

     4,948,745

 

     4,663,193

 

     3,876,308

 

     3,046,871

Non-current

            4,133

 

            6,486

 

            4,133

 

            7,706

               
               

Credit notes

        544,951

 

        532,148

 

        569,842

 

        602,987

( - ) Adjustment to present value

           (2,982)

 

           (8,640)

 

           (2,982)

 

           (9,583)

( - ) Allowance for doubtful accounts

         (32,363)

 

         (16,664)

 

         (32,363)

 

         (16,664)

               
 

        509,606

 

        506,844

 

        534,497

 

        576,740

               

Current

        281,516

 

        170,029

 

        303,716

 

        215,067

Non-current (1)

        228,090

 

        336,815

 

        230,781

 

        361,673

 

(1) Weighted average maturity of 3.18 years.

 

Of the foreign related parties balance recorded in the parent company, R$1,110,010 were transferred in the Certificate of Agribusiness Receivables operation (“CRA”) as disclosed in Note 20.

 

On December 31, 2015 notes receivable are comprised mainly by receivables from the (i) sale of Ana Rech assets to JBS, of R$101,161; (ii) sale of assets of Vila Anastácio, former headquarters of Sadia, of R$22,198; (iii) sale of Carambeí plant to Seara, of R$88,150 and (iv) disposal of various other assets and farms, R$309,221.

 

The trade accounts receivable from related parties by the parent company are disclosed in note 30. The consolidated balances, refers to transaction with associates UP!, in domestic market and with joint ventures AKF and SATS BRF, in foreign market.

 

The rollforward of allowance for doubtful accounts is presented below:

 

83

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

          98,551

 

          99,874

 

        107,781

 

        107,478

Additions (1)

        274,281

 

          85,163

 

        301,441

 

          91,315

Business combination

                   -

 

                   -

 

                   -

 

            2,798

Reversals

         (57,618)

 

         (54,479)

 

         (65,753)

 

         (57,838)

Write-offs

         (30,858)

 

         (32,089)

 

         (30,901)

 

         (33,953)

Exchange rate variation

        127,750

 

                82

 

        119,387

 

           (2,019)

Ending balance

        412,106

 

          98,551

 

        431,955

 

        107,781

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Refers mainly to doubtful accounts in foreign markets.

The aging of trade accounts receivable is as follows:

 

 

 

 

 

 

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Current

     4,902,657

 

     4,494,352

 

     3,483,359

 

     2,793,427

Overdue

 

 

 

 

 

 

 

 01 to 60 days

          56,088

 

          45,872

 

        343,216

 

        118,902

 61 to 90 days

            7,927

 

          29,504

 

          30,301

 

          29,988

 91 to 120 days

            3,414

 

          34,367

 

          37,723

 

          42,092

 121 to 180 days

            1,922

 

          72,658

 

            7,027

 

          73,992

 181 to 360 days

          61,653

 

          13,317

 

          70,845

 

          13,758

More than 361 days

        344,555

 

          88,380

 

        353,157

 

        100,419

( - ) Adjustment to present value

         (13,232)

 

         (10,220)

 

         (13,232)

 

         (10,220)

( - ) Allowance for doubtful accounts

       (412,106)

 

         (98,551)

 

       (431,955)

 

       (107,781)

 

     4,952,878

 

     4,669,679

 

     3,880,441

 

     3,054,577

 

 

10.         INVENTORIES

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Finished goods

   1,437,670

 

   1,045,232

 

   2,601,130

 

   1,551,383

Goods for resale

         6,042

 

       16,764

 

         6,042

 

       23,025

Work in process

      141,780

 

      193,228

 

      157,807

 

      207,039

Raw materials

      568,957

 

      482,863

 

      620,734

 

      517,460

Packaging materials

       54,605

 

       75,745

 

       83,567

 

       96,275

Secondary materials

      304,750

 

      217,604

 

      341,687

 

      232,657

Spare parts

      129,902

 

      145,311

 

      173,113

 

      164,925

Goods in transit

                -

 

                -

 

                -

 

       77,576

Imports in transit

      143,757

 

       74,864

 

      154,769

 

      122,593

Advances to suppliers

         8,709

 

       10,678

 

         8,709

 

       10,678

(-) Provision for adjustment to realizable value

        (1,596)

 

             (67)

 

      (19,959)

 

        (1,205)

(-) Provision for deterioration

      (49,480)

 

      (17,411)

 

      (49,618)

 

      (19,521)

(-) Provision for obsolescense

        (8,878)

 

      (16,522)

 

      (12,182)

 

      (18,063)

(-) Adjustment to present value

      (32,888)

 

      (23,467)

 

      (32,888)

 

      (23,467)

 

   2,703,330

 

   2,204,822

 

   4,032,911

 

   2,941,355

   

 

The write-offs of products sold from inventories to cost of sales during the year ended December 31, 2015 totaled R$19,740,350 in the parent company and R$22,107,692 in the consolidated (R$18,901,439 in the parent company and R$20,497,430 in the consolidated in December 31, 2014). Such amounts include the additions and reversals of inventory provisions presented in the table below:

84

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

Parent company

 

Provision for adjustment

to realizable value

 

Provision for

deterioration

 

Provision for

obsolescence

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

            (67)

 

      (30,663)

 

    (17,411)

 

    (10,795)

 

    (16,522)

 

     (5,221)

 

    (34,000)

 

    (46,679)

Additions

        (2,398)

 

      (13,053)

 

    (61,252)

 

    (46,631)

 

     (3,978)

 

    (15,664)

 

    (67,628)

 

    (75,348)

Reversals

            869

 

       43,649

 

             -

 

             -

 

             -

 

             -

 

         869

 

     43,649

Write-offs

                -

 

                -

 

     29,183

 

     40,015

 

     11,622

 

      4,363

 

     40,805

 

     44,378

Ending balance

        (1,596)

 

            (67)

 

    (49,480)

 

    (17,411)

 

     (8,878)

 

    (16,522)

 

    (59,954)

 

    (34,000)

 

 

 

Consolidated

 

Provision for adjustment

to realizable value

 

Provision for

deterioration

 

Provision for

obsolescence

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

        (1,205)

 

      (31,590)

 

    (19,521)

 

    (19,064)

 

    (18,063)

 

     (5,221)

 

    (38,789)

 

    (55,875)

Additions

      (18,181)

 

      (14,126)

 

    (70,586)

 

    (48,134)

 

     (5,105)

 

    (17,090)

 

    (93,872)

 

    (79,350)

Reversals

         2,369

 

       68,616

 

             -

 

             -

 

             -

 

             -

 

      2,369

 

     68,616

Write-offs

                -

 

                -

 

     39,311

 

     46,499

 

     12,164

 

      4,570

 

     51,475

 

     51,069

Exchange rate variation

        (2,942)

 

      (24,105)

 

      1,178

 

      1,178

 

     (1,178)

 

        (322)

 

     (2,942)

 

    (23,249)

Ending balance

      (19,959)

 

        (1,205)

 

    (49,618)

 

    (19,521)

 

    (12,182)

 

    (18,063)

 

    (81,759)

 

    (38,789)

 

 

On December 31, 2015, there were no inventory items pledged as collateral for rural credit operations (R$40,000 in December 31, 2014).

 

 

11.         BIOLOGICAL ASSETS

 

The balance of biological assets are segregated in current and non-current assets are presented below:

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

               

Live animals

         1,322,317

 

         1,122,350

 

         1,329,861

 

         1,130,580

Total current

         1,322,317

 

         1,122,350

 

         1,329,861

 

         1,130,580

               

Live animals

            530,114

 

            459,381

 

            530,869

 

            460,768

Forests

            230,153

 

            222,442

 

            230,153

 

            222,442

Total non-current

            760,267

 

            681,823

 

            761,022

 

            683,210

 

         2,082,584

 

         1,804,173

 

         2,090,883

 

         1,813,790

 

 

 

85

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The rollforward of biological assets for the year is presented below:

 

 

 

Parent company

 

Current

 

Non-current

 

Live animals

 

Live animals

 

Forests

 

Total

 

Poultry

 

Pork

 

Cattle

 

Total

 

Total

 

Poultry

 

Pork

 

Cattle

 

 

 

 

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

      507,707

 

      524,189

 

      614,643

 

      586,463

 

           -

 

     87,709

 

   1,122,350

 

   1,198,361

 

   242,890

 

   244,254

 

  215,851

 

  201,704

 

      640

 

      148

 

  222,442

 

  122,872

 

   681,823

 

   568,978

Acquisition

      182,322

 

      146,037

 

   1,234,582

 

   1,088,380

 

           -

 

     26,032

 

   1,416,904

 

   1,260,449

 

     31,405

 

     25,607

 

  142,048

 

  123,959

 

           -

 

           -

 

            -

 

            -

 

   173,453

 

   149,566

Fair value variation (1)

   1,307,745

 

   1,073,534

 

      123,164

 

       55,977

 

           -

 

         207

 

   1,430,909

 

   1,129,718

 

     72,461

 

     28,335

 

  (62,118)

 

  (49,406)

 

      307

 

      492

 

     9,430

 

   23,963

 

     20,080

 

      3,384

Harvest

                -

 

                -

 

                -

 

                -

 

           -

 

             -

 

                -

 

                -

 

             -

 

             -

 

            -

 

            -

 

           -

 

           -

 

  (26,611)

 

  (23,353)

 

    (26,611)

 

    (23,353)

Write-off

                -

 

                -

 

                -

 

                -

 

           -

 

             -

 

                -

 

                -

 

             -

 

             -

 

            -

 

            -

 

           -

 

           -

 

    (2,447)

 

       (909)

 

     (2,447)

 

        (909)

Transfer between current  and non-current

       52,581

 

       55,306

 

       59,842

 

       60,406

 

           -

 

             -

 

      112,423

 

      115,712

 

    (52,581)

 

    (55,306)

 

  (59,842)

 

  (60,406)

 

           -

 

           -

 

            -

 

            -

 

  (112,423)

 

  (115,712)

Transfer of the held for sale

                -

 

                -

 

                -

 

                -

 

           -

 

             -

 

                -

 

                -

 

             -

 

             -

 

            -

 

            -

 

           -

 

           -

 

   27,339

 

   99,869

 

     27,339

 

     99,869

Transfer to inventories

  (1,462,437)

 

  (1,291,359)

 

  (1,297,832)

 

  (1,176,583)

 

           -

 

  (113,948)

 

  (2,760,269)

 

  (2,581,890)

 

             -

 

             -

 

            -

 

            -

 

     (947)

 

           -

 

            -

 

            -

 

        (947)

 

             -

Ending balance

      587,918

 

      507,707

 

      734,399

 

      614,643

 

           -

 

             -

 

   1,322,317

 

   1,122,350

 

   294,175

 

   242,890

 

  235,939

 

  215,851

 

           -

 

      640

 

  230,153

 

  222,442

 

   760,267

 

   681,823

                                                                       
                                                                       
                                                                       
                                                                       
                                                                       
                                                                       
                                                                       
 

Consolidated

 

Current

 

Non-current

 

Live animals

 

Live animals

 

Forests

 

Total

 

Poultry

 

Pork

 

Cattle

 

Total

 

Total

 

Poultry

 

Pork

 

Cattle

 

 

 

 

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

      515,937

 

      531,679

 

      614,643

 

      586,463

 

           -

 

     87,709

 

   1,130,580

 

   1,205,851

 

   244,277

 

   244,254

 

  215,851

 

  201,704

 

      640

 

      148

 

  222,442

 

  122,872

 

   683,210

 

   568,978

Acquisition

      183,057

 

      146,037

 

   1,234,582

 

   1,088,380

 

           -

 

     26,032

 

   1,417,639

 

   1,260,449

 

     32,140

 

     27,246

 

  142,048

 

  123,959

 

           -

 

           -

 

            -

 

            -

 

   174,188

 

   151,205

Fair value variation (1)

   1,336,332

 

   1,128,241

 

      123,164

 

       55,977

 

           -

 

         207

 

   1,459,496

 

   1,184,425

 

     71,061

 

     28,028

 

  (62,118)

 

  (49,406)

 

      307

 

      492

 

     9,430

 

   23,963

 

     18,680

 

      3,077

Harvest

                -

 

                -

 

                -

 

                -

 

           -

 

             -

 

                -

 

                -

 

             -

 

             -

 

            -

 

            -

 

           -

 

           -

 

  (26,611)

 

  (23,353)

 

    (26,611)

 

    (23,353)

Write-off

                -

 

                -

 

                -

 

                -

 

           -

 

             -

 

                -

 

                -

 

             -

 

             -

 

            -

 

            -

 

           -

 

           -

 

    (2,447)

 

       (909)

 

     (2,447)

 

        (909)

Transfer between current  and non-current

       52,581

 

       55,306

 

       59,842

 

       60,406

 

           -

 

             -

 

      112,423

 

      115,712

 

    (52,581)

 

    (55,306)

 

  (59,842)

 

  (60,406)

 

           -

 

           -

 

            -

 

            -

 

  (112,423)

 

  (115,712)

Transfer of the held for sale

                -

 

                -

 

                -

 

                -

 

           -

 

             -

 

                -

 

                -

 

             -

 

             -

 

            -

 

            -

 

           -

 

           -

 

   27,339

 

   99,869

 

     27,339

 

     99,869

Transfer to inventories

  (1,492,347)

 

  (1,344,716)

 

  (1,297,832)

 

  (1,176,583)

 

           -

 

  (113,948)

 

  (2,790,179)

 

  (2,635,247)

 

             -

 

             -

 

            -

 

            -

 

     (947)

 

           -

 

            -

 

            -

 

        (947)

 

             -

Exchange variation

             (98)

 

           (610)

 

                -

 

                -

 

           -

 

             -

 

             (98)

 

           (610)

 

           33

 

           55

 

            -

 

            -

 

           -

 

           -

 

            -

 

            -

 

           33

 

           55

Ending balance

      595,462

 

      515,937

 

      734,399

 

      614,643

 

           -

 

             -

 

   1,329,861

 

   1,130,580

 

   294,930

 

   244,277

 

  235,939

 

  215,851

 

           -

 

      640

 

  230,153

 

  222,442

 

   761,022

 

   683,210

                                                                       

(1)   The fair value variation of biological assets includes depreciation of breeding stock in the amount of R$543,605 (R$525,927 as of December 31, 2014) in the parent company and R$545,033 (R$526,234 as of December 31, 2014) in the consolidated (the fair value is reduced throughout the asset life considering its normal devaluation - see text below).

86

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The acquisitions of biological assets for            production (non-current) occur when there is an expectation that the production plan cannot be met with its own animals and, usually, these acquisitions refer to immature animals in the beginning of the life cycle.

 

The living animals comprises poultry and pork and are segregated into consumable and for production.

 

The animals classified as consumables are those intended for slaughtering to produce in-natura meat or processed products. Until they reach the adequate weight for slaughtering, they are classified as immature. The slaughtering and production process occurs sequentially and in a very short period of time, so that only live animals ready for slaughtering are classified as mature.

 

The animals classified as for production (breeding stock) are those that have the function of producing other biological assets. Until they reach the age of reproduction they are classified as immature and when they are able to initiate the reproductive cycle, they are classified as mature.

 

The Company determined that cost approach is the most appropriate methodology in order to obtain the fair value of its live animals, as disposed in CPC46. Mainly, due to the short life period of the animal, as well as because the price that would be received in a sale in an active market represents the cost to produce an animal in the same level of maturity.

 

For the breeding stock the production cost is reduced throughout its life considering its normal devaluation.

 

The Company determined that income approach is the most appropriate methodology in order to obtain the fair value of its forests, as the asset value is correlated to the present value of the future cash flows generated by the biological asset.

 

The live animals fair value is determined using non observable information and the best practices and data available at the moment the appraisal is done, being classified as level 3 in the fair value hierarchy, as disposed in CPC46.

 

 

 

 

 

 

 

 

 

 

 

87

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The quantities and balances per live animals assets are presented below:

 

 

 

Parent company

 

12.31.15

 

12.31.14

 

Quantity
(thousand of heads)

 

Value

 

Quantity
(thousand of heads)

 

Value

Consumable biological assets

             

Immature poultry

                    179,990

 

               587,918

 

                    174,855

 

               507,707

Immature pork

                        3,545

 

               734,399

 

                        3,370

 

               614,643

Total current

                    183,535

 

            1,322,317

 

                    178,225

 

            1,122,350

               
               

Production biological assets

             

Immature poultry

                        6,618

 

               108,209

 

                        6,793

 

                 88,652

Mature poultry

                      11,382

 

               185,966

 

                      11,378

 

               154,238

Immature pork

                          184

 

                 51,188

 

                          174

 

                 44,547

Mature pork

                          385

 

               184,751

 

                          379

 

               171,304

Immature cattle

                               -

 

                          -

 

                               -

 

                     395

Mature cattle

                               -

 

                          -

 

                               -

 

                     245

Total non-current

                      18,569

 

               530,114

 

                      18,724

 

               459,381

 

                    202,104

 

            1,852,431

 

                    196,949

 

            1,581,731

               
               
               
               
               
 

Consolidated

 

12.31.15

 

12.31.14

 

Quantity
(thousand of heads)

 

Value

 

Quantity
(thousand of heads)

 

Value

Consumable biological assets

             

Immature poultry

                    179,990

 

               595,462

 

                    177,914

 

               515,937

Immature pork

                        3,545

 

               734,399

 

                        3,370

 

               614,643

Total current

                    183,535

 

            1,329,861

 

                    181,284

 

            1,130,580

               
               

Production biological assets

             

Immature poultry

                        6,658

 

               108,837

 

                        6,836

 

                 89,308

Mature poultry

                      11,418

 

               186,093

 

                      11,451

 

               154,969

Immature pork

                          184

 

                 51,188

 

                          174

 

                 44,547

Mature pork

                          385

 

               184,751

 

                          379

 

               171,304

Immature cattle

                               -

 

                          -

 

                               -

 

                     395

Mature cattle

                               -

 

                          -

 

                               -

 

                     245

Total non-current

                      18,645

 

               530,869

 

                      18,840

 

               460,768

 

                    202,180

 

            1,860,730

 

                    200,124

 

            1,591,348

 

12.         RECOVERABLE TAXES

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

State ICMS ("VAT")

   1,119,761

 

      990,317

 

   1,219,662

 

   1,048,236

PIS and COFINS ("Federal Taxes to Social Fund Programs")

      397,785

 

      289,333

 

      397,841

 

      289,389

Income and social contribution tax

      359,787

 

      551,050

 

      416,562

 

      585,187

IPI ("Federal VAT")

       60,137

 

       59,560

 

       60,137

 

       59,560

INSS ("Brazilian Social Security")

      146,162

 

       66,817

 

      146,234

 

       66,866

Other

       97,296

 

       82,123

 

      131,471

 

      105,165

(-) Provision for losses

     (164,606)

 

     (226,306)

 

     (171,443)

 

     (233,245)

 

   2,016,322

 

   1,812,894

 

   2,200,464

 

   1,921,158

 

 

 

 

 

 

 

 

Current

   1,074,175

 

      914,720

 

   1,231,759

 

   1,009,076

Non-current

      942,147

 

      898,174

 

      968,705

 

      912,082

 

 

 

 

 

 

 

 

 

    

 

88

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The rollforward of the allowance for losses is presented below:

 

 

Parent company

 

State ICMS ("VAT")

 

PIS and COFINS ("Federal Taxes to Social Fund Programs")

 

Income and social contribution tax

 

IPI ("Federal VAT")

 

Other

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

 (169,518)

 

 (175,685)

 

       (31,478)

 

       (17,698)

 

   (8,985)

 

   (8,550)

 

 (14,740)

 

 (14,740)

 

   (1,585)

 

           -

 

 (226,306)

 

 (216,673)

Additions

   (17,550)

 

   (14,632)

 

       (14,482)

 

       (13,780)

 

           -

 

     (435)

 

           -

 

           -

 

     (405)

 

   (1,585)

 

   (32,437)

 

   (30,432)

Write-offs

    73,176

 

    20,799

 

        20,886

 

                -

 

           -

 

           -

 

           -

 

           -

 

        75

 

           -

 

    94,137

 

    20,799

Ending balance

 (113,892)

 

 (169,518)

 

       (25,074)

 

       (31,478)

 

   (8,985)

 

   (8,985)

 

 (14,740)

 

 (14,740)

 

   (1,915)

 

   (1,585)

 

 (164,606)

 

 (226,306)

 

 

Consolidated

 

State ICMS ("VAT")

 

PIS and COFINS ("Federal Taxes to Social Fund Programs")

 

Income and social contribution tax

 

IPI ("Federal VAT")

 

Other

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

  (169,519)

 

 (175,686)

 

       (31,478)

 

       (17,698)

 

    (9,029)

 

    (8,550)

 

       (14,740)

 

   (14,740)

 

    (8,479)

 

    (7,854)

 

  (233,245)

 

 (224,528)

Additions

    (17,550)

 

   (14,632)

 

       (14,482)

 

       (13,780)

 

            -

 

       (525)

 

                -

 

            -

 

       (720)

 

    (1,585)

 

    (32,752)

 

   (30,522)

Write-offs

     73,176

 

    20,799

 

        20,886

 

                -

 

            -

 

          46

 

                -

 

            -

 

          75

 

          32

 

     94,137

 

    20,877

Exchange rate variation

             -

 

            -

 

                -

 

                -

 

            -

 

            -

 

                -

 

            -

 

        417

 

        928

 

         417

 

        928

Ending balance

  (113,893)

 

 (169,519)

 

       (25,074)

 

       (31,478)

 

    (9,029)

 

    (9,029)

 

       (14,740)

 

   (14,740)

 

    (8,707)

 

    (8,479)

 

  (171,443)

 

 (233,245)

 

 

12.1.     State ICMS (“VAT”)

 

Due to its (i) export activity, (ii) domestic sales that are subject to reduced tax rates and (iii) investments in property, plant and equipment, the Company accumulates tax credits that are offset against debits generated in sales in the domestic market or transferred to third parties.

 

The Company has ICMS tax credits in the States of Mato Grosso do Sul, Paraná, Minas Gerais, Santa Catarina and Distrito Federal, for which Management understands that realization will occur in short or long term, based on a credit recoverability study  prepared by Management.

 

12.2.     PIS and COFINS

 

Tax credits on Contribution to the Social Integration Program (“PIS”) and Contribution to Social Fund Programs (“COFINS”) arise from credits on purchases of raw materials used in the production of exported products or products that are taxed at zero rate, such as in-natura meat, margarine and butter. The recovery of these tax credits can be achieved by offsetting them against domestic sales operations of taxed products and other federal taxes or compensation claims.

 

12.3.     Withholding income and social contribution taxes

 

These correspond to withholding taxes on marketable securities, interest and prepayments of income and social contribution taxes, which are realizable by offsetting them against other federal taxes.

 

 

 

 

89

 


 

 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

13.         ASSETS AND LIABILITIES OF  DISCONTINUED OPERATIONS AND HELD FOR SALE

 

13.1.     Assets and liabilities non-current held for sale

 

   

Parent company

 

Consolidated

   

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Assets

 

 

 

 

       

Current

               

Trade accounts receivable

 

                  -  

 

       233,000

 

                  -  

 

        233,000

Inventories

 

                  -  

 

       213,000

 

                  -  

 

        213,000

Total current assets

 

                  -  

 

       446,000

 

                  -  

 

        446,000

                 

Non-current

               

Investments

 

                  -  

 

         15,089

 

                  -  

 

          15,089

Property, plant and equipment, net (1)

 

          32,442

 

       825,078

 

          32,448

 

        825,520

Intangible

 

                  -  

 

       671,398

 

                  -  

 

        671,398

Total non-current assets

 

          32,442

 

    1,511,565

 

          32,448

 

     1,512,007

                 

Total Assets

 

          32,442

 

    1,957,565

 

          32,448

 

     1,958,007

                 

Liabilities

               

Current

               

Trade accounts payable

 

                  -  

 

       279,000

 

                  -  

 

        279,000

Social and labor obligations

 

                  -  

 

         14,277

 

                  -  

 

          14,277

Tax Obligations

 

                  -  

 

         14,370

 

                  -  

 

          14,370

Deferred Taxes

 

                  -  

 

       200,617

 

                  -  

 

        200,617

Total current liabilities

 

                  -  

 

       508,264

 

                  -  

 

        508,264

                 

Total Liabilities

 

                  -  

 

       508,264

 

                  -  

 

        508,264

                 

Assets and liabilities of discontinued operations and held for sale

 

          32,442

 

    1,449,301

 

          32,448

 

     1,449,743

(1)    In 2014 the total balance includes R$74,401 in the parent company and R$74,843 in the consolidated related to other assets held for sale, not related to the discontinued operations of the dairy segment.

 

13.2.     Discontinued operations

 

On July 01, 2015, BRF concluded with Lactalis (“buyer”) the disposal of its manufacturing facilities of the dairy segment, which includes: i) manufacturing facilities located in the cities of Bom Conselho (PE), Carambeí (PR), Ravena (MG), Concórdia (SC), Teutônia (RS), Itumbiara (GO), Terenos (MS), Ijuí (RS), Três de Maio I (RS), Três de Maio II (RS) and Santa Rosa (RS); and (ii) related assets and trademarks dedicated to such segment (Batavo, Elegê, Cotochés, Santa Rosa and DoBon) (“Transaction”).

 

The value of such Transaction was US$697,756, fixed in U.S. Dollars (USD) at the agreement date (December 12, 2014), and was received in July 01, 2015.

90

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The Transaction was fixed in USD and, considering that the functional currency of BRF and of buyer is different of USD, was recognized an embedded derivative in the terms of CPC 38, approved by CVM Deliberation No.604/09. The gain registered in the determination of the fair market value by the end of the transaction totaled R$194,151 and, was recognized in financial results.

 

BRF recorded a gain of R$212,945 in the operation (note 13.3.1).

 

The profit (loss) recorded in the periods the segment was considered as discontinued operations and also the cash flows registered until the transaction conclusion (July 01, 2015), as well as the gain recognized in the disposal of the assets related to the segment are presented below:

 

13.3.     Net income from  discontinued operations

 

 

   

Parent company

 

Consolidated

   

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Net Sales

 

             983,535

 

          2,720,406

 

          1,122,764

 

          2,720,406

Cost of sales

 

           (786,821)

 

        (2,111,487)

 

           (905,752)

 

        (2,111,487)

Gross Profit

 

             196,714

 

             608,919

 

             217,012

 

             608,919

Operating Income (Expenses)

               

Selling

 

           (160,261)

 

           (424,899)

 

           (188,199)

 

           (424,899)

General and administrative

 

               (9,191)

 

             (30,042)

 

             (13,477)

 

             (30,042)

Other operating expenses, net

 

             (11,071)

 

             (30,568)

 

             (20,682)

 

             (30,568)

Equity in income of associates

 

             (19,465)

 

               (2,826)

 

               (1,876)

 

               (2,826)

Income (Loss) Before Financial Results

 

               (3,274)

 

             120,584

 

               (7,222)

 

             120,584

Financial income

 

                      -  

 

                      -  

 

                  (292)

 

                      -  

Financial expenses

 

                      -  

 

                      -  

 

                      10

 

                      -  

Income (Loss) Before Taxes

 

               (3,274)

 

             120,584

 

               (7,504)

 

             120,584

Income and social contribution taxes expenses

 

               (3,798)

 

             (30,762)

 

                    432

 

             (30,762)

Net income (Loss) from Discontinued Operations

 

               (7,072)

 

               89,822

 

               (7,072)

 

               89,822

(1)    Correspond to dairy operations until June 30, 2015.

 

 

91

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

13.3.1.      Results from the sale of discontinued operations

 

 

Proceeds received in 07.01.15

2,153,659

Cash

1,838,110

Restricted cash

315,549

Price adjustment (1)

73,190

Gross revenue

2,226,849

Gain with the embedded derivative

    (194,151)

Net revenue of the embedded derivative

2,032,698

Cost of the assets from discontinued operations

 (1,819,753)

Gain with the sale of discontinued operations

212,945

 

 

Gain with the embedded derivative

 

Realized in 2014

        27,955

Realized in 2015

      166,196

 

194,151

(1) Price adjustment according to the signed contract.

 

 

13.3.2.      Operational result from the sale of discontinued operations

 

 

Operational result from the sale of discontinued operations

 

 

 

 

 

Loss from discontinued operations

   (7,504)

Current income and social contribution taxes

432

Net loss from discontinued operations

   (7,072)

 

 

Operational gain

212,945

Current income and social contribution taxes

 (22,785)

Net operational gain from the sale of discontinued operations

190,160

 

 

Net operational income from discontinued operations - 2015

183,088

 

 

 

92

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

13.4.     Statements of cash flow of discontinued operations

 

 

 

Parent company

 

Consolidated

 

12.31.15 (1)

 

12.31.14

 

12.31.15 (1)

 

12.31.14

               

Net profit from discontinued operations

    183,088

 

    89,822

 

   183,088

 

    89,822

Adjustments to reconcile net income to net cash provided by discontinued operations

 

 

 

 

 

 

 

Depreciation, amortization and exhaustion

             76

 

    67,505

 

       4,035

 

    67,505

Equity in income of affiliates

      19,465

 

      2,826

 

       1,876

 

      2,826

Deferred income tax

             -  

 

           -  

 

      (8,939)

 

           -  

Gain from discontinued operations

  (190,160)

 

           -  

 

  (190,160)

 

           -  

Trade accounts receivable

             -  

 

           -  

 

     81,622

 

           -  

Inventories

             -  

 

           -  

 

    (67,504)

 

           -  

Trade accounts payable

             -  

 

           -  

 

    (54,600)

 

           -  

Other rights and obligations

      15,838

 

           -  

 

     53,002

 

           -  

Net cash provided by discontinued operating activities

      28,307

 

  160,153

 

       2,420

 

  160,153

 

 

 

 

 

 

 

 

Investing activities from discontinued operations

 

 

 

 

 

 

 

Capital increase in subsidiaries

    (20,038)

 

           -  

 

             -  

 

           -  

Additions to property, plant and equipment

      (8,269)

 

  (51,161)

 

    (12,305)

 

  (51,161)

Net cash used investing activities from continued operations

    (28,307)

 

  (51,161)

 

    (12,305)

 

  (51,161)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from debt issuance

             -  

 

           -  

 

     10,038

 

           -  

Advance for future capital increase

             -  

 

           -  

 

     10,000

 

           -  

Net cash (used in) provided by financing activities from discontinued operations

             -  

 

           -  

 

     20,038

Net increase in cash and cash equivalents

             -  

 

           -  

 

     10,153

 

           -  

Net cash provided by discontinued operations

             -  

 

  108,992

 

     10,153

 

  108,992

 

(1)     Correspond to dairy operations until June 30, 2015.

 

 

93

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

14.         INCOME AND SOCIAL CONTRIBUTION TAXES

 

14.1.     Deferred income and social contribution taxes

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Assets

             

Tax loss carryforwards (corporate income tax)

         1,008,022

 

            640,745

 

         1,077,653

 

            697,843

Negative calculation basis (social contribution tax)

            399,886

 

            262,731

 

            400,092

 

            263,159

               

Temporary differences

             

Provisions for tax, civil and labor risks

            216,564

 

            200,748

 

            220,047

 

            204,212

Suspended collection taxes

             62,954

 

             69,074

 

             62,954

 

             69,074

Allowance for doubtful accounts

            112,251

 

               6,783

 

            113,120

 

               7,652

Provision for property, plant and equipment losses

               5,546

 

             15,529

 

               5,546

 

             15,529

Provision for tax credits

             52,260

 

             73,350

 

             52,803

 

             73,893

Provision for other obligations

             91,834

 

             50,810

 

             93,744

 

             52,914

Employees' profit sharing

             87,254

 

            118,899

 

             87,254

 

            118,899

Provision for inventory losses

             19,985

 

             11,560

 

             19,985

 

             11,560

Employees' benefits plan

            101,675

 

            106,784

 

            101,675

 

            106,784

Business combination - Sadia (1)

            451,222

 

            583,770

 

            451,222

 

            583,770

Unrealized losses on derivatives financial instruments

            105,359

 

             56,615

 

            105,359

 

             56,615

Provision for losses - other debtors

             11,321

 

               8,220

 

             11,321

 

               8,220

Other temporary differences

             77,280

 

             47,493

 

             85,110

 

             51,079

 

         2,803,413

 

         2,253,111

 

         2,887,885

 

         2,321,203

               

Liabilities

             

Temporary differences

             

Business combination - Sadia (1)

           (719,374)

 

           (750,509)

 

           (719,374)

 

           (750,509)

Business combination - other companies

                      -

 

                      -

 

            (21,588)

 

            (75,729)

Unrealized gains on derivatives

            (28,035)

 

            (10,601)

 

            (28,035)

 

            (10,601)

Difference between tax basis and accounting basis of goodwill amortization

           (206,770)

 

           (222,278)

 

           (206,770)

 

           (222,278)

Difference between tax depreciation rate and accounting depreciation rate (useful life)

           (601,040)

 

           (511,404)

 

           (601,040)

 

           (511,404)

Other temporary differences

                  686

 

              (6,387)

 

            (55,102)

 

            (36,667)

 

        (1,554,533)

 

        (1,501,179)

 

        (1,631,909)

 

        (1,607,188)

               

Total net deferred tax assets

         1,248,880

 

            751,932

 

         1,255,976

 

            714,015

               

Business combination - Dánica and Avex

                      -

 

                      -

 

            (12,474)

 

            (15,633)

Business combination - AFC

                      -

 

                      -

 

            (45,164)

 

            (34,636)

Business combination - AKF

                      -

 

                      -

 

              (5,870)

 

              (4,334)

Business combination - Federal Foods

                      -

 

                      -

 

            (10,228)

 

              (7,751)

Business combination - Invicta

                      -

 

                      -

 

            (50,067)

 

                      -

Other - exchange variation

                      -

 

                      -

 

            (64,517)

 

            (27,830)

 

                      -

 

                      -

 

           (188,320)

 

            (90,184)

Total deferred tax

         1,248,880

 

            751,932

 

         1,067,656

 

            623,831

 

(1)          The deferred tax asset on the business combination with Sadia is mainly computed on the difference between the goodwill tax basis and goodwill accounting basis identified in the purchase price allocation. Deferred tax liability on business combination with Sadia is substantially represented by the fair value of property, plant and equipment, trademarks and contingent liabilities.

 

The rollforward of deferred tax is set forth below:

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

 

 

 

 

 

 

 

Beginning balance

            751,932

 

            745,875

 

            623,831

 

            645,111

Deferred income and social contribution taxes recognized in the statement of income

            372,283

 

           (235,889)

 

            406,587

 

           (235,205)

Deferred income and social contribution taxes - write-off dairy business

           (200,617)

 

            200,617

 

           (200,617)

 

            200,617

Deferred income and social contribution taxes recognized in other comprehensive income

            327,387

 

             52,783

 

            328,090

 

             52,824

Business combination

                      -

 

                      -

 

            (39,240)

 

            (46,722)

Exchange variation over deferred income and social contribution taxes related to business combination

                      -

 

                      -

 

            (30,266)

 

                 (294)

Other

              (2,105)

 

            (11,454)

 

            (20,729)

 

               7,500

Ending balance

         1,248,880

 

            751,932

 

         1,067,656

 

            623,831

 

 

 

 

 

 

 

 

 

Certain subsidiaries of the Company located in Brazil have tax loss carryforwards and negative basis of social contribution of R$16,365 and R$16,181, respectively, (R$16,474 and R$16,291 as of December 31, 2014), for which no deferred tax asset was recorded. If there was an expectation that such tax credits would be realized the amount recognized in the balance sheet would be R$5,547 (R$5,585 as of December 31, 2014).

94

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

14.2.      Estimated time of realization

 

Deferred tax arising from temporary differences will be realized as these differences are realized. The period of the settlement or realization of such differences is uncertain and is tied to several factors that are not under control of the Management.

 

When assessing the likelihood of the realization of deferred tax assets on income tax loss carryforward and negative calculation basis of social contribution tax, Management considers the Company’s budget, strategic plan and projected taxable income. Based on this estimate, Management believes that it is more likely than not that the deferred tax will be realized, as shown below:

 

 

 

Parent company

 

Consolidated

2016

                    85,418

 

                    89,570

2017

                  148,053

 

                  161,540

2018

                  214,693

 

                  228,921

2019

                  256,690

 

                  271,610

2020 onwards

                  703,054

 

                  726,104

 

                1,407,908

 

                1,477,745

 

 

 

 

 

14.3.     Income and social contribution taxes reconciliation

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

               

Income before taxes from continued operations

         2,529,846

 

         2,448,570

 

         2,558,268

 

         2,487,621

Nominal tax rate

34%

 

34%

 

34%

 

34%

Expected tax expense at nominal tax rate

           (860,148)

 

           (832,514)

 

           (869,811)

 

           (845,791)

               

Reconciling itens:

             

Equity interest in income of subsidiaries, associates and joint venture

            686,160

 

            222,469

 

            (35,293)

 

               8,694

Exchange rate variation on foreign investments

            373,964

 

               6,467

 

            460,200

 

             43,087

Difference of tax rates on results of foreign subsidiaries

                      -

 

                      -

 

            641,528

 

            150,394

Interest on shareholders' equity

            305,747

 

            250,840

 

            305,747

 

            250,840

Results from foreign subsidiaries

            (54,597)

 

                      -

 

            (54,597)

 

                      -

Stock options

            (20,041)

 

              (7,029)

 

            (20,041)

 

              (7,029)

Transfer price

              (8,430)

 

              (2,734)

 

              (8,430)

 

              (2,734)

Profit sharing

            (10,541)

 

              (8,996)

 

            (10,541)

 

              (8,996)

Penalties

              (4,178)

 

            (15,066)

 

              (4,183)

 

            (15,066)

Investment grant

             44,767

 

             47,726

 

             44,767

 

             47,726

Other permanent differences

            (54,467)

 

             25,481

 

            (59,844)

 

             26,309

 

            398,236

 

           (313,356)

 

            389,502

 

           (352,566)

               

Current income tax

             25,953

 

            (77,467)

 

            (17,085)

 

           (117,361)

Deferred income tax

            372,283

 

           (235,889)

 

            406,587

 

           (235,205)

 

  

The taxable income, current and deferred income tax from foreign subsidiaries is presented below:

95

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

Consolidated

 

12.31.15

 

12.31.14

Taxable income (loss) from foreign subsidiaries

   2,064,684

 

      576,048

Current income tax credit (expense) from foreign subsidiaries

      (41,012)

 

      (37,559)

Deferred income tax from foreign subsidiaries

         5,773

 

        (8,311)

 

 

Company determined that the earnings recorded by the holdings of its wholly-owned subsidiaries located abroad will not be redistributed. Such resources will be used for investments in the subsidiaries, and thus no deferred income tax was recognized. The total of undistributed earnings corresponds to R$4,949,957 as of December 31, 2015 (R$1,896,478 as of December 31, 2014).

 

Brazilian income taxes are subject to review for a five year period, during which the tax authorities might audit and assess the Company for additional taxes and penalties. Subsidiaries located abroad are taxed in their respective jurisdictions, according to local regulations.

 

 

15.         JUDICIAL DEPOSITS

 

The rollforward of the judicial deposits is presented below:

 

 

 

Parent company

 

Tax

 

Labor

 

Civil, commercial
and other

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

 352,274

 

 292,456

 

 228,309

 

 155,938

 

  31,703

 

  24,223

 

 612,286

 

 472,617

Additions

   28,112

 

   39,729

 

 126,519

 

 106,933

 

    8,757

 

    7,188

 

 163,388

 

 153,850

Reversals

  (31,504)

 

    (9,016)

 

  (14,841)

 

  (13,829)

 

     (183)

 

     (539)

 

  (46,528)

 

  (23,384)

Write-offs

    (4,575)

 

      (931)

 

  (59,597)

 

  (31,515)

 

       (63)

 

   (1,754)

 

  (64,235)

 

  (34,200)

Price index update

   32,353

 

   30,036

 

   24,552

 

   10,782

 

    3,508

 

    2,585

 

   60,413

 

   43,403

Ending balance

 376,660

 

 352,274

 

 304,942

 

 228,309

 

  43,722

 

  31,703

 

 725,324

 

 612,286

 

 

 

Consolidated

 

Tax

 

Labor

 

Civil, commercial

and other

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

 352,184

 

 292,633

 

 231,369

 

 155,979

 

  32,166

 

  30,064

 

 615,719

 

 478,676

Additions

   28,176

 

   42,543

 

 131,632

 

 111,809

 

    8,757

 

    7,394

 

 168,565

 

 161,746

Reversals

  (31,504)

 

    (9,328)

 

  (15,855)

 

  (13,829)

 

     (248)

 

   (5,255)

 

  (47,607)

 

  (28,412)

Write-offs

    (4,575)

 

    (3,731)

 

  (59,597)

 

  (33,574)

 

       (63)

 

   (1,754)

 

  (64,235)

 

  (39,059)

Price index update

   32,386

 

   30,080

 

   24,554

 

   10,784

 

    3,508

 

    2,585

 

   60,448

 

   43,449

Exchange rate variation

            -

 

        (13)

 

      (784)

 

       200

 

           -

 

     (868)

 

      (784)

 

      (681)

Ending balance

 376,667

 

 352,184

 

 311,319

 

 231,369

 

  44,120

 

  32,166

 

 732,106

 

 615,719

 

 

 

96

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

16.         RESTRICTED CASH

 

 

         

Average interest rate (p.a.)

 

Parent company

 

Consolidated

 

Maturity (1)

 

Currency

   

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

                           

Bank deposit certificates (2)

          1.49

 

R$

 

13.97%

 

    337,041

 

              -

 

    337,041

 

              -

National treasury certificates (3)

          4.23

 

R$

 

22.54%

 

    142,787

 

    115,179

 

    142,787

 

    115,179

Bank deposit (4)

             -  

 

US$

 

              -  

 

              -

 

              -

 

 1,346,274

 

              -

             

    479,828

 

    115,179

 

 1,826,102

 

    115,179

                           

Current

           

              -

 

              -

 

 1,346,274

 

              -

Non-current

           

    479,828

 

    115,179

 

    479,828

 

    115,179

 

(1)    Weighted average maturity in years.

(2)    The deposit, which matures on 2017, was pledged as collateral in the disposal of the dairy segment to Groupe Lactalis (“Parmalat”).

(3)    The national treasury certificates, which mature on 2020, are pledged as collateral for the loan obtained through the Special Program Asset Restructuring (“PESA”) (note 20).

(4)    Deposit related to the business combination with Golden Foods Siam, which was related to the counterparty at January 26, 2016 (note 40.3).

 

The national treasury certificates are pledged as collateral for the loan obtained through the Special Program Asset Restructuring (“PESA”) (see note 20).

 

 

17.         INVESTMENTS IN SUBSIDIARIES, ASSOCIATES AND JOINT VENTURES

 

17.1.     Investments breakdown

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Investment in subsidiaries and associates

   6,918,123

 

   3,439,320

 

      102,465

 

      137,359

Goodwill Quickfood

      290,884

 

      312,177

 

                -

 

                -

Goodwill Minerva

                -

 

      247,283

 

                -

 

      247,283

Goodwill AKF

                -

 

                -

 

       75,113

 

       52,428

Goodwill SATS BRF

                -

 

                -

 

         6,838

 

                -

Advance for future capital increase

                -

 

            100

 

                -

 

                -

 

   7,209,007

 

   3,998,880

 

      184,416

 

      437,070

Other investments

         1,107

 

            849

 

         1,476

 

         1,353

 

   7,210,114

 

   3,999,729

 

      185,892

 

      438,423

 

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

17.2.     Summary of financial information in associates and joint ventures

 

 

 

Avipal Centro Oeste S.A.

 

BRF
GmbH

 

Elebat Alimentos S.A.

 

Establec. Levino Zaccardi

 

Perdigão Trading S.A.

 

PSA Labor. Veter. Ltda.

 

Quickfood S.A.

 

Sadia International Ltd.

 

Sadia Uruguay S.A.

 

Sadia Overseas S.A.

 

VIP S.A. Empr. e
Particip. Imob.

 

12.31.15

 

12.31.15

 

12.31.15

 

12.31.15

 

12.31.15

 

12.31.15

 

12.31.15

 

12.31.15

 

12.31.15

 

12.31.15

 

12.31.15

Current assets

             38

 

   1,983,779

 

                -

 

           694

 

               -

 

         3,627

 

     376,754

 

            1,761

 

         22,563

 

       16,754

 

      53,216

Non-current assets

               -

 

   4,985,251

 

                -

 

           105

 

               -

 

         2,497

 

     215,704

 

         264,059

 

       295,004

 

     341,238

 

        1,090

Current liabilities

               -

 

      (24,150)

 

                -

 

          (614)

 

               -

 

           (560)

 

    (358,517)

 

           (2,182)

 

          (9,503)

 

        (3,027)

 

       (1,518)

Non-current liabilities

               -

 

    (736,469)

 

                -

 

            (22)

 

               -

 

                -

 

    (248,232)

 

                   -

 

                  -

 

    (440,306)

 

           (25)

Shareholders' equity

            (38)

 

  (6,208,411)

 

                -

 

          (163)

 

               -

 

        (5,564)

 

       14,291

 

        (263,638)

 

      (308,064)

 

       85,341

 

     (52,763)

                                           
                                           

Net revenues

               -

 

       15,514

 

     170,579

 

                -

 

               -

 

                -

 

  1,326,887

 

                   -

 

         35,658

 

                -

 

               -

Net income (loss)

               -

 

   2,094,392

 

      (18,164)

 

        (1,107)

 

               -

 

            550

 

      (43,418)

 

            5,956

 

         85,345

 

      (19,819)

 

        5,907

                                           
 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.14

Current assets

             38

 

     391,669

 

               1

 

         3,921

 

               -

 

         3,698

 

     232,850

 

            1,428

 

                  -

 

             39

 

      65,907

Non-current assets

               -

 

   2,767,582

 

                -

 

           124

 

               -

 

         2,503

 

     217,735

 

         180,728

 

                  -

 

     385,891

 

      22,870

Current liabilities

               -

 

      (13,402)

 

                -

 

        (1,729)

 

               -

 

           (637)

 

    (270,110)

 

           (1,737)

 

                  -

 

        (2,917)

 

       (2,608)

Non-current liabilities

               -

 

    (205,604)

 

                -

 

        (1,235)

 

               -

 

                -

 

    (161,763)

 

                   -

 

                  -

 

    (424,367)

 

           (26)

Shareholders' equity

            (38)

 

  (2,940,245)

 

              (1)

 

        (1,081)

 

               -

 

        (5,564)

 

      (18,712)

 

        (180,419)

 

                  -

 

       41,354

 

     (86,143)

                                           
                                           

Net revenues

               -

 

       10,283

 

                -

 

         3,718

 

               -

 

                -

 

     860,071

 

                   -

 

                  -

 

                -

 

               -

Net income (loss)

            (44)

 

     717,782

 

                -

 

        (2,960)

 

            (52)

 

            630

 

      (23,500)

 

         (10,024)

 

                  -

 

      (20,030)

 

      10,489

 

 

98

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

17.3.     Rollforward of the interest in subsidiaries and associates - Parent company

 

 

 

Subsidiaries

 

Associates

       
 

Avipal Centro Oeste S.A.

 

BRF GmbH

 

Elebat Alimentos S.A.

 

Establec. Levino Zaccardi

 

 PSA Labor. Veter. Ltda

 

Quickfood S.A.

 

Sadia Alimentos S.A.

 

Sadia International Ltd.

 

Sadia Uruguay S.A.

 

Sadia Overseas S.A.

 

VIP S.A. Empr. e Particip. Imob

 

K&S Alimentos S.A.

 

Minerva S.A.

 

Nutrifont Alimentos S.A.

 

PP-BIO
Adm. Bem próprio S.A.

 

PR-SAD
Adm. Bem próprio S.A.

 

UP! Alimentos Ltda

 

Total

                                   

12.31.15

 

12.31.14

a) Capital share as of December 31, 2015

                                                                         

% of share

100.00%

 

100.00%

 

                     -

 

98.26%

 

99.99%

 

90.05%

 

43.10%

 

100.00%

 

94.90%

 

100.00%

 

100.00%

 

49.00%

 

15.11%

 

                     -

 

33.33%

 

33.33%

 

50.00%

       

Total number of shares and membership interests

         6,963,854

 

                     1

 

                     -

 

              100

 

         5,463,850

 

  36,469,606

 

  594,576,682

 

                 900

 

   2,444,753,091

 

         50,000

 

       14,249,459

 

  27,664,086

 

  191,993,702

 

                     -

 

                   -

 

                   -

 

                1,000

       

Number of shares and membership interest held

         6,963,854

 

                     1

 

                     -

 

                98

 

         5,463,849

 

  32,841,224

 

  256,253,695

 

                 900

 

   2,319,989,778

 

         50,000

 

       14,249,459

 

  13,555,402

 

    29,000,000

 

                     -

 

                   -

 

                   -

 

                   500

       
                                                                           

b) Information as of December 31, 2015

                                                                         

Capital stock

                5,972

 

              8,064

 

                     -

 

           1,420

 

                5,564

 

         28,117

 

         338,800

 

              3,514

 

             307,286

 

                  4

 

              40,061

 

         27,664

 

                     -

 

                     -

 

                   -

 

                   -

 

                       1

       

Shareholders' equity

                     38

 

       6,208,411

 

                     -

 

              163

 

                5,564

 

       (14,291)

 

         158,384

 

          263,638

 

             308,064

 

       (85,341)

 

              52,763

 

         44,715

 

                     -

 

                     -

 

                   -

 

                   -

 

                       1

       

Fair value adjustments of assets and liabilities acquired

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

       123,901

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

       

Goodwill based on expectation of future profitability

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

       166,983

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

       

Income (loss) for the period

                        -

 

       2,094,392

 

         (18,164)

 

         (1,107)

 

                   550

 

       (43,418)

 

         (15,230)

 

              5,956

 

               85,345

 

       (19,819)

 

                5,907

 

         11,729

 

       (830,191)

 

           (2,603)

 

                   -

 

                   -

 

              51,988

       
                                                                           

c) Balance of investments as of December 31, 2015

                                                                         

Beginning balance

                     38

 

       2,940,251

 

                     -

 

           1,060

 

                5,561

 

       328,960

 

           78,307

 

          180,418

 

                        -

 

                  -

 

              86,142

 

         17,528

 

         357,246

 

                     -

 

           1,354

 

           2,014

 

                       1

 

      3,998,880

 

      3,203,993

Equity pick-up (1)

                        -

 

       2,094,392

 

         (18,164)

 

         (1,088)

 

                   550

 

       (39,098)

 

         (13,747)

 

              5,956

 

               81,183

 

       (19,819)

 

                5,907

 

           5,748

 

       (131,944)

 

           (1,301)

 

                   -

 

                   -

 

              25,994

 

      1,994,569

 

         659,572

Unrealized profit in inventory

                        -

 

              5,439

 

                     -

 

              166

 

                        -

 

           3,002

 

                  37

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

             8,644

 

                512

Goodwill in the acquisition of non-controlling entities

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

                     -

 

         245,941

Exchange rate variation on goodwill in the acquisiton of non-controlling entities

                        -

 

             (5,016)

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

            (5,016)

 

                    3

Exchange rate variation on goodwill

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

       (14,087)

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

          (14,087)

 

        (126,664)

Goodwill

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

         (7,206)

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

            (7,206)

 

            (8,033)

Write-off of fair value of property, plant and equipment

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

                     -

 

               (555)

Exchange rate variation on foreign investments

                        -

 

       1,040,014

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

            82,289

 

                 1,755

 

       (24,167)

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

      1,099,891

 

           19,021

Other comprehensive income

                        -

 

          281,189

 

                     -

 

                22

 

                        -

 

           6,676

 

             3,606

 

            (5,026)

 

             (90,555)

 

                  -

 

                        -

 

                   -

 

           24,676

 

                     -

 

                   -

 

                   -

 

                        -

 

         220,588

 

            (4,402)

Increase / decrease in capital

                        -

 

                      -

 

         318,453

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

             299,961

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

              310

 

           1,414

 

                        -

 

         620,138

 

         180,769

Acquisition of non-controlling interest

                        -

 

         (259,101)

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

        (259,101)

 

                     -

Appreciation in exchange of shares

                        -

 

          111,247

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

         111,247

 

                     -

Dividends and interests on shareholders' equity

                        -

 

                      -

 

                     -

 

                   -

 

                  (550)

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

             (39,288)

 

          (1,365)

 

                     -

 

                     -

 

                   -

 

                   -

 

             (25,994)

 

          (67,197)

 

        (127,941)

Write-off of investment

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

                     -

 

        (181,349)

Loss of ownership interest

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

           (2,696)

 

                     -

 

                   -

 

                   -

 

                        -

 

            (2,696)

 

                     -

Write-off of investment - Minerva (2)

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

       (247,282)

 

                     -

 

                   -

 

                   -

 

                        -

 

        (247,282)

 

                     -

Acquisition of equity interest

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

                     -

 

         127,210

Impairment losses for investments

                        -

 

                      -

 

                     -

 

                   -

 

                        -

 

         12,637

 

                     -

 

                     -

 

                        -

 

         43,986

 

                        -

 

                   -

 

                     -

 

                     -

 

                   -

 

                   -

 

                        -

 

           56,623

 

           25,892

Transfer to held for sale and discontinued operations

                        -

 

                      -

 

       (300,289)

 

                   -

 

                        -

 

                   -

 

                     -

 

                     -

 

                        -

 

                  -

 

                        -

 

                   -

 

                     -

 

             1,301

 

                   -

 

                   -

 

                        -

 

        (298,988)

 

          (15,089)

 

                     38

 

       6,208,415

 

                     -

 

              160

 

                5,561

 

       290,884

 

           68,203

 

          263,637

 

             292,344

 

                  -

 

              52,761

 

         21,911

 

                     -

 

                     -

 

           1,664

 

           3,428

 

                       1

 

      7,209,007

 

      3,998,880

 

 

(1)       The amount of R$1,301 must be disregarded from the total of equity pick-up as it is related to Nutrifont, investment reclassified to the discontinued operations, and the amount of R$2,696 must be added as is related to gains due to the change of equity interest in Minerva during 2015.

(2)       Reclassification of the investment balance in Minerva S.A. to marketable securities as Minerva ceased to be an associate, as per CPC 18 (R2) in its item 22. The accounting treatment change generated a net gain of R$125,671 (note 34).

 

The exchange rate variation result on the investments in foreign subsidiaries, whose functional currency is Brazilian Reais, totaling a gain of R$1,353,528 on December 31, 2015 (R$126,726 as of December 31, 2014), was recognized as financial result in the consolidated statement of income.

 

On December 31, 2015, these associates, affiliates and joint ventures do not have any significant restriction to transfer dividends or repay their loans or advances to the Company.

 

 

 

99

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

17.4.     Summary of financial information in associate

 

 

 

K&S

 

Minerva

 

Nutrifont

 

PP-BIO

 

PR-SAD

 

UP!

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Current assets

       54,679

 

       46,133

 

               -

 

  2,648,897

 

               -

 

       40,350

 

               -

 

               -

 

               -

 

               -

 

       79,250

 

       73,105

 

 

 

 

Non-current assets

       13,211

 

        8,916

 

               -

 

  3,566,269

 

               -

 

     123,654

 

        4,992

 

        4,065

 

       10,284

 

        6,045

 

           217

 

           201

 

 

 

 

Current liabilities

      (22,293)

 

      (18,467)

 

               -

 

 (1,357,818)

 

               -

 

    (130,710)

 

               -

 

               -

 

               -

 

               -

 

      (79,466)

 

      (73,305)

 

 

 

 

Non-current liabilities

          (882)

 

          (810)

 

               -

 

 (4,182,311)

 

               -

 

       (3,118)

 

               -

 

               -

 

               -

 

               -

 

               -

 

               -

 

 

 

 

Shareholder's equity

       44,715

 

       35,772

 

               -

 

     675,037

 

               -

 

       30,176

 

        4,992

 

        4,065

 

       10,284

 

        6,045

 

               1

 

               1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of participation

49.00%

 

49.00%

 

15.11%

 

16.29%

 

50.00%

 

50.00%

 

33.33%

 

33.33%

 

33.33%

 

33.33%

 

50.00%

 

50.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book value of investment

       21,911

 

       17,528

 

               -

 

     109,963

 

               -

 

       15,089

 

        1,664

 

        1,355

 

        3,428

 

        2,015

 

               1

 

               1

 

 

 

 

Transfer to held for sale

               -

 

               -

 

               -

 

               -

 

               -

 

      (15,089)

 

               -

 

               -

 

               -

 

               -

 

               -

 

               -

 

 

 

 

Book value of investment

       21,911

 

       17,528

 

               -

 

     109,963

 

               -

 

               -

 

        1,664

 

        1,355

 

        3,428

 

        2,015

 

               1

 

               1

 

       27,004

 

     130,862

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared

        1,365

 

        1,221

 

               -

 

               -

 

               -

 

               -

 

               -

 

               -

 

               -

 

               -

 

       25,994

 

       63,700

 

       27,359

 

       64,921

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

K&S

 

 

 

Minerva

 

 

 

Nutrifont

 

 

 

PP-BIO

 

 

 

PR-SAD

 

 

 

UP!

 

 

 

 

 

 

 

12.31.15

 

12.31.14

 

12.31.15 (1)

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

 

 

 

Net revenues

     117,595

 

     105,260

 

  4,049,469

 

     981,025

 

               -

 

               -

 

               -

 

               -

 

               -

 

               -

 

     192,193

 

     212,679

 

 

 

 

Net income (loss)

       11,729

 

       10,491

 

    (830,191)

 

    (104,487)

 

       (2,603)

 

       (5,652)

 

               -

 

               -

 

               -

 

               -

 

       51,988

 

       70,518

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity pick-up

        5,748

 

        5,139

 

    (131,944)

 

      (17,021)

 

       (1,301)

 

       (2,826)

 

               -

 

               -

 

               -

 

               -

 

       25,994

 

       35,259

 

    (101,503)

 

       20,551

(1)     Refers to Minerva S.A. loss until November 30, 2015, date when the investment was reclassified to marketable securities (note 17.3).

 

 

 

 

 

100

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

17.5.   Summary of financial information of joint ventures

 

 

   

AKF

 

Federal Foods

 

Rising Star

 

SATS BRF

 

Total

   

12.31.15

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.15

 

12.31.15

 

12.31.14

Assets

                           

Current

 

               138,208

 

                 73,914

 

                    -

 

              -

 

    253,452

       

Cash and cash equivalents

 

                 27,549

 

                  8,271

 

                    -

 

              -

 

      84,148

       

Prepaid expenses

 

                  1,642

 

                       93

 

                    -

 

              -

 

          386

       

Other current assets

 

               109,017

 

                 65,550

 

                    -

 

              -

 

    168,918

       

Non-current

 

                  9,122

 

                  5,667

 

                    -

 

              -

 

      14,414

       

Liabilities

                           

Current

 

              (105,290)

 

                (60,973)

 

                    -

 

              -

 

   (145,547)

       

Trade accounts payable

 

                 (4,514)

 

                 (7,312)

 

                    -

 

              -

 

   (126,931)

       

Tax payable

 

                 (5,989)

 

                 (3,632)

 

                    -

 

              -

 

              -

       

Other current liabilities

 

                (94,787)

 

                (50,029)

 

                    -

 

              -

 

     (18,616)

       

Non-current

 

                 (3,228)

 

                 (2,364)

 

                    -

 

              -

 

              -

       

Loans and financing

 

                         -

 

                    (165)

 

                    -

 

              -

 

              -

       

Deferred taxes

 

                 (3,228)

 

                 (2,199)

 

                    -

 

              -

 

              -

       

Shareholder's equity

 

                 38,812

 

                 16,244

 

                    -

 

              -

 

    122,319

       
                             
                             

% of equity interest

 

40.00%

 

40.00%

 

49.00%

 

50.00%

 

49.00%

       
                             

Book value of investment

 

                 15,525

 

                  6,497

 

                    -

 

              -

 

      59,936

 

    75,461

 

     6,497

                             
                             
   

AKF

 

Federal Foods

 

Rising Star

 

SATS BRF

 

Total

   

12.31.15

 

12.31.14

 

12.31.14

 

12.31.14

 

12.31.15

 

12.31.15

 

12.31.14

Net sales

 

               347,800

 

                 67,540

 

          173,993

 

    137,416

 

    370,376

       

Depreciation and amortization

 

                 (3,420)

 

                    (498)

 

           (25,204)

 

      (5,520)

 

         (145)

       

Financial expense

 

                    (555)

 

                    (669)

 

                    -

 

              -

 

           (23)

       

Income before taxes

 

                  9,756

 

                     115

 

             5,337

 

         (938)

 

      (9,809)

       

Net income (loss)

 

                  9,756

 

                     115

 

             5,337

 

         (938)

 

      (9,809)

       
                             

% of equity interest

 

40.00%

 

40.00%

 

49.00%

 

50.00%

 

49.00%

       
                             

Equity pick-up

 

                  3,902

 

                       46

 

             2,615

 

         (469)

 

      (4,807)

 

       (905)

 

     2,192

 

 

 

 

101

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

18.         PROPERTY, PLANT AND EQUIPMENT, NET

 

Property, plant and equipment rollforward is presented below:

 

 

 

Parent company

 

Weighted average depreciation rate (p.a.)

 

12.31.14

 

Additions

 

Additions from discontinued operations

 

Disposals

 

Reversals

 

Transfers (1)

 

12.31.15

Cost

                             

Land

                   -  

 

          549,494

 

                667

 

                     39

 

           (10,319)

 

                     -

 

            53,720

 

          593,601

Buildings and improvements

                   -  

 

       4,854,292

 

              1,067

 

                       -

 

           (92,057)

 

                     -

 

          321,152

 

       5,084,454

Machinery and equipment

                   -  

 

       5,980,863

 

            54,199

 

                     79

 

         (113,576)

 

                     -

 

          613,254

 

       6,534,819

Facilities

                   -  

 

       1,644,353

 

                  43

 

                       -

 

           (39,713)

 

                     -

 

            94,330

 

       1,699,013

Furniture

                   -  

 

            87,821

 

                  16

 

                     50

 

             (3,361)

 

                     -

 

            28,421

 

          112,947

Vehicles

                   -  

 

          131,418

 

                383

 

                       -

 

             (4,229)

 

                     -

 

         (110,771)

 

            16,801

Construction in progress

                   -  

 

          457,777

 

       1,344,739

 

                8,101

 

                     -

 

                     -

 

      (1,094,785)

 

          715,832

Advances to suppliers

                   -  

 

              3,570

 

            73,542

 

                       -

 

                     -

 

                     -

 

           (72,956)

 

              4,156

     

      13,709,588

 

       1,474,656

 

                8,269

 

         (263,255)

 

                     -

 

         (167,635)

 

      14,761,623

                               

Depreciation

                             

Buildings and improvements

3.04%

 

      (1,348,195)

 

         (143,954)

 

                       -

 

            13,621

 

                     -

 

              1,148

 

      (1,477,380)

Machinery and equipment

5.85%

 

      (2,310,811)

 

         (349,005)

 

                       -

 

            83,657

 

                     -

 

               (550)

 

      (2,576,709)

Facilities

3.73%

 

         (475,997)

 

           (67,542)

 

                       -

 

            13,352

 

                     -

 

               (197)

 

         (530,384)

Furniture

7.99%

 

           (41,371)

 

             (8,241)

 

                       -

 

              2,243

 

                     -

 

                184

 

           (47,185)

Vehicles

19.74%

 

           (57,921)

 

             (7,589)

 

                       -

 

              2,035

 

                     -

 

            54,275

 

             (9,200)

     

      (4,234,295)

 

         (576,331)

 

                       -

 

          114,908

 

                     -

 

            54,860

 

      (4,640,858)

Provision for losses

   

           (50,684)

 

           (21,757)

 

                       -

 

            36,441

 

            16,221

 

                     -

 

           (19,779)

     

       9,424,609

 

          876,568

 

                8,269

 

         (111,906)

 

            16,221

 

         (112,775)

 

      10,100,986

 

(1)     Refers to the transfer of R$63,117 to intangible assets, R$27,339 to biological assets and R$22,319 to held for sale.

 

 

 

 

 

 

 

102

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Parent company

 

Weighted average depreciation rate (p.a.)

 

12.31.13

 

Additions

 

Additions from discontinued operations

 

Disposals

 

Reversals

 

Transfers (1)

 

Net transfers between held for sale

 

12.31.14

Cost

                                 

Land

                   -  

 

          567,115

 

              7,497

 

                       -

 

             (2,449)

 

                     -

 

            16,698

 

            (39,367)

 

          549,494

Buildings and improvements

                   -  

 

       5,250,780

 

            26,527

 

                       -

 

           (49,953)

 

                     -

 

            64,267

 

           (437,329)

 

       4,854,292

Machinery and equipment

                   -  

 

       6,215,598

 

            66,043

 

                       -

 

         (109,642)

 

                     -

 

          388,844

 

           (579,980)

 

       5,980,863

Facilities

                   -  

 

       1,538,825

 

              1,893

 

                       -

 

             (3,110)

 

                     -

 

          107,642

 

                 (897)

 

       1,644,353

Furniture

                   -  

 

            94,376

 

                302

 

                       -

 

             (4,647)

 

                     -

 

              6,963

 

              (9,173)

 

            87,821

Vehicles

                   -  

 

          156,121

 

                    1

 

                       -

 

           (20,424)

 

                     -

 

               (825)

 

              (3,455)

 

          131,418

Construction in progress

                   -  

 

          647,081

 

          675,517

 

              51,161

 

               (187)

 

                     -

 

         (879,324)

 

            (36,471)

 

          457,777

Advances to suppliers

                   -  

 

              3,649

 

            23,341

 

                       -

 

                     -

 

                     -

 

           (23,420)

 

                      -

 

              3,570

     

      14,473,545

 

          801,121

 

              51,161

 

         (190,412)

 

                     -

 

         (319,155)

 

        (1,106,672)

 

      13,709,588

                                   

Depreciation

                                 

Buildings and improvements

3.06%

 

      (1,341,344)

 

         (127,558)

 

             (22,523)

 

            29,161

 

                     -

 

            16,841

 

             97,228

 

      (1,348,195)

Machinery and equipment

5.86%

 

      (2,261,586)

 

         (340,542)

 

             (41,365)

 

            75,302

 

                     -

 

            34,861

 

            222,519

 

      (2,310,811)

Facilities

3.81%

 

         (423,821)

 

           (62,532)

 

               (2,433)

 

              2,448

 

                     -

 

              9,637

 

                  704

 

         (475,997)

Furniture

7.96%

 

           (41,305)

 

             (6,231)

 

                  (758)

 

              2,793

 

                     -

 

                417

 

               3,713

 

           (41,371)

Vehicles

18.61%

 

           (47,609)

 

           (21,595)

 

                  (426)

 

              9,518

 

                     -

 

                483

 

               1,708

 

           (57,921)

     

      (4,115,665)

 

         (558,458)

 

             (67,505)

 

          119,222

 

                     -

 

            62,239

 

            325,872

 

      (4,234,295)

Provision for losses

   

           (18,983)

 

           (50,998)

 

                       -

 

                     -

 

            19,297

 

                     -

 

                      -

 

           (50,684)

     

      10,338,897

 

          191,665

 

             (16,344)

 

           (71,190)

 

            19,297

 

         (256,916)

 

           (780,800)

 

       9,424,609

 

(1)     Besides the balance presented to intangible assets and biological assets, also was included the value of R$180,319 relating to the capital paid with property, plan and equipment related to division of beef BRF in its wholly-subsidiary Mato Grosso Bovino S.A., as disclosed in note 17.3.

 

 

 

103

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

Weighted average depreciation rate (p.a.)

 

12.31.14

 

Additions

 

Additions from discontinued operations

 

Business combinations

 

Disposals

 

Reversals

 

Transfers (1)

 

Exchange rate variation

 

12.31.15

Cost

                                     

Land

                   -  

 

          544,998

 

                667

 

                     39

 

                     -

 

           (11,759)

 

                     -

 

            53,993

 

             (3,217)

 

          584,721

Buildings and improvements

                   -  

 

       5,099,255

 

              8,047

 

                       -

 

              4,731

 

           (93,912)

 

                     -

 

          350,460

 

            69,356

 

       5,437,937

Machinery and equipment

                   -  

 

       6,303,425

 

            62,696

 

                     79

 

              3,153

 

         (127,129)

 

                     -

 

          740,751

 

            44,170

 

       7,027,145

Facilities

                   -  

 

       1,757,408

 

                138

 

                       -

 

                     -

 

           (39,738)

 

                     -

 

          110,133

 

            26,526

 

       1,854,467

Furniture

                   -  

 

          100,430

 

              1,622

 

                     50

 

                     -

 

             (4,782)

 

                     -

 

            35,276

 

              5,273

 

          137,869

Vehicles

                   -  

 

          144,048

 

                974

 

                       -

 

              1,627

 

             (6,812)

 

                     -

 

         (110,624)

 

             (8,896)

 

            20,317

Construction in progress

                   -  

 

          607,709

 

       1,454,360

 

                8,101

 

                     -

 

                     -

 

                     -

 

      (1,285,886)

 

              5,498

 

          789,782

Advances to suppliers

                   -  

 

            20,267

 

            72,891

 

                       -

 

                     -

 

                 (41)

 

                     -

 

           (72,956)

 

             (1,401)

 

            18,760

     

      14,577,540

 

       1,601,395

 

                8,269

 

              9,511

 

         (284,173)

 

                     -

 

         (178,853)

 

          137,309

 

      15,870,998

                                       

Depreciation

                                     

Buildings and improvements

3.05%

 

      (1,359,840)

 

         (154,922)

 

                       -

 

               (244)

 

            14,884

 

                     -

 

           (18,182)

 

             (7,639)

 

      (1,525,943)

Machinery and equipment

5.82%

 

      (2,486,173)

 

         (381,492)

 

                       -

 

             (3,045)

 

            97,910

 

                     -

 

              4,765

 

           (17,968)

 

      (2,786,003)

Facilities

3.82%

 

         (507,934)

 

           (73,483)

 

                       -

 

                     -

 

            13,371

 

                     -

 

            17,806

 

                350

 

         (549,890)

Furniture

7.94%

 

           (54,606)

 

           (10,450)

 

                       -

 

                     -

 

              3,708

 

                     -

 

                214

 

             (3,518)

 

           (64,652)

Vehicles

19.97%

 

           (58,954)

 

             (8,577)

 

                       -

 

               (772)

 

              3,385

 

                     -

 

            54,083

 

              1,856

 

             (8,979)

     

      (4,467,507)

 

         (628,924)

 

                       -

 

             (4,061)

 

          133,258

 

                     -

 

            58,686

 

           (26,919)

 

      (4,935,467)

Provision for losses

   

           (50,684)

 

           (21,757)

 

                       -

 

                     -

 

            36,441

 

            16,221

 

                     -

 

                     -

 

           (19,779)

     

      10,059,349

 

          950,714

 

                8,269

 

              5,450

 

         (114,474)

 

            16,221

 

         (120,167)

 

          110,390

 

      10,915,752

 

(1)     Refers to the transfer of R$70,509 to intangible assets, R$27,339 to biological assets and R$22,319 to held for sale.

 

 

 

 

 

104

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

Weighted average depreciation rate (p.a.)

 

12.31.13

 

Additions

 

Additions from discontinued operations

 

Business combination (1)

 

Disposals

 

Reversals

 

Transfers

 

Net transfers between held for sale

 

Exchange rate variation

 

12.31.14

Cost

                                         

Land

                   -  

 

          567,129

 

              7,497

 

                       -

 

                     -

 

             (3,869)

 

                     -

 

            17,754

 

             (39,367)

 

             (4,146)

 

          544,998

Buildings and improvements

                   -  

 

       5,414,069

 

            28,424

 

                       -

 

              2,540

 

         (143,333)

 

                     -

 

          249,924

 

           (438,494)

 

           (13,875)

 

       5,099,255

Machinery and equipment

                   -  

 

       6,538,245

 

            69,410

 

                       -

 

              6,064

 

         (201,553)

 

                     -

 

          496,107

 

           (579,980)

 

           (24,868)

 

       6,303,425

Facilities

                   -  

 

       1,573,355

 

              2,757

 

                       -

 

                     -

 

           (27,112)

 

                     -

 

          211,957

 

                  (897)

 

             (2,652)

 

       1,757,408

Furniture

                   -  

 

          111,478

 

              1,240

 

                       -

 

              1,279

 

           (13,870)

 

                     -

 

              4,807

 

               (9,173)

 

              4,669

 

          100,430

Vehicles

                   -  

 

          160,474

 

                561

 

                       -

 

             20,772

 

           (32,926)

 

                     -

 

                 (64)

 

               (3,455)

 

             (1,314)

 

          144,048

Construction in progress

                   -  

 

          798,372

 

          908,443

 

              51,161

 

              4,010

 

           (36,673)

 

                     -

 

      (1,090,310)

 

             (36,471)

 

              9,177

 

          607,709

Advances to suppliers

                   -  

 

            13,707

 

            32,653

 

                       -

 

                     -

 

                     -

 

                     -

 

           (27,539)

 

                       -

 

              1,446

 

            20,267

     

      15,176,829

 

       1,050,985

 

              51,161

 

             34,665

 

         (459,336)

 

                     -

 

         (137,364)

 

         (1,107,837)

 

           (31,563)

 

      14,577,540

                                           

Depreciation

                                         

Buildings and improvements

3.07%

 

      (1,348,171)

 

         (133,557)

 

             (22,523)

 

             (2,442)

 

            31,336

 

                     -

 

            16,641

 

              97,958

 

                918

 

      (1,359,840)

Machinery and equipment

5.86%

 

      (2,427,892)

 

         (362,877)

 

             (41,365)

 

             (5,485)

 

            87,357

 

                     -

 

            34,624

 

            222,519

 

              6,946

 

      (2,486,173)

Facilities

3.89%

 

         (459,156)

 

           (64,153)

 

               (2,433)

 

                     -

 

              5,599

 

                     -

 

              9,716

 

                   704

 

              1,789

 

         (507,934)

Furniture

7.94%

 

           (53,389)

 

             (7,582)

 

                  (758)

 

             (1,217)

 

              3,908

 

                     -

 

                775

 

                3,713

 

                 (56)

 

           (54,606)

Vehicles

18.74%

 

           (47,660)

 

           (22,571)

 

                  (426)

 

            (17,050)

 

            22,619

 

                     -

 

                483

 

                1,708

 

              3,943

 

           (58,954)

     

      (4,336,268)

 

         (590,740)

 

             (67,505)

 

            (26,194)

 

          150,819

 

                     -

 

            62,239

 

            326,602

 

            13,540

 

      (4,467,507)

Provision for losses

   

           (18,983)

 

           (50,998)

 

                       -

 

                     -

 

                     -

 

            19,297

 

                     -

 

                       -

 

                     -

 

           (50,684)

     

      10,821,578

 

          409,247

 

             (16,344)

 

              8,471

 

         (308,517)

 

            19,297

 

           (75,125)

 

           (781,235)

 

           (18,023)

 

      10,059,349

                                           

 

(1)     On January 16, 2012, the Company through its wholly-owned subsidiary BRF GmbH, acquired control and consequently started to consolidate the financial statement of wholly-owned subsidiary Federal Foods (note 6.1.1).

105

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The Company has fully depreciated items that are still in operation, which are set forth below:

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Cost

 

 

 

 

 

 

 

Buildings and improvements

     166,614

 

     114,984

 

     169,995

 

     127,168

Machinery and equipment

     704,822

 

     633,241

 

     752,458

 

     671,054

Facilities

      96,273

 

      71,313

 

     102,017

 

      71,676

Furniture

      15,994

 

      14,499

 

      19,338

 

      19,140

Vehicles

        3,500

 

        4,494

 

        4,166

 

        4,494

Others

      56,185

 

      39,852

 

      56,185

 

      39,852

 

  1,043,388

 

     878,383

 

  1,104,159

 

     933,384

 

 

During year ended December 31, 2015, the Company capitalized interest in the amount of R$24,001 in the parent company and R$24,330 in the consolidated (R$32,744 in the parent company and R$37,686 in the consolidated as of December 31, 2014). The weighted average interest rate utilized to determine the capitalized amount was 5.51% p.a in the parent company and 5.70% in the consolidated (5.43% in the parent company and 5.98% in the consolidated p.a. as of December 31, 2014).

 

On December 31, 2015, except for the built to suit agreement mentioned in note 23.2, the Company had no commitments assumed related to acquisition or construction of property, plant and equipment items.

 

The property, plant and equipment items that are pledged as collateral for transactions of different natures are presented below:  

 

 

 

 

 

Parent company and Consolidated

 

 

 

 

12.31.15

 

12.31.14

 

 

Type of collateral

 

Book value of the

collateral

 

Book value of the

collateral

Land

 

Financial/Tax

 

               217,427

 

               320,905

Buildings and improvements

 

Financial/Tax

 

            1,522,478

 

            1,670,522

Machinery and equipment

 

Financial/Labor/Tax/Civil

 

            1,774,781

 

            2,053,784

Facilities

 

Financial/Tax

 

               493,103

 

               640,400

Furniture

 

Financial/Tax

 

                 27,004

 

                 18,699

Vehicles

 

Financial/Tax

 

                   2,306

 

                 10,835

Others

 

Financial/Tax

 

                 70,083

 

                 76,944

 

 

 

 

            4,107,182

 

            4,792,089

 

 

 

 

106

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

19.         INTANGIBLES

 

Intangible assets are comprised of the following items:

 

 

 

Parent company

 

Weighted average amortization rate (p.a.)

 

Cost

 

Accumulated

amortization

 

12.31.15

 

12.31.14

Goodwill

                            -

 

           2,096,587

 

                            -

 

           2,096,587

 

           2,096,587

Outgrowers relationship

12.50%

 

                 14,197

 

                  (5,777)

 

                   8,420

 

                   9,727

Trademarks

                            -

 

           1,173,000

 

                            -

 

           1,173,000

 

           1,173,000

Patents

16.51%

 

                   3,720

 

                  (2,092)

 

                   1,628

 

                   2,325

Software

20.00%

 

               404,673

 

             (232,751)

 

               171,922

 

               163,451

 

 

 

           3,692,177

 

             (240,620)

 

           3,451,557

 

           3,445,090

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated

 

Weighted average amortization rate (p.a.)

 

Cost

 

Accumulated

amortization

 

12.31.15

 

12.31.14

Non-compete agreement

2.44%

 

                 15,738

 

                     (786)

 

                 14,952

 

                            -

Goodwill

                            -

 

           2,778,102

 

                            -

 

           2,778,102

 

           2,525,343

Import quotas

100.00%

 

                 62,233

 

                            -

 

                 62,233

 

                            -

Outgrowers relationship

12.50%

 

                 14,197

 

                  (5,777)

 

                   8,420

 

                   9,727

Trademarks

                            -

 

           1,372,018

 

                            -

 

           1,372,018

 

           1,267,888

Patents

17.33%

 

                   4,870

 

                  (3,025)

 

                   1,845

 

                   2,557

Customer relationship

7.71%

 

               620,853

 

               (49,788)

 

               571,065

 

               330,012

Supplier relationship

42.00%

 

                   9,670

 

                  (9,670)

 

                            -

 

                   2,484

Software

20.00%

 

               462,760

 

             (260,484)

 

               202,276

 

               190,632

 

 

 

           5,340,441

 

             (329,530)

 

           5,010,911

 

           4,328,643

 

The intangible assets rollforward is set forth below:

 

 

 

Parent company

 

12.31.14

 

Additions

 

Disposals

 

Transfers

 

12.31.15

Cost

                 

Goodwill

      2,096,587

 

                   -

 

                   -

 

                   -

 

      2,096,587

Ava

          49,368

 

                   -

 

                   -

 

                   -

 

          49,368

Eleva Alimentos

        808,140

 

                   -

 

                   -

 

                   -

 

        808,140

Incubatório Paraíso

               656

 

                   -

 

                   -

 

                   -

 

               656

Paraíso Agroindustrial

          16,751

 

                   -

 

                   -

 

                   -

 

          16,751

Perdigão Mato Grosso

            7,636

 

                   -

 

                   -

 

                   -

 

            7,636

Sadia

      1,214,036

 

                   -

 

                   -

 

                   -

 

      1,214,036

Outgrowers relationship

          13,682

 

               515

 

                   -

 

                   -

 

          14,197

Trademarks

      1,173,000

 

                   -

 

                   -

 

                   -

 

      1,173,000

Patents

            3,722

 

                   -

 

                 (2)

 

                   -

 

            3,720

Software

        414,941

 

          35,584

 

       (108,767)

 

          62,915

 

        404,673

 

      3,701,932

 

          36,099

 

       (108,769)

 

          62,915

 

      3,692,177

                   

Amortization

                 

Outgrowers relationship

           (3,955)

 

           (1,822)

 

                   -

 

                   -

 

           (5,777)

Patents

           (1,397)

 

              (697)

 

                  2

 

                   -

 

           (2,092)

Software

       (251,490)

 

         (89,684)

 

        108,221

 

               202

 

       (232,751)

 

       (256,842)

 

         (92,203)

 

        108,223

 

               202

 

       (240,620)

 

      3,445,090

 

         (56,104)

 

              (546)

 

          63,117

 

      3,451,557

 

 

107

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Parent company

 

12.31.13

 

Additions

 

Disposals

 

Transfers

 

Transfer to held for sale

 

12.31.14

Cost:

                     

Goodwill:

      2,767,985

 

                   -

 

                   -

 

                   -

 

         (671,398)

 

      2,096,587

Ava

          49,368

 

                   -

 

                   -

 

                   -

 

                     -

 

          49,368

Batavia

        133,163

 

                   -

 

                   -

 

                   -

 

         (133,163)

 

                   -

Cotochés

          39,590

 

                   -

 

                   -

 

                   -

 

           (39,590)

 

                   -

Eleva Alimentos

      1,273,324

 

                   -

 

                   -

 

                   -

 

         (465,184)

 

        808,140

Heloísa

          33,461

 

                   -

 

                   -

 

                   -

 

           (33,461)

 

                   -

Incubatório Paraíso

               656

 

                   -

 

                   -

 

                   -

 

                     -

 

               656

Paraíso Agroindustrial

          16,751

 

                   -

 

                   -

 

                   -

 

                     -

 

          16,751

Perdigão Mato Grosso

            7,636

 

                   -

 

                   -

 

                   -

 

                     -

 

            7,636

Sadia

      1,214,036

 

                   -

 

                   -

 

                   -

 

                     -

 

      1,214,036

Outgrowers relationship

          12,463

 

            1,219

 

                   -

 

                   -

 

                     -

 

          13,682

Trademarks

      1,173,000

 

                   -

 

                   -

 

                   -

 

                     -

 

      1,173,000

Patents

            3,722

 

                   -

 

                   -

 

                   -

 

                     -

 

            3,722

Supplier relationship

        135,000

 

                   -

 

       (135,000)

 

                   -

 

                     -

 

                   -

Software

        290,396

 

          46,038

 

           (1,447)

 

          79,954

 

                     -

 

        414,941

 

      4,382,566

 

          47,257

 

       (136,447)

 

          79,954

 

         (671,398)

 

      3,701,932

                       

Amortization:

                     

Outgrowers relationship

           (2,313)

 

           (1,642)

 

                   -

 

                   -

 

                     -

 

           (3,955)

Patents

              (826)

 

              (571)

 

                   -

 

                   -

 

                     -

 

           (1,397)

Supplier relationship

       (135,000)

 

                   -

 

        135,000

 

                   -

 

                     -

 

                   -

Software

       (160,288)

 

         (91,526)

 

            1,442

 

           (1,118)

 

                     -

 

       (251,490)

 

       (298,427)

 

         (93,739)

 

        136,442

 

           (1,118)

 

                     -

 

       (256,842)

 

      4,084,139

 

         (46,482)

 

                 (5)

 

          78,836

 

         (671,398)

 

      3,445,090

 

 

 

Consolidated

 

12.31.14

 

Additions

 

Disposals

 

Business combination

 

Transfers

 

Exchange rate variation

 

12.31.15

Cost

                         

Goodwill

      2,525,343

 

                   -

 

                   -

 

        330,821

 

       (196,199)

 

        118,137

 

      2,778,102

Ava

          49,368

 

                   -

 

                   -

 

                   -

 

                   -

 

                   -

 

          49,368

Avex

          28,965

 

                   -

 

                   -

 

                   -

 

                   -

 

           (1,415)

 

          27,550

BRF AFC

        138,341

 

                   -

 

                   -

 

                   -

 

                   -

 

          57,722

 

        196,063

BRF Invicta

                   -

 

                   -

 

                   -

 

        330,044

 

       (196,199)

 

          36,931

 

        170,776

Dánica

            7,373

 

                   -

 

                   -

 

                   -

 

                   -

 

              (360)

 

            7,013

Eleva Alimentos

        808,140

 

                   -

 

                   -

 

                   -

 

                   -

 

                   -

 

        808,140

Federal Foods

          57,428

 

                   -

 

                   -

 

                   -

 

                   -

 

          26,991

 

          84,419

Incubatório Paraíso

               656

 

                   -

 

                   -

 

                   -

 

                   -

 

                   -

 

               656

Invicta Food Group

                   -

 

                   -

 

                   -

 

               777

 

                   -

 

               148

 

               925

Paraíso Agroindustrial

          16,751

 

                   -

 

                   -

 

                   -

 

                   -

 

                   -

 

          16,751

Perdigão Mato Grosso

            7,636

 

                   -

 

                   -

 

                   -

 

                   -

 

                   -

 

            7,636

Plusfood

          21,087

 

                   -

 

                   -

 

                   -

 

                   -

 

            6,699

 

          27,786

Quickfood

        175,562

 

                   -

 

                   -

 

                   -

 

                   -

 

           (8,579)

 

        166,983

Sadia

      1,214,036

 

                   -

 

                   -

 

                   -

 

                   -

 

                   -

 

      1,214,036

Non-compete agreement

               332

 

          21,141

 

              (350)

 

                   -

 

                   -

 

           (5,385)

 

          15,738

Import quotas

                   -

 

                   -

 

                   -

 

                   -

 

          48,775

 

          13,458

 

          62,233

Outgrowers relationship

          13,682

 

               515

 

                   -

 

                   -

 

                   -

 

                   -

 

          14,197

Trademarks

      1,267,888

 

        145,995

 (1)

                   -

 

                   -

 

                   -

 

         (41,865)

 

      1,372,018

Patents

            4,823

 

                17

 

                 (2)

 

                   -

 

                   -

 

                32

 

            4,870

Customer relationship

        351,449

 

                   -

 

                   -

 

                   -

 

        147,424

 

        121,980

 

        620,853

Supplier relationship

          10,064

 

                   -

 

                   -

 

                   -

 

                   -

 

              (394)

 

            9,670

Software

        453,551

 

          37,748

 

       (108,867)

 

                   -

 

          74,133

 

            6,195

 

        462,760

 

      4,627,132

 

        205,416

 

       (109,219)

 

        330,821

 

          74,133

 

        212,158

 

      5,340,441

                           

Amortization

                         

Non-compete agreement

              (332)

 

           (1,054)

 

               350

 

                   -

 

                   -

 

               250

 

              (786)

Outgrowers relationship

           (3,955)

 

           (1,822)

 

                   -

 

                   -

 

                   -

 

                   -

 

           (5,777)

Patents

           (2,266)

 

              (743)

 

                  2

 

                   -

 

                   -

 

               (18)

 

           (3,025)

Customer relationship

         (21,437)

 

         (31,153)

 

                   -

 

                   -

 

                   -

 

            2,802

 

         (49,788)

Supplier relationship

           (7,580)

 

           (2,820)

 

                   -

 

                   -

 

                   -

 

               730

 

           (9,670)

Software

       (262,919)

 

         (99,559)

 

        108,278

 

                   -

 

           (3,624)

 

           (2,660)

 

       (260,484)

 

       (298,489)

 

       (137,151)

 

        108,630

 

                   -

 

           (3,624)

 

            1,104

 

       (329,530)

 

      4,328,643

 

          68,265

 

              (589)

 

        330,821

 

          70,509

 

        213,262

 

      5,010,911

 

(1)       Refers to the trademarks acquisition in Argentina (see note 1.5)

 

108

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

12.31.13

 

Additions

 

Disposals

 

Business combination

 

Transfers

 

Transfer to held for sale

 

Exchange rate variation

 

12.31.14

Cost:

                             

Goodwill:

      3,101,750

 

                   -

 

                   -

 

        322,276

 

       (167,893)

 

         (671,398)

 

         (59,392)

 

      2,525,343

AKF

                   -

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

                   -

Ava

          49,368

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

          49,368

Avex

          32,819

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

           (3,854)

 

          28,965

Batavia

        133,163

 

                   -

 

                   -

 

                   -

 

                   -

 

         (133,163)

 

                   -

 

                   -

BRF AFC

                   -

 

                   -

 

                   -

 

        274,112

 

       (138,544)

 

                     -

 

            2,773

 

        138,341

Cotochés

          39,590

 

                   -

 

                   -

 

                   -

 

                   -

 

           (39,590)

 

                   -

 

                   -

Dánica

            8,354

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

              (981)

 

            7,373

Eleva Alimentos

      1,273,324

 

                   -

 

                   -

 

                   -

 

                   -

 

         (465,184)

 

                   -

 

        808,140

Federal Foods

          25,249

 

                   -

 

                   -

 

          48,164

 

         (29,349)

 

                     -

 

          13,364

 

          57,428

Heloísa

          33,461

 

                   -

 

                   -

 

                   -

 

                   -

 

           (33,461)

 

                   -

 

                   -

Incubatório Paraíso

               656

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

               656

Minerva

                   -

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

                   -

Paraíso Agroindustrial

          16,751

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

          16,751

Perdigão Mato Grosso

            7,636

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

            7,636

Plusfood

          21,084

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

                  3

 

          21,087

Quickfood

        246,259

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

         (70,697)

 

        175,562

Sadia

      1,214,036

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

      1,214,036

Non-compete agreement

               375

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

               (43)

 

               332

Exclusivity agreement

               497

 

                   -

 

              (382)

 

                   -

 

                   -

 

                     -

 

              (115)

 

                   -

Outgrowers relationship

          12,463

 

            1,219

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

          13,682

Trademarks

      1,302,305

 

                   -

 

                   -

 

                   -

 

                   -

 

                     -

 

         (34,417)

 

      1,267,888

Patents

            5,546

 

                50

 

              (774)

 

                   -

 

                   -

 

                     -

 

                  1

 

            4,823

Customer relationship

        179,561

 

                   -

 

                   -

 

                   -

 

        214,074

 

                     -

 

         (42,186)

 

        351,449

Supplier relationship

        146,138

 

                   -

 

       (135,000)

 

                   -

 

                   -

 

                     -

 

           (1,074)

 

          10,064

Software

        329,340

 

          49,141

 

           (1,448)

 

            2,040

 

          78,363

 

                     -

 

           (3,885)

 

        453,551

 

      5,077,975

 

          50,410

 

       (137,604)

 

        324,316

 

        124,544

 

         (671,398)

 

       (141,111)

 

      4,627,132

                               

Amortization:

                             

Non-compete agreement

              (251)

 

              (100)

 

                   -

 

                   -

 

                   -

 

                     -

 

                19

 

              (332)

Exclusivity agreement

              (497)

 

                   -

 

               377

 

                   -

 

                   -

 

                     -

 

               120

 

                   -

Outgrowers relationship

           (2,312)

 

           (1,643)

 

                   -

 

                   -

 

                   -

 

                     -

 

                   -

 

           (3,955)

Patents

           (2,061)

 

              (606)

 

               399

 

                   -

 

                   -

 

                     -

 

                  2

 

           (2,266)

Customer relationship

         (11,495)

 

         (10,150)

 

                   -

 

                   -

 

                   -

 

                     -

 

               208

 

         (21,437)

Supplier relationship

       (140,509)

 

           (2,275)

 

        135,000

 

                   -

 

                   -

 

                     -

 

               204

 

           (7,580)

Software

       (162,928)

 

         (98,670)

 

            1,442

 

           (1,410)

 

           (1,118)

 

                     -

 

              (235)

 

       (262,919)

 

       (320,053)

 

       (113,444)

 

        137,218

 

           (1,410)

 

           (1,118)

 

                     -

 

               318

 

       (298,489)

 

      4,757,922

 

         (63,034)

 

              (386)

 

        322,906

 

        123,426

 

         (671,398)

 

       (140,793)

 

      4,328,643

 

Amortization of outgrowers relationship and suppliers relationship are recognized as a cost of sales in the statement of income, the amortization of customer relationship is recognized in selling expenses, while software amortization is recorded according to its use as cost of sales, administrative or sales expenses.

 

Trademarks in intangible assets contemplate acquired brands as well as brands arising from the business combination with Sadia, Quickfood and Avex and are considered assets with indefinite useful life as they are expected to indefinitely contribute to the Company’s cash flows.

 

The goodwill is based on expected future profitability supported by valuation reports, after purchase price allocation.

 

Goodwill and intangible assets with indefinite useful life (trademarks) are allocated to cash-generating units as presented in note 5.

 

The Company annually performs an impairment test of its assets through the discounted cash flow method. In 2015, BRF used its strategic plan as a basis for the test, which considers the future cash flows until 2018 and perpetuity from 2019, based on historical information and market projections of government agencies and associations, such as the International Monetary Fund (IFM), Brazilian Central Bank (BACEN), among others. In the Management’s opinion, the use of a three-year projection period is adequate as it provides more reliable information.

109

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Management adopted the WACC (14.3% p.a.) as the discount rate for the development of discounted cash flows and also adopted the assumptions shown in the table below:

 

 

 

 

2016

 

2017

 

2018

PIB Brazil-BACEN

 

-2.00%

 

1.50%

 

2.50%

TJLP

 

7.87%

 

8.00%

 

7.79%

IPCA

 

6.50%

 

6.00%

 

6.00%

SELIC

 

14.25%

 

12.00%

 

12.00%

 

The rates above do not consider any tax effect (they are before taxes).

 

Based on Management analyses performed during 2015, no impairment loss was identified.

 

In addition to the above mentioned recovery analysis, management prepared a sensitivity analysis considering the variations in the EBIT margin and in the nominal WACC as presented below:

 

 

 

 

 

Variations

 

 

Apreciation (devaluation)

1.0%

 

0.0%

 

-1.0%

WACC

15.3%

 

14.3%

 

13.3%

EBIT margin

14.2%

 

13.2%

 

12.2%

 

 

Based on the above scenarios, the Company determined that there is no need to recognize an impairment loss to the intangible assets with indefinite useful life.           

110

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

20.         LOANS AND FINANCING

 

 

 

Parent company

 

Charges (p.a.)

 

Weighted average
interest rate (p.a.)

 

WAMT (1)

 

Current

 

Non-current

 

12.31.15

 

Current

 

Non-current

 

12.31.14

Local currency

                                 
 

 

 

 

                           

Working capital

 7.24%
(6.26% on 12.31.14)

 

 7.24%
(6.26% on 12.31.14)

 

            0.5

 

  1,169,635

 

                -

 

  1,169,635

 

  1,239,834

 

               -

 

  1,239,834

 

 

 

 

                 

               -

 

               -

   

Certificate of agribusiness receivables

 96.90% of CDI

 

 13.67%

 

            2.8

 

       33,078

 

     992,165

 

  1,025,243

 

               -

 

               -

 

                -

 

 

 

 

                 

               -

 

               -

   

Development bank credit lines

 Fixed rate / Selic / TJLP + 1.00%
(Fixed rate / TJLP + 2.50% on 12.31.14)

 

 4.57%
(3.89% on 12.31.14)

 

            1.8

 

     217,426

 

     508,928

 

     726,354

 

     277,909

 

     485,839

 

     763,748

 

 

 

 

                 

               -

 

               -

   

Bonds

 7.75% (7.75% on 12.31.14)

 

 7.75% (7.75% on 12.31.14)

 

            2.4

 

         4,140

 

     497,921

 

     502,061

 

        4,140

 

     497,052

 

     501,192

 

 

 

 

                 

               -

 

               -

   

Export credit facility

 0.00%
(9.63% on 12.31.14)

 

 0.00%
(9.63% on 12.31.14)

 

                -

 

                -

 

                -

 

                -

 

     967,748

 

               -

 

     967,748

 

 

 

 

                 

               -

 

               -

   

Special program asset restructuring

 Fixed rate / IGPM + 4.90%
(Fixed rate / IGPM + 4.90% on 12.31.14)

 

 15.44%
(8.54% on 12.31.14)

 

            4.2

 

         3,315

 

     231,488

 

     234,803

 

        3,887

 

     209,564

 

     213,451

 

 

 

 

                 

               -

 

               -

   

Other secured debts

 8.14% (8.14% on 12.31.14)

 

 8.14% (8.14% on 12.31.14)

 

            2.7

 

       32,580

 

     127,077

 

     159,657

 

       45,951

 

     248,675

 

     294,626

                         

               -

 

               -

   

Fiscal incentives

 2.40%
(Fixed rate / 10.00% IGPM + 1.00% on 12.31.14)

 

 2.40%
(1.52% on 12.31.14)

 

            0.5

 

         1,872

 

                -

 

         1,872

 

        1,892

 

       10,653

 

       12,545

   

 

 

                 

               -

 

               -

   
 

 

 

 

     

  1,462,046

 

  2,357,579

 

  3,819,625

 

  2,541,361

 

  1,451,783

 

  3,993,144

 

 

 

 

                           

Foreign currency

 

 

 

                           
 

 

 

 

                           

Bonds

 4.08%
(4.97% on 12.31.14) + e.r. US$ and EUR

 

 4.08%
(4.97% on 12.31.14) + e.r. US$ and EUR

 

            7.5

 

       61,808

 

  7,521,727

 

  7,583,535

 

       25,900

 

  5,175,296

 

  5,201,196

 

 

 

 

                           

Export credit facility

 LIBOR + 2.05%
(LIBOR + 2.74% on 12.31.14) + e.r. US$

 

 2.79%
(3.07% on 12.31.14) + e.r. US$
and other currencies

 

            1.9

 

     598,109

 

  1,163,574

 

  1,761,683

 

        6,508

 

     787,380

 

     793,888

   

 

                             

Advances for foreign exchange rate contracts

 1.76% + e.r. US$

 

 1.76% + e.r. US$

 

            0.8

 

     391,053

 

                -

 

     391,053

 

               -

 

               -

 

                -

                                   

Development bank credit lines

 UMBNDES + 2.26%
(UMBNDES + 2.22% on 12.31.14)
+ e.r. US$ and other currencies

 

 6.34%
(6.34% on 12.31.14)
+ e.r. US$ and other currencies

 

            1.2

 

       12,630

 

       11,575

 

       24,205

 

       27,253

 

       15,140

 

       42,393

 

 

 

 

                           
             

  1,063,600

 

  8,696,876

 

  9,760,476

 

       59,661

 

  5,977,816

 

  6,037,477

             

  2,525,646

 

 11,054,455

 

 13,580,101

 

  2,601,022

 

  7,429,599

 

 10,030,621

 

(1) Weighted average maturity in years.

 

 

 

 

111

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

Charges (p.a.)

 

Weighted average
interest rate (p.a.)

 

WAMT (1)

 

Current

 

Non-current

 

12.31.15

 

Current

 

Non-current

 

12.31.14

Local currency

                                 
                                   

Working capital

 7.24%
(6.26% on 12.31.14)

 

 7.24%
(6.26% on 12.31.14)

 

            0.5

 

  1,169,635

 

                -

 

  1,169,635

 

   1,239,834

 

                -

 

  1,239,834

                                   

Certificate of agribusiness receivables

 96.90% of CDI

 

 13.67%

 

            2.8

 

       33,078

 

     992,165

 

  1,025,243

 

                -

 

                -

 

                -

                                   

Development bank credit lines

 Fixed rate / Selic / TJLP + 1.00%
(Fixed rate / TJLP + 2.50% on 12.31.14)

 

 4.57%
(3.89% on 12.31.14)

 

            1.8

 

     217,426

 

     508,928

 

     726,354

 

      277,909

 

      485,839

 

     763,748

                                   

Bonds

 7.75% (7.75% on 12.31.14)

 

 7.75% (7.75% on 12.31.14)

 

            2.4

 

         4,140

 

     497,921

 

     502,061

 

         4,140

 

      497,052

 

     501,192

                                   

Export credit facility

 0.00%
(9.63% on 12.31.14)

 

 0.00%
(9.63% on 12.31.14)

 

                -

 

                -

 

                -

 

                -

 

      967,748

 

                -

 

     967,748

                                   

Special program asset restructuring

 Fixed rate / IGPM + 4.90%
(Fixed rate / IGPM + 4.90% on 12.31.14)

 

 15.44%
(8.54% on 12.31.14)

 

            4.2

 

         3,315

 

     231,488

 

     234,803

 

         3,887

 

      209,564

 

     213,451

                                   

Other secured debts

 8.14% (8.14% on 12.31.14)

 

 8.14% (8.14% on 12.31.14)

 

            2.7

 

       32,580

 

     127,077

 

     159,657

 

       45,951

 

      248,675

 

     294,626

                                   

Fiscal incentives

 2.40%
(Fixed rate / 10.00% IGPM + 1.00% on 12.31.14)

 

 2.40%
(1.52% on 12.31.14)

 

            0.5

 

         1,872

 

                -

 

         1,872

 

         1,892

 

       10,653

 

       12,545

                                   
             

  1,462,046

 

  2,357,579

 

  3,819,625

 

   2,541,361

 

   1,451,783

 

  3,993,144

                                   

Foreign currency

                                 
                                   

Bonds

 5.23%
(5.87% on 12.31.14) + e.r. US$, EUR and ARS

 

 5.23%
(5.87% on 12.31.14) + e.r. US$, EUR and ARS

 

            6.9

 

     159,445

 

  8,628,430

 

  8,787,875

 

       89,902

 

   6,324,090

 

  6,413,992

                                   

Export credit facility

 LIBOR + 2.15%
(LIBOR + 2.71% on 12.31.14)
+ e.r. US$

 

 2.85%
(3.01% on 12.31.14) + e.r. US$

 

            2.0

 

     598,811

 

  1,553,520

 

  2,152,331

 

         6,948

 

   1,052,485

 

  1,059,433

                                   

Advances for foreign exchange rate contracts

 1.76% + e.r. US$

 

 1.76% + e.r. US$

 

            0.8

 

     391,053

 

                -

 

     391,053

 

                -

 

                -

 

                -

                                   

Development bank credit lines

 UMBNDES + 2.26%
(UMBNDES + 2.22% on 12.31.14)
+ e.r. US$ and other currencies

 

 6.34%
(6.34% on 12.31.14)
+ e.r. US$ and other currencies

 

            1.2

 

       12,630

 

       11,575

 

       24,205

 

       27,253

 

       15,142

 

       42,395

                                   

Other secured debts

 15.09%
(15.08% on 12.31.14)
+ e.r. ARS

 

 15.09%
(15.08% on 12.31.14)
+ e.r. ARS

 

            0.5

 

         3,535

 

                -

 

         3,535

 

         7,965

 

         3,589

 

       11,554

                                   

Working capital

 22.00%
(Fixed rate + LIBOR + 2.71% on 12.31.14) + e.r. US$ and ARS

 

 22.00%
(22.97% on 12.31.14) + e.r. US$ and ARS

 

                -

 

           659

 

                -

 

           659

 

       65,474

 

         3,343

 

       68,817

                                   
             

  1,166,133

 

 10,193,525

 

 11,359,658

 

      197,542

 

   7,398,649

 

  7,596,191

             

  2,628,179

 

 12,551,104

 

 15,179,283

 

   2,738,903

 

   8,850,432

 

 11,589,335

 

(1) Weighted average maturity in years.

112

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

20.1.     Working capital

 

Rural credit: The Company and its subsidiaries entered into rural credit loans with several commercial banks, under a Brazilian Federal government program that offers an incentive to investments in rural activities.

 

20.2.     CRA

 

Certificate of Agribusiness Receivables (“CRA”): On September 29, 2015, BRF completed the CRA issuance related to the public distribution offering of the 1st series of the 3rd Issue by Octante Securitizadora S.A. (“Securitization Company”) in the amount of R$1,000,000 net of interest, which will mature on October 01, 2018, and were issued with a coupon of 96.90% p.a. of the DI rate, payable every each 9 months. The CRAs arise from the Company’s exports contracted with BRF Global GmbH and were assigned to the Securitization Company.

                                                                                                                                              

20.3.     Development bank credit lines

 

The Company and its subsidiaries have several outstanding obligations with National Bank for Economic and Social Development (“BNDES”). The loans were obtained for the acquisition of equipment and expansion of productive facilities.

 

FINEM: Credit lines of Financing for Enterprises ("FINEM") which are subject to the variations of UMBNDES, TJLP and SELIC currency basket. The values ​​of principal and interest are paid in monthly installments, with maturities between 2016 and 2020 and are secured by pledge of equipment, facilities and mortgage on properties owned by the Company.

 

FINEP: Credit lines of Financial of Studies and Projects (“FINEP”) obtained with reduced charges for projects of research, development and innovation, with maturities dates between 2016 and 2019.

 

20.4.     Bonds

 

Sadia Overseas Bonds 2017: In the total value of US$250,000, such bonds are guaranteed by BRF, with an interest rate of 6.88% p.a. and maturing on May 24, 2017. On June 20, 2013, the amount of US$29,282 of these senior notes was exchanged by Senior Notes BRF 2023 and on May 15, 2014, the amount of US$60,953 was repurchased with part of the proceeds obtained from Senior Notes BRF in 2024. On May 28, 2015, the Company concluded a Tender Offer, in amount of US$47,005, such that the outstanding balance amounted to US $ 112,760 and the premium paid, net of interest, was  US$4,701 (equivalent of R$14,584).

 

BFF Notes 2020: On January 28, 2010, BFF International Limited issued senior notes in the total value of US$750,000, whose notes are guaranteed by BRF, with a nominal interest rate of 7.25% p.a. and effective rate of 7.54% p.a. maturing on January 28, 2020. On June 20, 2013, the amount of US$120,718 of these senior notes was exchanged by Senior Notes BRF 2023 and on May 15, 2014, the amount of US$409,640 was repurchased with part of the proceeds obtained from the Senior Notes BRF 2024. On May 28, 2015, the Company concluded a Tender Offer, in amount of US$101,359, such that the outstanding balance amounted to US$118,283 and the premium paid, net of interest, was US$15,964 (equivalent of R$49,530).

113

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Senior Notes BRF2022: On June 6, 2012, BRF issued senior notes of US$500,000, with nominal interest rate of 5.88% p.a. and an effective rate of 6.00% p.a. maturing on June 6, 2022. On June 26, 2012 the Company reopened this transaction for an additional amount of R$ 250,000, with nominal interest rate of 5.88% p.a. and effective rate of 5.50% p.a. On May 28,2015, the Company concluded a Tender Offer, in amount of US$577,130, such that the outstanding balance amounted to US$172,870 and the premium paid, net of interest, was US$79,355 (equivalent of R$246,208).

 

Senior Notes BRF 2023: On May 15, 2013, BRF completed international offerings of (i) 10 year bonds in the aggregate amount of US$500,000 (the “USD Bonds”), which will mature on May 22, 2023 (“Senior Notes BRF 2023”), issued with a coupon (interest) of 3.95% per year (yield to maturity 4.135%), payable semi-annually beginning on November 2013.

 

Senior Notes BRF 2018:On May 15, 2013, BRF completed international offering of (i) 5 year bonds in the aggregate amount of R$500,000 (the “BRL Bonds”) which will mature on May 22, 2018 (“Senior Notes BRF 2018”), issued with a coupon (interest) of 7.75% p.a. (yield to maturity 7.75%), payable semi-annually beginning as from November 22, 2013.

 

Senior Notes BRF 2024: On May 15, 2014, BRF completed international offerings of 10 year bonds in the aggregate amount of US$750,000 (the “USD Bonds”), which will mature on May 22, 2024 (“Senior Notes BRF 2024”), issued with a coupon (interest) of 4.75% p.a. (yield to maturity 4.952%), payable semi-annually beginning on November 22, 2014.

 

Senior Notes BRF 2022 (“Green Bonds”): On May 29, 2014, BRF concluded a Senior Notes offer of 7 (seven) year in the total amount of EUR500,000, which will mature on May 03, 2022 (“Senior Notes BRF 2022”), issued with a coupon (interest) of 2.75% p.a. (yield to maturity 2.822%), payable annually beginning on June 03, 2016.

 

20.5.     Export credit facilities

 

Pre-export facilities: Generally are denominated in U.S. Dollars, maturing between 2016 and 2019. Under the terms of each of these credit facilities, the Company entered into loans which must be evidenced subsequently by accounts receivable related to the exports of its products.

 

Commercial credit lines: Denominated in U.S. Dollars with quarterly payments of interest

114

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

and principal maturing in 2018 and are utilized for purchases of imported raw materials and other working capital needs.

 

20.6.     Special Program Asset Recovery (“PESA”)

 

The Company has a loan facility obtained through the Special Program for Asset Recovery (“Programa Especial de Saneamento de Ativos”) promoted by the federal government and securitized by commercial financial institutions. Such loan facility is subject to the variations of the General Market Price Index (“IGPM”) plus interest of 4.90% p.a. The principal is payable in a single installment and the maturity date is 2020, being secured by endorsements and pledges of public debt securities (see note 16).

 

20.7.     Other secured debts

 

Industrial credit notes: The Company issue industrial credit notes, receiving from official funds, such as Fund for Worker Support (“FAT”), Constitutional Fund for Financing the Midwest (“FCO”) and Constitutional Fund for Financing the Northwest (“FNE”). The notes are paid on a monthly basis and have maturity dates between 2016 and 2021. These notes are secured by a pledge of machinery and equipment and real estate mortgages.

 

20.8.     Rotative credit line (“Revolver Credit Facility”)

 

With the purpose of improving its financial liquidity, the Company and its wholly-owned subsidiary BRF Global GmbH obtained a credit line Revolver Credit Facility ("Revolver Credit Facility") in the amount of US$1,000,000, with a maturity date in May 2019, from a syndicate comprised of 28 banks. The transaction was structured to allow the Company to utilize the credit line at any time, during the contracted period. Until December 31, 2015, the Company did not use this credit facility.

 

20.9.     Loans and financing maturity schedule

 

The maturity schedule of the loans and financing balances is as follow:

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.15

2016

                2,525,646

 

                2,628,175

2017

                  633,766

 

                1,132,491

2018

                2,337,826

 

                2,761,960

2019

                  267,635

 

                  291,275

2020 onwards

                7,815,228

 

                8,365,382

 

              13,580,101

 

              15,179,283

 

 

 

 

 

 

 

 

 

115

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

20.10.  Guarantees

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Total of loans and financing

 13,580,101

 

 10,030,621

 

 15,179,283

 

 11,589,335

Mortgage guarantees

      911,996

 

   1,102,742

 

      911,996

 

   1,102,742

Related to FINEM-BNDES

      583,411

 

      594,915

 

      583,411

 

      594,915

Related to FNE-BNB

      159,564

 

      293,529

 

      159,564

 

      293,529

Related to tax incentives and other

      169,021

 

      214,298

 

      169,021

 

      214,298

               

Statutory lien on assets acquired with financing

              93

 

         1,045

 

              93

 

         1,045

Related to FINEM-BNDES

              93

 

            648

 

              93

 

            648

Related to financial lease

                -

 

            397

 

                -

 

            397

 

 

The Company is the guarantor of a loan obtained by Instituto Sadia de Sustentabilidade from the BNDES. The loan was obtained with the purpose of allowing the implementation of biodigesters in the farms of the outgrowers which take part in the Company´s integration system, targeting the reduction of the emission of Greenhouse Gases. The value of these guarantees on December 31, 2015 totaled R$39,098 (R$53,305 as of December 31, 2014).

 

The Company is the guarantor of loans related to a special program, which aimed the local development of outgrowers in the central region of Brazil. The proceeds of such loans are utilized by the outgrowers to improve farm conditions and will be paid by them in 10 years, taking as collateral the land and equipment acquired by the outgrowers through this program. The guarantee as of December 31, 2015 totaled R$208,774 (R$280,136 as of December 31, 2014).

 

On December 31, 2015, the Company contracted bank guarantees in the amount of R$2,086,589 (R$2,048,340 as of December 31, 2014). The variation occurred in this period is related to bank guarantees offered mainly in litigations involving the Company´s use of tax credits. These guarantees have an average cost of 0.91% p.a. (0.90% p.a. as of December 31, 2014).

 

20.11.  Commitments

 

In the normal course of the business, the Company enters into agreements with third parties which are mainly related to the purchase of raw materials, such as corn and soymeal, in which the agreed prices can be predetermined or post determined. The Company enters into other agreements, such as electricity, packaging supplies and manufacturing activities.

 

The amounts of the agreements on the date of these financial statements are set forth below:

 

116

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

 

Parent company and

Consolidated

 

12.31.15

2016

                  4,560,939

2017

                  1,274,316

2018

                     236,994

2019

                     229,052

2020 onwards

                     452,222

 

                  6,753,523

 

 

21.         TRADE ACCOUNTS PAYABLE

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Domestic suppliers

             

Third parties

   3,263,197

 

   2,736,646

 

   3,263,201

 

   2,736,963

Related parties

       23,375

 

       18,795

 

       23,375

 

       18,795

 

   3,286,572

 

   2,755,441

 

   3,286,576

 

   2,755,758

               

Foreign suppliers

             

Third parties

      774,106

 

      409,194

 

   1,496,833

 

      794,832

Related parties

         2,463

 

            608

 

                -

 

                -

 

      776,569

 

      409,802

 

   1,496,833

 

      794,832

               

(-) Adjustment to present value

      (38,416)

 

      (28,383)

 

      (38,416)

 

      (28,383)

 

   4,024,725

 

   3,136,860

 

   4,744,993

 

   3,522,207

 

 

In the year ended on December 31, 2015, the average payment period is 96 days (70 days on December 31, 2014).

 

On the suppliers balance as of December 31, 2015, R$1,070,583 in the parent company and consolidated (R$659,942 in the parent company and consolidated as of December 31, 2014) corresponds to the supply chain finance transactions on which there were no changes in the payment terms and prices negotiated with the suppliers.

 

The information on accounts payable involving related parties is presented in note 30. The trade accounts payable to related parties refer to transactions with associates UP! and K&S in Brazil.

 

 

 

 

 

 

 

 

117

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

22.         OTHER FINANCIAL ASSETS AND LIABILITIES

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

               

Derivatives designated as cash flow hedges

             

Assets

             

Non-deliverable forward (NDF)

         2,253

 

         9,749

 

         2,253

 

         9,749

Currency option contracts

        96,153

 

         3,160

 

        96,153

 

         3,160

Deliverable forwards contracts

                -

 

            933

 

                -

 

            933

 

        98,406

 

        13,842

 

        98,406

 

        13,842

               

Liabilities

             

Non-deliverable forward of currency (NDF)

       (66,703)

 

       (77,122)

 

       (66,703)

 

       (77,122)

Currency option contracts

     (217,122)

 

        (7,155)

 

     (217,122)

 

        (7,155)

Deliverable forwards contracts

       (33,765)

 

        (3,482)

 

       (33,765)

 

        (3,482)

Non-deliverable forward of commodities (NDF)

       (11,729)

 

                -

 

       (11,729)

 

                -

Exchange rate contracts currency (Swap)

     (280,285)

 

     (119,388)

 

     (326,650)

 

     (157,975)

 

     (609,604)

 

     (207,147)

 

     (655,969)

 

     (245,734)

               

Non derivatives designated as cash flow hedges

             

Assets

             

Non-deliverable forward of currency (NDF)

                -

 

         1,125

 

        10,707

 

         1,304

Live cattle forward contracts (note 13)

                -

 

        27,955

 

                -

 

        27,955

Non-deliverable forward of commodities (NDF)

         2,183

 

                -

 

         2,183

 

                -

Exchange rate contracts currency (Swap)

         3,450

 

                -

 

         3,450

 

                -

Dollar future contracts - BM&F Bovespa

        14,641

 

                -

 

        14,641

 

                -

 

        20,274

 

        29,080

 

        30,981

 

        29,259

               

Liabilities

             

Non-deliverable forward of currency (NDF)

        (3,502)

 

                -

 

        (3,865)

 

        (2,794)

Exchange rate contracts currency (Swap)

        (6,768)

 

        (3,216)

 

        (6,768)

 

        (3,216)

Dollar future contracts - BM&FBovespa

                -

 

        (5,694)

 

                -

 

        (5,694)

 

       (10,270)

 

        (8,910)

 

       (10,633)

 

       (11,704)

               

Current assets

      118,680

 

        42,922

 

      129,387

 

        43,101

Current liabilities

     (619,874)

 

     (216,057)

 

     (666,602)

 

     (257,438)

 

 

The collateral given in the transactions presented above are disclosed in note 8.

 

 

23.         LEASES

 

The Company is lessee in several contracts, which can be classified as operating or finance lease.

 

23.1.     Operating lease

118

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The minimum future payments of non-cancellable operating lease are presented below:

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.15

2016

                    461,475

 

                    463,641

2017

                      99,430

 

                    101,596

2018

                      35,408

 

                      37,574

2019

                      16,893

 

                      19,175

2020 onwards

                      74,063

 

                      76,345

 

                    687,269

 

                    698,331

 

 

The payments of operating lease agreements recognized as expense in the year ended December 31, 2015 amounted to R$211,657 in the parent company and R$295,971 in the consolidated (R$194,078 in the parent company and R$247,699 in the consolidated as of December 31, 2014).

 

23.2.     Finance lease

 

The Company enters into finance leases mainly for the acquisitions of machinery, equipment, vehicles, software and buildings, presented below:

 

 

 

 

 

Parent company

 

Consolidated

 

Weighted average interest rate
(p.a.)
(1)

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Cost

                 

Machinery and equipment

   

               29,160

 

               23,666

 

               37,096

 

               32,010

Software

   

               72,972

 

               72,961

 

               72,972

 

               72,961

Vehicles

   

                       -

 

               28,204

 

                       -

 

               28,204

Buildings

   

             128,938

 

             128,659

 

             128,938

 

             128,659

     

             231,070

 

             253,490

 

             239,006

 

             261,834

                   

Accumulated depreciation

                 

Machinery and equipment

14.79%

 

               (5,311)

 

               (8,306)

 

              (13,247)

 

              (16,613)

Software

50.00%

 

              (50,988)

 

              (48,298)

 

              (50,988)

 

              (48,298)

Vehicles

                     -  

 

                       -

 

               (8,831)

 

                       -

 

               (8,831)

Buildings

6.94%

 

              (32,091)

 

              (20,248)

 

              (32,091)

 

              (20,248)

     

              (88,390)

 

              (85,683)

 

              (96,326)

 

              (93,990)

     

             142,680

 

             167,807

 

             142,680

 

             167,844

 

 

(1)     The period of depreciation of leased assets corresponds to the lowest of term of the contract and the useful life of the asset, as determined by CVM Deliberation Nº 645/10.

 

The minimum future payments required for these finance leases are segregated as follows, and were recorded in current and non-current liabilities:

 

119

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Parent company and Consolidated

 

12.31.15

 

 

 

 

 

Present value of

minimum payments

 

Interest

 

Minimum future

payments

2016

                          45,579

 

                          13,530

 

                          59,109

2017

                          25,079

 

                          10,743

 

                          35,822

2018

                          19,123

 

                           8,090

 

                          27,213

2019

                          16,734

 

                           7,211

 

                          23,945

2020 onwards

                          80,103

 

                          48,906

 

                        129,009

 

                        186,618

 

                          88,480

 

                        275,098

 

 

The contract terms for both modalities, with respect to renewal, adjustment and purchase option, are according to market practices. In addition, there are no clauses of contingent payments or restrictions on dividends distribution, payments of interest on shareholders’ equity or obtaining debt.

 

The Company also has commitments regarding financial leases, related to a “built to suit” agreement for the construction of office facilities will be build by third parties. The agreements terms will be 15 years from the signing date as well as the charge of rent expenses. If the Company defaults on its obligations, it will be subject to fines and/or acceleration of rent outstanding installments falling due, according to the term of each contract.

 

The estimated schedule of future payments related to these this agreement is set forth below:

 

 

 

 

Parent company and Consolidated

 

 

12.31.15

2016

 

                                 7,886

2017

 

                                 8,359

2018

 

                                 8,861

2019

 

                                 9,393

2020 onwards

 

                            149,062

 

 

                            183,561

 

 

24.         SHARE BASED PAYMENT

 

The Company grants stock options to its employees eligible by the Board of Directors, which are determined in stock options plans that were approved by a Ordinary and a Special Meeting of Shareholders on March 31, 2010 (Plan I) and April 08, 2015 (Plan II).

 

Plan I comprises two instruments: (i) annual stock option grant, and (ii) an additional stock option grant, which the employee might adhere using part of its profit sharing bonus. Plan II comprises only the annual grant.

 

120

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The vesting conditions are based on attainment of results and in the value of the Company businesses.

 

The plans include shares issued by the Company up to the limit of 2% of the total stock, and its purpose is to: (i) attract, retain and motivate the beneficiaries, (ii) add value for shareholders, and (iii) encourage the view of entrepreneur of the business.

 

The plan is managed by the Board of Directors, within the limits established by the general guidelines of the plan and applicable legislation.

 

The quantity of granted options is determined by the Board of Directors, with an exercise price equivalent to the average amount of the closing price of the share at the last twenty trading sessions of the BM&FBOVESPA, prior to the grant date. The exercise price is updated monthly by the variation of the Amplified Consumer Price Index (“IPCA”) between the grant date and the month prior to the option exercise notice by the beneficiary.

 

The vesting period ranges from 1 to 4 years (according to the plan) and will observe the following deadlines from the grant date of the option:

 

 

 

 

Plan I

 

 

 

Plan II

Quantity

 

Deadline

 

Quantity

 

Deadline

 

 

 

 

 

 

 

1/3

 

1 year

 

1/4

 

1 year

2/3

 

2 years

 

2/4

 

2 years

3/3

 

3 years

 

3/4

 

3 years

-

 

-

 

4/4

 

4 years

 

 

After the vesting period and within no more than five years for Plan I and six years for Plan II from the grant date, the beneficiary is no longer entitled to the right to the unexercised options. To satisfy the exercise of the options, the Company may issue new shares or use shares held in treasury.

 

The breakdown of the outstanding granted options is presented as follows:

 

121

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Date

 

Quantity

 

Grant (1)

 

Price of converted share (1)

Grant date

 

Beginning

of the year

 

End of the

year

 

Options

granted

 

Outstanding

options

 

Fair value of

the option

 

Granting date

 

Updated IPCA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan I

 

 

 

 

 

 

 

 

 

 

 

 

 

 

05.02.11

 

05.01.12

 

05.01.16

 

    2,463,525

 

      158,990

 

11.36

 

              30.85

 

              41.62

05.02.12

 

05.01.13

 

05.01.17

 

    3,708,071

 

      331,198

 

7.82

 

              34.95

 

              44.86

05.02.13

 

05.01.14

 

05.01.18

 

    3,490,201

 

      822,333

 

11.88

 

              46.86

 

              56.48

04.04.14

 

04.03.15

 

04.03.19

 

    1,552,564

 

      841,644

 

12.56

 

              44.48

 

              50.44

05.02.14

 

05.01.15

 

05.01.19

 

    1,610,450

 

    1,001,528

 

14.11

 

              47.98

 

              54.41

12.18.14

 

12.17.15

 

12.17.19

 

    5,702,714

 

    5,447,954

 

14.58

 

              63.49

 

              68.51

 

 

 

 

 

 

  18,527,525

 

    8,603,647

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Plan II

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10.01.15

 

10.01.16

 

10.01.21

 

        37,570

 

        32,490

 

20.64

 

              70.09

 

              71.38

12.07.15

 

12.06.16

 

12.06.21

 

    8,724,733

 

    8,724,733

 

17.31

 

              56.00

 

              56.00

 

 

 

 

 

 

    8,762,303

 

    8,757,223

 

 

 

 

 

 

 

 

 

 

 

 

  27,289,828

 

  17,360,870

 

 

 

 

 

 

(1)     Values expressed in Brazilian Reais

 

The rollforward of the outstanding granted options for the year ended December 31, 2015 is presented as follows:

 

 

   

Consolidated

     

Outstanding options as of December 31, 2014

 

              11,390,846

 Issued - grant of 2015

 

                8,762,303

 Exercised:

   

 Grant of 2014

 

                 (531,930)

 Grant of 2013

 

                 (497,212)

 Grant of 2012

 

                 (582,370)

 Grant of 2011

 

                 (242,951)

 Grant of 2010

 

                   (80,833)

 Cancelled:

   

 Grant of 2015

 

                     (5,080)

 Grant of 2014

 

                 (638,092)

 Grant of 2013

 

                 (168,320)

 Grant of 2012

 

                   (45,491)

Outstanding options as of December 31, 2015

 

              17,360,870

 

 

The weighted average exercise prices of the outstanding options conditioned to services is R$59.27 (fifty nine Brazilian Reais and twenty seven cents), and the weighted average of the remaining contractual term is 58 months.

 

The Company records as capital reserve in shareholders’ equity the fair value of the options in the amount of R$160,323 (R$92,898 as of December 31, 2014). In the statement of income in the year ended December 31, 2015 the amount recognized as expense was R$67,425 (R$20,673 as of December 31, 2014).

 

During the year ended December 31, 2015 the Company’s executives exercised 1,935,296 (2,596,610 as of December 31, 2014) shares, with an average price of R$42.60 (forty two Brazilian Reais and sixty cents) (R$38.42 as of December 31, 2014) totaling R$82,437 (R$99,765 as of December 31, 2104). In order to comply with this commitment, the Company utilized treasury shares with an acquisition cost of R$63.40 (sixty three Brazilian Reais and forty cents) (R$47.54 as of December 31, 2014), totaling R$122,694 (R$123,447 as of December 2014), recording a loss in the amount of R$40,257 (R$23,682 as of December 31, 2014) as capital reserve.

122

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

24.1.     Fair Value Measurement

 

The weighted average fair value of options outstanding as of December 31, 2015 was R$15.55 (fifteen Brazilian Reais and fifty five cents) (R$13.20 as of December 31, 2014). The fair value of the stock options was measured using the Black-Scholes pricing model, based on the following assumptions:

 

 

   

12.31.15

   

Plan I

 

Plan II

Expected maturity of the option:

       

Exercise in the 1st year

 

3.0 years

 

3.0 years

Exercise in the 2nd year

 

3.5 years

 

3.5 years

Exercise in the 3rd year

 

4.0 years

 

4.0 years

Exercise in the 4th year

 

           -  

 

5.0 years

Risk-free interest rate

 

5.06%

 

7.34%

Volatility

 

28.48%

 

25.97%

Expected dividends over shares

 

1.27%

 

1.42%

Expected inflation rate

 

6.70%

 

5.32%

 

 

24.2.     Expected period

 

The expected period is that in which it is believed that the options will be exercised and was determined under the assumption that the beneficiaries will exercise their options at the limit of the maturity period.

 

24.3.     Risk-free interest rate

 

The Company uses as risk-free interest rate the National Treasury Bond (“NTN-B”) available on the date of calculation and with maturity equivalent to the terms of the option.

 

24.4.     Volatility

 

The estimated volatility took into account the weighting of the trading history of the Company’s shares.

 

24.5.     Expected dividends

123

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The percentage of dividends used is based on the average payment of dividends per share in relation to the market value of the shares for the past four years.

 

24.6.     Expected inflation rate

 

The expected average inflation rate is based on estimated IPCA by Central Bank of Brazil, considering the remaining average terms of the option.

 

 

25.         PENSION AND OTHER POST-EMPLOYMENT PLANS

 

25.1.     Pension plans

 

The Company sponsors pension plans for its employees and executives as presented below:

 

 

Plan

 

Modality

 

Adhesions

 

 

 

 

 

Plan I

 

Variable Contribution

 

Closed

Plan II

 

Variable Contribution

 

Closed

Plan III

 

Defined Contribution

 

Open

FAF

 

Defined Benefit

 

Closed

 

These plans are managed by BRF Previdência a pension fund entity of non-economic nature and non-profit, through its Deliberative Board which is responsible for defining pension premises and policies, as well as establishing fundamentals guidelines and organization, operation and management rules. The Deliberative Board is composed of representatives from the sponsor and participants, the proportion of 2/3 and 1/3 respectively.

 

a.            Defined benefit plans

 

Plan I and II are variable contribution plans, structured as defined contribution during the accumulation of mathematics provisions with option to change the account balance to be applicable in lifetime monthly income on the grant date benefit. The main actuarial risks are (i) survival time over the ones set out in the mortality tables and (ii) actual return on equity below the actual discount rate.

 

The main purpose of FAF plan is to supplement the benefit paid by the Brazilian Social Security (“INSS – Instituto Nacional de Securidade Social”), calculated proportionally according to the length of service performed and in line with the type of retirement. The main actuarial risks are (i) survival time over the ones set out in the mortality tables (ii) turnover lower than expected, (iii) salary growth higher than expected, (iv) actual return on assets below the actual discount rate, (v) amendment of the rules of social security and actual family composition of the retired employee or executive different from the established assumption.

 

124

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

In plans I and II, the contributions are made on a 1 to 1 basis (the contributions of the sponsor are equal to the basic contributions of the participants). In the Plan FAF, the contribution is made through a percentage actuarially defined for the participant and the sponsor. The actuarial calculations of the plans managed by BRF Previdência are made by independent actuaries, on an annual basis, according to the rules in force.

 

In case of a deficit result in plans, it must be supported by the sponsor, participants and beneficiaries, in the proportion of their contributions.

 

b.            Defined contribution plan

 

Plan III is a defined contribution plan, where contributions are known and the benefit amount depends directly on the contributions made by participants and sponsors, time of contribution and of the result obtained through investment of contributions. The contributions are made on a 1 to 1 basis (the contributions of the sponsor are equal to the basic contributions of the participants) and that may vary from 0.7% to 7.0% according to the salary range of the participant. The contributions made by the Company in the years ended December 31, 2015 and December 31, 2014 are amounted R$7,487 and R$5,087 respectively. On December 31, 2015, the plans has 24,981 participants (13,362 participants as of December 31, 2014).

 

If participants of the plans I, II and III end the employment relationship with the sponsor, the balance formed by the contributions of the sponsor not used for the payment of benefits, will form a fund of overage of contributions that may be used to compensate the future contributions of the sponsor.

 

c.            Rollforward of defined benefit plans

 

The assets and actuarial liabilities are presented below:

125

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

FAF

 

Plano I e II

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Assets and liabilities composition

             

Present value of actuarial liabilities

         1,675,374

 

         1,644,567

 

             12,853

 

             13,283

Fair value of assets

        (2,418,996)

 

        (2,385,220)

 

            (21,916)

 

            (21,971)

(Surplus) Deficit

           (743,622)

 

           (740,653)

 

              (9,063)

 

              (8,688)

Irrecoverable (surplus) deficit - impact on asset limit

            743,622

 

            740,653

 

               4,407

 

               3,164

Net (Assets) Liabilities

                      -

 

                      -

 

              (4,656)

 

              (5,524)

               

Rollforward of irrecoverable surplus

             

Beginning balance of irrecoverable surplus

            740,653

 

            811,355

 

               3,164

 

               2,959

Interest on irrecoverable surplus

             84,805

 

            101,338

 

                  361

 

                  369

Changes in irrecoverable surplus during the period

            (81,836)

 

           (172,040)

 

                  882

 

                 (164)

Ending balance of irrecoverable surplus

            743,622

 

            740,653

 

               4,407

 

               3,164

               

Changes in actuarial obligation

             

Beginning balance of the present value of the actuarial obligation

         1,644,567

 

         1,407,960

 

             13,283

 

             11,046

Interest on actuarial obligations

            183,195

 

            169,862

 

               1,459

 

               1,320

Current service cost

             27,850

 

             16,782

 

                      -

 

                      -

Benefit paid

            (90,444)

 

            (80,399)

 

              (1,069)

 

              (1,077)

Contributions of the sponsor

                  890

 

                      -

 

                      -

 

                      -

Actuarial gains - experience

            107,841

 

             11,334

 

                  755

 

               1,073

Actuarial gains (losses) - hypothesis

           (198,525)

 

            119,028

 

              (1,575)

 

                  921

Ending balance of actuarial obligation

         1,675,374

 

         1,644,567

 

             12,853

 

             13,283

               

Rollforward of assets fair value

             

Beginning balance of the fair value of plan assets

        (2,385,220)

 

        (2,219,315)

 

            (21,971)

 

            (18,477)

Interest income on assets plan

           (268,023)

 

           (271,200)

 

              (2,453)

 

              (2,245)

Benefit paid

             90,444

 

             80,399

 

               1,069

 

               1,077

Contributions paid by the Company

                 (404)

 

                 (407)

 

                      -

 

                      -

Contributions paid by the employee

                 (890)

 

                      -

 

                      -

 

                      -

Return on assets higher (lower) than projection

            145,097

 

             25,303

 

               1,439

 

              (2,326)

Ending balance of assets fair value

        (2,418,996)

 

        (2,385,220)

 

            (21,916)

 

            (21,971)

               
               

Rollforward of comprehensive income

             

Beginning balance

             16,375

 

             42,560

 

                  496

 

               7,688

Reversion to statement of income

            (16,375)

 

            (42,560)

 

                 (496)

 

              (7,688)

Actuarial gains (losses)

             90,684

 

           (130,362)

 

                  820

 

              (1,994)

Return on assets higher (lower) than projection

           (145,097)

 

            (25,303)

 

              (1,439)

 

               2,326

Changes on irrecoverable surplus

             81,836

 

            172,040

 

                 (882)

 

                  164

Ending balance of comprehensive income

             27,423

 

             16,375

 

              (1,501)

 

                  496

               

Costs recognized in statement of income

             

Current service costs

            (27,850)

 

            (16,782)

 

                      -

 

                      -

Interest on actuarial obligations

           (183,195)

 

           (169,862)

 

              (1,459)

 

              (1,320)

Projected return on assets

            268,023

 

            271,200

 

               2,453

 

               2,245

Interest on irrecoverable surplus

            (84,805)

 

           (101,338)

 

                 (361)

 

                 (369)

Costs recognized in statement of income

            (27,827)

 

            (16,782)

 

                  633

 

                  556

               

Estimated costs for the next period

             

Costs of defined benefit

            (23,396)

 

            (27,827)

 

                  569

 

                  633

Estimated costs for the next period

            (23,396)

 

            (27,827)

 

                  569

 

                  633

               

d.            Actuarial assumptions and demographic data

 

The main actuarial assumptions and demographic data used in the actuarial calculations are summarized below:

  

126

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

FAF

 

Plan I e II

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Actuarial assumptions

             

Economic hypothesis

             

Discount rate

12.14%

 

11.45%

 

12.22%

 

11.45%

Projected return on assets

12.14%

 

11.45%

 

12.22%

 

11.45%

Inflation rate

5.00%

 

5.20%

 

5.20%

 

5.20%

Wage growth rate

5.68%

 

6.25%

 

N/A

 

N/A

               

Demographic hypothesis

             

Schedule of mortality

AT-2000

 

AT-2000

 

AT-2000

 

AT-2000

Schedule of disabled mortality

IAPC

 

IAPC

 

IAPC

 

IAPC

               

Demographic data

             

   Number of active participants

8,838

 

9,431

 

                    -  

 

                    -  

   Number of participants in direct proportional benefit

                    -  

 

22

 

                    -  

 

                    -  

   Number of assisted beneficiary participants

5,707

 

5,502

 

52

 

53

 

 

e.            The composition of the investment portfolios

 

The composition of the investment portfolios are presented below:

 

 

   

FAF

 

Plans I and II

   

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Composition of the fund's portfolio:

                               

Fixed income

 

  1,782,800

 

73.7%

 

  1,717,359

 

72.0%

 

      19,014

 

86.8%

 

      18,676

 

85.0%

Variable income

 

     331,402

 

13.7%

 

     360,168

 

15.1%

 

        2,547

 

11.6%

 

        3,066

 

14.0%

Real estate

 

     176,587

 

7.3%

 

     179,369

 

7.5%

 

             -  

 

             -  

 

               -

 

             -  

Structured investments

 

     113,693

 

4.7%

 

     113,536

 

4.8%

 

           337

 

1.6%

 

           229

 

1.0%

Transactions with participants

 

      14,514

 

0.6%

 

      14,788

 

0.6%

 

             18

 

             -  

 

               -

 

             -  

   

  2,418,996

 

100.0%

 

  2,385,220

 

100.0%

 

      21,916

 

100.0%

 

      21,971

 

100.0%

                                 
                                 

% of nominal return on assets

 

11.63%

     

11.63%

     

11.66%

     

11.66%

   

 

 

 

f.             Forecast and average term of payments of obligations

 

The following amounts represent the expected benefit payments for future years (10 years) and the average duration of the plan obligations:

 

 

 

FAF

 

Plans I and II

Payments in:

 

 

 

 

 

 

 

2016

                       104,245

 

                           1,114

2017

                       111,079

 

                           1,165

2018

                       119,419

 

                           1,219

2019

                       129,498

 

                           1,274

2020

                       139,248

 

                           1,330

2021 to 2025

                       881,363

 

                           7,513

 

 

 

 

Weighted average duration - in years

15.10

 

11.40

 

 

 

 

 

127

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

g.            Sensitivity analysis of defined benefit plan - FAF

 

The quantitative sensitivity analysis regarding the relevant assumptions of defined benefit plan – FAF on December 31, 2015 is presented below:

 

 

 

 

Assumptions

 

Variation of 1%

 

Variation of actuarial liabilities

Significant hypothesis

 

utilized

 

Increase

Decrease

 

Increase

Decrease

 

 

 

 

 

 

 

 

 

Benefit plan - FAF

 

 

 

 

 

 

 

 

Discount rate

 

12.14%

 

13.19%

11.09%

 

           (171,095)

            207,540

Wage growth rate

 

5.68%

 

6.73%

5.00%

 

              62,583

             (31,608)

 

25.2.     Post-employment plans: description and characteristics of benefits and associated risks

 

 

 

Parent company and

Consolidated

 

Liabilities

 

 

 

12.31.15

 

12.31.14

Medical assistance

        130,028

 

        115,666

F.G.T.S. Penalty (1)

        105,139

 

        124,461

Award for length of service

          41,462

 

          48,288

Other

          22,415

 

          25,655

 

        299,044

 

        314,070

 

 

 

 

Current

          67,264

 

          56,096

Non-current

        231,780

 

        257,974

(1)     FGTS – Government Severance Indemnity  Fund for Employees

 

The Company offers the following post-employment plans in addition to the pension plans, which are measured by actuarial calculation and recognized in the financial statement.

 

a.            F.G.T.S. penalty

 

As settled by the Regional Labor Court (“TRT”) on April 20, 2007, retirement does not affect the employment contract between the Company and its employees. The benefit paid is equivalent to 50% of F.G.T.S being 40% corresponding to a penalty and 10% of social contribution. Main actuarial risks related are (i) survival time over the ones set out in the mortality tables (ii) turnover lower than expected and (iii) salary growth higher than expected.

 

b.            Medical Plan

 

The Company offers to the retired employee according to the Law No. 9,656/98 a medical plan with fixed contribution, which guarantees to the retired employee that contributed to the health plan by reason of employment relationship, for at least 10 years, the right of maintenance as beneficiary, on the same conditions of coverage enjoyed when the employment contract was in force. Main actuarial risks related are (i) survival time over the ones set out in the mortality tables (ii) turnover lower than expected and (iii) medical costs growth higher than expected.

128

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

c.            Award for length of service

 

The Company usually rewards employees that attain at least 10 years of services rendered and subsequently every 5 years, with an additional remuneration ranges from 1 to 5 current salaries at the date of the event. Main actuarial risks related are (i) survival time over the ones set out in the mortality tables (ii) turnover lower than expected and (iii) salary growth higher than expected.

 

d.            Retirement compensation

 

On retirement, employees with over 10 years of service to the Company are eligible for additional compensation of 1 to 2 current wages in force at the time of retirement. Main actuarial risks related are (i) survival time higher than the ones set out in the mortality tables (ii) turnover lower than expected and (iii) salary growth higher than expected.

 

e.            Life insurance

 

The Company offers life insurance benefit to the employees who, at the time of their termination, are retired and during the employment contract opted for the insurance. For the employees with 10-20 years of service, the maintenance period of insurance is 2 years, from 21 years of service, the period is 3 years. Main actuarial risks related are (i) survival time higher than the ones set out in the mortality tables (ii) turnover lower than expected and (iii) salary growth higher than expected.

 

 

 

 

 

 

 

 

129

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

f.             Rollforward of post-employment plans

 

The rollforward of actuarial liabilities related to other benefits, prepared based on an actuarial report, are as follow:

 

 

   

Consolidated

   

Medical plan

 

F.G.T.S. penalty

 

Award for length of service

 

Others (1)

   

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Composition of actuarial liabilities

                               

Present value of actuarial liabilities

 

      130,028

 

      115,666

 

      105,139

 

      124,461

 

        41,462

 

        48,288

 

        22,415

 

        25,655

Net liabilities

 

      130,028

 

      115,666

 

      105,139

 

      124,461

 

        41,462

 

        48,288

 

        22,415

 

        25,655

                                 

Rollforward of present value of actuarial liabilities

                               

Beginning balance of net liabilities

 

      115,666

 

      115,478

 

      124,461

 

      112,023

 

        48,288

 

        41,421

 

        25,655

 

        22,341

Interest on actuarial liabilities

 

        11,582

 

        14,128

 

        12,244

 

        11,760

 

          4,698

 

          4,497

 

          2,636

 

          2,481

Early settlement of obligations

 

           (271)

 

                 -

 

         (8,000)

 

                 -

 

         (2,090)

 

                 -

 

         (1,325)

 

                 -

Current service costs

 

            281

 

            505

 

          6,268

 

          6,023

 

          1,941

 

          1,931

 

          1,021

 

          1,040

Past service costs - changes in plan

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

             (37)

Past service costs - decrease of plan

 

                 -

 

                 -

 

                 -

 

         (1,009)

 

                 -

 

             (66)

 

                 -

 

           (127)

Benefits paid directly by the Company

 

         (1,253)

 

         (4,062)

 

         (8,782)

 

         (7,579)

 

         (9,682)

 

       (10,079)

 

         (4,583)

 

         (3,747)

Actuarial (gains) losses

 

        20,908

 

       (22,406)

 

          9,451

 

          1,931

 

          8,318

 

        10,952

 

          4,839

 

          3,157

Actuarial losses - demographic hypotesis

 

                 -

 

           (103)

 

       (23,291)

 

         (3,108)

 

         (6,763)

 

         (1,333)

 

         (3,818)

 

           (547)

Actuarial (gains) losses - economic hypothesis

 

       (16,885)

 

        12,126

 

         (7,212)

 

          4,420

 

         (3,248)

 

            965

 

         (2,010)

 

          1,094

Ending balance of net liabilities

 

      130,028

 

      115,666

 

      105,139

 

      124,461

 

        41,462

 

        48,288

 

        22,415

 

        25,655

                                 

Rollforward of assets plan

                               

Benefits paid directly by the Company

 

          1,253

 

          4,062

 

          8,782

 

          7,579

 

          9,682

 

        10,079

 

          4,583

 

          3,747

Contributions of the sponsor

 

         (1,253)

 

         (4,062)

 

         (8,782)

 

         (7,579)

 

         (9,682)

 

       (10,079)

 

         (4,583)

 

         (3,747)

Ending balance of fair value of assets plan

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

                                 

Rollforward of comprehensive income

                               

Beginning balance

 

       (55,015)

 

       (65,398)

 

        68,782

 

        72,025

 

       (24,361)

 

       (13,777)

 

         (7,933)

 

         (4,229)

Actuarial gains (losses)

 

         (4,023)

 

        10,383

 

        21,052

 

         (3,243)

 

          1,693

 

       (10,584)

 

            989

 

         (3,704)

Ending balance of comprehensive income

 

       (59,038)

 

       (55,015)

 

        89,834

 

        68,782

 

       (22,668)

 

       (24,361)

 

         (6,944)

 

         (7,933)

                                 

Costs recognized in statement of income

                               

Interest on actuarial liabilities

 

       (11,582)

 

       (14,128)

 

       (12,244)

 

       (11,760)

 

         (4,698)

 

         (4,497)

 

         (2,636)

 

         (2,481)

Current service costs

 

           (281)

 

           (505)

 

         (6,268)

 

         (6,023)

 

         (1,941)

 

         (1,931)

 

         (1,021)

 

         (1,040)

Past service costs

 

                 -

 

                 -

 

                 -

 

          1,009

 

                 -

 

              66

 

                 -

 

            164

Gains on early settlement

 

            271

 

                 -

 

          8,000

 

                 -

 

          2,090

 

                 -

 

          1,325

 

                 -

Cost recognizzed in statement of income

 

       (11,592)

 

       (14,633)

 

       (10,512)

 

       (16,774)

 

         (4,549)

 

         (6,362)

 

         (2,332)

 

         (3,357)

                                 

Estimated costs for the next period

                               

Current service costs

 

           (182)

 

           (320)

 

         (4,272)

 

         (6,424)

 

         (1,434)

 

         (1,991)

 

           (635)

 

         (1,055)

Interest on actuarial liabilities

 

       (15,417)

 

       (13,027)

 

       (10,683)

 

       (12,121)

 

         (4,239)

 

         (4,722)

 

         (2,408)

 

         (2,629)

Estimated costs for the next period

 

       (15,599)

 

       (13,347)

 

       (14,955)

 

       (18,545)

 

         (5,673)

 

         (6,713)

 

         (3,043)

 

         (3,684)

 

(1)     Considers the sums of the retirement compensation and life insurance benefits.

 

g.            Actuarial assumptions and demographic data

 

The main actuarial assumptions and demographic data used in the actuarial calculations are summarized below:

 

130

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

   

Consolidated

   

Medical plan

 

F.G.T.S. penalty

 

Award for length of service

 

Others (1)

Actuarial premises

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

                                 

Economic hypothesis

                               

Discount rate

 

12.14%

 

11.49%

 

12.56%

 

11.27%

 

12.49%

 

11.27%

 

12.48%

 

11.44%

Inflation rate

 

5.00%

 

5.20%

 

5.00%

 

5.20%

 

5.00%

 

5.20%

 

5.00%

 

5.20%

Medical inflation

 

8.15%

 

8.36%

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

 

N/A

Wage growth rate

 

N/A

 

N/A

 

6.05%

 

6.78%

 

6.05%

 

6.78%

 

6.05%

 

6.78%

                                 
                                 
   

Medical plan

 

Other benefits

               

Actuarial premises

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

               
                                 

Demographic hypothesis

                               

Schedule of mortality

 

 AT-2000

 

 AT-2000

 

 AT-2000

 

 AT-2000

               

Schedule of disabled

 

 RRB-1944

 

 RRB-1944

 

 RRB-1944

 

 RRB-1944

               

Schedule of disabled mortality

 

 IAPC

 

 IAPC

 

 IAPC

 

 IAPC

               

Schedule of turnover - BRF's historical

 

 2015

 

 2014

 

 2015

 

 2014

               

Demoraphic data

                               

   Number of active participants

 

             1,423

 

             1,558

 

           95,460

 

          102,534

               

   Number of assisted beneficiary participants

 

                963

 

                847

 

                  -  

 

                  -  

               

 

(1)     Includes retirement compensation and life insurance benefits.

 

 

h.            Forecast and average duration of payments of obligations

 

The following amounts represent the expected benefit payments for future years (10 years), from the obligation of benefits granted and the average duration of the plan obligations:

 

Payments

 

Medical plan

 

F.G.T.S. penalty

 

Award for length of service

 

Others

 

Total

 

 

 

 

 

 

 

 

 

 

 

2016

 

6,079

 

40,171

 

15,052

 

5,962

 

67,264

2017

 

6,341

 

10,517

 

7,102

 

2,386

 

26,346

2018

 

6,839

 

13,353

 

4,755

 

2,983

 

27,930

2019

 

7,539

 

12,475

 

4,851

 

2,348

 

27,213

2020

 

8,249

 

14,404

 

6,189

 

2,687

 

31,529

2021 to 2025

 

53,927

 

70,608

 

23,360

 

14,162

 

162,057

 

 

 

 

 

 

 

 

 

 

 

Weighted average duration - in years

 

16.94

 

5.83

 

5.03

 

7.30

 

8.71

 

i.              Sensitivity analysis of post-employment plans

 

The Company made the sensitivity analysis regarding the relevant assumptions of the plans on December 31, 2015, is presented below:

 

 

 

 

Assumptions

 

Variation of 1%

 

Variation of actuarial liabilities

Significant hypothesis

 

utilized

 

Increase

 

Decrease

 

Increase

 

%

 

Decrease

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

12.14%

 

13.14%

 

11.14%

 

         (16,750)

 

-12.90%

 

          21,765

 

16.70%

Medical inflation

 

8.15%

 

9.15%

 

7.15%

 

          21,605

 

16.60%

 

         (17,163)

 

-13.20%

Turnover

 

Historical

 

+3,00%

 

-3,00%

 

             (190)

 

0.10%

 

              689

 

0.50%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

F.G.T.S. penalty

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Discount rate

 

12.56%

 

13.56%

 

11.56%

 

           (2,931)

 

-2.30%

 

            3,181

 

2.40%

Wage growth rate

 

6.05%

 

7.05%

 

5.05%

 

              482

 

0.40%

 

             (454)

 

-0.30%

Turnover

 

Historical

 

+3,00%

 

-3,00%

 

         (10,725)

 

-8.20%

 

          13,927

 

10.70%

 

 

131

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

26.         PROVISION FOR TAX, CIVIL AND LABOR RISKS

 

The Company and its subsidiaries are involved in certain legal proceedings arising from the normal course of business, which include civil, administrative, tax, social security and labor claims.

 

The Company classifies the risk of unfavorable decisions in the legal proceedings as “probable”, “possible” or “remote”. The provisions recorded relating to such proceedings is determined by the Company’s management, based on legal advice and reasonably reflect the estimated probable losses.

                                         

The Company’s management believes that its provision for tax, civil and labor risks, accounted for according to CVM Deliberation Nº 594/09 is sufficient to cover estimated losses related to its legal proceedings, as presented below:

 

26.1.     Contingencies for probable losses

 

The rollforward of the provisions for tax, civil and labor risks is summarized below:

 

 

 Parent company

 

 

 

Tax

 

 

 

Labor

 

Civil, commercial

and other

 

Contingent

liabilities

 

 

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

  244,383

 

  137,098

 

   315,257

 

   261,784

 

   57,336

 

   45,980

 

  536,106

 

  543,205

 

  1,153,082

 

    988,067

Additions

   21,662

 

  124,586

 

   211,323

 

   267,866

 

   33,695

 

   77,164

 

            -

 

            -

 

    266,680

 

    469,616

Reversals

  (28,172)

 

  (36,509)

 

    (93,166)

 

    (99,211)

 

  (20,156)

 

  (24,781)

 

  (19,164)

 

    (7,099)

 

   (160,658)

 

   (167,600)

Payments

  (31,648)

 

  (48,272)

 

  (145,067)

 

  (161,871)

 

  (17,635)

 

  (49,302)

 

            -

 

            -

 

   (194,350)

 

   (259,445)

Exchange rate variation

   32,606

 

   67,480

 

     71,121

 

     46,689

 

   12,434

 

     8,275

 

            -

 

            -

 

    116,161

 

    122,444

Ending balance

  238,831

 

  244,383

 

   359,468

 

   315,257

 

   65,674

 

   57,336

 

  516,942

 

  536,106

 

  1,180,915

 

  1,153,082

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    223,766

 

    233,636

Non-current

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    957,149

 

    919,446

 

 

 

 Consolidated

 

Tax

 

Labor

 

Civil, commercial

and other

 

Contingent

liabilities

 

Total

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Beginning balance

  252,377

 

  141,478

 

   330,424

 

   276,128

 

   57,359

 

   48,257

 

  545,573

 

  553,435

 

  1,185,733

 

  1,019,298

Additions

   24,471

 

  130,169

 

   217,813

 

   272,257

 

   33,695

 

   77,164

 

            -

 

            -

 

    275,979

 

    479,590

Reversals

  (37,823)

 

  (37,978)

 

    (96,134)

 

  (101,198)

 

  (20,156)

 

  (26,683)

 

  (22,919)

 

    (7,099)

 

   (177,032)

 

   (172,958)

Payments

  (31,648)

 

  (48,272)

 

  (145,067)

 

  (161,871)

 

  (17,635)

 

  (49,302)

 

            -

 

            -

 

   (194,350)

 

   (259,445)

Price index update

   32,606

 

   67,480

 

     71,125

 

     46,692

 

   12,438

 

     8,278

 

            -

 

            -

 

    116,169

 

    122,450

Exchange rate variation

        513

 

       (500)

 

     (1,138)

 

     (1,584)

 

            -

 

      (355)

 

         (25)

 

       (763)

 

          (650)

 

       (3,202)

Ending balance

  240,496

 

  252,377

 

   377,023

 

   330,424

 

   65,701

 

   57,359

 

  522,629

 

  545,573

 

  1,205,849

 

  1,185,733

                                       

Current

                               

    231,389

 

    242,974

Non-current

                               

    974,460

 

    942,759

         

26.1.1.         Tax

 

The tax contingencies consolidated and classified as probable losses relate to the following main legal proceedings:

 

ICMS: The Company is involved in administrative and judicial tax disputes associated to the register and/or maintenance of ICMS tax credits on certain transactions, such as exports, acquisition of consumption materials and monetary correction. The provision amounts to R$107.709 (R$96,326 as of December 31, 2014).

132

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

PIS and COFINS: The Company discusses the use of certain tax credits arising from the acquisition of raw materials to offset federal taxes, which amount is R$77,538 (R$78,894 as of December 31, 2014).

 

Other tax contingencies: The Company recorded other provisions for tax claims related to payment of social security contributions (SAT, INCRA, FUNRURAL, Education Salary), as well as tax debts arising from differences of accessory obligations, duties, including legal fees and others, totaling a provision of R$52,028 (R$54,290 as of December 31, 2014).

 

26.1.2.         Labor

 

The Company is defendant in several labor claims individual or with the Public Minister, mainly related to overtime, time spent by the workers for changing uniforms, in-commuting hours, rest breaks, occupational accidents, among others. None of these labor claims is individually significant. The Company recorded a provision based on past history of payments and loss prognosis.

 

26.1.3.        Civil, commercial and others

 

Civil contingencies are mainly related to claims relating to traffic accidents, moral and property damage, physical casualties, consumer relations, contractual breaches, and other.

 

26.2.     Contingencies classified as a risk of possible loss

 

The Company is involved in other tax, civil, labor and social security contingencies, for which losses have been assessed as possible by management with the support from legal counsel and therefore no provision was recorded. On December 31, 2015 the total amount of the possible contingencies was R$11,707,258 (R$9,268,519 as of December 31, 2014), of which R$522,629 (R$545,573 as of December 31, 2014) was recorded at fair value as a result of business combinations with Sadia, Avex and Dánica group, according to the requirements of paragraph 23 of CVM Deliberation Nº 665/11.

 

25.2.         

26.2.1.        Tax

 

Tax contingencies amounted to R$10,569,885 (R$8,514,288 as of December 31, 2014), from which R$511,359 (R$530,106 as of December 31, 2014) was recorded at fair value as a result of business combination with Sadia, Avex and Dánica group, according to the requirements of paragraph 23 of CVM Deliberation Nº 665/11.

 

 

 

133

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

The most relevant tax cases are set forth below:

 

Profits earned abroad: The Company was assessed by the Brazilian Internal Revenue Service for alleged underpayment of income tax and social contribution on profits earned by its subsidiaries located abroad, in a total amount of R$636,525 (R$588,105 as of December 31, 2014). The Company’s legal defense is based on the facts that the subsidiaries located abroad are subject exclusively to the full taxation in the countries in which they are based as a result of the treaties signed to avoid double taxation. The total profits earned abroad are disclosed in note 14.3.

 

Income Tax and Social Contribution: The Company is involved in administrative disputes associated to the use of tax losses, refunds and offset of income and social contribution tax credits against other federal tax debts, including credits arising from the Plano Verão legal dispute. Also, on February 05, 2015 BRF received a tax assessment notice, related to the compensation of tax loss carryforwards and negative calculation basis up to limit of 30%  when it have incorporated one of the groups entity during calendar year 2012, which sum up the amount of R$574,699 as of December 31, 2015. The contingent liabilities relative to the subjects discussed totaled R$1,127,724 (R$482,873 as of December 31, 2014).

 

ICMS: The Company is involved in the following disputes associated to the ICMS tax: (i) alleged undue ICMS tax credits generated by tax incentives granted by certain States local rules (“guerra fiscal”) in a total amount of R$2,267,732 (R$1,963,122 as of December 31, 2014). On December 14, 2015 BRF received a tax assessment notice from the State of Paraná, demanding a partial rebate of ICMS credits in a total amount of R$ 339,573 (“guerra fiscal”, undue credit related to materials consumed in production and undue credits over imports); (ii) maintenance of ICMS tax credits on the acquisition of certain products with a reduced tax burden (“cesta básica”) in a total amount of R$547,641 (R$522,000 as of December 31, 2014);  (iii) absence of evidence to prove the balances of exports in the amount of R$324,791 (R$45,577 as of December 31, 2014); and (iv) R$1,416,921 (R$1,007,465 as of December 31, 2014) related to other ICMS claims.

 

Related to the “ICMS cesta básica” (item ii above), in a meeting held on October 16, 2014 the Federal Supreme Court ("STF") was favorable to Tax Authority of State of Rio Grande do Sul, in the judgment of the extraordinary appeal No.635,688 submitted by company Santa Lúcia, understanding as improper the integral maintenance of ICMS tax credits on the reduced tax basis of food products that composes the basic food basket.

 

The decision has a wide reflection effect (applicable to all taxpayers). However there is still a claim for clarification waiting to be judged, requesting more details related to the timing of such decision (previously or only after), which suggests the need to wait for this final decision to recognize the effects on our financial statements.

 

IPI: The Company discusses administratively the non-ratification of compensation of IPI credits resulting from purchases of exempted goods, sales to Manaus Free Zone and purchases of supplies of non-taxpayers with PIS and COFINS in the amount of R$453,196 (R$546,225 as of December, 2014). 

134

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

IPI Premium Credits: The Company is involved in a judicial dispute related to the alleged undue offsetting of IPI Premium Credits against other federal taxes in a total amount of R$464,686 (R$420,548 as of December 31, 2014). The Company recorded and used the credits based on a final judicial decision.

 

PIS and COFINS: The Company is involved in administrative proceedings regarding the offsetting of credits against other federal tax debts, Decrees 2.445 and 2.449 (“semestralidade”) and others in the amount of R$3,097,214 (R$2,572,291 as of December 31, 2014).

 

Social Security Taxes: The Company is involved in disputes related to social security taxes allegedly due on payments to service providers as well as joint responsibility with civil construction service providers and others in a total amount of R$194,419 (R$113,307 as of December 31, 2014).

 

Other Contingencies: The Company is involved in other tax contingencies including rural activity, transfer price, social contribution tax and others, totaling R$39,035 (R$197,991 as of December 31, 2014).

 

Additionally, the Company’s management judged disclose information about the processes below:

 

HUAINE: the Company was included as co-responsible in a debt from Huaine Participações Ltda (former holding of Perdigão). In this lawsuit it is being discussed the inclusion of the Company in the liability from the tax execution in the amount of R$625,474 (R$609,329 as of December 31, 2014). BRF presented a guarantee to the debt, which was duly accepted by the judge and filed a motion to stay execution, which is awaiting judgment. The Company’s legal advisors classified the risk of losses as remote.

 

Normative Instruction 86: The Company discusses administratively the imposition of separate fine due to absence of delivery magnetic file to the Brazilian Internal Revenue Service for the periods 2003 to 2005, for a total amount of R$237,398 (R$219,355 as of December 31, 2014).  In the year ended December 31, 2014, the Company obtained a favorable decision issued by CARF, such legal proceedings was reclassified by our legal advices as remote risk of loss. The Company is waiting for the judgement of the final appeal in the administrative court.

 

 

26.2.2.        Labor

 

On December 31, 2015 the contingencies assessed as possible loss totaled R$ 39,220 (R$40,063 as of December 31, 2014).

135

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

IPCA-E: On August 2015, the Superior Labor Court (“TST”) declared unconstitutional the monetary adjustment of the labor debts by the Referential Rate (“TR”), which was substituted by the IPCA-E (National Index of Price to the Ample Consumer - Special), which will be applicable to all litigations in progress as of June 30, 2009 and from that date on

 

On October 14, 2015, the Federal Supreme Court (“STF”) granted an injunction to suspend the decision from TST. The Company estimates that the result of the monetary adjustment derived from this decision on the Financial Statements, in the case the injunction is suspended, would be approximately of R$44,500.

 

26.2.3.        Civil

 

The civil contingencies for which losses were assessed as possible totaled R$1,098,153 (R$714,168 as of December 31, 2014) and were mainly related to indemnification for material and moral damages.

 

 

27.         SHAREHOLDERS’ EQUITY

 

27.1.     Capital stock

 

On December 31, 2015, the capital subscribed and paid by the Company is R$12,553,418, which is composed of 872,473,246 book-entry shares of common stock without par value. The value of the capital stock is net of the public offering expenses of R$92,947.

 

The Company is authorized to increase the capital stock, irrespective of amendment to the bylaws, up to the limit of 1,000,000,000 common shares, in book-entry form without par value.

 

27.2.     Interest on shareholders’ equity and dividends

 

On February 13, 2015 the payment of R$463,254 was made related to the interest on shareholders’ equity approved by the Management on December 18, 2014 and ratified in the Shareholders Ordinary Meeting on April 8, 2015.

 

On June 18, 2015, the Board of Directors approved the payment of R$425,859 related to interest on shareholder’s equity settled on August 14, 2015.

 

On December 17, 2015, the Board of Directors approved the payment of R$473,398 related to interest on shareholder’s equity and R$91,443 related to dividends, settled on February 12, 2016.

 

 

136

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

27.3.     Breakdown of capital stock by nature

 

 

 

Consolidated

 

12.31.15

 

12.31.14

Common shares

    872,473,246

 

    872,473,246

Treasury shares

    (62,501,001)

 

      (5,188,897)

Outstanding shares

    809,972,245

 

    867,284,349

 

 

27.4.     Rollforward of outstanding shares

 

 

 

 

Consolidated

 

 

Quantity of outstanding of shares

 

 

12.31.15

 

12.31.14

Shares at the beggining of the period

 

          867,284,349

 

          870,687,739

Purchase of treasury shares

 

           (59,247,400)

 

            (6,000,000)

Sale of treasury shares

 

             1,935,296

 

             2,596,610

Shares at the end of the period

 

          809,972,245

 

          867,284,349

 

     

 

 

137

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

27.5.     Shareholders’ remuneration

 

 

 

Parent company

 

12.31.15

 

12.31.14

Net profit

            3,111,170

 

            2,225,036

Legal reserve (5.00%)

              (155,558)

 

              (111,252)

Dividends calculation base

            2,955,612

 

            2,113,784

Minimum mandatory dividend (25.00%)

               738,903

 

               528,446

Remuneration of shareholders' exceeding the mandatory minimum

               251,797

 

               295,808

Total remuneration of shareholders' in the year, as interest on shareholders' equity and dividends (R$91,443 in 2015) and (R$86,489 in 2014)

               990,700

 

               824,254

Withholding income tax on interest on shareholders' equity

                (88,861)

 

                (64,176)

Remuneration of shareholders', net of withholding income tax

               901,839

 

               760,078

 

 

 

 

Percentage of calculation base

33.52%

 

38.99%

Earnings paid per share

               1.19979

 

               0.94836

 

 

 

 

 

 

 

 

Payment of interest on shareholders' equity, paid in the year - gross of withholding income tax of R$40,543 in 2015 (R$30,272 in 2014)

              (425,859)

 

              (361,000)

Paid in the previous period - interest on shareholders' equity - gross withholding income tax of R$33,934 in 2014 (R$30,019 in 2013)

              (376,765)

 

              (365,013)

Paid in the previous period - Dividends

                (86,489)

 

                          -

Payments maid during in the year

              (889,113)

 

              (726,013)

 

 

 

 

 

 

 

 

Total remuneration of shareholders' outstanding

               564,841

 

               463,254

Withholding income tax on interest on shareholders' equity

                (48,318)

 

                (33,904)

Remaining amounts outstanding

                   1,927

 

                   1,559

Interest on shareholders' equity outstanding

               518,450

 

               430,909

 

27.6.     Profit distribution

 

 

 

 

 

 

Income appropriation

 

Reserve balances

 

 

Limit on

 

 

 

 

 

 

 

 

 

 

capital %

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Actuarial gain FAF

 

                  -

 

            (10,480)

 

            (33,163)

 

                      -

 

                      -

Dividends

 

                  -

 

             91,443

 

             86,489

 

                      -

 

                      -

Interest on shareholdes' equity

 

                  -

 

            899,257

 

            737,765

 

                      -

 

                      -

Legal reserve

 

               20

 

            155,558

 

            111,252

 

            540,177

 

            384,619

Capital increase reserve

 

               20

 

            624,330

 

            451,640

 

         1,898,581

 

         1,274,251

Reserve for expansion

 

               80

 

         1,219,394

 

            730,684

 

         3,120,827

 

         1,901,433

Reserve for tax incentives

 

                  -

 

            131,668

 

            140,369

 

            517,190

 

            385,522

 

 

 

 

         3,111,170

 

         2,225,036

 

         6,076,775

 

         3,945,825

 

Legal reserve: It is computed based on five percent (5%) of net profit of each fiscal year as specified in article 193 of Law No. 6,404/76, modified by Law No. 11,638/07, which shall not exceed twenty percent (20%) of the capital stock. On December 31, 2015, this reserve corresponds to 4.34% of capital stock (3.09% as of December 31, 2014).

138

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Reserve for capital increase: it is calculated based on twenty percent (20%) towards the establishment of reserves for capital increase, which shall not exceed twenty percent (20%) of the capital stock. On December 31, 2015 this reserve corresponds to 15.24% of capital stock (10.23% as of December 31, 2014).

 

Reserve for expansion: Up to 50% (fifty per cent) for the constitution of the reserve for expansion. This reserve should not exceed 80% (eighty per cent) of the capital stock. On December 31, 2015 the balance of this reserve correspond to 25.05% of the capital stock (15.26% as of December 31, 2014).

 

Reserve for tax incentives: Constituted as specified in article 195-A of the Law No. 6,404/1976, modified by Law No. 11,638/07, based on the amounts of government grants for investment.

 

27.7.     Capital reserve

 

27.7.1.  Capital reserve

 

 

 

 

Capital Reserves

 

 

12.31.15

 

12.31.14

Gain on disposal of shares

 

     (39,059)

 

       1,198

Goodwill on the shares issuance

 

    174,014

 

      62,767

Granted options

 

    160,323

 

      92,898

Goodwill on acquisition of non-controlling entities

 

     (47,417)

 

     (47,417)

Acquisition of non-controlling entities

 

   (240,883)

 

              -

 

 

       6,978

 

    109,446

 

27.7.2.  Treasury shares

 

The Company has 62,501,001 shares in treasury, with an average cost of R$63.17 (sixty three Brazilian Reais and seventeen cents) per share, with a market value corresponding to R$3,455,680.

 

During the year ended December 31, 2015, the Company sold 1,935,296 treasury shares due the exercise of stock options by the Company’s executives.

 

During the year ended December 31, 2015, as authorized by the Board of Directors, the Company acquired 59,247,400 shares of its own shares at a cost of R$3,765,753, with the objective of maintenance of treasury shares for possible compliance with the provisions in the plans of options and additional stock option, both approved by the special meeting of Board of Directors held on April 28, August 27, October 29, 2015 and a special meeting of the Board of Directors on November 09, 2015.

 

139

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

27.8.     Breakdown of the capital by owner

 

The shareholding position of the largest shareholders, management and members of the Board of Directors is presented below (unaudited):

 

 

   

12.31.15

 

12.31.14

Shareholders

 

Quantity

 

%

 

Quantity

 

%

Major shareholders

               

Fundação Petrobras de Seguridade Social - Petros (1)

 

   94,549,299

 

           10.84

 

  108,933,497

 

           12.49

Tarpon

 

   91,529,085

 

           10.49

 

   91,529,085

 

           10.49

Caixa de Previd. dos Func. Do Banco do Brasil (1)

 

   87,573,052

 

           10.04

 

  100,282,352

 

           11.49

Management

               

Board of Directors

 

   35,818,939

 

             4.11

 

   35,117,782

 

             4.03

Executives

 

          73,297

 

             0.01

 

          85,221

 

             0.01

Treasury shares

 

   62,501,001

 

             7.16

 

     5,188,897

 

             0.59

Other

 

  500,428,573

 

           57.35

 

  531,336,412

 

           60.90

   

  872,473,246

 

          100.00

 

  872,473,246

 

          100.00

 

(1)     The pension funds are controlled by employees that participate in the respective entities.

 

The shareholding position of the shareholders holding more than 5% of the voting capital is presented below (unaudited):

 

 

 

12.31.15

 

12.31.14

Shareholders

 

Quantity

 

%

 

Quantity

 

%

Fundação Petrobras de Seguridade Social - Petros (1)

 

   94,549,299

 

           10.84

 

  108,933,497

 

           12.49

Tarpon

 

   91,529,085

 

           10.49

 

   91,529,085

 

           10.49

Caixa de Previd. dos Func. Do Banco do Brasil (1)

 

   87,573,052

 

           10.04

 

  100,282,352

 

           11.49

 

 

  273,651,436

 

           31.37

 

  300,744,934

 

           34.47

Other

 

  598,821,810

 

           68.63

 

  571,728,312

 

           65.53

 

 

  872,473,246

 

          100.00

 

  872,473,246

 

          100.00

 

(1)     The pension funds are controlled by employees that participate in the respective entities.

 

The Company is bound to arbitration in the Market Arbitration Chamber, as established by the arbitration clause in its bylaws.

 

 

 

140

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

28.         EARNINGS PER SHARE

 

 

 

Parent company

 

12.31.15

 

12.31.14

Basic numerator

     

Net profit for the period attributable to controlling shareholders

         3,111,170

 

         2,225,036

       

Basic denominator

     

Common shares

     872,473,246

 

     872,473,246

Weighted average number of outstanding shares - basic (except treasury shares)

     842,000,012

 

     870,412,068

Net earnings per share basic - R$

            3.69498

 

            2.55630

       
       

Diluted numerator

     

Net profit for the period attributable to controlling shareholders

         3,111,170

 

         2,225,036

       

Diluted denominator

     

Weighted average number of outstanding shares - basic (except treasury shares)

     842,000,012

 

     870,412,068

Number of potential shares (stock options)

            401,809

 

            411,708

Weighted average number of outstanding shares - diluted

     842,401,821

 

     870,823,776

Net earnings per share diluted - R$

            3.69321

 

            2.55509

 

   

 

Parent company

Continued operations

12.31.15

 

12.31.14

Basic numerator

     

Net profit for the period from continued operations attributable to controlling shareholders

     2,928,082

 

     2,135,214

       

Basic denominator

     

Common shares

 872,473,246

 

 872,473,246

Weighted average number of outstanding shares - basic (except treasury shares)

 842,000,012

 

 870,412,068

Net earnings per share basic - R$

       3.47753

 

       2.45311

       
       

Diluted numerator

     

Net profit for the period from continued operations attributable to controlling shareholders

     2,928,082

 

     2,135,214

       

Diluted denominator

     

Weighted average number of outstanding shares - basic (except treasury shares)

 842,000,012

 

 870,412,068

Number of potential shares (stock options)

       401,809

 

       411,708

Weighted average number of outstanding shares - diluted

 842,401,821

 

 870,823,776

Net earnings per share diluted - R$

       3.47587

 

       2.45195

 

 

141

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Parent company

Discontinued operations

12.31.15

 

12.31.14

Basic numerator

     

Net profit for the period from discontinued operations attributable to controlling shareholders

            183,088

 

             89,822

       

Basic denominator

     

Common shares

     872,473,246

 

     872,473,246

Weighted average number of outstanding shares - basic (except treasury shares)

     842,000,012

 

     870,412,068

Net earnings per share basic - R$

            0.21744

 

            0.10319

       
       

Diluted numerator

     

Net profit for the period from discontinued operations attributable to controlling shareholders

            183,088

 

             89,822

       

Diluted denominator

     

Weighted average number of outstanding shares - basic (except treasury shares)

     842,000,012

 

     870,412,068

Number of potential shares (stock options)

            401,809

 

            411,708

Weighted average number of outstanding shares - diluted

     842,401,821

 

     870,823,776

Net earnings per share diluted - R$

            0.21734

 

            0.10315

 

On December 31, 2015, from the total of 17,360,870 stock options outstanding (11,390,864 as of December 31, 2014) granted to executives of the Company, 14,205,177 options (8,616,900 as of December 31, 2014) were not considered in the calculation of the diluted earnings per share due to the fact that the exercise price until the vesting period was higher than the average market price of the common shares during the period, so that they did not cause any dilution effect.

 

 

29.         GOVERNMENT GRANTS

 

The Company has tax benefits related to ICMS for investments granted by the governments of states of Goiás, Pernambuco, Mato Grosso and Bahia.  Such incentives are directly associated to the manufacturing facilities operations, job generation and to the economic and social development in the respective states. 

 

On December 31, 2015, this incentive totaled R$131,668 (R$140,369 as of December 31, 2014) composing so, the Reserve for Tax Incentives.

 

 

30.         RELATED PARTIES – PARENT COMPANY

 

As part of the Company’s operations, rights and obligations arise between related parties, resulting from transactions of purchase and sale of products, loans agreed on normal conditions of market for similar transactions, based on contracts.

142

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

All the relationships between the Company and its subsidiaries were disclosed irrespective of the existence or not of transactions between these parties.

 

All the transactions and balances among the companies were eliminated in the consolidation and refer to commercial and/or financial transactions.

 

 

 

 

 

 

143

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

30.1.     Transactions and balances     

 

The balances of the transactions with the related parties are as follow:

 

 

 

Accounts receivable

 

Dividends and interest on the shareholders' equity receivable

 

Loan contracts

 

Trade accounts

payable

 

Advance for future capital increase

 

Other rights

 

Other obligations

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

                                                       

Al-Wafi Food Products Factory LLC

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

               89

 

                 -

 

                    -

 

                 -

Avex S.A.

              19,485

 

               9,269

 

                      -

 

                      -

 

                      -

 

                      -

 

            (134)

 

            (608)

 

                 -

 

                 -

 

        25,468

 

        25,468

 

                    -

 

                 -

Avipal Centro Oeste S.A.

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 (38)

 

              (38)

BFF International Ltd.

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

          2,129

 

          1,448

 

                    -

 

                 -

BRF Foods LLC

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

             487

 

             323

 

                    -

 

                 -

BRF Foods GmbH

            119,280

 

               8,484

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

             418

 

                 -

 

                    -

 

                 -

BRF Global GmbH

         2,780,457

 

         2,773,388

 

                      -

 

                      -

 

                      -

 

                      -

 

         (1,596)

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                    -

 

                 -

BRF GmbH

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

              (16)

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

            (1,471)

 

            (571)

Highline International Ltd.

                      -

 

                      -

 

                      -

 

                      -

 

              (7,121)

 

              (4,844)

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                    -

 

                 -

K&S Alimentos S.A.

                      -

 

                      -

 

               1,365

 

               1,221

 

                      -

 

                      -

 

         (8,148)

 

         (4,011)

 

                 -

 

                 -

 

          2,954

 

          2,643

 

                 (29)

 

                 -

Minerva S.A.

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                    -

 

         (5,413)

Nutrifont Alimentos S.A.

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

             428

 

                    -

 

                 -

Perdigão Europe Ltd.

                      -

 

              38,475

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                    -

 

                 -

Perdigão International Ltd.

                      -

 

                      -

 

                      -

 

                      -

 

             (29,446)

 

             (14,894)

 

                 -

 

                 -

 

                 -

 

                 -

 

          4,551

 

          9,735

 

      (1,186,841)

 (1)

      (806,660)

PSA Laboratório Veterinário Ltda.

                      -

 

                      -

 

                  550

 

                  630

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

             100

 

                 -

 

                 -

 

                    -

 

                 -

Quickfood S.A.

              47,446

 

              20,226

 

                      -

 

                      -

 

                      -

 

                      -

 

            (717)

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

               (553)

 

            (581)

Sadia Alimentos S.A.

              12,366

 

              12,366

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                    -

 

                 -

Sadia Chile S.A.

              42,467

 

              22,550

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                    -

 

                 -

Sadia Uruguay S.A.

               8,720

 

               4,728

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                    -

 

                 -

UP! Alimentos Ltda.

                  645

 

               1,622

 

              19,820

 

               9,027

 

                      -

 

                      -

 

       (15,227)

 

       (14,784)

 

                 -

 

                 -

 

          3,757

 

          4,328

 

                    -

 

                 -

VIP S.A. Empreendimentos e Partic. Imob.

                      -

 

                      -

 

               1,403

 

               2,491

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                    -

 

                 -

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

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

             344

 

             225

 

                    -

 

                 -

Instituto de Desenvolvimento Gerencial S.A.

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

                 -

 

             2,088

 

             406

Total

         3,030,866

 

         2,891,108

 

              23,138

 

              13,369

 

             (36,567)

 

             (19,738)

 

       (25,838)

 

       (19,403)

 

                 -

 

             100

 

        40,197

 

        44,598

 

      (1,186,844)

 

      (812,857)

 

(1)     The amount corresponds to advances for export pre-payment.

 

 

 

 

144

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

Revenue

 

Financial results, net

 

Purchases

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

                       

Avex S.A.

              10,456

 

               5,220

 

                      -

 

                      -

 

              (6,439)

 

              (9,022)

BRF Foods GmbH

              63,057

 

               8,018

 

                      -

 

                      -

 

                      -

 

                      -

BRF Global GmbH

       10,028,360

 

         9,280,147

 

                 (893)

 

             (19,841)

 

                      -

 

                      -

Establecimiento Levino Zaccardi y Cia. S.A.

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

              (1,517)

K&S Alimentos Ltda.

                      -

 

                      -

 

                      -

 

                      -

 

           (134,916)

 

           (117,174)

Nutrifont Alimentos S.A.

                      -

 

                      -

 

                      -

 

                  484

 

                      -

 

                      -

Perdigão International Ltd.

                      -

 

              18,046

 

             (58,402)

 

             (50,304)

 

                      -

 

                      -

Quickfood S.A.

              27,394

 

              16,985

 

                      -

 

                      -

 

              (7,186)

 

             (12,905)

Sadia Alimentos S.A.

                      -

 

               2,339

 

                      -

 

                      -

 

                      -

 

                      -

Sadia Chile S.A.

            116,416

 

              50,810

 

                      -

 

                      -

 

                      -

 

                      -

Al-Wafi Foods

              47,020

 

                      -

 

                      -

 

                      -

 

                      -

 

                      -

Sadia Uruguay S.A.

              20,442

 

              12,185

 

                      -

 

                      -

 

                      -

 

                 (181)

UP! Alimentos Ltda.

              13,858

 

              14,735

 

                      -

 

                      -

 

           (197,818)

 

           (191,750)

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

                      -

 

                      -

 

                      -

 

              (5,305)

 

                      -

 

                      -

Galeazzi e Associados Consult Serv Ltda.

                      -

 

                      -

 

                      -

 

                      -

 

                      -

 

             (11,565)

Instituto de Desenvolvimento Gerencial S.A. (1)

                      -

 

                      -

 

                      -

 

                      -

 

             (11,273)

 

              (2,912)

Elebat S.A.

              11,556

 

                      -

 

                    38

 

                      -

 

             (38,246)

 

                      -

Total

       10,338,559

 

         9,408,485

 

             (59,257)

 

             (74,966)

 

           (395,878)

 

           (347,026)

 

(1) Entity on which BRF has no equity interest, but has relationship with the Board of Directors, which has provided advisory services related to strategic management and organizational restructure.

 

 

All companies presented in note 1.1 are controlled by BRF, except for UP! Alimentos, K&S, PP-BIO, PR-SAD, AKF and SATS BRF which are associates or joint ventures.

 

The Company also recorded a liability in the amount of 8,470 (R$10,833 as of December 31, 2014) related to the fair value of the guarantees offered to BNDES concerning a loan made by Instituto Sadia de Sustentabilidade.

 

Due to the acquisition of biodigesters from Instituto Sadia de Sustentabilidade, as of December 31, 2015 the Company recorded a payable to this entity of R$30,628 included in other liabilities (R$39,173 as of December 31, 2014).

 

The Company entered into loans agreement with its subsidiaries. Below is a summary of the balances and rates charged for the transactions at the balance sheet date:   

 

145

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Counterparty

 

 

 

Balance

 

Interest rate (p.a.)

Creditor

 

Debtor

 

Currency

 

12.31.15

 

 

 

 

 

 

 

 

 

 

 

Sadia Overseas Ltd.

 

BRF Global GmbH

 

US$

 

       341,237

 

7.0%

BRF Global GmbH

 

BFF International Ltd.

 

US$

 

       275,686

 

1.5%

BRF GmbH

 

BRF Foods GmbH

 

US$

 

       232,671

 

1.2%

Sadia International Ltd.

 

Wellax Food Logistics

 

US$

 

       221,644

 

1.5%

Perdigão International Ltd.

 

BRF Global GmbH

 

US$

 

       146,956

 

0.9%

BRF GmbH

 

BRF Holland B.V.

 

EUR

 

         96,813

 

3.0%

BRF GmbH

 

BRF Foods LLC

 

US$

 

         74,655

 

2.5%

BRF Holland B.V.

 

BRF B.V. (NL)

 

EUR

 

         49,637

 

3.0%

Wellax Food Logistics

 

BRF GmbH

 

EUR

 

         34,531

 

1.5%

Perdigão International Ltd.

 

BRF S.A

 

US$

 

         29,446

 

0.8%

BRF Holland B.V.

 

BRF GmbH

 

EUR

 

         17,247

 

1.5%

BRF GmbH

 

AL Wafi

 

US$

 

         11,430

 

1.2%

BRF GmbH

 

BRF Global GmbH

 

EUR

 

           9,186

 

1.5%

BRF GmbH

 

BRF Singapore

 

SGD

 

           5,558

 

1.5%

Perdigão International Ltd.

 

BRF Foods LLC

 

US$

 

           4,736

 

1.0%

BRF Holland B.V.

 

BRF Wrexam

 

GBP

 

           3,188

 

3.0%

BRF GmbH

 

BRF Foods LLC

 

US$

 

           2,739

 

1.6%

Wellax Food Logistics

 

BRF Foods LLC

 

US$

 

           2,307

 

7.0%

BRF Holland B.V.

 

BRF Iberia

 

EUR

 

           1,921

 

3.0%

 

30.2.     Other Related Parties

 

The Company leased properties owned by FAF. For the year ended December 31, 2015, the total amount paid as rent was R$10,118 (R$6,166 as of December 31, 2014). The rent value was set based on market conditions.

 

30.3.     Granted guarantees

 

All granted guarantees on behalf of related parties were disclosed in note 20.10.

 

30.4.     Management remuneration

 

The management key personnel include the directors and officers, members of the executive committee and the head of internal audit. On December 31, 2015, there were 27 professionals (24 professionals as of December 31, 2014).

 

The total remuneration and benefits paid to these professionals are demonstrated below:

 

146

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

Consolidated

 

12.31.15

 

12.31.14

Salary and profit sharing

       41,948

 

       48,093

Short term benefits

            692

 

            917

Private pension

            720

 

            387

Post-employment benefits

            163

 

            168

Termination benefits

       23,634

 

       28,411

Share based payment

       13,195

 

         8,665

 

       80,352

 

       86,641

 

(1)     Comprises:  Medical assistance, educational expenses and others.

 

 

31.         SUPPLY CHAIN FINANCE

 

Parent Company and Consolidated

 

12.31.15

 

12.31.14

Supply chain finance - Domestic market

           685,597

 

           292,751

Supply chain finance - Foreign market

           488,997

 

           162,369

 

     1,174,594

 

        455,120

 

 

The Company entered into supply chain finance transactions with first-class financial institutions in order to extend the payment period in purchases of raw material, machinery and equipment, and other inputs with internal and external market suppliers. As such, these transactions are presented in the operational cash flows for the year ended 2015.

 

On December 31, 2015, the discount rates applied to the supply chain finance transactions agreed between our suppliers and the financial institutions  in the internal market were set between 1.10% to 1.34% p.m. (1.00% to 1.09% p.m. on December 31, 2014).

 

On December 31, 2015, the discount rates applied to the supply chain finance transactions agreed between our suppliers and the financial institutions  in the external market were set between 1.5% to 2.51% p.a. (1.01% to 1.96% p.a. on December 31, 2014).

 

 

 

 

 

147

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

32.         NET SALES

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Gross sales

             

Brazil

    19,880,282

 

    18,751,037

 

    19,866,958

 

    18,742,038

Europe

     2,420,791

 

     2,431,835

 

     3,853,299

 

     3,307,527

MEA

     5,414,414

 

     4,778,412

 

     7,643,089

 

     5,909,163

Asia

     2,537,034

 

     2,812,221

 

     3,432,379

 

     3,109,676

LATAM

        429,983

 

        590,894

 

     2,438,814

 

     1,878,233

 

    30,682,504

 

    29,364,399

 

    37,234,539

 

    32,946,637

               

Sales deductions

             

Brazil

    (3,831,913)

 

    (3,320,079)

 

    (3,829,451)

 

    (3,317,591)

Europe

         (36,184)

 

         (42,249)

 

       (213,684)

 

       (214,891)

MEA

         (40,454)

 

         (34,287)

 

       (545,616)

 

       (199,343)

Asia

         (44,548)

 

         (19,713)

 

       (142,785)

 

         (36,732)

LATAM

           (3,614)

 

         (13,936)

 

       (306,402)

 

       (171,237)

 

    (3,956,713)

 

    (3,430,264)

 

    (5,037,938)

 

    (3,939,794)

 

 

 

 

 

 

 

 

Net sales

             

Brazil

    16,048,369

 

    15,430,958

 

    16,037,507

 

    15,424,447

Europe

     2,384,607

 

     2,389,586

 

     3,639,615

 

     3,092,636

MEA

     5,373,960

 

     4,744,125

 

     7,097,473

 

     5,709,820

Asia

     2,492,486

 

     2,792,508

 

     3,289,594

 

     3,072,944

LATAM

        426,369

 

        576,958

 

     2,132,412

 

     1,706,996

 

    26,725,791

 

    25,934,135

 

    32,196,601

 

    29,006,843

 

 

 

33.         RESEARCH AND DEVELOPMENT COSTS

 

Consist of expenditures on internal research and development of new products which are recognized when incurred. The expenditures amounted to R$227,280 for year ended December 31, 2015 in the parent company and the consolidated (R$192,786 as of December 31, 2014 in the parent company and the consolidated).

 

 

 

 

148

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

34.         OTHER OPERATING INCOME (EXPENSES), NET

  

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Income

             

Recovery of expenses (1)

      228,945

 

        44,364

 

      241,140

 

        63,773

Provision reversal (2)

      141,684

 

          6,317

 

      141,684

 

          6,317

Net income on exchange of Minerva stock (3)

      125,671

 

      179,268

 

      125,671

 

      179,268

Net income from the disposal of property, plant and equipment

                 -

 

      103,291

 

                 -

 

      111,410

Gain on business combination

                 -

 

                 -

 

                 -

 

        24,963

Other

        40,870

 

        76,395

 

        58,198

 

        96,613

 

      537,170

 

      409,635

 

      566,693

 

      482,344

               

Expenses

             

Employees profit sharing

     (246,255)

 

     (324,002)

 

     (302,795)

 

     (356,495)

Allowance for doubtful accounts (4)

     (196,697)

 

       (12,377)

 

     (196,731)

 

       (12,410)

Restructuring charges

       (82,932)

 

     (119,735)

 

       (93,074)

 

     (214,737)

Idleness costs (5)

       (52,878)

 

       (31,883)

 

       (86,110)

 

       (54,116)

Stock options plan

       (58,946)

 

       (20,673)

 

       (58,946)

 

       (20,673)

Other employees benefits

       (52,485)

 

       (33,439)

 

       (52,485)

 

       (33,439)

Provision for civil, labor and tax risks

       (43,508)

 

     (162,763)

 

       (44,811)

 

     (163,573)

Management profit sharing

       (20,072)

 

       (13,863)

 

       (24,857)

 

       (14,159)

Net loss on the disposals of property, plant and equipment

       (19,795)

 

                 -

 

       (16,402)

 

                 -

Insurance claims costs

       (14,924)

 

                 -

 

       (15,053)

 

                 -

Other (6)

     (110,173)

 

       (29,643)

 

     (120,096)

 

       (50,852)

 

     (898,665)

 

     (748,378)

 

  (1,011,360)

 

     (920,454)

 

     (361,495)

 

     (338,743)

 

     (444,667)

 

     (438,110)

 

 

(1)     The accumulated balance in 2015 refers mainly to extemporaneous tax credits in the amount of R$136,873 and success in a lawsuit regarding the Eletrobras compulsory loan in the amount of R$62,163.

(2)     The accumulated balance in 2015 refers mainly to reversal of allowance for losses with the ICMS tax in amount of R$111,419.

(3)     The accumulated balance in 2015 refers to the gain recognized in the change of accounting treatment of the investments in Minerva, which is being accounted as marketable securities available for sale, based on the fair value of the Minerva stocks as of the transfer date (note 17.3).

(4)     Refers mainly to doubtful accounts in foreign markets.

(5)     Idleness cost includes depreciation expense in the amount of R$17,622 (R$22,734 as of December 31, 2014) in the parent company and R$18,331(R$23,431 as of December 31, 2014) in the consolidated balances.

(6)     Includes tax notification regarding ICMS in the state of Amazonas in the amount of R$27,157.

 

 

 

 

 

 

149

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

35.         FINANCIAL INCOME (EXPENSES), NET

 

 

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Financial income

             

Exchange rate variation of foreign on net assets (1)

                 -

 

                 -

 

   1,353,528

 

      126,726

Exchange rate variation on other assets

      928,102

 

      369,733

 

   1,081,022

 

      694,353

Exchange rate variation on marketable securities

        57,862

 

        25,358

 

      381,275

 

      287,232

Interest on assets

      227,323

 

      243,862

 

      235,027

 

      251,015

Interest on cash and cash equivalents

      112,221

 

        76,686

 

      164,229

 

        97,280

Interests on financial assets classified as

             

Held to maturity

        53,943

 

        22,069

 

        55,077

 

        22,069

Held for trading

        29,985

 

        27,802

 

        47,392

 

        27,902

Available for sale

          7,250

 

            391

 

        16,584

 

        10,314

Gains from derivative transactions, net (2)

                 -

 

                 -

 

        14,782

 

        46,260

Others

          3,480

 

        14,465

 

          6,397

 

        17,605

 

   1,420,166

 

      780,366

 

   3,355,313

 

   1,580,756

               

Financial expenses

             

Exchange rate variation on loans and financing

  (2,085,747)

 

     (645,879)

 

  (2,085,761)

 

     (648,022)

Exchange rate variation on other liabilities

     (673,872)

 

     (123,869)

 

  (1,080,482)

 

     (582,844)

Interest on loans and financing

     (645,512)

 

     (482,266)

 

     (819,172)

 

     (645,052)

Premium paid for the repurchase of bonds (Tender Offer)

     (246,208)

 

                 -

 

     (310,322)

 

     (198,514)

Adjustment to present value

     (242,030)

 

     (157,918)

 

     (240,075)

 

     (154,359)

Interest on liabilities

     (161,388)

 

     (172,626)

 

     (165,423)

 

     (179,863)

Financial expenses on accounts payable

       (45,507)

 

       (24,655)

 

       (45,507)

 

       (24,655)

Interest expenses on loans to related parties

       (59,257)

 

       (74,694)

 

                 -

 

                 -

Losses on derivative transactions, net (2)

       (36,041)

 

         (8,046)

 

                 -

 

                 -

Others

     (209,602)

 

       (65,054)

 

     (278,713)

 

     (138,145)

 

  (4,405,164)

 

  (1,755,007)

 

  (5,025,455)

 

  (2,571,454)

 

  (2,984,998)

 

     (974,641)

 

  (1,670,142)

 

     (990,698)

 

(1)          Refers to investments in subsidiaries whose functional currency is Real.

(2)          Includes a gain of R$166,196 (R$ 27,955 in 2014) in the fair value  of the embedded derivative in the sale of the discontinued operation of dairy segment.

 

 

 

 

 

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

36.         STATEMENT OF INCOME BY NATURE

 

The Company has chosen to disclose its statement of income by function and thus presents below the details by nature:

  

 

Parent company

 

Consolidated

 

12.31.15

 

12.31.14

 

12.31.15

 

12.31.14

Costs of sales

             

Costs of goods

       13,588,537

 

       13,400,201

 

       15,338,966

 

       14,632,935

Depreciation

         1,040,871

 

            999,659

 

         1,080,910

 

         1,019,374

Amortization

               3,472

 

               2,517

 

               4,520

 

               2,721

Salaries and employees benefits

         3,056,979

 

         2,624,640

 

         3,394,443

 

         2,844,547

Others

         2,050,491

 

         1,874,422

 

         2,288,853

 

         1,997,853

 

       19,740,350

 

       18,901,439

 

       22,107,692

 

       20,497,430

               

Sales expenses

             

Depreciation

             52,011

 

             54,881

 

             55,260

 

             58,438

Amortization

               5,935

 

               4,883

 

             12,909

 

               5,964

Salaries and employees benefits

            849,414

 

            840,980

 

         1,081,766

 

            985,574

Indirect and direct logistics expenses

         1,908,793

 

         1,912,657

 

         2,211,011

 

         2,127,448

Others

         1,096,136

 

            841,296

 

         1,444,985

 

         1,039,076

 

         3,912,289

 

         3,654,697

 

         4,805,931

 

         4,216,500

               

Administrative expenses

             

Depreciation

               9,433

 

               7,111

 

             20,026

 

             15,731

Amortization

             82,795

 

             86,339

 

            124,724

 

            104,759

Salaries and employees benefits

            204,708

 

            187,938

 

            301,289

 

            245,358

Fees

             25,933

 

             25,874

 

             26,186

 

             26,124

Others

              (9,764)

 

            (17,874)

 

             33,872

 

             10,082

 

            313,105

 

            289,388

 

            506,097

 

            402,054

               

Other operating expenses (1)

             

Depreciation

             17,622

 

             22,734

 

             18,331

 

             23,431

Others

            881,043

 

            725,644

 

            993,029

 

            897,023

 

            898,665

 

            748,378

 

         1,011,360

 

            920,454

 

(1)     The composition of other operating expenses is disclosed in note 34.

 

 

37.         INSURANCE COVERAGE

 

The Company´s insurance policy considers the concentration and relevance of the risks identified in its risk management program. Thus, the contracted insurance coverage are adequate to the entity´s size, activities and for amounts considered reasonable for Management to cover any damages. The Company also follows the orientations provided by its advisors.

 

 

 

 

 

 

12.31.15

Assets covered

 

Coverage

 

Amount of coverage

 

 

 

 

 

Operational risks

 

Coverage against damage to buildings, facilities, inventory, machinery and equipment, loss of profits

 

   2,812,323

Carriage of goods

 

Coverage of goods in transit and in inventories

 

      128,858

Civil responsability

 

Third party complaints

 

      241,649

 

Each entity has its own coverages, which are not complimentary.

 

151

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

38.         NEW ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

 

IAS 32 – Offsetting Financial Assets and Financial Liabilities – Amendment

 

In December 2011, IASB issued an amendment to clarify the meaning of “currently has a legally enforceable right to offset the recognized amounts" and the criteria that would cause the not simultaneous settlement mechanisms of clearing houses to qualify for offsetting. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2015.

 

IFRS 10, IFRS 12 and IAS 27 – Investment Entities – Amendment

 

In October 2012, IASB issued an amendment to introduce a definition for “Investment Entity” and an exception to consolidation, specific for Investment Entity, which requires that such entity measures its investment in a subsidiary at fair value through profit or loss in accordance with Technical Pronouncement CPC 38 – Financial Instruments: Recognition and Measurement in its consolidated and separated financial statements. On December 12, 2014, CVM issued the Deliberation No. 733/14, correspondent to these IFRS/IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2015.

 

IFRIC 21 – Levies

 

In May 2013, the IASB issued IFRIC 21, which provides guidance on when an entity should recognize a liability for a levy in accordance with laws and/or regulations, except for income taxes, in its financial statements. The obligation should only be recognized when the event that triggers such obligation occurs. IFRIC 21 is an interpretation of IAS 37 – Provisions, Contingent Liabilities and Contingent Assets. IAS 37 establishes criteria for the recognition of a liability, one of which is the requirement that the Company has a present obligation as a result of a past event, known as the obligating event. On November 27, 2014, CVM issued the Deliberation No. 730/14, correspondent to this IFRIC. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2014.

 

IAS 36 – Recoverable Amount Disclosures for Non-Financial Assets – Amendment

 

On May 2013, IASB issued an amendment to introduce the disclosure of fair value hierarchy level for each impairment loss or reversal recognized during the period for individual asset, including goodwill or cash generate unit, as well as improvement of wording, aiming a better application of standard in accordance with international accounting practices and do not change the meaning of the original text issued. On August 14, 2014, CVM issued the Deliberation No. 724/14, correspondent to this IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2015.

 

IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting – Amendment

152

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

On June 2013, IASB issued an amendment to eases the discontinuation of hedge accounting when the novation of a derivative designated as a hedge meets certain criteria and retrospective application is mandatory. On August 14, 2014, CVM issued CVM Deliberation No. 724/14, correspondent to this IAS. The Company analyzed the content of this standard and there was no impact on its financial statements for the year ended December 31, 2015.

 

 

39.         NEW ACCOUNTING PRONOUNCEMENTS NOT ADOPTED

 

IFRS 9 – Financial Instruments

 

On July 2014, IASB issued the final version of IFRS 9 – Financial Instruments, which reflects all phases of financial instruments project and replaces IAS 39 – Financial Instruments: Recognizing and Measurement and all previous versions of IFRS 9. The standard introduces new guidance about classification and measurement, impairment loss and hedge accounting. Early adoption is not permitted and is effective from periods beginning on January 1, 2018. Retrospective adoption is mandatory, however, is not required the presentation of comparative information. Early adoption of previous versions of IFRS 9, issued in 2009, 2010 and 2013, is permitted if the initial adoption date is prior to February 1, 2015. The effects related to the adoption of this standard affects only the classification and measurement of financial assets, financial liabilities are exempt. The Company is evaluating the impact of adopting this standard in its consolidated financial statements.

 

IFRS 15 – Revenue from Contracts with Customers

 

On May 2014, IASB issued IFRS 15 that establishing a 5 steps model that will be applied to revenue obtained from a contract with customer. In accordance with this standard, revenues are recognized based on an amount that reflects the consideration which an entity expects to be entitled for the transfer of goods or services to a customer. The guidelines of IFRS 15 consider a more structured approach to measure and recognize revenue.

 

This standard is applicable to all entities and will replace all current requirements related to revenue recognition. Retrospective adoption, total or modified, is mandatory to periods beginning on January 1, 2017 or after. Earlier adoption is permitted, but it is under analysis for regulatory entities in Brazil. The Company is evaluating the impact of adopting this standard in its consolidated financial statements.

 

IFRS 11 – Accounting for Acquisition of Interests in Joint Operations – Amendment

 

On May 2014, IASB issued amendments to IFRS 11, which demands that a joint operator that is accounting an acquisition of equity interest in which the joint operation activity constitutes a business, applied the guidelines according to IFRS 3 for business combination accounting. The amendments also clarify that an equity interest previously held in a joint operation is not remeasured on an additional acquisition of interest in the same joint operation while the joint control is held. Additionally, the amendments are not applied when the parties sharing the control, including the reporting entity, are under common control of the parent company.

153

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The amendments are applicable to both the acquisition of the final equity interest in a joint operation and on the acquisition of any additional equity interest in the same joint operation. This standard will be in force prospectively to periods beginning on January 1, 2017 or after. Early adoption in Brazil is not permitted by regulatory entities. The Company is evaluating the impact of adopting this standard in its consolidated financial statements.

 

IAS 16 and IAS 38 – Clarification of Accountable Methods of Depreciation and Amortization – Amendment

 

On May 2014, IASB issued amendments to clarify guidelines of IAS 16 and IAS 38, that revenue reflects a model of economic benefits generated from operation of business (of which the asset is a part), instead of economic benefits generated from the use of the asset. As a result, a method based on revenue cannot be used for property, plant and equipment depreciation purposes and may be used only under very limited circumstances to amortize intangible assets. The amendments will be in force prospectively to amortize intangible assets fiscal years beginning on January 01, 2016 or after. The Company does not expect impact on its consolidated financial statements, since the Company does not use a method based on revenue to depreciate non-current assets.

 

IFRS 16 - Leases

 

On January 2016, the IASB issued the final verison of IFRS 16 – Leases, which superseds IAS 17 – Leases, wich will be applicable to periods beggining on January 01, 2019. Early adoption will be permited for entities which also apply IFRS 15 – Revenue from Contracts with Customers. The adoption of this standard will affect mainly property, plant and equipment and financial liabilities, as the treatment between financial and operational lease will no longer exists, being the leases treated in a similar way of the financial lease as per IAS 17. The Company is evaluating the impact of adopting this standard in its consolidated financial statements

 

 

40.         SUBSEQUENT EVENTS

  

40.1.     Acquisition of the frozen distribution business of Qatar National Import and Export Co. (“QNIE”)

 

On October 05, 2015, BRF announced to the market that it has signed a MOU with QNIE for the acquisition of a part of QNIE’s frozen distribution business in the State of Qatar (the “Business”), which is one of BRF products distributor in Qatar for more than 40 years.

154

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

The transaction totaled US$146,162 (equivalent to R$589,135) paid in cash. This amount was subjected to certain conditions precedent related to the business, which were satisfied and the business is controlled by BRF since January 01, 2016.

 

The transaction consists in the acquisition of certain assets from QNIE by Federal Foods Qatar Ltd., which is an indirectly subsidiary controlled by BRF. The acquired assets comprises mainly the client relationship, finished goods, non-compete agreement and other agreements, which constitute the acquisition of the frozen distribution business in the State of Qatar.

 

In order to attend the requirements of CVM Deliberation 665/11, BRF will prepare a fair value report of the acquired assets and assumed liabilities in order to allocate the purchase price. Management expects to complete this report in 2016, when the final purchase price allocation will be determined as well as its accounting impacts.

 

40.2.     Renegotiation of the joint venture with Mondelez Lacta e Mondelez

 

On January 18, 2016, BRF announced to the Market that it has renewed its agreement for the joint venture with Mondelez Lacta Alimentos Ltda. and Mondelez Brasil Ltda. (together “Mondelez”), which were subjected to the approval of the competent regulatory authorities (obtained on February 02, 2016) and provides that: i) Mondelez will be the entity reponsible for producing the Philadelphia cream cheese; ii) BRF will continue to distribute and sell the Philadelphia cream cheese; and iii) BRF will be the only shareholder of K&S Alimentos S.A).

 

 

40.3.     Business combination with Golden Foods Siam (“GFS”)

 

On December 01, 2015, BRF announced to the market that, through its fully-owned subsidiary BRF Gmbh, has signed an agreement to acquire control of GFS (“transaction”). The transaction comprised the acquisition of 100% of equity interest in Golden Foods Sales Ltd. and Golden Foods Siam Europa, both located in the United Kingdom, 48,2% of equity interest in Golden Foods Poultry Ltd. and 73,31% of indirect equity interest in Golden Poultry Siam Ltd., both located in Thailand.

 

On January 26, 2016 the conditions precedent were satisfied and BRF concluded the transaction in the amount of US$348,704 (equivalent to R$1,411,828), which should be further adjusted according to certain conditions set out in the agreement.

 

GFS is one of the production poultry Market leader in Thailand, with an integrated operation and present in more than 15 global markets.

 

In order to attend the requirements of CVM Deliberation 665/11, BRF will prepare a fair value report of the acquired assets and assumed liabilities in order to allocate the purchase price. Management expects to complete this report in 2016, when the final purchase price allocation will be determined as well as its accounting impacts.

155

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

40.4.     Business combination with Universal Meats (UK) Ltd. (“Universal”)

 

On December 01, 2015, BRF announced to the Market that, through its subsidiary BRF Invicta Limited (“BRF Invicta”), it has signed a binding Memorandum of Understanding (“MOU”) to the acquisition of the total shares issued by Universal (“transaction”). Universal is a food distributor in the United Kingdom with focus in the food service segment.

 

On February 01, 2016 the conditions precedent set out in the MOU were satisfied and BRF concluded the transaction in the amount of GBP31,802 (equivalent to R$182,284), which should be further adjusted according to certain conditions set out in the agreement.

 

In order to attend the requirements of CVM Deliberation 665/11, BRF will prepare a fair value report of the acquired assets and assumed liabilities in order to allocate the purchase price. Management expects to complete this report in 2016, when the final purchase price allocation will be determined as well as its accounting impacts.

 

 

 

156

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

 

 

41.         APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS

 

The consolidated financial statements were approved by the Board of Directors on February 25, 2016.

 

BOARD OF DIRECTORS

 

 

 

Chairman (Independent)

Abilio dos Santos Diniz

Vice-Chairman (Independent)

Renato Proença Lopes

 

 

Independent Member

Henri Philippe Rechstul

Board Member

José Carlos Reis de Magalhães Neto

Independent Member

Luiz Fernando Furlan

Independent Member

Manoel Cordeiro Silva Filho

Independent Member

Paulo Guilherme Farah Correa

Independent Member

Walter Fontana Filho

Board Member

Vicente Falconi Campos

 

 

 

FISCAL COUNCIL

 

 

 

Independent Member

Attilio Guaspari

Members

Marcus Vinicius Dias Severini

Independent Members

Reginaldo Ferreira Alexandre

 

AUDIT COMITTEE

 

Comittee Coordinator

Sérgio Ricardo Silva Rosa

Independent Members

Walter Fontana Filho

External Member and Financial Specialist

Fernando Maida Dall Acqua

Independent Members

Paulo Guilherme Farah Correa

 

BOARD OF EXECUTIVE OFFICERS

 

 

 

Chief Executive Officer Global

Pedro de Andrade Faria

Vice President of Finance, and Investor Relations

Augusto Ribeiro Junior

Vice President of Quality and Management

Gilberto Antônio Orsato

Vice President of Supply Chain

Hélio Rubens Mendes dos Santos

Vice President of Legal and Relationships

José Roberto Pernomian Rodrigues

Vice President of People

Rodrigo Reghini Vieira

Vice President of Business (General Manager Brazil)

Flavia Moyses Faugeres

Vice President of Business (General Manager LATAM)

José Alexandre Carneiro Borges

Vice President of Business (General Manager Middle East and Africa)

Patricio Santiago Rohner

Vice President of Business (General Manager Europe)

Roberto Banfi

Vice President of Business (General Manager Asia)

Simon Cheng

 

 

 

157

 


 

 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

(Amounts expressed in thousands of Brazilian Reais, unless otherwise stated)

 

 

Marcos Roberto Badollato

Controller                                                          

Joloir Nieblas Cavichini
Accountant – CRC 1SP257406/O-5

 

158

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

 

 

OPINION OF THE FISCAL COUNCIL

 

 

The Fiscal Council of BRF S.A., in fulfilling its statutory and legal duties, reviewed: 

 

(i)     the financial statements (parent company and consolidated) for the fiscal year ended on December 31, 2015.

 

(ii)    the Management Report; and

 

(iii)  the report issued without qualification by Ernst&Young Auditores Independentes S.S.on February 25, 2016;

 

Based on the documents reviewed and on the explanations provided, the members of the Fiscal Council, undersigned, issued an opinion that the financial statements and the management report appropriately are presented in a position to be considered by the Annual General Meeting.

 

 

São Paulo, February 25, 2016.

 

Attílio Guaspari

Independent Member

 

Marcus Vinicius Dias Severini

Fiscal Council Member

 

Reginaldo Ferreira Alexandre

Fiscal Council Member

 

159

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

 

Summarized Annual Report of the Audit Committee

 

 

Activities of the Audit Committee

The committee was elected on April 3, 2014, pursuant to the meeting of the Board of Directors, subsequently meeting ordinarily on a monthly basis as well as holding a further nine extraordinary meetings. The principal topics of discussion are described in the following paragraph. The Audit Committee also met privately on two occasions with the independent auditors and discusses the principal issues monitored during the year on a monthly basis with the Board of Directors.

 

Issues discussed by the Audit Committee

 

The Audit Committee met with the vice chairman, directors of the company, the area for prevention of fraud, the internal and independent auditors in order to gain an understanding of the processes, internal controls, possible deficiencies and eventual plans for improvement as well as issuing its recommendations to the Board of Directors and Executive Board. The principal issues discussed at these meetings were: Discussion and approval of the annual internal audit plan; Monitoring the points identified by the auditors during the course of their work, justification and eventual action plans of those responsible in the more important cases in onsite meetings; Decision on the schedule for the Internal Audit Work Plan; Analysis of the Related Parties Policy; Evaluation and discussion of the  internal audit’s performance;  Understanding the planning of the outside audit and principal conclusions in the reports which review the quarterly and annual information; Discussion of the recommendations listed in the internal controls letter; Discussion and recommendations for approval of the quarterly and annual financial statements; Monitoring of the conditions of independence of the external audit in executing the work; Approval for contracting the work of the External Auditor for auditing the subsidiary companies and due diligence in the Company’s M&A and New Businesses processes; Recommendations and achieving consensus on the constitution of the Company’s Area for Prevention of Fraud; Monitoring the investigative processes and recommendation of Action Plans; Discussion of internal controls processes; Analysis and recommendation for mapping the Company’s risks; Recommendation for improvements in the Whistle Blowing Channel process; Verification of the policy and compliance with the anticorruption law in the Company; Analysis of BRF’s quarterly and annual financial statements and respective information for disclosure to the market:  Analysis and discussion of the provisions, contingent liabilities and assets in accordance with the pertinent regulation.

 

 

160

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

 

Audit Committee’s Opinion

 

 

In the exercising of its legal and statutory duties, BRF’s Audit Committee has examined the financial statements (parent company and consolidated) for the fiscal year ending December 31, 2015; the Management Report; and the report issued without qualification by Ernst & Young Auditores Independentes S.S.

 

There were no instances of significant divergences between the Company’s management, the independent auditors and the Audit Committee with respect to the Company’s Financial Statements.

 

Based on the examined documents and the clarifications rendered, the undersigned members of the Audit Committee are of the opinion that the financial statements in all material respects are fairly presented and should be approved.

 

São Paulo, February 25, 2016.

 

Sérgio Ricardo Silva Rosa

Audit Committee Coordinator

 

Walter Fontana Filho

Independent Member

 

Fernando Maida Dall Acqua

External Member and Financial Specialist 

 

Paulo Guilherme Farah Correa

Independent Member 

 

 

 

 

161

 


 

(A FREE TRANSLATION INTO ENGLISH OF THE ORIGINAL PREVIOUSLY ISSUED IN PORTUGUESE)

FINANCIAL STATEMENTS

Year ended December 31, 2015 and 2014

 

OPINION OF EXECUTIVE BOARD ON THE CONSOLIDATED

FINANCIAL STATEMENTS AND INDEPENDENT AUDITOR’S REPORT

 

In compliance with the dispositions of sections V and VI of article 25 of CVM Instruction No. 480/09, the executive board of BRF S.A., states:

 

(i)     reviewed, discussed and agreed with the Company's consolidated financial statements for the fiscal year ended on December 31, 2015; and

 

(ii)    reviewed, discussed and agreed with opinions expressed in the Ernst&Young Auditores Independentes S.S. reported on the Company's consolidated financial statements for the fiscal year ended on December 31, 2015.

 

São Paulo, February 25, 2016.

 

Pedro de Andrade Faria

Chief Executive Officer Global

 

Augusto Ribeiro Junior

Vice President of Finance, and Investor Relations

 

Gilberto Antônio Orsatto

Vice President of Administration and Human Resources

 

Hélio Rubens Mendes dos Santos

Vice President of Supply Chain

 

José Roerto Pernomian Rodrigues

Vice President of Legal and Corporate Relationships

 

Flávia Moyses Faugeres

Vice President of Business (General Manager Brazil)

 

José Alexandre Carneiro Borges

Vice President of Business (General Manager LATAM)

 

Patrício Santiago Rohner

Vice President of Business (General Manager Middle East and Africa)

 

Roberto Banfi

Vice President of Business (General Manager Europe)

 

Rodrigo Reghini Vieira

Vice President of People

 

Simon Cheng

Vice President of Business (General Manager Asia)

162

 

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