BRFS BRF SA

FORM 6-K

U.S. SECURITIES AND EXCHANGE COMMISSION

dated May 13, 2010

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

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01.01 - IDENTIFICATION

01.02 - HEAD OFFICE ADDRESS

01.03 - INVESTOR RELATIONS DIRECTOR (Address for correspondence with the company)

01.04 - REFERENCE / AUDITOR

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01.05 - CURRENT COMPOSITION OF CAPITAL

01.06 – COMPANY PROFILE

01.07- COMPANIES NOT INCLUDED IN CONSOLIDATED FINANCIAL STATEMENTS

01.08 – DECLARED AND/OR PAID DIVIDENDS DURING AND AFTER THE QUARTER

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01.09 – PAID-UP CAPITAL AND CHANGES IN THE CURRENT PERIOD

01.10 – INVESTOR RELATIONS DIRECTOR

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04.01 - STATEMENT OF CASH FLOWS (in thousands of Brazilian Reais)  

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05.02 - STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE PERIOD FROM 01/01/2010 TO 03/31/2010 (in thousands of Brazilian Reais)

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08.02- BALANCE SHEET – LIABILITIES – CONSOLIDATED (in thousands of Brazilian Reais)  

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09.01 - STATEMENT OF INCOME – CONSOLIDATED (in thousands of Brazilian Reais)  

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10.01 - STATEMENT OF CASH FLOWS – CONSOLIDATED (in thousands of Brazilian Reais)  

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11.01 - STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY CONSOLIDATED FOR THE PERIOD FROM 01/01/2010 TO 03/31/2010 (in thousands of Brazilian Reais)   

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11.02 - STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY CONSOLIDATED FOR THE PERIOD FROM 01/01/2010 TO 03/31/2010 (in thousands of Brazilian Reais)  

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1. THE COMPANY AND ITS PRINCIPAL OPERATIONS

Founded in 1934, in the State of Santa Catarina, BRF – Brasil Foods S.A. (“BRF”) and its subsidiaries (collectively “Company”) is one of Brazil’s largest companies in the food industry. With a focus on raising, producing and slaughtering of poultry, pork and beef, processing and/or sale of fresh meat, processed products, milk and dairy products, pasta, frozen vegetables and soybean derivatives, among which the following are highlighted:

• Frozen whole chicken and chicken, turkey, pork and beef cuts;

• Ham products, sausages, bologna, frankfurters, salami and other smoked products;

• Hamburgers, steaks, breaded meat products, kibes and meatballs;

• Lasagnas, pizzas, vegetables, cheese breads, pies and pastries;

• Milk and dairy products;

• Juices, soy milk and soy juices;

• Margarine; and

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

Currently, the Company operates 42 meat processing plants, 14 dairy products processing plants, 1 pasta processing plants, 1 dessert processing plant, 2 margarine processing plants and 1 soybean processing plants, all of them located near to the Company’s raw material suppliers or to the main consumer centers. In the foreign market, the Company has subsidiaries or sales office in the United Kingdom, Italy, Austria, Hungary, Japan, The Netherlands, Russia, Singapore, United Arab Emirates, Portugal, France, Germany, Turkey, China, Cayman Islands, Venezuela, Uruguay, Chile and 1 cheese processing plant in Argentina.

The wholly-owned subsidiary Plusfood Groep B.V. operates 2 meat processing plants located in the United Kingdom and The Netherlands.

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a) Interest in subsidiaries:

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The Company has an advanced distribution system, with 37 distribution centers reaching supermarkets, retail and wholesale markets, food service and other institutional clients in the domestic market and exports to more than 145 countries.

The name BRF deploys and adds value and reliability to several trademarks among which the most important are: Batavo , Claybon , Chester ® , Confiança , Delicata , Doriana , Elegê , Fazenda , Nabrasa , Perdigão , Perdix , besides licensed trademark such as Turma da Mônica . The wholly-owned subsidiary Sadia also holds several

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trademarks and the major ones are: Fiesta , Hot Pocket , Miss Daisy , Nuggets , Qualy , Rezende , Sadia , Speciale Sadia , Texas and Wilson .

In April 2006, the Company was listed to the “New Market” of Corporate Governance.

On July 8, 2009, in a extraordinary general meeting, was approved that its shares are traded on the São Paulo Stock Exchange (“BMF&BOVESPA”), under the ticker symbol BRFS3, and on the New York Securities Exchange (“NYSE”) traded through level III American Depositary Receipts (ADRs) under the ticker BRFS in replacement of the old tickers PRGA3 and PDA, respectively.

b) Business Combination - Sadia

On July 8, 2009, at an extraordinary shareholders’ general meeting, BRF shareholders approved an increase in the Company’s capital share through the issuance of 37,637,557 common shares for R$39.40 (thirty nine reais and forty cents) per share, all of which were subscribed by means of an exchange for 226,395,405 shares issued by HFF Participações S.A. (“HFF”) based on its economic value of R$1,482,890.

On August 18, 2009, the merger of Sadia’s common and preferred shares was approved by BRF shareholders at an extraordinary shareholders’ general meeting, excluding the shares already indirectly owned by the Company, through the issue of 25,904,595 common shares and 420,650,712 preferred shares issued by Sadia, according to its economic value, in the amount of R$2,335,484, through the issuance of 59,390,963 new common registered shares with no par value issued by the Company for a R$39.32 (thirty nine reais and thirty two cents) per share. After this date, Sadia became a Company’s wholly-owned subsidiary.

The Company recorded the above mentioned business combination based on the carrying value of the net assets acquired on July 8, 2009, and the related preliminary goodwill of R$3,470,991 was determined as set forth below:

(*) The additional business combination costs correspond, mainly, to legal, audit and consulting fees and publications expenses.

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The Company may adjust the preliminary amount recognized at the acquisition date to reflect any new information concerning to the facts and circumstances existing at the acquisition date, which, if known at that time, would have affected the measurement of amount recognized.

As determined by CVM Instruction No. 247/96, the goodwill was allocated between the assets fair market value and the expected profitability and synergies of the acquired business based on an appraisal report, as set forth below:

The Company recorded in the statement of income the depreciation of the fixed assets fair market value in the amount of R$14,042, the amount was recorded in other operating expenses in the parent company and in cost of goods sold in the consolidated.

The business combination with Sadia is under consideration by the appreciation of the Administrative Council for Economic Defense (“CADE”). On July 7, 2009, the Company and Sadia’s management signed the Agreement for the Preservation of the Operation Reversibility (“APRO”) whose objective is to guarantee the reversibility of the operation until the final decision is granted by CADE, through measurements that allow the maintenance of competition during the evaluation of the competitive effects of the operation. The results of Sadia have been consolidated since the acquisition date.

On June 29, 2009, the European Communities Commission (the European antitrust authority) approved the transaction.

On September 19, 2009, CADE authorized the coordination of foreign market activities of the companies related to the fresh meat operations.

On January 20, 2010, CADE authorized the Company and its subsidiary Sadia to jointly operate the following transactions: purchase of fresh beef meat, the commercialization of any type of fresh meat in Brazil and abroad, and the negotiations for the acquisition of raw material and services.

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In connection with Sadia business combination, the Company completed a primary offering with the issuance of 115,000,000 new shares plus additional allotment of 17,250,000 as described in note 17.

c) Corporate reorganization

Since 2006, the Company has been pursuing its growth plan, based on the acquisition of several other companies and entering into new business.

As a result of these acquisitions, the Company has grown and diversified its business, increasing its market share in chicken and pork meats and entering into the milk, margarine and beef market.

A list of the acquired companies is set forth below:

As part of the growth process, the Company went through a comprehensive corporate reorganization of its corporate structure and business, which focused on the company’s business sustainability through the simplification of its corporate structure and the reduction of its operational costs, taxes and financing costs, and a rationalization of its operational activities.

As a result of the reorganization process described above the following changes occurred in the period ended March 31, 2010:

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2. BASIS OF PREPARATION AND PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

The Consolidated and Parent Company quarterly information were prepared in accordance to the accounting practices adopted in Brazil, which comprise the statutory regulation, pronouncements, orientations and interpretations issued by the Accounting Pronouncements Committee (“CPC”) and the regulation issued by the Brazilian Exchange Commission (“CVM”) applicable as of December 31, 2009.

During 2009, the CPC issued several accounting pronouncements, interpretations and orientations, approved by CVM and by the Federal Accounting Council afterwards, with compulsory adoption starting from 2010, comprising the financial statements for the year ended December 31, 2009, to be presented for comparative purposes.

The CVM, through the Deliberation No. 603 issued on 11.10.09 allowed the public companies to present the 2010 quarterly information according to the accounting practices applicable as of December 31, 2009.

The Company’s management is in the initial evaluation process of the possible impacts as a result of the adoption of the new pronouncements and, therefore, is presenting the March 31, 2010 quarterly information according to the accounting practices applicable as of December 31, 2009. The evaluation process involves the review of internal controls, information technology systems, and others; up to the present date such evaluation is not advanced enough to allow the measurement of the possible effects of the adoption of the new accounting pronouncements.

According to management preliminary assessment the main pronouncements, orientations and interpretation, issued by the CPC that may impact the Company’s financial statements from the fiscal year to be ended on 12.31.10, are the following:

• CPC 15 Business combination, approved by the CVM Deliberation No. 580/09;

• CPC 20 Loans and financing costs, approved by the CVM Deliberation No. 577/09;

• CPC 21 Interim financial statements, approved by the CVM Deliberation No. 581/09;

• CPC 23 Accounting policies, changes in estimate e correction of error, approved by the CVM Deliberation No. 592/09;

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• CPC 27 Property, plant and equipment, approved by the CVM Deliberation No. 583/09;

• CPC 20 Biological assets and agriculture produce, approved by the CVM Deliberation No. 596/09;

• CPC 32 Income taxes, approved by the CVM Deliberation No. 599/09;

• CPC 33 Employees benefits, approved by the CVM Deliberation No. 600/09;

• CPC 43 First time adoption technical pronouncements CPC 15 to 40, approved by the CVM Deliberation No. 610/09;

• ICPC 09 Separate financial statements;

• ICPC 10 Clarifications about CPC 27 and CPC 28;

The Company must restate the quarterly information considering the adoption of the new pronouncements until the filing of the annual financial statements.

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3. SUMMARY OF MAIN ACCOUNTING PRACTICES

a) Consolidation : includes the Company’s financial statements and the financial statements of the directly and indirectly held subsidiaries where the Company has control. All intercompany transactions were eliminated upon consolidation, including the unrealized profits net of income taxes. The interest of non-controlling shareholders is recorded separately in the consolidated financial statements.

In the preparation of the consolidated financial statements the Company applied CVM Deliberation No. 534/08, which approved on January 29, 2008, the technical pronouncement CPC 02 - Effects of Change in Foreign Exchange Rates and Translation of Financial Statements. According to this deliberation, the following criteria must be applied to the consolidation of subsidiaries abroad:

The Company’s share of earnings or losses of nonconsolidated affiliates is included in its consolidated operating results using the equity method of accounting when the affiliate is not controlled or majority owned.

The other investments are recorded at acquisition cost less provision for losses, when necessary.

• Exchange rate variation: losses arising from exchange rate variation on investments in foreign subsidiaries, whose functional currency is Brazilian Real, in the amount of R$10,492 as of March 31, 2010 (R$39,591 as of March 31, 2009) are recorded in the financial income and expenses account in the statement of income (note 21). The exchange rate variation related to the interest in the wholly-owned subsidiary Plusfood Groep B.V. and its subsidiaries, whose functional currency is Euro was recorded in equity valuation adjustments, in shareholders’ equity.

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According to CVM Instruction No. 408/04 the wholly-owned subsidiary Sadia consolidated the financial statement of the investment fund Concórdia Foreign Investment Fund Class A, in which currently it is the only corporate shareholder (restricted fund). The purpose of the investment fund is to concentrate the subsidiaries investment portfolio abroad allowing Sadia to outsource the administrative responsibilities.

The accounting practices were applied through all the consolidated companies.

b) Cash and cash equivalents : include cash balances, bank accounts and highly liquid temporary cash investments with original maturities of less than 90 days (note 4). Cash investments, by its nature, are already measured at fair value through the statement of income.

c) Marketable securities : are financial assets mainly represented by public and private fixed income securities (note 5). Its classification and recording is made based on the purposes for which it was acquired, as follows:

• Trading securities - purchased for the purpose of sale or repurchase in the short term, such assets are first booked at fair value and the related variations, as well as monetary and exchange rate variations, when applicable, are recorded directly in the statement of income as financial income or expense;

• Held to maturity - if the Company has the positive intent and ability to hold the financial assets to maturity, these assets are recorded at their acquisition cost and the interest and monetary variation, when applicable, are recognized in the statement of income, when incurred, as financial income or expense; and

• Available for sale - includes all financial assets that do not qualify for categories above. These assets are initially measured at fair value and changes in fair value are recorded to shareholders’ equity, under equity valuation adjustments while unrealized net of tax. Interest and monetary variation are recognized in the statement of income, when incurred, as financial income or expense.

d) Adjustment to present value : the Company calculated the adjustments to present value on the outstanding balances of the following accounts: trade accounts receivable, other assets, trade accounts payable and other liabilities. Until March 31, 2009, the Company used the discount rate on the weighted average cost of capital (“WACC”), which reflected the Company’s best estimate of the concept of the value of money over time. However, in order to improve the estimate, from June 30, 2009 the Company adopted the weighted average cost of financial funding (domestic and foreign markets) to measure the present value of assets and liabilities which correspond to a rate of 6.41% per year (WACC 6,13% per year as of December 31, 2009). The effect of change in the rate resulted in income before taxes of R$3,360 recognized in second semester of 2009. The wholly-owned subsidiary Sadia measured and recorded the adjustment to present value of accounts receivable at a rate based on each operation which corresponds to 4.5% per month and to suppliers at a rate of 100% of Interbank Deposit Certificate (“CDI”).

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e) Trade accounts receivable : recorded at the invoice amount adjusted to the present value when applicable, net of allowance for doubtful accounts. The allowance for doubtful accounts for domestic customers is calculated based on the risk analysis, which considers the estimated realization and takes into consideration the historical losses of trade accounts receivable. For foreign customers, the analysis is performed on an individual customer basis. The Company has a policy in place for credit limits and, generally, does not request collateral from its customers. In the event of default, efforts for collection are made, including direct contact with customers and the use of outside collection agencies. If these efforts are not sufficient, legal action is considered, the accounts are reclassified to non-current accounts receivable and an allowance for doubtful accounts is recorded (note 6).

f) Inventories : stated at average acquisition or formation costs, not exceeding market or realizable value. The cost of finished goods comprises acquired raw materials, labor, production, freights and storage costs, which are related to the acquisition and inventory production. Provision for obsolescence, lower of cost or market adjustments, deterioration and slow moving products are established when appropriate. Regular production losses are recorded to cost of goods sold, while the abnormal losses, if any, are recorded as operating expenses (note 7).

g) Property, plant and equipment : stated at cost of acquisition or construction. In accordance with CVM Deliberation No. 193/96 and CVM Release No. 01/07, the Company has capitalized interest incurred when financing the construction of certain fixed assets. Depreciation is calculated using the straight-line method, based on the weighted average rates and depletion based on the actual utilization, and recorded to the statement of income (note 11).

Breeding stock is recorded as property, plant and equipment and during the formation period of approximately six months, the cost of labor, feed and medication are allocated thereto. After the formation period, the breeding stock is depreciated during the breeding cycle, based on the estimated number of eggs and offspring, over a period of fifteen months for poultry and thirty months for hogs.

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The Laws No. 11,638/07 and No. 11,941/09 requires property, plant and equipment to be tested for impairment whenever there is evidence of loss in their recoverable amount. On October 2009, the Company has analyzed its property, plant and equipment for impairment and has not identified losses to be recorded for realizable amounts lower than the carrying values.

At December 31, 2009, as required by the CVM Deliberation No. 565/08, the Company reviewed and adjusted the criteria used to determine the estimated economic useful lives of property, plant and equipment and related depreciation, depletion and amortization rates. The Company recorded the change in estimate as of December 31, 2009 based on the registered fixed assets as of January 1, 2009 (note 11). The financial statement of the first semester of 2009 does not includes this adjust, if the change were retroactive, the depreciation expense should be decreased in approximately in R$22,440.

h) Intangible : are non-monetary without physical substance, are separable and arise from contractual or other legal rights. The Company recorded as intangibles the goodwill based on the expectation of future profitability, which represents the difference between the purchase price and the net assets carrying amount at the acquisition date. The goodwill generated based on the expectation of future profitability was amortized over the extension and proportion of the expected results up to 10 (ten) years until December 31, 2008 and from January 1, 2009 it is no longer amortized, but tested annually for impairment as required by CVM Deliberation No. 527/07 (note 12).

Goodwill is annually tested for impairment in consolidated bases, how the chief operating decision-maker reviews the total assets of the Company and during the ended period March 31, 2010, did not occurred any events that would require the anticipation of this assessment expected to be made in the last quarter of 2010.

i) Deferred charges : consist mainly of costs incurred during development, construction and implementation of projects that will generate benefits for more than one period. Deferred charges are amortized over the estimated period during which these projects contribute to the Company’s results (note 13) and from January 1, 2009 capitalization of deferred charges is no longer allowed and remaining deferred charges shall be tested for impairment whenever there is evidence of loss as determined by CVM Deliberation No. 527/07.

j) Income taxes and social contributions : in Brazil these are the corporate income tax (“IRPJ”) and the social contribution on net income (“CSLL”), which are calculated based on taxable income in accordance with legislation and current tax rates (15% plus additional 10% to IRPJ and 9% to CSLL). Net operating tax losses can be used to offset but are limited to 30% of taxable income – per year – and negative calculation basis of the CSLL.

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Results from subsidiaries abroad are subject to taxation in their respective countries, according to local tax rates and regulations (note 9).

Deferred income tax assets and liabilities are represented by the income tax loss carry forwards and negative calculation basis of social contribution, as well as the impacts of temporary differences between the tax and accounting basis. Deferred income tax and social contribution assets and liabilities were recorded in current or non-current assets or liabilities according to their expected realization periods. When it is more likely than not that deferred tax assets will not be utilized in the future, a valuation allowance is recorded.

k) Provisions for contingencies : a provision is recognized when, based on the opinion of management’s internal and external legal advisors, it is determined that losses on a judicial or administrative lawsuit are probable and the amount of loss can be reasonably estimated. Provisions for contingencies are presented on the balance sheet net of the related judicial deposits (note 16a).

l) Leases : lease transactions that substantially transfer all the risks and rewards related to the ownership of an asset are classified as a finance lease; otherwise it is classified as an operating lease.

Finance lease contracts are recognized as property, plant and equipment with corresponding liabilities in the balance sheet at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments, plus initial direct costs incurred in the transaction. The amounts recorded as property, plant and equipment are depreciated and the related liabilities accrue interest that is charged as expense during the contract period.

Operating leases are recognized as an expense over the contract period (note 15).

m) Derivative financial liabilities measured at fair value : these instruments are actively trade on organized markets, and their fair value is determined based on market values at the balance sheet date. Initial measurement of these financial liabilities is made at their fair value, and they are classified as loans. Changes in fair value are recorded to income under financial income or expense, except for instruments that are designated as hedges.

Hedge transactions are financial instruments used to protect exposure to risk or to modify the characteristics of financial assets and liabilities, unrecognized firm commitments, highly probable transactions or net investments in operations abroad. These instruments have the following characteristics: (i) highly correlated with regard to changes in their market value related to the market value of the item that is being protected, both at the beginning and over the term of the contract (effectiveness among 80% and 125%); (ii) documentation of the transaction, the risk being hedged, the risk management process and the methodology used in assessing the effectiveness of the hedge must exist; and (iii) to be considered effective in reducing the risk associated with exposure. Hedges are recorded in accordance with CVM Deliberation No. 566/08, which permits the use of hedge accounting and the recording of the measurement of the hedge against shareholders’ equity. The Company applied hedge accounting for its hedge operations which met the criteria described above (note 20 f).

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n) Actuarial assets and liabilities over employees’ benefits : the Company and its subsidiaries recognize actuarial assets and liabilities related to benefits granted to employees in accordance with the criteria set forth by CVM Deliberation No.371/00. Actuarial gains and losses are recognized as income or expense based on the actuarial report.

The contributions made by the sponsors are recognized as expenses during the year (note 24).

o) Share-based compensation : the wholly-owned subsidiary Sadia adopted CVM Deliberation No. 562/08 related to stock-based payments, recording as an expense, on a linear basis, the fair value of the granted options during the period provided by the plan. The option fair value is updated to the date of the consolidated financial statements, based on market assumptions (note 18).

p) Determination of income : income and expenses are recognized based on the accrual basis of accounting.

q) Revenue Recognition : the Company recognizes revenue when ownership and risks related to the products are transferred to the customer, the sales price is fixed and determinable, when persuasive evidence of the sales transaction exists and when collectability is reasonably assured. Revenue is not recognized if there are significant uncertainties as to its realization. No reserve for expected returns is recorded, as such amounts are not relevant.

Additionally, the Company and its subsidiaries have incentive programs, which are recorded as sales deductions or sales expenses, according to their nature. These programs include discounts to customers due to performance of sales based on volumes and for marketing actions in the sales channel.

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r) Management and employees profit sharing : employees are entitled to profit sharing when certain goals are achieved, and management is entitled to profit sharing based on statutory provisions and approval of the Board of Directors. The amount is accrued in the period in which it is earned (note 19).

s) Shipping and handling costs : costs incurred related to goods not yet sold are recognized as prepaid expenses and charged as selling expenses upon the actual delivery of the goods to the customer, and revenue is recognized. The shipping and handling costs amounted to R$424,766 (R$309,600 as of March 31, 2009).

t) Advertising and sales promotion costs : are recognized when incurred and amounted to R$70,229 (R$15,763 as of March 31, 2009).

u) Research and development (“R&D”) : consist mainly of internal research and development costs of new products and are recognized in the statement of income when incurred. The total of R&D amounted to R$4,543 (R$3,217 as of March 31, 2009).

v) Earnings per share : calculated based on common shares outstanding at the balance sheet date.

w) Environmental costs : costs related to compliance with environmental regulations are considered as cost of production or capitalized when incurred. Based on management’s analysis, the current provision for environmental costs recorded is sufficient to cover these costs.

x) Subsidies and tax incentives : the Company has ICMS subsidies for investments granted by the Santa Catarina, Goiás, Pernambuco, Mato Grosso, Minas Gerais, São Paulo, Bahia and Federal District state governments. These tax incentives are related to construction of facilities, employment and social and economic development in these states. These tax incentives are recorded directly to the statement of income under other operating expense. If the subsidies and tax incentives result in future obligations, they are recognized based on the initial fair value and recognized in the statement of income when the obligations are accomplished in exchange for donation/subsidies receipts.

The wholly-owned subsidiary Sadia received land located in the State of Pernambuco as a government grant, whose fair value as of March 31, 2010 is R$4,139. The grant is linked to the construction of a production facility, jobs generation and economic and social development in the region. In compliance to the CVM Deliberation No. 555/08 the land fair value, obtained through evaluation with regional brokerages, was recorded in fixed asset with a counterpart in other non-current liabilities. The value of the land will be recorded in the statement of income offsetting the depreciation of the production facility.

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y) Translation of assets and liabilities in foreign currency : as mentioned in item (a) above, assets and liabilities balances of foreign subsidiaries are translated into Reais based on the exchange rate used on the closing date of the balance sheets, and all statement of income accounts are translated based on average monthly rates.

The Brazilian Real exchange rates to the currencies described below on the closing date of the balance sheets were as follows:

z) Accounting estimates : in the preparation of the consolidated financial statements, the Company establishes certain estimates that affect values of the assets and liabilities in the balance sheet, and the values of revenues, costs and expenditures in the statement of income. Although these estimates are based on management’s best knowledge, the actual results can differ from the estimates. The Company reviews the assumptions adopted for its accounting estimates, at least quarterly.

aa) Comparability of explanatory notes : in order to fully comply with CVM disclosure requirements, the Company made the following reclassifications on March 31, 2009 quarterly information previously issued: (i) in the cash flow statements (parent company and consolidated) the effects of exchange rate variations on cash and cash equivalents were highlighted; and (ii) reclassification of canceled sales between gross sales and sales deductions.

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4. CASH AND CASH EQUIVALENTS

The investments in foreign currency refer mainly to overnight and time deposit, and bear interest at a pre-fixed rate.

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5. MARKETABLE SECURITIES

(*) Weighted average maturity term in years.
(**) See information below.

At March 31, 2010, the due date of the non-current marketable securities in the consolidated financial statements is set forth below:

Bank deposit certificate (“CDB”) investments are denominated in Brazilian Reais and bear interest of 98% to 104% of the interbank deposit certificate (“CDI”).

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Brazilian treasury notes investments are determined in US$ and bear interest at a weighted average pre and post fixed rates. The Brazilian treasury notes bear interest at the Special System for Settlement and Custody (“SELIC”) rate.

On March 31, 2010, of the total investments in CDB’s, R$33,812 were given as guarantees for U.S. Dollar future contracts in the Future and Commodities Exchange (“BM&F”). On March 31, 2009, guarantees amounted R$39,000, as disclosure in note 20k.

The credit linked notes are a structured transaction with first class financial institutions that bear regular interest (Libor + spread) and correspond to a credit note that considers the Company’s risk.

The foreign currency investment funds have structured operations with first class financial institutions based on the risk classification granted by specialized foreign rating agencies. The notes bear regular interest (Libor + spread) and correspond to a credit note that considers Brazil and Sadia’s risks.

The investment fund portfolio in foreign currency is presented below:

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6. TRADE ACCOUNTS RECEIVABLE

The changes in the allowance for doubtful accounts are as follows:

The aging list of the accounts receivable is as follows:

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Sadia also assigned receivables to a Credit Assignment Investment Fund (“FIDC”), administered by Concórdia S.A. Corretora de Valores Mobiliários, Câmbio e Commodities. As of March 31, 2010, the net equity of this fund was R$303,724 (R$373,058 as of December 31, 2009) of which R$261,597 (R$353,364 as of December 31, 2009) was represented by acquisitions of Sadia’s receivables on the domestic market, with a discounted cost equivalent to 106% of the CDI per senior quota. The assignment of the receivables was made without right of recourse, and the eventual losses from customer default are limited to the value of Sadia’s subordinated quotas, which at March 31, 2010, represented R$60,745 (R$74,611 as of December 31, 2009).

For the sale of domestic receivables, during the three-month period ended March 31, 2010, the wholly-owned subsidiary Sadia received R$1,226,518 and incurred financial expense in the amount of R$8,100.

For the remaining domestic receivables, the wholly-owned subsidiary Sadia maintains a credit insurance policy that guarantees the collection of 90% of the uncollected customer balances. In case of customer default, the financial institutions who purchased these securities are the beneficiaries.

No individual customer accounted for more than 5% of the total revenue for the period ended March 31, 2010.

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7. INVENTORIES

The changes in the allowance for inventories losses and obsolescence accounts are as follows:

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8. RECOVERABLE TAXES

a) ICMS - Tax on distribution of goods and services (Value Added Tax - VAT):

Credits are generated by exports reduced tax rates in the domestic market and by investments in property, plant and equipment. The Company accumulates tax credits which are offset against tax payable generated by the sales in the domestic market or transfers to third parties.

In February 2007, the Superior Court of Appeals (“STJ”) issued a final decision ensuring the maintenance of ICMS credits to be recovered in the state of Rio de Janeiro, due to the difference in rates already recorded in the amount of R$30,187. From the first quarter of 2010, the right to monetary adjustments on the credits became to be recognized in financial statements upon its realization in the amount of R$5,000.

The Company has R$21,230 of ICMS credits in the state of Mato Grosso do Sul and believes that the realization of such credits are doubtful and, therefore, recorded a provision for the full amount within non-current assets.

The wholly-owned subsidiary Sadia has ICMS and IPI credits in the states of Paraná, Santa Catarina, Minas Gerais and Rio Grande do Sul. Based on the Company’s estimate, considering the probability of realization of these credits, a provision for losses was recorded in the amount R$49,824 (R$48,010 as of December 31, 2009) for ICMS credits and R$8,666 (R$8,666 as of December 31, 2009) for IPI credits.

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b) Withholding Income tax and social contribution:

Correspond to withholding taxes on investments and on interest on shareholder’s equity received by the parent company, as well as anticipation of income tax and social contribution as required by Brazilian tax laws, realizable when offset against federal taxes payable.

c) PIS / COFINS:

PIS and COFINS (Federal Taxes to Fund Social Programs) arising from primarily resulted from raw material acquisitions used in exported products, products sold at a 0% tax rate (such as UHT milk and pasteurized milk) and sales in the free tax zone of Manaus. The utilization of these credits can be made by offsetting taxable sales in the domestic market, with other federal taxes or reimbursement.

For the PIS and COFINS credits, the Company is taking judicial measures trying to accelerate the reimbursement process, which is currently under inspection.

The Company’s management is analyzing alternatives that would allow the utilization of the credits and there is no expectation of losses on the realization of those credits.

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9. INCOME TAX AND SOCIAL CONTRIBUTION

a) Deferred income tax and social contribution composition:

b) Estimated time of realization:

The Company considers that deferred tax assets resulting from temporary differences will be realized at the proportion to the final solution of the related to provisions for contingencies and settlement of payment of the projected obligations related to employee benefits.

The deferred tax assets originating from net operating losses and negative basis of social contribution are expected to be realized as set forth below:

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c) Income and social contribution taxes reconciliation:

(a)  Due to the merger of its wholly-owned subsidiaries Avipal Nordeste S.A. and Perdigão Agroindustrial S.A., the Company recorded a loss of R$3,790 on March 31, 2010 and R$132,037 on March 31, 2009, related to deferred tax assets (net operating losses and negative base of social contribution).

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

Due to the merger of Perdigão Agroindustrial S.A., on March 9, 2009, the Company recorded a loss of R$132,037 related to deferred tax assets (net operating losses and negative base of social contribution).

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The Brazilian tax returns are subject to tax authority’s review for five years after the date of the tax return filing. The Company may have to pay additional tax, fine and interest due to these reviews. Subsidiaries abroad are subject to taxation in their respective countries, according to local rates and regulations.

10.INVESTMENTS