FORM 6-K

U.S. SECURITIES AND EXCHANGE COMMISSION

dated April 14, 2011

  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.  

PROPOSAL OF THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETING TO BE HELD ON APRIL 29, 2011.

Dear Shareholders,

The Board of Directors of BRF – Brasil Foods S.A. wishes to present Shareholders with the following proposals, the purpose of a deliberation in an Ordinary and Extraordinary General Meeting of the Company , to be held on April 29, 2011:

1. To approve the following appropriation of Net Profit for Fiscal Year 2010:

(Attachment 9-1-II, pursuant to CVM Instruction 481)

2. To ratify the decision of the Board of Directors, ad referendum of the General Meeting, approving the payment of R$ 262,500,000.00 (two hundred and sixty-two million, five hundred  thousand Reals), equivalent to R$ 0.30124415 per share of the free float, subject to withholding tax of 15%, with the exception of those shareholders immune/exempt, on the 870,184,866 shares issued, in the form of interest on capital, pay-out having been made on August 27, 2010 (R$ 0.061136430 per share) and on February 24, 2011 (R$ 0.24010772 per share). The amount distributed to the shareholders, for fiscal year 2010, represented 34.36% of net adjusted income for the fiscal year, pursuant to Article 202 of Law 6.404/76, for the purposes of the mandatory dividend.

3. Election of the Board of Directors. Pursuant to CVM Instructions 165 and 282, the minimum percentage participation in the voting capital necessary for requesting the adoption of the multiple voting system is 5%. (Attachment 24, items 12.6 to 12.10, pursuant  to CVM Instruction 480)

Résumés – Effective Members

Nildemar Secches: Mechanical Engineer, he has a postgraduate degree in Finance and a Ph.D. in Economics. He is Chairman of the Board of Directors of BRF Brasil Foods S.A. He sits on the boards of Weg S.A., Ultrapar Participações, Suzano Papel e Celulose and Iochpe-Maxion. He was an executive director of the National Economic and Social Development Bank – BNDES, corporate director-general of the Iochpe-Maxion Group and President of the ABEF (Brazilian Chicken Producers and Exporters Association). (Independent member)

Wang Wei Chang (alternate) : Electrical Engineer with a Master´s degree in Industrial Engineering. Member of the Directors of Aracruz Celulose S.A. He is the Chief Risk Officer of Votorantim Participações, is also member of the Senior Advisory Board and alternate member of the Board of Directors of BRF Brasil Foods S.A.. He was the Chief Financial Officer and Investor Relations Director of perdigão Companies, Controller of Bank Chase Manhattan S.A in Brazil, Treasurer of Chase Manhattan Bank N.A. in Chile and Vice President of Citibank N.A in Brazil and Hong Kong. (Alternate Independent member)

Paulo Assunção de Souza: Bachelor of Law from the University of São Paulo. Former President of Brasilcap-Cap SA and Former Director of the Syndicate of Sao Paulo Bank, Mr. Paul has great experience in Boards of Directors in several companies, including Usiminas.

Juan José Torres Caiafa (alternate) : Account Manager and Business Administrator, with Masters Degree in Business Administration. He was a member of the Supervisory Board of several publicly traded Brazilian companies, including Seara SA, Telesp Celular Participacoes SA and Telemar Norte Vivo. (Alternate Independent member)

Décio da Silva : Mechanical Engineer with a postgraduate degree in Business Administration, he was Chief Executive Officer, production director, regional director and sales director of Weg. He is currently Chairman of the Board of Directors of the Weg companies and a Member of the Board of Directors of BRF Brasil Foods S.A. (Independent member)

Gerd Edgar Baumer (alternate): Majored in Law, Account and Business extension at University of Southern California. Mr. Gerd has large experience in directing companies like Grupo WEG. Besides that, he is member of board of directors in companies like Tigre S.A., Marisol S.A. and Oxford S.A. (Alternate Independent member)

Luis Carlos Fernandes Afonso :  Economist, master’s degree in Economics and a postgraduate degree in environmental and economic development.  He is the current President of Fundação Petrobras de Seguridade Social – Petros. Director of Bonaire Participações S.A. Board member of BRF - Brasil Foods S.A., Iguatemi and Romi.He was Finance Secretary for the city governments of São Paulo, Campinas and Santo André, and is currently Finance and Investment Director of Petros (Petrobras pension fund). He is a member of the Board of Directors of BRF Brasil Foods S.A.

Susana Hanna Stiphan Jabra (alternate): Graduated in Economics with Specialization Course in Financial Administration. She has worked for more than 25 years in large and middle market companies, having participated in important capital market transactions. She worked as an economist at Banco Itaú S.A., Planning and Control Manager at Agência Estado Ltda., Executive Manager for Investments and a member of the Social Responsibility Committee at PETROS. She was effective member of the Board of Directors of CPFL Energia, Companhia Paulista de Força e Luz, Companhia Piratininga de Força e Luz and CPFL Geração de Energia S.A., Telenorte Celular Participações, Bonaire Participações S.A.. (Alternate Independent member)

Luiz Fernando Furlan: Chemical Engineer, with a degree in Business Administration and specialization in Financial Management. He was Minister for Development, Industry and Foreign Trade in the Federal Government. At Sadia, he sat on the Board of Directors, accumulating the function of Investor Relations Officer, and also holding the position of Executive Vice President. In 2008 he resumed his position as Chairman of the Board of Sadia. (Independent member)

Roberto Faldini (alternate) : Business Administrator, graduating from EAESP – Fundação Getulio Vargas - FGV, with specialization in Advanced Management from the Fundação Dom Cabral and the INSEAD Business School, France; in Entrepreneurship from the Babson College; in Corporate Governance. He was Co-founder of the Brazilian Corporate Governance Institute - IBGC and an Associate Member of IBEF–Brazilian Institute of Financial Executives and the IEF–Family Company Institute. He was an Executive Officer, Shareholder and Member of the Board of Directors of Metal Leve S.A. and Chairman of the CVM–Brazilian Securities and Exchange Commission in 1992. (Alternate Independent member)

Manoel Cordeiro Silva Filho: He is a graduate in Business Administration and has a postgraduate degree in Economic Engineering and an MBA in Finance. He was Investment and Finance Director at Fundação Vale do Rio Doce de Seguridade Social-VALIA (Vale pension fund) and Coordinator of the National Investments Committee -ABRAPP. He is a member of the Board of Directors of BRF Brasil Foods S.A. (Independent member)

Mauricio da Rocha Wanderley (alternate) : An economist with an MBA for Executives in Finance IBMEC. 16 years of experience in the area of capital markets, investment analysis, business valuation, business opportunities, evaluating market risk and credit investments. Acts with the Board of Directors of the companies: Grant Metroviária of Rio de Janeiro SA (Metro Rio); Marlin Holdings SA; Rent Equipment Oil Company. (Alternate Independent member)

Walter Fontana Filho : Economist, with a post graduation degree in Economics with specialization in Marketing Administration from the FGV. Member of the Board of Directors of the newspaper ‘O Estado de São Paulo’ since 1999, Member of the Board of Directors of ALGAR – Algar S.A. Empreendimentos e Participações since 2005, Member of the Board of Directors of WTorre Empreendimentos Imobiliários S.A. since 2007. He was Chairman of the Board and Chief Executive Officer of Sadia S.A. (Independent member)

Eduardo Fontana d Ávila (alternate): Civil Engineer, graduated at Mackenzie University and Postgraduate in Business Administration at Fundação Getúlio Vargas. Vice President of Board of Directors of Sadia S.A.. Develop his carrier at Sadia, since February of 1977, always directed for production activities. (Alternate Independent member)

Allan Simões Toledo: Business Administrator, Financial Specialist and Master in Agribusiness at São Paulo University. He was the Executive Manager and Comercial Director of Banco do Brasil. He holds the title of Vice president of international area of Banco do Brasil, Board of Director President of BB Leasing and Member of board of da NeoEnergia.

Heloisa Helena Silva de Oliveira (alternate): Economist with Specialization in Corporate Governance at Universidade de São Paulo. Her carrier begun at Banco do Brasil till hold the Executive Manager position. He was Statutory Director at Banco Popular do Brasil – Banco do Brasil subsidiary. He has large experience in Board of Director and Audit Committee. (Alternate Independent member)

José Carlos Reis de Magalhães: Majored in Business Administration at Fundação Getúlio Vargas. Mr. José Carlos is the founder, chief executive and investment officer and chairman of the board of directors of Tarpon Investimentos S.A. In addition, he serves as member of the board of directors of Marisa Lojas S.A.   (Independent member)

Eduardo Silveira Mufarej (alternate): Majored in Business Administration at Pontifícia Universidade Católica of São Paulo. Eduardo is a member of the board of directors and executive officer of Tarpon Investimentos S.A. In addition, He serves as member of the board of directors of Arezzo Indústria e Comércio S.A. and Companhia de Tecidos do Norte de Minas – Coteminas. (Alternate Independent member)

Pedro de Andrade Faria: Majored in Business Administration at Fundação Getúlio Vargas and earned his MBA from the University of Chicago. Pedro is a member of the board of directors and executive vice-president of Tarpon Investimentos S.A. In addition, he serves as member of the board of directors of Arezzo Indústria e Comércio S.A., Companhia de Gás de São Paulo – Comgás, Cremer S.A. and Omega Energia Renovável S.A. Pedro was the chief financial and investor relations officer of Brasilagro. (Independent member)

Marcelo Guimarães Lopo Lima (alternate): Majored in Business Administration at Fundação Getúlio Vargas and in Law at Universidade São Paulo. Marcelo is a member of the board of directors and executive vice-president of Tarpon Investimentos S.A. In addition, He serves as member of the board of directors of Cia. Hering. Marcelo was a vice president at Itaú BBA’s investment banking division. (Alternate Independent member)

4. To  elect the members of the Fiscal Council/Audit Committee – Term of Office: Until the date of the OGM/EGM of 2012. (Attachment 24, items 12.6 to 12.10, in accordance with CVM Instruction 480)

Résumés – Effective Members

Attilio Guaspari: An Engineer with a Master’s Degree in Management Sciences. He was Supervisor of the Financial Area and Head of the Audit Department of the National Social and Economic Development Bank - BNDES, as well as Financial-Administrative Director of Embrafilme. Since 1986, he has sat on various boards of directors such as Brasil Ferrovias S.A., FAPES, Indústrias Verolme-Ishibrás and Projeto Jarí. Currently, he is a member of the Fiscal Council of BRF  and the Audit Committee of the BNDES. (Independent member)

Agenor Azevedo Santos (alternate) : Accountant and Business Administrator. Mr. Santos is a member of our Supervisory Board alternate.  Accounting manager of the Foundation for Assistance and Social Welfare of BNDES - FAPES. (Alternate Independent member)

Manuela Cristina Lemos Marçal : Economist at the Federal University of Rio de Janeiro, with a postgraduate degree in Corporate Finance and Capital Markets. Was Manager of Market Analysis, and is currently the Executive Manager of Equity Transactions in Petros. It also has experience in the Investment Committees. (Independent member)

Paola Ferreira Rocha (alternate): Chemical Engineer, MBA in Finance from Fundacao Dom Cabral and Master in Finance at IBMEC. Was analyst for Planning and Production Control at Roche, and soon after, Resource Management Analyst at Banco Santander. Currently working in Planning Financial Planning Companhia Vale do Rio Doce. (Alternate Independent member)

Decio Magno Andrade Stochiero: Majored in Business Administrator and MBA in Rating Asset Investment Portfolios and the University of Sao Paulo. Mr. Decio has a long career in Sistel. He is currently Manager of Corporate Planning and Control, on the Board of Directors of the Bonaire Participações SA and Member of the National Technical Governance By ABRAPP. (Independent member)

Tarcisio Luiz Silva Fontenele (alternate):  Law degree and Post Graduate in Civil Procedural Law. Was General Director of Counsel of Americel SA - Cellular Telephone Company. Were Fiscal Director at Embratel Participacoes S.A. and Tele Nordeste Celular Participacoes S.A. and Controller Director at Fiscal Santos Brazil S.A. - Container Port Company. He is a member of the National Commission's Legal ABRAPP - Brazilian Association of Private Pension Closed. Currently holds the position of Legal Manager at Sistel. Alternate Tax Counsel is of Embraer since March 2001. (Alternate Independent member)

5. To  approve the total and aggregate compensation for the Members of Management of the BRF - Brasil Foods Companies in the amount of up to R$ 33 million, including additional compensation in the month of December 2010, in the amount corresponding to one month’s salary.    (Attachment 13, pursuant to CVM Instruction 481)

This is what the Board of Directors has to propose and trusts will be examined and approved by the shareholders.

The Company’s shareholders interested in accessing the information or  clarifying doubts with respect to the aforementioned proposals should contact the Investor Relations area of the Company by calling +55 (11) 2322-5061/5050/5048/5049/5051/5052/5037 or via e-mail: acoes@brasilfoods.com. All documents pertinent to this Meeting are available to the shareholders in the site: www.brasilfoods.com/ri.

São Paulo (SP), March 24, 2011.

Attachments to the Proposal of the Board of Directors to the Ordinary and Extraordinary General Meeting to be held on April 29, 2011.

(According to CVM Instruction nº 480 and 481)

Attachment 9-1-II

Item 14.c

The reserve for capital increase was established based on the article 32, item 3, of Company’s bylaws, in the amount that corresponds to 20,00% of the net income to be distributed presented above, such reserve shall not exceed 20,00%of the capital stock.

The reserve for expansion was established based on the article 32, item 4, of Company’s bylaws, in the amount that corresponds to 29,51% of the net income to be distributed presented above, such reserve shall not exceed  80% of the capital stock, with the purpose of ensuring investments in fixed assets or increases in working capital, including through amortization of the Company’s debts, irrespective of retention of profit earmarked to the capital expenditures budget, and its balance being used, as may be the case, for: (i) absorbing losses whenever necessary; (ii) distribution of dividends at any time; (iii) operations of redemption, reimbursement or the authorized purchase of shares as permitted in the legislation; and (iv) for incorporation into the Capital Stock, including through new stock dividends.

10. Management Comments

10.1. Comments of Directors on financial conditions and asset status, capital structure, creditworthiness, financing sources, levels of indebtedness, loan agreement limits.

In 2008, the good performance in our operational businesses, whether in meet or dairy products, was determinant to increase the effective operating generation for the year, consolidating acquisitions performed and the defined organic growth.

Although the net result has been below our expectations, the Company closed the fiscal year of 2008 with good operational margins, besides recording positive liquidity indicators, with R$ 2 billion in financial investments and 70% of long term indebtedness.

The net indebtedness, composed by the total gross debt less the financial investments, has increased 690%, representing R$ 3,4 billion, concentrated in long term. The necessary expenditure for the investments and acquisitions resulted in taking more loans, due to the increase on working capital investments plus a smaller cash operating generation in the first semester of 2008, caused by the international outlook of pressure on production costs, even considering the good performance of revenues, which associated with the exchange effect on the indexed debt, has increased the net debt in relation to the EBITDA generation, from 0,5 times to 2,9 times per year, and considering that the year of  2007 reflected in the financial investments the primary offer held for Eleva acquisition.

The recent acquisitions demanded several necessary adjustments to reflect the expected return. Moreover, the extreme volatile and uncertain market conditions at the yearend demanded more administration caution. The Company financial position is safe and comfortable; it was promoted the short term debt extension, with bearable due dates scheduled for late 2008 and 2009, thus allowing the continuity of investment plans and the continuous and sustainable growth, despite of the reversal generated in the credit market, caused by the world financial collapse motivated by the American economy.

In 2009, the BRF – Brazil Foods S.A., a corporation resulting from the merger between the groups Perdigão and Sadia, was born as one of the world leading group in the food industry, taking its products and brands for more than 100 countries.

The success of the shareholding structure that resulted in the BRF creation, besides the fund raising of R$5,3 billion, turned the year of 2009 remarkable for the Brazilian and global food industry.

At operational sphere, the positive spotlight was the good performance of the company in the local market, with 9,5% of growth in revenues of processed products. However, the results and margins were negatively impacted by the international scenario, which showed high exchange volatility, leading to an important drop in the exported products prices. The reduction of consumption in the international market led the company to several adjustments in its production, which reflected in the increase of products cost and increase in the commercial expenses.

Although the adverse scenario, BRF recorded an adjusted net profit of R$360 million and EBITDA of R$1,2 billion in terms of proforma. The net indebtedness increased 14,4% compared to 12.31.08, however, in proforma comparative the drop of indebtedness was supported by the entrance of funds of primary offer of shares issuance, whose raising was of R$ 5,3 billion. From this amount, R$ 2,2 billion were transferred to Sadia, aiming the reduction of the costly short term debt. The relation net debt/EBITDA became 3,6 times, due to the minor cash generation in the year, although the proper level of net indebtedness.

The recovery of the international economy in 2010, even slow, and the growth of the local market provided a more favorable environment for the Company business.

Due to the financial discipline adopted in the indebtedness restructuring plan, there was a reduction in the debt average cost, as well as in the extension of its average term. The Company closed the fiscal year of 2010 with 69% of its indebtedness in the long term.

The net indebtedness on 12.31.10 was 13,2% lower than the recorded in 2009, supported by the operational results, even considering the disbursement for investments in CAPEX, marketing and the synergy projects.

The relation net debt/EBITDA was reduced to 1,38 times, due to the improvement in cash generation in the year and the level of the net indebtedness balance in relation to the Company operations. The consolidated exchange exposition was US$76 million (active position), contemplating the hedge accounting policy implemented, versus US$ 1,1 billion (passive position) recorded in the previous year.

The indebtedness restructuring of the subsidiary Sadia was enabled by the funds raising of the primary offer of shares issuance held in July/09, which amounted to R$ 5,3 billion. From this amount, R$ 3,5 billion were transferred to Sadia, between AFAC and mutual operations for the anticipation of obligations and therefore reduction of short term onerous debt, being that R$1,2 billion was transferred during the year of 2010.

Aiming the extension of debt profile and the reduction of its average cost, on 01.21.10 bonuses of 10 (ten) years in the total amount of US$750 million (bonds) were issued, with due date on 01.28.20 and coupon (interests) of 7,250% per year (yield to maturity 7,375%), which has been paid each six months, starting on July 28th, 2010.

Item 10.1.b. Capital Structure

On 12.31.10, the BRF capital structure is composed of 65,4% in equity capital and 34,6% in debt capital. The company does not have issuance of redeemable stock.

Item 10.1.c. Creditworthiness

Considering that 69% of the Gross indebtedness is of long term, that the Company has availability of R$ 3.552 million to pay its short term financial commitments of R$ 2.233 and that we hope a positive cash generation for the year of 2011, based on the continuous improvement of the world economy, the Company considers as comfortable its ability to pay.

Item 10.1.d;e. Financing sources for working capital and for investment in non-current assets that the Company intends to use to cover liquidity deficiency.

The Company current availabilities reduce the need of new loans. However, we keep funds raised at low cost and long term, as the financing along with the development bodies as BNDES (Brazilian Economic and Social Development Bank), BNB (NE Bank) and FINEP (Financing of Studies and Projects) used to mainly finance fixed capital, and renewals of Rural Credit operations, which are operations with interests subsided by the Federal Government as EGF and NPR to finance the company working capital.

During the year of 2011, the Company may obtain new loans and borrowing in the financial and capital markets, in case additional funds are necessary to finance the long term investment plans or to continue improving the indebtedness profile.

Item 10.1.f. Levels of Indebtedness and the features of such debts, also describing:

Item 10.1.f. Debt levels and characteristics of these debts are detailed as follows:

In view of the IFRS investment, the Company indebtedness in 2008 was changed from R$5,366,098 to R$ 5,292,336 and in 2009 from R$ 8,798,110 to R$ 9,054,021.

Main Financing and Borrowing Contracts:

BFF notes :  On 01.28.10, BFF International Limited issued senior notes in the total amount of US$750.000. The securities are guaranteed by the Company and by Sadia, with nominal interest rate of 7,25% per year and effective rate of 7,31% per year and due date on 01.28.20.

Sadia Bonds :  In the total amount of US$250,000. The securities are guaranteed by the Company and by Sadia, with interest rate of 6,88% per year, with due date on 05.24.17.

Operations with BNDES: On 12.31.10, the Company and its subsidiaries have several outstanding obligations with BNDES. The borrowings were made for the purchase of machinery, equipments and expansion of the productive facilities, besides de special lines for the export financing, with due dates between 2011 and 2015, in the amount of R$ 2,1 billion.

Other long term relationships with financial institutions:

The company has covenants with several Banks where the main objective is to make easier the access to credit to the company partners producers for the construction of battery cages, poultry farms and rules adjustment.

Besides that, the Company has covenants with Banks to make easier the access to credit for the suppliers that wish to anticipate its receivables with the Company.

Finally, the Company has operations with derivatives with the purpose of protecting against the exchange and interest rates variations, with speculative purposes. These operations are accounted by its market value, in accordance with the accounting methodology of hedge accounting. For more information, please Note nº 5 of 2010 financial statements.

Level of Subordination among the debts:

The level of subordination is highlighted in the operations having real guarantees, most of all the manufacturing plants contracted along with BNDES.

Eventual restrictions imposed to the issuer, especially regarding the limits of indebtedness and new borrowings contracting, the dividends distribution, divestitures, issuance of new securities and change of company control:

We have some financial covenants such as:

These covenants are linked to financing contracts of export pre-payment in foreign currency with regular default clauses for these types of operations, which if not complied with, may cause the anticipation of due dates. On 12.31.10, all of these conditions were fulfilled by the Company.

Item 10.1.g. Usage Limits of the already contracted financing

The company has in a contract with Brazilian Development Bank (BNDES); Brazilian Northeast Bank (BNB), Brazilian Innovation Agency (FINEP), available lines of credit in the amount of MR$ 276.000.

Item 10.1.h. Principal changes to the consolidated balance sheet accounts, comparing December 31, 2010 and December 31, 2009.

Current assets

Current assets amounted to R$ 9,852.1 million December 31, 2010 down R$ 825.8 million from the R$ 10,677.9 million reported a year earlier, particularly in the cash investment account, about R$ 1,481.7 million. Client accounts receivables grew by R$ 424,3 million in the wake of rising sales. The surplus resulting from lower cash investments added to a positive operating cash flow was allocated particularly to reducing loans and to investments. On December 31, 2010, current assets accounted for 35.5% of total assets, down from the previous year’s 37.6%.

Cash & short-term deposits and investments

Fell by 25.2%, from R$ 4,243.8 million December 31, 2009, to R$ 3,174.4 million last year particularly as a result of redemption of cash investments to settle subsidiary Sadia’s debts.

Client accounts receivables, net

Amounted to R$ 2,565.0 million December 31, 2010, up 19.8% from R$ 2,140.7 million a year earlier, as a result of rising sales.

Inventory

Inventories dropped 5.3% to R$ 2,135.8 million December 31, 2010, from R$ 2,255.5 million the previous year. Finished product inventories were down R$ 216.9 million, owing to stronger sales performance this year. Last year, they ran high owing to market movements, particularly exports. All other items reported growth of R$ 97.2 million.

Developing poultry, swine and bovine for slaughter were posted as biological assets under current assets at a total R$ 900.7 million December 31, 2010 (R$ 865.5 million on December 31, 2009).

Breeding poultry and swine, parents designed to produce new biological assets, were posted as biological assets under non-current assets at a total R$ 377.7 million December 31, 2010 (R$ 391.2 million the previous year).

Biological asset inventories grew significantly in volume terms during 2010 owing to resumption in production and sales. In financial terms, the growth was not significant owing to the behavior of key input costs and the developmental stage of animals by year end.

Tax credits

Amounted to R$ 695.9 million December 31, 2010 down from R$ 745.6 million a year earlier. These credits, expected to be used during fiscal 2011, basically refer to ICMS, PIS, COFINS, income tax e social charges. Exports, low rates on the domestic market, investments in fixed assets and cash investments usually afford credits in excess of debits in sales and other outgoing transactions.

Non-Current Assets

Amounted to R$ 17.899,4 million December 31, 2010, up R$193.7 million from the R$ 17,705.7 million reported a year earlier. The hike results from investments in fixed assets, tax credits and deferred tax, which fluctuated some R$ 368.1 million in these accounts. On the other hand, cash investments dropped R$ 299,00 million.

Tax credits

Moved up R$ 114.3 million to R$ 767.4 million December 31, 2010. Just like in current assets, these refer basically to credits for ICMS, PIS, COFINS, income tax and social charge payments, to be offset in the future.

Deferred income tax

Amounted to R$ 2,487.6 million December 31, 2010 slightly up from R$ 2,426.4 million a year earlier. These are income tax and social charge credits on R$ 781.4 million worth of losses, R$1,129.9 million of goodwill and other temporary differences in the amount of R$576.3 million. Realization of these deferred assets will occur as contingencies are met and profits flow in.

PP & E

Grew R$ 192.6 million to R$ 9,066.8 million December 31, 2010 from R$ 8,874.2 million a year earlier. Acquisitions totaled R$ 693.3 million and write-offs, depreciation and premium adjustments following the business association added up to R$ 504.1 million. Among the acquisitions we highlight: expansion projects worth R$ 116.4 million, Campos Novos facility - SC some R$ 75.1 million, construction in progress at subsidiary Sadia particularly on the Lucas do Rio Verde and Vitória de Santo Antão plants worth R$ 198.1 million.

Intangible Assets

Amounted to R$ 4,247.3 million December 31, 2010 and R$ 4,276.5 million a year earlier. These are made up particularly of R$ 2,833.0 million in  premiums and R$ 1,256.0 million in brands .

Current Liability

Our current liability amounted to R$5,621.2 million December 31, 2010 down by 10.3% from R$6,267.9 million reported a year earlier, particularly in debt to financial institutions as Sadia’s loans were settled .

Loans and Financing

Short-term debt, including the current portion of the long-term debt with financial institutions, amounted to R$ 2,227.7 million  December 31, 2010, down 30.4% from the R$3,202.7 million reported a year earlier. The debt reduction results particularly from settlement of subsidiary Sadia’s loans.

Suppliers

Supplier accounts payables for raw materials, supplies and services required by operations moved up by 8.1% to R$ 2,059.2 million December 31, 2010 from the R$ 1,905.4 million reported a year earlier, short of the 33.2% increase in sales costs as a result of the procurement policy and the behavior of key input prices.

Non-Current Liabilities

Amounted to R$ 8,493.8 million December 31, 2010, down 6.9% from the R$ 9,120.0 million reported a year earlier, particularly in debt to financial institutions as a result of settlement of subsidiary Sadia’s loans.

Loans and Financing

Long-term debt to financial institutions amounted to R$ 4,975.2 million December 31, 2010, a reduction of R$ 878.3 million from the R$ 5,853.5 million reported a year earlier, owing to settlement of subsidiary Sadia’s loans.

Tax, labor, civil and commercial contingencies

Amounted to R$1,118.9 million December 31, 2010, up from the R$1,031.6 million reported a year earlier. These are contingency provisions where losses are likely; R$ 859.9 million is tax, R$110.1 million is labor and R$148.9 million is civil, commercial and other.

Deferred income tax

Amounted to R$1,635.7 million December 31, 2010 and R$1,456.4 a year earlier. This refers to income tax and social charges on the premium following the business association with Sadia worth R$1,124.4 million and other temporary differences in the amount of R$ 511.3 million.

Shareholders’ Equity

We closed fiscal 2010 with Shareholders’ Equity of R$ 13,636.5 million, up from the previous year’s R$12,995.7 million. Shareholders’ Equity posted a 4.9% advance boosted by the year’s profit of R$ 806.8 million, though pared down by interest on own capital amounting to R$ 262.5 million.

Major changes to consolidated balance sheet accounts, comparing December 31, 2009 to December 31, 2008.

Current assets

Our current assets amounted to R$10,677.9 million December 31, 2009 up from the R$ 5,917.4 million reported the previous year, owing particularly to a R$ 2,267.8 million increase in cash & cash equivalents and cash investment accounts derived from the proceeds the Company obtained from a share issue. Client accounts receivables, inventories and tax credits in general and other current assets grew owing to the business association with Sadia on July 8, 2009. On December 31, 2009, current assets accounted for 37.6% of total assets, against 52.7% in the previous year.

Cash and Short-term Deposits

Moved up by 114.8%, from R$1,976.0 million December 31, 2008 to R$4,243.8 million on December 2009, boosted by the proceeds from the share issue, net of the amounts transferred to Sadia to settle the subsidiary’s debt.

Client accounts receivables, net

Our client accounts receivables amounted to R$ 2,140.7 million December 31, 2009, up 55.3% from the previous year’s R$ 1,378.0 million. This increase derives from the business association with Sadia.

Inventories

Moved up by 75.5% to R$ 2,255.5 million on December 31,2009, from the R$ 1,285.4  million reported in the previous year.

Developing poultry, swine and bovine for slaughter were posted as biological assets under current assets at a total R$ 865.5 million December 31, 2009 (R$ 427.4 million on December 31, 2008).

Breeding poultry and swine, parents designed to produce new biological assets, were posted as biological assets under non-current assets at a total R$ 391.2 million December 31, 2009 (R$ 158.8 million December 31, 2008).

Inventories of finished products, slaughter and breeding animals, raw materials and advances to suppliers grew significantly in the wake of the business association with Sadia.

Non-Current Assets

Jumped up R$ 12,388.9 million, from  R$ 5,316.8 million on December 31, 2008 to R$17,705.7 million the following year . The increase results partly from the share issue proceeds (portion posted to long-term deposits), the hike in tax credits and deferred income tax and the business association with Sadia.

Tax credits

Moved up R$ 505.6 million to R$ 653.0 million December 31, 2009, boosted by the business association with Sadia. These refer basically to credits for ICMS, PIS, COFINS, income tax and social charge payments, to be offset in the future.

Deferred income tax

Rose to R$ 2,426.4 million December 31, 2009 from the R$550.8 million reported in the previous year. These are income tax and social charge credits on losses, premiums and other temporary differences. Realization of these deferred assets will occur as contingencies are met and profits flow in. The increase results from the business association with Sadia.

PP & E

Our PP&E jumped 223% to R$ 8,874.2 million December 31, 2009 from the R$ 2,747.8 million reported in the previous year. The R$ 5,981.7 million increase is a result of the business association with Sadia.

Intangible Assets

Amounted to R$ 4,276.5 million December 31, 2009 against R$1,557.6 million one year earlier. It refers basically to premiums and brands and the effect of the business association with Sadia.

Current Liability

Current Liability increased by 98.3% to R$ 6,267.9 million December 31, 2009 from the R$3,160.0 million mark a year earlier, particularly in debt to financial institutions and suppliers in the wake of the association with Sadia.

Loans and Financing (current)

Short-term debt, including the current portion of the long-term debt to financial institutions, amounted to R$ 3,202.7 million December 31, 2009, up 102.8% from the previous year’s R$1,578.9 million. The higher debt is primarily related to the association with Sadia.

Suppliers

Supplier accounts payables of raw materials, supplies and services required by operations moved up by 75.9% to R$ 1,905.4 million December 31, 2009 from R$1,083.4 million the previous year, as a result of the association with Sadia.

Non-Current Liabilities

Grew R$ 4,971.4 million in the year to R$9,120.1 million December 31, 2009 from R$ 4,148.7 million the year before, particularly owing to the business association with Sadia.

Loans e Financing (non-current)

Long-term debt to financial institutions amounted to R$ 5,853.4 million December 31, 2009,  an additional R$ 2,133.7 million from the prior year’s R$3,719.7 million. The debt increase results from the association with Sadia.

Tax, labor, civil and commercial contingencies

Grew to R$ 1,031.6 million December 31, 2009 from R$ 219.1 million the year before. These are contingency provisions where losses are likely.  The increase results from the association with Sadia.

Deferred income tax

Advanced to R$ 1,456.4 million December 31, 2009 from R$ 73.3 million the year before. This refers to income tax and social charges on premium following the business association with Sadia.

Shareholders’ Equity

We closed fiscal 2009 with Shareholders’ Equity of R$ 12,995.7 million, up from the previous year’s R$ 3,925.3 million. A growth of 231% was reported particularly following the R$ 5,290.0 million capital injection from the share issue, the R$ 3,818.4 million paid-in with HFF’s and Sadia’s shares and a  R$ 98.7 million profit from the fiscal year, pared down by the R$100.0 million paid in interest on own capital.

Due to on the adjustments that occurred in the financial statements of December 31, 2010 by incorporation of rules of IFRS, adjusted for comparative purposes of the Financial Statements December 31, 2009, we reported that the Financial Statements December 31, 2008 Comparative Financial Statements for December 31, 2007 remained unchanged, containing no set rules implemented by the IFRS . 

Short term assets

Our short term assets amounted to R$5,986.1 million on December 31 2008 and R$3,768.2 million on December 31 2007, the result of an increase of R$2,216.9 million principally in trade accounts receivable, in inventories and in other short term assets, principally due to the consolidation of Eleva, acquired early in 2008. Further, on December 31 2008, short term assets represented 53.4% of our total assets compared with 57.6% in 2007.

Cash and cash equivalents

Increased 11.4% from R$1,773.6 million on December 31 2007 to R$1,976.0 million on December 31 2008, basically in the form of immediately liquid investments in Bank Deposit Certificates (CDBs) and short term investments.

Trade accounts receivable, net

Our trade accounts receivable amounted to R$1,378.0 million on December 31 2008, increasing by 71.4% in relation to December 31 2007 when this item was R$803.9 million. This reflects higher gross sales which increased 69.0% as well as the consolidation of Eleva.

Inventories

Our inventories rose to the equivalent of R$1,689.0 million on December 31 2008 compared with R$865.1 million on December 31 2007, an increase of 95.2%, or R$823.9 million. There was a signficant increase in finished products inventory, in large part due to the consolidation of acquisitions (Eleva, Plusfood and Cotochés) and to the international trading scenario where there was a decline in consumption and higher inventory in leading importing countries.

Noncurrent assets

Amounted to R$597.1 million on December 31 2008 and R$254.3 million on December 31 2007, increasing by R$342.8 million. Comprises trade accounts receivable, asset sales, recoverable and deferred taxes and court escrow deposits.

Property, plant and equipment

Our property, plant and equipment increased 36.6% amounting to R$2,918.5 million on December 31 2008 and R$2,136.9 million on December 31 2007. Projects for improvements and productivity amounted to R$628.4 million distributed in various units and regions. The acquisitions of Eleva, Plusfood and Cotochés added a further R$642.5 million. Depreciation expenses totaled R$249.8 million and a further R$253.6 million was written off for sales, obsolescence and Eleva’s revaluation reserve.

Current Liabilities

Our current liabilities amounted to R$3,080.9 million on December 31 2008 and R$1,941.2 million on December 31 2007, an increase of 58.7%, principally in the form of debt owed to financial institutions and suppliers in addition to company acquisitions in 2008. The ratio of current liabilities to total liabilities was 27.5% on December 31 2008 as against 29.7% in 2007.

Loans and Financing (current)

Our short term debt including the current portion of long-term debt with financial institutions amounted to R$1,646.4 million on December 31 2008 and R$1,051.8 million on December 31 2007, an increase of 56.5%. The Real’s devaluation against the US Dollar of about 32% and additional leverage taken on for supporting the growth of the Company largely explain the growth in debt. The consolidation of acquisitions should also be considered under this item.

Trade accounts payable

Trade accounts payable with respect to raw materials, materials and services essential to the operational activity amounted to R$1,083.4 million on December 31 2008 and R$575.6 million on December 31 2007, an increase of 88.2% due to the increase in output (meats 37.5%) and the costs of the main inputs such as corn, 21.2% and soybean meal, 42.6%, as well as the consolidation of acquisitions.

Long-term liabilities

Amounted to R$4,027.3 million on December 31 2008 and R$1,376.1 million on December 31 2007, an increase of R$2,651.2 million in the period, largely reflecting growth in long-term bank debt.

Loans and Financing (long-term)

Our long term debt with financial institutions amounted to R$3,719.7 million on December 31 2008 and R$1,214.1 million on December 31 2007, an increase of R$2,505.6 million. Increased debt was due to additional funding raised for new fixed investment and working capital. On December 31 2008, total long-term debt including the short-term maturity portion was made up of about 77.1% in currency, principally dollar denominated.

Shareholders’ equity

We ended 2008 with a shareholders’ equity of R$4,110.6 million, while at the end of the preceding year this item was R$3,226.0 million. There was a growth of 27.4% due to the increase in capital of R$945.0 million, and from net income for the fiscal year of R$54.4 million, offset by the payout of interest on shareholder’s equity during the year and by R$38.1 million in equity adjustments (Law 11,638).

Item 10.2.a;b and c.

Comments on the performance of the results for the fiscal year ending December 31, 2010, compared to December 31, 2009.

Net Sales

Our net sales increased 8.3% to R$22.7 billion in 2010 from R$20.9 billion in 2009, primarily due to on a pro-forma basis and 42.6% higher according to CL(Corporate Law) figures considering the incorporation of results for Sadia as from July 2009, partially due to the results in 4Q10.

Net sales reached R$ 6.4 billion in 4Q10, a 20.6% increase and a growth of 12.2% in relation to 3Q10, particularly boosted by the domestic market with sales of year-end holiday products to the Brazilian market and an improved export performance. 

Domestic Market

BRF has successfully maintained its market share for the principal product categories thanks to innovative initiatives, product launches and brand sustainability campaigns in addition to the hands on management of prices and costs. In all segments, including dairy products, BRF has prioritized commercialization margin (value share) over to market share.

Sales to the domestic market totaled R$13.5 billion, a growth of 11.3% against the preceding year. The Company sold 3.8 million tons of product, 4.9% higher than 2009 on a pro-forma basis. Thanks to these results, margins were restored to pre-crisis levels.

In the fourth quarter, domestic market sales posted growth of 22% at R$ 4.0 billion and total volumes 9.8% higher.

The buoyant domestic market associated with an increase in real incomes in a scenario of full employment in conjunction with rising consumption among the emerging social classes, have helped stimulate demand and  sales to all  segments, especially those directed towards lines catering for products traditional to the year–end holiday period.

Corporate Law:

Pro forma:

Meats - The segment posted an increase of 10.5% in sales and 6.6% in volume. The recovery in in natura meat exports helped to steady supplies of product to the domestic market sustaining prices and the sale of items with greater added value. As a result, average prices remained 3.6% above those registered for 2009 on a pro-forma basis while processed products registered an improvement of 690 basis points for the year. 

Due to the excellent demand for traditional year-end holiday products, 4Q10 reported sales 22,9% higher for meats, with a 10,4% increase in volume. The operating margin for higher added value products posted growth of 4.7 percentage points compared with 4Q09.

Dairy Products – Net sales for the dairy product segment in 2010 recovered to 2008 levels ending the period totaling R$ 2.3 billion. Margins were squeezed by high prices paid to milk producers. Average prices continued in the same level of 2009. The year under review did not show the typical pattern of an on- and off-season, a fact that rendered management of costs and inventory even more difficult. Since these problems prevented margins returning to historical levels, BRF pursued a policy of preserving profitability in the segment which translated into a reduced market share for processed items and UHT milks.

Other processed products- Highlights for the year in this segment were Meu Menu, a line of ready-to-eat/cook, frozen and individual dishes for consumers that live alone, and Escondidinho, inspired by traditional recipes of Brazilian cuisine and directed towards the family market. The Company ran campaigns designed to consolidate the brands, taking full advantage of events with major popular appeal such as the World Soccer Tournament. Overall, market share remained stable – with the exception of margarines where there was growth. Total sales for the segment were R$ 2.0 billion, a growth of 25.7% while volume reached 454.9 thousand tons, a rise of 13.1% and 79%, respectively on a pro forma and CL basis. In the fourth quarter, growth was 27.3% and 10.5%, respectively, in sales and volumes.

Food Service – This segment is a strategic one in BRF’s growth plans with the food service market benefiting from a change in the habits of the Brazilian population, growth in incomes and a recovery in employment. According to the IBGE’s Family Budgets Survey, the percentage of expenses on food away from home rose from 24.1% (2002/2003) to 31.1% (2008/2009). Thanks to this trend and BRF’s investments in products and services, the segment posted a year-on-year increase of 13.1% in sales and 15% in volume.

BRF is the leading player in the Brazilian food service business, supplying the largest food service chains and franchises in the country and developing customized solutions for enhancing its services and proximity to the customer. This segment is present in all the major urban centers, BRF using a proprietary and dedicated fleet of delivery trucks in addition to maintaining high standards of quality and reliability.

The following table provides a breakdown of changes in net sales, sales volumes and average selling prices in the domestic market on a combined basis.

Foreign Markets

In line with guidance from the anti-trust authority CADE, the merging of international sales has permitted gains in synergies and scale with better price and portfolio management. The Company has repositioned its brands, benefiting from the segmentation of the markets. Sadia has become a premium brand focused on higher added value and innovation. Perdix is positioned as a mainstream high brand, dedicated to the commercialization of large volumes and products attuned to local tastes. Borella, Halal, Fazenda and others have been maintained as brands which compete with local overseas food product industries.

BRF’s international division, Plusfood, with units in The Netherlands and the United Kingdom, is reinforcing its strategy with the manufacture of items destined for the European market. Examples are Perfect Portions, a standardized line of items for the food service business as well as specific products geared satisfying European consumer demand.

In 2010, export revenue increased 4.3% to R$ 9,2 billion on volumes of 2.3 million tons (5.9% greater) – pro-forma basis and a growth of 40.2% in sales revenue on a CL basis. In the fourth quarter, exports reached R$ 2.4 billion, representing an increase of 18.3%, and 4.2% up in volume.

Corporate Law:

Meats – During the first half, full inventories in world markets depressed prices. In the light of this scenario, the Company adjusted its portfolio accordingly and by the second half with supply and demand back in balance, conditions had improved. However, the devaluation of US$ dollar against Reais, thus reducing revenues when translated into Reals, without reducing profitability.

Meat exports amounted to R$ 9.0 billion, 5% higher with volumes 6.1% up for the year. In 4Q10, export sales reached R$ 2.3 billion, an increase of 17.4% in export revenues and 3.9% in volume. Average prices in US dollars FOB (Free on Board), were 14% in relation to the preceding year. The appreciation of the real in relation to US Dollars resulted in price decline in terms of Reals and an overall reduction in export revenues also in local currency terms.

Dairy Products - The scenario of weaker international demand restricted sales volume on the overseas market with shipments recording a year-on-year decline of 28%. In the fourth quarter, volumes were 24.9% down, albeit with export revenues 11.2% higher. The Company is shortly to expand its unit in Argentina – a cheese manufacturer – to make it self-sustainable and to source of value-added exports. Argentina offers a stable supply of quality and competitively priced raw materials in addition to enjoying sanitary agreements with European countries making exports to these markets a feasible proposition.

The following table provides a breakdown of changes in net sales, sales volumes and average selling prices in the foreign market.

Europe – The crisis in some countries – Greece, Ireland, Portugal and Spain – weakened the domestic economy and causing considerable instability throughout the year. Operations benefited from the pressure on international quotations for the principal grains (corn and soybeans), permitting an increase in prices to the European market. Expansion at Plusfood was instrumental in BRF enhancing its penetration in the region and the doubling of capacity at the Dutch unit is expected by mid- 2011. Production will be sold to such countries as Spain, Germany, Austria and Poland.

Middle East – These markets were severely pressured in the first half of last year due to high product inventory. Importers remained cautious, but resumed business in the second half. The Middle East continues to be BRF’s principal overseas market. Among the countries where there is major potential are Iraq, Jordan and Iran. In 2010, 15 new products under the Sadia brand name were launched in the region, a trend which is expected to increase in 2011.

Far East – The Japanese market reported an improvement in the prices for imported products with consumption remaining steady. In China, demand for BRF’s products continued strong especially following the opening of the Company’s office in the financial hub of Shanghai. BRF plans to leverage its business on the major growth potential presented by the Chinese market.

Eurasia – Demand from countries in the region remained strong both for poultry meat and pork products, resulting in higher prices and volumes.

Africa, Americas and other countries – There was an increase in the African market, especially for processed products with an improvement in volumes and prices. The region presents major growth potential for BRF’s products, more notably in countries such as Algeria, Tunisia, Egypt and Morocco, Mozambique, South Africa and Namibia as well as Angola.

With a proprietary distribution system in Argentina, Uruguay, Chile and Peru, sales to the region have been particularly strong for a new line of specialty ham products in Argentina and Uruguay, and Qualy light margarine in Chile.

Internationalization Project - BRF is structuring its Long-Term Internationalization Project focused on its international footprint for products with higher added value and distribution in its main operating regions.

Cost of Sales - For the year as a whole, cost of sales was 1.4% higher on a comparative pro-forma basis and 33.2% up on a Corporate Law basis, although also registering gains in the light of stronger proportional growth in net sales vis a vis cost of sales.

Costs of sales were 11.9% higher in 4Q10, the increase being proportionally less than sales revenue. This permitted a gain in gross margin despite the cost pressure from the principal raw materials – breeding stock, corn and soybeans - due to the highly volatile scenario for these commodities.

Taking into account Company performance in 4Q09 – this already a result of synergies arising from the integration of supplies and services – BRF reported a gain of 550 basis points, the cost of sales/net sales ratio increasing from 76.8% to 71.3%.

Gross Profit and Gross Margin – Gross Profits amounted to R$ 1.8 billion, an increase of 49.5% with a gross margin of 28.7 against 23.2%, driven by the growth in sales and the reduction in production costs in 4Q10 compared with 4Q09. For the accumulated period, Gross Profits amounted to R$ 5.7 billion – 35.8% higher on a pro-forma basis and 80.4% higher on a CL basis, reflecting a gradual and consistent recovery in performance.

Operating Expenses – The increase for this item was also proportionally less than that of sales for the quarter although 9.4% higher but taking into account expenses relating to investments in marketing, improvements to the IT system and disbursements with respect to consultancy work on the integration process and  new executive hires. As a result, the operating expenses/net sales ratio improved from 18.2% to 16.5%, a gain of 170 basis points in the quarter.

Consequently, operating expenses totaled R$ 3.9 billion in the year, 11.2% higher on pro-forma basis and 37.7% up on a Corporate Law basis. 

Operating Income and Margin –  Operating profit before other results, equity income and financial expenses was R$ 781.1 million, a significant gain of 197.8% on the back of the strong business performance, with an operating margin 730 basis points higher – increasing from 4.9% to 12.2% for the comparative quarters 4Q09/4Q10. The Company also posted a quarter-on-quarter gain of R$ 356 million in operating income. For the accumulated annual period there was a 6.4 percentage points gain in operating margin (pro-forma basis) reflecting the expected and gradual post-crisis recovery in the results, 396.3% up in Corporate Law terms, and with a nominal 378% pro-forma growth reaching R$ 1.8 billion in the operating result for the year.

Financial Results – BRF reported a reduction in the average cost of debt as well as a longer average debt maturity profile thanks to the financial discipline adopted in the debt restructuring plan. Significant reductions in net currency exposure have been possible thanks to the use of non-derivative instruments (currency denominated debt) for foreign exchange protection in line with hedge accounting standards. This has been responsible for major benefits from matching currency liability flows with export shipments. As a consequence of this process there has been a reduction in the volatility of financial expenses on a monthly basis.

Net debt for December 31 2010 was 13.3% less than reported in 2009, supported by operating results despite investments in capex, marketing and for synergy projects.

Net debt/EBITDA ratio fell to 1.38 times from 3.6 due to the improvement in cash generation posted in the year and the equilibrium between the Company’s net debt and operations. Consolidated currency exposure was US$ 76 million (asset position), contemplating the implemented hedge accounting policy, against US$ 1.1 billion (liability position) for the preceding year.

Net financial expenses in the quarter were R$ 152.5 million against a net financial expense of R$ 27.5 million in 4Q09. The result for the previous year was impacted by the positive effect of foreign exchange rate variation on the net currency exposure. On a pro-forma basis for the year, financial expenses amounted to R$ 483.1 million against R$ 617.3 million in financial income, principally due to the positive foreign exchange rate effect on net currency exposure throughout 2009. Meanwhile on Corporate Law basis, financial income accumulated R$ 262.5 million in 2009 due to the incorporation of Sadia’s results in July 2009.

The restructuring of the Sadia subsidiary’s debt was secured with the funds raised from a primary share issue totaling R$ 5.3 billion in July 2009. Of this amount, a total of R$ 3.5 billion was transferred to Sadia in 2009 via an Advance for Future Capital Increases (AFAC) and an intercompany loan, for anticipating payments, and thus reducing short term bank borrowings. A further R$1.2 billion was transferred during 2010.

On January 21 2010, BRF issued (10) ten-year bonds totaling US$750 million (bonds), maturing January 28 2020 and a coupon (interest) of 7.250% per annum (yield to maturity 7.375%), which shall fall due and be payable in semi-annual payments as from July 28 2010. This operation increased average debt maturity by one year.

Other Operating Results – In 4Q10, other operating results totaled R$222.6 million, 24.7% higher, and accumulating R$ 393.9 million for the year, 41.2% higher on a pro-forma basis and 30.1% up on a CL basis. This item largely reflects the costs of idle capacity – due to the pre-operational phase of the new industrial units in: Bom Conselho-PE, Lucas do Rio Verde-MT, Vitória de Santo Antão-PE, Mineiros-GO and Três de Maio-RS.

Income Tax and Social Contribution – Income tax and social contribution for the quarter was R$ 47.7 million against R$ 34.7 million in 4Q09, considering the appropriation of interest on shareholders’ equity declared for the final quarter of 2010. In the year, income tax and social contribution totaled R$196.5 million – 49.5% higher on a pro-forma basis, 120.2% higher in Corporate Law terms, due to the negative result recorded by Sadia in that period and the effects of the results from wholly owned overseas subsidiaries due to the currency translation impact.

Net Income and Net Margin – BRF posted a net income of R$ 360.2 million in the quarter on a net margin of 5.6%, a significant increase of 520 basis points a year on year improvement of 1,537.2%.  The improvement in net result reflects the better operating performance in the quarter. For the full year, net income reached R$ 804.1 million, a 125% increase on a pro-forma basis and 215.3% up on a CL basis based on the adjusted result of R$255 million reported for 2009 (including an additional R$ 132 million  reflecting the incorporation of Perdigão Agroindustrial in 1H09). 

EBITDA – EBITDA reached R$ 959.1 million during 4Q10, registering a gain of 167.2% compared with 4Q09 and reflecting the Company’s consistent and the gradual improvements already incorporated in management forecasts. EBITDA margin was 15% against 6.8% (a significant gain of 820 basis points), with an additional gain of R$ 341.7 million in the quarter compared to 3Q10.

Operating cash generation for 2010 as measured by EBITDA (operating income before expenses, taxes and depreciation) was R$ 2.6 billion, 123.1% better than the same period in 2009 on a pro-forma basis and 202.6% on a Corporate Law basis. Principal factors contributing to this increase were: the larger volume of processed products sold in the domestic market, a gradual recovery seen in some important export markets, the reduction in production costs and commercial expenses and the synergies from the merging of processes already authorized by CADE such as in export business and the domestic market for in natura meat and the acquisition of some raw materials and services.

Comments on the performance of the results for the fiscal year ending December 31 2009 compared with December 31 2008.    

Net Sales –

Net Sales – Net sales for the year were R$ 15.9 billion, 39.6% higher, reflecting the consolidation of Sadia’ results, while registering a decline of 5.4% on a pro-forma basis due to the conditions of markets to which the Company sells.

In pro-forma terms, the domestic market reported net sales of R$ 12.2 billion with growth of 3.7%, representing 58.1% of the total net sales. On the other hand, sales to the export market recorded a share of 41.9% of net sales, equivalent to R$ 8.8 billion, and 15.6% down for the year, reflecting the complexity of the situation in importing markets with the onset of the adverse scenario.

Domestic Market:

The domestic market reflected the pressure generated by the diversion of commodity-type products from the export to the domestic market due to the unsettled international scenario. The Brazilian market also experienced demand for lower priced items with continued robust sales of durable goods, in turn inhibiting more vigorous growth in the food sector.

(1) Fluid milk and powdered milk.

(2) Includes processed meats, other processed products (lasagna, pizzas, cheese bread) and dairy products.

Meats – Sales revenue and volume were respectively, 75,8% and 57.4% higher including revenue from Sadia and on a pro-forma basis, 8.1% higher in terms of revenues, a 2.3% growth in volumes and a 5.8% increase in average prices. Market performance was adversely affected by the following principal factors: redirection of in-natura volume from exports to the domestic market, with the resulting difficulty in passing prices on to processed products; the repositioning of brands such as Avipal and Batavo, with a focus on returns; and a reduction in frozen product volumes due to the accident at the Rio Verde unit. On the other hand, the fourth quarter benefited from the year-end holiday period campaign which helped lift results.

Dairy Products – Dairy product volume was off by 10.5% with sales revenue down by 6.9% but providing the opportunity to increase prices by 4.1% and more effective management of the in natura milk business with an improvement in results, especially  grocery store products.     

Other processed products – Other processed products posted sales revenue and volumes 129% and 140% respectively higher on the basis of the corporate law criterion and 8.7% and 7.0% higher respectively, in revenues and volumes, if the periods are compared on a pro-forma basis. The other processed products segment posted a good performance on the back of sales from the portfolio which includes: pastas, pizzas, margarines, snacks, frozen vegetables, cheese bread, among others. 

Export Market:

Exports reached R$6.5 billion, a 31.5% growth over the same period in 2008. Viewed from a pro-forma standpoint, export revenues were off year on year by 15.6%.  The principal factors impacting export performance were: an accentuated decline in prices and volumes reflecting the adverse scenario and weak demand in the selected markets; the sudden appreciation of the Real against the US Dollar between March and September; pressure from higher production chain costs and expenses due to instability in the markets together with high inventory and falling prices; and the disorganized increase in the offer of commodity-type products on the part of competitors. 

During the year, average prices in FOB - Free on Board US dollars fell by about 16%, while the average appreciation in the foreign exchange rate in the same period was approximately 9%, reflected in a significant reduction of sales revenue in Reais. These factors, together with a fall in volumes and an increase in costs/expenses ,  undermined performance in this market.

Meats – The Company reported meat volumes and sales revenue 48.1% and 33.3% higher, respectively. In pro-forma terms, there was a decline of 13.4% in sales revenue and 5.5% in volume during the year, with average prices in Reais 8.3% less due to the fall in dollar denominated prices with no offsetting adjustment in foreign exchange rates. Additionally, average costs and expenses increased reflecting in sharply narrower export margins.

Dairy Products – We recorded a significant reduction in shipped dairy product volumes of 75.0% and in sales revenue, 82.7%. Weaker international demand and high inventory build-up in other producing regions such as New Zealand combined with the currency translation effect, depressed average prices by 31%, forcing the Company to revise planned export volumes with a subsequent partial transfer of production to the domestic market. 

The Company reported the following performance in its leading markets during the year: Europe – The European economy still reflects the impacts from the financial scenario. Negative margins in this market during the year were a result of weak demand for meats, most notably processed products and turkey meat, and from high inventory sustained by local production.

Middle East – This market suffered from the more serious effects early in the year. While there was a subsequent recovery, this was accompanied by price and volume volatility due to excessive supplies of griller chicken. F ar East – The year also proved to be an extremely difficult one with various key markets such as China, Japan and Singapore being seriously affected. The Japanese economy remained lackluster. China increased local output in order to reduce excessive overdependence on the USA. Beef and pork prices reported a serious slump, this also having a knock on affect on chicken meat prices. Eurasia – This has been yet another market which has been hit hard by the adverse scenario, also producing negative margins, particularly in the case of sales to the Russian market, an economy which was severely affected by adverse conditions in the global economy. Besides that, the Brazilian quotas were reduced. Africa, Americas and Other Countries – Increased business in this market was supported principally by demand from South Africa, Angola and Venezuela.  

Costs of Sales – The increase in the cost of sales of 42.1% in the year, proportionally greater than sales revenue, contributed to the squeeze on margins compared with 2008.  The cost of sales totaled R$ 12.3 billion, corresponding to 77.1% of net operating revenue against 75.8% in the preceding year. On a pro-forma basis, the cost of sales fell 1.8%, although sales revenue posted a fall of 5.4%, thus also contributing to narrower margins when earnings are expressed in this format.

The increase in annual costs particularly reflects the fixed structure of the production chain without the expected compensating growth in volumes and prices. In addition, the rise in costs of sales reflected the following principal factors: a 20% cut in production for export in the first quarter; idle capacity along the production chain due to new industrial plants at a pre-operational phase; the redirection of production from the Rio Verde (GO) plant to other industrial units due to the accident which partially affected operations at this industrial complex.

Gross Profit and Gross Margin – In the light of the negative results for the Company’s business in export markets and the affect of this on domestic market business, gross profit amounted to R$ 3.6 billion, 31.8% higher, if Sadia’s results are factored in. Gross margin was 22.9% against 24.2% in 2008, a decline of 15.8%, on a margin of 22.6% against 25.4% on a pro-forma comparison basis and equivalent to R$ 4.7 billion of gross profit.

Operating Expenses – The impact of lower market performance was also reflected in higher operating expenses, relative to the fixed structure of the production chain and the increases reported in distribution, freight, warehousing and investments in marketing campaigns. As a result, operating expenses rose 60.2% during the year, a 3.6% increase in pro-forma terms, more especially due to growth in commercial expenses which contributed to the reduction in operating margins for the year. Administrative expenses represent the structures of the two companies which are to be maintained independent of one another.

Operating Income and Margin – Operating income before financial expenses was R$ 350.1 million, equivalent to a 2.2% operating margin as opposed to 6.2% in the preceding year. This same item was 71.4% lower using pro-forma figures as a comparative base, reaching R$ 416.3 million, and representing a 2.0% operating margin against 6.6% recorded in the preceding year.  These results correspond to the weak performance resulting from the effects of the economic situation and foreign exchange volatility on exports, as well as reduced volumes registered in some markets and an increase in production costs and commercial expenses as already commented above.

Financial Results – During the year, we posted a net financial income of R$ 241.2 million, due to the appreciation of the Real against the US Dollar and financial investments resulting from funds raised through the primary share offering. In pro-forma terms, financial income for the year was R$ 587.7 million against a financial expense of R$ 4.5 billion due to the cost of Sadia’s derivative instruments and a currency situation which was the opposite of the one prevailing in 2009.

Net debt increased 14.4% compared with December 31 2008, while on a comparative pro-forma basis, outstanding debt was offset against the drawdown of funds resulting from the primary share offering which raised a total R$ 5.3 billion. Of this amount, R$ 2.2 billion was injected into Sadia in order to liquidate expensive short-term debt. The net debt/EBITDA ratio was 3.2 times due to lower cash generation in the year, in spite of an adequate level of net debt. Consolidated currency exposure was US$ 1.1 billion, and within the parameters established by Company policy.

On January 21 2010, a subsidiary of the Company, BFF International Ltd., issued ten-year bonds for a total value of US$750 million maturing on January 28 2020 with a coupon of 7.250% per year (yield to maturity 7.375%) which becomes due and payable semiannually  as from July 28 2010. The funds raised from the offering will be allocated to the lengthening of the debt maturity profile and for corporate requirements in general.

Other Operating Results – relates to the cost of idle capacity – in particular the result of new plants still at a pre-operational phase.

Income Tax and Social Contribution – with the incorporation of Perdigão Agroindustrial S.A., a total of R$ 132 million of existing tax losses carried forward and the negative base for calculation of the social contribution of this company were recognized by BRF during the year. As a result, the income tax and social contribution item reported a negative R$ 65.2 million against a positive R$ 255.3 million for 2008 – arising from goodwill on incorporations. Positive financial results also contributed to the increased appropriation of this tax. From a pro-forma point of view, income tax was a negative R$ 367.3 million against a positive R$ 972.9 million, taking into account the incorporation of a subsidiary in 2009 and goodwill from the incorporation of acquisitions ,  and the negative financial result generated by Sadia in 2008.

Net Income and Net Margin – Consolidated adjusted net income totaled R$ 252.5 million and the net income excluding the adjustment for the incorporation of the Agroindustrial subsidiary totaled R$ 120.4 million against R$ 54.4 million reported in 2008. These contrasting results reflect the impact of the adverse international market and the benefits of the financial gain due to the appreciation of the Real against the US dollar on our outstanding currency position.

Viewed from the pro-forma standpoint, the Company posted a net income of R$ 227.6 million against a loss of R$ 2.4 billion in the preceding year – reflecting the financial loss on derivative instruments recorded in Sadia’s balance sheet. If the fiscal loss on the incorporation of Perdigão Agroindustrial is excluded, then the accumulated net income for 2009 would be R$ 360 million. 

Year Ended December 31, 2008 Compared with Year Ended December 31, 2007

The variations mentioned in this report are comparisons between year 2010 (January- December) in relation to 2009. Sadia’s results have been consolidated as from July 2009. For a better understanding of the businesses, the variations are compared in numbers according to the Brazilian Corporate Law – (CL) IFRS and on a pro-forma basis, as specified, for comparative accumulative results and also incorporate IFRS criteria. The results for 2H10 compared with 2H09 already fully reflect the consolidation of results for BRF  and Sadia in the light of the consolidation process concluded in July 2009.

Net Sales

Our net sales increased 71.8% to R$11,393.0 million in 2008 from R$6,633.4 million in 2007. Our net sales increased in both the domestic and the export markets, primarily as a result of (1) a 45.8% increase in sales volumes of meat products (poultry, pork and beef), including through organic growth and the consolidation of Eleva following its acquisition in 2008, (2) a 739.1% increase in net sales of milk due to the acquisition of Eleva, (3) a 25.9% increase in volumes of processed products mainly due to increases in net sales of specialty and frozen meat products, which increased 14.3%, and of dairy processed products, which increased 66.6%, due in large part to the Eleva acquisition. These results, however, should be considered in the light of diminishing export volumes due to the flooding and damage to port infrastructure in the State of Santa Catarina and an abrupt slide in average selling prices in the international market, in each case in the fourth quarter of 2008.

Domestic net sales increased 84.5% to R$6.4 billion in 2008 from R$3.5 billion in 2007, reflecting increases in prices and shifts in mix toward higher value-added products. Exports net sales increased 57.7% to R$5.0 billion in 2008 from R$3.1 billion in 2007, as a result of a 34.8% increase in sales volumes, mainly in processed food products.

Our strategy of increasing our focus on products with higher profit margins contributed to the increase in net sales. Net sales from processed food products, however, decreased as a percentage of net sales, to 44.3% from 54.5%, mainly due to the greater exposure to poultry, pork and milk commodity products, particularly due to the consolidation of Eleva and Cotochés after the acquisitions of those companies.

Domestic Market

Net sales from our domestic market increased 84.5% to R$6,423.8 million in 2008 from R$3,482.4 million in 2007 as a result of favorable performance our meat businesses, dairy products and other processed food products.

Poultry - Domestic net sales from poultry products increased 132.6% to R$414.9 million in 2008 from R$178.4 in 2007, mainly due to a 164.6% increase in sales volumes, which were partially offset by a 12.1% decrease in average selling prices.

Pork and beef - Domestic net sales of pork and beef cuts increased 195.1% to R$155.2 million in 2008 from R$52.6 million in 2007, mainly due to an 187.4% increase in sales volumes and a 2.7% increase in average selling prices.

Milk - Milk includes long life (UHT), pasteurized and powdered milk. Domestic net sales of milk increased 682.3% to R$1.5 billion in 2008 from R$188.6 million in 2007, mainly as a result of a 590.1% increase in sales volume due to the acquisition of the Eleva and Cotochés businesses in 2008. The absorption of such a large increase in milk production capacity occurred in a particularly difficult economic environment, especially in the UHT milk business, where we made a significant third quarter adjustment in view of growth in supplies of this product in the market set against stagnating demand that contributed to a sharp decline in retail prices. Oversupply and low prices also characterized the powdered milk market due to burgeoning world production. We undertook a review of fluid milk volumes and an adjustment in production costs to reestablish adequate margins for this business, which positively affected our results for the final quarter of the year.

Processed foods - Domestic net sales from processed foods increased 40.3% to R$4.0 billion in 2008 from R$2.8 billion in 2007, mainly due to a 25.9% increase in sales volumes as a result of 11.3% growth in sales volumes of meat processed products and a 64.5% increase in sales volumes of dairy processed products because of the acquisitions carried out in 2008. In addition, average selling prices of processed food products increased 11.4% in 2008 compared to 2007.

Other - Other includes pastas, pizzas, margarines, frozen vegetables, cheese bread and the soybean-based vegetarian line, among others. Domestic net sales from other products increased 78.1% to R$380.5 million in 2008 from R$213.6 million in 2007 as a result of a 18.5% increase in sales volumes due to (1) the inclusion of margarines in our results of operations starting in August 2007 and (2) a 50.3% increase in average selling prices.

The following table provides a breakdown of changes in net sales, sales volumes and average selling prices in the domestic market.

____________

(1)  Fluid and powder milk.

(2)  Includes processed meat, other processed products (lasagnas, pizzas, cheese bread) and dairy processed products.

Export Markets

Net sales from export markets increased 57.7% to R$4,969.2 million in 2008 from R$3,151.0 million in 2007, mainly due to a 34.8% increase in sales volumes and a 17.0% increase in average selling prices.

Poultry - Export net sales from poultry products increased 61.5% to R$ 3,000.1 million in 2008 from R$1,858.2 million in 2007, mainly due to a 38.2% increase in sales volumes and a 16.9% growth in average selling prices as a result of an increase in demand in our primary export markets in the first three quarters of the year, following global economic growth of prior years that resulted in Brazilian exports of meat (poultry, pork and beef) in 2008 reaching the highest level in years, before the decrease in average selling prices that occurred in the fourth quarter as a result of the continuing global economic recession.

Pork and beef - Export net sales of pork and beef products increased 54.7% to R$817.3 million from R$528.4 million in 2007, mainly due to a 18.1% increase in sales volumes and a 31.0% increase in average selling prices, reflecting solid demand in our primary export markets in the first three quarters of the year, following global economic growth of prior years that resulted in Brazilian exports of meat (poultry, pork and beef) in 2008 reaching the highest level in years, before the decrease in average selling prices that occurred in the fourth quarter as a result of the continuing global economic recession.

Processed food products - Export net sales of processed food products increased 36.7% to R$1,045.0 million in 2008 from R$764.4 million in 2007, mainly due to a 27.4% increase in sales volumes and 7.3% increase in average selling prices. Export net sales from dairy products increased to R$127.8 million, mainly due to increases in sales volumes that resulted from the acquisition of Eleva and Cotochés.

We increased average selling prices during 2008 in order to partially offset narrower margins caused by significant increases in raw material costs. Our average FOB ( Free on Board ) U.S. dollar selling prices increased an average of 24.7% compared with 2007.

However, poor economic conditions and other adverse events in the fourth quarter were responsible for undermining our efforts to improve our profit margin, mainly due to (1) an accentuated fall in international average selling prices during the last quarter of 2008 of 15.2% in U.S. dollar-FOB terms compared with the third quarter, a reflection of destocking by importers due to the difficulty in raising working capital; and (2) flooding and damage to port infrastructure in the State of Santa Catarina, with an immediate need to transfer export activities from the ports of Navegantes and Itajaí to those of São Francisco, Paranaguá and Rio Grande, and resulting in reduced shipments in November, the backlog of which had still not been completely cleared by the end of 2008.

In real terms, average selling prices of meats increased approximately 15.7% in 2008 as a whole compared to 2007, taking into account a foreign exchange variation of 32% in the period.

____________

(1)  Fluid and powder milk.

(2)  Includes processed meat, other processed products (such as lasagnas, pizzas and cheese bread) and dairy processed products.

We reported the following performance in our main overseas markets:

Europe - Net sales increased 18.1% from 2007 to 2008 and sales volumes increased 5.2% in the same period, mainly due to the acquisition of Plusfood in January 2008 and the consolidation of its results of operations in our financial statements as of the first quarter of 2008. However, demand for imported frozen products in the European market declined, as supplies of chilled products increased as a result of increases in local production.

Middle East - Net sales increased 79.0% from 2007 to 2008 and sales volumes increased 50.1% during the same period, mainly due to increases in sales volumes to various countries in the region. We believe we were also able to achieve greater market share in this market due to increased production capacity following the acquisition of Eleva and further tailoring of production to customer requirements.

Far East - Net sales increased 45.4% from 2007 to 2008 and sales volumes increased 16.8% in the same period, mainly due to increased demand from the Japanese market, which was partially offset by reduced imports of cooked items by China. China reopened for chicken imports from Brazil in the third quarter of 2008, but Chinese authorities did not begin issuing the necessary import licenses to Chinese importers in 2008.

Eurasia - Net sales increased 46.8% from 2007 to 2008 and sales volumes increased 4.9% during the same period, mainly due to increased pork and beef exports, especially to the Russian market, which showed increased demand for meats through September 2008 and higher average selling prices ahead of the winter and the holiday season.

Africa, the Americas and Other Countries - Net sales increased 227.6% from 2007 to 2008 and sales volumes increased 145.6% during the same period, mainly due to increased sales of whole chicken and other meat products, mainly beef, together with an improvement in product mix. Sales to Angola, Egypt, Mozambique, Uruguay and Venezuela posted the greatest increases.

Cost of Sales

Cost of sales increased 81.4% to R$8,634.2 million in 2008 from R$4,760.1 million in 2007. As a percentage of net sales, cost of sales increased to 75.8% of net sales in 2008 as opposed to 71.8% in 2007, mainly due to significant increases in the price of our principal raw materials (corn, soybean meal, milk and beef), which more than offset the increases in net sales explained above. In addition, other production costs involving secondary materials, packaging, freight and labor - principally a reflection of collective bargaining agreements - contributed to the increase in cost of sales as a percentage of net sales.

Corn and soy bean prices significantly increased in the first half of 2008, translating into higher production costs through the end of the third quarter of 2008. In addition, we faced a sharp currency devaluation in the fourth quarter of 2008. On the other hand, the effects of commodity price increases on our cost of sales has gradually become somewhat less significant as a share of our total costs as we have grown the processed foods part of our business.

The price of milk, another important raw material included in overall dairy product costs, fell 1.8% during 2008 compared with 2007, and 7.3% between the third and fourth quarters of 2008, partially adjusting prices of acquisition from the farms, which had been above normal levels due to greater demand from producers, especially those in the long-life milk (UHT) business. However, the average price of milk paid to producers increased significantly through September, compressing margins of fluid milk products.

Gross Profit and Gross Margin

Our gross profit increased 47.3% to R$2,758.9 million in 2008 from R$1,873.3 million in 2007. Our gross margin was 24.2% in 2008, compared to 28.2% in 2007, due to increases in cost of sales as a percentage of net sales explained above.

Operating Expenses

Operating expenses increased 49.7% to R$2,050.4 million in 2008 from R$1,369.4 million in 2007. As a percentage of net sales, operating expenses were 18.0% in 2008, compared to 20.6% in 2007. This relative decrease of operating expenses as a percentage of net sales occurred primarily due to a relative reduction of commercial expenses, even though operating expenses increased in absolute terms as a result of costs of freight, warehousing and port charges. The effect of these expenses intensified in the last quarter due to the flooding at the ports of Itajaí and Navegantes in the State of Santa Catarina and the damage to port infrastructure. This required us to divert all our exports in the region to three other ports: Rio Grande, Rio Grande do Sul, Paranaguá, Paraná and São Francisco, Santa Catarina, incurring additional costs.

Operating Income Before Financial Expenses and Other

Our operating income before financial expenses and other increased 40.6% to 708.5 million in 2008 from R$503.9 million in 2007. Amortization of goodwill relating to acquisitions represented R$153.0 million, or 58.4%, of the total amount of R$261.9 million recorded under other operating expenses.

Financial Expenses, Net

Our net financial expenses, net increased 498.0% to R$630.3 million in 2008 from R$105.4 million in 2007, primarily as a result of an approximately 32% devaluation of the real against the U.S. dollar (comparing closing rates for 2007 and 2008). As a result of such devaluation of the real against the U.S. dollar, we recognized a non-cash translation effect on our financial expenses of R$416.0 million for 2008. These financial expenses arising from the exchange rate effect are gradually offset as export shipments proceed.

Income Tax and Social Contribution

Income tax and social contribution was a benefit of R$255.3 million in 2008, compared to a provision of R$32.1 million in 2007, primarily due to an amount amortized in fiscal year 2008 attributable to goodwill from acquisitions, the currency translation effect of devaluation on our financial expenses and deductions of interest on shareholders’ equity.

Net Income

Net income decreased 83.1% to R$54.4 million in 2008 from R$321.3 million in 2007 for the reasons set forth above.

Item 10.3. Events with significant effects occurred and expected in the financial statements

As a result of business combination with Sadia held on July 07, 2009 and the adoption of international accounting standards (“IFRS”), the Company remeasure the effects of the business combination in its consolidated and individual financial statements, including assigning of a new amount to goodwill in the transaction, as follows:

The net assets measured at fair value are presented below: