Sadia S.A. - Provided by FIRB - Financial Investor Relations Brasil
FORM 6-K
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

For the month of November 2006

Commission File Number 1-15184

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

N/A
--------------------------------------
(Translation of Registrant's Name)

Rua Fortunato Ferraz, 365
Vila Anastacio, Sao Paulo, SP
05093-901 Brazil
(Address of principal executive offices) (Zip code)

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

Form 20-F   [X]                    Form 40-F    [   ]

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

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

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

Yes   [    ]                           No   [X]

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




SIGNATURES

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

Date: Nov 08, 2006

SADIA S.A.


By:/s/Welson Teixeira Junior
----------------------------------
Name: Welson Teixeira Junior
Title: Investor Relations Officer



 

 

 

 

 

Sadia S.A.

Interim financial information
Nine-month period ended
September 30, 2006 (Unaudited)

(A translation of the original interim financial information in Portuguese, prepared in accordance with accounting principles derived from the Brazilian Corporation Law and rules of the Brazilian Securities and Exchange Commission (CVM))

 

 

 

 

 

1


 

Sadia S.A.

 

Interim financial information (Unaudited)

Nine month period ended September 30, 2006

 

 

 

 

Contents

 

Independent accountants’ review report

 

3

 

Balance sheets

 

4 - 5

 

Income statements

 

6

 

Notes to the interim financial information

 

7 - 46

 

2


 

Independent accountants’ review report

To
The Board of Directors and Shareholders
Sadia S.A.
Concórdia - SC

 

1.   We have reviewed the interim financial information of Sadia S.A. and the consolidated interim financial information of Sadia S.A and its subsidiaries, for the nine-month period ended September 30, 2006, which comprises the balance sheets, the income statements, management report and other relevant information, prepared in accordance with the accounting practices adopted in Brazil.

2.   Our review was prepared in accordance with the review standards established by IBRACON - Brazilian Institute of Independent Auditors and the Federal Council of Accounting, and included, basically: (a) inquiry and discussion with management responsible for the accounting, financial and operating areas of the Company and its subsidiaries, regarding the main criteria adopted in the preparation of the interim financial information; and (b) review of the information and subsequent events, which have, or may have, a material effect on the financial situation and the operations of the Company and its subsidiaries.

3.   Based on our special review, we are not aware of any material change which should be made to the interim financial information above for it to be in accordance with accounting practices adopted in Brazil and regulations issued by the Brazilian Securities and Exchange Commission (CVM), specifically applicable to the preparation of interim financial information.

4.   Our review was performed with the objective of issuing a review report on the interim financial information referred to in the first paragraph. The statements of cash flows and added value for the period ended September 30, 2006, are being presented in the notes to the interim financial information and have been included to facilitate additional analysis. This supplementary information was subject to the same review procedures as applied to the interim financial information and, we are not aware of any material change which should be made to those statements for them to be in accordance with the accounting practices adopted in Brazil and rules issued by the Brazilian Securities and Exchange Commission (CVM).

 

October 30, 2006

KPMG Auditores Independentes
CRC 2SP014428/O-6-S-SC

 

Adelino Dias Pinho
Accountant CRC 1SP097869/O-6-S-SC

3


Sadia S.A.

 

Balance sheets (Unaudited)

September 30, 2006 and June 30, 2006

(In thousands of Reais)

 

  Parent company
Consolidated
 
Assets
September
30, 2006
June
30, 2006
September
30, 2006
June
30, 2006
Current assets
Cash and cash equivalents
117,183
228,750
128,824
281,964
Short-term investments
367,300
417,818
2,206,146
2,289,632
Accounts receivable from future contracts
3,712
1,963
25,202
48,421
Trade accounts receivable
403,706
366,848
472,575
353,442
Inventories
1,101,521
1,113,964
1,174,028
1,217,352
Recoverable taxes
147,987
110,097
155,550
116,247
Deferred tax credits
63,609
62,515
65,797
64,903
Other credits
64,670
85,310
83,870
105,054
 
 
2,269,688
2,387,265
4,311,992
4,477,015
 
Noncurrent assets
Long-term investments
125,306
69,805
125,306
69,805
Recoverable taxes
122,842
131,634
123,845
132,625
Deferred tax credits
86,043
94,428
86,043
94,428
Judicial deposits
75,713
79,015
75,819
79,121
Related parties
93,192
91,495
-
-
Other credits
95,255
82,343
97,124
84,178
 
598,351
548,720
508,137
460,157
Permanent assets
Investments
1,229,008
1,168,843
60,403
66,367
Property, plant and equipment
2,110,236
1,905,195
2,133,749
1,909,877
Deferred charges
116,486
109,464
124,604
114,579
 
3,455,730
3,183,502
2,318,756
2,090,823
 
Total assets
6,323,769
6,119,487
7,138,885
7,027,995

See the independent accountants’ review report and the accompanying notes to the interim financial information.

4


Sadia S.A.

 

Balance sheets (Unaudited)

September 30, 2006 and June 30, 2006

(In thousands of Reais)

  Parent company
Consolidated
Liabilities and shareholders' equity
September
30, 2006
June
30, 2006
September
30, 2006
June
30, 2006
Current liabilities
Loans and financing
352,146
495,862
989,863
1,157,827
Accounts payable from future contracts
11
2,902
1,991
30,672
Trade accounts payable
496,535
456,674
502,343
461,849
Advances from subsidiaries
526,292
637,331
-
-
Salaries, social charges and accrued vacation payable
143,840
122,741
146,004
125,010
Taxes payable
23,725
21,457
30,097
26,557
Deferred taxes
11,455
11,455
11,455
11,455
Dividends payable
1,006
43,420
1,006
43,420
Employees' profit sharing
8,503
1,414
9,216
2,031
Other accounts payable
111,378
108,890
151,225
154,556
 
 
1,674,891
1,902,146
1,843,200
2,013,377
 
Noncurrent liabilities
Loans and financing
1,018,783
927,501
2,729,878
2,522,590
Related parties
1,062,858
796,138
-
-
Employee benefit plan
89,404
86,873
89,404
86,873
Provision for contingencies
76,969
74,411
78,519
75,931
Deferred taxes
49,099
49,122
49,099
49,122
Other accounts payable
20,235
20,492
20,209
20,465
 
2,317,348
1,954,537
2,967,109
2,754,981
Minority interest in subsidiaries
1,279
1,452
Shareholders' equity
Capital
1,500,000
1,500,000
1,500,000
1,500,000
Profit reserves
738,417
738,417
738,417
738,417
Treasury stock
(10,377)
(10,377)
(10,377)
(10,377)
Retained earnings
103,490
34,764
99,257
30,145
 
2,331,530
2,262,804
2,327,297
2,258,185
Total liabilities and shareholders' equity
6,323,769
6,119,487
7,138,885
7,027,995

See the independent accountants’ review report and the accompanying notes to the interim financial information.

5


Sadia S.A.

Income statements (Unaudited)

September 30, 2006 and June 30, 2006

(In thousands of Reais, except for information on shares)

  Parent company Parent company Consolidated Consolidated
  Three months ended
Nine months ended
Three months ended
Nine months ended
 
September
30, 2006
September
30, 2005
September
30, 2006
September
30, 2005
September
30, 2006
September
30, 2005
September
30, 2006
September
30, 2005
Gross operating revenue:
1,946,204
2,084,167
5,363,378
5,792,185
2,054,431
2,142,377
5,584,944
6,089,366
Domestic market
1,101,243
1,042,646
3,152,545
2,985,688
1,101,243
1,042,647
3,152,545
3,018,121
Foreign market
844,961
1,041,521
2,210,833
2,806,497
953,188
1,099,730
2,432,399
3,071,245
Sales deductions:
(223,385)
(204,946)
(648,472)
(620,411)
(259,744)
(232,738)
(747,436)
(735,927)
Value-added tax on sales and sales deductions
(223,385)
(204,946)
(648,472)
(620,411)
(259,744)
(232,738)
(747,436)
(735,927)
Net operating revenue
1,722,819
1,879,221
4,714,906
5,171,774
1,794,687
1,909,639
4,837,508
5,353,439
Cost of goods sold
(1,320,727)
(1,415,161)
(3,721,540)
(3,954,368)
(1,342,433)
(1,383,356)
(3,733,945)
(3,928,657)
Gross profit
402,092
464,060
993,366
1,217,406
452,254
526,283
1,103,563
1,424,782
Operating income (expenses):
(319,873)
(220,307)
(845,273)
(699,888)
(368,945)
(293,381)
(951,983)
(909,360)
Selling expenses
(304,015)
(275,796)
(837,497)
(816,067)
(334,180)
(298,767)
(914,790)
(900,318)
Administrative and general expenses
(12,206)
(13,352)
(40,939)
(39,350)
(12,206)
(13,352)
(40,939)
(39,350)
Management fees
(3,243)
(3,230)
(9,598)
(9,523)
(3,243)
(3,230)
(9,598)
(9,523)
Other operating expenses
(15,567)
(12,175)
(27,716)
(25,390)
(15,633)
(9,217)
(27,379)
(23,077)
Financial income (expenses), net
(50,971)
18,363
(67,033)
45,837
(461)
84,179
46,975
251,362
Equity in income (loss) of subsidiaries
66,129
65,883
137,510
144,605
(3,222)
(52,994)
(6,252)
(188,454)
Operating income (loss)
82,219
243,753
148,093
517,518
83,309
232,902
151,580
515,422
Nonoperating expenses
(1,454)
(826)
(4,734)
3,321
(1,500)
1,152
(5,380)
5,281
Income (loss) before income and social contribution taxes
80,765
242,927
143,359
520,839
81,809
234,054
146,200
520,703
Current income and social contribution taxes
(4,771)
(56,602)
(8,005)
(80,459)
(5,444)
(57,462)
(11,419)
(81,582)
Deferred income and social contribution taxes
(7,268)
367
18,136
(16,700)
(7,468)
1,192
18,053
(17,254)
Net income before minority interest
68,726
186,692
153,490
423,680
68,897
177,784
152,834
421,867
Minority interest
-
-
-
-
215
57
814
1,100
Net income
68,726
186,692
153,490
423,680
69,112
177,841
153,648
422,967
Outstanding shares net of treasury stock (thousands)
680.496
680.496
680.496
680.496
680.496
680.496
680.496
680.496
Earnings per share - In Reais
0,10099
0,27435
0,22556
0,62260
0,10156
0,26134
0,22579
0,62156

See the independent accountants’ review report and the accompanying notes to the interim financial information.

6


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

Nine-month period ended June 30, 2006

(In thousands of Reais)

 

1 Operations

The Company’s main business activities are organized into four operational segments: poultry (chickens and turkeys), pork, processed products and beef. The beef segment was included as from the beginning of this fiscal year as the Company decided to resume to this activity for export. The Company’s large production chain permit its products to be commercialized in Brazil and abroad by retailers, small groceries and food service chains.

The Company distributes its products through several sales points in the local market and to countries located in Europe, Middle East, Eurasia, Asia and Americas. The Company has 13 industrial units and 16 distribution centers located within 14 Brazilian states.

The industrially processed products segment has been the principal focus of the Company’s investments in recent years and comprises products such as oven-ready frozen food, refrigerated pizzas and pasta, margarine, industrially processed poultry and pork by-products, crumbed products, a diet line, pre-sliced ready-packed products, and desserts (Miss Daisy).

The Company has a corporate governance tier one listing for its shares on the São Paulo Stock Exchange, the Madrid Stock Exchange (Latibex) and ADRs negotiated on the New York Stock Exchange (NYSE).

2 Preparation and presentation of the interim financial information

The individual and consolidated interim financial information were prepared in accordance with accounting practices derived from the Brazilian Corporation Law and the rules of the Brazilian Securities and Exchange Commission - CVM.

7


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

3 Summary of the principal accounting practices

a. Income statement

Income and expenses are recognized on the accrual basis. Revenue from the Company’s sales is recognized upon shipment of the products and when the following conditions are met: i) the ownership is transferred and therefore risk of loss has passed to the client; ii) collection is probable; iii) there is evidence of an arrangement; and iv) the sales price is fixed or determinable.

b. Foreign currency

Monetary assets and liabilities denominated in foreign currencies were translated into reais at the foreign exchange rate ruling at the balance sheet date. Foreign exchange differences arising on translation are recognized in the income statement for the period.

c. Accounting estimates

The preparation of the financial information in accordance with accounting practices adopted in Brazil requires that management uses its judgment in determining and recording accounting estimates. Significant assets and liabilities subject to these estimates and assumptions include the residual value of property, plant and equipment, deferred charges, allowance for doubtful accounts, inventories, deferred tax assets, provision for contingencies, valuation of derivative instruments, and assets and liabilities related to employees’ benefits. The settlement of transactions involving these estimates may result in significantly different amounts due to the lack of precision inherent to the process of their determination. The Company reviews the estimates and assumptions periodically.

d. Long and short-term investments

Investment funds in local and foreign currency are recorded at market value according to the respective shares price at the date of the interim financial information.

Other long and short-term investments in local and foreign currency are recorded at cost income accrued up to the balance sheet date, not exceeding market value.

8


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

Additionally, the portion receivable from currency swap contracts is recorded at the difference between the nominal amounts of these contracts and the amounts restated by the variation of the foreign currency, plus interest earned up to the date of the interim financial information.

e. Trade accounts receivable

Trade accounts receivable are recorded at the amount invoiced and interest is not levied. The allowance for doubtful accounts is the best estimate the Company has and is considered sufficient by management to cover any losses arising on collection of accounts receivable. Accounts receivable are written off against the allowance for doubtful accounts after all means of collection have been exhausted and the possibility of recovery of the amounts receivable is considered remote.

f. Inventories

Finished goods, livestock (excluding breeders), work-in-progress, raw materials and supplies and others are valued at the lower of cost of acquisition or production (average method), or replacement or realization. The cost of finished goods and work-in-progress includes raw materials acquired, labor, production expenses, transport and storage relating to the purchase and production of inventories. Normal production losses are inventoried and abnormal losses are expensed immediately as cost of goods sold.

g. Investments

Investments in subsidiaries in Brazil and abroad are valued using the equity method of accounting, based on the respective shareholders’ equity valued at the interim financial information date and in accordance with accounting practices adopted by the Company (see Note 9).

The financial information of foreign subsidiaries is translated into Brazilian Reais, based on the following criteria:

· Balance sheet accounts at the exchange rate at the end of the period.
· Statement of income accounts at the exchange rate at the end of each month.

Other investments are valued at cost less a provision for devaluation, when applicable.

9


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

h. Property, plant and equipment

Property, plant and equipment are recorded at cost of acquisition, formation or construction, including the interest incurred on financing, during the period of construction, modernization and expansion of the industrial units. Expenditures that materially extent the useful lives of existing facilities and equipment are capitalized. Depreciation is calculated using the straight-line method at rates that take into account the estimated useful life of the assets, adjusted in keeping with the work shifts, as disclosed in Note 10. Depletion of forestry resources is calculated based on the extraction of timber and the average costs of the forests.

Breeding stock is recorded at the cost of formation which includes the appropriation of costs of the breeding hens, animal feed, medication and labor. These costs are accumulated for approximately six months until the breeding stock initiates the breeding cycle. From then on, the costs of the breeding stock begin to be amortized by the estimated number of offsprings. The productive cycle ranges from fifteen to thirty months.

i. Impairment of long-lived assets

The Company reviews its property, plant and equipment to verify possible losses considered permanent, whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable based on future cash flows. If these events occur, the reviews will be conducted at the lowest level of groups of assets for which the Company manages to attribute future cash flows. If the carrying amount of an asset is higher than the future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Until now, these reviews have not indicated the need to recognize impairment losses.

j. Deferred charges

Deferred charges are related to pre-operating costs incurred in the implementation of software, and development of new products and markets, and are amortized on a straight-line basis over 5 years as from the beginning of operation.

10


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

k. Current and noncurrent liabilities

Current and noncurrent liabilities are stated at known or estimated amounts, plus related charges and monetary and exchange variations up to the interim financial information date.

l. Provisions

A provision is recognized in the balance sheet when the Company has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation.

m. Income and social contribution taxes

The income and social contribution taxes, both current and deferred, are calculated monthly based on taxable income at the rates of 15% plus a surcharge of 10% for income tax and 9% for social contribution and consider the offsetting of tax losses and negative basis of social contribution, limited to 30% of taxable income.

The deferred tax assets were recorded in accordance with CVM Instruction 371/02 and are represented significantly by temporary differences arising from non-deductible provisions, including also tax loss carryforward and negative basis of social contribution.

n. Employees’ benefits

Employees’ benefits are recorded based on actuarial studies prepared annually at the end of the year in compliance with CVM Deliberation 371/00.

o. Environmental questions

Our production facilities and our forestry activities are subject to government environmental regulations. The risks associated with environmental questions are reduced through operational controls and procedures, as well as investments in equipment and systems for pollution control. We believe that no provision for losses related to environmental questions is currently necessary, based on existing Brazilian laws and regulations.

11


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

p. Supplementary information

The statements of cash flows and added value are supplementary to the aforementioned interim financial information and have been included to facilitate additional analysis.

The statements of cash flows have been prepared in accordance with NPC 20 - Statement of Cash Flows, issued by IBRACON (Brazilian Institute of Independent Auditors).

The statements of added value have been prepared in accordance with the model of Fundação Instituto de Pesquisas Contábeis, Atuariais e Financeiras (Institute of Accounting, Actuarial and Financial Research) of the University of São Paulo, which have the objective of demonstrating the value of the wealth generated by the Company and its distribution among the elements that contributed to its generation.

q. Consolidated financial information

The transactions and balances between the Parent Company and its subsidiaries included in the consolidation process have been eliminated and the non-realized profit arising from the sales to the subsidiaries were excluded from the inventory balances at the end of each period. Minority interests were excluded from shareholders’ equity and net income and are presented separately in the consolidated balance sheets and income statements.

In the case of joint ventures, the assets, liabilities and shareholders’ equity and the result for the period were consolidated in proportion to the percentage of ownership.

In accordance with the CVM Instruction 408/04, the Company consolidated the interim financial information of its investment funds Concórdia Foreign Investment Fund Class A and Taurus Fund Limited, where it is the wholly owned investment holder. These investment funds have the sole purpose of centralizing the foreign investment fund portfolio, delegating to third party the administrative functions and maximizing shareholder returns. As of September 30, 2006 and June 30, 2006, these investment funds were consolidated in the Company’s financial information as they had loans collateralized by its own financial assets.

12


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The consolidated financial information includes the accounts of Sadia S.A. and its direct and indirect subsidiaries, including investments in joint ventures. The consolidated direct or indirect subsidiaries and the corresponding shareholdings of the Company are as follows:

  Shareholdings in % at
 
September
30, 2006
June 30,
2006
Sadia International Ltd.
100.00%
100.00%
    Sadia Uruguay S.A.
100.00%
100.00%
     Sadia Alimentos S.A.
1.00%
1.00%
     Sadia Chile S.A.
60.00%
60.00%
     Sadia Alimentos S.A.
99.00%
99.00%
     Churrascaria Beijing Brazil Ltd. (*)
50.00%
50.00%
     Concórdia Foods Ltd. (***)
100.00%
100.00%
     Sadia U. K. Ltd.
100.00%
100.00%
Concórdia S.A. C.V.M.C.C.
99.99%
99.99%
Empresa Matogrossense de Alimentos Ltda.
100.00%
100.00%
Intergen Ltda. (**)
100.00%
100.00%
Rezende Óleo Ltda.
100.00%
100.00%
     Rezende Marketing e Comunicações Ltda.
0.09%
0.09%
Rezende Marketing e Comunicações Ltda.
99.91%
99.91%
Sadia G.m.b.H.
100.00%
100.00%
     Wellax Food Logistics C. P. A. S. U. Lda.
100.00%
100.00%
     Sadia Foods G.m.b.H.
100.00%
100.00%
     Qualy B.V.
100.00%
100.00%
     Sadia Panamá S.A.
100.00%
100.00%
     Sadia Japan Ltd.
100.00%
100.00%

(*) Joint-ventures.
(**) Control acquired on January 11, 2006 (see note 9).
(***) Control acquired on May 26, 2006 (see note 9)

13


Sadia S.A.

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

Reconciliation of shareholders’ equity and net income of the Company to the consolidated shareholders’ equity and net income is as follows:

  Net income
  Shareholders' equity
 
September
30, 2006
June
30, 2006
September
30, 2006
June
30, 2006
Financial information - Company
153,490
423,680
2,331,530
2,262,804
Elimination of unrealized profits on inventories in intercompany operations, net of taxes
(4,233)
(15,040)
(8,624)
(9,010)
Reversal of the elimination of unrealized profits in inventories, net of taxes, resulting from intercompany operations
4,391
14,327
4,391
4,391
Financial information - consolidated
153,648
422,967
2,327,297
2,258,185

4 Long and short-term investments

 
Parent company
  Consolidated
 
Interest %
(annual average)
September
30, 2006
June
30, 2006
September
30, 2006
June
30, 2006
Short-term investments
   Local currency
      Investment funds
14.10
210,533
263,034
255,452
311,682
      Other
7.65
103
101
103
101
 
210,636
263,135
255,555
311,783
Foreign currency
      Investment funds
7.50
156,551
152,861
1,759,156
1,809,140
      Interest-bearing current accounts
5.25
-
-
189,050
166,887
      Swap contracts
96
1,822
96
1,822
      Interest change contracts
17
         -
2,289
         -
 
156,664
154,683
1,950,591
1,977,849
 
            Total short-term
367,300
417,818
2,206,146
2,289,632
Long-term investments
   Local currency
      Treasury bills - LFT
14.17
43,908
42,412
43,908
42,412
      National Treasury Certificate - CTN
12.00
28,565
27,393
28,565
27,393
      Fundo de Investimentos
14.10
52,833
         -
52,833
         -
            Total long-term
125,306
69,805
125,306
69,805

14


Sadia S.A.

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

Long-term investments as of September 30, 2006 mature as follows:

Maturity:
2007
52,833
2008
43,908
2010 onwards
28,565
 
125,306

The investment fund portfolio in local currency is composed mainly of post-fixed Bank Deposit Certificates, National Treasury Securities and investment funds.

The investment fund portfolio in foreign currency is composed mainly of investments in dual currency, which have differentiated profitability according to the strike negotiated, and structured notes issued by first-tier American and European banks, pegged to securities of first-tier Brazilian companies and banks.

5 Accounts receivable

  Parent company
Consolidated
 
September
30,2006
June
30, 2006
September
30, 2006
June
30, 2006
Foreign:
   Subsidiaries
63,551
136,094
-
-
   Customers
144,398
91,433
282,439
219,104
   Advance on export contracts
(1,812)
         -
(1,812)
         -
      Total foreign
206,137
227,527
280,627
219,104
Domestic customers
211,753
154,622
211,927
154,778
   (-) Allowance for doubtful accounts
(14,184)
(15,301)
(19,979)
(20,440)
 
403,706
366,848
474,575
353,442
The changes in the allowance for doubtful accounts are as follows:
 
Parent company
Consolidated
 
September
30,2006
June
30, 2006
September
30, 2006
June
30, 2006
Balance at the beginning of the period
(15,301)
(13,646)
(20,440)
(16,799)
   Additions
-
(1,655)
(873)
(3,641)
   Write offs
1,117
         -
1,334
         -
Balance at the end of the period
(14,184)
(15,301)
(19,979)
(20,440)

15


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

The Company and its subsidiaries abroad (Sadia International Ltd. and Wellax Food Comércio de Produtos Alimentares Ltda.) entered into an agreement for sale of their receivables with an outside financial institution up to the maximum amount of US$130 million, with interest rate of 0.375% p.a. + LIBOR.

As of September 30, 2006, the amount of receivables sold under this agreement amounted to approximately R$280 million (R$250 million as of June 30, 2006). During the period ended September 30, 2006, the Company received cash proceeds of approximately R$1,440 million (R$1,310 million for the period ended September 30, 2006) and incurred expenses of R$10,5 million (R$5,5 million in 2005) with respect to this agreement.

A credit insurance policy covering 90% of the value of the receivables was taken out with third parties and the beneficiaries in the event of default are the contracting financial institutions.

The Company also assigned local receivables to a Credit Assignment Investment Fund (FIDC), administered by Concórdia S.A. Corretora de Valores Mobiliarios, Câmbio e Commodities. As of September 30, 2006, the net equity of this fund was R$ 257,174 (R$ 245,540 at June 30, 2006), of which R$ 156,718 (R$ 167,124 at June 30, 2006) was represented by acquisitions of the Company’s receivables on the domestic market, with a discounted cost equivalent to 95% of the CDI per senior quota. The assignment of the receivables is made without right of recourse, and the eventual losses from default for Sadia are limited to the value of the subordinated quotas, which at September 30, 2006, represented R$ 52,833 (R$ 48,366 at June 30, 2006).

During the period ended September 30, 2006, the Company received cash proceeds related to the local receivables sold of approximately R$2,034 million (R$1,865 million for the period ended September 30, 2006) and incurred expenses of R$22 million (R$17 million in 2005) with respect to this agreement.

For the other local receivables, the Company maintains a credit insurance policy that guarantees the collection in case of default of 90% of the uncollected amounts for customers with approved credit limits and up to R$100 to new customers or customers with no approved credit limits.

16


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

6  Inventories
  Parent company
Consolidated
 
September
30, 2006
June
30, 2006
September
30, 2006
June
30, 2006
Finished goods and products for sale
362,190
386,985
431,191
486,711
Livestock and poultry for slaughter and sale
281,397
277,950
281,397
277,950
Raw materials
191,951
138,837
195,236
142,305
Work in process
159,569
160,489
159,569
160,489
Packaging materials
37,574
38,181
37,574
38,181
Storeroom
24,281
19,706
24,281
19,706
Advances to suppliers
41,542
86,970
41,763
86,970
Imports in transit
3,013
4,834
3,013
4,834
Products in transit
4
12
4
206
 
1,101,521
1,113,964
1,174,028
1,217,352
7   Recoverable taxes
  Parent company
Consolidated
 
September
30, 2006
June
30, 2006
September
30, 2006
June
30, 2006
ICMS
180,403
158,823
184,984
162,473
IPI
49,168
49,109
49,201
49,142
Income and social contribution taxes
31,403
31,020
34,989
34,129
COFINS
7,837
2,021
8,166
2,350
PIS
2,018
758
2,018
758
Other
         -
         -
37
20
 
270,829
241,731
279,395
248,872
Short-term portion
147,987
110,097
155,550
116,247
Long-term portion
122,842
131,634
123,845
132,625

a. ICMS - Value-added tax on sales and services

Composed of credits generated by the commercial operations and by the acquisition of property, plant and equipment, of a number of the Company’s units and can be offset with taxes of the same nature.

17


Sadia S.A.

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

b. IPI - Excise tax

Composed of amounts arising from the following operations: presumed credit on packaging and inputs, presumed credit for reimbursement of PIS/PASEP and COFINS on exportations and export incentives, which can be compensated with other federal taxes.

c. Income and social contribution taxes

Correspond to income tax withheld at source on short-term financial investments and income tax and social contributions paid in advance that can be offset with federal taxes and contributions.

d. PIS/COFINS - Contributions on sales and services

Composed of credits arising from non-cumulative collection of PIS and COFINS, which can be compensated with other federal taxes.

8 Related party transactions and balances

Related party transactions relates mainly to sales operations between the Company and its subsidiaries that were performed under normal market conditions for similar types of operations. The balance sheet and income statement transactions between related parties are shown below:

  Balance sheet
 
September
30, 2006
June
30, 2006
Accounts receivable
   Wellax Food Logistics C. P. A. S. U. Lda.
56,810
112,476
   Sadia International Ltd.
-
14,440
   Sadia Alimentos S.A.
1,946
1,658
   Sadia Uruguay S.A.
922
870
   Qualy B.V.
290
4,181
   Sadia Chile S.A.
3,583
2,469
 
63,551
136,094
Interest on shareholders' equity
   Concórdia C.V.M.C.C.
4,548
4,548
 
4,548
4,548
Loans
   Wellax Food Logistics C. P. A. S. U. Lda.
91,752
90,074
   Sadia International Ltd.
(235)
(234)

18


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

  Balance sheet
 
September
30, 2006
June
30, 2006
   Empresa Matogrossense de Alimentos Ltda.
744
724
   Rezende Óleo Ltda.
874
874
   Rezende Marketing e Comun. Ltda.
57
57
 
93,192
91,495
Advances from subsidiaries
   Wellax Food Logistics C. P. A. S. U. Lda.
(1,587,275)
(1,431,604)
   Sadia International Ltd.
(1,875)
(1,865)
 
(1,589,150)
(1,433,469)
 
  Statement of income
 
September
30, 2006
June
30, 2006
Sales
   Wellax Food Logistics C. P. A. S. U. Lda.
1,334,688
1,729,827
   Sadia International Ltd.
109,541
1,439
   Sadia Chile S.A.
10,547
11,725
   Sadia Alimentos S.A.
7,094
9,090
   Sadia Uruguay S.A.
4,046
3,761
   Só Frango Produtos Alimentícios Ltda.
-
1,312
   Qualy B. V.
23,640
         -
 
 
1,489,556
1,757,154
Purchase of goods
Só Frango Produtos Alimentícios Ltda.
-
16,030
 
-
16,030
Net financial result
   Wellax Food Logistics C. P. A. S. U. Lda.
(5,728)
70,552
   Sadia International Ltd.
140
423
 
(5,588)
70,975

19


Sadia S.A.

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

9 Investments  
Shareholders' equity
Net income (loss) for the period
Equity result
Investment balances
Investments
Ownership
September 30, 06
June 30, 06
Sadia G.m.b.H.
100,00%
1,040,201
138,477
138,061
1,040,201
979,433
Sadia International Ltd.
100,00%
88,400
1,537
(5,046)
88,400
84,077
Concórdia S.A. CVMCC
99,99%
61,436
5,022
7,757
61,436
60,098
Rezende Óleo Ltda.
100,00%
1,112
(27)
(30)
1,112
1,085
Empresa Matogrossense de Alimentos Ltda.
100,00%
780
(570)
(570)
780
780
Intergen Ltda.
100,00%
555
73
73
555
534
Rezende Marketing e Comunicação Ltda.
99,91%
(27)
(2)
(2)
         -
         -
  Total in subsidiaries
140,243
1,192,484
1,126,007
  Goodwill in acquisition of investments
-
35,140
41,452
  Other investments
         -
1,384
1,384
  Total investments of the Company
140,243
1,229,008
1,168,843
  Other investments of subsidiaries/affiliates
-
23,879
23,531
  Investments eliminated on consolidation
(143,762)
(1,192,484)
(1,126,007)
  Total consolidated investments
(3,519)
60,403
66,367

Changes in the investments in the quarter:   Shareholding result
   
Amortization
Operating
Non-operating
Sadia G.m.b.H.  
-
60,768
-
Sadia International Ltd.  
-
4,323
-
Concórdia S.A. CVMCC  
-
989
349
Rezende Óleo Ltda.  
-
27
-
Intergen Ltda.  
         -
21
         -
   
-
66,128
349
Goodwill in acquisition of investments  
(6,312)
         -
         -
Others Investments  
(6,312)
66,128
349

The accumulated income from equity interest on the consolidated financial statements is represented by translation losses of R$ 6,252 and a non-operating income of R$ 2,733.

On January 11, 2006 the Company acquired 100% of the quotas representing the capital of the Intergen Ltda. The acquisition generated a goodwill in the amount of R$ 514, classified as other economical reasons and therefore amortized directly in the income statement as other operating expenses. The acquired company’s business relates to porks genetics.

20


Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

On May 26, 2006 Sadia acquired by the book vale the remaining 50% equity interest in Concórdia Foods Ltd.

On September 30, 2006, the net balance of goodwill amounted to R$ 35,140 and was comprised of: i) goodwill related to the acquisition of Só Frango Produtos Alimentícios Ltda. in the amount of R$62,505 with accumulated amortization of R$ 18,936 (R$ 16,484 in 2005) and ii) goodwill related to the acquisition of Empresa Matogrossense de Alimentos Ltda. (start-up phase) in the amount of R$8,055, that will be amortized once it starts its operations forecasted for 2007. Such goodwill has been recorded based on projections of future profitability.

10 Property, plant and equipment

    Parent company
 
Depreciation %
(annual average)
Cost
Depreciation
Residual amount
 
September
30, 2006
September
30, 2006
September
30, 2006
June
30, 2006
Lands
-
89,821
-
89,821
83,634
Buildings
4%
814,121
(348,551)
465,570
457,030
Machinery and equipment
15%
1,190,857
(589,820)
601,037
524,837
Installations
10%
303,623
(137,206)
166,417
160,321
Vehicles
27%
12,820
(7,576)
5,244
4,100
Breeding stock
-
290,083
(170,679)
119,404
111,631
Forestation and reforestation
-
28,775
(5,345)
23,430
22,689
Other
-
1,378
(1,241)
137
204
Construction in progress
-
584,666
-
584,666
445,969
Advances to suppliers
-
54,510
         -
54,510
94,780
 
3,370,654
(1,260,418)
2,110,236
1,905,195

21


Sadia S.A.

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

    Consolidated
  Depreciation
% (annual
average)
Cost
Depreciation
  Residual amount
 

September
30, 2006

September
30, 2006
  September
30, 2006
June
30, 2006
             
Lands - 90,036 -   90,036 83,849
Buildings 4% 815,232 (349,133)   466,099 457,582
Machinery and equipment 15% 1,193,910 (591,424)   602,486 526,274
Installations 10% 303,893 (137,310)   166,583 160,488
Vehicles and airplane 20% 20,290 (8,029)   12,261 5,077
Breeding stock - 290,359 (170,805)   119,554 111,778
Forestation and reforestation - 28,775 (5,345)   23,430 22,689
Other - 2,886 (2,086)   800 932
Construction in progress - 597,990 -   597,990 446,428
Advances to suppliers - 54,510           - 54,510 94,780
    3,397,881
(1,264,132)
  2,133,749
1,909,877

We present the changes in the cost of property, plant and equipment below:

  Consolidated
  Balances at
September
30, 2006
Additions Disposal Transfers Balances at
September
30, 2006
           
Lands 83,849 6,190 (3) - 90,036
Buildings 799,781 4,909 (51) 10,593 815,232
Machinery and equipment 1,101,987 9,503 (7,195) 89,615 1,193,910
Installations 292,161 1,994 (198) 9,936 303,893
Breeding stock 260,325 30,034 - - 290,359
Forestation and reforestation 29,198 1,084 (1,509) 2 28,775
Vehicles and airplane 13,389 7,764 (873) 10 20,290
Other 3,011 47 (187) 15 2,886
Construction in progress 446,428 212,070 (266) (60,242) 597,990
Advances to suppliers 94,780          -          - (40,270) 54,510
Total Cost of acquisition 3,124,909
273,595
(10,282)
9,659
3,397,881

a. The construction in progress is mainly represented by projects related to expansion and optimization of the industrial units.

b. In accordance with CVM Deliberation 193/96 the interest incurred in the period arising from financing of projects for modernization and expansion of the industrial units has been recorded in the respective costs of the construction in progress in the amount of R$ 30,181 (R$ 12,084 in the period ended on September 30, 2006).

22

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

 

11 Deferred charges

    Parent company
    Cost
  Amortization
  Residual value
  Rate September
30, 2006
  September
30, 2006
  September
30, 2006
June
30, 2006
               
Softwares implementation 25% 117,790   (53,326)   64,464 62,408
Product development 20% 17,489   (5,246)   12,243 12,942
Reorganization expenses 20% 27,962   (4,110)   23,852 21,307
Start up costs 20% 21,654   (6,115)   15,539 12,349
Other 20% 772 (384) 388 458
               
    185,667
  (69,181)
  116,486
109,464
               
               
    Consolidated
    Cost
  Amortization
  Residual value
  Rate September
30, 2006
  September
30, 2006
  September
30, 2006
June
30, 2006
               
Softwares implementation 25% 118,928   (53,864)   65,064 63,022
Product development 20% 21,032   (5,246)   15,786 15,757
Reorganization Expenses 20% 27,962   (4,110)   23,852 21,307
Start up costs 20% 25,645   6,252   19,393 13,906
Other 20% 1,035 (526) 509 587
               
    194,602
  (69,998)
  124,604
114,579

 

23

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

12 Loans and financing - Short-term

  Parent company
  Consolidated
  September
30, 2006
June
30, 2006
  September
30, 2006
June
30, 2006
Short-term          
Foreign currency          
Net working financing obtained from the custodian financial
institution of structured notes invested by the Company subject to
LIBOR variation for 1-month deposits (5.32% in September 2006)
plus interest of 0.10% % p.a., guaranteed by its investments.
- -   371,245 368,983
           
Advanced collection relating to the receivables sold, with no interest 13,912 -   133,891 145,719
           
Credit lines for the development of foreign trade, with interest rates
of 5.33% p.a., guaranteed by promissory notes or sureties.
- -   4,585 4,479
           
Currency swap contracts 2,458 4,736   2,458 4,736
Interest rate swap contracts          - 14          - 14
  16,370
4,750
  512,179
523,931
Local currency          
Rural credit lines with interest rates of 8.75% p.a. 209,905 277,450   209,905 277,450
           
Currency swap contracts 8,413 35,932 8,413 35,932
           
  218,318
313,382
  218,318
313,382
           
  234,688
318,132
  730,497
837,313
           
Short-term portion of the long-term debt          
Foreign currency          
           

Export financing composed of prepayment in amount of R$ 37,724
subject to LIBOR variation for 6-month deposits (5.37% in
September 2006) and interest of 4.35% p.a. and a line focused on
the incentive for foreign trade activities, in amount of R$ 141,908,
subject to LIBOR variation for 6-month deposits plus annual
interest of 1.40% guaranteed by promissory notes or sureties.

37,724 39,111   179,632 181,895
           
IFC (International Finance Corporation) funding in foreign currency
for investment in property, plant and equipment, with interest rate
of 9.05% p.a., guaranteed by real estate mortgages.
16,612 19,314   16,612 19,314

24

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

  Parent company
  Consolidated
  September
30, 2006
June
30, 2006
  September
30, 2006
June
30, 2006
Short-term          
Short-term portion of the long-term debt          
BNDES (National Bank for Economic and Social Development), for
investments and exports credit lines, composed as follows: FINEM
in the amount of R$ 9,584 subject to the weighted average of
exchange variation of currencies traded by BNDES - UMBNDES
and fixed interest of 3.50% p.a. and FINAME in the amount of R$
3,166 subject to the weighted average of exchange variation of
currencies traded by BNDES-UMBNDES and fixed interest of
3.50%, guaranteed by mortgage bonds and real estate mortgage.
12,750 10,914 12,750 10,914
           
  67,086 69,339   208,994 212,123
Local currency          
BNDES (National Bank for Economic and Social Development),
investments and exports credit lines, composed as follows:
FINAME in the amount of R$ 21,843 subject to the Long-Term
Interest Rate -TJLP (7.50% p.a. in September 2006) and interest of
3.59% p.a., and FINEM in the amount of R$ 13,740 subject to
TJLP and interest of 3.50% p.a., guaranteed by mortgage bonds and
real estate mortgages.
35,583 95,030   35,583 95,030
           
PESA - Special Aid for Agribusiness payable in installments, subject
to IGPM variation and annual interest of 9.89%, guaranteed by sureties
4,140 2,781   4,140 2,781
           
Others subject to interest from 1% to 14% p.a. 10,649 10,580 10,649 10,580
  50,372
108,391
  50,372
108,391
           
Short-term portion of long-term debt 117,458
177,730
  259,366
320,514
Total short-term 352,146
495,862
  989,863
1,157,827

At September 30, 2006 the weighted average interest on short-term loans was 6.12% p.a. (6.73% p.a. at June 30, 2006).

25

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

13 Loans and financing - Long-term

  Parent company
  Consolidated
  September
30, 2006
June
30, 2006
  September
30, 2006
June
30, 2006
Foreign currency          
Export financing composed of prepayment in amount of R$354,218 payable in
installments up to 2010, subject to LIBOR variation for 6-month deposits
(5.37% in September 2006) annual interest of 4.35% p.a., and a line focused on
the incentive for foreign trade in amount of R$ 1,853,003, subject to LIBOR
variation for 6-month and an interest rate of 1.40% p.a., guaranteed by
promissory notes or sureties.
354,218 245,949   2,207,221 1,983,822
           
IFC (International Finance Corporation) funding in foreign currency for
investments in property, plant and equipment, with interest at the rate of 9.05%
p.a., guaranteed by real estate mortgages.
16,612 19,314   16,612 19,314
           
BNDES (National Bank for Economic and Social Development), payable from
2006 to 2013, composed as follows: FINEM in the amount of R$ 19,877
subject to the weighted average of the exchange variation of currencies traded
by BNDES - UMBNDES and fixed interest of 3.50% p.a. and FINAME in the
amount of R$ 79,527 subject to the weighted average of the exchange variation
of currencies traded by BNDES - UMBNDES and fixed annual interest of 3.50%
p.a. guaranteed by mortgage bonds and real estate mortgages.
99,404 102,573   99,404 102,573
           
Currency swap contracts 2,284 3,063 2,284 3,063
  472,518 370,899   2,325,521 2,108,772
Local currency          
BNDES (National Bank for Economic and Social Development), investments
and exports credit lines, payable from 2006 to 2013, composed as follows:
FINAME in the amount of R$463,871 subject to the Long-Term Interest Rate -
TJLP (7.5% p.a. in September 2006) and interest of 3.59% p.a., and FINEM in
the amount of R$25,075 subject to TJLP and interest of 3.50% p.a., guaranteed
by mortgage bonds and real estate mortgages.
488,946 560,082   488,946 560,082
           
PESA - Special Aid for Agribusiness payable from 2006 to 2020, subject to
IGPM variation and annual interest of 9.89%, guaranteed by sureties
132,887 129,874   132,887 129,874
           
Others subject to interest from 1% to 14% p.a. 36,094 37,875   36,094 37,875
           
Currency swap contracts 5,796 6,501   5,796 6,501
  663,723 734,332 663,723 734,332
  1,136,241 1,105,231   2,989,244 2,843,104
Short-term portion of long-term debt (117,458) (177,730) (259,366) (320,514)
Total long-term 1,018,783
927,501
  2,729,878
2,522,590

26

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The noncurrent portions of financings at September 30, 2006 mature as follows:

  Parent
Company
Consolidated
Maturity:    
2007 48,827 107,530
2008 188,970 245,492
2009 276,648 276,648
2010 154,130 1,167,300
2011 onwards 350,208 932,908
  1,018,783
2,729,878

14 Pension plans for employees

In addition to the pension plan, the Company’s human resources policy offers the following benefits:

· Payment of the penalty in connection with the Government Severance Indemnity Fund for Employees upon retirement;
· Payment of a bonus for time of service;
· Payment of indemnification for termination of service; and
· Payment of indemnification for retirement.

These benefits are due in one single payment upon the employee’s retirement or termination of service, and the amounts are computed by actuarial calculations.

15 Commitments and contingencies

Commitments

The Company has non-cancelable leasing agreements for industrial units that expire over the next three years. These leasing are subject to renewal for 4 more years and do not require any penalty if the Company does not renew them. The Company does not pay execution costs, such as maintenance and insurance. The rental expenses totaled R$ 47,223 in the period ended September 30, 2006 (R$ 20,423 in the same period of 2005).

 

27

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The table below shows the future payments related to the leasing agreement at September 30, 2006:

2006 16,300
2007 65,200
2008 34,200
Total 115,700

In addition the Company signed purchase agreements for production purposes (packaging) in the approximate amount of R$ 255 million on September 30, 2006, payable until 2010.

Contingencies

The Company and its subsidiaries have several on going claims of a labor, civil and tax nature, resulting from its normal business activities. The respective provisions for contingencies were constituted based on the opinion of the Company’s legal counsel, which considered that unfavorable outcomes are likely.

The Company’s management believes that the provision for contingencies shown below is sufficient to cover any losses arising from legal proceedings.

  Parent company
  Consolidated
  September
30, 2006
June
30, 2006
  September
30, 2006
June
30, 2006
Tax proceedings 45,160 41,846   46,709 43,365
Civil proceedings 9,140 13,624   9,140 13,624
Labor proceedings 22,669 18,941 22,670 18,942
  76,969
74,411
  78,519
75,931

 

28

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The changes in the provision for contingencies are presented as follows:

  Consolidated
  Balances at
June 30, 2006
Additions Disposals Monetary
Updates
Balances at
September
30, 2006
Tax proceedings 43,365 9,168 (5,418) (406) 46,709
Civil proceedings 13,624 3,281 (7,843) 78 9,140
Labor proceedings 18,942 4,905 (1,177)         - 22,670
  75,931
17,354
(14,438)
(328)
78,519

Tax litigation

The main tax contingencies involve the following cases:

a. Income and social contribution taxes on net income

Provision for income and social contribution taxes on net income amounting to R$ 16,003, of which R$ 11,283 recorded on the acquisition of the subsidiary Granja Rezende (incorporated in 2002), R$ 3,852 on withholding income tax on investments of Granja Rezende and R$ 868 for other provisions.

b. Sales TAX (ICMS)

The Company is a defendant in several administrative cases involving ICMS, mainly in the States of São Paulo, Rio de Janeiro and Amazonas (SUFRAMA), totaling a probable contingency estimated at R$ 20,043.

c. Other tax contingencies

Several cases related to payment of IOF (Tax on Financial Operations), PIS (Social Integration Program Tax), COFINS (Tax for Social Security Financing) and others totaling a probable loss of R$10,663.

 

29

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The Company has other tax contingencies where the claimed amount is R$ 318,085, which were assessed as possible losses by the Company’s legal counsel and management and, therefore, no provision was recorded.

Civil litigation

Represents principally proceedings involving claims for indemnification for losses and damages, including pain and suffering, arising from work-related accidents and consumer relations.

The Company has other civil contingencies where the claimed amount is R$ 29,291, which were assessed as possible losses by the Company’s legal counsel and management and, therefore, no provision was recorded.

Labor claims

The company is involved in approximately 2,356 labor claims. These labor lawsuits refer mainly to claims for overtime, and health exposure and hazard claims, none of which involve a significant amount on an individual basis. The total amount involved is R$ 47,605, for which the provision in the amount of R$ 22,670 was recorded based on historical information, representing the best estimate for probable losses.

Court deposits

Whenever necessary the Company has made court deposits, as follows:

  Parent company
  Consolidated
  September
30, 2006
June
30, 2006
  September
30, 2006
June
30, 2006
Tax proceedings 59,538 63,890   59,538 63,890
Labor proceedings 14,755 14,080   14,755 14,080
Civil proceedings 1,420 1,045 1,526 1,151
  75,713
79,015
  75,819
79,121

 

30

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

Guarantees

The Company provides guarantees to loans obtained by certain out growers located in the central region of the country as part of a special development program for that region. Such loans are used to improve the out growers farms installations and will be repaid in 10 years, where the Company obtain from the out growers their farms and installations as a collateral for such guarantees provided. The amount for such guarantees provided as of September 30, 2006 amounted R$ 19,577 (R$ 18,962 in June 30, 2006).

16 Shareholders’ equity - Parent company

a. Capital

Subscribed and paid-in capital is represented by the following shares with no par value:

  September
30, 2006
June
30, 2006
     
Common shares 257,000,000 257,000,000
Preferred shares 426,000,000 426,000,000
     
Total shares 683,000,000 683,000,000
 
Preferred shares in treasury (2,504,288) (2,504,288)
     
Total outstanding shares 680,495,712
680,495,712

 

31

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

b. Changes in shareholders’ equity

  Capital Profit
reserves
Treasury
stock
Retained
earnings
Total
           
Balances at December 31, 2005 1,500,000 738,417 (10,377)          - 2,228,040
 
Interest on shareholders' equity          -          -          - (50,000) (50,000)
Net income for the quarter          -          -          - 69,618 69,618
           
Balances at March 31, 2006 1,500,000
738,417
(10,377)
19,618
2,247,658
Net income for the quarter          -          -          - 15,146 15,146
           
Balances at June 30, 2006 1,500,000
738,417
(10,377)
34,764
2,262,804
           
Net income for the quarter          -          -          - 68,726 68,726
           
Balances at September 30, 2006 1,500,000
738,417
(10,377)
103,490
2,331,530

c. Treasury stock

The Company’s treasury stock consists of 2,504,288 preferred shares acquired for R$10,377 for future sale and/or use in the stock option plan. At September 30, 2006 the market value corresponded to R$14,800 (R$14,400 at June 30, 2006).

d. Market value

The market value of Sadia S,A, shares according average quotation of shares negotiated on the São Paulo Stock Exchange - BOVESPA, corresponded to R$ 5.91 per share at September 30, 2006 (R$5.75 at June 30, 2006). Net equity on that date was R$ 3.43 per share (R$ 3.33 at June 30, 2006).

17 Stock option plan

In the Ordinary and Extraordinary General Meeting of April 29, 2005 the stock option plan was approved in its first phase for the Company’s officers. The plan comprises nominative preferred shares issued by the Company available in treasury and has the long-term aim of stimulating the feeling of ownership and commitment to the Company by the participants, and, thus, is in line with the shareholders’ interests.

32

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The plan will be managed by a Management Committee, composed of the Chief Executive Officer and the Human Resources Committee of the Board of Directors.

The price for exercising the purchase options does not include any discount and will be based on the average value of the quotation for the share in the last three days of trading on the São Paulo Stock Exchange prior to the grant date, updated by the accumulated National Consumer Price Index (INPC) between the grant date and the date of exercising the option. The vesting period, during which the participant cannot exercise his/her right to purchase the shares, will be three years as from the option granting date. The participant will be able to fully or partially exercise his/her purchase rights after the vesting period within a maximum period of 2 years, and only after this period has expired will he/she lose the right to the options not exercised.

The composition of the options granted is presented as follows:

  Date
  Price of shares
Grant date Start Final Number of
shares
Price on the
Grant date
Updated - INPC

Market
30/09/06

             
24/06/05 23/06/08 23/06/10 2,200,000 4,55 4,69 5,91

Since the Company has treasury shares earmarked for the stock option plan, the difference between the market value and the updated price for the year will not affect the Company’s results.

18 Employees’ profit sharing

The Company concedes to its employees’ a profit sharing plan, which depends on attaining specific targets, established and agreed at the beginning of each year. This plan has been approved by the Company’s Board of Directors and it has been registered through a formal agreement with the Unions.

 

33

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

19 Financial result

  Parent company
  Consolidated
  September
30, 2006
September
30, 2005
  September
30, 2006
September
30, 2005
Financial expenses          
Interest (135,149) (159,254)   (172,427) (172,521)
Monetary variations - Liabilities (9,390) (2,829)   (9,390) (10,130)
Exchange variations - Liabilities 29,845 302,456   71,897 292,532
Others (37,966) (31,449) (47,983) (43,251)
  (152,660)
108,924
  (157,903)
66,630
Financial income          
           
Interest 49,649 68,195   156,078 158,108
Monetary variations - Assets 1,535 185   1,535 185
Exchange variations - Assets (24,998) (145,729)   (22,039) 4,847
Others 59,441 14,262 69,304 21,592
           
  85,627
(63,087)
  204,878
184,732
           
Financial result, net (67,033)
45,837
46,975
251,362

20 Income and social contribution taxes

Income before the provision for income tax and social contribution on net income was composed as follows:

  Parent company
  Consolidated
  September
30, 2006
September
30, 2005
  September
30, 2006
September
30, 2005
Local 143,359 520,839   6,184 197,005
Foreign          -          - 140,016 323,698
           
  143,359
520,839
  146,200
520,703

34

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 


The break down of income and social contribution taxes is as follows:

  Parent company
  Consolidated
  September
30, 2006
September
30, 2005
  September
30, 2006

September
30, 2005

Local          
Current (8,005) (80,459)   (11,007) (81,564)
Deferred 18,657 (16,673) 18,574 (17,227)
  10,652 (97,132)   7,567 (98,791)
           
Foreign          
Current - -   (412) (18)
Deferred (521) (27) (521) (27)
  (521) (27) (933) (45)
  10,131
(97,159)
  6,634
(98,836)

Income and social contribution taxes were calculated at applicable rates and reconciliation with the income and social contribution taxes expenses, is shown below:

  Parent company
  Consolidated
  September
30, 2006
September
30, 2005
  September
30, 2006
September
30, 2005
Income before taxation/profit sharing 143,359 520,839   146,200 520,703
Interest on shareholders' equity (50,000) (55,977) (50,000) (55,977)
Income before income and social contribution taxes 93,359 464,862   96,200 464,726
Income and social contribution taxes at nominal rate - 34% (31,742) (158,053)   (32,708) (158,007)
           
Adjustment to calculate the effective rate          
Permanent differences:          
Equity in earnings of subsidiaries 47,682 49,922   45,872 47,016
Others (5,287) 10,999   (6,008) 12,182
Provision for income and social contribution taxes on foreign subsidiary          
  (522) (27) (522) (27)
           
Income and social contribution taxes at effective rate 10,131
(97,159)
  6,634
(98,836)

 

35

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

The break down of deferred income and social contribution taxes is as follows:

  Parent company
  Consolidated
  September
30, 2006
June
30, 2006
  September
30, 2006
June
30, 2006
Assets          
Deferred taxes:          
Tax loss carryforwards and negative basis of social contribution 62,519 74,904   62,519 74,904
Employees' benefits plan 30,397 29,537   30,397 29,537
Provision for contingencies 24,229 25,300   24,756 25,817
Allowance for doubtful accounts 12,292 9,810   12,292 9,810
Provision for loss on property, plant and equipment 5,013 5,018   5,013 5,018
Amortization of goodwill 6,024 4,939   6,024 4,939
Summer plan depreciation 2,447 2,564   2,447 2.,564
Employees' profit sharing 2,891 481   3,134 691
Others 3,840 4,390 5,258 6,051
Total deferred tax asset 149,650
156,943
  151,840
159,331
           
Short-term portion 63,609 62,515   65,797 64,903
Long-term portion 86,043 94,428   86,043 94,428
           
Liability:          
Deferred tax:          
Depreciation on rural activities 55,628 53,871   55,628 53,871
           
Provision for grains update 4,926 6,706 4,926 6,706
Total deferred tax liability 60,554
60,577
  60,554
60,577
           
Short-term portion 11,455 11,455   11,455 11,455
Long-term portion 49,099 49,122 49,099 49,122
           
Net balance 89,098
96,366
  91,286
98,754

Management considers that the deferred assets arising from temporary differences will be realized in proportion to the final solution of the contingencies and to the payment of the liabilities forecast for the employees’ benefit plans.

 

36

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The deferred tax assets related to the income tax loss carryforwards and negative basis of social contribution, represented by R$ 52,897 of Parent and R$ 9,622 from a foreign subsidiary will be realized base on future taxable income on such companies. Management estimates that the deferred tax asset related to the Parent will be fully realized during this year and the deferred tax asset related to the foreign subsidiary will be realized within three years.

21 Risk management and financial instruments

The Company’s operations are exposed to market risks, principally in relation to exchange rate variations, credit risk and grain purchase prices. These risks are monitored by the Risk Management Area that uses a specific system to calculate the “VAR -Value at Risk, Stress Test and Back Testing”, and permanently monitored by the finance committee, composed of members of the Board of Directors and other finance executives of the Company, who are responsible for defining the Board’s risk management strategy by determining the position and exposure limits. In September 30, 2006 the Value at Risk (VAR) of the financial assets and liabilities, for one year, with a 95% of confidence rating, represents R$ 73,933, representing 3.18% of equity (not reviewed by auditors).

a. Exchange rate and interest risk

The exchange rate risk for loans, financing and any other payables denominated in foreign currency is hedged by short-term investments denominated in foreign currency, with same interest rates, and by derivative financial instruments, such as rate swaps (dollar to CDI), interest rate swap contracts (Libor to pre-fixed or vice-versa) and future market agreements, in addition to foreign receivables from exports, which also reduce exchange variations by serving as a “natural hedge”.

The Company, within its hedge strategy, uses currency futures contracts (US dollars, Euros and Pounds), as a form of mitigating exchange rate risk over operating and financial assets and liabilities. The nominal amounts of these contracts are not recorded in the financial statements.

 

37

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The result realized from the futures contracts in the period ended September 30, 2006, generated a gain of R$ 42,564 (R$ 148,989 in the same period of 2005), recorded as financial results in positive exchange variances.

The results of the operations in the currency futures market, realized and not financially settled, and the daily adjustments of currency futures contracts of the Future and Commodities Exchange - BM&F are recorded in the interim financial information as “Accounts receivable from futures contracts” and “Accounts payable for futures contracts”.

Unearned income from contracted operations with future maturities is not recognized in the financial information. The market value of these contracts, if they were settled at September 30, 2006, would generate a loss of approximately R$ 39,595.

The Company’s exposure to exchange variation (mainly in US dollars) is shown below:

  Consolidated
  September
30, 2006
June
30, 2006
Assets and liabilities in foreign currency    
Cash and short-term investments 1,961,162 2,030,091
Amounts receivable from futures contracts 25,202 48,421
Trade accounts receivable, net 274,851 213,973
Suppliers (35,126) (27,821)
Loans and financing (2,837,700) (2,632,703)
Amounts payable for futures contracts (1,991) (30,672)
Swap contracts (dollar for CDI) 27,567 62,279
     
  (586,035)
(336,432)

 

38

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

Consolidated hedge contracts outstanding at September 30, 2006 with their respective payment schedules are as follows:

      Payment schedule
Derivative
instruments
Position
September
30, 2006
  2006 2007 2008
Currency swap contracts:          
Base value - R$ 27,567   5,283 12,908 9,376
Base value - US$ 9,336   1,832 4,347 3,157
           
Receivables/payables:          
Asset 96   96 - -
Liability (18,951)   (4,462) (8,393) (6,096)
           
Rate swap contracts:          
Base value - R$ 563,481   569,481 - -
Base value - US$ 259,167   259,167 - -
           
Amount receivable 2,289   2,289 - -
           
Futures contracts:          
Long position - US$ 465,000   465,000 - -
Short position - US$ 692,500   692,500 - -
Short position - Euro 15,427   15,427 - -
Short position - Libra 26,336   26,336 - -
           
Options:          
Long put option 110,000   110,000    
Long call option 395,000   395,000    
Short put option 285,000   285,000 - -
Short call option 120,000   120,000 - -
           
Amounts to be received 25,202   25,202 - -
Amounts to be paid (1,991)   (1,991) - -

b. Credit risk

The Company is potentially exposed to credit risk in relation to its trade accounts receivable, long and short-term investments and derivative instruments. The Company limits the risk associated with these financial instruments by subjecting them to the control of highly rated financial institutions that operate within the limits pre-established by the credit and financing committees.

39

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

The concentration of credit risk with respect to accounts receivable is minimized due to the spread of its client base, since the Company does not have any customer or group representing 10% or more of its consolidated revenues, as well as granting credits for customers with solid financial and operational ratios. Generally, the Company does not require a guarantee for domestic accounts receivable.

c. Grain purchase price risks

The Company’s operations are exposed to the volatility in prices of grain (corn and soybean) used in the preparation of animal feed for its breeding stock, where the price variation results from factors beyond the control of management, such as climate, the size of the harvest, transport and storage costs and government agricultural policies, among others. The Company does not enter into futures or options contracts to hedge against fluctuations in the prices of the commodities, however it maintains a risk management strategy, based on physical control, which includes purchase of grain at fixed and fixable prices. The Company has a Grains Committee, composed of the chief executive officer and financial and operational executives. Its aim is to permanently monitor changes in scenarios, establishing limits of authority for purchase or sale.

d. Estimated market values

Financial assets and liabilities are presented in the interim financial information balance sheet at cost plus accrued income and expenses and are stated according to their corresponding expected realization or settlement.

The Company used the following methods and assumptions to estimate the disclosure of the fair value of its financial instruments as of September 30, 2006 and June 30, 2006:

. Cash and cash equivalents: The book values of cash and banks recorded in the balance sheet are similar to the respective fair values.

. Short-term financial investments: The fair value of short-term financial investments is estimated based on the market quotations of comparable contracts.

. Accounts receivable and payable: The book values of accounts receivable and payable recorded in the balance sheet are similar to their respective fair values.

 

40

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

. Short and long-term loans and financing: The market values of loans and financing were calculated based on their present value calculated through the future cash flows and using interest rates applicable to instruments of similar nature, terms and risks, or based on the market quotation of these securities. The market values of BNDES financing are similar to the book values, since there are no similar instruments with comparable maturities and interest rates.

. Exchange and interest rate swap contracts: The fair values of exchange and interest rate swap contracts were estimated based on market quotations for comparable contracts. As of September 30, 2006 the contracted amounts in force totaled R$ 2,213,372
(R$ 126,557 in June 30, 2006) and the valuation of these contracts to fair value would result in losses of R$ 45,229 (losses of R$44,219 in June 30, 2006). The effective cash settlements of the contracts occur on the respective maturities of each agreement. The Company does not intend to settle these contracts before their maturity.

The market values were estimated on the balance sheet date, based on “relevant market information”. Changes in the assumptions may significantly affect these estimates.

The book values and the estimated fair values of the Company’s financial instruments as of September 30, 2006 and June 30, 2006 are presented in the table below. The fair value of a financial instrument is the amount for which the instrument could be traded between interested parties under current market conditions.

  Consolidated
  September 30, 2006
  June 30, 2006
  Cost Value Market   Cost Value Market
           
Cash and cash equivalents 128,824 128,824   281,964 281,964
Short and Long Term Investments - Local currency 380,861 380,861   381,588 381,588
Short and Long Term Investments - Foreign currency 1,950,591 1,950,593   1,977,849 1,977,990
Trade accounts receivable 492,554 492,554   353,442 353,442
Loans and financing 3,719,741 3,766,605   3,680,417 3,654,656
Suppliers 502,343 502,343   461,849 461,849
Futures contracts, net 23,211 23,211   17,749 17,749

 

41

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

e. Financial indebtedness

  Consolidated - Currency
  September 30, 2006   June 30, 2006
  Local Foreign Total   Local Foreign Total
Assets              
Cash and cash equivalents 118,253 10,571 128,824   229,722 52,242 281,964
Short-term investments 255,555 1,950,591 2,206,146   311,783 1,977,849 2,289,632
Accounts receivable from future contracts          - 25,202 25,202          - 48,421 48,421
               
Total current assets 373,808 1,986,364 2,360,172   541,505 2,078,512 2,620,017
               
Long-term investments 125,306          - 125,306 69,805          - 69,805
 
Total noncurrent assets 125,306          - 125,306 69,805          - 69,805
               
Total financial assets 499,114 1,986,364 2,485,478 611,310 2,078,512 2,689,822
               
Liabilities              
Short-term financing 268,690 721,173 989,863   421,773 736,054 1,157,827
Accounts payable from future contracts - 1,991 1,991   - 30,672 30,672
               
Swap contracts - Short-term 15,140 (15,140)          - 46,675 (46,675)          -
               
Total current liabilities 283,830 708,024 991,854   468,448 720,051 1,188,499
               
Long-term financing 613,351 2,116,527 2,729,878   625,941 1,896,649 2,522,590
Swap contracts - long-term 12,427 (12,427)          - 15,604 (15,604)          -
Total noncurrent liabilities 625,778 2,104,100 2,729,878 641,545 1,881,045 2,522,590
Total financial liabilities 909,608
2,812,124
3,721,732
  1,109,993
2,601,096
3,711,089
Financial income (expenses), net (410,494)
(825,760)
(1,236,254)
  (498,683)
(522,584)
(1,021,267)

22 Insurance (not reviewed by auditors)

The Company and its subsidiaries have adopted a policy of maintaining insurance coverage at levels that management considers adequate to cover any risks related to liability or damages involving their assets. Due to the characteristics of the operations carried out in multiple locations, management takes out insurance for maximum possible loss in a single event, which covers fire, comprehensive general liability and miscellaneous risks (storms, lightning and floods). The Company also takes out insurance for the transportation of goods, personal injury and vehicles.

42

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

23 Private pension plan

a. Defined contribution plan

The Company and its subsidiary Concórdia S.A. C.V.M.C.C. are the sponsors of a defined contribution social security plan for employees managed by Fundação Attílio Francisco Xavier Fontana.

The supplementary pension benefit is defined as the difference between (i) the benefit wage (updated average of the last 12 participation salaries, limited to 80% of the last participation salary) and (ii) the amount of the pension paid by the National Institute of Social Security. The supplementary benefit is updated on the same base date and in accordance with the rates applicable to the main activity category of the Company, discounting real gains.

The actuarial system is that of capitalization for supplementary retirement and pension benefits and of simple apportionment for the supplementary disability compensation. The Company’s contribution is based on a fixed percentage of the payroll of active participants, as annually recommended by independent actuaries and approved by the trustees of Fundação Attilio Francisco Xavier Fontana.

At September 30, 2006 and 2005, the parent company contributions totaled R$ 1,496 and R$1,525 respectively, and the consolidated contributions, R$ 1,548 and R$ 1,565, respectively.

According to the Foundation’s statutes, the sponsoring companies are jointly liable for the obligations undertaken by the Foundation on behalf of its participants and dependents.

At September 30, 2006 the Foundation had a total of 20,797 participants (21,071 at June 30, 2006), of which 17,137 were active participants (17,438 at June 30, 2006).

 

43

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

b. Defined contribution plan

As from January 1, 2003, the Company began to adopt new supplementary social security plans under the defined contribution modality for all employees hired by Sadia and its subsidiaries. Under the terms of the regulations, plans are funded on an equitable basis so that the portion paid by the Company is equal to the payment made by the employee in accordance with a contribution scale based on salary bands that vary between 1.5% and 6% of the employee’s remuneration, observing a contribution limit that is updated annually. The contributions made by the Company at September 30, 2006 and 2005 totaled R$ 2,068 and R$ 1,644 respectively. As of September 30, 2006 this plan had 13,487 participants (13,839 at June 30, 2006).

24 Subsequent event

On October 26, the Company obtained recognition of the final, favorable, unappealable decision on the COFINS proceedings referring to the unconstitutionality of Law 9718/98, which changed the basis for the calculation of PIS and COFINS by including operating and financial income. This matter was judged and considered unconstitutional by the Superior court of Justice on November 9, 2005. The Company is in the process of calculating the value of the credit, which is estimated at approximately R$80 million to be recognized in the financial statements for the final quarter of 2006.

25 Additional information

The statements of cash flow and added value are presented as additional information to the financial information.

a. Statement of cash flow

The statement of cash flow was prepared by the indirect method based on accounting records in accordance with the instructions established in NPC 20 of the Brazilian Institute of Independent Auditors (IBRACON).

 

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Sadia S.A.

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

  Parent company
  Consolidated
  September
30, 2006
September
30, 2005
  September
30, 2006
September
30, 2005
Net income for the period 153,490 423,680   153,648 422,967
Adjustments to reconcile net income to cash
generated by operating activities:
         
Variation in minority interest - -   (537) 1,099
Accrued interest, net of paid interest (1,549) (181,307)   (63,205) (232,991)
Depreciation, amortization and depletion allowances 172,923 132,719   173,425 133,785
Amortization of goodwill in acquisition of investments 19,451 7,246   19,451 7,246
Equity in income (loss) of subsidiaries (140,243) (146,831)   3,519 184,256
Deferred taxes (18,136) 16,700   (18,053) 17,254
Contingencies 7,431 9,196   6,572 9,421
Disposal of permanent assets 3,692 3,373   4,421 3,366
           
Variation in operating assets and liabilities          
Trade accounts receivable 77,448 236,443   37,040 (48,967)
Inventories (152,961) (87,835)   (181,538) (84,957)
Recoverable taxes and others (29,533) (161,883)   (48,140) (76,100)
Judicial deposits 2,577 (1,217)   2,577 (1,217)
Suppliers 5,876 7,900   6,585 11,990
Advances from subsidiaries 729,436 671,873   - -
Taxes payable, salaries payable and others (35,515) 44,846 (20,083) (187,561)
           
Net cash generated by operating activities 794,387 974,903   75,682 159,591
Investment activities          
Funds from the sale of permanent assets 5,434 2,612   5,462 2,612
Investments in subsidiaries (1,000) (29,702)   - -
Purchase of property, plant and equipment (766,090) (475,819)   (792,494) (479,801)
Portion paid in the acquisition of a subsidiary, net of cash (485) (54,021)   (485) (54,021)
Short-term investments (590,949) (272,156)   (3,048,991) (1,411,660)
Redemption of investments 558,449 242,041 2,897,643 1,262,219
           
Net cash from investment activities (794,641) (587,045)   (938,865) (680,651)
Loans          
Loans received 951,350 635,700   2,272,544 1,981,258
Loans repaid (816,110) (827,203)   (1,307,139) (1,318,425)
Dividends paid (169,704) (129,721)   (169,704) (129,721)
Loans to subsidiaries 3,185 -   - -
Purchase of treasury shares          - (10,179)          - (10,179)
           
Net cash from loans (31,279) (331,403)   795,701 522,933
Cash and cash equivalents at beginning of period 148,716 84,270   196,306 155,600
Cash and cash equivalents at end of period 117,183 140,725 128,824 157,473
Net increase (decrease) in cash (31,533) 56,455 (67,482) 1,873

45

Sadia S.A.

 

Notes to the interim financial information (Unaudited)

(In thousands of Reais)

 

b. Statement of consolidated added value

The statement of added value presents generation and distribution of revenues as presented in the statement of income for the period. Said revenues were basically distributed among human resources, third-party capital, government and shareholders.

The statement of added-value was prepared based on the model provided by the Institute for Accounting, Actuarial and Financial Research of the University of São Paulo.

  Consolidated
  September
30, 2006
September
30, 2005
     
Revenues/income 5,674,646 6,021,697
     
Revenues generated by operations 5,496,937 6,020,119
Sale of products, goods and services 5,496,937 6,020,119
Income from third parties 177,709 1,578
     
Other operating results (15,536) 18
Financial income 204,878 184,732
Equity pickup (3,519) (184,256)
Other nonoperating results (8,114) 1,084
Raw materials acquired from third parties (2,575,915) (3,009,629)
Services rendered by third parties (1,170,946) (1,046,936)
     
Added value to be distributed 1,927,785 1,965,132
Distribution of added value    
Human resources 761,186 696,504
Interest on third-party capital 134,467 (92,554)
Government 677,362 792,611
Shareholders (dividends) 50,000 55,977
Retention 304,770 512,594
     
Depreciation/amortization/depletion 192,876 141,031
Retained profits 102,835 365,890
Others 9,059 5,673

 

46

Sadia S.A.

 

Board of Directors
 
Walter Fontana Filho
Chairman
 
Eduardo Fontana D´Ávila
Member
 
Osório Henrique Furlan
Member
 
Alcides Lopes Tápias
Member
 
Everaldo Nigro dos Santos
Member
 
Francisco Silverio Morales Cespede
Member
 
José Marcos Konder Comparato
Member
 
Luiza Helena Trajano Inácio Rodrigues
Member
 
Norberto Fatio
Member
 
Romano Ancelmo Fontana Filho
Member
 
Vicente Falconi Campos
Member

47

Sadia S.A.

 

Officers
   
Gilberto Tomazoni  
Chief Executive Officer  
   
   
Alexandre de Campos Ernest Sícoli Petty
International Sales
Director
Supply Director
   
   
Cláudio Lemos Pinheiro Flávio Luís Fávero
Administrative and
Controllership Director
Industrialized
Production Director
   
   
Flávio Riffel Schmidt Gilberto Meirelles Xandó Baptista
Investment project
Director
Internal Market
Commercial
Director
   
   
Ronaldo Korbag Muller Guilhermo Henderson Larrobla
Poultry Production
Director
International Sales
Director
   
   
  José Augusto Lima de Sá
  International
Relationships
Director
   
   
Sérgio Carvalho Mandin Fonseca Paulo Francisco Alexandre Striker
National Sales Director Logistics Director
   
   
Antonio Paulo Lazzaretti Roberto Banfi
Technology and
Quality Guarantee
Director
International Sales
Director

48

Sadia S.A.

 

Ricardo Fernando Thomas Fernandes Valmor Savoldi
Grain Purchase
Director
Planning, Logistics
and Supplies
Director
   
   
Welson Teixeira Júnior  
Investor Relations
Director
 
   
   
* * *
   
   
Gustavo Teixeira de Freitas Giovanni F, Lipari
Accounting Manager Accountant
  CRC 1SP201389/0-7-S-SC

 

49