PDA Brf- Brasil Foods S.A.

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

o		REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2008

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

o		SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-15148

PERDIGÃO S.A.

(Exact Name of Registrant as Specified in its Charter)

N/A
(Translation of Registrant’s name into English)

Federative Republic of Brazil
(Jurisdiction of Incorporation or Organization)

760 Av. Escola Politécnica, Jaguaré 05350-901 São Paulo — SP, Brazil
(Address of Principal Executive Offices)

Leopoldo Viriato Saboya, Chief Financial Officer and Investor Relations Officer
Tel. 011-5511-3718-5301, Fax 011-5511-5297
760 Av. Escola Politécnica, Jaguaré 05350-901 São Paulo — SP, Brazil
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered pursuant to Section 12(b) of the Act:

		Name of Each Exchange on
Title of Each Class		which Registered
Common Shares, no par value per share, each represented by American Depositary Shares		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:

None

     Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

At December 31, 2008		206,527,618 shares of common stock

     Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No o

     If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes o No þ

Note- Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

     Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant was submitted electronically and posted on its corporate website, if any, every interactive data filed required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 203.405 of this chapter) during the proceeding 12 months (or for such other period that the registrant was required to submit and post such files) Yes þ No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer   o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

o U.S. GAAP		o		International Financial Reporting Standards as issued   by the International Accounting Standards Board		þ Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

     Item 17 o Item 18 þ .

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

     Yes o No þ

 

 

TABLE OF CONTENTS

		Page
PART I INTRODUCTION			1
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS			4
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE			4
ITEM 3. KEY INFORMATION			4
ITEM 4. INFORMATION ON THE COMPANY			27
ITEM 4A. UNRESOLVED STAFF COMMENTS			62
ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS			62
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES			94
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS			101
ITEM 8. FINANCIAL INFORMATION			103
ITEM 9. THE OFFER AND LISTING			107
ITEM 10. ADDITIONAL INFORMATION			111
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			143
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES			147
PART II			148
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES			148
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS			148
ITEM 15. CONTROLS AND PROCEDURES			148
ITEM 15A. DISCLOSURE CONTROL AND PROCEDURES			148
ITEM 15B. MANAGEMENT’S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING			149
ITEM 16. [RESERVED]			150
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT			150
ITEM 16B. CODE OF BUSINESS CONDUCT AND ETHICS			150
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES			150
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES			151
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS			152
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT			152
ITEM 16G. CORPORATE GOVERNANCE			152
PART III			155
ITEM 17. FINANCIAL STATEMENTS			155
ITEM 18. FINANCIAL STATEMENTS			155
ITEM 19. EXHIBITS			155
FINANCIAL STATEMENTS			F-1
EX-1.01
EX-4.01
EX-4.02
EX-8.01
EX-12.01
EX-12.02
EX-13.01
EX-13.02

 i

PART I

INTRODUCTION

     Unless otherwise indicated, all references herein (1) to the “Company”, to “we” or to “Perdigão” are references to Perdigão S.A., a corporation organized under the laws of the Federative Republic of Brazil (“Brazil”) and its consolidated subsidiaries, (2) to “Sadia” are references to Sadia S.A., a corporation organized under the laws of Brazil and its consolidated subsidiaries and (3) to “common shares” refer to the Company’s authorized and outstanding common stock, designated ordinary shares ( ações ordinárias ), each without par value. All references herein to the “ real ,” “ reais ” or “R$” are to the Brazilian real, the official currency of Brazil. All references to “U.S. dollars,” “dollars” or “U.S.$” are to United States dollars.

Overview

     We are one of Brazil’s largest food companies, with a focus on the production and sale of poultry, pork, beef cuts, milk, dairy products and processed food products. We are a vertically integrated business that produces more than 2,500 stock-keeping units, or “SKUs,” which we distribute to customers in Brazil and in more than 110 other countries. Our products currently include:

	•		frozen whole and cut chickens;
	•		frozen pork cuts and beef cuts;
	•		processed food products, such as the following:

	•		marinated frozen whole and cut chickens, roosters (sold under the Chester ® brand) and turkeys;
	•		specialty meats, such as sausages, ham products, bologna, frankfurters, salamis, bacon and other smoked products;
	•		frozen processed meats, such as hamburgers, steaks, breaded meat products, kibes and meatballs, and frozen processed vegetarian foods;
	•		frozen prepared entrees, such as lasagnas and pizzas, as well as other frozen foods, including vegetables, cheese bread and pies;
	•		dairy products, such as cheeses, powdered milk and yogurts;
	•		juices, soy milk and soy juices; and
	•		margarine;

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

     In the domestic market, the Company operates under such brand names as Perdigão , Chester ^® , Batavo , Elegê and Turma da Mônica (under license), which are among the most recognized brands in Brazil. In August 2007, we acquired from Unilever Brazil Ltda., or “Unilever,” the Doriana , Delicata and Claybom brands, which are used for our margarine products. We have also formed a joint venture with Unilever to manage the Becel and Becel ProActiv branded margarine products and identify other business opportunities. We also have well-established brands in foreign markets, such as Perdix , which is used in most of our export markets; Fazenda , in Russia; and Borella , in Saudi Arabia.

     We are a leading producer in Brazil of specialty meats (market share of approximately 25.7% from January to December 2008), frozen processed meats (market share of approximately 35.5% from December 2007 to November 2008), dairy processed products (market share of approximately 14.0% from December 2007 to November 2008) and margarines (market share of approximately 18.0% from December 2007 to November 2008), in each case based on sales volume, according to A.C. Nielsen do Brasil S.A. We also sell our frozen poultry, pork and beef products in the domestic market. We are able to reach substantially all of the Brazilian population through a nationwide network of 28 distribution centers. We operate 25 meat processing plants, 21 of which are owned (one is under construction and four are owned by third parties but process meat for us according to our directions), 23 hatcheries of which 21 are owned, 13 animal feed mills, 15 dairy processing plants of which 10 are owned (two are under construction) and five are owned by third parties, a margarine processing plant (through a joint venture with Unilever), 13 milk collecting centers and one soybean processing plant.

     We are the second largest Brazilian exporter of poultry products, based on export sales volumes in 2008, according to the Brazilian Chicken Producers and Exporters Association ( Associação Brasileira de Produtores e Exportadores de Frango ), or “ABEF,” and are among the largest such exporters in the world. We are also the leading Brazilian exporter of pork products, based on export sales volumes in 2008, according to the Brazilian Pork Industry and Exporter Association ( Associação Brasileira de Indústria Produtora e Exportadora de Carne Suína ), or “ABIPECS.”

     We export primarily to distributors, the institutional market, which includes restaurants and food service chains, and to food processing companies. In 2008 and the three months ended March 31, 2009, our exports accounted for 43.7% and 42.9%, respectively, of our total net sales. We export to more than 2,000 clients, with customers in Europe accounting for 22.2% and 22.1% of our export net sales in 2008 and the three months ended March 31, 2009, respectively; the Far East, 22.9% and 22.0%, respectively; Eurasia (including Russia), 14.6% and 10.9%, respectively; the Middle East, 25.6% and 30.4%; Americas, Africa and other regions, 14.7% and 14.6%, respectively. No single client represented more than 2.6% of our net sales in 2008 and 2.5% in the three months ended March 31, 2009.

     In the milk and dairy product sector of the food industry, we are a leader in sales of ultra-heat treatment, or “UHT,” milk in Brazil, with a 17.2% market share, based on volumes of sales from January to December 2008, according to the A.C. Nielsen do Brasil S.A. As of December 2008 , we had an 8.5% market share of the Brazilian production of powdered milk, according to the U.S. Department of Agriculture, or “USDA.”

     On February 21, 2008, we completed the acquisition of Eleva Alimentos S.A., or “Eleva”, a Brazilian company in the food industry, with a focus on milk, dairy products, poultry, pork and processed food products, for a purchase price of approximately R$1.7 billion, of which R$764.6 million was paid in cash to the controlling and non-controlling shareholders of Eleva and R$911.6 million was paid through the exchange of shares of Eleva for shares of Perdigão. By acquiring Eleva, we expanded our portfolio of milk and dairy products, which also includes powdered milk and cheeses, and we expanded our production of chickens, pork and processed food products.

     On April 2, 2008, we, through our subsidiary, Perdigão Agroindustrial S.A, acquired 100% of the share capital of Maroca e Russo Indústria e Comércio Ltda. (Cotochés), a regional leader in our industry in the State of Minas Gerais, for R$51.0 million and the assumption of R$15.0 million in debt.

     Internationally, we also continued to grow through the acquisition of Plusfood Groep B.V., or “Plusfood,” a manufacturer of poultry and beef-based processed and convenience food products in the European market, which has enabled us to diversify our operations in Europe into processed and chilled products. On January 2, 2008, we, through our subsidiary Perdigão Holland BV, acquired 100% of the shares of Plusfood from Cebeco Groep BV (“Cebeco”). On June 20, 2008, we finalized the determination of goodwill as the final audited balance sheet of Plusfood became available. The final price paid was € 16.5 million (price of € 31.2 million less net debt of Plusfood as of December 31, 2007).

Proposed Business Combination with Sadia

     On May 19, 2009, we signed a merger agreement with Sadia S.A. that contemplates a business combination of the two companies. In the business combination, our company is to be renamed BRF — Brasil Foods S.A., and Sadia is expected to become our wholly owned subsidiary.

Holders of common shares and preferred shares of Sadia are expected to receive common shares of our company, and holders of American depositary shares representing preferred shares of Sadia are expected to receive American Depositary Shares, or “ADSs”, representing common shares of our company. The proposed transaction is described in more detail under “Item 4. Information on the Company—History and Development of the Company—Proposed Business Combination with Sadia.”

     Combined, we and Sadia export to more than 100 countries, and the business combination is subject to approval by Brazilian and foreign antitrust authorities. The Brazilian and foreign authorities could impose significant conditions to their approvals affecting our operations in those regions, particularly in regions in which we have a significant market share.

Our Industry

     We manage our business to target two markets: the Brazilian domestic market, and the international export markets.

Domestic Market

     Brazil is the fifth largest country in the world, both in terms of land mass and population. As of April 2009, Brazil had an estimated population of 191.5 million people, according to data from the Brazilian Institute of Geography and Statistics ( Instituto Brasileiro de Geografia e Estatística ), or “IBGE.” Brazil had a gross domestic product, or “GDP,” of R$2.9 trillion for 2008, representing an 11.2% increase over GDP of R$2.6 trillion for 2007, in each case in nominal terms. GDP per capita increased 4% in 2008 to R$15,240. The global economic crisis that erupted in 2008 significantly affected the Brazilian economy during the fourth quarter of 2008 and the first quarter of 2009. The Central Bank of Brazil ( Banco Central do Brasil ), or the “Central Bank,” forecasts that the Brazilian GDP in 2009 will decrease 0.71% compared to 2008. The inflation rate, as measured by the National Extended Consumer Price Index ( Índice Nacional de Preços ao Consumidor Ampliado ), or “IPCA,” published by the IBGE, was 4.5% in 2007 and 5.9% in 2008, continuing a trend of moderate inflation rates when compared with Brazil’s historical experience of high rates of inflation.

     Brazil is a large consumer of meat, with per capita meat consumption of 87.8 kilograms in 2008, according to the USDA. However, demand for poultry, pork and beef products in the domestic market is directly affected by economic conditions in Brazil. The overall trend towards improved economic conditions in recent years has generally supported increased demand for processed food products, as well as traditional fresh and frozen poultry and pork products.

     According to the USDA, Brazil is the world’s sixth largest producer, exporter and consumer of milk, with 28.9 million tons of milk produced in 2008. The USDA projects a 5% growth in Brazilian production for 2009.

Export Markets

     The global trade in poultry, pork and beef products has been growing in recent years, according to the USDA, and meat imports by the major consuming countries continue to grow. In 2008, due to global economic growth in the prior years, Brazilian exports of meat (chicken, pork and beef) reached the highest level in years, totaling 5.5 million tons, 0.9% higher than 2007 external sales, according to the ABEF, ABIPECS, Brazilian Beef Exporters Association ( Associação Brasileira das Indústrias Exportadoras de Carne ), or “ABIEC,” and the Brazilian Bureau of Foreign Commerce ( Secretaria de Comércio Exterior ), or “SECEX”, although the global trade in these products has been negatively affected by the global economic crisis. We believe that sales of poultry, pork and beef products will continue to expand over the long term.

     Brazil has become a leading participant in export markets on a global basis because of natural competitive advantages, including low animal feed and labor costs, and gains in efficiencies in animal production. We, like other large Brazilian producers, have built on these advantages to develop the scope and scale of our businesses.

     Traditionally, Brazilian producers have emphasized exports of frozen whole and cut poultry, and frozen pork and beef cuts. These products, which are similar to commodities in nature, continue to account for a substantial portion of export volumes in recent years. More recently, Brazilian food companies have begun to expand sales of processed food products. We anticipate that, over the next several years, we will sell higher volumes of frozen whole and cut poultry and frozen pork and beef cuts, and increasingly more substantial volumes of processed food products.

Forward-Looking Statements

     This Annual Report on Form 20-F contains statements that constitute forward-looking statements. Those statements appear in a number of places and include statements regarding the intent, belief or current expectations of the Company, its directors or its executive officers with respect to (i) the implementation of the principal operating strategies of the Company, including integration of current acquisitions as well as the conclusion of acquisition or joint venture transactions or other investment opportunities that may occur in the future, (ii) general economic, political and business conditions in our company’s markets, both in Brazil and abroad, (iii) the cyclicality and volatility of raw materials and selling prices, (iii) health risks related to the food industry, (iv) the risk of outbreak of animal diseases, in particular avian influenza and swine flu, (v) more stringent trade barriers in key export markets and increased regulation of food safety and security, (vi) strong international and domestic competition, (vii) interest rate fluctuations, inflation and exchange rate movements of the real in relation to the U.S. dollar and other currencies, (viii) the declaration or payment of dividends, (ix) the direction and future operation of the Company, (x) the implementation of the Company’s financing strategy and capital expenditure plans, (xi) the factors or trends affecting the Company’s financial condition or results of operations and (xii) other factors identified or discussed under “Item 3. Key Information—D. Risk Factors.” Prospective investors are cautioned that any such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those in the forward looking statements. The accompanying information contained in this Annual Report, including without limitation the other information set forth under the heading “Item 5. Operating and Financial Review and Prospects” identifies important factors that could cause such differences.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

A. Selected financial data

     The following summary financial data (not including the operating data) at December 31, 2008 and 2007 and for the years ended December 31, 2008, 2007 and 2006 have been derived from our consolidated financial statements included in this Annual Report. The summary financial data at December 31, 2006, 2005 and 2004 and for the years ended December 31, 2005 and 2004 have been derived from our consolidated financial statements that are not included in this Annual Report.

     Our consolidated financial statements are prepared in accordance with accounting practices adopted in Brazil, or “Brazilian GAAP,” which differ in significant respects from the accounting principles generally accepted in the United States, or “U.S. GAAP.” For a discussion of the significant differences relating to these consolidated financial statements and a reconciliation of net income (loss) and shareholders’ equity from Brazilian GAAP to U.S. GAAP, see Note 24 to our audited consolidated financial statements.

     The summary financial data should be read in conjunction with our consolidated financial statements and the notes thereto contained in this Annual Report, as well as the information set forth under the heading “Item 5. Operating and Financial Review and Prospects.”

		2008				2007				2006				2005				2004
		(in millions of reais, except per share and per ADS amounts and share numbers)
Income Statement Data
Brazilian GAAP
Net sales			11,393.0				6,633.4				5,209.8				5,145.2				4,883.3
Cost of sales			(8,634.1	)			(4,760.1	)			(3,865.7	)			(3,685.9	)			(3,532.4	)
Gross profit			2,758.9				1,873.3				1,344.1				1,459.3				1,350.9
Operating expenses:
Selling expenses			(1,891.1	)			(1,279.0	)			(1,070.8	)			(845.6	)			(790.8	)
General and administrative expenses			(140.4	)			(76.9	)			(72.3	)			(56.9	)			(54.1	)
Management compensation			(18.8	)			(13.5	)			(9.6	)			(9.5	)			(7.7	)
			(2,050.3	)			(1,369.4	)			(1,152.7	)			(912.0	)			852.6
Operating income before financial expenses and other			708.6				503.9				191.4				547.3				498.3
Financial expenses, net			(630.3	)			(105.4	)			(129.3	)			(82.7	)			(117.8	)
Other operating (expenses) income, net(1)			(261.9	)			(14.7	)			12.2				(13.4	)			(12.1	)
(Loss) Income before taxes, profit sharing and participation of non-controlling shareholders			(183.6	)			383.8				74.3				451.1				368.4
Income and social contribution taxes benefit (expense)			255.3				(32.1	)			61.6				(62.5	)			(47.3	)
Employees’ profit sharing			(13.5	)			(24.6	)			(9.9	)			(22.8	)			(19.1	)
Management profit sharing			(3.4	)			(2.6	)			(1.6	)			(4.8	)			(6.4	)
Non-controlling shareholders			(0.4	)			(3.2	)			(7.1	)			—				—
Net income			54.4				321.3				117.3				361.0				295.6
Earnings per share(2)			0.263				1.732				0.707				8.109				6.643
Dividends per share(3)			0.369				0.540				0.212				2.433				1.993
Dividends per ADS(3)			0.738				1.077				0.424				4.866				3.986
Dividends per ADS (in U.S. dollars)			0.316				0.608				0.198				2.079				1.502
Average shares outstanding (in millions) (5)			206.5				185.5				165.5				44.5				44.5
U.S. GAAP
Net sales			11,357.2				6,632.7				5,209.8				5,145.2				4,883.3
Net income			(89.7	)			313.0				141.8				356.5				292.2
Basic and diluted earnings per share(2) (4)			(0.44	)			1.8728				0.9873				2.6697				2.1884
Basic and diluted earnings per ADS(4)			(0.88	)			3.7440				1.9746				5.3394				4.3768
		2008				2007				2006				2005				2004
		(in millions of reais, except as otherwise indicated)
Balance Sheet Data
Brazilian GAAP
Cash, cash equivalents and marketable securities			1,976.0				1,773.6				1,120.5				817.7				263.6
Trade accounts receivable, net			1,378.0				803.9				701.6				555.7				524.4
Inventories			1,689.0				865.1				643.2				558.7				509.0
Other assets			942.1				325.6				286.3				169.1				175.5
Total current assets			5,985.1				3,768.2				2,751.6				2,101.2				1,472.5
Marketable securities			0.2				63.3				80.0				91.6				134.0
Investments			1.0				1.0				1.0				15.6				0.4
Property, plant and equipment			2,918.5				2,136.9				1,663.8				1,194.2				990.1
Intangibles			1,545.7				269.5				84.5				0.0				0.0
Deferred assets			172.1				113.4				89.8				93.8				76.5
Other assets			596.9				191.0				158.7				128.6				120.2
Total assets			11,219.5				6,543.3				4,829.4				3,625.0				2,793.7
Short-term debt			1,646.4				1,051.8				547.0				548.7				706.8
Trade accounts payable			1,083.4				575.6				486.6				332.6				327.1
Other current liabilities			351.1				313.8				218.0				248.6				202.0
Total current liabilities			3,080.9				1,941.2				1,251.6				1,129.9				1,235.9
Long-term debt			3,719.7				1,214.1				1,287.1				1,125.4				464.7
Other liabilities			307.6				162.0				146.8				146.9				123.0
Non-controlling shareholders			0.7				—				39.0				—				—
Shareholders’ equity			4,110.6				3,226.0				2,104.9				1,222.8				970.1
Total liabilities and shareholders’ equity			11,219.5				6,543.3				4,829.4				3,625.0				2,793.7
U.S. GAAP
Total assets			11,354.4				6,495.7				4,790.8				3,572.0				2,768.2
Property, plant and equipment			3,176.3				2,294.7				1,658.0				1,145.9				942.6
Long-term debt			3,715.5				1,206.2				1,282.0				1,124.5				464.7
Shareholders’ equity			3,973.4				3,159.0				2,066.8				1,196.1				950.9

		2008				2007				2006				2005				2004
Operating Data
Poultry slaughtered (million heads per year)			879.8				627.3				547.4				487.1				444.9
Hogs/beef slaughtered (thousand heads per year)			4,713.0				3,775.0				3,656.0				3,570.0				2,750.0
Total sales of meat and other processed products ( thousand tons per year)			3,162.9				1,812.5				1,350.4				1,141.3				993.0
Milk collected from producers (millions of liters)			1,605.6				247.0				147.9				—			—
Employees (at year end)			59,008				44,752				39,048				31,406				27,951

Exchange Rates

     Until March 4, 2005, there were two legal foreign exchange markets in Brazil: the commercial rate exchange market, or the “Commercial Market”; and the floating rate exchange market, or the “Floating Market.” The Commercial Market was reserved primarily for foreign trade transactions and transactions that generally required prior approval from Brazilian monetary authorities, such as registered investments by foreign persons and related remittances of funds abroad (including the payment of principal and interest on loans, notes, bonds and other debt instruments denominated in foreign currencies and registered with the Central Bank. The Floating Market rate generally applied to specific transactions for which Central Bank approval was not required. Both the Commercial Market rate and the Floating Market rate were reported by the Central Bank on a daily basis.

     On March 4, 2005, the Central Bank issued Resolution No. 3,265, providing for several changes in Brazilian foreign exchange regulation, including (1) the unification of the foreign exchange markets into a single exchange market, (2) the easing of several rules for acquisition of foreign currency by Brazilian residents and (3) the extension of the term for converting foreign currency derived from Brazilian exports. The Central Bank may issue further regulations in relation to foreign exchange transactions, as well as on payments and transfers of Brazilian currency between Brazilian residents and non-residents (such transfers being commonly known as the international transfer of reais ), including those made through the so-called non-resident accounts (also known as CC5 accounts).

     Since the beginning of 2001, the Brazilian exchange market has been increasingly volatile, and, until early 2003, the value of the real declined relative to the U.S. dollar, primarily due to financial and political instability in Brazil and Argentina. In 2005, 2006 and 2007, however, on average the real appreciated in relation to the U.S. dollar 13.4%, 9.5% and 16.3%, respectively. In 2008, the real depreciated against the U.S. dollar by 31.9%. Although the Central Bank has intervened occasionally to control unstable movements in the foreign exchange rates, the exchange market has continued to be volatile in 2009 and may continue to be volatile in the future.

     The following table shows the selling rate for U.S. dollars for the periods and dates indicated. The information in the “Average” column represents the average of the daily exchange rates during the periods presented. The numbers in the “Period End” column are the quotes for the exchange rate as of the last business day of the period in question.

		Reais per U.S. Dollar
Year		High				Low				Average				Period End
2004			3.2051				2.6544				2.9257				2.6544
2005			2.7621				2.1633				2.4341				2.3407
2006			2.3711				2.0586				2.1771				2.1380
2007			2.1556				1.8389				2.2002				1.7713
2008			2.5004				1.5593				1.8375				2.3370

		Reais per U.S. Dollar
Month		High				Low
January 2009			2.3803				2.1889
February 2009			2.3916				2.2446
March 2009			2.4218				2.2375
April 2009			2.2899				2.1699
May 2009			2.1476				1.9730
June 2009 (through June 19, 2009)			1.9780				1.9300

B. Capitalization and indebtedness

Not applicable.

C. Reasons for the offer and use of proceeds

Not applicable.

D. Risk Factors

Risk Relating to Our Business and Industry

The global economic crisis is adversely affecting our business and financial performance.

     Our business has been materially affected by the global economic crisis in 2008 and 2009, which has increased volatility in our markets and contributed to the net losses we recorded in the fourth quarter of 2008 and the first quarter of 2009. We have been affected in a number of ways, including the following:

	•		Increases in prices for our commodity raw materials, such as corn and soybeans, through the first three quarters of 2008, which we could not pass on through selling prices.
	•		Because as the global economic crisis affected demand, we were forced to decrease selling prices, particularly in our export markets.
	•		Negative macroeconomic trends in our domestic market starting in the fourth quarter of 2008 as the global economic crisis began to affect the Brazilian economy and domestic consumer confidence.
	•		We announced a 20% cut in meat production for export for the first quarter of 2009 due to weak demand in our export markets. Temporary shutdowns of production of some facilities have adversely affected our margins.
	•		The Brazilian real depreciated 22% against the U.S. dollar in the fourth quarter of 2008 compared to the third quarter of 2008, reflecting uncertainty regarding the effect of the global economic crisis on Brazil and other emerging market economies. This devaluation in the real caused us to incur net foreign exchange variation expenses (recorded as part of our net financial expenses) of R$416.0 million in 2008, of which R$318.0 million was attributable to the fourth quarter of 2008.
	•		Uncertainties engendered by the crisis and the challenges of managing inventories, accounts receivable, accounts payable and other items required us to reinforce our working capital, leading to a 66% increase in our total debt to R$5.4 billion as of March 31, 2009, compared to R$3.3 billion as of March 31, 2008, including R$1.8 billion of short-term debt.

     The above and other factors described below and in “Item 5. Operating and Financial Review and Prospects” caused us to record a net loss of R$20.1 million for the fourth quarter of 2008 and a net loss of R$226.0 million for the first quarter of 2009. Although we seek to manage our selling prices and production costs, volumes, inventories and working capital through the global economic crisis, we cannot predict when demand will return to historical levels or whether the global economic crisis will have any long-term effects on consumer confidence, selling prices and production costs, demand for particular types of products, volatility of raw material prices or the equilibrium between our domestic and export markets. These factors may therefore continue to adversely affect our business, results of operations and the market price of our common shares and ADSs.

Our results of operations are subject to cyclicality and volatility affecting both our raw material prices and our selling prices.

     Our business is largely dependent on the cost and supply of corn, soy meal, soybeans, hogs, cattle, milk and other raw materials, as well as the selling prices of our poultry, pork, beef and dairy products, all of which are determined by constantly changing market forces of supply and demand, which may fluctuate significantly, even in the absence of a global economic crisis, and other factors over which we have little or no control. These other factors include, among others, fluctuations in local and global poultry, hog, cattle and milk production levels, environmental and conservation regulations, economic conditions, weather, animal and crop diseases, cost of international freight and exchange rate fluctuations. Our industry, both in Brazil and abroad, is also characterized by cyclical periods of higher prices and profitability, followed by overproduction, leading to periods of lower prices and profitability. We are not able to mitigate these risks by entering into long-term contracts with our customers and most of our suppliers because such contracts are not customary in our industry. Our financial performance is also affected by domestic and international freight costs, which are vulnerable to volatility in the price of oil. We may not be successful in addressing the effects of cyclicality and volatility on costs and expenses or the pricing of our products, and our overall financial performance may be adversely affected.

     The events of the 2008, which were exacerbated by the global economic crisis, illustrate the susceptibility of our business to cyclical market forces. In 2008, the average corn price on the Chicago Board of Trade (CBOT) was 42.2% higher than the average price in 2007. Soybean prices also increased by 40.5% in 2008. Similarly, we significantly increased our selling prices of certain of our products in 2008 to reflect increased production costs but were then forced to decrease prices for many products in the fourth quarter of 2008 and the first quarter of 2009, which adversely affected our financial performance in those periods.

Health risks related to the food industry could adversely affect our ability to sell our products.

     We are subject to risks affecting the food industry generally, including risks posed by contamination or food spoilage, evolving nutritional and health-related concerns, consumer product liability claims, product tampering, the possible unavailability and expense of liability insurance and the potential cost and disruption of a product recall. Among such risks are those related to raising animals, including disease and adverse weather conditions. Meat is subject to contamination during processing and distribution. Contamination during processing could affect a large number of our products and therefore could have a significant impact on our operations.

     Our sales are dependent on consumer preferences, and any actual or perceived health risks associated with our products, including any adverse publicity concerning these risks, could cause customers to lose confidence in the safety and quality of our products, reducing the level of consumption of those products. Even if our own products are not affected by contamination, our industry may face adverse publicity if the products of other producers become contaminated, which could result in reduced consumer demand for our products in the affected category. We maintain systems designed to monitor food safety risks throughout all stages of the production process (including the production of poultry, hogs, cattle and dairy products). However, our systems for compliance with governmental regulations may not be fully effective in mitigating risks related to food safety. Any product contamination could have a material adverse impact on our business, results of operations, financial condition and prospects.

Raising animals and meat processing involve animal health and disease control risks, which could have an adverse impact on our results of operations and financial condition.

     Our operations involve raising poultry and hogs and processing meat from poultry, hogs and cattle, as well as the purchase of milk and the sale of milk and dairy products, which require us to maintain animal health and control disease. We could be required to destroy animals or suspend the sale of some of our products to customers in Brazil and abroad in the event of an outbreak of disease affecting animals, such as (1) in the case of poultry, avian influenza (discussed below) and Newcastle disease, (2) in the case of hogs, cattle and certain other animals, foot-and-mouth disease, classic swine fever “blue ear” disease and A(H1N1) influenza (discussed below) and (3) in the case of cattle, foot-and-mouth disease and bovine spongiform encephalopathy, known as “mad cow disease.” Destruction of poultry, hogs or other animals would preclude recovery of costs incurred in raising or purchasing these animals and result in additional expense for the disposal of such animals. In 2005, foot-and-mouth disease cases in the States of Mato Grosso do Sul and Paraná affected only cattle, although hogs can also be contaminated. An outbreak of foot-and-mouth disease could have an effect on livestock we own, the availability of livestock for purchase, consumer perception of certain protein products or our ability to access certain markets, which would adversely impact our results of operations and financial condition. In addition, although Brazilian cattle is generally grass-fed and at less risk of contracting mad cow disease than cattle raised in some other countries, increases in Brazilian cattle production could lead to the use of cattle feed containing animal byproducts that could heighten the risk of an outbreak of mad cow disease.

     Outbreaks, or fears of outbreaks, of any of these or other animal diseases may lead to cancellation of orders by our customers and, particularly if the disease has the potential to affect humans, create adverse publicity that may have a material adverse effect on consumer demand for our products. Moreover, outbreaks of animal disease in Brazil may result in foreign governmental action to close export markets to some or all of our products, relating to some or all of our regions. For example, due to foot-and-mouth disease cases affecting cattle in the States of Mato Grosso do Sul and Paraná, certain major foreign markets, including Russia (which has been the largest importer of Brazilian pork) banned imports of pork from the entire country in November 2005. Russia partially lifted this ban in the second quarter of 2006 for pork products from the State of Rio Grande do Sul, and this ban was completely lifted in December 2008 only. Any future outbreaks of animal diseases could have a material adverse effect on our results of operations and financial condition.

Our pork business in our Brazilian and export markets could be negatively affected by concerns about A(H1N1) influenza, also called “swine flu.”

     In 2009, A(H1N1) influenza, also called “swine flu,” spread to many countries. In April 2009, the analysis of samples collected in cases of flu symptoms by the U.S. and Mexican governments identified a new subtype of the Influenza A(H1N1) virus, classified as “A/CALIFORNIA/04/2009,” which had not been previously detected in humans or swine. Influenza A(H1N1) is transmitted from one person to another mainly through coughing, sneezing and contact with nasal secretions from infected individuals. According to the World Health Organization, or “WHO,” there is no relation between those infected with Influenza A(H1N1) and contact with persons living near swine or the consumption of pork and pork-derived products.

     More than 11,000 cases and over 100 deaths worldwide have been recorded since the outbreak of A(H1N1) influenza in Mexico, and on June 11, 2009, the WHO declared a flu alert level six, signaling a “global pandemic.” Many countries, including Russia and China, have prohibited imports of pork from countries reporting a significant number of cases (Mexico, United States and Canada), but, as the WHO and other independent sources have stated that influenza A(H1N1) is not transmitted by pork consumption, those countries reopened their markets to producers from Mexico, the United States and Canada. Even so, some states in the importing countries continue to impose restrictions on pork imports from Mexico, the United States and Canada.

     To date, Brazil has a number of documented cases of A(H1N1) influenza. A significant outbreak of A(H1N1) influenza in Brazil could lead to pressure to destroy our hogs, even if no link between the influenza cases and pork consumption is shown. Any such destruction of our hogs would result in decreased sales of pork, prevent recovery of costs incurred in raising or purchasing our hogs, and result in additional expense for the disposal of destroyed hogs. In addition, any outbreak of A(H1N1) influenza in Brazil could lead to restrictions on the export of some of our products to key export markets.

     Whether or not an outbreak of A(H1N1) influenza occurs in Brazil, further outbreaks of the disease anywhere in the world could have a negative impact on the consumption of pork in key export markets or in Brazil, and a significant outbreak would negatively affect our net sales and overall financial performance. Any further outbreak of A(H1N1) influenza could lead to the imposition of costly preventive controls on pork imports in our export markets. Accordingly, any spread of A(H1N1) influenza, or increasing concerns about this disease, may have a material and adverse effect on our company.

Our poultry business in Brazilian and export markets could be negatively affected by avian influenza.

     Chicken and other birds in some countries, particularly in Asia but also in Europe and Africa, have become infected by highly pathogenic avian influenza (the H5N1 virus). In a small number of cases, the avian influenza has been transmitted from birds to humans, resulting in illness and, on occasion, death. Accordingly, health authorities in many countries have taken steps to prevent outbreaks of this viral disease, including destruction of afflicted poultry flocks.

     From January 1, 2003 to December 31, 2008, there have been over 424 confirmed human cases of avian influenza and over 261 deaths, according to the WHO, with an increased number of deaths each year since 2003. Various countries in Asia, the Middle East and Africa reported human cases in 2006, 2007 and 2008, and several countries in Europe reported cases of avian influenza in birds. For example, Indonesia became the focus of international attention when the largest cluster of human H5N1 virus cases so far was identified. The H5N1 virus is considered firmly entrenched in poultry throughout much of Indonesia, and this widespread presence has resulted in a significant number of human cases. In 2008, 44 cases were reported worldwide, with 33 deaths, according to the WHO.

     To date, Brazil has not had a documented case of avian influenza, although there are concerns that an outbreak of avian influenza may occur in the country in the future. Any outbreak of avian influenza in Brazil could lead to required destruction of our poultry flocks, which would result in decreased sales of poultry by us, prevent recovery of costs incurred in raising or purchasing such poultry, and result in additional expense for the disposal of destroyed poultry. In addition, any outbreak of avian influenza in Brazil would likely lead to immediate restrictions on the export of some of our products to key export markets. Preventive actions adopted by Brazilian authorities, if any, may not be effective in precluding the spread of avian influenza within Brazil.

     Whether or not an outbreak of avian influenza occurs in Brazil, further outbreaks of avian influenza anywhere in the world could have a negative impact on the consumption of poultry in our key export markets or in Brazil, and a significant outbreak would negatively affect our net sales and overall financial performance. Any outbreak could lead to the imposition of costly preventive controls on poultry imports in our export markets. Accordingly, any spread of avian influenza, or increasing concerns about this disease, may have a material and adverse effect on our company.

More stringent trade barriers in key export markets may negatively affect our results of operations.

     Because of the growing market share of Brazilian poultry, pork and beef products in the international markets, Brazilian exporters are increasingly being affected by measures taken by importing countries to protect local producers. The competitiveness of Brazilian companies has led certain countries to establish trade barriers to limit the access of Brazilian companies to their markets. Some countries, such as Russia, impose quotas on Brazilian pork and poultry products, and delays in allocating these quotas or changes in laws or policies regarding these quotas can adversely affect our exports. For example, a delay in allocating quotas for poultry products in Russia in the first half of 2006 resulted in a significant decline in our sales volumes of poultry products to Russia during that period. The Ukraine also restricted pork imports for the retail market, on which higher taxes were levied for a period through December 2008. More recently, in March 2009, the Ukraine initiated an anti-dumping investigation regarding imports of halves and quarters of poultry, as well as legs and cuts of poultry, in each case originating in the United States and Brazil. We were asked to answer a questionnaire from the Ministry of Economy of the Ukraine in connection with the investigation. If the Ukrainian authorities decide to apply anti-dumping measures, these actions could affect our exports to this country.

     The European Union charges protective tariffs designed to mitigate the effects of Brazil’s lower production costs on local European producers. In addition, the European Union has a ban on certain types of Brazilian beef that affects sales of fresh premium cuts and some frozen hindquarter cuts. Developed countries also sometimes use direct and indirect subsidies to enhance the competitiveness of their producers in other markets. For example, French producers receive subsidies for their sales of poultry to countries such as Saudi Arabia, a major importer of poultry products. Trade barriers are sometimes applied indirectly to other parties that are crucial to the export of our products. In addition, local producers in a specific market sometimes exert political pressure on their governments to prevent foreign producers from exporting to their market.

     Any of the above restrictions could substantially affect our export volumes and, consequently, our export sales and financial performance. If new trade barriers arise in our key export markets, we may face difficulties in reallocating our products to other markets on favorable terms, and our business, financial condition and results of operations might be adversely affected.

We face significant competition from Brazilian and foreign producers, which could adversely affect our financial performance.

     We face strong competition from other Brazilian producers in our domestic markets and from Brazilian and foreign producers in the export markets in which we sell our products. The Brazilian market for whole poultry and poultry and pork cuts is highly fragmented, and we face competition from small producers, some of which operate in the informal economy and are able to offer lower prices by meeting lower quality standards. Competition from small producers is a primary reason why we sell a majority of our whole chickens and poultry and pork cuts in the export markets and is a barrier to expanding our sales of those products in the domestic market. In our export markets, we compete with other major vertically integrated Brazilian producers, such as Sadia, that have the ability to produce quality products at low cost, as well as with foreign producers. In the Brazilian milk and dairy products markets, our main competitors are Nestlé Brasil Ltda., Danone Ltda. — Indústria de Alimentos and Itambé Ltda. To varying degrees, our competitors may have strengths in specific product lines and regions as well as greater financial resources. In addition, our poultry and pork cuts, in particular, are highly price-competitive and sensitive to product substitution. Even if we remain a low-cost producer, customers may seek to diversify their sources of supply by purchasing a portion of the products they need from producers in other countries, as some of our customers in key export markets have begun to do. We expect that we will continue to face strong competition in all of our markets and anticipate that existing or new competitors may broaden their product lines and extend their geographic scope. Any failure by us to respond to product, pricing and other moves by competitors may negatively affect our financial performance.

Increased regulation of food safety could increase our costs and adversely affect our results of operations.

     Our manufacturing facilities and products are subject to regular Brazilian federal, state and local, as well as foreign, governmental inspections and extensive regulation in the food safety area, including governmental food processing controls. Changes in government regulations relating to food safety could require us to make additional investments or incur other costs to meet the necessary specifications for our products.

     Our products are often inspected by foreign food safety officials, and any failure to pass those inspections can result in our being required to return all or part of a shipment to Brazil, destroy all or part of a shipment or incur costs because of delays in delivering products to our customers. Any tightening of food safety regulations could result in increased costs and could have an adverse effect on our business and results of operations.

Our export sales are subject to a broad range of risks associated with international operations.

     Export sales account for a significant portion of our net sales, representing 42.9% of our total net sales in March 31, 2009, 43.7% of our total net sales in 2008 and 47.5% of our total net sales in 2007. Our major export markets include the European Union, the Middle East (particularly Saudi Arabia), and the Far East (particularly Japan and Russia), where we are subject to many of the same risks described below in relation to Brazil. Our future financial performance will depend, to a significant extent, on economic, political and social conditions in our main export markets.

Our future ability to conduct business in export markets could be adversely affected by factors beyond our control, such as the following:

	•		exchange rate fluctuations;
	•		deterioration in economic conditions;
	•		imposition of increased tariffs, anti-dumping duties or other trade barriers;
	•		strikes or other events affecting ports and other transport facilities;
	•		compliance with differing foreign legal and regulatory regimes; and
	•		sabotage affecting our products.

     The market dynamics of our important export markets can change quickly and unpredictably due to these factors, the imposition of trade barriers of the type described above and other factors, which together can significantly affect our export volumes, selling prices and results of operations.

Our export sales are highly dependent on conditions at a small number of ports in southern Brazil.

     We export our products primarily through ports in southern Brazil (Paraná, Santa Catarina and Rio Grande do Sul). We have been affected from time to time by strikes of port employees or customs agents, sanitary inspection agents and other government agents at the Brazilian ports from which we export our products. For example, in 2005 and in the third quarter of 2007, Brazilian federal government sanitary inspectors went on strike for approximately one month. A widespread or protracted strike in the future could adversely affect our business and our results of operations.

     In the fourth quarter of 2008, flooding and damage at the ports of Itajaí and Navegantes damaged port infrastructure and required us to divert all our exports in the region of Santa Catarina to three other ports: Rio Grande in the State of Rio Grande do Sul, Paranaguá and São Francisco. These events resulted in reduced shipment levels in November and led to delays in exports that adversely affected our export revenues for the fourth quarter of 2008.

Environmental laws and regulations require increasing expenditures for compliance.

     We, like other Brazilian food producers, are subject to extensive Brazilian federal, state and local environmental laws, regulations, authorizations and licenses concerning, among other things, the handling and disposal of waste, discharges of pollutants into the air, water and soil, and clean-up of contamination, all of which affect our business. Any failure to comply with these laws and regulations or any lack of authorizations or licenses could result in administrative and criminal penalties, such as fines, cancellation of authorizations or revocation of licenses, in addition to negative publicity and liability for remediation or for environmental damage. We cannot operate a plant if the required environmental permit is not valid or current.

     We have incurred, and will continue to incur, capital and operating expenditures to comply with these laws and regulations. Because of the possibility of unanticipated regulatory measures or other developments, particularly as environmental laws become more stringent in Brazil, the amount and timing of future expenditures required to maintain compliance could increase from current levels and could adversely affect the availability of funds for capital expenditures and other purposes. Compliance with existing or new environmental laws and regulations could result in increased costs and expenses.

     Our plants are subject to environmental licensing, based on their pollution potential and usage of natural resources. If any these environmental licenses expire and are not renewed, or have their solicitation of renewal dismissed by the competent environmental authority, we may incur in administrative penalties, such as a fine ranging between R$500 and R$10 million, suspension of operations or closing of the facilities in question. Those same penalties may also be applicable in the case of failure to fulfill the conditions of validity foreseen in the environmental licenses already held by us.

Acquisitions may divert management resources or prove to be disruptive to our company.

     We regularly review and pursue opportunities for strategic growth through acquisitions and other business ventures. We have completed several acquisitions in recent years, as described under “Item 4. Information on the Company—History and Development of the Company—Recent Acquisitions and Investments.” Acquisitions, especially involving sizeable enterprises, may present financial, managerial and operational challenges, including diversion of management attention from existing businesses, difficulty with integrating personnel and financial and other systems, increased compensation expenses for newly hired employees, assumption of unknown liabilities and potential disputes with the sellers. We could also experience financial or other challenges if any of the businesses that we have acquired or may acquire in the future give rise to liabilities or problems of which we are not aware. Acquisitions outside of Brazil may present additional difficulties, such as compliance with foreign legal and regulatory systems and integration of personnel to different managerial practices and would increase our exposure to risks associated with international operations.

     In recent years, the size of our acquisitions has increased significantly, which has increased the magnitude of the challenges described above. In 2008, we completed three acquisitions for an aggregate purchase price of R$1.8 billion, consisting primarily of our acquisitions of Eleva (complementing our dairy product and meat businesses), Plusfood (providing meat processing capabilities in Europe) and Cotochés (adding to the scope of our dairy products business), compared to four acquisitions for an aggregate purchase price of R$348.0 million in 2007. We recently announced a business combination with Sadia, which poses specific risks and challenges discussed under “—Risks Relating to the Proposed Sadia Transaction.”

We are influenced by a group of shareholders that control a significant percentage of our common shares.

     Currently, five pension funds hold a significant percentage of our common shares and, acting together pursuant to a shareholders’ voting agreement, have the ability to significantly influence our decisions. The pension funds owned 35.01% of our total capital on May 31, 2009. They are parties to a shareholders’ voting agreement that sets forth voting arrangements with respect to, among other matters, (1) the election of officers and members of our board of directors and of the fiscal council and (2) the matters set forth in Article 136 of the Brazilian Corporation Law, including decisions relating to dividends, corporate restructurings, our corporate purpose and other matters.

     As a result, these shareholders have, and will continue to have, the power to influence significantly the outcome of important corporate decisions or matters submitted to a vote of our shareholders. The interests of these shareholders may conflict with, or differ from, the interests of other holders of our common shares. Some of our major shareholders are also shareholders of Sadia. See “—Risks Relating to the Proposed Sadia Transaction.”

Unfavorable outcomes in legal proceedings may reduce our liquidity and negatively affect us.

     We are defendants in civil, labor and tax proceedings and are also subject to consent agreements ( termo de ajustamento de conduta ). We cannot assure you that we will obtain favorable decisions in these proceedings or that our reserves will be sufficient to cover potential liabilities resulting from unfavorable decisions. In the ordinary course of business, we outsource labor to third-parties. See “Item 4. Information on the Company—B. Business Overview—Production Process.” If it were to become necessary to revisit this contractual structure, we could incur additional operating expenses. Even in cases in which we have recorded reserves on our balance sheet to cover potential losses, any obligation to pay amounts in these proceedings would have an effect on our cash position. Unfavorable decisions in these proceedings may, therefore, reduce our liquidity and adversely affect our business, financial condition and results of operations. In addition, Eleva is subject to civil, labor and tax proceedings.

We depend on members of our senior management and on our ability to recruit and retain qualified professionals to implement our strategy.

     We depend on members of our senior management and other qualified professionals to implement our business strategies. Efforts to recruit and retain professionals may result in significant additional expenses, which could adversely affect us. In addition, the loss of key professionals may adversely affect our ability to implement our strategy.

Damages not covered by our insurance might result in losses for us, which could have an adverse effect on our business.

     As is usual in our business, our plants, distribution centers, transports, among others are insured. However, certain kinds of losses cannot be insured. If an event that cannot be insured occurs, the investment made by the Company may be lost. In addition, we can be held judicially liable for any indemnification payments to potential victims in such events.

Risks Relating to the Proposed Sadia Transaction

Our proposed business combination with Sadia is subject to antitrust approvals, and any antitrust approval could be conditioned on divestment of a portion of our business.

     On May 19, 2009, we signed a merger agreement with Sadia that contemplates a business combination between us and Sadia. In the business combination, our company is to be renamed BRF — Brasil Foods S.A., and Sadia is expected to become our wholly owned subsidiary. Holders of common shares and preferred shares of Sadia are expected to receive common shares of our company, and holders of ADSs representing preferred shares of Sadia are expected to receive ADSs representing common shares of our company. The transaction is described in more detail under “Item 4. Information on the Company—History and Development of the Company—Proposed Business Combination with Sadia.”

     In accordance with Brazilian law, we and Sadia submitted a summary of the terms and conditions of the business combination and other information about each company to the Brazilian Conselho Administrativo de Defesa Econômica (the Brazilian government agency with antitrust decision making authority, or “CADE”) on June 8, 2009. After an analysis by the Secretaria de Acompanhamento Econômico (the Economic Policy Bureau of the Ministry of the Treasury, or “SEAE”) and the Secretaria de Direito Econômico (the Economic Law Office of the Ministry of Justice, or “SDE”), the CADE will determine whether the business combination negatively impacts consumer conditions in the relevant markets in which we and Sadia compete or whether they would negatively affect consumers. Brazilian antitrust law does not prevent parties from closing a transaction on a provisional basis until the Brazilian antitrust authorities render a final decision. However, the CADE may ask the parties to sign, and the parties have initiated negotiations with the CADE with respect to, an agreement (an Acordo de Preservação da Reversibilidade da Operação , or “Reversibility Agreement”) that requires the parties to keep parts of their businesses separate until a final decision is rendered. If the business combination is approved, it will be retroactive to the date the transaction closed; however, if the business combination is not approved, it will be unwound retroactively to the closing date. As a condition to approving the transaction, the Brazilian antitrust authorities could impose significant conditions or performance commitments on the combined company, including commitments to divest from certain businesses, risks and product lines, trademarks or production facilities. Any such conditions could materially adversely affect our financial performance and prospects.

     Combined, we and Sadia export to more than 100 countries, and the business combination is subject to approval by foreign antitrust authorities. Like the Brazilian authorities, those antitrust authorities could impose significant conditions to their approvals affecting our operations in those regions, particularly in regions in which we have a significant market share. Any such conditions could materially adversely affect our export revenues and growth strategy.

Our proposed business combination with Sadia is subject to approvals (in addition to antitrust approvals) as well as other uncertainties.

     Our proposed business combination with Sadia is subject to a number of conditions, in addition to the European antitrust approval described in the preceding risk factor, including the following:

	•		the approval by the shareholders of our company of a series of corporate actions, including (1) the change in our company’s name, (2) the change in the location of our headquarters to Itajaí in the State of Santa Catarina, (3) changes in the composition of our board of directors, (4) the increase in our share capital necessary for the issuance of shares in connection with the business combination and related equity financing, and (5) the merger of shares ( incorporação de ações ) by which a holding company that will hold a controlling interest in Sadia will become a subsidiary of our company; and
	•		the approval by the shareholders of Sadia of a number of actions, including (1) the disposition of Concórdia Financeira, (Sadia’s banking and brokerage subsidiary), which will not be included in the combined company and (2) changes to the composition of Sadia’s board of directors.

     If we are unable to obtain the necessary approvals, our proposed business combination with Sadia would not be consummated, and we would be unable recover any costs that we have incurred and will incur in connection with the business combination, nor would we be able to realize its expected benefits.

     In addition, although it is not a condition to the consummation of the business combination, both we and Sadia have agreed to use our best efforts to obtain any necessary waivers and consents from financial institutions under any contracts that contain covenants or events of default that would be triggered by the business combination. A significant portion of our outstanding indebtedness contains provisions that may require prepayment or trigger acceleration due to the transaction. We believe that Sadia had at least R$4.9 billion in aggregate principal amount of outstanding indebtedness containing such provisions as of May 31, 2009, including certain derivative instruments. If we or Sadia are unable to obtain consents under any of this indebtedness, we may find it necessary to refinance that indebtedness, which could significantly increase the costs of the business combination.

We expect to raise equity financing before the completion of the business combination, and if the business combination does not close, we will have complete discretion as to the use of the net proceeds of that financing.

     We have previously announced that we plan to raise equity financing to provide gross proceeds in the amount of approximately R$4.0 billion before the consummation of the transaction. The purpose of this equity financing is to enhance the capital base of the combined company resulting from the combination of our company and Sadia. If we undertake this equity financing, it will not be conditioned upon the consummation of the business combination, and if we do not consummate the business combination, we do not currently have any specific use for the net proceeds of the financing. We may, for example, use the net proceeds to acquire or invest in other businesses or product lines, refinance indebtedness or for other uses. We will have complete discretion as to the use of those proceeds and may use them in ways with which investors do not agree or in ways that do not improve our profitability.

     The proposed equity financing would also lead to significant dilution in the ownership percentages of the current holders of our common shares or ADSs representing our common shares.

     This description of a potential equity offering does not constitute an offer to sell or the solicitation of an offer to buy any securities of our company.

If we complete the business combination, we may not realize the expected benefits of the transaction, in the timeframe anticipated or at all, because of integration or other challenges.

     Achieving the expected benefits of the proposed business combination with Sadia will depend on the timely and efficient integration of the operations, business cultures, marketing practices, branding and personnel of Perdigão and Sadia. This integration may not be completed as quickly as expected, and any failure to effectively integrate the two companies or any delay in that integration could increase our costs, adversely affect our margins, adversely affect our financial condition or have other negative consequences. The challenges involved in the integration include, among others, the following:

	•		devising a coherent marketing and branding strategy in our domestic market and our export markets that takes into account the relative strengths of Perdigão’s and Sadia’s marketing and brands in each of those markets and across their many product lines;
	•		integrating two of the largest customer distribution networks in Brazil, as well as distribution networks in Perdigão’s and Sadia’s export markets;
	•		integrating the extensive production facilities of Perdigão and Sadia in several Brazilian states;
	•		the potential loss of key customers of Perdigão or Sadia, or both;
	•		the potential loss of key officers of Perdigão or Sadia, or both;
	•		distraction of management from the ongoing operations of the company;
	•		aligning the standards, processes, procedures and controls of Perdigão and Sadia in the operations of the combined companies; and
	•		increasing the scope, geographic diversity and complexity of our operations.

     The proposed business combination with Sadia is significantly larger than any transaction that either we or Sadia has undertaken in the past, and any combination of the challenges described above could adversely affect our results of operations and prospects and the market price of the common shares or ADSs of the combined company.

Sadia’s use of derivative financial instruments has negatively affected its results of operations, especially in a volatile and uncertain market.

     Sadia has used derivative financial instruments to manage the risk profile associated with interest rates and currency exposure of its debt. For the year ended December 31, 2008, Sadia had a net loss of approximately R$2,365.8 million from financial instruments as compared to a net gain of R$191.6 million in 2007. These losses resulted from a variety of factors, including losses related to changes in the fair value of cross-currency swaps, other currency derivatives attributable to the variation of the U.S. dollar against the real . Companies experienced a period of greater volatility in the global financial and securities markets as part of the worsening of the crisis, which started in 2007. The financial crisis significantly and negatively affected the valuation of Sadia’s derivative instruments portfolio, primarily the valuation of foreign exchange options and currency derivatives related to debt. As a result of increased volatility and variation of the real against the U.S. dollar, there were significant changes in the fair value of Sadia’s derivative instruments portfolio, which triggered the need to make deposits in margin accounts with the counterparties and to incur additional indebtedness to make margin deposits or to settle some of these derivative transactions, negatively affecting Sadia’s liquidity. To the extent that any of these factors persist in 2009, Sadia may continue to incur net losses from its derivative financial instruments.

     The current financial crisis, which has continued into 2009, could also negatively affect Sadia’s derivative financial instruments by weakening the creditworthiness and viability of the financial institutions which act as the counterparties to its derivative transactions. The risk of counterparty default is currently higher in light of existing capital market and economic conditions. Reduced liquidity or financial losses resulting from exposure to the risk of counterparties could have a material adverse effect on Sadia’s cash flow and financial condition. The current economic environment could cause Sadia’s counterparties to breach their obligations under Sadia’s contracts with them by failing to pay Sadia amounts that may become due under its derivative contracts or to seek bankruptcy protection. The instability and uncertainty in the financial markets has also made it difficult to assess the risk of counterparties to derivatives contracts. Any of the foregoing could adversely impact Sadia’s business, financial condition and results of operations.

     Furthermore, the fair value of derivative instruments fluctuates over time as a result of the effects of future interest rates, exchange rates and financial market volatility. These values must be analyzed in relation to the fair values of the underlying transactions and as part of our overall exposure to fluctuations in interest rates and foreign exchange rates. Since valuation is imprecise and variable, it is difficult to accurately predict the magnitude of the risk posed by the use of derivative financial instruments going forward and to state with certainty that Sadia will not be negatively affected by its derivative financial positions.

     Derivative financial instruments are generally subject to margin calls in case the threshold set by the counterparties is exceeded. In certain scenarios, the cash required to cover margin calls may be substantial and may reduce the funds available to Sadia for its operations or other capital needs. Some of Sadia’s derivatives contracts have clauses that reduce the threshold amounts after certain pre-defined credit downgrades by the credit agencies. The change in mark-to-market of some of Sadia’s derivative financial instruments is reflected in its income statement introducing volatility in Sadia’s interest net income and related ratios.

Sadia is subject to significant potential liabilities in connection with litigation, which would become potential liabilities of our combined company after the completion of the business combination.

     Sadia’s businesses are subject to regulation under a wide variety of Brazilian, U.S. federal, state and foreign laws, regulations and policies. Sadia, in particular, is subject to a variety of legal proceedings and legal compliance risks. Sadia’s businesses and the industries in which we operate are at times reviewed or investigated by regulators, which could lead to enforcement actions, fines and penalties or the assertion of private litigation claims and damages. Sadia is a party to a wide range of agreements, contracts and joint ventures with other companies, which could potentially result in litigation if the parties cannot find a common understanding on the issues in dispute.

     In the fall of 2008, the real suffered a strong devaluation, including in relation to the U.S. dollar. As a result of such devaluation, it had sustained significant losses on foreign exchange derivative transactions. In connection therewith, Sadia sold certain of its long-term financial investments to be able to make deposits in margin accounts related to the currency derivatives, which resulted in further losses due to the decrease in the value of such financial instruments as a result of the global economic crisis. In connection with these losses, Sadia, as well as certain individuals who were officers and/or directors of Sadia during the events at issue, were named in five lawsuits in U.S. courts alleging various violations of U.S. federal securities laws related to losses that Sadia incurred with respect to foreign exchange derivative contracts. These five actions have since been consolidated in a single class action lawsuit.

     In addition, on May 15, 2009, Sadia received a letter from the Brazilian Securities and Exchange Commission ( Comissão de Valores Mobiliários ), or “CVM,” informing Sadia that the CVM had initiated a preliminary analysis of possible liability of certain individuals who were officers and/or directors of Sadia for losses in connection with the derivative transactions in 2008. The letter states that the proceeding is still at a preliminary stage, and the CVM has not yet specified which crimes have been committed, or whether any crimes have been committed at all.

     It is not possible to predict whether additional suits will be filed in connection with such derivative losses or what the outcome of any such litigation will be. Although Sadia intends to contest the current lawsuits vigorously, it is possible that there could be unfavorable outcomes in these or other proceedings. At the current stage of the proceedings, it is not possible to determine the probability of loss and/or the amounts involved in any potential loss and the expenses that will be incurred in defending these lawsuits.

     Adverse results in proceedings involving Sadia and/or the incurrence of significant litigation expenses could be material to its business, operations, financial position, profitability or cash flows. If our proposed business combination with Sadia is consummated, Sadia will become our wholly owned subsidiary and we will be subject to any adverse outcomes arising out of proceeedings involving Sadia. Any such adverse results could therefore be material to our business, operations, financial position, profitability or cash flows.

Sadia is subject to significant tax and other potential liabilities in connection with litigation in Brazil , and these would be potential liabilities of our consolidated company after the completion of the business combination.

     Sadia has significant tax and other potential liabilities in connection with litigation in Brazil. As of December 31, 2008, these liabilities included (1) tax proceedings in the aggregate amount of R$1,818.5 million (of which Sadia had recorded provisions for probable losses of R$50.9 million (R$22.6 million of income and social contribution payables and R$28.3 million of other tax proceedings)), (2) civil proceedings in the aggregate amount of R$116.6 million (of which Sadia had recorded provisions for probable losses of R$10.2 million) and (3) labor claims in the aggregate amount of R$67.6 million (of which Sadia had recorded provisions for probable losses of R$28.1 million). The difference between the amounts recorded as provisions for probable losses in each of these categories and the total amounts represent liabilities that Sadia’s management has judged to be possible or remote, and Sadia did not, therefore, record any provision in its financial statements for these contingencies. The losses to Sadia could, therefore, be significantly higher than the amounts for which Sadia has recorded provisions. Even for the amounts recorded as provisions for probable losses, a judgment against Sadia would have an effect on Sadia’s cash flow if it is required to pay those amounts. Sadia may therefore incur significant losses and expenses defending these lawsuits, which could materially adverse its results of operations and financial condition, and these would be potential liabilities of our consolidated company after the completion of the business combination.

Sadia is more highly leveraged than our company, and if we are unable to refinance a significant portion of its indebtedness in connection with the business combination, we would be subject to the risks associated with a higher level of indebtedness.

     Sadia currently has a substantial amount of debt and may incur more debt in the future. As of December 31, 2008, Sadia had total debt of R$8,844.3 million, of which approximately 42.2% (R$3,729.6 million) was denominated in Brazilian reais and approximately 57.8% (R$5,114.7 million) was denominated in foreign currency (primarily U.S. dollars). In addition, as of December 31, 2008, Sadia had R$913.6 million of negative working capital (defined as total current assets minus total current liabilities) and off-balance sheet obligations in the aggregate amount of R$537.7 million. If we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination transaction, Sadia’s significant level of debt could have important consequences for us, including:

	•		requiring that a substantial portion of our cash flows from operations be used for the payment of principal and interest on its debt, reducing the funds available for our operations or other capital needs;
	•		limiting our flexibility in planning for, or reacting to, changes in its business and the industry in which we operate because our available cash flow after paying principal and interest on our debt might not be sufficient to make the capital and other expenditures necessary to address these changes;
	•		increasing our vulnerability to general adverse economic and industry conditions because, during periods in which we experience lower earnings and cash flows, we would be required to devote a proportionally greater amount of our cash flows to paying principal and interest on debt;
	•		limiting our ability to obtain additional financing in the future to fund working capital, capital expenditures, acquisitions and general corporate requirements;
	•		making it difficult for us to refinance our indebtedness or to refinance such indebtedness on terms favorable to us, including with respect to existing accounts receivable securitizations;
	•		placing us at a competitive disadvantage compared to competitors that are relatively less leveraged and that may be better positioned to withstand economic downturns; and
	•		exposing our current and future borrowings made at floating interest rates to increases in interest rates.

Sadia has substantial debt that matures in each of the next several years beyond 2009, and if we are unable to refinance a significant portion of its indebtedness in connection with the business combination, we may not be able to comply with its upcoming payment obligations.

     Sadia currently has a substantial amount of debt and may incur significant additional debt in the future. As of December 31, 2008, it had R$8,844.3 million of total debt, of which approximately 42.2% (R$3,729.6 million) was denominated in Brazilian reais and approximately 57.8% (R$5,114.7 million) was denominated in foreign currency (primarily U.S. dollars). Of its total debt as of December 31, 2008, approximately 34.4% (R$3,037.8 million) was short-term debt, and approximately 16.1% (R$1,421.8 million) was the current portion of the long-term debt and 49.6% (R$4,384.7 million) was long-term debt. Sadia has a substantial amount of debt maturing in the next several years, including debt with an aggregate principal amount of approximately R$1,125.8 million, R$938.7 million and R$663.7 million maturing in 2010, 2011 and 2012, respectively. In addition, as of December 31, 2008, Sadia had R$913.6 million of negative working capital (defined as total current assets minus total current liabilities) and off-balance sheet obligations in the aggregate amount of R$537.7 million. If we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination, we may face difficulties in paying that debt as it matures beyond 2009.

     The global stock and credit markets have recently experienced extreme disruption, including severely diminished liquidity, constrained credit availability and extreme volatility in securities prices. These factors and the continuing market disruption may have an adverse effect on our and, in particular, Sadia’s ability to refinance future maturities, including a significant portion of its indebtedness in connection with the business combination. Continued uncertainty in the stock and credit markets may also negatively impact our ability to access additional short-term and long-term financing before or after completion of the business combination with Sadia on reasonable terms or at all, which could negatively impact our liquidity and financial condition.

     In addition, Sadia’s credit ratings have recently been downgraded by Standard & Poor’s and by Moody’s. The disruptions in the financial and credit markets also may continue to adversely affect Sadia’s credit ratings. Any further deterioration of Sadia’s credit ratings or creditworthiness might negatively impact the availability of financing to our company following consummation of the business combination and the terms on which we could refinance Sadia’s debt, including the imposition of more restrictive covenants and higher interest rates.

     In the years beyond 2009, if we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination and:

	•		the current pressures on credit continue or worsen,
	•		Sadia’s operating results worsen significantly,
	•		Sadia is unable to complete any necessary divestitures of non-core assets and its cash flow or capital resources prove inadequate, or
	•		Sadia is unable to refinance any debt that becomes due, we could face liquidity problems and may not be able to pay our or Sadia’s outstanding debt when due, which could have a material adverse effect on our business and financial condition.

If we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination, the terms of Sadia’s indebtedness will impose significant operating and financial restrictions on us.

     The instruments governing Sadia’s consolidated indebtedness impose significant operating and financial restrictions. These restrictions may limit, directly or indirectly, Sadia’s ability, among other things, to undertake the following actions:

	•		borrow money;
	•		make investments;

	•		sell assets, including capital stock of subsidiaries;
	•		guarantee indebtedness;
	•		enter into agreements that restrict dividends or other distributions from certain subsidiaries;
	•		enter into transactions with affiliates;
	•		create or assume liens; and
	•		engage in mergers or consolidations.

If we are unable to refinance a significant portion of Sadia’s indebtedness in connection with the business combination, these restrictions may, among other things:

	•		impede our ability, and the ability of our subsidiaries, to develop and implement refinancing plans in respect of Sadia’s debt;
	•		limit our ability to seize attractive growth opportunities for our businesses that are currently unknown, particularly if we are unable to obtain financing or make investments to take advantage of these opportunities.

     Although the covenants to which Sadia is subject have exceptions and qualifications, the breach of any of these covenants could result in a default under the terms of its other existing debt obligations. Upon the occurrence of such an event of default, all amounts outstanding under the applicable debt instruments and the debt issued under other debt instruments containing cross-default or cross-acceleration provisions, together with accrued and unpaid interest, if any, might become or be declared immediately due and payable. If such indebtedness were to be accelerated, we and Sadia may have insufficient funds to repay in full any such indebtedness.

     In addition, in connection with the entry into new financings or amendments to existing financing arrangements, Sadia and its subsidiaries’ financial and operational flexibility may be further reduced as a result of more restrictive covenants, requirements for security and other terms.

The consummation of the business combination with Sadia might result in an event of default, a termination event or a breach of covenants under certain instruments governing a portion of Sadia’s indebtedness.

     Under instruments governing at least R$4.9 billion of Sadia’s indebtedness as of May 31, 2009, including certain derivative financial instruments, the consummation of the business combination with Sadia may result in an event of default, a termination event or a breach of one or more covenants, as applicable. In particular, the consummation of the business combination will result in a change of control of Sadia. As a result, following the announcement of the business combination with Sadia, Sadia has engaged in discussions with its lenders and counterparties under those debt instruments with change of control provisions or other provisions triggered by the transaction in order to seek waivers or consents of those provisions. Sadia may be required to pay a premium or a penalty to its lenders or counterparties in order to receive waivers or consents, or they may be unable to obtain these waivers or consents. If they are unable to obtain such waivers or consents, Sadia may find it necessary to prepay the indebtedness outstanding under those debt instruments. We can give no assurances as to whether any of Sadia’s lenders and/or counterparties under the applicable debt instruments will agree to grant its waiver or consent or that Sadia will otherwise be able to prepay the indebtedness outstanding under such debt instruments.

     If Sadia is unable to obtain all necessary waivers or consents before the consummation of the business combination, we may be required to incur significant expense to obtain them or to prepay or refinance the relevant indebtedness. Our agreement with Sadia requires them to use best efforts to obtain the waivers or consents but does not condition the consummation of the business combination upon Sadia’s ability to obtain them. If we find it necessary to prepay or refinance any indebtedness of Sadia containing change of control or other provisions triggered by the business combination, we may need to obtain financing to enable us to do so, and this could accelerate or exacerbate the risks relating to Sadia’s indebtedness that we highlight above.

Debt service requirements under Sadia’s U.S. dollar-denominated debt obligations could heighten our exposure to the risk of fluctuations in the real-U.S. dollar exchange rate.

     A substantial portion of the Sadia’s outstanding debt is denominated in foreign currencies, primarily U.S. dollars. As of December 31, 2008, Sadia’s U.S. dollar denominated debt represented approximately 57.8% (R$5,114.7 million) of its total debt (not giving effect to its currency-related derivatives as of such date). Sadia’s existing U.S. dollar-denominated debt, however, must be serviced by funds generated from sales by its subsidiaries, the majority of which is not denominated in U.S. dollars. Consequently, when it does not generate sufficient U.S. dollar revenues to cover that debt service, Sadia must use revenues generated in reais or other currencies to service its U.S. dollar-denominated debt. Depreciation in the value of the real or any of the other currencies of the countries in which Sadia operates, compared to the U.S. dollar, could adversely affect its ability to service its debt. In 2008, Sadia’s U.S. dollar-denominated operations, together, generated approximately 76.2% of its total net sales in real terms and some of the currencies in which its revenues are denominated suffered material depreciations against the U.S. dollar. If the business combination in consummated, a devaluation in the value of the real , euro or any of the other currencies of the countries in which the combined business operates, compared to the U.S. dollar, could therefore adversely affect our ability to service this Sadia debt. For example, in 2008 the real depreciated approximately 31.9% against the U.S. dollar, the euro depreciated approximately 4% against the U.S. dollar and the British sterling pound depreciated approximately 26% against the U.S. dollar. Foreign currency hedge agreements may not be effective in covering these currency-related risks.

We may incur additional costs in relation to Sadia’s internal controls and information systems.

     We are subject to Section 404 of the Sarbanes-Oxley Act of 2002 as well as SEC rules relating to internal controls over financial reporting, which require that our management annually evaluate the effectiveness of our internal control over financial reporting and disclose the results of that evaluation in this Annual Report. In addition, SEC rules require that our independent auditors prepare an attestation report regarding the effectiveness of our internal control over financial reporting. Although Sadia is a publicly held company in the United States and is also subject to these rules, our management’s report, and our independent auditors’ attestation report, on internal controls for the year ended December 31, 2008 does not address Sadia’s internal control over financial reporting. We may find it necessary to incur expenses and spend time to correct deficiencies and implement additional training. If these deficiencies are serious, and if we cannot remedy them before the filing of our Annual Report on Form 20-F for the next fiscal year, we may not be able to conclude that our internal controls are effective. If this were to occur, investors might lose confidence in our financial statements and the price of our stock could fall.

Risks Relating to Brazil

Brazilian economic, political and other conditions, and Brazilian government policies or actions in response to these conditions, may negatively affect our business and results of operations.

     The Brazilian economy has historically been characterized by interventions by the Brazilian government and unstable economic cycles. The Brazilian government has often changed monetary, taxation, credit, tariff and other policies to influence the course of Brazil’s economy. For example, the government’s actions to control inflation have at times involved setting wage and price controls, blocking access to bank accounts, imposing exchange controls and limiting imports into Brazil. We have no control over, and cannot predict, what policies or actions the Brazilian government may take in the future.

     Our business, results of operations, financial condition and prospects, as well as the market prices of our common shares or the ADSs, may be adversely affected by, among others, the following factors:

	•		exchange rate movements;
	•		exchange control policies;

	•		expansion or contraction of the Brazilian economy, as measured by rates of growth in GDP;
	•		inflation;
	•		tax policies;
	•		other economic political, diplomatic and social developments in or affecting Brazil;
	•		interest rates;
	•		energy shortages;
	•		liquidity of domestic capital and lending markets; and
	•		social and political instability.

     These factors, as well as uncertainty over whether the Brazilian government may implement changes in policy or regulations relating to these factors, may adversely affect us and our business and financial performance and the market price of our common shares and ADSs.

Inflation, and government measures to curb inflation, may adversely affect the Brazilian economy, the Brazilian securities market, our business and operations and the market prices of our common shares or the ADSs.

     Historically, Brazil has experienced high rates of inflation. According to the General Market Price Index ( Índice Geral de Preços do Mercado ) or “IGP-M,” a general price inflation index, the inflation rates in Brazil were 10.4% in 2001, 25.3% in 2002, 8.7% in 2003, 12.4% in 2004, 1.2% in 2005, 3.8% in 2006, 7.7% in 2007 and 9.8% in 2008. In addition, according to the National Extended Consumer Price Index ( Índice Nacional de Preços ao Consumidor Ampliado ), or “IPCA,” published by the IBGE, the Brazilian consumer price inflation rates were 7.7% in 2001, 12.5% in 2002, 9.3% in 2003, 7.6% in 2004, 5.7% in 2005 3.1% in 2006, 4.5% in 2007 and 5.8% in 2008.

     The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates, thereby restricting availability of credit and reducing economic growth. Inflation, actions to combat inflation and public speculation about possible additional actions have also contributed materially to economic uncertainty in Brazil in the past and to heightened volatility in the Brazilian securities markets.

     Brazil may experience high levels of inflation in future periods. Periods of higher inflation may slow the rate of growth of the Brazilian economy, which could lead to reduced demand for our products in Brazil and decreased net sales. Inflation also is likely to increase some of our costs and expenses, which we may not be able to pass on to our customers and, as a result, may reduce our profit margins and net income. In addition, high inflation generally leads to higher domestic interest rates, and, as a result, the costs of servicing our debt may increase, resulting in lower net income. Inflation and its effect on domestic interest rates can, in addition, lead to reduced liquidity in the domestic capital and lending markets, which could affect our ability to refinance our indebtedness in those markets. Any decline in our net sales or net income and any deterioration in our financial condition would also likely lead to a decline in the market price of our common shares and the ADSs.

Exchange rate movements may adversely affect our financial condition and results of operations.

     The Brazilian currency has been devalued frequently over the past four decades. Throughout this period, the Brazilian government has implemented various economic plans and exchange rate policies, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. From time to time, there have been significant fluctuations in the exchange rate between the Brazilian currency and the U.S. dollar and other currencies. For example, the real depreciated against the U.S. dollar, on average, by 19.6% in 2002 and 4.8% in 2003. In 2004, 2005, 2006 and 2007 the real appreciated 8.8%, 13.4%, 9.5% and 16.3%, respectively, against the U.S. dollar. In 2008 the real depreciated 31.9% against the U.S. dollar. For the three months ended March 31, 2009, the real depreciated 0.6% against the U.S. dollar.

     Any appreciation of the real against the U.S. dollar may lead to a deterioration of the country’s current account and the balance of payments, as well as to a dampening of export-driven growth. Our production costs are denominated in reais , but our export sales are mostly denominated in U.S. dollars or euros. Financial revenues generated by exports are reduced when translated to reais in the periods in which the real appreciates in relation to the U.S. dollar. Any such appreciation could reduce the competitiveness of our exports and adversely affect our net sales and our cash flows from exports.

     Devaluation of the real against the U.S. dollar could create additional inflationary pressures in Brazil by increasing the price of imported products and requiring deflationary government policies. In addition, the prices of soy meal and soybeans, important ingredients of our animal feedstock, are closely linked to the U.S. dollar, and many of the mineral nutrients added to our feedstock must be purchased in U.S. dollars.

     The price of corn, another important ingredient of our feedstock, is also linked to the U.S. dollar to a lesser degree. In addition to feedstock ingredients, we purchase sausage casings, breeder eggs, packaging and other raw materials, as well as equipment for use in our production facilities, from suppliers located outside Brazil whom we must pay in U.S. dollars or other foreign currencies. When the real depreciates against the U.S. dollar, the cost in reais of our U.S. dollar-linked raw materials and equipment increases, and these increases could materially adversely affect our results of operations.

     We had total foreign currency-denominated debt obligations in an aggregate amount of R$4,138.0 million at December 31, 2008, representing 77% of our total consolidated indebtedness at that date. A significant portion of our consolidated debt is denominated in foreign currencies because export credit facilities available in foreign currencies often have attractive financing conditions and costs compared to other financing sources. However, these foreign-currency denominated credit facilities also expose us to a greater degree of foreign exchange risk. We manage a portion of our exchange rate risk through foreign currency swaps and investments, and cash flows from export sales are in U.S. dollars and other foreign currencies, but our foreign currency debt obligations are not completely hedged. At December 31, 2008, our consolidated exchange rate exposure was U.S.$821.3 million. A significant devaluation of the real in relation to the U.S. dollar or other currencies could increase the debt service requirements of our foreign currency-denominated obligations.

Fluctuations in interest rates may have an adverse effect on our business and the market prices of our common shares or the ADSs.

     The Central Bank establishes the basic interest rate target for the Brazilian financial system by reference to the level of economic growth of the Brazilian economy, the level of inflation and other economic indicators. From February to July 17, 2002, the Central Bank reduced the basic interest rate from 19% to 18%. From October 2002 to February 2003, the Central Bank increased the basic interest rate by 8.5 percentage points, to 26.5% on February 19, 2003. The basic interest rate continued to increase until June 2003 when the Central Bank began to decrease it, reaching 11.25% in April 2008. In 2008, the Central Bank reversed the trend, increasing the basic interest rate to 13.75%.

     At December 31 2008, approximately 70% of our total liabilities from indebtedness and derivative instruments of R$3,747.0 million was either (1) denominated in (or swapped into) reais and bears interest based on Brazilian floating interest rates, such as the Long-Term Interest Rate ( Taxa de Juros de Longo Prazo ), or “TJLP,” the interest rate used in our financing agreements with Brazilian National Bank for Economic and Social Development ( Banco Nacional de Desenvolvimento Econômico e Social—BNDES ), or “BNDES,” and the Interbank Deposit Certificate Rate ( Certificado de Depositário Interbancário ), or “CDI” rate, an interbank certificate of deposit rate that applies to our foreign currency swaps and some of our other real -denominated indebtedness, or (2) U.S. dollar-denominated and bears interest based on LIBOR. Any increase in the CDI, TJLP or LIBOR rates may have an adverse impact on our financial expenses and our results of operations.

Changes in tax laws may increase our tax burden and, as a result, negatively affect our profitability.

     The Brazilian government regularly implements changes to tax regimes that may increase our and our customers’ tax burdens. These changes include modifications in the rate of assessments and, on occasion, enactment of temporary taxes, the proceeds of which are earmarked for designated governmental purposes. Since 2003, the Brazilian government presented certain tax reform proposals, which have been mainly designed to simplify the Brazilian tax system, to avoid internal disputes within and between the Brazilian states and municipalities, and to redistribute tax revenues. The tax reform proposals provide for changes in the rules governing the federal Social Integration Program ( Programa de Integração Social ), or “PIS,” the federal Contribution for Social Security Financing ( Contribuição para Financiamento da Seguridade Social — COFINS ), or “COFINS,” the state Tax on the Circulation of Merchandise and Services ( Imposto Sobre a Circulação de Mercadorias e Serviços ), or “ICMS,” and some other taxes. For example, in early 2008, the Brazilian Federal Government submitted to appreciation of the legislature a new tax reform proposal to change the structure of the current corporate income tax and replace a series of existing taxes for a new value-added tax, among other things. These proposals are not assured to be approved and passed into law.

     The effects of these proposed tax reform measures and any other changes that result from enactment of additional tax reforms have not been, and cannot be, quantified. However, some of these measures, if enacted, may result in increases in our overall tax burden, which could negatively affect our overall financial performance.

Restrictions on the movement of capital out of Brazil may adversely affect your ability to receive dividends and distributions on, or the proceeds of any sale of, our common shares and the ADSs.

     Brazilian law permits the Brazilian government to impose temporary restrictions on conversions of Brazilian currency into foreign currencies and on remittances to foreign investors of proceeds from their investments in Brazil, whenever there is a serious imbalance in Brazil’s balance of payments or there are reasons to expect a pending serious imbalance. The Brazilian government last imposed remittance restrictions for approximately six months in 1989 and early 1990. The Brazilian government may take similar measures in the future. Any imposition of restrictions on conversions and remittances could hinder or prevent holders of our common shares or the ADSs from converting into U.S. dollars or other foreign currencies and remitting abroad dividends, distributions or the proceeds from any sale in Brazil of our common shares. Exchange controls could also prevent us from making payments on our U.S. dollar-denominated debt obligations and hinder our ability to access the international capital markets. As a result, exchange controls restrictions could reduce the market prices of our common shares and the ADSs.

Risks Relating to Our Common Shares and the ADSs

Holders of ADSs may find it difficult to exercise voting rights at our shareholders’ meetings.

     Holders of ADSs may exercise voting rights with respect to our common shares represented by ADSs only in accordance with the deposit agreement governing the ADSs. Holders of ADSs will face practical limitations in exercising their voting rights because of the additional steps involved in our communications with ADS holders. For example, we are required to publish a notice of our shareholders’ meetings in specified newspapers in Brazil. Holders of our common shares will be able to exercise their voting rights by attending a shareholders’ meeting in person or voting by proxy. By contrast, holders of ADSs will receive notice of a shareholders’ meeting by mail from the ADR depositary following our notice to the depositary requesting the depository to do so. To exercise their voting rights, holders of ADSs must instruct the ADR depositary on a timely basis. This voting process necessarily will take longer for holders of ADSs than for holders of our common shares. If the ADR depositary fails to receive timely voting instructions for all or part of the ADSs, the depositary will assume that the holders of those ADSs are instructing it to give a discretionary proxy to a person designated by us to vote their ADSs, except in limited circumstances.

     Holders of ADSs also may not receive the voting materials in time to instruct the depositary to vote our common shares underlying their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions of the holders of ADSs or for the manner of carrying out those voting instructions. Accordingly, holders of ADSs may not be able to exercise voting rights, and they will have little, if any, recourse if the common shares underlying their ADSs are not voted as requested.

Non-Brazilian holders of ADSs and common shares may face difficulties in protecting their interests because we are subject to different corporate rules and regulations as a Brazilian company and our shareholders may have less extensive rights.

     Holders of ADSs will not be direct shareholders of our company and will be unable to enforce the rights of shareholders under our by-laws and the Brazilian Corporation Law.

     Our corporate affairs are governed by our by-laws and the Brazilian Corporation Law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the State of Delaware or New York, or elsewhere outside Brazil. Even if a holder of ADSs surrenders its ADSs and becomes a direct shareholder, its rights as a holder of our common shares under the Brazilian Corporation Law to protect its interests relative to actions by our board of directors or executive officers may be fewer and less well-defined than under the laws of those other jurisdictions.

     Although insider trading and price manipulation are crimes under Brazilian law, the Brazilian securities markets are subject to different levels of regulations and supervision than the U.S. securities markets or the markets in some other jurisdictions. In addition, rules and policies against self-dealing or for preserving shareholder interests may be less well-defined and enforced in Brazil than in the United States and certain other countries, which may put holders of our common shares and the ADSs at a potential disadvantage. Corporate disclosures also may be less complete or informative than for a public company in the United States or in certain other countries.

Non-Brazilian holders of ADSs and common shares may face difficulties in serving process on or enforcing judgments against us and other persons.

     We are a corporation ( sociedade anônima ) organized under the laws of Brazil, and all of our directors and executive officers and our independent public accountants reside or are based in Brazil. Most of the assets of our company and of these other persons are located in Brazil. As a result, it may not be possible for non-Brazilian holders of ADSs and common shares to effect service of process upon us or these other persons within the United States or other jurisdictions outside Brazil or to enforce against us or these other persons judgments obtained in the United States or other jurisdictions outside Brazil. Because judgments of U.S. courts for civil liabilities based upon the U.S. federal securities laws may only be enforced in Brazil if certain conditions are met, holders may face greater difficulties in protecting their interests in the case of actions by us or our directors or executive officers than would shareholders of a U.S. corporation.

Judgments of Brazilian courts with respect to our common shares may be payable only in reais.

     If proceedings are brought in the courts of Brazil seeking to enforce our obligations in respect of the common shares, we may not be required to discharge our obligations in a currency other than reais . Under Brazilian exchange control limitations, an obligation in Brazil to pay amounts denominated in a currency other than reais may only be satisfied in Brazilian currency at the exchange rate, as determined by the Central Bank, in effect on the date the judgment is obtained, and such amounts are then adjusted to reflect exchange rate variations through the effective payment date. The then prevailing exchange may not afford non-Brazilian investors with full compensation for any claim arising out of or related to our obligations under the common shares or the ADSs.

Holders of ADSs and non-Brazilian holders of our common shares may be unable to exercise preemptive rights and tag-along rights with respect to our common shares underlying the ADSs.

     Holders of ADSs and non-Brazilian holders of our common shares may be unable to exercise the preemptive rights and tag-along rights relating to our common shares (including common shares underlying ADSs) unless a registration statement under the U.S. Securities Act of 1933, as amended, or the “Securities Act,” is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration is available, a holder may receive only the net proceeds from the sale of his or her preemptive rights or tag-along, or if these rights cannot be sold, they will lapse and the holder will receive no value from them.

Provisions in our by-laws may prevent efforts by our shareholders to change our control or management.

     Our by-laws contain provisions that may discourage, delay or make more difficult a change in control of our company or removal of our directors. Subject to limited exceptions, these provisions require any shareholder that acquires shares representing 20% or more of our share capital to, within 30 days from the date of such acquisition, commence a tender offer with respect to all of our share capital for a price per share equivalent to the greatest of: (1) the economic value of our company, which shall be equivalent to the arithmetic average of the mean points of the economic value ranges obtained in two appraisal reports prepared based on the discounted cash flow method, as long as the variation between these mean points shall not exceed 10%, in which case the economic value shall be determined through arbitration; (2) 135% of the issue price of the shares issued in any capital increase through a public offering that takes place within the 24-month period before the date on which the public offering shall become mandatory, duly adjusted in accordance with the IPCA variation up to the date of payment; and (3) 135% of the unit price of our shares within the 30-day period before the public offering. These provisions of our by- laws may delay, defer or prevent a transaction or a change in control that might otherwise be in the best interests of our shareholders.

Holders of ADSs could be subject to Brazilian income tax on capital gains from sales of ADSs.

     Historically, any capital gain realized on a sale or other disposition of ADSs between non-Brazilian holders outside Brazil was not subject to Brazilian income tax. However, a December 2003 Brazilian law (Law No. 10,833) provides that “the acquirer, individual or legal entity resident or domiciled in Brazil, or the acquirer’s attorney-in-fact, when such acquirer is resident or domiciled abroad, shall be responsible for the retention and payment of the income tax applicable to capital gains earned by the individual or legal entity resident or domiciled abroad who disposes of property located in Brazil.” The Brazilian tax authorities have issued a normative instruction confirming that they intend to assess income tax on capital gains earned by non-Brazilian residents whose assets are located in Brazil. It is unclear whether ADSs representing our common shares, which are issued by the ADR depositary outside Brazil, will be deemed to be “property located in Brazil” for purposes of this law. Accordingly, we cannot determine whether Brazilian tax authorities will attempt to tax any capital gains arising from the sale or other disposition of the ADSs, even when the transaction is consummated outside Brazil between non-Brazilian residents.

Brazilian taxes may apply to a gain realized by a non-Brazilian holder on the disposition of common shares to another non-Brazilian holder.

     The gain realized by a non-Brazilian holder on the disposition of common shares to another non-Brazilian holder (other than a disposition of shares held pursuant to Resolution No. 2,689, as amended, of the Brazilian Monetary Councel ( Conselho Monetário Nacional , or “CMN”)) is generally viewed as being subject to taxation in Brazil. Pursuant to Law No. 10,833/03, Brazilian tax authorities may assess income tax on capital gains earned by non-Brazilian residents in transactions involving assets that are located in Brazil. In this case, the tax rate applicable on the gain would be 15% (or 25% in the case of a non-Brazilian holder organized under the laws of or a resident of a tax haven). For additional discussion of the tax consequences of a disposition of our common shares, see “Item 10. Additional Information—Taxation.”

The relative volatility and limited liquidity of the Brazilian securities markets may negatively affect the liquidity and market prices of our common shares and the ADSs.

     The Brazilian securities markets are substantially smaller, less liquid and more volatile than major securities markets in the United States. The BM&F Bovespa — Securities, Commodities & Futures Exchange, or the “São Paulo Stock Exchange,” had a total market capitalization of R$1,375.3 billion, or U.S.$588.5 billion, at December 31, 2008 and an average daily trading volume of R$5,525.5 million for 2008. By contrast, the New York Stock Exchange had a market capitalization of U.S.$10.18 trillion at December 31, 2008 (U.S. domestic listed companies) and an average daily trading volume of U.S.$268.2 billion for 2008. The Brazilian securities markets are also characterized by considerable share concentration.

The ten largest companies in terms of market capitalization represented approximately 52.4% of the aggregate market capitalization of the São Paulo Stock Exchange at December 31, 2008. In addition, the ten most widely traded stocks in terms of trading volume accounted for approximately 59.6% of all shares traded on the São Paulo Stock Exchange in 2008. These market characteristics may substantially limit the ability of holders of the ADSs to sell common shares underlying ADSs at a price and at a time when they wish to do so and, as a result, could negatively impact the market prices of these securities.

Developments and the perception of risks in other countries, especially emerging market countries, may adversely affect the market prices of our common shares and the ADSs.

     The market for securities issued by Brazilian companies is influenced, to varying degrees, by economic and market conditions in other emerging market countries. Although economic conditions are different in each country, the reaction of investors to developments in one country may cause the capital markets in other countries to fluctuate. Developments or adverse economic conditions in other emerging market countries have at times resulted in significant outflows of funds from, and declines in the amount of foreign currency invested in, Brazil. For example, in 2001, after a prolonged recession, followed by political instability, Argentina announced that it would no longer continue to service its public debt. The economic crisis in Argentina negatively affected, for several years, investors’ perceptions of Brazilian securities. Economic or political crises in Latin America or other emerging markets may significantly affect perceptions of the risk inherent in investing in the region, including Brazil.

     The Brazilian economy also is affected by international economic and market conditions generally, especially economic and market conditions in the United States. Share prices on the São Paulo Stock Exchange, for example, have historically been sensitive to fluctuations in U.S. interest rates as well as movements of the major U.S. stock indexes.

     Developments in other countries and securities markets could adversely affect the market prices of our common shares or the ADSs and could also make it more difficult for us to access the capital markets and finance our operations in the future on acceptable terms or at all.

We may become a passive foreign investment company, which could result in adverse U.S. tax consequences to U.S. investors.

     Based on our financial statements, relevant market and shareholder data, and the projected composition of our income and valuation of our assets, including goodwill, we do not believe that we would be a passive foreign investor company, or PFIC, for U.S. federal income tax purposes for 2008, and we do not expect to be a PFIC for 2009 or in the future, although we can provide no assurances in this regard. If we become a PFIC, U.S. holders of our common shares or ADSs may become subject to increased tax liabilities under U.S. tax laws and regulations and will become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and will depend on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. tax purposes if either (i) 75% or more of our gross income in that taxable year is passive income or (ii) the average percentage of our assets (which includes cash) by value in that taxable year which produce or are held for the production of passive income is at least 50%. The calculation of the value of our assets will be based, in part, on the quarterly market value of our common shares and ADSs, which is subject to change. See “Item 10. Additional Information—Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company.”

ITEM 4. INFORMATION ON THE COMPANY

A. History and Development of the Company.

Corporate History

     Perdigão S.A. is a publicly held company in Brazil and is, therefore subject to the requirements of the Brazilian Corporation Law and the rules and regulations of the CVM.

     We were founded by the Brandalise and Ponzoni families in 1934 as Ponzoni, Brandalise e Cia, in the southern State of Santa Catarina and remained under the Brandalise family’s management until September 1994. In 1940, we expanded our operations from general trading, with an emphasis on food and food-related products, to include pork processing. During the 1950s, we entered the poultry processing business. During the 1970s, we broadened the distribution of our products to include export markets, starting with Saudi Arabia. From 1980 through 1990, we expanded our export markets to include Japan in 1985 and Europe in 1990. We also undertook a series of acquisitions in the poultry and pork processing business and made investments in other businesses.

     From 1990 through 1993, we suffered substantial losses because of increased financial expenses, underinvestment in product development, limited capacity and modest marketing of our products. By September 1994, we faced a liquidity crisis, as a result of which the Brandalise family sold their interest in our company, consisting of 80.68% of our common shares and 65.54% of our preferred shares, to eight pension funds:

	•		PREVI—Caixa de Previdência dos Funcionários do Banco do Brasil, or “PREVI,” the pension fund of employees of Banco do Brasil S.A.;
	•		Fundação Telebrás de Seguridade Social—SISTEL, or “SISTEL,” the pension fund of employees of Telecomunicações Brasileiras S.A.—Telebrás;
	•		PETROS—Fundação Petrobras de Seguridade Social, or “PETROS,” the pension fund of employees of Petróleo Brasileiro S.A.—Petrobras;
	•		Real Grandeza Fundação de Assistência e Previdência Social, or “Real Grandeza,” the pension fund of employees of Furnas Centrais Elétricas S.A.—Furnas;
	•		Fundação de Assistência e Previdência Social do BNDES—FAPES, or “FAPES,” the pension fund of employees of Banco Nacional de Desenvolvimento Economico e Social—BNDES;
	•		PREVI—BANERJ—Caixa de Previdência dos Funcionários do Banerj, or “PREVI—BANERJ,” the pension fund of employees of Banco do Estado do Rio de Janeiro S.A.;
	•		VALIA—Fundação Vale do Rio Doce, or “VALIA,” the pension fund of employees of Companhia Vale do Rio Doce; and
	•		TELOS—Fundação Embratel de Seguridade Social, or “TELOS,” the pension fund of employees of Empresa Brasileira de Telecomunicações—Embratel.

     Upon acquiring control of our company, the eight original pension funds hired a new team of executive officers who restructured management and implemented capital increases and modernization programs. Our new management engaged in a corporate restructuring, disposed of or liquidated non-core business operations and improved our financial structure.

     Five of the eight original pension funds remain our shareholders, TELOS and PREVI-BANERJ sold all of their shares in our company in 2003 and October 2007, respectively. Real Grandeza sold its shares in 2008 and 2009. See “Item 7.  Major Shareholders and Related Party Transactions—A. Major Shareholders.”

     On March 6, 2006, the Pension Funds entered into a shareholders’ voting agreement related to the common shares they, directly or indirectly, held at the date of its first amendment executed on April 12, 2006, which represented 49.0% of our common shares. We no longer have outstanding preferred shares following our April 2006 share reclassification. As of May 31, 2009, the Pension Funds, directly or indirectly, held 35.01% of our common shares.

Corporate Structure

     We are an operating company incorporated under Brazilian law, and we conduct business through our operating subsidiaries. The following table sets forth our principal subsidiaries.

		Country of
Subsidiary		Incorporation		Business
Crossban Holdings GMBH		Austria		Holding company of international subsidiaries
Perdigão International Ltd.		Cayman Islands		Principal export subsidiary
Perdix International Foods Comércio International Lda		Portugal		Distributor for exports to the European Union
Plusfood Groep BV		The Netherlands		Holding company of international subsidiaries

     The chart below shows the corporate structure of our company. Except where other percentages are specified in the chart, the subsidiaries shown are wholly owned by Perdigão S.A.

     The Acheron Beteiligungsverwaltung GmbH subsidiary owns one hundred direct subsidiaries in Madeira Island, Portugal, whose purpose is to operate in the European market and to enable us to increase our participation in that market to the extent exports of poultry to Europe are regulated through quotas. The investments in these subsidiaries totaled R$785.0 million as of March 31, 2009.

Recent Acquisitions and Investments

     Since 2006, the Company has experienced significant changes guided by its growth plan, which is based on several acquisitions and entry into new businesses. As result of these acquisitions, the Company has grown and diversified its business, increasing its share in the chicken and pork products markets and entering into the milk, margarine and beef markets.

     Within this process of growth, the Company has undergone a comprehensive corporate reorganization, aimed at maintaining the sustainability of the Company’s business by simplifying its corporate structure and reducing costs of operation, tax and financing, and those related to the reorganization of its operational activities.

Sino dos Alpes

     On March 30, 2007, we acquired Sino dos Alpes Alimentos Ltda. in Bom Retiro do Sul in the State of Rio Grande do Sul, a subsidiary of Grandi Salumifici Italiani (“GSI”), a leading group in the Italian specialty meats industry. The acquisition was valued at approximately R$0.4 million, and we assumed liabilities of R$5.0 million. The plant manufactures high quality specialty items, such as bologna sausage, frankfurters and sausage made from selected meats. The products, sold under the Senfter and Sinosul brand names, are prepared from special recipes with the flavor of homemade seasoning typical of the state of Rio Grande do Sul. With this acquisition, Perdigão intends to reduce bottlenecks at its plants in the south of the country, centralizing the production of small-scale lines for specific market niches at the new unit.

Pet Food

     In April 2007, we made our debut in the pet food market, launching dog food under the Balance and Supper brands. These products are the first in the Essential Pet Care portfolio, a division specifically created for the pet food market with an eye toward identifying opportunities in sectors with growth potential. We have invested approximately R$4 million in the assembly of a modern dog food production line in the animal feed plant at Francisco Beltrão in the State of Paraná. The production volume may be adjusted according to market demand.

Plusfood

     On January 2, 2008, we acquired the Dutch company Plusfood Groep B.V. (“Plusfood”) for a purchase price of R$43.0 million. Plusfood manufactures poultry and beef-based processed and convenience food products and owns two important brands in the European market: Fribo for hamburgers, which was acquired by Perdigão, and Friki for poultry products, a brand that we have the right to use for up to five years under an assignment of use agreement.

     Plusfood has the capacity to manufacture approximately 20,000 tons per year of finished products. The main items in its product mix are chicken nuggets and other breaded products, boiled and grilled chicken, and several hamburger varieties. The main markets for Plusfood products are the United Kingdom, Italy, the Netherlands, Spain, Germany and France. This acquisition’s principal objectives are to advance our European sales and focus on the retail and food service segments. We also expect to improve our efficiency and timing for developing new products for European customers, improve our time to market and increase control over the marketing and distribution services in these channels.

Valore

     On June 19, 2007, we announced the approximately R$110.0 million acquisition of the assets of the beef plant of Valore Participações e Empreendimentos Ltda. and its partners, currently operated by Unifrigo in Mirassol D’Oeste in the State of Mato Grosso. This acquisition meets our goal of expanding our beef operations by 2011 as set out in our strategic plan.

     The Valore beef plant’s capacity has been expanded to 2,000 heads per day. Expansion work followed international animal health and food safety standards in addition to environmental protection requirements. Once concluded, the plant began to operate with two shifts, and as it gradually reaches full production capacity, we expect to hire an additional 1,500 employees from the region.

     Operating with advanced technology, the Valore beef plant is already exporting to Russia, the United Arab Emirates, Angola, Kuwait, Morocco, the West Indies and Georgia, among others, and is expected to receive authorization to sell its products in the European Union and to other countries. The company’s intention is to allocate the majority of its production to our export markets.

Paraíso Agroindustrial

     On July 31, 2007, we acquired Paraíso Agroindustrial, a company based in Jataí, in the State of Goiás, which operates a poultry slaughtering unit and an animal feed plant. We acquired the company from the Gale group at a price of R$28.7 million, generating goodwill of R$22.3 million. This acquisition is the final stage of a transaction that began in November 2005, when we acquired a hatchery and poultry farm from the Gale group. The slaughter capacity of this unit is equivalent to 65,000 heads of poultry per day. On August 1, 2007, this company was merged into Perdigão Agroindustrial S.A.

Unilever Margarine Business

     On August 1, 2007, we acquired Unilever N.V.’s margarine business, including 100% of the shares in the capital stock of Ava Comércio e Representações Ltda., a company that held the Delicata and Claybom margarine brands. We also acquired the Doriana brand from Unilever and the assets (machinery and equipment) used in manufacturing these products in the city of Valinhos, State of São Paulo. The total acquisition price was R$74.8 million, generating goodwill of R$65.8 million. These margarine products supplement our range of refrigerated and frozen products, and growth in this market is one of the priorities we have established in our expansion plan. We also formed a joint venture with Unilever to manage the Becel and Becel ProActiv branded margarine products and to identify other business opportunities. This strategic alliance was formed to introduce in the Brazilian market products intended for health-conscious consumers. The joint venture is intended to combine our track record in manufacturing, selling and distributing food products in Brazil with the advanced technology, marketing, innovation and internationally recognized brands belonging to Unilever. On August 1, 2007, we merged Ava Comércio e Representações Ltda. into Perdigão Agroindustrial S.A.

Expansion of Nova Mutum Facility and Support for Poultry Unit

     On August 17, 2007, we broke ground on a construction site for the expansion of our Nova Mutum facility in the State of Mato Grosso. This expansion should enable us to raise the unit’s capacity for slaughtering poultry by 600% in two years, from 40,000 to 280,000 heads per day. In addition, we entered into a memorandum of intent to ensure the feasibility of the construction of Frigorífico União Avícola Agroindustrial in Nova Marilândia, State of Mato Grosso, a poultry slaughterhouse planned by a group of integrated producers. This unit will provide us with slaughtering services for chickens produced in the region and by the local integrated producers, which are currently taken to the slaughterhouse at Nova Mutum. The initial slaughter capacity is expected to be 6,000 heads per hour (48,000 heads per day). The estimated total investment is R$130.0 million.

Bom Conselho

     On September 17, 2007, we entered into a memorandum of intent with the government of the State of Pernambuco and the local authorities of the municipality of Bom Conselho, located 287 kilometers from Recife, for the construction of an agro-industrial complex. We intend to build two plants in the complex on a plot of 100 hectares – one for processing dairy products and the other for processing specialty meat – as well as a distribution center. The forecasted total investment is R$280 million, divided between fixed and working capital. A total of R$170 million has been allocated for investment in permanent assets. About half of the work on the complex was completed in 2008. The first module, for dairy products, is expected to come on stream for the second half of 2009 at 50% of the expected total capacity. Construction of the new complex started in the end of 2007 and should be completed in 18-24 months.

     Construction of this complex should bring production closer to the consumer and labor markets, strengthening our presence in the northeastern region of Brazil and increasing the range of products we offer consumers. Beyond the strong demand in the region, other favorable factors include Bom Conselho’s status as one of the best dairy cattle regions in the State of Pernambuco, the availability of water and labor and the strategic location of Bom Conselho from a logistics standpoint for reaching the entire northeastern region.

     We have received funds from the Constitutional Fund of the Northeast ( Fundo Constitucional do Nordeste ) to finance this project, for which total investments are estimated at R$280.0 million, including for investments in permanent assets and working capital of Perdigão and Batávia and investments in permanent assets from third parties. These funds will be used to purchase trucks for the distribution of meat-based products and milk, storage and cooling tanks and milking equipment. The project will also receive incentives from the Government of the State of Pernambuco through the Program for the Development of the State of Pernambuco ( Programa de Desenvolvimento de Pernambuco, or Prodepe ). The local authorities in Bom Conselho are expected to modify the infrastructure of the area to facilitate construction of the complex. The rural producers will have access to credit lines from the Brazilian National Program for Strengthening Family Farming ( Programa Nacional de Fortalecimento da Agricultura Familiar , or Pronaf ) to allow them to increase and improve the procurement of raw materials in order to meet future demand for dairy products.

Batávia

     On November 28, 2007, we acquired the remaining 49% interest in Batávia S.A., or “Batávia”, held by Cooperativa Central Agromilk Ltda., Cooperativa Agropecuária Castrolanda, Batavo Cooperativa Agroindustrial and Capal Cooperativa Agroindustrial for R$155.1 million, generating goodwill of R$112.9 million. As a consequence, Batávia became our wholly owned subsidiary. We paid the purchase price with our own funds. Batávia’s results of operations had already been consolidated in our financial statements, but the minority interest had been recorded separately. Previously, on May 26, 2006, the Company acquired 51% of the representative shares of the capital stock of Batávia and machinery and equipment, for R$113.4 million (net of cash acquired in the amount of R$2.6 million) and including acquisition costs of R$1.3 million, generating goodwill of R$75.5 million.

     On December 31, 2008, Batávia was merged into the Company.

Eleva Alimentos

     On February 21, 2008, we completed the acquisition of Eleva Alimentos S.A., or “Eleva”, a Brazilian company in the food industry, with a focus on milk, dairy products, poultry, pork and processed food products, for a purchase price of approximately R$1.7 billion, of which R$764.6 million was paid in cash to the controlling and non-controlling shareholders of Eleva and R$911.6 million was paid through the exchange of shares of Eleva for shares of Perdigão. The Eleva acquisition aligned with our growth plan and strategy, as Eleva’s operations focus on chicken and pork and dairy-processed products.

     We consolidated our operations in the milk and dairy-processed products business, complementing Eleva’s operations mainly concentrated in liquid milk, powdered milk and cheese with the Batávia business, based on dairy-processed products. The acquisition has also permitted us to expand our geographic coverage through Eleva’s chicken slaughtering and processing plants in the States of Bahia, where we previously had no industrial units, and Mato Grosso do Sul.

     On April 30, 2008, we merged Eleva, which was then our wholly owned subsidiary, into Perdigão. On May 1, 2008, we merged into the wholly owned subsidiary Perdigão Agroindustrial S.A. the equity interest in the companies Avipal S.A. Construtora and Incorporadora, Avipal S.A. Alimentos, Avipal Nordeste S.A., Avipal Centro-Oeste S.A. and Estabelecimento Levino Zaccardi y Cia. S.A. (all former wholly owned subsidiaries of Eleva).

     See “Item 10. Additional Information—C. Material Contracts—The Eleva Acquisition.”

Cotochés

     On April 2, 2008, through our subsidiary Perdigão Agroindustrial S.A., we acquired 100% of the issued and outstanding quotas of capital stock of the company Maroca e Russo Indústria e Comércio Ltda. (Cotochés), a company in the dairy-processed products industry, located in Minas Gerais, for R$51.0 million plus the assumption of R$15.0 million in debt. The Cotochés portfolio includes about 50 items, among them, long life milk (UHT), powdered milk, cheeses, butter, cream cheese, cream milk, fermented milk and yogurts, all sold under the Cotochés , Moon Lait and Pettilé brand names. On December 31, 2008, the wholly owned subsidiary Cotochés was merged into the Company.

Construction Projects

     On June 10, 2008, we announced the construction of a powdered milk processing plant in Três de Maio, in the State of Rio Grande do Sul, on a plot of 30 hectares donated by the municipal government. This unit is expected to have the capacity to process 2,000 tons per month of powdered milk. As part of our strategy for increasing the value-added content of our dairy products portfolio, an additional R$65.0 million is expected to be invested into this unit, with completion scheduled for February 2010.

     In September 2008, we completed the construction of Mineiros Agroindustrial Complex, which was built with the purpose of processing special poultry (turkeys), with more than two-thirds of the output to be exported. The complex is currently operating at full capacity of 81,000 tons of processed products per year. The total investment amounted to R$240.0 million.

     During 2008, we completed the first phase of construction of the Embu distribution center, which consists of three storage environments: frozen, chilled and dry foodstuffs. The Embu distribution center manages storage and distribution to the entire southeast region of Brazil, using an integrated warehouse management system. This system has been upgraded with advanced technology, including two mega-antechambers, one for delivery and the other for dispatching merchandise. The second phase of the project – the installation of a transelevator system, involving robotic inventory processing – should be completed in the third quarter of 2009.

     The Rio Verde mega distribution center is very similar to the Embu distribution center, except that it manages storage and distribution to the Center-West region. The Rio Verde mega distribution center was completed in December 2008.

Proposed Business Combination with Sadia

     On May 19, 2009, we signed a merger agreement with Sadia that contemplates a business combination of the two companies. In the business combination, our company is to be renamed BRF – Brasil Foods S.A. (“BRF”) (the new name for our company), and Sadia is expected to become our wholly owned subsidiary.

     The business combination is subject to the approval of holders of common shares of each of Perdigão and Sadia, as well as approval by antitrust authorities. See “Item 3. Key Information—D. Risk Factors—Risks Relating to the Sadia Transaction.” A number of steps of the merger must be approved at separate extraordinary general meetings of the common shareholders of Perdigão, Sadia, and HFF Participações S.A. (“HFF”), a holding company formed by the controlling shareholders of Sadia for purposes of the acquisition, that are currently scheduled to take place on July 8, 2009. As a result of these meetings, if the merger is approved:

	•		Perdigão will change its corporate name to BRF – Brasil Foods S.A., move its headquarters to Itajaí in the State of Santa Catarina, and change its certificate of incorporation so that its Board of Directors has nine to eleven members and a co-chairman structure;
	•		Concórdia Holding, parent company of Concórdia Corretora (a broker-dealer owned by Sadia) and Concórdia Bank (a bank owned by Sadia), is not part of the merger and, consequently, will be sold to Sadia’s shareholders before the business combination with BRF;

	•		holders of common shares of HFF will receive 0.166247 common shares of BRF for each share they hold without any further action by those holders; and
	•		HFF will become a wholly owned subsidiary of BRF.

     Additional separate extraordinary meetings of the common shareholders of Perdigão and Sadia are currently scheduled to take place on August 18, 2009. As a result of these meetings, if approved, holders of common and preferred shares of Sadia will receive 0.132998 common shares of BRF for each common share or preferred share, respectively, they hold without any further action by those holders.

     We believe the merger aligns with the strategic growth plan of the two companies in both the domestic and export markets and will allow Perdigão and Sadia to coordinate their operations. We believe that this business combination will be a positive step, by allowing the companies to generate economic synergies.

     As described above, following the merger of HFF, Perdigão will amend its certificate of incorporation to expand the Board of Directors, three of whom will be elected by the current controlling shareholders of Sadia and are expected to serve until the 2011 general shareholders’ meeting. The Board of Directors of BRF will have a co-chairman structure, where neither of the co-chairmen will have a casting vote in the case of a tie.

     The merger between Perdigão and Sadia is conditioned upon approval by the relevant antitrust authorities in Europe and other jurisdictions and subject to review by the antitrust authority in Brazil. Such authorities may not approve the transaction or impose significant conditions that could affect its completion, including performance of the transaction or divesture of specific subsidiaries, product lines, brands or factories. During the review period by antitrust authorities, the companies may be subject to specific obligations that require unaltered market conditions. In Europe, analysis by the relevant antitrust authorities is a pre-condition to closing the business combination.

     The relevant antitrust authorities may decide to impose significant conditions or performance commitments on the combined company, including commitments to divest from certain businesses, risks and product lines, trademarks or production facilities, on the transaction, and the merger may be delayed or impaired because market conditions may not be altered for as long as the transaction is subject to review by regulators. For further information regarding approval by antitrust authorities and other risks relating to the proposed Sadia transaction, see “Item 3. Key Information—D. Risk Factors—Risks Relating to the Sadia Transaction.”

Products

     We are a food company that focuses on the production and sale of poultry, pork, beef cuts, milk, dairy products and processed food products. Our processed products include marinated, frozen, whole and cut Chester ^® rooster and turkey meats, specialty meats, frozen processed meats and frozen prepared entrees. We also sell margarine, juice, soy products and animal feed.

Poultry

     We produce frozen whole and cut chickens, partridges and quail. We sold 892.9 thousand tons of frozen chicken and other poultry products in 2008, compared to 602.8 thousand tons in 2007. Most of our poultry sales are to our export markets.

Pork and Beef

     We produce frozen pork and beef cuts, such as loins and ribs, and whole carcasses. As part of our strategy to diversify our product lines, we introduced beef cuts in December 2005 and intend to develop our sales of beef, particularly to export customers who already purchase poultry or pork from us. We sold 180.9 thousand tons of pork and beef cuts in 2008, compared to 133.9 thousand tons of pork and beef cuts in 2007. Most of our sales of pork cuts are to our export markets. We are developing our export customer base for beef cuts, and we expect that most of our sales of beef cuts will ultimately be in our export markets. We raise hogs but do not raise cattle at our facilities.

Milk

     We entered the dairy business in the second quarter of 2006 through our acquisition of a controlling interest in Batávia. In 2008, we expanded our presence in this market trough the acquisition of Eleva. We produce pasteurized and UHT milk, which we sell in our domestic market. We sold 892.8 thousand tons of pasteurized and UHT milk in 2008, and 127.5 thousand tons in 2007, all in the domestic market.

Processed Food Products

     We produce processed foods, such as marinated, frozen chicken, Chester ^® rooster and turkey meat, specialty meats, frozen processed foods, frozen prepared entrees and dairy products. Part of our strategy is to develop additional processed food products in these and other categories because these products tend to be less price-sensitive than our frozen poultry and pork products. We sold 838.4 thousand tons of processed foods in 2008, compared to 734.1 thousand tons in 2007. Most of our sales of processed foods are to our domestic market. We believe there are opportunities to market value-added products like these to targeted regions and other market segments in Brazil, as well as expanding our sales in the export market.

Specialty Meats

     We process pork to produce specialty meats, such as sausages, ham products, bologna, frankfurters, salamis and bacon. We also process chicken and other poultry to produce specialty meats, such as chicken sausages, chicken hot dogs and chicken bologna.

Frozen Processed Meats

     We produce a range of frozen processed poultry, beef and pork products, including hamburgers, steaks, breaded meat products, kibes (a type of Middle Eastern beef patty popular in Brazil) and meatballs. We also produce soy-based vegetarian products, such as hamburgers and breaded products. We purchase the refined soy meal used to produce these products from third parties.

Marinated Poultry

     We produce marinated and seasoned chickens, roosters (under the Chester ^® brand) and turkeys. We originally developed the Chester ^® breed of rooster to maximize the yield of breast and leg cuts. In 2004, we sold our rights to the Chester ^® breed of rooster to Cobb Vantress, a U.S. poultry research and development company engaged in the production, improvement and sale of broiler breeding stock, and entered into a technology agreement under which Cobb Vantress manages the Chester ^® breed of rooster. We continue to oversee the production of Chester ^® roosters in Brazil from hatching to distribution, and we own the trademarks for the Chester ^® line of products.

Dairy Products

     In the second quarter of 2006, through our acquisition of a controlling interest in Batávia, we entered the dairy products business. In early December 2007, we acquired the remaining 49% interest in Batávia not held by us. In 2008, we expanded our presence in this market trough the acquisition of Eleva. We produce and sell a wide range of dairy-based and dairy processed products, ranging from flavored milks, yogurts, fruit juices, soybean-based drinks, cheeses and desserts. We sold 250.6 thousand tons of dairy processed products in 2008 and 150.4 thousand tons in 2007.

Frozen Prepared Entrees

     We produce a range of frozen prepared entrees, some of which contain poultry, beef and pork meat that we produce, including those listed below.

	•		Lasagnas and Pizzas . We produce several varieties of lasagna and pizza. We produce the meat used in these products and buy other raw materials in the domestic market, except for the durum flour used to make the noodles for the lasagna, which we import.
	•		Vegetables . We sell a variety of frozen vegetables, such as broccoli, cauliflower, peas, French beans, French fries and cassava fries. These products are produced by third parties that deliver them to us packaged, almost all for our Escolha Saudável (“healthy choice”) line of products. We purchase most of these products in the domestic market, but we import French fries and peas.
	•		Cheese Bread . We produce cheese bread, a popular Brazilian bread infused with cheese. We purchase the ingredients in the domestic market, except for the parmesan cheese, which we import.
	•		Pies and Pastries . We produce a variety of pies and pastries, such as chicken and heart-of-palm pies and lime pies. We produce the meat, sauces and toppings used in our pies and pastries, and we purchase other raw materials, such as heart-of-palm, lime and other fillings from third parties.

Margarine

     We commenced sales of margarine in December 2005. We purchase margarine from an agricultural cooperative supplier for resale by us. We initially sold margarine under two brand names ( Turma da Mônica and Borella ). In June 2007, we acquired from Unilever the margarine brands Doriana , Delicata and Claybom , as well as the equipment to produce such margarines. We also entered into an strategic agreement with Unilever for the management of the margarine brands Becel and Becel ProActiv in Brazil. We began to sell margarine as part of our strategy to diversify our product lines and to take advantage of our distribution network for refrigerated products.

Other

     We produce animal feed principally to feed poultry and hogs raised by us. However, we also sell less than 4% of the animal feed produced by us to our integrated outgrowers or to unaffiliated customers. In addition, in April 2007, we launched a line of pet food for dogs under the brands Balance and Supper .

     We produce a limited range of soy-based products, including soy meal and refined soy flour. We also produced soybean oil until July 2005, when we sold our soybean oil plant in Marau in the State of Rio Grande do Sul to Bunge Alimentos because we determined that soybean oil was not a core product of our business.

Capital Expenditures

     In 2008, we recorded capital expenditures of R$2.4 billion, a 180.4% increase compared to 2007. The new businesses acquired during the year – namely, Eleva (dairy products and meats), Plusfood (meat processing in Europe) and Cotochés (dairy products) – represented capital expenditures of R$1.8 billion against R$347.6 million in 2007, an increase of 408% and representing 73.8% of our total capital expenditures in 2008.

     Of the remaining R$628.4 million in capital expenditures, 26.2% was allocated to (1) expansion and enhancement of productivity projects implemented in the regions of the Midwest (Rio Verde-GO, Nova Mutum-MT, Mirassol D’Oeste-MT) and South of Brazil (Videira-SC, Capinzal-SC, Marau-RS, Carambei-PR), as well as the distribution centers in São Paulo, Goiás, Pernambuco, Bahia; (2) information technology; and (3) new projects, such as new lines of products.

     On May 26, 2009, we received R$106.0 million from the Brazilian National Development Bank ( Banco Nacional de Desenvolvimento Econômico e Social ), or “BNDES”, for investment projects relating to capacity expansion in production facilities in the states of Rio Grande do Sul and Santa Catarina, distribution centers in the states of Ceará, Paraná and São Paulo as well as corporate projects in the São Paulo and Itajaí, Santa Catarina offices.

     Currently, we are concentrating our investments in the construction of our facilities in Bom Conselho, Pernambuco and Três de Maio, Rio Grande do Sul, as well as in our improvement and necessary maintenance projects, totaling R$119.7 million, in the first quarter of 2009. We also have projects funded by FINEP (a government provider of funds for studies and projects) relating to technological improvements such as (1) optimization of technological systems for production and processing poultry and swine products in the amount of over R$100.0 million and (2) for dairy products, study and development of a pilot program for the integration and retention of milk producers, in the amount of over R$67.3 million.

     The table below sets forth our capital expenditures for the periods indicated:

		Year Ended December 31,
		2008				2007				2006
		(in millions of reais)
Expansion and enhancement of production facilities			250.5				164.3				195.0
Eleva acquisition			1,679.2				—				—
Other acquisitions			96.4				347.6				124.7
Araguaia Project – Mineiros Agroindustrial Complex			6.4				85.7				130.7
Bom Conselho Agroindustrial Complex			84.6				—				—
New Projects			286.9				259.8				184.0
Total capital expenditures			2,404.1				857.4				634.4

     Major capital expenditures in 2008, include the following:

      Construction of a Plant (dairy products) . On June 10, 2008, we announced the construction of the sixth powdered milk processing tower in Três de Maio, State of Rio Grande do Sul. This plant will have the capacity to process 2,000 tons of powdered milk per month. We already have a mozzarella cheese plant in the municipality. As part of the strategy for increasing the value-added content of our dairy products portfolio, an additional R$65.0 million is expected to be invested in this unit over the next couple of years, with completion scheduled for February 2010.

      Acquisition of Cotochés (dairy products) . On April 2, 2008, we acquired Cotochés, a traditional player in the dairy products industry in the State of Minas Gerais, for a total purchase price of R$51.0 million plus the assumption of R$15.0 million in debt. The Cotochés portfolio includes about 50 items, including long life milk (UHT), powdered milk, cheeses, butter, cream cheese, cream milk, fermented milk and yogurts, all sold under the Cotochés , Moon Lait and Pettilé brand names.

      Acquisition of Eleva Alimentos S.A. On February 21, 2008, we completed the acquisition of Eleva for a purchase price of approximately R$1.7 billion, of which R$764.6 million was paid in cash to the controlling and non-controlling shareholders of Eleva and R$911.6 million was paid through the exchange of shares of Eleva for shares of Perdigão. The stock consideration involved an exchange of one share of our common stock for 1.74308855 Eleva shares, which resulted in the issuance of approximately 20 million new common shares by our company. Following the acquisition, Eleva became one of our wholly owned subsidiaries, and on April 14, 2008, Eleva was merged into our company.

      Acquisition of Plusfood . On January 2, 2008, we acquired Plusfood, a meat processing company with three industrial units in Europe, for R$43.0 million plus outstanding debt. Management of this company was merged with the Perdix Business Unit, which is responsible for our export market activities.

      Bom Conselho Agroindustrial Complex . Following the September 2007 announcement of our plan to build this new agro-industrial complex, construction work continues on schedule, with total planned capital expenditures of R$280.0 million, R$170.0 million of which has been allocated for investment in property, plant and equipment. The complex was 50% completed in 2008. The complex involves the construction of a processing unit for dairy products and another for specialty meats.

The dairy products module is expected to commence operations in the second half of 2009 at 50% of expected total installed capacity. The Bom Conselho Agroindustrial Complex arose out of an agreement, signed in September 2007, between the State of Pernambuco, the City of Bom Conselho, Batávia and us.

      Mineiros Agroindustrial Complex . The construction of the agro-industrial complex for processing special poultry and turkeys, with more than two-thirds of its output expected to be exported, was completed in September 2008 and is now operating at full capacity of 81,000 tons of processed products per year.

      Distribution Centers in Embu, State of São Paulo, and Rio Verde, State of Goias . Construction of the first phase of the Embu distribution center was completed in 2008, consisting of three storage environments for frozen, chilled and dry foodstuffs. This distribution center is responsible for storage and distribution to the entire Southeast region of Brazil and uses the integrated warehouse management system, upgraded with state-of-the art technology and including two mega antechambers, one for delivery and the other for dispatch of merchandise. Work on the second phase of the installation of the transelevator system involving robotic inventory processing should be completed in the third quarter of 2009. The Rio Verde mega distribution center is similar to the Embu distribution center, except that it manages storage and distribution to the Center-West region. The Rio Verde mega distribution center was completed in December 2008.

     Investments in poultry and hog breeder stock increased 65.2% to R$208.3 million in 2008, reflecting our organic growth and the acquisition of the Eleva business.

     In 2009, we expect to make capital expenditures of approximately R$600 million to R$700 million, not including acquisitions of new businesses.

     Following completion of our business combination with Sadia, we expect to focus our capital expenditures on finishing projects that are currently in progress and focusing on organic growth and maximizing synergies and integration of the two companies.

Competitive Strengths

     We believe our major competitive strengths are as follows:

	•		Leading Brazilian Food Company with Strong Brands and Global Market Presence. We are one of Brazil’s largest food industry companies, with a size and scale that enable us to compete in Brazil and globally. We believe that our leading position allows us to take advantage of market opportunities by enabling us to expand our business and increase our share of international markets. In 2008 and in 2007, we slaughtered 863.2 million and 627.3 million chickens and other poultry and 4.7 million and 3.7 million hogs and cattle, respectively. We sold nearly 3.2 million tons and 1.8 million tons of poultry, pork, beef, milk and processed food products, including dairy products, in the same periods. Our own and licensed brands are highly recognized in Brazil, and the brands that we use in our export markets are well established in those markets.
	•		Extensive Distribution Network in Brazil and in Export Markets. We believe we are one of the only companies with an established distribution network capable of distributing frozen and refrigerated products in virtually any area of Brazil. In addition, we export products to over 110 countries, and we have begun to develop our own distribution capability in Europe, where we sell directly to food processing and food service companies and to local distributors. Our established distribution capabilities and logistics expertise enable us to expand both our domestic and foreign business, resulting in increased sales volumes and broader product lines.

	•		Low-Cost Producer in Increasingly Global Market. We believe that we have a competitive advantage over producers in some of our export markets due to generally lower feed and labor costs and gains in efficiencies in animal production in Brazil. We have also achieved a scale and quality of production that enables us to compete effectively with major producers in Brazil and other countries. We have implemented a number of programs designed to maintain and improve our cost-effectiveness, including our ATP—Perdigão Total Service program to optimize our supply chain by integrating demand, production, inventory management and client service functions; our CSP—Perdigão Shared Services Center, which centralizes our corporate and administrative functions; and MVP—More Value Perdigão program to provide our managers with more efficient use of fixed and working capital; and matrix-based budget intended to improve the efficiency of cost management.
	•		Diversified and Strategic Geographical Location. In the meat business, our slaughterhouses are strategically located in different regions of Brazil (South and Mid-West), which enables us to mitigate the risks arising from export restrictions that may occur in certain regions of the country due to sanitary concerns. Furthermore, the geographical diversity of our plants in 11 Brazilian states enables us to reduce transportation costs due to the proximity to grain-producing regions. Additionally, the geographic diversity of our plants present in 11 states lowers our transportation costs due to the proximity to grain-producing regions, while also being close to the country’s principal export ports. Our dairy operations are based in the principal milk-producing areas of different regions of Brazil, permitting easy access to the consumer market.
	•		Emphasis on Product Quality and Safety and on a Diversified Product Portfolio. We focus on quality and food safety in all our operations in order to meet customers’ specifications, prevent contamination and minimize the risk of outbreaks of animal diseases. We employ traceability systems that allow us to quickly identify and isolate any farm on which a quality or health concern may arise. We also monitor the health and treatment of the poultry and hogs that we raise at all stages of their lives and throughout the production process. We were the first Brazilian company approved by the European Food Safety Inspection System as qualified to sell processed poultry products to European consumers. We have a diversified product range, which gives us the flexibility to channel our production according to market demand and the seasonality of our products.
	•		Experienced Management Team. Our senior management is highly experienced and has transformed our company during the last decade into a global business. Most members of our senior management have worked with us for over ten years, and the members of our senior management who joined our company during that period have seasoned experience in their professional capacities. Our management seeks to emphasize best practices in our operations as well as corporate governance, as demonstrated by the listing of our common shares on the Novo Mercado of the São Paulo Stock Exchange, which requires adherence to the highest corporate governance standards of that Exchange.

Business Strategy

     Our overall strategy is to use our competitive advantages to pursue opportunities for long-term growth, diversifying our sales and reducing our costs with the aim of reduced volatility in our results, as a food company with one of the most diversified chilled and frozen food product portfolios, including processed and specialty meats and beef, dairy products, margarine, pastas and pizzas, among others.

     We will continue to seek balanced growth and consolidation among the businesses in which we operate (poultry, pork, beef, dairy products and processed food products) and with regard to the domestic and external market, while seeking growth opportunities through food processing activities overseas.

     The main points of our strategy, applicable to the poultry, pork and beef businesses and to milk, dairy product, margarine and processed food products are:

•

Grow Our Core Businesses. We intend to further develop our core businesses of producing and selling poultry, pork, beef, milk, dairy and processed food products by, among other methods, investing in additional production capacity to gain scale and efficiency.

For example, we are expanding our Rio Verde Agroindustrial Complex in the mid-western State of Goiás, and we have built a new agroindustrial complex for the processing of turkey, also in Goiás. We have also enlarged our Nova Mutum poultry plant in the State of Mato Grosso to meet long-term demand for chicken meat exports. In 2008, we announced the construction of a specialty meats plant in Bom Conselho, in the State of Pernambuco.

	•		Diversify Our Product Lines, Focusing on Value-Added Processed Food Products. We intend to continue diversifying our product lines, focusing on processed food products whose prices tend to fluctuate less than our unprocessed poultry and pork cuts and that can be targeted to specific markets. Recent acquisitions include Batávia (milk and dairy products), a beef slaughterhouse, Sino dos Alpes (a specialty meats producer), Paraíso Agroindustrial (which owns a poultry slaughterhouse and animal feed mill) and the Doriana , Delicata and Claybom margarine brands, from Unilever, as well as the assets used in manufacturing them, among others. In 2008 we announced the construction of a dairy and processed products plant in Bom Conselho, in the State of Pernambuco, and the purchase of control of Eleva, in order to include products like powdered milk and cheese in our portfolio and increase our market share in milk and dairy products. In addition, we acquired Cotochés in the State of Minas Gerais. We may pursue other selective acquisitions and/or build new industrial plants to support these strategic goals.
	•		Expand Our Domestic and International Customer Base. We seek to continue to strengthen our domestic and international customer base through superior service and quality as well as increased product offerings. We believe there are considerable opportunities to increase penetration of export markets, particularly as we broaden our product lines to include beef products, milk and dairy products and additional processed food products. We are also positioning our company to enter new export markets when existing trade barriers are relaxed or eliminated. Our objective is to pursue balanced growth of our domestic and export businesses. Domestic market sales represented 56% of our net sales while export market sales represented 44% in 2008. Due to the consolidation of the dairy business, the domestic market demonstrated a higher relative share in our total net sales in 2008.
	•		Strengthen Our Global Distribution Network. We are developing our distribution capabilities outside Brazil to enable us to improve our services to existing customers and to expand our foreign customer base. We are focusing on expanding our distribution network in Europe and in the Middle East, so as to broaden our coverage and to support more targeted marketing efforts in these key regions. We are also considering processing some products abroad, to allow us to deliver those products directly to customers in those markets. We may consider selective acquisitions as one way to achieve this goal. In early December 2007, we entered into a purchase agreement with the Dutch holding company Cebeco Groep B.V. for the acquisition of Plusfood Groep B.V. Plusfood has three industrial plants in Europe for the manufacture of poultry- and beef-based processed food products, with an installed capacity for manufacturing approximately 20,000 tons per year of finished products.
	•		Continue to Seek Leadership in Low Costs. We are continuing to improve our cost structure in order to remain a low-cost producer and enhance the efficiency of our operations. We seek to achieve greater economies of scale by increasing our production capacity, and we are concentrating our expansion efforts primarily in the mid-western region of Brazil because the availability of raw materials, land, labor, favorable weather and other features allows us to minimize our production costs. We are also continuing to implement new technologies to streamline our production and distribution functions.
	•		Synergies. We understand that the acquisitions of the past two years, especially the incorporation of Eleva, have created important synergies. With the business combination with Sadia, we can expand our businesses in both in the Brazilian and international markets. We believe that we will achieve commercial, operational, financial and production synergies in both the medium and long term.

     On May 19, 2009, we signed an agreement with Sadia that contemplates a business combination of the two companies.  In the business combination, our company is to be renamed BRF – Brasil Foods S.A. (the new name for our company), and Sadia is expected to become our wholly owned subsidiaryWe believe the merger aligns with our strategies set forth above in both the domestic and export markets.  Our proposed business combination with Sadia brings us a diverse array of processed food, meat and dairy products and customer relationships in both our domestic and export markets that can be integrated with ours. Sadia has distribution networks in Europe, the Middle East and elsewhere around the world, which is consistent with our strategy of focusing on expanding our distribution network in these markets.  The business combination is subject to the approval of Perdigão and Sadia common shareholders, as well as approval by antitrust authorities.  See “Item 3. Key Information—D. Risk Factors—Risks Relating to the Proposed Sadia Transaction.”

B. Business Overview

Overview of Brazil’s Poultry, Pork and Beef Position in the World

     The potential growth of the Brazilian domestic market for processed food, poultry, pork and beef, and Brazil’s low production costs are attractive to international competitors. The main barrier to such companies has been the need to build a comprehensive distribution network in Brazil, as well as to establish a network of outgrowers.

Poultry

     Brazil is the third largest producer, and the leading exporter, of poultry in the world, according to tonnage data compiled by the USDA as of April 2009. Brazil’s production, consumption and export volumes for poultry have increased significantly over the past five years, with Brazil having assumed the number one position as global exporter in 2004. This development can be explained by the production shift of large Brazilian companies’ exports, as well as by the competitiveness of Brazilian poultry. Sanitary problems in the main producing countries such as the Bovine Spongiform Encephalophy (“BSE”) cases in Europe, avian influenza problems in Thailand and both BSE and avian influenza cases in the United States have changed the world poultry trade dynamics. The reduced competition from major exporting countries affected by sanitary issues and the competitive cost of Brazilian poultry favors Brazil as the most competitive exporter of quality poultry cuts. Additionally, several new markets in Europe, Africa and the Middle East have opened to Brazilian chicken, and the number of markets to which Brazil has access was approximately 120 in 2008. The USDA projects a decrease in global production and exports for 2009 and an increase in consumption volumes for poultry. For Brazil, the USDA estimates volume growth of 3.2% in production, 2.6% in exports and 3.4% in consumption in 2009 compared to 2008.

     In 2008, the European Union was the largest market for Brazilian poultry exports, mainly poultry parts. The increase in poultry exports to the European Union also reflects a significant increase in exports of processed poultry. The European Union market accounted for nearly 80% of all processed poultry exports from Brazil. In 2008, Hong Kong was the second largest market for Brazil’s poultry exports, mostly poultry parts. Saudi Arabia, traditionally Brazil’s largest single export market for poultry, now ranks third. Saudi Arabia accounted for nearly 36% of all Brazilian poultry exports to the Middle East. Japan was the fourth largest destination for Brazilian poultry in 2008, also mainly poultry parts.

     The following tables identify Brazil’s position within the global poultry industry for the years indicated:

		Poultry Panorama(1)
Primary Poultry Producers		2005				2006				2007(2)				2008(2)				2009(3)
		(In thousands of tons — “ready to cook” equivalent)
U.S.A.			18,334				18,473				18,889				19,357				18,515
China			10,204				10,354				11,296				11,900				12,138
Brazil			9,710				9,708				10,763				11,543				11,910
European Union (27 countries)			10,088				9,598				10,110				10,320				10,350
Mexico			2,512				2,606				2,698				2,819				2,811
Others			17,135				18,453				19,568				20,610				20,766
Total			67,983				69,192				73,324				76,549				76,490

Primary Poultry Exporters		2005				2006				2007(2)				2008(2)				2009(3)
		(In thousands of tons — “ready to cook” equivalent)
Brazil			2,900				2,658				3,099				3,457				3,546
U.S.A.			2,618				2,609				2,926				3,465				3,003
European Union (27 countries)			855				820				759				865				805
China			331				322				358				285				215
Thailand			488				450				524				383				360
Others			469				394				483				619				580
Total			7,432				7,120				7,962				9,074				8,509

Primary Poultry Consumers		2005				2006				2007(2)				2008(3)				2009(3)
		(In thousands of tons — “ready to cook” equivalent)
U.S.A.			15,676				15,966				15,982				15,857				15,641
China			10,104				10,392				11,450				12,064				12,408
European Union (27 countries)			9,970				9,496				10,127				10,247				10,345
Brazil			6,811				7,050				7,665				8,087				8,364
Mexico			3,065				3,216				3,280				3,458				3,475
Russia			2,263				2,483				2,678				2,859				2,915
Others			19,283				20,291				21,753				22,998				23,079
Total			67,172				68,894				72,935				75,570				76,227

Pork

     Brazil is the fourth largest producer and exporter, and the sixth largest consumer, of pork in the world, according to tonnage data compiled by the USDA. Brazil’s production, consumption and exports of pork has increased over the last five years, although not as significantly as for poultry. The USDA projects an increase in global production and consumption of pork in 2009, and a decrease of approximately of 2.5% in Brazil’s pork exports for the year. Contraction in Brazilian exports reflects financial difficulties in importer countries as well as a decrease in exports to Russia due to decreasing quotas of imports there.

     Brazilian pork breeding and slaughtering companies continue to increase their efficiency of production. Measured by the average birth rate of piglets, productivity doubled since the 1970s, and the birth rate reached 24 animals per female. Research developments have also contributed to help reduce fat by 31%, cholesterol by 10% and calories by 14% in pork produced in Brazil. This enhancement allows for better productivity of prime cuts, more meat per carcass and more nutritious and healthier meat. In addition, the production increase was also due to better genetic potential of breeders.

     Russia remains Brazil’s major destination as demand growth exceeds Russian meat producers’ ability to respond. Brazil has been affected less than its competitors by the sharp rise in the price of soy meal and corn as its large processing companies have built large new facilities in the Midwest where soy and corn are more cost competitive than in traditional meat-producing states in the southern part of Brazil. Hong Kong is the second largest market for Brazilian pork exports with a 20.5% market share by volume, followed by Ukraine, the third largest market for Brazilian pork exports, with 9.3% of market share by volume.

     The following tables identify Brazil’s position within the global pork industry for the years indicated:

		World Pork Panorama
Main Pork Producers		2005				2006				2007(1)				2008(1)				2009(2)
		(In thousands of tons - weight in equivalent carcass)
China			45,553				46,505				42,878				46,150				48,700
European Union (27 countries)			21,676				21,791				22,858				22,530				22,100
U.S.A.			9,392				9,559				9,962				10,599				10,339
Brazil			2,710				2,830				2,990				3,015				3,010
Russian Federation			1,735				1,805				1,910				2,060				2,145
Canada			1,920				1,898				1,894				1,920				1,960
Others			11,565				11,768				12,208				12,167				12,064
Total			94,551				96,156				94,700				98,441				100,318

Main Pork Exporters		2005				2006				2007(1)				2008(2)				2009(2)
		(In thousands of tons - weight in equivalent carcass)
U.S.A.			1,209				1,359				1,425				2,117				1,837
European Union (27 countries)			1,143				1,284				1,286				1,715				1,250
Canada			1,084				1,081				1,033				1,129				1,150
Brazil			761				639				730				625				610
China			502				544				350				223				210
Chile			128				130				148				142				130
Others			179				187				190				186				192
Total			5,006				5,224				5,162				6,137				5,379

Main Pork Consumers		2005				2006				2007(1)				2008(2)				2009(2)
		(In thousands of tons - weight in equivalent carcass)
China			45,139				46,051				42,726				46,357				48,790
European Union (27 countries)			20,632				20,632				21,507				20,970				20,905
U.S.A.			8,669				8,640				8,966				8,811				8,884
Russian Federation			2,486				2,639				2,803				3,112				2,894
Japan			2,509				2,452				2,473				2,486				2,476
Brazil			1,949				2,191				2,260				2,390				2,400
Others			12,805				13,315				13,814				14,143				13,822
Total			94,189				95,920				94,549				98,269				100,171

Beef

     We began to produce beef cuts in the fourth quarter of 2005 for sale in our export markets and in the Brazilian market. Brazil is the largest exporter, the second largest producer and the third largest consumer of beef in the world, according to tonnage data compiled by the USDA. The USDA projects a decrease in global production, consumption and an increase in exports of beef in 2009. We believe that the economic crisis and its potential effect on consumer habits may lead customers to look for cheaper meats, which would likely cause decreases in beef consumption.

		World Beef Panorama
Main Beef Producers		2005				2006				2007(1)				2008(1)				2009(2)
		(In thousands of tons - weight in equivalent carcass)
United States			11,318				11,980				12,096				12,163				12,105
Brazil			8,592				9,025				9,303				9,024				8,935
China			5,681				5,767				6,134				6,100				6,000
EU-27			8,090				8,150				8,188				8,100				8,200
Argentina			3,200				3,100				3,300				3,150				3,010
India			2,250				2,375				2,413				2,470				2,475
Others			17,548				17,762				17,464				17,531				16,923
Total			56,679				58,159				58,898				58,538				57,648

		World Beef Panorama
Main Beef Exporters		2005				2006				2007(1)				2008(1)				2009(2)
		(In thousands of tons - weight in equivalent carcass)
Brazil			1,845				2,084				2,189				1,801				1,675
Australia			1,388				1,430				1,400				1,407				1,350
India			617				681				678				625				600
U.S.A.			316				519				650				856				826
New Zealand			577				530				496				533				525
Others			2,572				2,273				2,230				2,343				2,254
Total			7,315				7,517				7,643				7,565				7,230

		World Beef Panorama
Main Beef Consumers		2005				2006				2007(1)				2008(1)				2009(2)
		(In thousands of tons - weight in equivalent carcass)
U.S.A.			12,664				12,833				12,829				12,452				12,554
European Union (27 countries)			8,550				8,649				8,691				8,362				8,520
Brazil			6,795				6,969				7,144				7,252				7,290
China			5,614				5,692				6,065				6,062				5,968
Argentina			2,451				2,553				2,771				2,733				2,614
Mexico			2,428				2,519				2,568				2,591				2,538
Others			17,702				18,153				19,240				18,317				17,554
Total			56,204				57,368				58,308				57,769				57,038

Production Process

     We are a vertically integrated producer of poultry and pork products. We raise poultry and hogs, produce animal feed, slaughter the animals, process poultry, pork and beef meat to produce processed food products, and distribute unprocessed and processed products throughout Brazil and in our export markets.

     The following graphic is a simplified representation of our meats production chain.

Meat Production Chain

Poultry

     At the beginning of the poultry production cycle, we purchase breeder chicks in the form of eggs from Cobb of Brazil, an affiliate of Cobb Vantress. We send these chicks to our grandparent stock farms, where the chicks are hatched and raised, constituting our grandparent breeding stock. The eggs produced by our grandparent breeding stock are then hatched, and our parent breeding stock is produced. In 2008, we maintained an average parent breeding stock of approximately 5.1 million breeders that produce hatchable eggs. We also buy a small percentage of our parent stock from another supplier. The parents produce the hatchable eggs that result in day-old chicks that are ultimately used in our poultry products. We produced 882.6 million day-old chicks, including chickens, Chester ^® roosters, turkeys, partridge and quail in 2008. We hatch these eggs in our 23 hatcheries.

     We send the day-old chicks, which we continue to own, to outgrowers (i.e., outsourced farmers), whose operations are integrated with our production process. The farms operated by these outgrowers vary in size and are near our slaughtering facilities. These integrated outgrowers are responsible for managing and growing the poultry in their farms under the supervision of our veterinarians. The payments to outgrowers are based on performance rates determined by bird mortality and the feed-to-meat ratio and are designed to cover their production costs and provide net profits. We provide feed, veterinary and technical support to the outgrowers throughout the production process. We have partnership agreements with approximately 6,252 integrated poultry outgrowers. Many of these outgrowers also produce and sell corn that we use to produce animal feed.

     At December 31, 2008, we had a fully automated slaughtering capacity of 16.3 million heads of poultry per week.

Pork

     We produce the majority of the pork we use in our products. We also purchase some pork from local producers (11% of our total pork needs in 2008). We purchase the remainder of our pork on the spot market (4% of our total pork needs in 2008).

     To produce pork, we generally purchase piglets from integrated outgrowers near our production facilities, who raise the piglets until they reach a specified weight. The piglet producers either purchase parent breeder hogs from producers such as Agroceres, Dalland, DanBred, Agropecuaria Imbuial and Master Agropecuaria or purchase young piglets from farmers who own breeder hogs. We transfer these piglets to separate integrated outgrowers who raise the hogs until they reach slaughtering weight. We then transport the hogs from these outgrowers to our slaughtering facilities. We have agreements with a total of approximately 2,444 integrated outgrowers, including piglet producers and hog raisers. We monitor the production of the hogs by these outgrowers and provide support from our veterinarians.

     The local producers from whom we purchase a portion of our pork needs are also located near our production facilities but are not parties to partnership agreements with us. These producers generally raise the hogs from birth until they reach slaughtering weight, and we provide limited technical support. We purchase the hogs raised by these local producers pursuant to contracts.

     We slaughter the hogs raised by our outgrowers or purchased from local producers or on the spot market. After they are slaughtered, the hogs are immediately cut in half. The half-carcasses are then partitioned according to their intended use. These parts become the raw material for the production of pork cuts and specialty meats.

     At December 31, 2008, we had a pork slaughtering capacity of 86,233 heads per week.

Beef

     We do not raise cattle at our facilities. We purchase cattle primarily from local producers in the region of Mirassol D’Oeste in the State of Mato Grosso. Although we purchase the cattle on the spot market to the extent necessary, we expect to be able to purchase the majority of our cattle from local producers. We transport the cattle to our facilities, where we slaughter the cattle and cut and package the beef.

     At December 31, 2008, we had a beef slaughtering capacity of 2,694 heads per week.

Processed Foods

     We sell a variety of processed foods, some of which contain poultry, pork and beef meat that we produce. We produce lasagnas, pizzas and other frozen prepared entrees, as well as cheese bread, at our plants in Lages in the State of Santa Catarina and in Rio Verde in the State of Goiás, and we produce pies and pastries at our plant in Rio Verde in the State of Goiás. Our Rio Verde plant is adjacent to our Rio Verde poultry and pork slaughtering facilities, and we transport pork from other production facilities to be used as raw materials at our Lages plant. We purchase most of the remaining ingredients for our lasagnas, pizzas, pies and pastries in the domestic market from third parties. Such seasonings and secondary raw materials are applied to each product type or line according to established criteria and procedures to ensure consistency of color, texture and flavor. The presentation of final products is achieved by shaping, casing, cooking and freezing in special machines. Products are then subjected to quality controls and distributed to the consumer market after having been packaged, labeled and boxed.

     We sell a variety of frozen vegetables, such as broccoli, peas, French fries and cassava fries. These products are produced for us by a third party that delivers them to us packaged, almost all for our Escolha Saudável (“healthy choice”) line of products. We purchase most of these products in the domestic market, but we import French fries from Belgium and peas from Chile, France and Argentina. We also produce soy-based products, such as soy meal and refined soy flour, at our plant in Videira, located in the State of Santa Catarina. We also produced soybean oil until July 2005, when we sold our soybean oil plant in Marau in the State of Rio Grande do Sul to Bunge Alimentos because we determined that the production of soybean oil was not a core product of our business. We receive royalties from Bunge Alimentos for the use of the Perdigão brand for soybean oil under a licensing agreement.

     The raw material for margarine is crude soybean oil, which is subjected to refining and bleaching processes. We purchase margarine from an agricultural cooperative supplier for resale by us. In June 2007, we acquired from Unilever the margarine brands Doriana , Delicata and Claybom , as well as the equipment to produce such margarines in Valinhos in the State of São Paulo. We also entered into an strategic agreement with Unilever for the management of the margarine brands Becel and Becel ProActiv in Brazil. We began to sell this product as part of our strategy to diversify our product lines and to take advantage of our distribution network for refrigerated products.

Dairy Products

     The following graphic is a simplified representation of our dairy products chain.

Dairy Products Production Chain

     Through the acquisition of Batávia and Eleva, we produce dairy products in 15 plants. We receive milk from a network of 19,224 milk producers in more than 500 cities. The milk is purchased mainly from local producers and supplemental purchases are made on the spot market, depending on market price conditions and demand levels. In the event that there is a lack of fresh milk in the market, we are capable of using powdered milk for part of our supply needs.

     Perdigão is the second largest milk collector in Brazil based on volume, according to information compiled from Leite Brasil , the Brazilian National Agriculture Confederation ( Confederação Nacional da Agricultura ), the Brazilian Confederation of Dairy Cooperatives ( Confederação Brasileira de Cooperativas de Laticínios ) and the Brazilian Agricultural Research Corporation ( Empresa Brasileira de Pesquisa Agropecuária ).

Feed

     We produce most of the feed consumed at the farms operated by our integrated outgrowers of poultry and hogs. We provide feed to most of our integrated poultry and hog outgrowers as part of our partnership arrangements with them. We also sell animal feed to local producers of hogs at market rates. Animal feed sales accounted for R$135.6 million in 2008 (1.2% of our net sales), R$99.3 million in 2007 (1.5% of our net sales) and R$81.7 million in 2006 (1.6% of our net sales).

     We own 13 feed production plants and lease another such plant. The basic raw materials used in animal feed production are corn and soy meal mixed with preservatives and micronutrients. In 2008, we purchased approximately 36% of our corn from rural producers and small merchants, 27% through cooperatives and 38% from trading companies such as Coamo, Bunge, Cargill, ADM and others. The corn is grown primarily in the states of Santa Catarina, Paraná, Rio Grande do Sul and the central-west region of Brazil. We buy soy meal from major producers such as Coamo, Bunge and Cargill, primarily pursuant to long-term contracts.

     The prices of corn, soybeans and soy meal fluctuate significantly. See “Item 5. Operating and Financial Review and Prospects—Principal Factors Affecting our Results of Operations—Commodity Prices.”

Other Raw Materials

     We purchase other materials required for our products, such as prepared animal intestines (for sausage casings), cardboard boxes and plastic (for packaging), micronutrients for animal feed, spices and veterinary drugs from third parties, both in the domestic and international markets. We must import and therefore pay for some of these products in U.S. dollars.

Suppliers

     We generally use a bidding process to select our suppliers based on technical and commercial requirements. We have had long relationships with many of our suppliers, both in Brazil and abroad. We periodically evaluate the efficiency of our suppliers in terms of quality, lead time and service levels.

Brazilian Domestic Market

     Brazil is the fifth largest country in the world, both in terms of land mass and population. It had an estimated population of 191.5 million people in May 2009. Brazil had an estimated GDP of R$2.6 trillion for 2007, representing 9.6% increase over GDP of R$2.3 trillion for 2006 (in nominal terms). For 2008, the Central Bank has announced an estimated increase in GDP of 11.2% over 2007. The global economic recession that erupted in 2008 affected the Brazilian economy during the fourth quarter of 2008 and the first half of 2009. The Central Bank of Brazil forecasts that the Brazilian GDP in 2009 will decrease 0.71% in comparison to 2008. Disposable income per capita declined between 2001 and 2004, though it rebounded from 2005 to 2008. Real income and nominal salaries in Brazil in 2008 were 3.4% and 9.9% higher, respectively, than those in 2007. Due to the global economic crisis, however, these economic developments may not result in increased domestic food consumption going forward. The IPCA inflation rate was 4.5% in 2007 and 5.9% in 2008, continuing a trend of moderate inflation rates when compared with Brazil’s historical experience of high rates of inflation.

     In the first quarter of 2009, industry activity slowed, mostly due to contraction in external demand. In the domestic market, deterioration in the labor market did not significantly affect retail sales.

     Brazil is a large consumer of meat, with estimated per capita meat consumption of 87.8 kilograms in 2008, according to the USDA. Poultry and beef are a major food staple and protein source in the Brazilian domestic market. Pork is also an important protein source in the country, although Brazilians consume considerably more beef and poultry than pork.

     Demand for poultry, pork and beef products is directly affected by economic conditions in Brazil. The overall trend toward improved economic conditions in recent years has generally supported increased demand for processed food products, as well as traditional fresh and frozen poultry and pork products. However, declines in disposable income between 2001 and 2004 partially offset other positive economic developments that contributed to demand. More recently, in the fourth quarter of 2008, the worsening of the global economic and financial crisis began to affect demand for our products in general in the Brazilian market. These negative trends began to affect domestic consumer confidence in the fourth quarter of 2008 and have continued to do so in 2009. For information about certain expected macroeconomic trends for 2009, see “Item 5. Operating Financial Review and Prospects ¾ D. Trend Information.”

     The Brazilian domestic market is highly competitive, particularly for fresh and frozen poultry and pork products. There are several large producers, most notably our company and Sadia, but also Aurora—Cooperativa Central Oeste Caterinense Ltda., or “Aurora,” and Seara Alimentos S.A., or “Seara” (which is now owned by Cargill). The large producers are subject to significant competition from a substantial number of small producers that operate in the informal economy and offer lower quality products at lower prices than do the major producers. For that reason, we and our main competitors have, in recent years, focused on producing and selling processed food products because these products support better margins. We and our major competitors are generally emphasizing processed food products rather than fresh and frozen poultry and pork products which are more similar to commodities in nature.

     Among processed foods products, specialty meats and frozen processed meats have experienced considerable growth in recent years. Based upon information compiled by A.C. Nielsen do Brasil S.A., the specialty meats market in Brazil accounted for net sales of R$14.0 billion in 2008, representing an 11% increase over R$12.6 billion in 2007. Based upon information compiled by A.C. Nielsen do Brasil S.A., the frozen processed meats market represented net sales of approximately R$2.5 billion in Brazil in 2008, a 14% increase over R$2.2 billion in net sales in 2007. The processed foods sector is more concentrated in terms of the number of players. Consumption of processed products is influenced by several factors, including the increase in consumer income, and marketing efforts, with a view to meeting consumer demand for more value-added products. We believe that processed food products represent an opportunity for further growth in coming years.

     In 2008, according to A.C. Nielsen do Brasil, the Brazilian market for dairy processed products totaled approximately R$3.7 billion, an increase of 9%, from R$3.4 billion in 2007. Brazil is one of the world’s largest consumers of dairy products. The size of the Brazilian margarine market was approximately R$2.3 billion in 2008, according to A.C. Nielsen do Brasil S.A.

Export Markets

     The global trade in poultry, pork and beef products has grown in recent years, according to the USDA, and meat consumption among major countries has also grown. Brazilian exports of chicken grew at an accumulated rate of 11% from January to December 2008, in terms of volume, from 3,287 thousand tons to 3,646 thousand tons. However, Brazilian exports of pork decreased at an accumulated rate of 13% in 2008, from 606 thousand tons to 529 thousand tons. In addition, Brazilian exports of beef decreased at an accumulated rate of 14% in 2008, from 1,615 thousand tons to 1,383 thousand tons. The worsening of the global economic and financial crisis in the fourth quarter of 2008 led to significant weakness in demand for pork, beef and poultry at the end of 2008, and this weakness has continued in the first half of 2009.

     In the milk and dairy products industry, Brazil has been exporting various products, especially powdered milk, since 2000, as an alternative to the domestic market, and the sales volume of powdered milk increased from only 229 tons in 2000 to 88.3 thousand tons in 2008, according to SECEX.

     Brazil has become a leading participant in global export markets due to natural advantages, including low feed and labor costs, and gains in efficiencies in animal production. We, like other large Brazilian producers, have built on these advantages to develop the scope and scale of our businesses.

     Global demand for Brazilian poultry, pork and beef products is significantly affected by, depending on the export market, trade barriers, sanitary requirements and disease-related bans, religious considerations, economic conditions and other factors. Trade barriers may include quotas on imports from Brazil (e.g., in Russia), protective tariffs (e.g., in the European Union), direct and indirect subsidies for local producers, licensing requirements (e.g., in China) and outright bans on imports. Most countries require sanitary agreements with Brazil before Brazilian products may be imported (e.g., the United States, which has no sanitary agreement with Brazil covering poultry, beef and pork products and therefore will not accept Brazilian poultry, beef and pork for import). In addition, outbreaks of animal disease may result in bans on imports (e.g., in Russia, which banned imports of Brazilian pork products because of outbreaks of foot-and-mouth disease affecting cattle in two Brazilian states). The Middle East, which constitutes an active region for poultry sales by Brazilian producers, does not import pork products due to Muslim religious bans on the consumption of pork. Above all, economic conditions in a particular export market (whether national or regional) may influence levels of demand for all types of poultry, pork and beef products as well as processed products.

     Global trade in poultry products has been negatively affected by the spread of highly pathogenic avian influenza (H5N1 virus), particularly in Asia but also in Europe and Africa. Since the beginning of 2003, there have been 424 confirmed human cases of avian influenza and 261 deaths, according to the World Health Organization, or “WHO,” with an increased number of deaths each year since 2003. Human cases were reported in various countries in Asia, the Middle East and Africa in 2006, and several countries in Europe reported cases of avian influenza in birds. Avian influenza has not yet been detected in Brazil or elsewhere in the Americas. A similar virus strain has been detected in North America, with low pathology. If this animal disease is detected in Brazil, or if it begins to be transmitted from human to human, global demand for poultry products is likely to decline for a period whose length cannot be predicted.

     Similarly, global trade in pork products has been negatively affected in 2009 by the spread of A(H1N1) influenza, also called “swine flu,” in many countries. More than 11,000 cases and over 100 deaths worldwide have been recorded since the outbreak of A(H1N1) influenza in Mexico, and on June 11, 2009, the WHO declared a flu alert level six, signaling a “global pandemic.” Many countries, including Russia and China, have prohibited imports of pork from countries reporting a significant number of cases (Mexico, United States and Canada), but, as the WHO and other independent sources have stated that influenza A(H1N1) is not transmitted by pork consumption, those countries reopened their markets to producers from Mexico, the United States and Canada. Still, some states in the importing countries continue to impose restrictions on pork imports from Mexico, the United States and Canada. Whether or not an outbreak of A(H1N1) influenza occurs in Brazil, further outbreaks of the disease anywhere in the world could have a negative impact on the consumption of pork in our export markets or in Brazil. Any further outbreak of A(H1N1) influenza could lead to the imposition of costly preventive controls on pork imports in our export markets.

     In export markets, we and other Brazilian producers compete with local and other foreign producers. Traditionally, Brazilian producers have emphasized exports of frozen whole and cut poultry, and frozen pork and beef cuts. These products, which are similar commodities in nature, continue to account for the substantial portion of export volumes in recent years. More recently, Brazilian food companies have begun to expand sales of processed food products. We anticipate that, over the next several years, we and our main Brazilian competitors will sell greater volumes of frozen whole and cut poultry and frozen pork and beef cuts but also increasing volumes of processed food products.

Sales

     We sell our products both in the domestic Brazilian market and export markets around the world. Net sales to the Brazilian market, including most of our processed foods, accounted for 56.4% of our net sales in 2008, 52.5% in 2007 and 53.6% in 2006. Net sales to export markets, including most of our frozen whole and cut chickens and other poultry and frozen pork cuts and, more recently, beef cuts, accounted for 43.6%, 47.5% and 46.4% of our net sales in 2008, 2007 and 2006, respectively.

     The table below demonstrates the breakdown of our net sales for the periods indicated:

Breakdown of Net Sales		2008				2007				2006
Domestic Market			56.4	%			52.5	%			53.6	%
Poultry			3.6	%			2.7	%			3.6	%
Pork/Beef			1.4	%			0.8	%			1.1	%

Breakdown of Net Sales		2008				2007				2006
Processed food products			35.1	%			43.0	%			43.7	%
Milk			13.0	%			2.8	%			1.9	%
Other			3.3	%			3.2	%			3.2	%
Export			43.6	%			47.5	%			46.4	%
Poultry			26.3	%			28.0	%			25.5	%
Pork/Beef			7.2	%			8.0	%			10.9	%
Processed food products			9.2	%			11.5	%			10.0	%
Milk			0.9	%			—				—
Total			100.0	%			100.0	%			100.0	%

Overall Comparison of the Company’s Net Sales for the Three Years Ended December 31, 2008, 2007 and 2006

Domestic Market

     We cover substantially all of the Brazilian population through a nationwide distribution network. In the domestic market, we sell our products directly to over 100,000 supermarkets, wholesalers, retail stores, and food service and other institutional buyers. The table below sets forth our domestic net sales to supermarkets, retail stores, wholesalers and institutional buyers as a percentage of total domestic net sales for the periods indicated.

		2008				2007				2006
		(percentage of domestic net sales)
Supermarkets			63.2				63.9				63.5
Wholesalers			20.1				19.1				18.4
Food service and other institutional buyers			7.4				7.7				7.9
Retail stores			9.3				9.3				10.2
Total			100.0	%			100.0	%			100.0	%

     In 2008, our five largest customers accounted for 16.4% of our domestic net sales, compared to 14.5% in 2007 and 14.7% in 2006. None of our customers accounted for more than 2.6% of our total net sales in 2008. One of our strategies is to continue to expand our food service client base, which already includes Burger King and the Brazilian fast food chains Giraffas and Habib’s, while continuing to provide quality products and services to supermarket and other customers. Other institutional buyers include hotels, hospitals and businesses.

     Our domestic distribution network uses 28 distribution centers in 13 Brazilian states and the Federal District. Refrigerated trucks transport our products from our processing plants to the distribution centers and from the centers to our customers. We have 38 cross-docking points in several areas of the country that enable us to unload products from large refrigerated trucks onto smaller trucks or vans for transportation to our customers. We own 20 of our distribution centers and lease the remaining eight centers, which are listed under “—D. Property, Plant and Equipment.” We do not own the vehicles used to transport our products, and we contract with several carriers to provide this service for us on an exclusive basis.

     In certain areas of the country, we act through nine exclusive third-party distributors, which operate in Apucarana, Cascavel and Foz do Iguaçu in the State of Paraná; Cuiabá in the State of Mato Grosso; Campos dos Goytacazes, Três Rios and Nova Friburgo in the State of Rio de Janeiro; Vilhena in the State of Rondônia; and Rio Branco in the State of Acre.

Export Markets

     We export our products to Europe, the Far East, Eurasia, the Middle East, Africa, the Americas and other regions. The table below sets forth a breakdown of our export net sales and sales volumes by region as percentages of total export net sales and total export sales volumes for the periods indicated.

		2008								2007								2006
		Export				Total				Export				Total				Export				Total
		Net Sales				Tons				Net Sales				Tons				Net Sales				Tons
		(%)				(%)				(%)				(%)				(%)				(%)
Europe:
Germany			5.4				5.1				7.2				5.6				5.9				5.1
England			6.0				3.8				6.5				4.0				7.7				4.3
Netherlands			2.2				1.4				2.1				1.2				2.8				2.2
Others			8.6				6.3				13.9				10.5				12.2				9.7
Total			22.2				16.6				29.7				21.3				28.6				21.3
Far East:
Japan			12.1				9.3				11.4				10.8				12.7				11.2
Hong Kong			6.9				9.2				7.9				9.3				6.6				8.7
Singapore			2.3				2.3				3.1				3.2				3.7				3.7
Others			1.6				1.8				2.5				2.8				2.3				2.1
Total			22.9				22.6				24.9				26.1				25.3				25.7
Eurasia:
Russia			12.4				9.9				11.7				10.7				10.9				9.2
Others			2.2				2.2				4.0				4.8				6.6				6.6
Total			14.6				12.1				15.7				15.5				17.5				15.8
Middle East:
Saudi Arabia			13.4				14.5				13.5				15.5				14.0				17.2
United Arab Emirates			3.5				4.2				2.3				2.8				2.0				2.6
Kuwait			2.5				3.3				2.3				2.9				1.4				1.9
Others			6.2				7.7				4.5				5.5				3.5				4.4
Total			25.6				29.7				22.6				26.7				20.9				26.1
Africa, the Americas and Other			14.7				19.0				7.1				10.4				7.7				11.1
Total			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%			100.0	%