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Contents

SADIA S.A. A BRAZILIAN FOOD PRODUCER ................................................................................................ 2

Introduction: ............................................................................................................................................. 2

Company Profile: ....................................................................................................................................... 3Corporate Structure: ................................................................................................................................. 3

Acquisitions and Investments: .................................................................................................................. 4

Financial Position: ..................................................................................................................................... 6

Currency Derivative Contract:................................................................................................................... 9

Loss in the Derivative Market: .................................................................................................................. 9

Consequences: .......................................................................................................................................... 9

Allegations against Sadia: ....................................................................................................................... 10

Substantive Allegations: .......................................................................................................................... 10

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SADIA S.A. A BRAZILIAN FOOD PRODUCER

Introduction:

This Food Company was created in Concordia, Santa Catharina, Brazil. Its headquarters are located in

the same city. Sadia S.A. is one of the greatest Brazilian food producers. It is ranked among the worlds

leading producers of frozen foods, and is the main exporter of meat-based products. In 2008, Sadia had

about 20 industrial plants that together produce over 2.3 million tons of food which included chicken,

turkey, pork and beef, as well as pasta, margarines, desserts, and other products. The company provides

to over 70,000 direct points of sale in Brazil and exports to almost 100 countries in the world. Sadia'sformer chairman Lus Fernando appointed Minister of Industry and Foreign Trade by President Luiz

Incio in 2003. In 2008, the company faced huge losses on the derivative market. In 2009 the company

announced its merger with its major competitor Perdigo, forming BRF - Brazil Foods (technically a

takeover of Sadia by Perdigo, which changed its corporate name to BRF - Brazil Foods S.A.). The merger

was approved by the boards and shareholders of both companies but the regulatory approval is still yet

to be received.

http://en.wikipedia.org/wiki/Brazilhttp://en.wikipedia.org/wiki/Foodhttp://en.wikipedia.org/w/index.php?title=Lu%C3%ADs_Fernando_Furlan&action=edit&redlink=1http://en.wikipedia.org/wiki/Luiz_In%C3%A1cio_Lula_da_Silvahttp://en.wikipedia.org/wiki/Luiz_In%C3%A1cio_Lula_da_Silvahttp://en.wikipedia.org/wiki/Perdig%C3%A3ohttp://en.wikipedia.org/wiki/Brasil_Foodshttp://en.wikipedia.org/wiki/Brasil_Foodshttp://en.wikipedia.org/wiki/Perdig%C3%A3ohttp://en.wikipedia.org/wiki/Luiz_In%C3%A1cio_Lula_da_Silvahttp://en.wikipedia.org/wiki/Luiz_In%C3%A1cio_Lula_da_Silvahttp://en.wikipedia.org/w/index.php?title=Lu%C3%ADs_Fernando_Furlan&action=edit&redlink=1http://en.wikipedia.org/wiki/Foodhttp://en.wikipedia.org/wiki/Brazil

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Company Profile:

The word Sadia in Portuguese means healthy, which seems appropriate for a Brazilian producer, settled

in the aisles of chilled and frozen foods. Sadia -- one of Brazil's largest pork, poultry (both chicken and

turkey), and beef makers --provide supplies to some 70,000 domestic customers and 200 export

customers. It also provides 1.3 million tons of protein-based offerings, including processed foods like

frankfurters and sausages, as well as convenience foods which include hamburger patties, pizzas, and

ready-to-eat meals. Other products include frozen desserts, pasta, and margarine.

Corporate Structure:

The corporate structure of the company Sadia S.A is shown below and it is necessary to note that the

company has its operating subsidiaries.

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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 hasundergone a comprehensive corporate reorganization, aimed at maintaining the sustainability of the

Companys 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

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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 ofGrandi 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, Perdigo 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 Balanceand

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 Beltro in the State of Paran. The productionvolume 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 Perdigo, 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

acquisitions 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 Participaes e Empreendimentos Ltda. and its partners, currently operated byUnifrigo in Mirassol DOeste 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 plants 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.

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Paraso Agroindustrial

On July 31, 2007, we acquired Paraso Agroindustrial, a company based in Jata, in the State of Gois,

which operates a poultry slaughtering unit and an animal feed plant. We acquired the company from theGale group at a price of R$28.7 million, generating goodwill ofR$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 Perdigo 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 Comrcio e Representaes 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 So 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 Comrcio e Representaes Ltda. into Perdigo Agroindustrial S.A.

Financial Position:

The financial position can be determined by the following income statements and balance sheets which

were basically not exposed in 2008 when the loss in derivative market occurred.

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Currency Derivative Contract:

Sadia entered into currency derivative contracts to hedge against the US dollar exposure. The amounts

of these contracts were characterized as nominal. The contract also violated the company policy in that

they were far larger than necessary. The contracts covered forward exposure for 12 months when the

companys policy contained the covering of forward exposure for 6 months worth of coverage.

Loss in the Derivative Market:

On 25

th

September, 2008, the companys shareholders were deeply shocked and saddened by the newswhich stated the loss it had incurred in the derivatives market. The loss was due to its involvement in

the currency derivative contracts hedging against US dollars exposure. The loss was of R$760 million

(U.S. $410 million). It was also alleged that the loss was however greater than their earnings in 2008. It

was due to this that the companys Chief Financial Officer was fired.

Consequences:

Due to this particular loss, the companys share fell $5.77 per share to $9.50 per share. It continued to

fall in the marketplace, declining an additional $1.91 per share, as the news of this particular loss got

leaked in the entire marketplace. On 6th October, 2008, the chairman and vice chairman resigned from

their respective jobs. Due to this, the price per share declined to $7.75 and $6.75 on 6 th and 7th October,

2008 respectively.

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Allegations against Sadia:

The purchasers of Sadias American Depository Receipts alleged that the currency derivative contract

was unnecessary and was against the companys policy i.e. clear violation of companys hedging policy.

Other allegations included:

1. The companys exposure to currency contracts was not nominal but large and speculative.2. The company lacked appropriate financial control.3. The company lacked sufficient internal control.4. The Financial statements were false.5.

The companys statements about it financial position and future business prospects weremisleading.

All these misleading statement were issued to SEC by Sadia which are as under while the true facts are

mentioned above.

Substantive Allegations:

During the class period, the company issued a press release and filed a form 6-K with SEC which stated:

"The results of the first quarter of 2008 confirmed our expectations. Gross revenues rose 20.3%,

to R$ 2.6 billion, and exports accounted for 46.7% of the revenues generated by the Company. The

Company will proceed with its internationalization process, aware of the sales growth potential in the

international market, having opened its first plant abroad, in Russia, and investing in the

construction of its second unit overseas, in the Arab Emirates. The segment of processed food increased

15.8% in volume and 21.2% in revenues in relation to the same quarter in the prior year. The growth in

this segment is consistent with the Company's goals of improving the product mix, minimizing sanitary

risks and ensuring a better profitability. The goal for the domestic market is to achieve penetration in all income

levels of the Brazilian population. Investments of R$ 427.1 million were made in the quarter, out of a planned

total of R$ 1.6 billion for the year, the highest amount in the history of Sadia. In the quarter, the Company had a

growth of 3.9% in operating profit and 123.4% in net income, as compared with the 1Q07. The focus on the

improvement of the operating cash generation (EBITDA) resulted in R$ 276.9 million and a margin of

12.1%, close to that obtained in the same period of the past year, in spite of the pressure due to the increase

in the cost of grains. In view of the apprehension in relation to the cost of grains in 2008, the Company

has concentrated its efforts in passing on costs, both in the domestic and in the foreign market, and in

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achieving productivity gains. We continue to be confident in our goal of doubling revenues within five

years, based on the internationalization of our operations and on the growth in the domestic market,

taking advantage of the competitive conditions of Brazil as a producer of animal protein. Certain that Sadia shall

continue its path of success in the year that has just started, by ensuring the quality of its products, the

sustainability of its initiatives and the maintenance of its credibility with investors, we wish to thank our

associates for their dedication and talent, which contributed to the development of another important quarterin the history of this Company."

Gilberto TomazoniCEO, Managing Director

On 30th April, 2008, the company once again created a misleading statement and filed it to SEC on form

6-K which included:

The Companys operations that are exposed to market risks, mainly with respect to foreign currency

variations, credit risks and variations in the prices of agricultural commodities - corn, soyabean and

derivatives. These risks are managed by the Risk Management area, through identification of exposures

and correlations between the different risk factors, using the specific calculation method, VAR - Value at

Risk and simulations of scenarios, and are permanently monitored by the Financial Committee and by

the Commodities and Risk Management Committee, consisting of members of the Board of Directors, who

are responsible for defining managements strategy for administering these risks, determining the limits

for positions, exposure and authority for decision making. At March 31, 2008, the VAR-Value at Risk for

the operational assets and liabilities and financial instruments exposed to exchange rate variations for

one year with 95% confidence, amounted to R$187,711, representing 6.10% of shareholders equity

On 30

th

July, 2008, the company filed to SEC:

"The rise in the international price of oil and the growth of the world economy drove the prices of

agricultural commodities up in the first half of the year. The prices of corn and soybean, the main inputs in our

industry, are approximately 33% and 50%, respectively, higher than those of the first half of 2007.

The commodities price rise has caused food inflation worldwide. In spite of the threat of a slowdown in the

world economy, the business trend is favorable to Brazil and to Sadias businesses.Even with this scenario

of cost pressure, the results of the second quarter of 2008 were in line with Company expectations. Gross

revenues in the period reached R$ 2.9 billion, an increase of 26.5%, when compared to those of the

2Q07. EBITDA reached R$ 271.5 million, 18.4% higher, with a margin of 10.5%.Sadias sales in the foreign

market continue to be driven by strong demands and firm prices. An upturn may be observed in the mix sold

in this market, such as the increase in the revenue brought by poultry cuts, of 72.1% in the 2Q08. In the domestic

market, the segment of processed products, which accounted for around 80% of the revenues, exceeded the

2Q07 figures by 24.9%. To maintain a continued growth aligned with its strategy, Sadia invested R$ 952.7

million in the first half of this year, out of an estimated total of R$ 1.6 billion for the year, in actions geared

to strengthen its expansion in the domestic market and the strategies for the globalization of its

operations, in view of the competitive conditions of Brazil as a producer of animal protein. The Concrdia

Banco operation has been approved and its purpose is to take advantage of the business opportunities and

synergies provided by the value chain of the Sadia group. The Company acknowledges the competence of

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its associates, who ensure the strength of its brand and the high quality of its products, contributing to

enhance the credibility of the Company with customers, shareholders, investors and suppliers. Gilberto

TomazoniCEO

On 25th September, 2008, the company filed once again with SEC on the form 6-K which stated:

The Finance Office implemented certain transactions in the financial market, which transactions were

related to the variation of U.S. Dollar against Real (Brazilian currency) in amounts above the purpose of

protecting the activities of the Company exposed to exchange variation. Given the severity of the international

crisis, which worsened last week and due to the high volatility of the quote of the U.S. currency, which

occurred very quickly, the Board of Directors, having become aware of the implementation of such

transactions, determined the adjustment of the exposure of the Company to standards of risks and limits

established as part of its financial and exchange rate policies. Accordingly, the Company decided to liquidate

in advance certain financial transactions, which resulted in losses of approximately R$ 760,000,000.00.

On 26th September, 2008, an article written by Associated Press notified that Sadia had incurred a big

loss in the derivative market. But Sadias officials reported that they can cover the loss having short term

line of credit. The fluctuations and volatility in the exchange market led to the loss. Analysts were of the

view that $406 million loss was more than the companys earnings in 2008 which led to the firing of

Chief Financial Officer.

Sources:

http://en.wikipedia.org

http://www.brasilfoods.com/ri/siteri/web/arquivos

http://ktmc.com/

http://www.bestgore.com/tag/drugs/

http://www.fim-africa.com/apps/blog/show/30582595-fim-africa-stand-2013-amid-show

http://www.slc.co.uk/links.aspx

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