MARFRIG GLOBAL FOODS S.A.

Transcription

1 (Convenience translation into English from the original previously issued in Portuguese) MARFRIG GLOBAL FOODS S.A. Individual and consolidated interim financial statements for the quarter ended March 31, 2016 and independent auditors review report EO/LP/GP BDO -16

2 Individual and consolidated interim financial statements for the quarter ended March 31, 2016 and independent auditors review report Contents Independent auditors review report on the interim financial statements Statements of financial position Statements of income Statements of comprehensive income Statements of changes in shareholders equity Statements of cash flows Statements of added value Notes to the individual and consolidated interim financial statements 2

3 Tel.: Rua Major Quedinho, 90 Fax: Consolação São Paulo, SP - Brasil (Convenience translation into English from the original previously issued in Portuguese) INDEPENDENT AUDITORS REVIEW REPORT ON THE INTERIM FINANCIAL STATEMENTS To the Shareholders, Board Members and Management of MARFRIG GLOBAL FOODS S.A. São Paulo - SP Introduction We have reviewed the individual and consolidated interim financial statements of MARFRIG GLOBALL FOODS S.A. (the Company ) contained in the quarterly information form for the quarter ended March 31, 2016, which comprises the balance sheet as of March 31, 2016 and the related statements of income, of comprehensive income, of changes in shareholders equity and cash flows for the three-month period then ended, including a summary of the significant accounting practices and other notes. Management is responsible for the preparation of the individual and consolidated interim financial statements in accordance with CPC Technical Pronouncement 21 (R1) - Interim Financial Reporting and with International Accounting Standardd (IAS) 34 - Interim Financial Reporting, issued by the International Accounting Standards Board (IASB), and for the presentation of this information in accordance with the standards issued by the Brazilian Securities and Exchange Commission (CVM) applicable to the Quarterly Information. Our responsibility is to express a conclusion on the interim information based on our review. Scope of the review We conducted our review in accordance with Brazilian and international standards for reviewing interim financial information (NBC TR Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE Review of Interim Financial Information Performed by the Independent Auditorr of the Entity, respectively). An interim review consists principally of applying analytical and other review procedures, and making enquiries of and having discussions with persons responsible for financial and accounting matters. An interim review is substantially less in scope than an audit conducted in accordance with auditing standards. An interim review does not provide assurance that we would become aware of any or all significant matters that might be identified in an audit. Accordingly, we do not express such an audit opinion. 3

4 Conclusion about the interim financial statements Based on our review, we are not aware of any fact that leads us to believe that the individual and consolidated interim financial statements included in the quarterly informationn form referred to above have not been prepared, in all material respects, in accordance with CPC 21 (R1) and IAS 34 applicable to Quarterly Informationn and presented in accordance with the standards issued by the Brazilian Securities and Exchange Commission. Other matters Interim statements of value added We have also reviewed the individual and consolidated interim statements of added value for the quarter ended March 31, 2016, prepared by the Company s Management, which disclosure in the interim financial statements is required in accordance with the standards issued by CVM applicable to the preparation of the Quarterly Information and considered as supplemental information by IFRS, which do not requiree the disclosure of the statement of value added. These statements were submitted to the same review procedures previously described and, based on our review, we are not aware of any fact that would lead us to believe that they have not been stated, in all material respects, in relation to the interim financial statements, individual and consolidated, taken as a whole. The accompanying individual and consolidated interim financial statements have been translated into English for the convenience of readers outside Brazil. São Paulo, May 11, BDO RCS Auditores Independentes SS CRC 2 SP /O-11 Esmir de Oliveira Accountant CRC 1SP /O-0 4

5 Balance sheet At March 31, 2016 and December 31, 2015 (In thousands of Brazilian reais R$) Assets Parent Liabilities and Shareholders' Equity Consolidated Parent Consolidated Note 3/31/ /31/2015 3/31/ /31/2015 Note 3/31/ /31/2015 3/31/ /31/2015 Current assets Current liabilities Cash and cash equivalents Trade accounts payable Marketable securities Accrued payroll and related charges Trade accounts receivable - domestic Taxes payable Trade accounts receivable - foreign Loans and financing Inventories of goods and merchandise Notes payable Biological assets Lease payable Recoverable taxes Interest on debentures Prepaid expenses Advances from customers Notes receivable Mandatory deed convertible into shares Advances to suppliers Liabilities related to held-for-sale assets Assets held or sale Other payables Other receivables Non-current liabilities Loans and financing Non-current assets Taxes payable Marketable securities Deferred income and social contribution taxes Court deposits Provisions for contingencies Notes receivable Lease payable Deferred income and social contribution taxes Debentures payable Recoverable taxes Notes payable Other receivables Mandatory deed convertible into shares Other Investments Property, plant and equipment Equity Biological assets Share Capital Intangible assets (-) Share issue expenses 25.1 ( ) ( ) ( ) ( ) Capital reserve Issue of common shares Acquisition of shares in subsidiaries (158) (158) (158) (158) Profit reserves Legal reserve Retained earnings Treasury shares (12) (554) (12) (554) Treasury shares canceled (11.690) (11.690) (11.690) (11.690) Other comprehensive income 25.3 ( ) ( ) ( ) ( ) Asset valuation adjustment ( ) ( ) ( ) ( ) Cumulative translation adjustment Equity amounts related to assets held for sale ( ) (90.887) ( ) (90.887) Accumulated losses ( ) ( ) ( ) ( ) Controlling shareholders' equity Non-controlling interest Total Assets Total liabilities and shareholders' equity The accompanying notes are an integral part of the parent company and interim individual and consolidated financial statements. 5

6 Statement of income Periods ended March 31, 2016 and 2015 (In thousands of Brazilian reais R$) Parent Consolidated Reclassified Reclassified 1st quarter 1st quarter 1st quarter 1st quarter Note Net Sales Cost of products and goods sold 27 ( ) ( ) ( ) ( ) Gross profit Operating income (expenses) ( ) ( ) ( ) ( ) Selling expenses 27 (82.460) (69.966) ( ) ( ) General and administrative expenses 27 (19.568) (15.244) ( ) (85.346) Equity in earnings (losses) of subsidiaries (59.613) (86.227) (1.993) (4.292) Other operating income (expenses) (20.953) (7.350) (18.969) (21.626) Net income (loss) before net financial income (loses) Financial income (expenses) 28 ( ) ( ) ( ) ( ) Financial income Exchange gain Financial expenses ( ) ( ) ( ) ( ) Exchange Loss ( ) ( ) ( ) ( ) Loss before tax effects ( ) ( ) ( ) ( ) Income and social contribution taxes Current and deferred income tax Current and deferred social contribution Net income (loss) in the period from continuing operations ( ) ( ) (88.052) ( ) Net income (loss) in the period from discontinued operations 36 (4.271) (6.554) (4.269) (6.566) Net income (loss) in the period before interest ( ) ( ) (92.321) ( ) Attributable to: Marfrig Global Foods - controlling interest - continuing operations ( ) ( ) ( ) ( ) Marfrig Global Foods - controlling interest - discontinued operations (4.271) (6.554) (4.271) (6.554) Controlling interest - Total ( ) ( ) ( ) ( ) Non-controlling interest - continuing operations Non-controlling interest - discontinued operations (12) Non-controlling interest - Total ( ) ( ) (92.321) ( ) Basic and diluted losses per common share - continuing operations 30 (0,2040) (1,0971) (0,1958) (1,0845) Basic and diluted losses per common share - discontinued operations (0,0082) (0,0126) Total basic and diluted losses per common share 30 (0,2040) (1,0971) (0,2040) (1,0971) The accompanying notes are an integral part of the parent company and interim individual and consolidated financial statements. 6

7 Statement of changes in shareholders equity (In thousands of Brazilian reais R$) Attributable to controlling shareholders Profit reserves Other comprehensive income Share Capital Share issue expenses Capital reserve Legal reserve Profit retention Treasury shares Treasury shares cancelled Equity valuation adjustment Cumulative translation adjustments Accumulated losses Total Total controlling interest Total noncontrolling interest Total shareholders' equity At December 31, ( ) (3.685) (11.690) ( ) ( ) Exchange variation on net investments ( ) - - ( ) ( ) ( ) Exchange variation - balance sheet translation Realization of Deemed Cost (2.114) Interest rate hedge - Parent company and reflecting from Subsidiaries Write-off (acquisition) of treasury shares Net income (loss) in the period ( ) ( ) ( ) ( ) At March 31, ( ) (3.573) (11.690) ( ) ( ) Attributable to controlling shareholders Profit reserves Other comprehensive income Share Capital Share issue expenses Capital reserve Legal reserve Profit retention Treasury shares Treasury shares cancelled Equity valuation adjustment Cumulative translation adjustments Equity amounts related to assets held for sale Accumulated losses Total Total controlling interest Total noncontrolling interest Total shareholders' equity At December 31, ( ) (554) (11.690) ( ) (90.887) ( ) Exchange variation on investments, net (40.887) (18.623) Exchange variation - balance sheet translation ( ) ( ) ( ) - ( ) Realization of Deemed Cost (2.128) Interest rate hedge - Parent company and reflecting from Subsidiaries Write-off (acquisition) of treasury shares Net income (loss) in the period ( ) ( ) ( ) (92.321) At March 31, ( ) (12) (11.690) ( ) ( ) ( ) OK OK OK OK OK OK OK OK OK VERIFICAR OK OK OK OK The accompanying notes are an integral part of the parent company and interim individual and consolidated financial statements. 7

8 Statements of cash flow Periods ended March 31, 2016 and 2015 (In thousands of Brazilian reais R$) Parent Consolidated Reclassified Reclassified 1st quarter 1st quarter 1st quarter 1st quarter Net Income (loss) in the period from continuing operations ( ) ( ) ( ) ( ) Items not affecting cash Depreciation Amortization Non-controlling interest Provision for contingencies Deferred taxes (39.023) ( ) (61.062) ( ) Equity in earnings (losses) of subsidiaries Exchange variation on financing (53.096) (52.852) Exchange variation on other assets and liabilities (36.544) (4.071) Interest expenses on financial debt Interest expenses on financial leasing Interest expenses on debentures Cost with issue of financial operations Leasing adjustment to present value 484 (217) 484 (217) Estimated non-realization of inventories Estimated losses with doubtful accounts 916 (74) 921 (611) Derecognition of fixed asset Equity changes (48.247) Trade accounts receivable (50.039) (43.735) Current inventory and biological assets Court deposits (2.300) (2.755) Accrued payroll and related charges (762) Trade accounts payable (29.144) (86.965) ( ) ( ) Current and deferred taxes (11.895) (31.291) Notes receivable and payable (89.255) Other assets and liabilities (16.606) Cash flow provided by operating activities Investing activities Investments (15.425) - (15.214) (96) Investments in fixed and non-current biological assets (34.881) (74.020) (89.810) (98.722) Investments in intangible assets (2.899) (776) (2.899) (874) Cash flow from investing activities (53.205) (74.796) ( ) (99.692) Financing activities Interest settled debentures / Bonds ( ) ( ) ( ) ( ) Loans and financing ( ) (97.803) Loans granted Loans settled ( ) ( ) ( ) ( ) Leasing payable (2.065) 463 (5.640) (6.733) Leasing granted Leasing settled (2.065) (856) (5.640) (8.052) Mandatory deed convertible into shares (7.589) (9.651) (7.589) (9.651) Treasury shares Cash flow provided by financing activities ( ) ( ) ( ) Exchange variation on cash and equivalents (27.892) ( ) Discontinued operations net of cash (NE 36) (18.919) (11.178) (10.868) Cash flow in the period (66.491) Cash and cash equivalents Balance at end of period Balance at start of period Changes in the period (66.491) The accompanying notes are an integral part of the parent company and interim individual and consolidated financial statements. 8

9 Statement of added value Periods ended March 31, 2016 and 2015 (In thousands of Brazilian reais R$) Reclassified Reclassified 1st quarter 1st quarter 1st quarter 1st quarter Revenue Sales of goods and services Other revenues Estimated losses with doubtful accounts (916) 74 (531) (18.103) Parent Consolidated Inputs purchased from other firms (including taxes - ICMS, IPI, PIS and Cofins) Cost of goods sold and services rendered Material, energy, outsourced services and other Loss / Recovery of assets Gross value added Depreciation and amortization Net value created by company Value added received through transfer Equity In Earnings (Losses) of Subsidiaries (59.613) (86.227) (1.993) (4.292) Financial income and exchange rate gains Other (including Discontinued Operations) ( ) (14.111) ( ) Total value added to be distributed Value added distribution Employees Direct compensation Benefits FGTS (severance pay fund) Taxes payable ( ) ( ) Federal (39.031) ( ) (38.356) ( ) State Municipal Value distributed to providers of capital Interest Rentals Other (including Discontinued Operations) (17.221) Value distributed to shareholders ( ) ( ) (92.321) ( ) Operational loss in the period ( ) ( ) ( ) ( ) Non-controlling interest The accompanying notes are an integral part of the parent company and interim individual and consolidated financial statements. 9

10 Statement of comprehensive income Periods ended March 31, 2016 and 2015 (In thousands of Brazilian reais R$) Parent Consolidated Reclassified Reclassified 1st quarter 1st quarter 1st quarter 1st quarter Net income (loss) in the period ( ) ( ) (92.321) ( ) Exchange variation on net investments ( ) ( ) Exchange variation on balance sheet translation ( ) ( ) ( ) ( ) Total comprehensive income (loss) for the period ( ) ( ) Attributable to: Marfrig Global Foods - controlling interest - continuing operations ( ) ( ) Marfrig Global Foods - controlling interest - discontinued operations (4.271) (6.554) (4.271) (6.554) Marfrig Global Foods - Total controlling interest ( ) ( ) Non-controlling interest - continuing operations Non-controlling interest - discontinued operations (12) Total non-controlling interest The accompanying notes are an integral part of the parent company and interim individual and consolidated financial statements. 10

11 1. Operations Marfrig Global Foods S.A. is a multinational company operating in the food and food service industries in Brazil and around the world. It has a diversified and comprehensive portfolio of products and its operations are founded on its commitment to excellence and quality, which has assured its products presence in the world s largest restaurant chains and supermarkets, as well as homes in nearly 100 countries. The Corporation s activities include the production, processing, further processing, sale and distribution of animal proteins (beef, lamb and poultry) and a variety of other food products, such as breaded products, ready-to-eat meals, fish, frozen vegetables and desserts, among others. Marfrig Global Foods S.A. was incorporated on June 6, 2000 and became a corporation on March 26, The Corporation was registered with the Brazilian Securities and Exchange Commission (CVM) under No on June 18, 2007 and carried out its initial public offering (IPO) on June 29, Its shares were listed on the Novo Mercado listing segment of the BM&FBovespa S.A. - Securities, Commodities and Futures Exchange (Brazilian Stock Exchange) under the stock symbol MRFG3. On January 22, 2014, the Annual and Extraordinary Shareholders' Meeting held at the Corporation s headquarters amended Article 1 of the Corporation s Bylaws, altering the Corporation s name to Marfrig Global Foods (formerly Marfrig Alimentos S.A.). On March 31, 2016, its subscribed and paid-in Share Capital was represented by 520,747,405 common shares, of which 160,001,658, or 30.72% of the Share Capital, was controlled by MMS Participações Ltda. and its partners, individually. On the same date, the free float was 360,299,597 shares, representing 69.19% of the Share Capital of the Corporation, which held 1,281 shares in treasury, while its Board of Directors and Executive Board held 444,869 shares, representing 0.09-% of the capital. MMS Participações Ltda. is controlled by Marcos Antonio Molina dos Santos and Marcia Aparecida Pascoal Marçal dos Santos, each holding a 50% ownership interest. Because it is listed on the Novo Mercado special corporate governance segment of the Brazilian Stock Exchange, the Corporation is subject to arbitration under the Market Arbitration Chamber, pursuant to the arbitration clause in its by-laws. The Corporation s stock is also a component of the main performance indicators of Brazil s Capital Markets, such as the Bovespa Index (Ibovespa, the most important indicator of the average performance of Brazilian stocks). Marfrig stock is also a component of the stock indexes of the Brazilian Stock Exchange: Broad Brazil Index (IBRA); Brazil Index (IBrX); Consumption Sector Index (ICON); Corporate Governance Trade Index (IGCT); Special Corporate Governance Stock Index (IGCX); Novo Mercado Corporate Governance Index (IGNM); Industrial Sector Index (INDX); Special Tag-Along Stock Index (ITAG); BM&FBovespa Value Index (IVBX); Small Cap Index (SMLL). The Corporation established an integrated and geographically diversified business model, which consists of production units located in strategic places, combined with a broad distribution network with access to the world s main channels and consumer markets. Marfrig currently operates 45 processing units, distribution centers and offices in Brazil and in 10 other countries in South America, North America, Europe, Oceania and Asia. 11

12 for the periods ended March 31, 2016 and 2015 The Corporation believes that continuous improvement in its internal processes will enable it to further enhancee efficiency and cut costs, which, coupled with a result-driven management that is committed to profitable growth, will drive profitability and cash generation. The Corporation s ownership structure, financial and equity position should be considered within the context of the integrated activities of the following segments, which are organized as used by the Management to take decisions, each with their own structures and segmented into: Marfrig Beef The Marfrig Beef business unit is a pioneer in the sale and promotion of beef, with the focus on serving the domestic market in Brazil, especially the food service industry, as well as the export market, with clients from all over the world. Marfrig Beef is renowned in many countries for the quality of its premium products, having taken advantage of the favorable scenario in Brazil s cattle industry and foreign exchange to strengthen its position in international markets. Its international operations in South America are concentrated in exporting premium beef cuts and leveraging its strategic geographic position in Uruguay, which ensures access to the world s main consumer markets. Keystone - The Keystone business unit is a supplier of food made from animal protein to major global restaurant chains, with strong presence in the United States and Asia. Committed to innovation and the highest food safety and quality standards, it combines vast expertise in the food industry with a strong focus on clients to offer a complete mix of fresh and frozen products. 12

13 Summary of the equity interests held by the Corporation by business segment: Equity interests MARFRIG BEEF Parent Company Core Activity Country Marfrig Global Foods S.A. Processing and marketing of product (formed by 6 cattle slaughter facilities in operation, 2 of which also used in beef processing, 1 producing home and personal care products, 1 animal feed plant, located in the States of São Paulo, Mato Grosso, Mato Grosso do Sul, and Rio Grande do Sul, in addition to 4 Distribution Centers in the State of São Paulo, 1 of which used for beef processing). Brazil Subsidiaries Core Activity Country Interest % 3/31/ /31/2015 MFB Marfrig Frigoríficos do Brasil S.A. Processing and marketing of product (composed of 4 cattle Brazil 100% 100% slaughter facilities, 1 of which is also used for slaughtering lamb in states of Rio Grande do Sul, Roraima and Pará, in addition to 2 distribution centers in the states of Rio de Janeiro and São Paulo). Masplen Ltd Holding company Jersey Island 100% 100% Pampeano Alimentos S.A. Producer of canned meat and other processed products Brazil 100% 100% Marfrig Overseas Ltd Specific Purpose Entity - SPEs Cayman Island 100% 100% MR Foods USA Inc. Marketing of products USA 100% 100% MFG Comercializadora de Energia Ltda Energy trading and associated services Brazil 99.99% 99.99% Frigorífico Tacuarembó S.A. Processing and marketing of products Uruguay 99.95% 99.95% Inaler S.A. Processing and marketing of products Uruguay 100% 100% Marfrig Chile S.A. Processing and marketing of products Chile 99.50% 99.50% Frigorífico Patagônia S.A. Processing and marketing of products Chile 100% 100% (lamb meatpacker in from December to May, fish, clam and king crab processing in other months) Prestcott International S.A. Holding company Uruguay 100% 100% Cledinor S.A. Processing and marketing of products: beef and lamb Uruguay 100% 100% Establecimientos Colonia S.A. Processing and marketing of products Uruguay 100% 100% Weston Importers Ltd Trading company UK 100% 100% CDB Meats Ltd Processing of products UK 100% 100% Marfrig Peru S.A.C. Marketing of poultry, beef, fish and seafood Peru 100% 100% 13

14 Marfrig Holdings (Europe) B.V KEYSTONE Subsidiaries Core Activity Country Holding company whose purpose is to obtain funding and hold ownership of the company Keystone Interest % 3/31/ /31/2015 Netherland 100% 100% Keystone Foods (UK) Ltd Holding UK 100% 100% Keystone Foods International Ltd Holding UK 100% 100% Keystone International S.a.r.l Holding Luxembourg 100% 100% Mckey Luxembourg Holdings S.a.r.l Holding of the companies Keystone with operations focused on Asia Luxembourg 100% 100% MFG (USA) Holdings Inc Holding of the companies Keystone with operations focused on the USA (Keystone companies jointly are composed of 4 poultry slaughter plants 12 further processing plants) USA 100% 100% Discontinued Operation Subsidiaries Core Activity Country Interest % 3/31/ /31/2015 MOY PARK Moy ParK Ltd Processing and marketing products Northern Ireland - 0% (composed of 4 poultry slaughter plants, 14 further processing units) Kitchen Range Foods Ltd Processing and marketing products England - 0% Moy Park (BondCo) Plc Holding company incorporated to conduct the first issue of Senior Notes in GBP Northern Ireland - 0% MARFRIG BEEF Marfrig Argentina S.A. Processing and marketing of products Argentina 99.94% 99.93% MFG Agropecuária Ltda Agriculture and cattle raising Brazil % (composed of 6 feedlot units) 2. Presentation and preparation of the parent company and consolidated interim financial information 2.1. Statement of compliance (with IFRS and CFC accounting standards) Consolidated financial statements The Corporation s consolidated financial information was prepared and is presented in accordance with accounting practices adopted in Brazil and with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). The separate financial information of the parent company was prepared in accordance with the accounting practices adopted in Brazil and is disclosed jointly with the consolidated financial statements. The accounting practices adopted in Brazil include those provided for in Brazilian corporations law, the Brazilian Accounting Standards (NBCs) and resolutions and 14

15 instructions issued by the Securities and Exchange Commission of Brazil (CVM). Until December 31, 2013, these practices differed from IFRS, in relation to the separate financial statements, as they required the valuation of investments in subsidiaries, associates and joint ventures through the equity method, as opposed to valuation at cost or fair value under IFRS. With the revision of IAS 27 (Separate Financial Statements) revised by IASB in 2014, the separate financial statements in IFRS now allow the use of the equity method to recognize investments in subsidiaries, associates and joint ventures. In December 2014, CVM issued Resolution 733/2014, which approved the Document of Revision of Technical Pronouncements no. 07 addressing Pronouncements CPC 18 (R2), CPC 35 (R2) and CPC 37 (R1), issued by the Accounting Pronouncements Committee, accepting said revision of IAS 27. The parent company and consolidated Statement of Added Value (DVA) is required under Brazilian corporations law and the accounting practices adopted in Brazil applicable to public companies. IFRS standards do not require said statement. As a result, under IFRS, this statement is being presented as supplementary information, without prejudice to the complete set of financial statements. Parent company financial information The parent company financial information was prepared based on the accounting practices adopted in Brazil and resolutions issued by CFC, observing the accounting guidelines based on Brazilian Corporation Law (Federal Law 6,404/76), which include the provisions introduced, amended and revoked by Law 11,638 of December 28, 2007 and Law 11,941 of May 27, 2009 (former Provisional Presidential Decree 449 of December 3, 2008)and de May 13,2014. There is no difference between the Group s shareholders equity and consolidated income (loss) and the parent company s shareholders equity and income (loss) disclosed in the parent company financial information. Thus, the Group s consolidated/parent company financial information is being presented in the same document. The Management of the Corporation approved the issue of these parent company and consolidated financial statements on May 11, Basis of presentation The parent company and consolidated financial information is denominated in Brazilian real (R$), which is the reporting currency, and all amounts are rounded to thousands of Brazilian real, unless otherwise stated. The consolidated financial statements were prepared on the historical cost basis, unless otherwise stated, such as certain assets and financial instruments, which may be stated at fair value. 15

16 The preparation of parent company and consolidated financial information in accordance with IFRS and NBCs requires Management to make certain accounting estimates. The areas involving considerable judgment or use of estimates for the parent company and consolidated financial information are stated in note of the financial statements for the fiscal year ended December 31, Foreign currency translation Functional and reporting currency The financial statements of each consolidated subsidiary and those used as a basis for accounting for investments under the equity method are prepared using the functional currency of each entity. Under CVM Resolution 640/10 (CPC 02 (R2) effect of changes in exchange rates and translation of financial statements), functional currency is the currency of the primary economic environment in which the entity operates. To define the functional currency of each subsidiary, Management considered which currency significantly influences the sale price of their goods and services and the currency in which most of their production input costs are paid or incurred. The consolidated financial information is expressed in Brazilian real (R$), which is the functional and reporting currency of Marfrig Global Foods S.A. Transactions and balances Foreign currency transactions are translated into the functional currency of the Corporation using the exchange rate at the transaction date. Gains and losses resulting from the difference between the monetary asset and liability balance translation at the year-end and the translation of the transaction balances are recognized in the income statement. Non-monetary assets and liabilities in foreign currency measured at fair value are translated at the exchange rate on the date on which their fair value is determined and the differences resulting from such translation will be recognized under other comprehensive income on the closing date of each period or fiscal year. Group companies The results of operations and the financial position of all consolidated subsidiaries and investments accounted for under the equity method, whose functional currency differs from the reporting currency, are translated from the reporting currency, as follows: i. Asset and liability balances are translated using the exchange rate in effect at the date of the consolidated interim financial information; ii. Statement of operation accounts are translated using the monthly average exchange rate; and iii. All differences arising from the foreign currency translation are recognized in shareholders equity and in consolidated comprehensive income (loss) under Cumulative translation adjustments. 16

17 3. Summary of significant accounting practices 3.1. Significant accounting practices The quarterly information was prepared in accordance with CVM Resolution 673/11, which sets forth the minimum interim accounting information to be reported and the principles of recognition and measurement for complete or condensed interim statements. Thus, the quarterly information presented here was prepared based on the accounting policies and estimate calculation methods used while preparing the annual financial statements for the fiscal year ended December 31, There has been no change in said policies and estimate calculation methods. As allowed by CVM Resolution 673/11, and based on the recommendations contained in Official Letter CVM/SNC/SEP/No. 003/2011, management chose to not report once again the details presented in Note 3. Summary of significant accounting practices, in order to avoid repeating the information already disclosed in its latest annual financial statements. Hence, users must read this quarterly information together with the annual financial statements for the fiscal year ended December 31, 2015, to have a better understanding Reclassification in the statements of income and of cash flow in the period ended March 31, 2015 On June 21, 2015, the Corporation disclosed through a Material Fact notice the Final Agreement for the Purchase and Sale of Ownership Interest and Other Covenants with JBS S/A, which laid out the terms and conditions for the sale to JBS S.A. of all ownership interests held by Marfrig in Moy Park Holdings Europe Ltd., parent company of the companies operating the Moy Park business unit. On September 28, 2015 the sale was effectively completed with the meeting of all conditions and approvals required to close the Transaction. On September 30, 2015, the Management Committee decided to hold for sale all assets of Marfrig Argentina S.A. and MR Foods USA, Inc., both part of the Marfrig Beef business unit, and authorized the Corporation s management to carry out all efforts to comply with said decision. On December 29, 2015, the Corporation s Management decided to sell the assets of the company MFG Agropecuária Ltda, which is part of the Marfrig Beef business segment, to Mr. Marcos Antonio Molina dos Santos. In compliance with the provisions of NBC TG 31 (R3) and for comparison purposes, the Corporation and its subsidiaries restated their statements of income, of cash flow, of comprehensive income and notes to the financial statements for the period ended March 31,

18 4. Cash and cash equivalents The Corporation adopts the policy of presenting the following items within the cash and cash equivalents group: Cash on hand; Demand deposits. Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Cash and banks 292, ,187 2,363,563 1,487,624 Cash equivalents 26,323 17, , , , ,982 2,520,594 1,630,368 Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Cash and banks: Brazilian real 100,902 31, ,131 36,379 US dollar 210, ,805 1,930,602 1,056,741 Euro 7,371 29,613 38,215 68,814 Pound sterling ,146 21,220 M alaysian ringgit ,561 53,300 Chinese Yuan , ,195 Australian dollar ,115 18,445 Thai Baht (Thailand) ,998 65,871 South Korean Won ,632 46,546 Honk Kong dollar - - 7,542 29,940 Uruguayan peso ,036 13,978 Chilean peso ,659 7,636 Other , ,982 2,520,594 1,630, Marketable Securities Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Marketable securities 1,997,431 1,601,157 2,664,774 3,374,753 1,997,431 1,601,157 2,664,774 3,374,753 18

19 The Corporation s financial investments by type are as follows: Held-for-trading: Maturities PMPV (1) Currency Average interest rate p.a.% 3/31/16 12/31/15 Bank deposit certificates - CDB (2) Immediate - BRL 13.59% 650, ,328 Repurchase and reverse repurchase agreements Immediate - BRL 11.31% 279, ,265 Interest-bearing deposit 07/24/ USD 2.49% 928, ,900 Fixed income bond Immediate - BRL 13.65% 13,294 72,922 Credit-linked note - CLN (2) 07/17/ USD 0.63% 106, ,279 FIDC 06/13/ BRL 17.63% 18,181 17,463 Total 1,997,431 1,601,157 Parent Total current 1,997,431 1,601,157 Consolidated Average interest Maturities PMPV (1) Currency rate p.a.% 3/31/16 12/31/15 Held-for-trading Bank deposit certificates - CDB (2) Immediate - BRL 13.59% 668, ,804 Repurchase and reverse repurchase agreements Immediate - BRL 11.31% 279, ,265 Interest-bearing deposits 03/31/ BRL Interest-bearing deposits 07/24/ USD 2.49% 928, ,900 Time Deposit 06/17/ USD 0.89% 243,047 1,322,636 Credit-linked note - CLN (2) 07/17/ USD 0.63% 225, ,246 FIDC 06/13/ BRL 17.63% 18,181 17,463 Fixed income bonds Immediate - BRL 13.65% 13,294 72,922 Fixed income bonds 05/04/ USD 12.33% 287, ,333 Total 2,664,774 3,374,753 Total current 2,663,878 3,373,842 Total non-current (1) Weighted average maturity in years. (2) Transactions have daily liquidity and can be redeemed at any time. Said maturity is the maturity of the operation. The Corporation maintains the following types of financial investments: 5.1 Bank Certificate of Deposit (CDB) Bank certificates of deposit are investments made at prime financial institutions at variable rates and yield on average 96% to 100% of the variation in the Interbank Deposit Rate (CDI). 5.2 Repurchase and reverse repurchase agreements Transactions based on outstanding daily cash denominated in Brazilian real that bear interest which ranges from 80% to 100% of the Interbank Deposit Rate (CDI). This operation has immediate liquidity, for it can be early redeemed without yield loss. 19

20 5.3 Interest-bearing deposits The investments of this type are made in Brazilian real and U.S. dollar and bear interest at fixed rates and measured by the amortized cost Time Deposit Fixed-rate investments issued by top tier financial institutions on international markets. 5.5 Credit Linked Note (CLN) The Credit Linked Notes (CLN) comprise a financial instrument exclusively used to generate resources among the Group s companies and correspond to a credit note used to mitigate the Corporation s credit risk, as presented in note The resources applied in these instruments derive from funds raised in the international capital markets issued by Marfrig Group s foreign subsidiaries, which due to cash management and liquidity strategy are maintained at the issuing foreign subsidiaries. The average yield rate is 1.31% p.a. and they are measured by the amortized cost per annum. 5.6 FIDC Fundos de Investimentos em Direitos Creditórios (Receivables Backed Investment Funds) These are shares of an investment fund that invests in receivables rights. 5.7 Fixed Income Bonds These are investments in fixed income securities issued by top tier financial institutions at fixed rates. 20

21 6. Trade accounts receivable domestic and foreign customers Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Trade accounts receivable - domestic 225, , , ,010 Trade accounts receivable - foreign 615, , , ,525 (-) Advances on export contracts (ACEs) (420,598) (458,818) (420,598) (458,818) 419, , ,745 1,003,717 Amounts not yet due 683, , , ,559 Amounts overdue From 1 to 30 days 20,328 33, , ,453 From 31 to 60 days 14,719 94, , ,419 From 61 to 90 days 121,419 6, ,899 49,104 More than 90 days 9,130 8,214 21,557 21,026 (-) Advances on export contracts (ACEs) (420,598) (458,818) (420,598) (458,818) (-) Estimated losses with doubtful accounts (9,130) (8,214) (21,557) (21,026) 419, , ,745 1,003,717 The estimated loss with doubtful accounts was set up in an amount deemed sufficient by Management to cover possible losses on the realization of receivables. Aiming to achieve the best estimate possible, concerning the realization of such credits, and therefore duly set up an allowance for estimated losses with doubtful accounts as at March 31, 2016, the Corporation's Management analyzed particular aspects about its customers, such as business activity, general credit situation, the market s economic situation and notes due for more than 90 days and whose settlement is not considered as possible. The Corporation does not have a history of relevant problems with collection, and the Accounts Receivable Department rates each customer upon acceptance and credit granting. Changes in estimated losses for credit risks are as follows: Parent Consolidated Balance on December 31, 2015 (8,214) (21,026) Estimate accrued in the period (1,768) (2,135) Estimate reversed in the period 852 1,530 Exchange rate variation Discontinued operation - (584) Balance on March 31, 2016 (9,130) (21,557) 21

22 A receivables backed investment fund (Fundo de Investimento de Direitos Creditórios - FIDC) was created in June 2014 to sell a portion of the receivables from the installment sale in the domestic market, up to the limit of R$160 million (principal), of which R$16 million consists of mezzanine subordinated shares. On March 31, 2016, the amount of bills traded with the fund was R$86,515. For sales paid in installments, the Corporation uses working capital financing lines available in financial markets. Receivables were discounted to present value, where applicable, in accordance with CPC Technical Pronouncement No. 12, approved by CVM Resolution No. 564/08 (CPC 12 present value adjustment), as described in note to the financial statements for the fiscal year ended December 31, Inventories of products and merchandise In the periods ended March 31, 2016 and December 31, 2015, inventories of finished products were carried at average purchase and/or production cost, as explained in note to the financial statements for the fiscal year ended December 31, 2015: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Finished products 402, ,060 1,013,997 1,166,483 Raw materials , ,376 Packaging material and storeroom supplie 24,565 24, , ,194 (-) Estimated losses (28,566) (25,566) (31,181) (30,089) 398, ,066 1,276,120 1,496,964 The Corporation grounds its estimates on historical losses, as follows: Parent Consolidated Balance on December 31, 2015 (25,566) (30,089) Reversal of estimates - 1,733 Recognition of estimates (3,000) (3,000) Translation gains (losses) Reversal due to divestment - (4) Balance on March 31, 2016 (28,566) (31,181) 22

23 8. Biological assets Parent Consolidated Current 3/31/16 12/31/15 3/31/16 12/31/15 Biological assets - cattle ,585 28,158 Biological assets - poultry ,081 78,671 Translation gains (losses) - - (14,503) 53,345 Total current biological assets , ,174 Non-current Biological assets - poultry ,723 43,099 Translation gains (losses) - - (5,432) 16,705 Total non-current biological assets ,291 59,804 Total biological assets , ,978 The Corporation's current biological assets are composed of live animals segregated among the categories: poultry and cattle. Animals classified in this group are those intended for slaughtering for production of fresh meat and/or processed products in the next 12 months. Due to the short formation period of poultry, as well as not having a quotation to poultry and pigs market, the Corporation evaluated these biological assets and identified no material adjustments in relation to acquisition cost. In this case, the Corporation believes that the fair value of biological assets is substantially represented by the formation cost, given the short life cycle of the animals. With respect to beef cattle, these are animals kept in feedlots for fattening and slaughter. The balance presented in this item is available for use over the next 12 months. The Corporation valued these animals at fair value, based on the "Mark to Market - MtM concept, considering the market prices of the arroba 1 of cattle, and recognized the effects of these valuations directly in the statement of operations. The Corporation s non-current biological assets are composed of live poultry, classified as breeding stock and intended for reproduction. These assets are amortized on a straight-line basis over the useful life of the animals. Poultry for reproduction have an average useful life of up to 60 weeks. 1 Arroba = A unit of weight equivalent to 15 Kg. 23

24 The changes in biological assets are as follows: Current biological assets: Parent Consolidated Balance on December 31, ,174 Increase due to purchases - 28,677 (-) Write-off for slaughter - (369,683) Costs of input for fattening - 385,796 (-) Decrease due to sales - (76,069) Net increase (decrease) due to births (deaths) - (538) Change in fair value less estimated sale expenses (*) - 10,648 Balance sheet translation - (14,503) Reversal due to divestment - 22,661 Balance on March 31, ,163 * Only applicable to cattle Non-current biological assets: Parent Consolidated Balance on December 31, ,804 Increase due to purchases - 10,499 (-) Write-off for slaughter - (1,167) Costs of input for fattening - 11,302 Amortization - (19,715) Balance sheet translation - (5,432) Balance on March 31, , Recoverable taxes Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 ICMS (State VAT) 542, , , ,869 PIS (tax on sales) credit 327, , , ,707 Cofins (tax on sales) credit 1,532,909 1,554,010 2,205,573 2,203,260 Income tax 97,707 52, ,436 65,392 Social contribution tax 16,672 16,602 18,439 18,360 Other 38,496 92,281 83, ,040 (-) Estimated losses from non-realization (451,389) (451,389) (676,385) (676,385) 2,104,158 2,182,142 2,818,202 2,885,243 Current assets 747, ,249 1,262,427 1,289,571 Non-current assets 1,357,007 1,396,893 1,555,775 1,595,672 24

25 9.1 ICMS (State VAT) The balance of recoverable ICMS derives from credits taken for ICMS paid on the purchase of raw, packaging and other materials, in amounts higher than the debts generated from domestic sales, since foreign market sales are free from this tax. Credit realization is made through offsetting against debts generated in domestic sales or through transfers to third parties. 9.2 PIS and COFINS taxes Pursuant to Laws No. 10,637/02 and 10,833/03, this line item consists of noncumulative PIS and COFINS credits on the acquisition of raw, packaging, and other materials used in the goods sold in foreign markets. The Corporation is engaged in registering its rights before the Federal Revenue Service. 9.3 Income and Social Contribution Taxes This line item consists of income and social contribution taxes prepaid in the period ended March 31, Estimated losses from non-realization of tax credits The estimated losses for non-realization of tax credits were calculated based on the best expectation of realization of the Corporation s recoverable taxes balances, in which main credits are mainly from PIS/COFINS. In the period ended March 31, 2016, there were no changes in the estimates for non-realization of tax credits. 10. Notes receivable Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Related-party transactions (1) 1,543,728 1,289,604 74,783 - Market transactions receivable 22,434 14, , ,499 Other notes receivable 1,379 1,378 22,534 11,403 Total 1,567,541 1,305, , ,902 Current assets 955, ,152 73,615 48,034 Non-current assets 612, , , ,868 (1) Includes the remaining balance of the direct subsidiary sale transaction as described in note 13.3 The Parent Company s notes receivable mostly consist of balances resulting from transactions with its subsidiaries (related parties), as described in note

26 10.1 Related-party transactions The following tables, except for transactions with Mr. Marcos Antonio Molina dos Santos and Mrs. Márcia Aparecida Pascoal Marçal dos Santos, sole partners of MMS Participações Ltda., show the transactions between the Corporation and its wholly-owned subsidiaries as at March 31, 2016: Parent 3/31/ Accounts Accounts Notes Notes Asset held March 31, 2016 receivable payable receivable payable Purchases Sales for sale Cledinor S.A. - 40, , Establecimientos Colonia S.A. - 16, , Frigorífico Tacuarembó S.A. - 24,066 3,264 26,867 2, Inaler S.A. - 17, , MR Foods USA Inc Marfrig Argentina S.A ,126 Marfrig Chile S.A. 15,554 1, ,842 57,730 - Marfrig Holdings (Europe) BV 5,996-43,581 8,697,913-5,331 - Marfrig Overseas Ltd , , MFB Marfrig Frigorificos Brasil S.A 141,131 39,828 1,168,648-72,124 78,776 - MFG Comercializadora de Energia Ltda ,177 4, Pampeano Alimentos S.A. 18, , ,387 - Controlling shareholders - 1,618 74,783-3, , ,710 1,543,728 9,315,520 96, , ,126 Parent 12/31/ Accounts Accounts Notes Notes Asset held Advances December 31, 2015 receivable payable receivable payable Purchases Sales for sale from clients Cledinor S.A. - 42, , Establecimientos Colonia S.A. - 18, , Frigorífico Tacuarembó S.A. - 26,521 1,148 25,615 11, Inaler S.A. - 19, , MR Foods USA Inc Marfrig Argentina S.A ,464 - Marfrig Chile S.A. 3, , , Marfrig Holdings (Europe) BV 5,412-38,637 8,671,032-5, Marfrig Overseas Ltd , , MFB Marfrig Frigorificos Brasil S.A 110,947 38,513 1,005, , , MFG Agropecuária Ltda , MFG Comercializadora de Energia Ltda ,953 12, Pampeano Alimentos S.A. 19, , , Controlling shareholders - 1, , , , ,980 1,289,604 9,369, , , ,149 10,869 Consolidated Outstanding Balance Recognized as profit or loss Receivables Payables Income Expense 3/31/16 12/31/15 3/31/16 12/31/15 3/31/16 3/31/15 3/31/16 3/31/15 Controlling shareholders 74, ,618 12, ,584 6,540 Key management personnel , ,052 74, ,144 13, ,402 7,592 26

27 On June 30, 2014, the Corporation signed an Agreement for the Purchase of Cattle and Equipment and the Hiring of employees, through its wholly owned subsidiary MFG Agropecuária Ltda., with the current controlling shareholder of the Grupo Marfrig Global Foods S.A., Mr. Marcos Antonio Molina dos Santos, by which the Corporation undertook to sell said assets and liabilities to the controlling shareholder in an irrevocable manner. The transaction was duly approved by the Audit Committee the Marfrig Group, led by an independent director. These assets were being sold at the market value and, as for the purchase and sale of cattle, and purchase of equipment, they are duly registered in the results since the second quarter of 2014, without causing any losses to the Corporation. The balance presented in this note, as Receivables, refers to the net effect of the sale of cattle, acquisition of equipment, less costs of transfer of labor, less the amounts paid by the controlling shareholder through the fourth quarter of This thus materializes all transfers of assets and liabilities so that all the underlying items of said agreement have been transferred to the buyer. The controlling shareholder fully settled said agreement in the last quarter of The Corporation s controlling shareholder, MMS Participações Ltda., and its sole partners, have endorsed some financial agreements of the Corporation. In case of default, creditors can demand payment directly from the controlling shareholder and from its partners and, if they make the payment, they will be entitled to reimbursement from the Corporation. The Corporation did not pay any commissions or other amounts to the appraisers. In a meeting held on June 24, 2015, the Board of Directors of the Corporation established new limits of authority for its Management Bodies. The Management Committee is now responsible for authorizing a series of acts, with powers over amounts corresponding to between R$300 million and R$400 million. For acts whose required powers exceed those determined for the Management Committee, approval is required from the Board of Directors of the Corporation. The nature of related-party transactions between Marfrig Group companies is represented by commercial transactions (purchases and sales) and sending of cash for payment of such transactions, as well as for working capital. Intercompany loans (instruments receivable and payable) in Brazil (parent company and subsidiaries) are managed by checking accounts held between the companies based on the centralized cash system managed by the parent company. For transactions with subsidiaries abroad, the loan rate is 3% plus 6-month LIBOR (London Interbank Offered Rate). Purchases and sales of products are made at market values. No guarantees or estimated losses with doubtful accounts are required. These transactions involve purchase and sale of fresh meat and cattle, poultry and lamb processed products. Transactions between subsidiaries do not have an impact on consolidated financial statements, given that they are eliminated in consolidation. 27

28 11. Assets and Liabilities Held for Sale On September 30, 2015, the Management Committee decided to hold for sale the assets of the Marfrig Argentina S.A. business unit, which is part of the Marfrig Beef business segment, and authorized the Corporation s management to carry out all efforts to comply with said decision. In accordance with CVM Resolution 598/09 (CPC 31 non-current asset held for sale and discontinued operations), the assets and liabilities of this unit were recorded under Assets and Liabilities Held for Sale. Also in compliance with CPC 31, the Corporation informs that property, plant and equipment and intangible assets were recorded at their fair value as described in notes 14 and 15, respectively, and this impact is reflected therein. This decision is based on the Corporation s strategic plan to increase the group s profitability and streamline its ownership structure. On March 31, 2016, the assets and liabilities held for sale were as follows: Parent Consolidated Parent Consolidated Assets 3/31/2016 3/31/2016 Liabilities 3/31/2016 3/31/2016 Cash and cash equivalents - 4,054 Trade payables 4,116 71,378 Trade receivables - 56,537 Loans and financing - 12,238 Long-term receivables 323, ,559 Other liabilities - 30,010 Investments (159,432) 25 Other assets 5,692 58,495 Total liabilities 4, ,626 Shareholders' Equity Amounts related to assets held for sale (105,404) (105,404) (105,404) (105,404) Total liabilities and shareholders equity held Total assets held for sale 169, ,670 for sale (101,288) 8,222 Divestment of the Beef Jerky businesses On September 30, 2015, the Management Committee decided to hold for sale all assets of the subsidiary Marfood USA, Inc. (part of the Marfrig Beef business), and authorized the Corporation s management to make all efforts to comply with said decision. On January 30, 2016, the Corporation concluded the sale of the beef jerky business of Marfood USA, Inc. to The Classic Jerky Company, a subsidiary of Link Snacks, Inc. for US$3.1 million (R$ 12,7 million on the transaction date). The impact of the sale in the result from discontinued operations was a loss R$ 1,1 million, which is irrelevant in the period. With the sale of the beef jerky business, Marfood USA, Inc., organized under the company name MR Foods USA, Inc., will concentrate its operations on the sale of meatpacking products (canned food and non-refrigerated meat for future processing) in the U.S. market and surrounding region, aiming to maintain the group s service capillarity in the segment. 28

29 12. Deferred Income and Social Contribution Taxes - Assets Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Income tax 1,217,819 1,042,051 1,720,151 1,519,126 Social contribution tax 440, , , ,686 Non-current assets 1,657,941 1,418,897 2,243,189 1,969,812 Tax credits consist of deferred Income and Social Contribution Taxes, calculated on temporary add-backs/exclusions that were added/excluded to the taxable income and the social contribution tax basis in prior and current years and calculated on tax losses, temporary add-backs and future utilization for tax purposes of goodwill paid due to future profitability, which will be realized from 2016 onwards. Tax credits recognized for income and social contribution tax losses and temporary differences are supported by taxable income projections and expectations for recoverability based on internal feasibility studies, prepared by expert professionals, which are annually reviewed by the Corporation's Management. These credits were recognized according to provisions referred to in note to the financial statements for the fiscal year ended December 31, Below are the changes in deferred taxes in the period ended March 31, 2016: March 31, 2016 Parent Consolidated Description Income Tax Social contribution tax Income Tax Social contribution tax Closing balance on December 31, ,042, ,846 1,519, ,686 (-) Realization of taxes on tax losses (190,416) (68,550) (191,313) (68,550) Deferred taxes on tax losses 134,782 48, ,525 59,068 Deferred taxes on social contribution tax loss carryforwards (-) Realization of deferred taxes on social contribution tax loss carryforwa (323) Deferred taxes on temporary add-backs/deductions 320, , , ,095 (-) Realization of deferred taxes on temporary add-backs/deductions (89,563) (32,243) (97,497) (35,099) Translation gain or loss - - (35,573) - Other ,226 - Reversal due to divestment - - (112,531) 117 Closing balance on March 31, ,217, ,122 1,720, ,038 Credits arising from temporary differences, especially provisions, were recognized according to the expectation of their realization. In 2013, the Corporation launched an operational and corporate restructuring process to adjust its capital structure and indebtedness to its business model. In October 2013, the Corporation announced to the market the Focus to Win strategic plan, which was soon implemented. The targets established for 2014 and 2015 were fully met. 29

30 The Focus to Win plan has the following pillars: a) specific agenda of productivity gains in the Beef Brazil business; b) margins under control; c) acceleration of organic growth in/across regions and key accounts with best margins, especially increasing the share of exports in total revenue in the Marfrig Beef business; d) focus on more profitable distribution channels; e) higher integration of business platforms at the global level; f) divestments of non-strategic operating activities; g) reductions in gross debt and in the interest rates of funding transactions. Note that the projections were based on the assumptions for net income and historical data on profitability in each segment, taking into account the diverse economic scenarios of each market where the Corporation operates, due to its global and diversified presence (approximately 60% of revenue came from international units, and most of them are located in economically stable countries). In 2013, the Corporation began the restructuring process with the divestments of the Seara and Companhia Zenda businesses. In 2015, the Corporation continued the process and concluded the divestment of the Moy Park business unit for approximately US$1.5 billion. The transaction helped to: a) reduce the Corporation s leverage and, consequently improve its profit outlook; and b) keep deferred tax assets at the same levels of the previous year. In 2016, the Company will keep working on the restructuring of its businesses, following its strategic planning. The expected realization of "Deferred Tax Assets, based on a technical feasibility study as per CVM Instruction 371 of June 27, 2002 is as follows: Year Parent Consolidated ,964 95, , , , , , , , , to ,201,199 1,555,644 1,657,941 2,243, Investments Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Interest in subsidiaries 5,492,589 6,178, Other investments ,519 26,024 5,492,724 6,178,722 21,519 26,024 30

31 13.1 Investments (Parent) Investments in subsidiaries on March 31, 2016: No. of units of interest/shares Ownership percentage in voting capital Trading on the stock exchange Share capital Equity Net income (loss) for the period Equity value according to % interest held for sale Equity value according to % interest MFB Marfrig Frigorificos do Brasil S.A. 520,398, No 520, ,259 (56,689) - 249,241 Marfrig Chile S.A. 9, No 88, ,060 9, ,456 Inaler S.A 66,247, No 5,221 54,550 (6,922) - 54,550 Frigorífico Tacuarembó S.A 163,442, No 22, ,086 4, ,222 Masplen Ltd 5, No 13,138 (2,197) (10,500) - (9,411) Prestcott International S.A 79,638, No 10, ,616 (1,638) - 106,616 Establecimientos Colonia S.A 80,647, No 93,426 44, ,705 MR Foods USA, Inc. 50, No 87,899 (102,463) 1,612 - (102,463) Marfrig Overseas Ltd No - 19,204 (34,310) - 19,204 Marfrig Argentina S.A. 1,033,635, No 562,996 (159,527) (2,984) (159,432) - MFG Comercializadora de Energia Ltda 149, No , Marfrig Holdings(Europe) BV 2,403, No 3,464,446 4,812,834 39,862-4,812,833 Marfrig Peru S.A.C. 5, No 6 (353) 78 - (353) Total 4,869,216 5,341,922 (55,470) (159,432) 5,492,589 31

32 The following table presents a summary of the financial information of the subsidiaries: Total assets Total liabilities Non-controlling interest Net revenue Group's profit/loss sharing (1) MFB Marfrig Frigorificos do Brasil S.A. 1,944,958 1,695, ,476 (56,689) Marfrig Chile S.A. 207,538 94, ,321 9,039 Inaler S.A 200, , ,111 (6,922) Frigorífico Tacuarembó S.A 404, , ,671 4,961 Masplen Ltd 367, , ,015 (10,500) Prestcott International S.A 241, , ,032 (1,638) Establecimientos Colonia S.A 310, , , MR Foods USA, Inc. 49, ,174-36,142 1,612 Marfrig Overseas Ltd 3,842,212 3,823, (34,310) Marfrig Argentina S.A. 279, ,068 (96) - (2,982) MFG Comercializadora de Energia Ltda 6,283 5,294-23,246 1,812 Marfrig Holdings(Europe) BV 15,770,831 10,762,959-2,507,872 39,862 Marfrig Peru S.A.C. 1,299 1, Total 23,628,156 18,091, ,895,300 (55,515) (1) The balance corresponds to the Corporation s ownership interest in its subsidiaries, adjusted by any unrealized profits at the time of consolidation. 32

33 13.2 Breakdown of investments (parent) Effect of reverse equity interest in the equity accounts of subsidiaries. Book balance on 12/31/2015 Asset valuation adjustment Reclassification (2) Total investment in the period Equity in earnings (losses) of subsidiaries (1) Balance sheet translation effect Book balance on 3/31/2016 MFB Marfrig Frigorificos do Brasil S.A 305, (56,706) - 249,241 Marfrig Chile S.A. 110, ,035 (7,006) 112,456 Inaler S.A. 66, (6,922) (5,122) 54,550 Frigorífico Tacuarembó S.A. 219, ,277 (20,136) 204,222 Masplen Ltd 8, (17,713) 1 (9,411) Prestcott International S.A. 118, (1,638) (10,347) 106,616 Establecimientos Colonia S.A 49, (4,497) 44,705 MR Foods USA, Inc (118,739) (118,739) 1,612 14,034 (102,463) Marfrig Overseas Ltd 55, (34,310) (1,888) 19,204 MFG Comercializadora de Energia Ltda (823) , Marfrig Holdings(Europe) BV 5,246,322 (558) ,860 (472,791) 4,812,833 Marfrig Peru S.A.C. (465) (353) Total 6,178, (118,739) (118,739) (59,613) (507,718) 5,492,589 (1) The balance corresponds to the Corporation s ownership interest in its subsidiaries. (2) The balance corresponds to the reclassification of investments previously recorded as asset held for sale. Assets Held for Sale Book balance on 12/31/2015 Asset valuation adjustment Acquisition/ Write-of Capital increase/ (reduction) Total investment in the period Equity in earnings (losses) of subsidiaries Reclassifications (2) Balance sheet translation effect Book balance on 3/31/2016 MR Foods USA, Inc. (111,655) (3,165) ,739 (3,919) - Marfrig Argentina S.A. (174,459) (28,677) - 28,360 28,360 (2,982) - 18,326 (159,432) MFG Agropecuária Ltda. 97,322 - (98,214) - (98,214) Total (188,792) (31,842) (98,214) 28,360 (69,854) (2,090) 118,739 14,407 (159,432) 33

34 13.3 Sale of ownership interest Divestment of indirect subsidiary In accordance with the material fact notice released to the market on June 21, 2015, the Corporation entered into, on June 19, 2015, an Agreement for the Purchase and Sale of Ownership Interest and Other Covenants, which laid out the terms and conditions for the sale by the Corporation to JBS S.A. of certain ownership interests in the companies of the Group operating the Moy Park business unit. On the execution date, the transaction amount was established at approximately US$1.5 billion, of which (i) US$1.19 billion refers to cash payment to Marfrig and (ii) GBP 200 million refers to Moy Park s net debt assignment. On September 28, 2015, the Corporation concluded the sale of all ownership interest held in Moy Park Holdings Europe Ltd., parent company of companies that operate the "Moy Park business unit. As such, control of that entity was then transferred to JBS. On the conclusion date, estimated settlement price of the transaction, as recorded in the balance sheet, was composed as follows: (i) cash payment to Marfrig in the amount of US$1.21 billion (R$4.73 billion) and; (ii) installment payment to Marfrig of US$53.8 million (R$210 million), settled on October 27, Under the agreement, the parties prepared their reports for verifying the estimated settlement price and, in mutual agreement, defined the final price adjustment of the transaction. In the quarter ended December 31, 2015, the Corporation recognized the price adjustment payable to JBS of US$46.5 (R$180 million), of which US$21.5 million (R$83.2 million) was disbursed during this period. The additional adjustment of R$180 million, plus the price adjustment in the prior quarter of R$210 million, resulted in a total price adjustment of R$30 million. Thus, the adjusted result before taxes from the sale of Moy Park was R$1,396 million and recorded on the consolidated statement of income for the year under Net income (loss) from discontinued operations at December 31, Gains and losses in the current year, related to the divested business, were recorded under Net income (loss) in the year from discontinued operations, and the gains and losses in the comparison years were reclassified pursuant to CVM Resolution 598/09 (CPC 31 non-current assets held for sale and discontinued operations). 34

35 R$ '000 Sales price 4,736,868 Adjustment of sales price (*) 30,275 (-) Expenses with legal counsels and independent consultants (14,905) (=) Adjusted sales price 4,752,238 (-) Write-off of assets and other comprehensive income (3,356,439) (=) Income (loss) from the sale before taxes 1,395,799 Income and social contribution taxes (474,572) (=) Profit (loss) from the operation 921,227 (*) Price adjustment arises mainly from variation in working capital and net debt in the divested companies, according to the agreement. Divestment of direct subsidiary On March 30, 2016, the Corporation concluded, as per the notice to the market dated February 10, 2016, the related party transaction involving the sale of the ownership interest it held in the subsidiary MFG Agropecuária Ltda. ( MFG ) to the controlling shareholder, Mr. Marcos Antonio Molina dos Santos. The negotiation between the parties reflects commercial conditions for the sale of ownership interests strictly compatible with those typically practiced in the market, supported, as a condition precedent for the transaction, by a technical Valuation Report prepared by the audit and consulting firm PricewaterhouseCoopers Auditores Independentes. The purchase agreement entered into between the parties, among other terms and conditions, provides for the following conditions for consummation of the transaction: (i) sales price of R$95 million, which includes the amount of R$13,2 million as prefixed interests; (ii) discount from an advance in the amount of R$10.9 million received by the Corporation from Mr. Marcos Molina, as payment; (iii) settlement of the outstanding balance in nine quarterly installments. The transaction was the object of consideration and approval by the Audit Committee, Management Committee and Financial and Risk Management Committee of Marfrig, and was submitted to examination and approval, in accordance with the shareholders agreement. The divestment of MFG is aligned with the strategic plan Focus to Win, which aims to streamline the operations and to focus more on key assets. The result of the transaction, before taxes, was a loss of R$10,9 million, recorded in the consolidated statement of income for the period under Net income (loss) from discontinued operations at March 31, The following amounts reflect the transactions mentioned above: 35

36 R$ '000 Sales price 95,000 (-) Financial interest incurred during the contract (*) (13,212) (-) Expenses with legal counsels and independent consultants (93) (-) Write-off of assets (98,214) (=) Income (loss) from the sale before taxes (16,519) Effect of Income and social contribution taxes 5,616 (=) Profit (loss) from the operation (10,903) (*) Financial interest provided by contract to be paid as installments are received. Considering the impact of interest expenses in the gain/loss from sale, the loss, net of tax effects, would be R$ 2,2 million. Gains and losses in the current year, related to the divested business, were recorded under Net income (loss) in the year from discontinued operations, and the gains and losses in the comparison years were reclassified pursuant to CVM Resolution 598/09 (CPC 31 non-current assets held for sale and discontinued operations) Acquisition of ownership interest On May 25, 2015, Marfrig acquired a business formed by the following assets: (a) acquisition of all shares of Mercomar Empreendimentos e Participações Ltda, including the previously leased units of Capão do Leão (Rio Grande do Sul), Mato Leitão (Rio Grande do Sul), Pirenópolis (Goiás), Tucumã (Pará) and Nova Londrina (Paraná). In consideration, Marfrig will pay the amount of R$428.2 million. The payment of the amount of R$428.2 million will be divided in two phases: a down payment of R$4 million and the remaining balance of R$424.2 million divided into 24 quarterly installments with a grace period of three years for the payment of principal. Interests will be restated at the CDI overnight rate plus 1.5% per year and will be paid in 36 quarterly installments. On the acquisition date, in accordance with NBC TG 15 (R3) Business Combination, the Corporation measured the assets acquired and liabilities assumed at fair value, based on appraisal reports prepared by external experts engaged by the Corporation, observing fair and consistent criteria, assumptions and projection methodologies for transactions of this nature. Initially, no liabilities or provisions for contingencies were identified that should be recognized on the acquisition date, as the acquired company was incorporated recently and does not have a history of activities that could generate liabilities of this nature. The fair values of these assets and liabilities were measured at R$503.4 million, and any fair value gains associated with said assets were adequately recognized under property, plant and equipment and intangible assets. The Management of the Corporation revised the adopted assumptions and criteria and considered that the value of these assets was fairly measured on the acquisition date. Furthermore, all deferred tax effects on the fair value gain were duly recognized. 36

37 The values above are presented in the following table: R$ '000 Assets of the company Mercomar e Empreendimentos e Participações Ltda (a) 441,825 Cash and equivalents 2 Property, plant and equipment 441,823 Book value of acquired assets and assumed liabilities 441,825 Fair value of property, plant and equipment according to independent expert report (b) 186,516 Fair value of intangible assets according to independent expert report (c) 348,528 Deferred tax liabilities (31,693) Fair value of acquired assets 503,351 Contractual acquisition value 428,158 (=) Bargain purchase - Gain in the operation (d) 75,193 Income and social contribution tax rate 34% Income and Social Contribution taxes 25,566 (a) (b) (c) (d) Mercomar Empreendimentos e Participações Ltda., company that received the assets held by Frigorífico Mercosul S/A and its affiliates, incorporated on April 27, These assets are formed by all goods and rights related to the five (5) units located in: Capão do Leão/RS; Tucumã/PA; Mato Leitão/RS; Nova Londrina/PR and Pirenópolis /GO. The acquired amount is included in the changes in property, plant and equipment, under additions, in note 14. The acquired intangible assets amount are included in the changes in intangible assets, under additions, in note 15. The acquisition resulted in a bargain purchase, the effect of which gain was recorded in the income statement under Other operating income (expenses). Tax effects were also recognized. The Corporation s Management monitors the effects of acquisitions, observing recording periods, which may not exceed one year from the date of acquisition, in accordance with NBC TG 15 (R3) - Business Combination. On September 30, 2015, the Corporation approved and completed the merger of Mercomar Empreendimentos e Participações Ltda. (Merged Company) into MFB Marfrig Frigoríficos do Brasil S.A. (Merging Company), in accordance with the terms of the Merger Agreement presented to shareholders at the time. The share capital of the Merging Company and the Merged Party are wholly owned by Marfrig Global Foods S.A. and as such, they are part of the same economic group. This merger did not involve any non-controlling shareholders, and aimed merely to simplify the group s ownership structure. 37

38 14. Property, plant and equipment The following tables show the weighted average annual depreciation rate determined using the straight-line method and based on the economic useful life of the assets and their balances: Changes in acquisition cost of the parent company Description Parent 3/31/16 Average annual depreciation rates Acquisition Cost Additions Write-offs Transfers Accumulated depreciation Net Cost Plots of land - 31, ,186 Constructions and buildings 3.08% 808, (143,406) 664,702 Machinery and equipment 13.51% 506,702 1,184 (173) (16) (226,431) 281,266 Furniture and fixtures 10.00% 16, (1) 14 (7,786) 8,541 Facilities 4.61% 918, ,470 (190,280) 760,188 Vehicles 18.16% 32,688 - (75) 24 (11,225) 21,412 IT equipment 19.03% 11, (3) 9 (7,752) 4,002 Aircraft 20.00% (382) - Leasehold improvements 16.67% 58, (9,062) 49,237 Lease - vehicles 20.00% 19, (24) (19,082) 67 Lease - computer hardware 20.00% 26, (7) (15,080) 11,086 Lease - machinery 10.00% 11, (9,965) 1,695 Lease - facilities - 18, (18,240) - Lease - buildings - 6, (6,314) - Construction in progress - 4,352 33,525 - (31,496) - 6,381 Other (118) 200 2,470,457 34,881 (252) ,123 1,839,963 38

39 Changes in net balance of the parent company: Parent 12/31/15 3/31/16 Description Average annual depreciation rates Net Additions Write-offs Transfers Depreciation Net Plots of land - 31, ,186 Constructions and buildings 3.08% 669, (4,988) 664,702 Machinery and equipment 13.51% 293,891 1,184 (45) (16) (13,748) 281,266 Furniture and fixtures 10.00% 8, (1) 14 (310) 8,541 Facilities 4.61% 738, ,470 (10,271) 760,188 Vehicles 18.16% 21, ,412 IT equipment 19.03% 4, (196) 4,002 Leasehold improvements 16.67% 51, (2,404) 49,237 Lease - vehicles 20.00% (24) (29) 67 Lease - computer hardware 20.00% 11, (7) (590) 11,086 Lease - machinery 10.00% 1, (61) 1,695 Construction in progress - 4,352 33,525 - (31,496) - 6,381 Other ,837,551 34,881 (46) - (32,423) 1,839,963 Changes in consolidated acquisition cost: Consolidated 3/31/16 Description Average annual depreciation rates Acquisition Cost Additions Write-offs Transfers Translation Accumulated Depreciation Net Cost Plots of land - 132, (7,806) - 124,958 Constructions and buildings 1.79% 2,576, (46) 2,088 (78,451) (735,248) 1,765,320 Machinery and equipment 5.97% 2,450,140 3,442 (1,102) 37,414 (48,212) (1,488,265) 953,417 Furniture and fixtures 4.85% 119,827 1,219 (8,669) 3,208 (1,352) (81,766) 32,467 Facilities 4.60% 1,166, ,545 (1,250) (303,129) 904,345 Vehicles 14.29% 94,630 - (1,887) 41 (1,207) (56,265) 35,312 IT equipment 20.28% 64, (3) 9 (122) (58,644) 5,581 Aircraft 20.00% (382) - Advance for acquisition of property, plant and equipment Leasehold improvements 10.43% 279,338 - (972) 6,503 (1,793) (59,662) 223,414 Lease - vehicles 20.00% 20, (41) 40 (20,199) 66 Lease - computer hardware 20.00% 26, (7) - (15,531) 11,102 Lease - machinery 0.78% 143, (83) (1,821) (119,600) 21,758 Lease - facilities - 18, (18,790) - Lease - buildings - 11, (11,577) - Construction in progress - 90,964 64,175 - (90,677) (6,990) - 57,472 Other - 2, (200) (1,960) 198-7,198,657 69,683 (12,679) - (149,164) (2,971,018) 4,135,479 39

40 Changes in consolidated net balance: Description Consolidated 12/31/15 3/31/16 Average annual depreciation rates Net Additions Write-offs Transfers Translation Depreciation Net Plots of land - 132, (7,806) - 124,958 Constructions and buildings 1.79% 1,861, (4) 2,088 (78,451) (20,194) 1,765,320 Machinery and equipment 5.97% 1,005,915 3,442 (47) 37,414 (48,212) (45,095) 953,417 Furniture and fixtures 4.85% 31,458 1,219 (3) 3,208 (1,352) (2,063) 32,467 Facilities 4.60% 876, ,545 (1,250) (13,127) 904,345 Vehicles 14.29% 37,849 - (90) 41 (1,207) (1,281) 35,312 IT equipment 20.28% 5, (122) (436) 5,581 Advance for acquisition of property, plant and equipment Leasehold improvements 10.43% 225,661 - (27) 6,503 (1,793) (6,930) 223,414 Lease - vehicles 20.00% (41) 40 (52) 66 Lease - computer hardware 20.00% 11, (7) - (590) 11,102 Lease - machinery 0.78% 30, (83) (1,821) (6,357) 21,758 Construction in progress - 90,964 64,175 - (90,677) (6,990) - 57,472 Other (200) (7) 198 4,311,263 69,683 (171) - (149,164) (96,132) 4,135,479 According to CVM Resolution 645/10 (CPC 6(R1) lease operations), the assets acquired by the Corporation under a finance lease started to be recorded as property, plant and equipment, including their respective depreciation, as mentioned above, with an offsetting entry to lease payable, shown in note 20. Pursuant to CVM Resolution 639/10 (CPC 01 (R1)- reduction to recoverable value of assets), an asset is tested for impairment on an annual basis. The asset s value must be estimated only if there is any indication of impairment. If any indication of impairment is found, recoverability analysis comprises projecting the profitability and future cash of the Corporation s business units, which are discounted to present value to identify the degree of recoverability of the asset. During the period ended March 31, 2016, the book values of the Corporation s assets were not higher than the amounts which could be obtained by use or sale. The Corporation and its subsidiaries recorded property, plant and equipment that are fully depreciated and still in operation, as well as temporarily idle items, as follows: 40

41 Description Parent 3/31/16 Temporarily idle property, plant and equipment Property, plant and equipment fully depreciated and still in operation Constructions and buildings Machinery and equipment - 65,457 Furniture and fixtures - 1,657 Facilities Vehicles - 35,661 IT equipment - 22,531 Aircraft ,149 Consolidated 3/31/16 Description Temporarily idle property, plant and equipment Property, plant and equipment fully depreciated and still in operation Property, plant and equipment not in operation and not classified as held for sale Land 9, Constructions and buildings 124,835 4,052 - Machinery and equipment 29,944 74,594 - Furniture and fixtures 3,728 1, Facilities 31, Vehicles - 36,344 - IT equipment 1 24, Aircraft Leasehold improvements 32, , , Intangible assets The Corporation has the subgroup intangible assets, composed of non-current assets, presented pursuant to CVM Resolution 644/10 (CPC 4 (R1) intangible assets), as shown in the summary below: Amortization rate Useful life 3/31/16 12/31/15 3/31/16 12/31/15 Goodwill , , , ,479 Trademark and patents 2.05% ,883 22, , ,091 Software 18.06% ,919 29,730 36,060 35,549 Client relationship 10.00% ,457 45,333 Client relationship - Indefinite - - 1,179,346 1,280,873 Right of use (*) 5.50% ,486 52,214 51,486 52,214 Sales channels (*) 5.50% , , , ,522 Other intangible assets 25.00% ,940 2, , ,832 2,491,119 2,645,270 (*) Amounts from the merger of subsidiary Mercomar Empreendimentos e Participações Ltda. Into the subsidiary MFB Marfrig Frigoríficos do Brasil S.A., as described in note Parent Consolidated

42 Consolidated breakdown of intangible assets Parent Consolidated Balance on December 31, ,832 2,645,270 (+) Addition 2,899 2,899 (-) Amortization (6,502) (8,148) (+/-) Exchange variation - (148,902) Balance on M arch 31, ,229 2,491,119 Goodwill from the acquisition of businesses by September 30, 2008 (last acquisition previous to transition date as of January 1, 2009, referring to complete adoption of the International Financial Reporting Standards (IFRS)) was calculated based on the accounting standards previous to CVM Resolution 665/11 (CPC 15 - business combination). According to IFRS Optional Exemptions, the Corporation decided to adopt IFRS in all business acquisitions as from September 30, These goodwill amounts were based on expected future profitability, and supported by valuation reports from experts. The trademarks acquired from third parties, prior to December 31, 2009, were measured at the paid amount, while trademarks and list of clients acquired as part of business combination after September 30, 2008 were calculated at fair value pursuant to CVM Resolution 665/11 (CPC 15 (R1) business combination). According to CVM Resolution 639/10 (CPC 1 (R1) reduction to recoverable value of assets), the impairment test of goodwill and intangible assets with indefinite useful lives is conducted annually, and other intangible assets with finite useful lives are tested whenever there is evidence of non-realization of those items. Intangible assets represented by patents and a list of clients are amortized at their respective useful lives, if applicable. Certain intangible assets of the Corporation have undefined useful lives, according to the experts' valuation, and are annually tested for impairment. Such analysis comprised projecting the profitability and future cash of the Corporation s business units, which are discounted to present value to identify the degree of recoverability of the asset. Discounted cash flows to assess asset impairment were prepared for a period close to 10 years. This cash flow is in line with the Corporation s strategic plan and growth projections based on past information and market projections prepared by nongovernmental agencies and entities. Estimated impairment losses include the fair value adjustment of assets held for sale. In the period ended March 31, 2016, the Corporation did not identify any indications of asset recorded in its books at an amount higher than that recoverable through use or sale. 42

43 15.1 Changes in intangible assets (parent) Changes in the Intangible assets accounts of parent company for the period ended March 31, 2016 are as follows: Balance on December 31, 2015 Acquisition/ write-off Reclassification / amortization Balance on March 31, 2016 Inaler S.A. - Goodwill 38, ,379 Frigorífico Tacuarembó S.A. - Goodwill 58, ,496 Masplen Ltd - Goodwill 17, ,258 Prescott International S.A. - Goodwill 22, ,922 Establecimientos Colonia S.A - Goodwill 114, ,479 Keystone International - Goodwill 274, ,949 Sales channels 291,522 - (4,064) 287,458 Rights of use 52,214 - (728) 51,486 Software and systems 29,730 2,899 (1,710) 30,919 Trademarks and patents 22, ,883 Total 922,832 2,899 (6,502) 919,229 The goodwill generated in the business acquisitions concluded before the adoption of IFRS is expressed in the Corporation s functional currency. 43

44 15.2 Changes in intangible assets (subsidiaries) Book balance on December 31, 2015 Exchange variation on translation Amortization Book balance on March 31, 2016 Marfrig Chile S.A. 31,291 (2,770) (23) 28,498 Goodwill 31,035 (2,749) - 28,286 Trademarks and patents/software/others 256 (21) (23) 212 Masplen Ltd (11) 418 Trademarks and patents/software/others (11) 418 Prestcott International S.A 17,936 (1,586) (33) 16,317 Goodwill 17,167 (1,521) - 15,646 Trademarks and patents/software/others 769 (65) (33) 671 Frigoríficos Tacuarembó S.A 1,251 (107) (45) 1,099 Trademarks and patents/software/others 1,251 (107) (45) 1,099 Inaler S.A 658 (56) (28) 574 Trademarks and patents/software/others 658 (56) (28) 574 Establecimientos Colonia S.A 966 (82) (40) 844 Trademarks and patents/software/others 966 (82) (40) 844 MFB - Marfrig Frig. BR S.A (29) 213 Trademarks and patents/software/others (29) 213 Marfrig Holdings (Europe)BV 1,669,665 (144,301) (1,437) 1,523,927 Goodwill 19,793 (2,291) - 17,502 Client relationship 1,326,205 (114,048) (1,355) 1,210,802 Trademarks and patents/software/others 323,667 (27,962) (82) 295,623 Total 1,722,438 (148,902) (1,646) 1,571, Accrued payroll and related charges Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 INSS (social security contribution) payable 41,930 35,206 50,269 43,465 Salaries and payroll obligations 60,103 52, , ,107 Other social charges and benefits payable 2,946 3, , , ,979 90, , ,015 On November 21, 2005, Law No was enacted allowing the offsetting of INSS debts against federal tax credits. This procedure was regulated by Interministerial Ordinance No. 23 dated February 2,

45 In addition, article 2 of Law /07 establishes responsibility to the Brazilian Federal Revenue Service concerning the employees social security contributions levied on their contribution salaries, according to item c, sole paragraph, Article 11 of Law 8.212/91 and Article 104 of Law /05. The Corporation currently has a favorable court decision that determines that the Federal Revenue Service of Brazil should analyze the requests for Reimbursement filed by the Corporation and also establishes the recognition of the possibility to offset credits related to PIS and COFINS taxes with social security contributions, upon use of tax credits to pay the dues. The Corporation believes it holds sufficient credits to settle its debits and therefore, based on the opinion of its legal counsel, is carrying out the offset of social security debts with PIS/COFINS tax credits. An Interlocutory Appeal was filed by the National Treasury against said court decision, which was judged and the decision maintained with regard to the requirement of analysis by the Federal Revenue Service of Brazil of the requests for Reimbursement filed by the Corporation. However, the decision was altered regarding the right to suspend the enforceability of the dues. As a result, the Corporation requested the court to recognize the possibility of offsetting the PIS and COFINS credits with social security contributions using the tax credits to pay the debts, to be undertaken by the Federal Revenue Service of Brazil. To formalize said credits, the Corporation filed Requests for Reimbursement with the Federal Revenue Service of Brazil. These requests indicate the existence of sufficient credits to settle the Corporation s debts, at the occasion of occurrence of the facts and events, using the tax credits to pay such debts. However, given the start of the period to include dues settled with PIS and COFINS credits, which has been challenged by Brazil s Federal Revenue Service, in order to improve its positioning and relationship with the Federal Revenue Service, the Corporation chose to include the dues settled until December 2013 in the World Cup REFIS. Consequently, the credits settled were once again included in the balance sheet. This does not mean that the Corporation has withdrawn or changed its opinion, as mentioned above. Thus, for dues after December 31, 2013, use of tax credits to pay dues will continue to be requested. In the period ended March 31, 2016, the Corporation does not sponsor post-employment benefit plans with actuarial liability characteristics. 45

46 17. Taxes payable Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 ICMS (State VAT) payable ,618 Special tax debt installment payment plan - Refis (1) 520, , , ,801 Income tax payable 146, ,289 56,544 Social contribution tax payable 53,938-59,007 7,173 Social contribution payable - PGFN (2) 47,567 46,704 47,567 46,704 Other taxes payable 54,059 23,800 95,161 65, , ,901 1,092, ,077 Current liabilities 258,428 53, , ,961 Non-current liabilities 563, , , ,116 (1) (2) Laws 11,941/09, 12,865/13 and 12,996/14, which reopened the period for adhesion. Office of the General Counsel to the National Treasury Special Tax Debt Installment Payment Plan Law 11,941/09 On September 30, 2009, the Corporation joined the Special Tax Debt Installment Payment Plan (New REFIS), established by Law No. 11,941, of May 27, It provides for the payment in installments of debts due to the Brazilian Federal Revenue Service (SRF), the Office of the National Treasury Attorney-General (PGNF), and the Brazilian Social Security Institute (INSS). The Corporation declared debts with those agencies and transferred to the plan debts included in other payment plans (Special Tax Debt Installment Payment Plan - Law No. 10,684/03 PAES and Extraordinary Tax Debt Installment Payment Plan Executive Act No. 303/06 PAEX), to be settled within 180 months During the consolidation process of the abovementioned program, the Corporation decided not to include the lawsuit / , totaling originally R$29,844, which was reclassified to taxes payable, under non-current liabilities. In view of the waiver of the installment payment program, debits were adjusted in accordance with law in effect on the date of the taxable event, resulting in additional fine, interest and restatement amounting to R$17,723 and a total debit of R$47,567, as presented below: Debits reclassified to taxes payable 3/31/16 12/31/15 Social contribution payable- PGFN 10,627 10,434 Income tax payable - PGFN 28,788 28,266 Withholding income tax payable - PGFN 8,152 8,004 47,567 46,704 46

47 Reopening of the Period for joining the program Law 12,865/2013 and Law 12,996/2014 On December 20, 2013 and August 25, 2014, the Corporation joined the Reopening of Law 11,941 of 2009, which governs the payment in installments of dues with the Federal Revenue Service of Brazil (SRF), the Attorney General of the National Treasury (PGFN) and the National Social Security Institute (INSS), stating its outstanding dues with these organs, to be settled within 180 months, as shown below: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Opening balance 517, , , ,751 (+) Interest rates 13,374 29,151 18,856 51,574 (-) Payments made / tax credits (10,672) (36,619) (15,821) (55,853) (-) Reversal due to asset held for sale (15,671) Debt balance 520, , , ,801 Current liabilities 43,027 41,962 61,607 60,034 Non-current liabilities 477, , , , Loans and financing Local currency Credit facility Charges (% p.a.) Parent Weighted average interest rate (p.a.) Weighted average maturity (years) Balance on 3/31/16 Balance on 12/31/15 FINAME/FINEP TJLP + Fixed Rate 6.02% ,936 NCE/Working Capital/CDCAS Fixed Rate+%CDI 17.08% , ,965 Total local currency 17.06% 447, ,901 Foreign currency: NCE/Prepayment (US$) / ACC (US$) Fixed Rate+ FX (US$) + Libor 6.68% , ,897 Total foreign currency 6.68% 598, ,897 Total loans and financing 11.12% 1,046, ,798 Current liabilities 924, ,341 Non-current liabilities 121, ,457 47

48 Local currency Credit facility Charges (% p.a.) Consolidated Weighted average interest rate (p.a.) Weighted average maturity (years) Balance on 3/31/16 Balance on 12/31/15 FINAME/FINEP TJLP + Fixed Rate 4.05% ,763 26,641 NCE/Working capital (R$)/CDCAS Fixed Rate+%CDI 17.08% , ,965 Total local currency 16.42% 470, ,606 Foreign currency Prepayment/NCE / ACC (US$) Fixed Rate + FX (US$) + Libor 6.69% , ,341 Bonds (US$) Fixed Rate + FX 8.55% ,235,400 8,845,300 Bank loan (US$) Fixed Rate + FX 3.12% ,813,651 1,400,299 Revolving credit facility Libor % , ,515 PAE (US$) Fixed Rate + FX 2.14% ,470 58,360 Tradable liabilities Fixed Rate 6.50% ,238 15,879 Total foreign currency 7.28% 11,187,415 11,310,694 Total Loans and financing 7.64% 11,658,350 11,885,300 Current liabilities 2,151,629 1,772,411 Non-current liabilities 9,506,721 10,112,889 The Corporation s types of loans and financing can be described as follows: 18.1 Senior Notes BONDS These are long-term funding operations denominated in foreign currencies involving the issue of debt securities abroad (Bonds) exclusively to qualified institutional investors (Rule 144A/Reg S), not registered at the Securities and Exchange Commission of Brazil (CVM), in accordance with the Securities Act of 1933, as amended. The Corporation, through its subsidiaries, has conducted seven funding operations of this nature since 2006, as detailed below: The first bond operation was concluded in November 2006, upon the issue by Marfrig Overseas Ltd., a wholly-owned subsidiary of the Corporation, of US$375 million in Senior Notes, with a 9.625% p.a. coupon, semi-annual interest payment beginning in May 2007 and maturity of principal in 10 years (November 2016), which were assigned foreign currency risk ratings of B1 by Moody s and B+ by Standard & Poor s and Fitch. The proceeds from the issue were used for the acquisition by the Corporation of business units in Argentina and Uruguay. 48

49 In March 2010, Senior Note holders approved the amendment of certain clauses included in the indenture that governs this issue, including the change in and/or omission of restrictions applicable to the guarantees provided by the Corporation and its subsidiaries. Said amendment did not comprise any change in the financial conditions of this debt, which maintained the same maturity term and interest rate originally established (this addendum, jointly with the indenture, the First Issue ). The First Issue is guaranteed by Marfrig Global Foods S.A. and Marfrig Holdings (Europe) BV.; In September 2013, based on the conclusion of the fifth operation, the Corporation repurchased Bonds in the approximate amount of US$191 million, or approximately 50.97% of the outstanding bonds of the First Issue. As a result of the tender offer, the First Issue was amended through a complementary indenture that sets forth, among other things, the elimination of virtually all the restrictive covenants of the Indenture; The second operation was conducted in April 2010, upon the issue by Marfrig Overseas Ltd. of US$500 million in Senior Notes, with a coupon of 9.50% p.a., semiannual interest payments beginning in November 2010 and maturity of principal in 10 years (November 2020), which were assigned foreign currency risk ratings of B1 by Moody s and B+ by Standard & Poor s and Fitch. This operation also was guaranteed by Marfrig Global Foods S.A. and Marfrig Holdings (Europe) B.V. and its proceeds were used to lengthen the debt profile of the Corporation ( Second Issue ). In March 2014, the Corporation concluded the re-tap of its Senior Notes linked to the Second Issue in the aggregate amount of US$275 million ( Additional Notes ). The Additional Notes were consolidated into a single series with the Senior Notes of the Second Issue, with coupon of 9.50% p.a. (yield of 9.43% p.a. for the issue). The additional notes were assigned foreign currency risk ratings of B2 by Moody s and B by Standard & Poor s and Fitch. The issue of Additional Notes issue is guaranteed by Marfrig Global Foods. S.A. and its subsidiary Marfrig Holdings (Europe) B.V. On October 28, 2015, Marfrig Global Foods S.A. announced the conclusion of a cash tender offer for the Senior Notes issued by Marfrig Overseas Ltd., with the principal amount of US$94.5 million of the 2020 Senior Notes, or approximately 12.20% of the notes outstanding, duly offered under the terms of the Joint Tender Offer. The holders of the 2020 Senior Notes tendered received US$ for each US$1, in principal of the notes, which includes the prepayment of US$30.00 plus any accrued and unpaid interest through the settlement date; 49

50 The third operation was concluded in May 2011 and comprised the issue by Marfrig Holdings (Europe) B.V. of US$750 million in Senior Notes, with a coupon of 8.375% p.a., semiannual interest payment beginning in November 2011 and maturity of principal in 7 years (May 2018), which were assigned foreign currency risk ratings of B1 by Moody s and B+ by Standard & Poor s and Fitch. The operation was guaranteed by Marfrig Global Foods S.A. and Marfrig Overseas Limited and the proceeds were used to lengthen the debt profile of the Corporation and to strengthen its working capital ( Third Issue ). On October 28, 2015, Marfrig Global Foods S.A. announced the conclusion of a cash tender offer for the Senior Notes issued by Marfrig Holdings (Europe) B.V, with the principal amount of US$150.8 million of the 2018 Senior Notes, or approximately 20.81% of the notes outstanding, duly offered under the terms of the Joint Tender Offer. The holders of the Senior Notes tendered received US$ for each US$1, in principal of the notes, which includes the prepayment of US$30.00 plus any accrued and unpaid interest through the settlement date; The fourth operation was concluded in January 2013 and comprised the issue by Marfrig Holdings (Europe) B.V. of US$600 million in Senior Notes, with a coupon of 9.875% p.a., semiannual interest payments beginning in July 2013 and maturity of the principal in 4.5 years (July 2017), which were assigned foreign currency risk ratings of B2 by Moody s and B+ by Standard & Poor s and Fitch. This operation was guaranteed by Marfrig Global Foods S.A. and Marfrig Overseas Ltd. and the proceeds were used to lengthen the debt profile of the Corporation and to strengthen its working capital ( Fourth Issue ); In connection with the Additional Notes of the Second operation, the Corporation carried out a tender offer to acquire the Bonds of the Fourth Issue maturing in 2017 and the Fifth Issue maturing in Based on the conclusion of this offering, the Corporation repurchased Bonds in the approximate amount of US$72.8 million, or 12.14% of the outstanding Notes of the Fourth Issue; based on the conclusion of the seventh operation, the Corporation repurchased the principal in the approximate amount of US$371.8 million, or 70.54% of the outstanding Notes of the Fourth Issue. Due to the results of the early repurchase, the Fourth Issue was amended through an additional indenture, providing, among other things, the elimination of practically all covenants from the Indentures; The fifth operation was concluded in September 2013 and comprised the issue by Marfrig Holdings (Europe) B.V. of US$400 million in Senior Notes, with a coupon of 11.25% p.a., semiannual interest payments beginning in March 2014 and maturity of the principal in 8 years (September 2021), which were assigned foreign currency risk ratings of B2 by Moody s and B by Standard & Poor s and Fitch. This operation was guaranteed by Marfrig Global Foods S.A. and Marfrig Overseas and the proceeds were used to lengthen the debt profile of the Corporation and to strengthen its working capital ( Fifth Issue ). Also in connection with the Fifth Issue, the Corporation carried out a consent solicitation and tender offer to acquire the Bonds of the First Issue, which mature in 2016; In March 2014, in connection with the Additional Notes of the Second operation, the Corporation carried out a tender offer to acquire the Bonds of the Fifth Issue, maturing in Based on the conclusion of this offering, the Corporation 50

51 repurchased Bonds in the approximate amount of US$57.1 million or 14.28% of the outstanding Bonds of the Fifth Issue; In June 2014, in connection with the Seventh Issue, the Corporation carried out a tender offer together with a consent solicitation, for 2021 Bonds of the Fifth Issue. Based on the conclusion of these offers, the Corporation repurchased a total principal amount of about (i) US$291.5 million, or 85.03% of the outstanding Notes of the Fifth Issue. As a result of the early tender offer, the Fifth Issue was amended through a complementary indenture that set forth, among other things, the elimination of virtually all the covenants in the Indenture. On September 29, 2015, Marfrig Holdings (Europe) B.V. announced the cash tender offer for Senior Notes from the Fifth Issue, in the aggregate principal of US$51.3 million ("Offer I"). On October 28, 2015, Marfrig Global Foods S.A. announced the conclusion of a cash tender offer for the Senior Notes issued by Marfrig Holdings (Europe) B.V, with the principal amount of US$22.2 million of the 2021 Senior Notes, or approximately 43.30% of the notes outstanding, duly offered under the terms of the Joint Tender Offer. The holders of the 2021 Senior Notes tendered received US$ for each US$1, in principal of the notes, which includes the prepayment of US$30.00 plus any accrued and unpaid interest through the settlement date; The sixth operation, on September 28, 2015, due to the settlement of the transaction governed by the Agreement for the Purchase and Sale of Ownership Interest and Other Covenants dated June 19, 2015, which formalized, among other things, the sale by the Corporation of certain rights and ownership interest in companies in its group that owned the Moy Park business unit to JBS S.A., the Sixth Issue, together with Additional Notes linked thereto, are no longer recorded on the Corporation's consolidated balance sheet; The seventh operation was carried out in June 2014 and comprised the issue by Marfrig Holdings (Europe) B.V. of US$850 million in Senior Notes, with a coupon of 6.875% p.a., semiannual interest payments starting in December 2014 and maturity of the principal in 5 years (June 2019), which were assigned foreign currency risk ratings of B2 by Moody s and B by Standard & Poor s. This operation was guaranteed by Marfrig Global Foods S.A. and Marfrig Overseas Ltd., with the proceeds used to reduce the cost and lengthen the profile of debt ( Seventh Issue ). On September 29, 2015, Marfrig Holdings (Europe) B.V. and Marfrig Overseas Limited also announced the cash tender offer for Senior Notes from the Seventh Issue ("Offer II") and the Third Issue ( Offer III ), both issued by Marfrig Holdings (Europe) B.V.; and by Marfrig Overseas, for the Second Issue ( Offer IV ), Offer II, Offer III and Offer IV in the total amount of up to US$500 million, with the possibility of increasing the offer by up to US$150 million. Offer I, Offer II, Offer III and Offer IV, jointly referred to as Offers; On October 28, 2015, the Corporation notified the market of the settlement of the Cash Tender Offers for Senior Notes, and total principal amount of R$406.5 million was accepted for acquisition and paid under the terms of the Tender Offers of 51

52 September 29, 2015 and October 14, Of this amount, the Corporation settled US$138.9 million maturing 2019, issued by the subsidiary Marfrig Holdings (Europe) B.V Guarantees for loans and financing: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Balance of financing 1,046, ,798 11,658,350 11,885,300 Guarantees: Promissory notes 327, , , ,672 Trade notes 43,884 65,243 43,884 65,243 Surety 360, , , ,860 Leased asset Export document ,563 83,065 Facilities 464 1,855 96,075 90,658 Marketable securities 7,506 8,745 7,506 8,745 Mortgage ,807 50,801 No guarantees 306, ,786 10,705,172 11,042, Covenants The loan agreements are ruled by covenant of 4.75 times, in its most restrictive form, in relation to consolidated indebtedness level, as maximum quotient of Net Debt/annualized (last 12 months) EBITDA ratio. The schedule of maturities is presented in note 19. The penalty for breach of this covenant is the same as generally applied in the financial markets, which is the early maturity of the debt, which is then reclassified as current liabilities. The leverage ratio is calculated as follows: 3/31/16 Consolidated gross debt 11,704,330 (-) Consolidated cash and cash equivalents 5,184,472 Consolidated net debt 6,519,858 LTM EBITDA in the year ended March 31, ,129,378 EBITDA ratio 2.08 Consolidated net debt 6,519,858 (-) Effect from exchange variation (carve-out) 4,419,895 Consolidated adjusted net debt 2,099,963 Leverage ratio

53 In accordance with note 33.6 Capital Management, due to the contractual provisions (carve-out) that allow the exclusion of foreign exchange variation effects from the calculation of leverage ratio (net debt/ebitda LTM), the Corporation clarifies that based on this methodology, the current leverage ratio (net debt/ebitda LTM) stood at 0.67x. 19. Debentures payable and interest on debentures Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Debentures payable 570, , (-) Cost with debenture issue (109) (124) - - Interest on convertible and non-convertible debent 72, ,096 54, ,789 (-) Withholding income tax on debenture interest (8,114) (51,982) (8,114) (51,982) 634, ,990 45, ,807 Current Liabilities - Interest on debentures 64, ,114 45, ,807 Non-Current Liabilities - Debentures payable 569, , The Corporation, with assistance from its financial advisors, structured during the second quarter of 2013, an issue of non-convertible debentures maturing on January 22, 2019 in the amount of R$570,000. This operation formalized the process of internalizing a portion of the financial resources derived from the Senior Notes issued by its subsidiary Marfrig Holding Europe BV in January The operation was structured in such a way as to not affect the Corporation s consolidated statements. The Corporation does not have a renegotiation clause for the debentures, and therefore it does not believe on the need to report the information required under item of Circular Letter/CVM/SNC/SEP no. 01/07 in the notes to the financial statements. Interest due on mandatorily convertible debentures was also accrued as per note 22. Debt, debentures and interest on debentures were as follows: Local currency Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Loans and financing 447, , , ,606 Interest on debentures 64, ,114 45, ,807 Debentures payable 569, , Foreign currency 1,082,124 1,397, , ,413 Loans and financing 598, ,897 11,187,415 11,310, , ,897 11,187,415 11,310,694 1,680,814 1,781,788 11,704,330 12,122,107 53

54 Loans and financing fall due and pay interest as follows: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/ , ,455 1,873,026 2,009, , , ,428 1,011, ,827 48,827 2,130,319 2,330, , ,889 2,447,092 2,591, ,870,559 3,215, , , ,316, , Total 1,680,814 1,781,788 11,704,330 12,122, Lease payable The Corporation is a lessee in various agreements, classified as operating or finance leases Finance lease According to CVM Resolution No. 645/10 (CPC 06 (R1) commercial leasing), finance lease operations are now recognized under the Corporation s current and non-current liabilities, with an offsetting entry of the leased asset recorded in property, plant and equipment, according to note 14, while financial leasing operations are guaranteed by the leased assets themselves: Parent Credit facility Charges (% p.a.) Weighted average interest rate (p.a.) Weighted average maturity (years) Balance on 3/31/16 Future payments 3/31/16 Balance on 12/31/15 Domestic currency Finance lease of vehicles CDI + Rate 14.39% Finance lease of IT equipment CDI + Rate 17.07% 1.7 8,815 8,186 10,359 Finance lease of machinery and equipment CDI + Rate 14.10% 0.6 1,079 1,036 1,375 Interest payable (1,889) - (2,201) Finance lease - discount to present value (678) - (1,163) Total domestic currency 7,509 9,399 8,777 Total Parent Company 7,509 9,399 8,777 Current liabilities 5,286 5,491 Non-current liabilities 2,223 3,286 54

55 Domestic currency Credit facility Charges (% p.a.) Consolidated Weighted average interest rate (p.a.) Weighted average maturity (years) Balance on 3/31/16 Future payments 3/31/16 Balance on 12/31/15 Finance lease of vehicles CDI + Rate 14.39% Finance lease of IT equipment CDI + Rate 17.07% 1.7 8,815 8,186 10,359 Finance lease of machinery and equipment CDI + Rate 14.10% 0.6 1,079 1,036 1,375 Interest payable (1,889) - (2,201) Finance lease - discount to present value (678) - (1,163) Total domestic currency 7,509 9,399 8,777 Foreign currency Finance lease of machinery and equipment Rate 4.17% ,331 48,059 52,909 Total foreign currency 45,331 48,059 52,909 Total Consolidated 52,840 57,458 61,686 Current liabilities 33,328 38,166 Non-current liabilities 19,512 23,520 According to CVM Resolution 564/08 (CPC 12 present value adjustment), finance lease payable was discounted to present value, at the initial recognition date, as described in note to the financial statements for the fiscal year ended December 31, Lease contracts fall due as follows: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Domestic currency Up to one year 5,286 5,491 5,286 5,491 From one to five years 2,223 3,286 2,223 3,286 Total domestic currency 7,509 8,777 7,509 8,777 Foreign currency Up to one year ,043 32,674 From one to five years ,288 20,235 Total foreign currency ,331 52,909 Total 7,509 8,777 52,840 61,686 55

56 The schedule for future payments of the finance lease is as follows: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Domestic currency Up to one year 6,586 6,814 6,586 6,814 From one to five years 2,813 4,165 2,813 4,165 Total domestic currency 9,399 10,979 9,399 10,979 Foreign currency Up to one year ,619 34,621 From one to five years ,440 21,678 Total foreign currency ,059 56,299 Total 9,399 10,979 57,458 67, Operating lease Operating lease as at March 31, 2016 is as follows: Parent Financial institution Leased asset Start date Weighted average interest rate (p.a) Weighted average maturity (years) Total amount leased Expense at 3/31/16 Local currency BRASIL FOOD SERV. GROUP.SA BFG Meatpacking plant 10/01/14 IGP-M year ,848 3,476 URUPA IND E COM DE ALIM LTDA Meatpacking plant 10/01/15 IGP-M year , Total Local currency 90,648 4,466 Foreign currency AVN AIR LLC Aircraft 12/01/ % , Total Foreign currency 24, Total local and foreign currency 115,279 5,431 56

57 Financial institution Leased asset Start date Local currency Weighted average interest rate (p.a) Weighted average maturity (years) Total amount leased Expense at 3/31/16 BRASIL FOOD SERV. GROUP.SA BFG Meatpacking plant 10/01/14 IGP-M year ,848 3,476 URUPA IND E COM DE ALIM LTDA Meatpacking plant 10/01/15 IGP-M year , LEONI EMPREENDIMENTOS IMOB. Meatpacking plant 01/01/14 IGP-M year 3.8 2, Total local currency 93,168 4,598 Foreign currency Consolidated AVN AIR LLC Aircraft 12/01/ % , Bank of America Aircraft 04/15/ % ,326 2,015 Sundry leasers Property 12/01/15 Fixed Installment ,986 2,322 Sundry leasers Machinery and Equipment 12/22/15 Fixed Installment ,304 9,177 Sundry leasers Vehicles 08/20/15 Fixed Installment ,181 1,487 Total foreign currency 574,428 15,966 Total local and foreign currency 667,596 20,564 The balance of the operating lease payable falls due as follows: Parent Consolidated 3/31/16 3/31/16 (at present value) (at present value) Domestic currency Up to one year 14,015 14,485 From one to five years 41,002 42,296 Total domestic currency 55,017 56,781 Foreign currency Up to one year 2,526 60,995 From one to five years 1, ,583 Over 5 years - 9,205 Total foreign currency 4, ,783 Total 59, ,564 The operating leases the Corporation enters into have no restrictions or contingencies, follow market practices and include, in some cases, price adjustment clauses during their effective term. The value of the leased assets is calculated at total definitive cost, which includes costs of transportation, taxes and documentation. Finance lease obligations are calculated on the total definitive cost, by applying a predefined percentage for each agreement. 57

58 In the event of termination, the lessor will have the option of cumulatively: (i) unilaterally cancelling all rights arising from the lease agreement; (ii) claiming the return of the leased goods; and (iii) accelerating the maturity of the lease agreement. In that case, the lessee undertakes to pay unsettled debts, including installments overdue and falling due, besides possible outstanding expenses, taxes and charges, plus a fine of 10% on the debt balance. The lessee, without prejudice to the lessor, may file a claim for damages. In relation to the renewal option, the lessee should previously communicate their intention to renew the lease agreement, otherwise the renewal is automatic, the conditions of which should be agreed upon between the parties. In the event the parties do not reach an agreement, the lessee should opt for purchasing the goods at market value or returning them. 21. Notes payable Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Notes payable for investments in Brazil (a) 428, , , ,692 Notes payable - Sponsorships (b) - 50,000-50,000 Market transactions payable (c) 391, , , ,418 Related parties (d) 9,315,520 9,369, Trade payables divestment (e) ,798 98,525 Other 28,289 29,787 31,036 34,484 10,164,462 10,402,896 1,037,931 1,255,119 Current liabilities 134, , , ,645 Non-current liabilities 10,029,738 10,212, , ,474 (a) On May 25, 2015, Marfrig acquired all shares of the company Mercomar Empreendimentos e Participações Ltda, as described in note (b) On March 8, 2010, the Corporation signed a sponsorship agreement with the Brazilian Football Confederation (CBF) to sponsor the Brazilian football teams, including men s and women s national association football teams administered by the CBF ( Teams ). The agreement allowed the disclosure of the sponsorship of the Teams through display and associations of various brands owned by MARFRIG. Said contract was terminated early and the parties are discussing in court the terms of said termination. In 2016, this amount was reclassified to provision for civil claims, as described in Note On March 29, 2010, the Corporation signed a sponsorship agreement with FIFA (Fédération Internationale de Football Association) to sponsor the 2010 FIFA World Cup, FIFA Confederations Cup 2013 and 2014 FIFA World Cup. The agreement permits the use of Marfrig Group brands, such as: MOY PARK AND PEMMICAN, and also the use of the tournament logo in advertisements and products and its distribution. (c) In the note 33, we break down financial instrument operations practiced by the Corporation. The Corporation and its subsidiaries are subject to market risks related to foreign exchange variations, interest rates fluctuations and commodities prices variations. These represent the amount of derivatives payable. (d) The breakdown of balance can be seen in note (e) The amounts refer to price adjustment in the sale of Moy Park Group, as described in note

59 22. Mandatory deed convertible into shares Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Convertible mandatory deed 2,150,000 2,150,000 2,150,000 2,150,000 Cancelation of debentures (450) (450) (450) (450) Issue expenses (58,421) (50,832) (58,421) (50,832) Amortization of issue expenses 36,843 31,002 36,843 31,002 2,127,972 2,129,720 2,127,972 2,129,720 According to the Indenture for the Second Issue of Debentures Convertible into Shares of (Mandatory Deed) Marfrig Global Foods S.A., the Corporation issued two hundred and fifty thousand (250,000) debentures, mainly convertible into shares, with unit par value of R$10, amounting to R$2,500,000. The Mandatory Deed was issued on July 15, 2010 through private subscription, with maturity within 60 months, annually restated at the interest rate at 100% of the accumulated variation of average interbank deposit rates of a day, plus spread of one per cent (1%). Remuneration of the Mandatory Deed is recognized as current liabilities and collateralized by a bank guarantee provided by Banco Itaú BBA S.A. All two hundred and fifty thousand (250,000) debentures were subscribed on various dates during, and the main debenture holder is BNDES Participações S.A. As defined in said Indenture and except for the cases of voluntary conversion, the conversion price will be lower than the following items: (i) R$21.50, plus the percentage of interest paid to debenture holders over the par value of the issues, less earnings distributed to each share, both restated at CDI as from the actual payment, in the case of interest on debentures, or the date of debentures less earnings, in the case of earnings, until the conversion date; and (ii) the higher between the market price and R$24.50, the latter without adjustment for earnings in cash or monetary restatement. The Corporation, based on the essence of the operation (equity) and on the characteristics thereof, initially recorded the Mandatory Deed (principal) as Capital Reserve, under Shareholders' Equity. However, the Securities and Exchange Commission of Brazil (CVM), through Official Letter CVM/SEP/GEA-5/no. 329/2012 dated October 10, 2012, stated its opinion of this instrument and ordered: (i) the accounting reclassification of the Mandatory Deed; and (ii) the re-filing of the 2011 financial statements with comparisons to the 2010 financial instatements. The Corporation abided by the order of the CVM, proceeding with the full reclassification of the Mandatory Deed to the specific accounting line non-current liabilities. The previous method of accounting was based on accounting and legal opinions issued specifically regarding this matter. Said reclassification does not affect any terms and conditions of the Mandatory Deed and there is no effect on the financial indebtedness of the Corporation, on the servicing of its debt or on its financial covenants, since, unlike others items under the liabilities of the Corporation, the Mandatory Deed may not be liquidated into cash or cash equivalents, but only into common shares issued by the Corporation. 59

60 The Corporation spent R$12,328 to issue the Mandatory Deed, which was initially recorded as a valuation allowance to the Capital Reserve account. The surety was renewed annually bringing the expenses with the issue of the Mandatory Deed to R$41,180 on June 30, These expenses were also reclassified under non-current liabilities, as a deduction from the account Mandatory Deed Convertible into Shares. As determined by the Corporation, the value started to be amortized on a monthly basis. Because of the paying in of such debentures made by BNDES Participações S.A., MMS Participações Ltda. and BNDES Participações S.A. have entered into a Shareholders' Agreement with the purpose of regulating the relationship between the parties as shareholders of Marfrig Global Foods S.A. On February 5, 2013 the Corporation conducted a capital increase, within the authorized limit due to the conversion of thirty-five thousand (35,000) debentures from the 2 nd Issue of Convertible Debentures of the Corporation that were held by BNDES Participações S.A. BNDESPAR into forty-three million and seven hundred fifty thousand (43,750,000) common shares issued by the Corporation, in accordance with Item III of the Private Deed of the 2nd Issue of Debentures Convertible Into Shares of Marfrig Global Foods S.A. that was entered into by the Corporation and Planner Trustee DTVM Ltda. on July 22, 2010, and as per the Material Fact published on October 24, The Shares resulting from the conversion have the same characteristics and conditions and enjoy all of the same rights and advantages ascribed by law and by the bylaws that are attributed to the existing common shares issued by the Corporation. As a result of the abovementioned conversion of debentures, there was a material increase in the ownership interest held by the shareholder BNDESPAR, which now holds common shares representing 19.63% of the Share Capital of the Corporation. On January 6, 2014, the Board of Directors of the Corporation approved the submission to the Meeting of Shareholders of the proposal for Fifth (5 th ) Issue of Unsecured Convertible Debentures in a Single Series in the aggregate amount of R$2,150,000 (5 th Issue of Convertible Debentures of the Corporation). On January 22, 2014, the shareholders of the Corporation, assembled in an Extraordinary Shareholders' Meeting, approved said Firth Issue of Convertible Debentures of the Corporation in the aggregate amount of R$2,150,000, in a single series, upon the issue of 215,000 thousand debentures at the unit face value of R$10, restated by an interest rate corresponding to 100% of the cumulative variation in the average overnight rate for one day, plus a spread of one percent (1%). The interest is paid annually on the following dates: January 25, 2015, January 25, 2016; with the last payment date coinciding with the maturity date, on January 25, The Fifth Issue had the objective, within the limits of its indenture, of fully redeeming the debentures of the Second Issue of Convertible Debentures of the Corporation. 60

61 Likewise, the debentures of the Fifth Issue of Convertible Debentures of the Corporation are mandatorily convertible into shares of the Corporation on the Maturity Date, with the conversion price corresponding to the lowest of the following amounts: (i) R$21.50, restated annually by an interest rate corresponding to the overnight rate plus one percent (CDI+1%), less any and all payments received by shareholders (dividends or interest on equity); or (ii) the highest between the market price, as defined in the indenture as the weighted average market price of MRFG3 stock quoted in the spot market of the BM&FBovespa in the sixty (60) trading sessions immediately prior to the conversion date, and R$21.50 (without adjustment for cash dividends or monetary restatement). On March 17, 2014, the Corporation released a Notice to the Market announcing the conclusion of the issue and subscription of its Fifth Issue of Convertible Debentures, with the subscription of 214,955 Debentures, with unit face value of R$10, as per the information received from the agent bank Itaú Unibanco S.A., and that 45 unsubscribed debentures were canceled by the Corporation. Lastly, on March 28, 2014, the Corporation published a Notice to the Market informing that, as decided in the Meeting of Debenture Holders of the Second Issue of Convertible Debentures of the Corporation, held on January 22, 2014, of a total of 215,000 debentures of the Second Issue: a) 214,900 were used by the respective debenture holders to pay up the debentures of the Fifth Issue of Convertible Debentures of the Corporation; and b) 100 outstanding debentures were fully redeemed, on the date hereof, which resulted in the cancelation of all 215,000 debentures of the Second Issue of Convertible Debentures of the Corporation and the consequent conclusion of said Second Issue of Debentures. 23. Tax, labor and civil contingencies 23.1 Provisions The Corporation and its subsidiaries are involved in several civil, administrative, tax, social security and tax proceedings, in the ordinary course of business, for which provisions based on legal counsel s estimates have been set up. The principal information about these proceedings is presented below: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Labor and social security 30,422 30,422 31,321 31,321 Tax 1,758 1,758 1,758 1,758 Civil 63,109 13,109 63,140 13,140 95,289 45,289 96,219 46,219 61

62 The following table shows the changes in provisions in the period ended March 31, 2016: Parent Consolidated Labor and social security Tax Civil Total Labor and social security Tax Civil Total Balance on December 31, ,422 1,758 13,109 45,289 31,321 1,758 13,140 46,219 Addition ,000 50, ,000 50,000 Balance on March 31, ,422 1,758 63,109 95,289 31,321 1,758 63,140 96, Labor and social security As at March 31, 2016, the Corporation and its subsidiaries are parties to various labor claims. Based on the Corporation s and its subsidiaries payment history, a provision of R$31,321 was set up. In the opinion of the Management and legal counsel, this provision is sufficient to face probable losses. Most of the labor claims filed against the Corporation and its subsidiaries refer to matters usually questioned in this industry, such as dismissal for just cause, preparation time, breaks for personnel who work in refrigerated environments, commuting time and ergonomic risk, among others. The Management of the Corporation believes no individual labor claim is relevant Tax The Corporation accrues provisions for tax contingencies as a reserve for risks not incurred in the amount of R$1, Civil Based on the opinion of legal advisors, the Management recognized on March 31, 2016 a provision for the amount of shares considered to be of probable risk, totaling R$63,140. The civil suits of the Corporation and its subsidiaries involve disputes typically related to business agreements and indemnities. The early terminations include the agreement for sponsorship of the Brazilian National Football Teams entered into with the Brazilian Football Confederation (CBF) Contingent Liabilities Contingent liabilities, which are not recorded in the books of account, according to prevailing legislation, are shown below: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Labor and social security 64,525 95,377 78, ,637 Tax 1,212, ,409 1,430,932 1,076,778 Civil ,277,693 1,077,216 1,510,081 1,201,267 62

63 Labor and social security The labor and social security lawsuits in which the Corporation and its subsidiaries are parties typically involve issues usually claimed in the segment, such as dismissal without cause, preparation time, breaks for persons working in refrigerated environments, overtime, ergonomic hazards and others, which are individually insignificant Tax The main tax matters discussed at court that in the opinion of the Management and legal counsel are rated as possible losses for the Corporation and its subsidiaries is presented below. a) Federal Taxes and Contributions As at March 31, 2016, the Corporation was a party to administrative proceedings and court claims filed by the Federal Government at the total historical value of R$742,997, claiming: (i) (ii) Deduction of ICMS from PIS and COFINS tax bases. This last lawsuit refers to a refund request at the historical value of R$68,552, for which a provision was not accrued, given that according to the opinion of the legal counsel, they are considered only possible losses. The Corporation has filed administrative defenses that are pending final judgments and allege non-enforceability due to miscalculation of their tax bases, and that inspectors estimated the amounts according to assumptions; Income and Social Contribution Taxes due to measurement of profits of foreign subsidiaries at the historical amount of R$37,279, which is the subject-matter of the administrative defense under the allegation of failure to comply with the accrual basis principle, the non-constitutionality of law provision (Article 74 of Provisional Measure /2011) and infringement of dual taxation treaties signed by Brazil, where also no provision was recorded in view of the possible chance of loss; (iii) Income and Social Contribution Taxes - Failure to accrue in net income when determining the taxable base, as well as in the CSLL calculation base, the income from branches, subsidiaries or affiliated companies determined for fiscal year 2008 in the historical amount of R$38,094. An administrative defense was presented. It is important to note that because this does not involve a tax credit, but rather the disallowance of a tax loss and negative calculation base for CSLL, the effect on deferred assets is the amount indicated in the proceeding; (iv) (v) No increase in taxable income and CSLL base for profits earned abroad in calendar year 2009, disallowance of goodwill amortization and non-subjection to tax of interest from loan agreements in force with subsidiaries abroad, in the historical amount of R$83,910. An administrative defense was submitted. Disallowance of the negative balance of income tax (IRPJ) for 2008, with partial approval of the offsets made, due to the non-recognition of a portion of the credit a debit was created in the historical amount of R$24,980, against said disallowance a statement of nonconformance was presented so that the entire credits of the Corporation could be recognized; 63

64 (vi) Disallowance of the negative balance of income tax (IRPJ) for 2007, whose disallowances of offsets make up a debit in the historical amount of R$ 8,087, which arose from the supposed utilization of improper credit to settle the monthly estimates of the elements that cause the negative balance; (vii) Disallowance of amounts deducted from the calculation base of income and social contribution taxes as interest on equity, and disallowance as RTT of the amounts "adjustment to present value," "share issue expenses,, goodwill amortization, biological assets, financial transaction costs and business combination, in the historical amount of R$84,633; (viii) The Corporation has a tax deficiency notice related to the requirement of additional contribution to SENAI in the historical amount of R$330. Said action is awaiting analysis of the appeal and export report presented by the company; (ix) (x) (xi) The Corporation and its subsidiary MFB have a tax deficiency notice related to the requirement of additional contribution to SENAI in the historical amount of R$2,015, for alleged error in taxing the activities of its establishments; MFB has a tax deficiency notice in the amount of R$1,487 filed due to alleged insufficient non-cumulative credits of PIS/Cofins taxes in domestic and export markets (first quarter of 2010 to second quarter of 2011), to cancel the PIS/Cofins dues declared in Dacon. The objection submitted required the suspension of judgment of the objection until the final analysis of each of the reimbursement requests, which will prove the existence of credits; The Corporation and its subsidiary MFB have administrative proceedings associated with federal tax credits offset against social security debts, in the amounts of R$7,144 and R$2,659, respectively. The companies are party to a court action discussing their right to the offset; (xii) The Corporation and its subsidiaries MFB and Pampeano have federal tax debts, whose collection suits are individually immaterial, totaling R$233,314; (xiii) The Corporation and its subsidiary MFB are facing Tax Foreclosure that seeks to collect social security liabilities for the period from December 2013 to November 2014, in the historical amount of R$146,712. Despite the proceeding, there is a request for settlement of the debt through the use of tax credits based on a decision made in a specific legal claim, which recognized this right, and a portion of the liabilities that form such foreclosures (services rendered by cooperative members through work cooperatives and FUNRURAL) cannot be recorded as overdue tax liabilities, since a final and unappealable decision has already been granted in favor of the companies regarding the liabilities related to the services contracted from the cooperative, while other rulings have also required the suspension of collections related to FUNRURAL; 64

65 (xiv) The Corporation is party to Federal Tax Foreclosure, in the historical amount of R$3,801, in which it was attributed joint and several liability for the alleged succession, regardless of the discussion of succession, there is a preliminary discussion regarding the time-barring of the Treasury right to redirect the demand against Marfrig. The Corporation joined the tax installment payment program envisaged by Law 12,996/14, which reopened the period for joining the tax installment payment program provided for by Law 11,941/09, granting the prerogative to taxpayers that pay their overdue debits in installments by December 31, 2013 World Cup REFIS. The following debits were subject to such installment payments: i) social security contributions, ii) arising from settlements not ratified; and iii) Import PIS/COFINS, whose amounts are mentioned in note 17 Taxes, rates and contributions. Said adhesion was made effective with tax credits approved and available, which were duly backed by a court ruling on September 30, The subsidiaries MFB and Pampeano also adhered to the installment payments program provided for by Law 12,966/14, which reopened the period for joining the tax installment payment program provided for by Law 11,941/09, granting the prerogative to taxpayers who pay their overdue debits in installments by December 31, 2013 World Cup REFIS. Debits subject to the adhesion refer to social security contributions, whose amounts are mentioned in note 17 Taxes, rates and contributions. b) State VAT ICMS On March 31, 2016, the Corporation had administrative proceedings, and court claims in the historical amount of R$676,525, claiming the following: (i) (ii) The discussions on ICMS involving the Corporation in administrative proceedings filed by the Finance Departments of the States of São Paulo, Goiás, Bahia, Rio Grande do Sul, Rondônia and Ceará that question the credits from the transfer of goods, the allocation of presumed tax credit arising from slaughtering activities, non-fulfillment of ancillary obligations, wrong issuance of invoices, credit granted and non-payment of ICMS ST, claimed credit of ICMS in the acquisition of beef cattle from another state, lack of proof of export of goods, which amount to the historical value of R$60,452. Of this amount, R$13,226 was the subject of a court claim related to the credit granted by the State Government of São Paulo, praying for interlocutory relief against its enforceability; The Corporation is challenging the collection imposed for the lack of supporting documentation to prove the entrance of goods through the Free-Trade Zone of Manaus, at the historical value of R$969. (iii) In the State of Mato Grosso, the actions refer to the disregard of the tax regimen established with the State, the absence of issuance of electronic invoice, irregular issue of tax document and export evidence corresponding to R$4,

66 (iv) (v) (vi) The most significant proceedings regarding ICMS were filed by the Finance Department of the State of São Paulo claiming amounts related to deemed credit taken on transfer invoices of goods sent by the branches located in the states of Mato Grosso do Sul and Goiás to the branches in the State of São Paulo, that is, a "Tax War. The assessed amounts correspond to the difference between the amount separately identified in the goods receiving documents at the distribution center and that paid to the State of origin. The total historical amount claimed in these proceedings is R$460,228; The subsidiary MFB has a Tax Deficiency Notice regarding the charge of ICMS debits, issued by the Tax Authority of the State of São Paulo for alleged non-payment of ICMS-ST for inbound goods acquired from rural agricultural producers, submission of GIA with incorrect information, alleged undue credits granted in a higher amount than that established by law, failure to reverse ICMS credits arising from exempt shipments and non-payment of ICMS for exports outside the period set by law, in the historical amount of R$4,326; Subsidiary MFB also received Tax Deficiency Notices discussing the collection of ICMS debts filed by the Finance Departments of the state of Rondônia related to the disallowance of ICMS credits in view of breach of an ancillary obligation, error in determining the ICMS calculation base, not including freight in the ICMS calculation base in the amount paid for transport services, circulation of goods with invoice considered questionable, non-compliance with the minimum price in the state and omission of the ICMS declaration in the Periodic Tax Statement (DIP), all of which led to the tax collection notice for the historical amount of R$322; (vii) The subsidiary MFB also Tax Deficiency Notices discussing the collection of ICMS taxes in the state of Goiás related to the disallowance of ICMS tax credits due to noncompliance with accessory obligations, error in the basis for calculation of the value due in ICMS taxes, failure to return credits granted after goods were returned, failure to return ICMS credits on the acquisition of inputs/goods proportionally to disbursements, failure to substantiate exports of goods abroad, which amount to a historical amount of R$146,000; (viii) The subsidiary Pampeano has a Tax Deficiency Notice involving the collection of ICMS debts filed by the Finance Department the State of Rio Grande do Sul, related to the collection of ICMS debts for the alleged issue of invoice without declaring the ICMS in the outflow of goods from that state, in the historical amount of R$12. 66

67 c) Taxes on Services of Any Nature (ISSQN) On March 31, 2016, the Corporation had a tax deficiency notice related to the collection of ISSQN is related to the alleged retention and nonpayment of the respective tax credit levied on the provision of services received in the periods of 10/2005, 04, 06, 10 and 12/2006, 04, 08, 09 and 10/2007, 01 and 04/2008, 04, 09 and 12/2009, 04 and 06/2010, in the historical amount of R$ Civil The civil suits of the Corporation and its subsidiaries involve disputes typically related to business agreements and indemnities, which are not individually relevant Additional Information on Contingent Liabilities On March 31, 2016 the Corporation, based on the opinion of its Management and legal advisors, classified the amount of R$237,061 as Remote Risk, not including it in the balance informed in note 23.2 Contingent Liabilities Tax. (i) (ii) Contributions destined to Social Security to FUNRURAL and GIRALT, three deficiency notices, the first related to 2006 and 2007, the second related to 2008 and the third related to 2009 and 2010, at the historical amount of R$237,061, all of which already were the subject of an administrative defense alleging the non-constitutionality of said contribution based on the Federal Supreme Court s decision, the application of which at the administrative level is supported by Article 26 A of Decree 70,235/72; With regard to federal administrative and judicial proceedings deemed as remote risk, as described earlier in note 22.3 for the period ended June 30, 2014, the Corporation and its subsidiary MFB joined the tax installment payment program instituted by Law 12,966/14, which reopened the period for joining the tax installment payment program provided for by Law 11,941/09, granting the prerogative to taxpayers that pay their overdue debits in installments by December 31, 2013 World Cup REFIS. The debits subject to adhesion refer to social security contributions and Import PIS/COFINS, whose amounts are mentioned in note 17 - Taxes, rates and contributions. 24. Deferred Income and Social Contribution Taxes Liabilities Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Income Tax 65,068 66, , ,001 Social Contribution 23,424 23,760 29,766 30,152 88,492 89, , ,153 67

68 Refer to (i) deferred taxes recorded when property, plant and equipment items adopted deemed cost as of January 1, 2009 in accordance with CVM Resolution 583/09 (CPC 27 property, plant and equipment) and CVM Resolution 619/09 (ICPC 10), which will be settled as revalue assets are sold, written off, depreciated or amortized, according to their respective useful lives established in the appraisal report, and (ii) the effect of deferred federal taxes calculated on the effects of CVM Resolution 665/11 (CPC 15 (R1) business combination). Below are the changes in deferred taxes in the period ended March 31, 2016: Parent Consolidated Description IRPJ CSL IRPJ CSL Balance on December 31, ,000 23, ,001 30,152 Realization of revaluation reserve (260) (94) (266) (96) Realization of deemed cost (672) (242) (806) (290) Deferred taxes on temporary differences ,643 - Reversal of deferred taxes on temporary differences - - 6,361 - Other - - (3,102) - Translation gains/losses - - (43,208) - Balance on March 31, ,068 23, ,623 29, Shareholders equity 25.1 Share capital Subscribed and paid-in share capital as at March 31, 2016 totals R$5,276,678 and is represented by 520,747,405 common shares without par value (R$5,276,678 as of December 31, 2015, represented by 520,747,405 shares). Under the scope of the primary public offering of common shares of the Corporation in December 2012, a total of 131,250,000 common shares were issued at the aggregate subscription price of R$1,050,000, as per the minutes of the meeting of the Board of Directors held on December 10 and 21, As per the Minutes of the Board of Directors Meeting held on July 30, 2012, a total of 1,236,549 registered common shares, previously held in treasury, were canceled. Based on CVM Resolution 649/10 (CPC 08 (R1) transaction costs and premium on issue of securities), the Corporation recorded under shareholders equity the costs incurred with the processes of funding (R$108,210) through public share offering and private share issue. On February 5, 2013, the Corporation carried out a capital increase, within the authorized limit, in a Meeting of the Board of directors, due to the conversion of thirty-five thousand (35,000) debentures from the 2 nd Issue of Convertible Debentures of the Corporation that were held by BNDES Participações S.A. (BNDESPAR) into 43,750 million common shares ( Shares ) issued by the Corporation, as explained in note 22. Pursuant to the Corporation s by-laws, at the discretion of the Board of Directors, Share Capital can be composed of up to 630 million common shares, including share capital, regardless of amendments to the by-laws. 68

69 Also at discretion of the Board of Directors, the Corporation can issue shares and debentures convertible into shares or subscription warrants without pre-emptive rights or with the period reduction provided for in paragraph 4 of article 171 of Law No /76. Their placement should be made through sale on stock exchange or public subscription, or by means of exchange for shares in a public offering for control acquisition, under the terms of the law and within the limit of authorized capital. The Board of Directors defines issuance conditions (prices and periods). The call option of shares, the conditions under which shareholders will have pre-emptive rights to subscription, or the inexistence of such right in relation to Management, employees, or individuals who render services to the Corporation or other companies under its control are presented in note Income reserves Legal reserve It is 5% (five per cent) of the Corporation s net income, as defined in its by-laws and current legislation. In 2015 and 2014, the Corporation did not recognize legal reserve given that it recorded loss. Accordingly, the balance as of December 31, 2015 remained at R$44,476 (same amount as in 2014) Treasury shares Share buyback program Shares repurchased were held in treasury for exercise of stock options by the beneficiaries of the Corporation's Stock option Plan and/or subsequent cancellation or sale. In the period ended March 31, 2016, there was no ongoing share buyback program and Marfrig did not acquire any shares. Treasury shares On March 31, 2016, Marfrig held one thousand, two hundred eighty-one (1,281) common shares in treasury,, which were booked at the amount of R$12 thousand, which corresponds to an average cost of nine reais and forty-five centavos (R$9.45) per share. 69

70 Changes in treasury shares in the period are shown in the table below: Held in Treasury Number of Shares Value (R$'000) Balance as at 12/31/ , (-) Disposal - Stock options (57,269) (542) Balance as at 3/31/2016 1, Other comprehensive income Asset and liability valuation adjustment This account recognizes, before being recorded in the statement of operations, corresponding entries of increases or decreases in the amount attributed to asset and liability items arising from their adjustment to market price on investments in subsidiaries directly and indirectly held by the Corporation. Such accumulated effect will be transferred to the statement of operations for the year as gain or loss only upon the disposal or write-off of the investment. This account also recognized the effects from the adoption of deemed cost, transactions hedging the interest rate risk of the parent company and the impact of its subsidiaries and currency differences in the translation of transactions abroad Cumulative translation adjustment This account records exchange rate gains (losses) resulting from the translation of the foreign subsidiaries interim financial information. The investee s functional currency is different from that of the Corporation Amounts under Shareholders Equity related to assets held for sale In compliance CVM Resolution 598/09 (CPC 31 Non-Current Assets Held for Sale and Discontinued Operation), the Corporation segregated from the balance of other comprehensive income recorded in its shareholders equity the amounts related to assets held for sale. 70

71 25.4 Dividends payable The Corporation s mandatory dividend is at least 25% of the adjusted net income determined in the Corporation s financial statements, pursuant to Brazilian Corporate Law and the Corporation s by-laws. The annual statement of dividends, including their payment, in addition to mandatory minimum dividends, are approved at an Annual Shareholders Meeting by majority voting of Marfrig s shareholders and will depend on various factors. Among these factors are the Corporation s operating results, financial conditions, cash needs, future prospects and others which Marfrig s Board of Directors and shareholders deem relevant. At a meeting held on February 26, 2016, in view of the net loss recorded in the period, the Board of Directors did not submit to the Annual Shareholders Meeting the proposal for distribution of dividends for Interest on equity capital The Corporation did not recognize interest on shareholders equity for the fiscal years ended December 31, 2015 and Non-controlling interest Refers to the interest of non-controlling shareholders in the Corporation s equity. 26. Net sales Parent Consolidated Reclassified Reclassified 3/31/16 3/31/15 3/31/16 3/31/15 Revenue from sales of products Domestic sales 759, ,067 3,464,163 3,051,831 Foreign sales 758, ,414 1,536,852 1,269,050 1,517,451 1,400,481 5,001,015 4,320,881 Deductions from gross sales Taxes on sales (32,623) (18,954) (43,744) (29,749) Returns and discounts (37,853) (43,875) (50,863) (63,357) (70,476) (62,829) (94,607) (93,106) Net sales 1,446,975 1,337,652 4,906,408 4,227,775 71

72 27. Costs and expenses by nature The Corporation has decided to present the statements of income by function. The breakdown by nature is below: Cost of sales Reclassified Reclassified 3/31/16 3/31/15 3/31/16 3/31/15 Inventory costs 1,116,398 1,013,087 3,704,374 3,289,106 Depreciation 30,138 23,977 91,508 74,970 Amortization 1,710 1,953 22,824 17,504 Employee salaries and benefits 65,740 64, , ,173 Administrative expenses 1,213,986 1,103,291 4,330,701 3,753,753 Depreciation 2,210 1,888 3,394 2,893 Amortization 4,792-5, Employee salaries and benefits 11,245 16,989 62,458 51,593 Other 1,321 (3,633) 39,682 30,466 Selling expenses Parent Consolidated 19,568 15, ,572 85,346 Depreciation Employee salaries and benefits 6,513 6,966 20,655 14,475 Other 75,872 62, , ,222 82,460 69, , ,794 72

73 28. Net financial result The Corporation s net financial income (expenses) is as follows: Financial income Reclassified Reclassified 3/31/16 3/31/15 3/31/16 3/31/15 Market transactions 119,897 1, ,253 67,121 Interest received, earnings from marketable securities 23,542 5,905 33,127 20,817 Discounts, other 1,330 (2,791) 3,417 (6,838) Total financial income 144,769 4, ,797 81,100 Exchange rate gains 462, , , ,503 Parent Consolidated Financial expense Provisioned interest, debentures and leasing with financial institutions (318,641) (224,145) (324,837) (293,123) Market transactions (32,050) (167,648) (89,817) (171,074) Bank expenses, commissions, fees, other (75,049) (47,277) (206,152) (135,452) Total financial expense (425,740) (439,070) (620,806) (599,649) Exchange rate losses (372,635) (688,928) (542,817) (847,328) Net financial result (191,331) (885,802) (423,192) (1,019,374) 29. Management compensation The compensation policy is designed to establish the criteria, responsibilities and directions for the short- and long-term compensation program of Marfrig Group s Management (Bonus and Stock Option). The purpose of this policy is to motivate the Corporation s executive officers to grow and develop to achieve maximum performance, in line with the business objectives, through a short- and long-term reward pay-out. The Compensation, Corporate Governance and Human Resources Committee is the advisory body to the Board of Directors in assessing management compensation. The committee is composed solely of members of the Corporation s Board of Directors and one of them is the Committee Coordinator. The parameters used to determine Management s compensation are based on market practices. 73

74 29.1 Board of directors The Board of Directors compensation consists of a fixed and variable portion. Fixed portion An annual amount is set for each member and paid on a monthly basis. Variable portion Short-term bonus or stock option-based payment. The board members compensation is determined through market research with the major companies in the industry whereby a compensation base is defined and submitted to Marfrig Global Foods s Compensation, Corporate Governance and Human Resources Committee for validation Officers appointed as per Bylaws The Board of Executive Officers compensation consists of a fixed and variable portion. Fixed portion An annual amount is set for each member and paid on a monthly basis. Variable portion Consists of short-term (bonus) and long-term (stock option) compensation. In general the goals set by the Corporation for Management evaluation refer to economic objectives and individual goals. The gain on the Stock Option Plan is tied to the appreciation of the market price of the share, i.e. the value added to the Corporation by the performance of the individual and the Management as a whole will reflect on the gain on the stock option plan. At the same time the employees interests are aligned with the Corporation s interests in the long term. The exercise price of the stock options related to share-based compensation under Specific Programs is the average of the last 20 trading sessions prior to the first business day of March of each year and the grant price with a 50% discount starting with the grants in The vesting period follows these criteria: 25% after 12 months of the grant; 25% after 24 months of the grant; 25% after 36 months of the grant; 25% after 48 months of the grant. The officers compensation is determined through market research with the major companies in the industry whereby measurement criteria are established according to the significance of the position within the organization. The macro policies are approved by the Compensation, Corporate Governance and Human Resources Committee. 74

75 29.3 Audit Board The Corporation s Audit Board was set up after approval at the Annual Shareholders Meeting held on April 30, In the by-laws amended by the Special Shareholders Meeting held on March 11, 2011, the Audit Board became a permanent body. The Audit Board s is fixed on an annual basis and paid on a monthly basis. There is no variable portion Consolidated compensation Management and Board members compensation is made up of the compensation of six members of the Board of Directors (the other three opted for not receiving compensation as board members, one of whom is also a member of the Statutory Board of Executive Officers and receives compensation from that body), six members of the Audit Board (there of whom are alternate members) and six officers appointed as per the Corporation s bylaws. The added value of the compensation received by the Corporation s Management and Board members for their services is defined through market practices, with the participation of the Compensation, Corporate Governance and Human Resources Committee, made up exclusively of members of the Board of Directors of the Corporation, one of whom acts as Coordinator of the Committee: Key management compensation 3/31/16 3/31/15 Consolidated Management compensation 4,294 6,324 Total 4,294 6, Stock option plan On May 29, 2009, the Annual Shareholders Meeting approved the amendment and restatement of the Stock Option Plan (Plan), with the purpose of: (i) promoting value generation to the Corporation s shareholders, through alignment of their interests with those of the Management, employees and outsourced employees of Marfrig or its subsidiaries and (ii) enabling a higher level of attraction, retention and motivation of strategic employees. The Plan is managed by the Board of Directors, within the limits established in the general guidelines and applicable legislation. The general guidelines of the plan are disclosed in detail in the Corporation s Reference Form. The Board of Directors may create stock option programs with specific conditions regarding the participants, the number of options to be granted, performance targets to be achieved, exercise price discounts and other conditions ( Specific Programs ). Specific Programs were created in which the exercise price of the Stock Option is equivalent to the average stock quote in the last 20 trading sessions of the BM&FBOVESPA S.A. prior to the reference date of the first business day of March each year, over which a 50% discount shall apply. 75

76 During the period ended March 31, 2016, 57,269 shares were transferred to the Management of the Corporation under the stock option plans. The changes in options exercised throughout the period are shown in the tables below: Total options exercised by month Number of shares exercised Average Market Price¹ (R$ per share) January/ February/ March/16 57, Options exercised ,269 ¹ Average monthly quote disclosed by BM&FBOVESPA Bolsa de Valores, Mercadorias e Futuros S.A., related to Marfrig's common shares, traded under ticker MRFG3. (Options) Consolidated Changes Opening balance 2,265,365 3,405,169 Options granted - 1,581,017 Options exercised (57,269) (331,179) Options canceled and expired - (2,389,642) Closing balance 2,208,096 2,265,365 The expected dilution of ownership interest of current shareholders, when stock options are exercised at the vesting date, up to the limit of shares held in the treasury for this purpose, is 0.42% of all shares at March 31, 2016, as detailed in the table below: Percentage of Dilution Plano ESP VI LP Plano ESP VII LP Plano ESP VIII LP Plano ESP IX LP Total Granting date 4/24/2012 4/5/2013 4/30/2014 6/24/2015 Unexercised 85, , ,621 1,330,402 2,208,096 Treasury stock (1,281) Total outstanding shares except treasury stock 520,746,124 Percentage of dilution 0.02% 0.02% 0.13% 0.26% 0.42% The Corporation recognized expenses relating to granting of plans in effect for the period ended March 31, 2016, as detailed in the table below: Effects from the exercise of options (R$ '000) Amount received from sale of shares - Exercised options (-) Cost of treasury shares disposed of (541.4) (3,131.0) Effect on disposal of shares (397.3) (2,215.8) Due to the exercise of stock options, the Corporation incurred costs with the sale of treasury shares of R$ At March 31, 2016, the book value of treasury shares was recorded under the Corporation s shareholders' equity in the amount of R$12 (R$554 at December 31, 2015). 76

77 The fair value of the options was measured on an indirect basis, according to the Black- Scholes pricing method, based on the following assumptions: Standard deviation: 41.55%. Volatility is measured taking into consideration the daily prices of the Corporation s shares traded on the Brazilian stock exchange (BM&FBOVESPA) under the ticker MRFG3, from October 1, 2015 to March 31, 2016; Risk-free interest rate: 7.50% p.a. The Corporation uses as risk-free interest rate the Long Term Interest Rate (TJLP) annualized on calculation date and available on the federalrevenue service website The fair value of options as of March 31, 2016 ranged between a minimum of R$1.48 and a maximum of R$4.81 per share for SPECIAL plans. Changes to the stock option programs are presented below: Plans Granting Date Performance (vesting) period Option expiration date Options granted Vested options Options exercised in the period Options cancelled and/or expired in the period Options exercised and/or cancelled in prior periods Unexercised agreements Option exercise price Options Exercised/Canceled in Previous Periods 7,201,675 3,335,856 2,215,489 2,265,365 ESP VI LP /24/2012 3/3/2016 9/2/ , ,447 4, ,783 85,279 R$ ,001,788 1,001,788 4, ,124 85,279 ESP VII LP /5/2013 3/3/2016 9/2/ ,380 87,380 2, ,501 49,781 R$ ESP VII LP /5/2013 3/3/2017 9/2/ ,380 1, ,367 52,013 R$ ,760 88,577 2, , ,794 ESP VIII LP /30/2014 3/3/2016 9/2/ , ,910 18, , ,900 R$ ESP VIII LP /30/2014 3/3/2017 9/2/ ,910 3, , ,308 R$ ESP VIII LP /30/2014 3/3/2018 9/2/ ,910 3, , ,413 R$ ,874, ,670 18, ,165, ,621 ESP IX LP /24/2015 3/3/2016 9/2/ , ,316 32, , ,363 R$ ESP IX LP /24/2015 3/3/2017 9/2/ , , ,741 R$ ESP IX LP /24/2015 3/3/2018 9/2/ , , ,741 R$ ESP IX LP /24/2015 3/3/2019 9/2/ , , ,557 R$ ,581, ,316 32, ,237 1,330,402 Total at 3/31/2016 7,201,675 4,686,731 57, ,936,310 2,208,096 77

78 Plans Granting Date Market value of unvested options at the end of the period (R$ '000) Market value of outstanding vested options at the end of the period (R$ '000) Effects in the result of the period in case of recognition (R$ '000) ESP VI LP /24/2012 0,0 146,9 146,9 0,0 146,9 146,9 ESP VII LP /5/2013 0,0 73,8 73,8 ESP VII LP /5/ ,6 0,0 77,1 107,6 73,8 150,9 ESP VIII LP /30/2014 0,0 989, ,8 ESP VIII LP /30/ ,4 0, ,5 ESP VIII LP /30/ ,3 0, , ,7 989, ,3 ESP IX LP /24/2015 0,0 1269,8 1269,8 ESP IX LP /24/ ,8 0, ,2 ESP IX LP /24/ ,7 0, ,2 ESP IX LP /24/ ,4 0, , , , ,6 Total at 3/31/ , , ,7 30. Earnings (loss) per share The following table shows the calculation of earnings (loss) per share for the periods ended March 31, 2016 and 2015 (in thousands, unless otherwise stated): Reclassified 3/31/16 3/31/15 Profit (loss) attributable to shareholders from continuing operations (101,913) (564,352) Profit (loss) attributable to shareholders from discontinued operations (4,271) (6,554) Profit (loss) attributable to shareholders from the Corporation (106,184) (570,906) Weighted average number of shares in the period (units) 520,747, ,747,405 Weighted average number of shares held in treasury (units) (308,099) (388,730) Weighted average number of outstanding common shares (units) 520,439, ,358,675 Basic and Diluted Earnings (Losses) (in R$) from continuing operations (0.1958) (1.0845) Basic and Diluted Earnings (Losses) (in R$) from discontinued operations (0.0082) (0.0126) Earnings or losses attributable to shareholders of the Company (0.2040) (1.0971) The Corporation has debentures mandatorily convertible into common shares, which are not added to the calculation of diluted earnings per share. 78

79 31. Segment reporting Marfrig Global Foods S.A. is a multinational Brazilian-originated company dedicated to the production, processing and sale in domestic and foreign markets of diversified food products, focusing on products of animal protein. The Corporation has built an integrated business model, geographically diverse, consisting of production bases located in places with significant competitive advantages in cost and a distribution network with access to major consumer markets in the world. The Corporation is strategically organized into two main reporting segments: Marfrig Beef - A pioneer in the Brazilian market in the marketing and promotion of beef and lamb, Marfrig maintains a strong presence in the food service segment and a significant presence in export markets. Its international operations in South America are concentrated in exporting premium beef cuts and leveraging its strategic position in Uruguay, Chile and two trading companies in Europe and Peru, with access to the world s main consumer markets. Keystone - A global company focused on producing and developing multi-protein foods to serve major global restaurant chains, with a strong presence in Asia and the United States. The group s global platform is present in four continents, with 45 industrial complexes and offices in the Americas, Asia, Europe and Oceania, with a distribution system that allows us to export to over 105 countries. The Corporation provides information to the market, combined by segment of activity similar to that considered by its managers when taking strategic decisions. 79

80 The consolidated balance sheet and statement of operations summarized by information segment are as follows: Assets Marfrig Beef Holding BV Keystone 3/31/16 12/31/15 Discontinued Segment Total Reclassified Marfrig Beef Holding BV Keystone Reclassified Discontinued Segment Current assets 6,727, ,921 1,784, ,670 9,395,173 5,704,581 1,679,662 1,928, ,981 9,842,455 Non-current assets 3,668, , ,762-4,238,488 3,474,055 53, ,202-4,031,133 Investments ,384-21, ,889-26,024 Property, plant and equipment 2,952,450-1,183,029-4,135,479 2,992,160-1,319,103-4,311,263 Biological assets ,291-55, ,804-59,804 Intangible assets 984,693-1,506,426-2,491, ,397-1,649,873-2,645,270 14,333, ,005 4,755, ,670 20,337,069 13,166,328 1,733,538 5,486, ,981 20,915,949 Total Current liabilities 6,090, ,742 1,080, ,626 7,440,016 3,835, ,580 1,240, ,711 5,406,649 Non-current liabilities 4,343,883 5,056,425 2,475,685-11,875,993 7,063,260 6,313,427 1,288,981-14,665,668 10,433,914 5,212,167 3,556, ,626 19,316,009 10,899,184 6,480,007 2,529, ,711 20,072,317 3/31/16 12/31/15 Discontinued Reclassified Reclassified Reclassified Discontinued Marfrig Beef Holding BV Keystone Segment Total Marfrig Beef Holding BV Keystone Segment Total Net Revenue 2,468,728-2,437,680-4,906,408 2,319,958-1,907,817-4,227,775 COGS (2,110,765) - (2,219,936) - (4,330,701) (1,976,421) - (1,777,332) - (3,753,753) Equity income (loss) - (16,530) 14,537 - (1,993) - - (4,292) - (4,292) Net financial income (loss) (262,653) (68,837) (91,702) - (423,192) (832,574) (175,545) (11,255) - (1,019,374) Income and social contribution taxes 63,428 8,639 (36,064) - 36, ,349 - (19,256) - 232,093 Controlling interest in net income (loss) - continuing operations (50,828) (78,016) 26,931 - (101,913) (432,084) (175,898) 43,630 - (564,352) Controlling interest in net income (loss) - discontinued operations (4,271) (4,271) (6,554) (6,554) Non-controlling interest in net income (loss) - continuing operations 49-13,812-13, ,656-9,035 Non-controlling interest in net income (loss) - discontinued operations (12) (12) (i) (ii) (iii) This segment reporting reflects the Corporation s fiduciary structure; The Corporation believes that Marfrig Holding (Europe) BV, with its business of raising funds and holding ownership interest in other subsidiaries of the Group, should be segregated from this information in order to better report the Keystone and Marfrig Beef business segments. Discontinued Segment refers to the sale of the Moy Park and the sale of assets relating to Marfrig Beef (MR Foods USA Inc., MFG Agropecuária Ltda. and Marfrig Argentina S.A.), as per note

81 32. Insurance coverage The Corporation s policy is to insure its property, plant and equipment and inventories subject to risk, at amounts deemed sufficient to cover possible losses, taking into consideration the nature of its activities and the insurance advisors opinion. Based on the maximum risk weighting, the Corporation does not have a policy of maintaining insurance policies to protect against lost profits, given the broad geographic distribution of its plants and the fact that its operations can be reorganized in the event that any need arises. The risk assumptions adopted, given their nature, are not part of the scope of an audit of financial statements and, accordingly, were not reviewed by the Corporation's independent auditors. Below is a summary of the amounts insured by the Corporation: Parent Consolidated Description 3/31/16 12/31/15 3/31/16 12/31/15 Buildings and meatpacking plants 1,876,695 2,114,604 4,571,856 4,873,289 Inventories 190, , , ,996 Third-party warehouse 16,300 26,825 20,300 30,825 Vehicles 19,705 19,390 34,840 35,743 Transportation of goods 71,178 78, , ,607 Officers' guarantees 177, , , ,478 Civil liability 20,000 20, , ,127 Aircraft 387, , , ,417 Other 688, , , ,199 3,448,444 3,435,144 6,753,697 6,855, Financial instruments - derivatives and risk management - consolidated 33.1 Overview The Corporation and its subsidiaries are exposed to market risks related to exchange rate gains (losses), interest rate and commodities price fluctuations of a nature considered normal to their business. In order to minimize these risks, the Corporation has policies and procedures to minimize these exposures and may use hedging instruments, as long as previously approved by the Board of Directors. Among the Corporation s guidelines we highlight: Monitoring levels of exposure to each market risk; measuring these risks; setting limits for making decisions and using hedging mechanisms, always aiming at minimizing the foreign exchange exposure of its debts, cash flows and interest rates. 81

82 In a meeting held on June 24, 2015, the Board of Directors of the Corporation established new limits of authority for the Corporation s Management Bodies. The Management Committee is now responsible for authorizing a series of acts, with authority for between R$300 million and R$400 million. For acts whose required authority exceeds that defined for the Management Committee, approval is required from the Corporation s Board of Directors. The Corporation only enters into transactions with derivatives or similar instruments that offer a minimum protection against: foreign currencies, interest rates and commodity prices, and also adopts a conservative policy of not entering into transactions that could affect its financial position. The Corporation does not enter into leveraged transactions with derivatives or similar instruments The Corporation also has a sound financial policy, maintaining a high level of cash balance, cash equivalents and short-term financial investments. At the same time, the maturity of the Corporation s long-term indebtedness is such way that it is not concentrated in any single year Financial instruments by category The Corporation s financial assets and liabilities are classified as below: Parent Financial assets Held for Amortized Cost trading 3/31/16 12/31/15 3/31/16 12/31/15 Cash and cash equivalents 292, ,187 26,323 17,795 Marketable Securities 106, ,279 1,890,469 1,483,878 Trade accounts receivable 419, , Notes receivable - derivatives ,434 14,766 Related parties 1,543,728 1,289, Total financial assets 2,362,494 2,113,908 1,939,226 1,516,439 Financial liabilities Held for Amortized Cost trading 3/31/16 12/31/15 3/31/16 12/31/15 Trade accounts payable 665, , Loans, financing and debentures 1,616,293 1,503, Financial lease 7,509 8, Notes payable - derivatives , ,174 Notes payable - investments Brazil 428, , Notes payable - sponsorship - 50, Interest on debentures 64, , Related parties 9,315,520 9,369, Total financial liabilities 12,097,802 12,336, , ,174 82

83 Consolidated Financial assets Held for Cost amortized trading 3/31/16 12/31/15 3/31/16 12/31/15 Cash and cash equivalents 2,363,563 1,487, , ,744 Marketable Securities 225, ,247 2,439,267 3,127,506 Trade accounts receivable 902,745 1,003, Notes receivable - derivatives , ,499 Related parties 74, Total financial assets 3,566,598 2,738,588 2,922,453 3,667,749 Financial liabilities Held for Cost amortized trading 3/31/16 12/31/15 3/31/16 12/31/15 Trade accounts payable 1,560,859 1,818, Loans, financing and debentures 11,658,350 11,885, Financial lease 52,840 61, Notes payable - derivatives , ,418 Notes payable - investments Brazil 428, , Notes payable - sponsorship - 50, Interest on debentures 45, , Total financial liabilities 13,746,720 14,481, , ,418 Details of the accounting policies and methods used (including criteria for recognition, measurement bases and criteria for recognition of gains and losses) for each class of financial instruments and equity are presented in note to the financial statements for the fiscal year ended December 31,

84 33.3 Comparison of market value and respective fair values Market values for the financial instruments are shown below: 3/31/16 Consolidated 12/31/15 Book value Market value Book value Market value Cash and cash equivalents 2,520,594 2,520,594 1,630,368 1,630,368 Marketable Securities 2,664,774 2,664,774 3,374,753 3,374,753 Trade accounts receivable 902, ,745 1,003,717 1,003,717 Notes receivable - derivatives 326, , , ,499 Trade accounts payable 1,560,859 1,560,859 1,818,991 1,818,991 Loans and financing 11,658,350 11,658,350 11,885,300 11,885,300 Financial lease 52,840 52,840 61,686 61,686 Payables - derivatives 488, , , ,418 Interest on debentures 45,980 45, , ,807 The fair value of financial instruments is similar to the book value and largely reflects the values that would be obtained if they were traded in the market Breakdown of Derivative Financial Instruments The breakdown of Marfrig Group s derivative financial instruments follows: 84

85 Consolidated Instrument Hedged Item Exchange Maturity Long Short Notional USD Notional R$ MTM R$ Transactions designated as Hedge Accounting Swap Interest Rate CETIP 2016 LIBOR USD 32, ,885 (275) Swap Interest Rate OTC 2018 LIBOR USD 132, ,554 (4,566) Swap Interest Rate OTC 2019 LIBOR USD 187, ,294 (30,348) NDF Exchange Rate OTC 2016 EUR USD (48) NDF Exchange Rate OTC 2016 GBP USD 23,708 84,373 1,318 NDF Exchange Rate OTC 2017 GBP USD 4,173 14,850 (160) Transactions not designated as Hedge Accounting Swap Interest Rate CETIP 2016 LIBOR USD 7,692 27,376 (389) Swap Interest Rate CETIP 2017 BRL USD 230, ,504 (273,899) Swap Interest Rate OTC 2017 USD BRL 230, , ,899 Swap Interest Rate CETIP 2018 CDI USD 18,254 64,963 (88,355) (122,823) NDF Exchange Rate OTC 2016 AUD MYR 4 12 (6) NDF Exchange Rate OTC 2016 JPY THB (12) NDF Exchange Rate OTC 2016 KRW USD 14,863 52,898 (789) NDF Exchange Rate OTC 2016 MYR USD 7,758 27,608 2,705 NDF Exchange Rate OTC 2016 SGD MYR NDF Exchange Rate OTC 2016 THB MYR 303 1,079 1,682 NDF Exchange Rate OTC 2016 USD AUD 5,008 17,824 (576) NDF Exchange Rate OTC 2016 USD MYR 39, ,309 (3,682) NDF Exchange Rate OTC 2016 USD THB 17,809 63,381 (570) NDF Exchange Rate OTC 2017 JPY THB 356 1, NDF Exchange Rate OTC 2017 KRW USD 5,931 21, NDF Exchange Rate CETIP 2017 USD THB 2,270 8,077 (193) NDF Exchange Rate OTC 2016 USD BRL 29, ,525 (5,536) NDF Exchange Rate OTC 2016 USD CLP 11,405 40,589 (864) (7,177) Options Soy meal CBOT 2016 USD USD 3,831 14,960 (2,984) Options Corn CBOT 2016 USD USD 12,538 48,959 (1,854) SWAP Soy meal CBOT 2016 USD USD 33, ,849 (6,786) SWAP Soy meal CBOT 2017 USD USD 14,065 50,056 (197) SWAP Finished cattle CBOT 2016 USD USD 46, ,173 (9,434) SWAP Corn CBOT 2016 USD USD 55, ,057 (9,835) SWAP Corn CBOT 2017 USD USD 24,098 85,761 (86) Futures Finished cattle BM&F 2016 BRL BRL 24,754 88,097 (1,075) Options Finished cattle BM&F 2016 BRL BRL (32,251) (162,251) 85

86 Assets and liabilities presented on the balance sheet under securities receivable and trade accounts payable regarding derivative transactions, which are intended for equity hedging, are shown below: Consolidated 3/31/16 12/31/15 Notes receivable - derivatives (note 10) 326, ,499 Notes payable - derivatives (note 21) (488,406) (643,418) Total, net (162,251) (245,919) In the period ended March 31, 2016, a consolidated net financial gain of R$34,436 was recorded from market transactions, of which R$89,817 corresponded to expenses and R$124,253 to income Derivative Financial Instruments subject to Cash Flow Hedge Accounting In November 2013, the Marfrig group adopted hedge accounting policies for financial instruments exposed to cash flow changes. As a result, the variations in fair value of derivatives designated as hedge are recognized directly in shareholders' equity, under other comprehensive income. The amounts booked under other comprehensive income are immediately transferred to the income statement when the transaction underlying the hedge affects profit or loss. The Corporation documents, at the start of the operation, the relation between the hedge instruments and the underlying hedged items, as well as the objectives of the risk management and the strategy to carry out various hedge operations. The documentation for operations designated as hedge accounting evidences control of the effectiveness and the operation, and includes: Hedged item; Financial instrument; Strategy for managing the risk to be hedged; Effectiveness of the hedge instrument, reliably measured; Evaluation of the hedge on an ongoing basis throughout the duration of the contract. The Corporation also documents its assessment, both at the start of the hedge as well as periodically, that the derivatives used in the hedge operations are highly effective in offsetting the variations in the fair value of the underlying hedge items. Therefore, all instruments designated as hedge accounting are effective, highly probable and neutralize the exposure to variations in the cash flow that could affect results. 86

87 The effectiveness of the operations is periodically controlled in a reliable and documented manner throughout the duration of the contract, through statistical correlation between the fair value or cash flows of the hedged position and the hedging instrument, or by comparing previous changes in the fair value or cash flows of the hedged position attributable to the hedged risk with previous changes in the fair value or in the cash flows of the hedging instrument. Consolidated Gain / Loss Instrument Asset (Hedged Item) Libor (Risk Exposure) Maturity Notional USD Notional R$ Balance (MTM) R$ Equity Result Swap Libor USD , ,885 (275) (275) (275) Swap Libor USD , ,554 (4,566) (4,492) (4,566) Swap Libor USD , ,294 (30,348) (30,168) (30,348) NDF EUR USD (48) (40) (48) NDF GBP USD ,708 84,373 1,318 1,104 1,318 NDF GBP USD ,173 14,850 (160) (134) (160) (34,079) (34,005) (34,079) 33.5 Market risk The Corporation is exposed to market risks arising from commodity prices, interest rates and exchange rates. For each risk, the Corporation conducts a continuous management and sensitivity studies presented in this note Commodity price risk management During its activities, the Corporation and its subsidiaries purchase some commodities, such as: cattle, grains and energy, which are the biggest individual components of the production cost and are subject to certain variables. The price of cattle acquired from third parties is directly related to market conditions, and is influenced by domestic availability and foreign market demand. Maize and soya bean meal ( grains ) are subject to volatility resulting from weather conditions, crop yield, transport costs, warehousing costs, agricultural policy, exchange rates, international prices, among others, which is not under Management s control. So as to reduce the impact over commodities, the Corporation and its subsidiaries manage inventory levels, keep cattle in feedlots and trade derivative financial instruments in the futures market. The Corporation and its subsidiaries purchase financial instruments to reduce the price risk related to the needs for commodities within 12 months. A substantial part of these hedge instruments come from the futures market at the Chicago Board of Trade (CBOT). 87

88 The position of derivatives related to commodity risks is shown below: Consolidated Exchange Instrument Futures contract Maturity Notional USD Notional R$ MTM R$ Result on 3/31/2016 CBOT Options Soy meal ,831 14,960 (2,984) (2,984) CBOT Options Corn ,538 48,959 (1,854) (1,854) CBOT SWAP Soy meal , ,849 (6,786) (6,786) CBOT SWAP Soy meal ,065 50,056 (197) (197) CBOT SWAP Finished cattle , ,173 (9,434) (9,434) CBOT SWAP Corn , ,057 (9,835) (9,835) CBOT SWAP Corn ,098 85,761 (86) (86) BM&F Futures Finished cattle ,754 88,098 (1,075) (1,075) BM&F Options Finished cattle , ,944 (32,251) (32,251) Sensitivity analysis of commodity price risk To provide information about the behavior of market risks that the Corporation and its subsidiaries were exposed to as at March 31, 2016, three scenarios are considered and the probable scenario is the fair value as at March 31, 2016 and two more scenarios with deterioration of 25% and 50% of the risk variable taken into account, denominated as Possible and Remote, respectively. The base prices for commodity futures are referenced to the prices quoted on the Chicago Board of Trade (CBOT) for contracts maturing on March 31,

89 With regard to commodity risk, following are the sensitivity scenarios: Stress scenario - Derivatives Commodities Consolidated Probable Scenario Possible Scenario Remote Scenario MTM Result MTM Result MTM Result (32,251) (32,251) (40,314) (40,314) (48,376) (48,376) Stress scenario - Derivatives Commodities Soy Meal Probable Scenario Possible Scenario Remote Scenario MTM Result MTM (1) Result MTM (1) Result (9,967) (9,967) (12,459) (12,459) (14,951) (14,951) Stress scenario - Derivatives Commodities Corn Probable Scenario Possible Scenario Remote Scenario MTM Result MTM (1) Result MTM Result (11,774) (11,774) (14,718) (14,718) (17,661) (17,661) Probable Scenario Stress scenario - Derivatives Commodities Cattle Possible Scenario Remote Scenario MTM Result MTM Result MTM Result (10,510) (10,510) (13,137) (13,137) (15,764) (15,764) Interest rate risk management Interest rate risk refers to the Corporation s risk of incurring economic losses due to negative changes in interest rates. This exposure basically refers to changes in market interest rates which affect the Corporation s assets and liabilities indexed to the TJLP (long-term interest rate), LIBOR (London Interbank Offered Rate) or CDI (interbank deposit rate). In order to reduce debt service costs, the Corporation and its subsidiaries continually monitor market interest rates to assess the need to enter into new derivative contracts to hedge its operations against the risk of fluctuations of these rates. 89

90 The risk of exposure to interest rate for the Corporation and its subsidiaries as at March 31, 2016 and December 31, 2015 is as follows: Consolidated 3/31/16 12/31/15 Exposure to CDI rate: NCE / Working capital (R$)/CDAs/Debentures 493, ,772 (-) CDB-DI (R$) (668,855) (196,804) Subtotal (175,703) 587,968 Exposure to LIBOR rate: NCE/ACC/Prepayment (US$) 600, ,341 Revolving credit facility (US$) 488, ,515 Subtotal 1,088, ,856 Exposure to TJLP rate: FINAME / FINEM / FINEP 23,763 26,641 Subtotal 23,763 26,641 TOTAL 936,716 1,605,465 The Corporation entered into non-speculative swap contracts to minimize the effects of exchange rates fluctuations on the settlement of its loans and financing, as below: Consolidated 3/31/16 12/31/15 Instrument Register Receivable Payable Notional US$ Notional BRL MTM MTM Interest Rate Swap CETIP LIBOR USD 359,692 1,280,109 (35,579) (30,728) Interest Rate Swap CETIP BRL USD 230, ,504 (273,899) (358,359) Interest Rate Swap OTC USD BRL 230, , , ,359 Interest Rate Swap CETIP CDI USD 18,254 64,962 (88,354) (152,570) 839,608 2,988,079 (123,933) (183,298) Consolidated 3/31/16 Instrument Register Maturity Receivable Payable Notional US$ Notional BRL MTM Interest Rate Swap CETIP 2016 LIBOR USD 32, ,885 (276) Interest Rate Swap OTC 2018 LIBOR USD 132, ,554 (4,566) Interest Rate Swap OTC 2019 LIBOR USD 187, ,294 (30,348) Interest Rate Swap CETIP 2016 LIBOR USD 7,692 27,376 (389) Interest Rate Swap CETIP 2017 BRL USD 230, ,504 (273,899) Interest Rate Swap OTC 2017 USD BRL 230, , ,899 Interest Rate Swap CETIP 2018 CDI USD 18,254 64,962 (88,354) 839,608 2,988,079 (123,933) 90

91 Interest rate risk sensitivity Analysis To provide information about the behavior of market risks that the Corporation and its subsidiaries are exposed to as at March 31, 2016, three scenarios are considered and the probable scenario is the fair value as at March 31, 2016 and two more scenarios with deterioration of 25% and 50% of the risk variable taken into account, denominated as Possible and Remote, respectively. Sensitivity scenarios for interest rate risk are below: Stress scenario - Swap Int Rate - Consolidated Probable Scenario Possible Scenario Remote Scenario MTM Result MTM Result MTM Result (123,933) (123,933) (132,569) (132,569) (141,352) (141,352) Stress scenario - Swap Int Rate CDI vs. USD Probable Scenario Possible Scenario Remote Scenario MTM Result MTM Result MTM Result (88,354) (88,354) (88,496) (88,496) (88,646) (88,646) Stress scenario - Swap Int Rate Libor vs. USD Probable Scenario Possible Scenario Remote Scenario MTM Result MTM Result MTM Result (35,579) (35,579) (44,073) (44,073) (52,706) (52,706) Exchange rate risk management Exchange rate risk consists of the risk of foreign exchange fluctuations leading the Corporation and its subsidiaries to incur losses and causing a reduction in the values of assets or an increase in the values of liabilities. The Corporation s main current exchange rate exposure relates to the US dollar fluctuation against the Brazilian real. Given that approximately 83% of the Corporation s revenues are denominated in currencies other than the Brazilian real, the Corporation has a natural hedge against the maturities of future obligations in foreign currency. The Corporation also has a sound financial policy, maintaining a high level of cash balance and short-term financial investments with solid financial institutions. We believe that the Corporation s and its subsidiaries' consistent financial policy, grounded in a well-distributed capital structure, allows it to consolidate synergies achieved through the acquisitions made. 91

92 Outstanding foreign currency and derivatives position Assets and liabilities in foreign currency are presented as follows: Exposure Operating Parent Description 3/31/16 12/31/15 Effects of exchange rate gains (losses) Trade accounts receivable 615, ,482 (49,015) ACE (advance on export contracts) (420,598) (458,818) 101,994 Imports payable (45,967) (48,059) 11,457 Subtotal 148, ,605 64, Financial Loans and financing (598,690) (383,897) 53,096 Balance of banks and marketable securities (*) 1,253, ,697 (27,892) Subtotal 654,609 (21,200) 25,204 Total 803, ,405 89,640 Exchange rate gains 462,275 Exchange rate losses (372,635) Exchange rate gains (losses), net 89,640 (*) Refers only to banks and marketable securities that generated exchange rate gains (losses). 92

93 Consolidated Exposure Effects of exchange rate gains (losses) Description 3/31/16 12/31/ Operating Trade accounts receivable 795, ,824 (163,168) ACE (advance on export contracts) (420,598) (458,818) 101,994 Imports payable (166,467) (214,014) 15,615 Other (106,832) (30,869) 6,491 Subtotal 101, ,123 (39,068) Financial Loans and financing (11,187,415) (11,310,694) 55,694 Notes payable Balance of banks and marketable securities (*) 480, ,248 (31,249) Other - (333,820) 51,414 Subtotal (10,706,553) (11,107,266) 75,885 Total (10,605,089) (10,841,143) 36,817 Exchange rate gains 579,634 Exchange rate losses (542,817) Exchange rate gains (losses), net 36,817 (*) Refers only to banks and marketable securities that generated exchange rate gains (losses). Over the course of 2015, the Corporation contracted Non-Deliverable Forwards (NDFs) and futures contracts, all of them non-speculative in nature, to minimize the effects of the foreign exchange variation on its overseas subsidiaries, as per the breakdown shown in note , the results of which are accounted for under the items "Exchange Rate Gains and Exchange Rate Losses Exchange rate risk sensitivity Analysis To provide information about the behavior of market risks that the Corporation and its subsidiaries were exposed to as at March 31, 2016, three scenarios are considered and the probable scenario is the fair value as at March 31, 2016 and two more scenarios with deterioration of 25% and 50% of the risk variable taken into account, denominated as Possible and Remote, respectively. The market future curve of March 31, 2016 was applied for currencies, with notional value of R$/US$

94 As for exchange rate risk, following are the sensitivity scenarios: Stress Scenario - balance sheet exposure to foreign exchange Probable Possible Remote 3/31/2016 scenario scenario scenario Parent 89, , ,528 Subsidiaries (52,823) (2,852,036) (5,704,073) 36,817 (2,651,272) (5,302,545) 33.6 Liquidity risk and capital management Liquidity risk arises from the Corporation s and its subsidiaries working capital management and the amortization of the principal and finance charges of debt instruments. This is the risk that the Corporation and its subsidiaries will find to settle its falling due payables. The Corporation and its subsidiaries manage their capital based on parameters to optimize the shareholding structure focused on liquidity and leverage metrics that enable a return to shareholders over the medium term, consistent with the risks assumed in the transaction. The purpose of capital management is to define the best financing structure for the Corporation and its subsidiaries. The main indicator for monitoring such management is the modified immediate liquidity ratio, which is the ratio between cash and cash equivalents and the leverage ratio - current indebtedness (short term). Consolidated 3/31/16 12/31/15 Short-term cash, cash equivalents and marketable securities 5,184,472 5,004,210 Short-term loans and financings 2,151,629 1,772,411 Interest on debentures 45, ,807 Modified liquidity ratio The main indicators for monitoring such management is the modified immediate liquidity The leverage ratio - monitoring the ratio of net debt (total debt indebtedness less cash and cash equivalents) to LTM EBITDA at levels considered to be manageable for continuity of operations, in accordance with the following calculation method: 94

95 3/31/16 Consolidated gross debt 11,704,330 (-) Consolidated cash and equivalents 5,184,472 Consolidated net debt 6,519,858 (-) Effect from exchange variation (carve-out) (1) 4,419,895 Consolidated adjusted net debt 2,099,963 LTM EBITDA for the year ended March 31, ,129,378 Leverage ratio 0.67 (1) Contractual provisions, in this case related to exchange variation on foreign-denominated loans, which allow these effects to be excluded from the calculation of the leverage ratio for the specific purpose of compliance with covenants. Based on the analysis of these indices, the management of working capital is defined so as to keep Corporation s and its subsidiaries natural leverage at levels equal or lower than the leverage ratio deemed adequate. The following table presents contractual terms (representing undiscounted contractual cash flows) of financial liabilities: Consolidated December 31, After Total Trade accounts payable 1,818, ,818,991 Loans, financing and debentures 1,772,411 1,011,436 2,330,304 2,591,132 4,180,017 11,885,300 Interest on debentures 236, ,807 Derivative financial liabilities 79, , ,733 25, ,418 Total 3,907,233 1,394,420 2,486,037 2,616,809 4,180,017 14,584,516 March 31, After Total Trade accounts payable 1,560, ,560,859 Loans, financing and debentures 1,873, ,448 2,130,319 2,447,092 4,283,465 11,658,350 Interest on debentures 45, ,980 Derivative financial liabilities 46, ,970 92,920 30, ,406 Total 3,526,033 1,243,418 2,223,239 2,477,440 4,283,465 13,753,595 95

96 33.7 Credit risk The Corporation and its subsidiaries are subject to credit risk. Credit risk deals with group s financial losses if a client or counterpart in a financial instrument fails to comply with contractual obligations, which arise from most receivables. The Corporation and its subsidiaries limit their exposure by analyzing credit and managing client s portfolio, seeking to minimize the economic exposure to a certain client and/or market that may represent significant losses. The Global Credit Risk Policy determines the guideline for financial credit risk management based on the following: Limit of counterparty s credit risk concentration to 15% of total current assets; Investments in solid and prime financial institutions, based on their financial rating; Balance between assets and liabilities. Conducted evaluations are based on information flows and follow-up of the volume of purchases in the market. The internal controls cover the assignment of credit limits. The maximum exposure to credit risk for the Corporation and its subsidiaries are the trade accounts receivable shown in note 6, where the value of the effective risk of possible losses is presented as provision for credit risk is also shown. Values subject to credit risk: Parent Consolidated 3/31/16 12/31/15 3/31/16 12/31/15 Cash and cash equivalents 318, ,982 2,520,594 1,630,368 Marketable securities 1,997,431 1,601,157 2,664,774 3,374,753 Receivables from Brazilian clients 225, , , ,010 Receivables from foreign clients 194, , , ,707 Other receivables 6,879 9,060 95, ,833 Total 2,742,437 2,335,037 6,183,362 6,128, Fair value of financial instruments The method used by the Corporation to determine market value consists in calculating the future value based on contracted conditions and determining the present value based on market curves obtain from Bloomberg s database, except for futures market derivatives whose fair values are calculated based on the on daily adjustments of variations in market prices of commodities and futures acting as consideration. According to IFRS 7, the Corporation and its subsidiaries classify the measurement of fair value according to hierarchical levels which reflect the importance of indices used in such measurement, as follows: 96

97 Level 1: Prices quoted in (non-adjusted) active market for identical assets and liabilities; Level 2: Other available information, except those of Level 1, where quoted prices relate to similar assets and liabilities, whether directly, by obtaining prices in active markets, or indirectly, such as evaluation techniques using active market data. Level 3: Indices used for the calculation do not derive from an active market. The Corporation and its subsidiaries do not have instruments at this measurement level. Currently, the fair value of all the financial instruments of the Marfrig Group is reliably measured and hence these are classified as level 1 and 2, as shown below: Consolidated Level 1 Level 2 Level 3 Current assets Cash and cash equivalents Marketable securities - held for trading - 2,664,774 - Notes receivable - derivatives 6, ,417 - Non-current liabilities Notes payable - derivatives (46,138) (442,268) - Total (39,400) 2,541,923 - Management understands that the results obtained with derivative transactions are in line with the risk management strategy adopted by the Corporation and its subsidiaries. 34. Income and social contribution taxes Income and Social Contribution Taxes were calculated according to prevailing legislation and Federal Law 12,973/2014, which rescinds the Transition Tax System provided for in Federal Law 11,941/09, and the Corporation began the adoption of corporate accounting (to comply with the NBC TGs) and of tax accounting (to comply with income and social contribution tax legislation). Income and Social Contribution Tax calculations and returns, when required, are open to review by tax authorities for varying statutory years in relation to the payment or filing date. Below are the calculation and reconciliation of income and social contribution taxes in theinterim financial information: 97

98 Continued Continued Parent Consolidated Tax 3/31/16 3/31/15 3/31/16 3/31/15 Income (loss) before tax effects (140,936) (830,228) (124,055) (787,410) Add-backs Add-backs of corporate income tax (IRPJ) 1,381, ,383 1,469, ,662 Add-backs of social contribution tax (CSLL) 1,381, ,383 1,459, ,340 (-) Deductions (-) Deductions from IRPJ (384,156) (1,325,748) (272,940) (1,365,009) (-) Deductions from CSLL (384,156) (1,325,748) (264,521) (1,365,009) Tax base Income tax base 856,154 (1,980,593) 1,072,809 (1,837,757) Social contribution tax base 856,154 (1,980,593) 1,071,172 (1,838,079) Companies with income tax loss - - (802) (7,621) Companies with social contribution tax loss carryforwards - - (825) - Calculation base after carry forwards of IRPJ 856,154 (1,980,593) 1,072,007 (1,845,378) Calculation base after carry forwards of CSLL 856,154 (1,980,593) 1,070,347 (1,838,079) (-) Tax loss carryforwards (256,846) - (256,846) - (-) Social contribution tax loss carryforwards (256,846) - (256,846) - Calculation base after carry forwards Calculation base after carry forwards of IRPJ 599,308 (1,980,593) 815,161 (1,845,378) Calculation base after carry forwards of CSLL 599,308 (1,980,593) 813,501 (1,838,079) Income tax (15%) 89,896-50,173 (29,597) Surtax (10%) 59,925-60, (-) PAT (3,596) - (3,596) - Total income tax 146, ,688 (29,568) Social contribution tax (9%) 53,938-53,994 (22) 200, ,682 (29,590) Rate difference on foreign results - 49,783 49,970 Total taxes 200, ,465 20,380 Effect on Statement of Operations - Current Taxes (2) 200, ,465 20,380 Tax Group 3/31/16 3/31/15 3/31/16 3/31/15 (-) Income tax - current Current liabilities (2) (146,225) - (156,471) (20,402) Tax paid abroad Current liabilities Deferred income tax - Assets (1) Non-current assets 175, , , ,164 Deferred income tax - Liabilities (1) Non-current liabilities 932 1,107 (21,932) (7,758) Net (3) Income (loss) 30, ,497 18, ,389 (-) Social contribution tax - current Current liabilities (2) (53,938) - (53,994) 22 Deferred social contribution tax - Assets (1) Non-current assets 63,276 69,980 72,236 71,243 Deferred social contribution tax - Liabilities (1) Non-current liabilities Net (3) Income (loss) 9,674 70,379 18,628 71,704 98

99 (1) Refer to deferred Income and Social Contribution Taxes calculated on: taxes whose payment has been suspended (estimates), and which were added to the calculation of the taxable income and the social contribution tax basis; utilization for tax purposes of the goodwill paid on future profitability and income and social contribution tax losses, which are stated in notes 12 and 24. (2) Corresponds to Income Tax and Social Contribution due on the current results of the period and effectively paid/offset during the year and/or to be paid/offset in subsequent years. (3) The difference between the values of taxes in this note and the values in the Statement of Income, which is an integral part of this financial information, refers to taxes on the sale of Moy Park and MFG Agropecuária, as demonstrated in note Sustainable Development Sustainability is one of the pillars of Marfrig Global Foods corporate strategy and permeates all of its activities and divisions. The Corporation is committed to continuing to balance the economic, social and environmental aspects of its business in order to contribute to the development of society and help preserve the planet. Marfrig is a reference in sustainability in its operating segments. By respecting the cultural aspects and practices of the local business community, it adopts a strategy of continuous improvement and technological innovation, combined with high levels of transparency and robust corporate governance practices. The Corporation s efforts also include promoting sustainable agricultural and cattle raising practices. Through programs like the Marfrig Club, the Corporation acknowledges and awards conscientious producers, instructing them on how to achieve the most modern property certifications for food production and also awarding animals from farms with good agricultural and management practices. Through professional relations with its suppliers, Marfrig is capable of monitoring the origin of its animals to ensure complete social and environmental compliance, in addition to driving the evolution of Brazilian farms and recognizing those with best practices in production, human capital and natural resources management. As a result of such efforts, in June 2012, Marfrig Global Foods became the world s first food company in the animal protein segment to track its complete beef production cycle in accordance with the standards developed by the Agriculture and Forest Management and Certification Institute (Imaflora), which entitled the Corporation to use the Rainforest Alliance seal. This seal authorizes four units of Marfrig Beef (Tangará da Serra MT; Pampeano Hulha Negra and Bagé, RS and Promissão SP) to produce and sell products with the green cattle farm seal in the international market. In 2015, Marfrig launched, in partnership with a European client, the first Rainforest Alliance-certified hamburger. The patty, which is made from beef produced in accordance with the highest sustainability standards, will be sold at retail chains across Europe. 99

100 The Corporation also entered into, in 2013, a partnership with The Nature Conservancy (TNC), one of the world s largest environmental organizations, and Walmart, the world s leading retailer, to foster sustainable cattle production in the southeastern region of the state of Pará, which will help preserve the Amazon biome and promote the adoption of good social and environmental practices. In 2015, the Corporation made advances in promoting good practices in southern Pará state, and also provided technical support to producers in both environmental and animal welfare aspects. In addition to practical initiatives, we prepared a commercial plan to launch sales of beef from the project in the market, which will give greater visibility to the practices and help engage end consumers. For the second consecutive time, the Corporation published a report assessing cattle sourcing throughout 2014, based on an audit by DNV-GL (consulting firm hired to independently evaluate the company s information and processes) that attested to the maintenance of its good sustainability practices in cattle sourcing at its units in the Amazon biome, in accordance with the criteria established in the public commitment signed with Greenpeace in 2009 and the 2015 Reference Terms. Marfrig works together with its suppliers to develop good management practices and in turn improve productivity and environmental preservation, which avoids deforestation and makes it possible to access more demanding markets. The audit was conducted from March 5 to April 8, 2015 and stated that, in 2014, no cattle sourcing transactions by Marfrig violated the provisions of the public commitment undertaken by the Corporation with the non-governmental organization Greenpeace for responsible production in the Amazon Biome in its supply chain. Animal welfare is a priority for Marfrig. Nearly a decade ago, we intensified our work in this area, based on our belief that animals should be treated with respect throughout their life cycles. It is in our interest to implement and maintain procedures to guarantee the quality and safety of our products and satisfaction of our clients, continuously improve all stages of management and, whenever possible, make changes to meet the five inherent freedoms of animals, as defined by the Farm Animal Welfare Council - England (FAWC). Focusing on the evolution of work done internally by our team at plants and considering the need to make these results widely known, we created the Animal Welfare Committee. This year, Marfrig moved up one tier in the ranking compiled by the Business Benchmark on Farm Animal Welfare (BBFAW) of companies with world's best animal welfare practices, and was classified as Tier 2, alongside companies such as Unilever e McDonald s. Last year, Marfrig had already figured among of Brazil's best-placed companies in the ranking with a Tier 3 ranking. According to the BBFAW 2015 Report, highlights at Marfrig include: its commitment to animal welfare in all countries where it operates, and Marfrig Club, a cattle farmer development program present in all Brazilian states where it operates, with over 3,500 member properties. To create opportunities for educational development and recreation for children, adolescents and the elderly in socially and economically vulnerable communities in the cities where the Corporation s industrial plants are located, Marfrig create the Marfrig Institute Fazer e Ser Feliz. The Institute currently offers after-school activities in the fields of education, sports, culture, health and food, benefiting more than 200 children in its units located in the cities of Promissão (SP), Bataguassu (MS), Tangará da Serra (MT), 100

101 Paranatinga (MT), Chupinguaia (RO), São Gabriel (RS), Hulha Negra (RS) and Bagé (RS). More information on the Marfrig Global Foods s sustainability strategy and its results can be found at Result from discontinued operations According to the material fact notice released to the market on June 21, 2015, the Corporation entered into, on June 19, 2015, an Agreement for the Purchase and Sale of Ownership Interest and Other Covenants, which laid out the terms and conditions for the sale to JBS S.A. of certain ownership interests in the companies of the Group operating the Moy Park business unit. The transaction was concluded on September 28, in accordance with the material fact notice released on said date. On September 30, 2015, the Management Committee decided to hold for sale all assets of Marfrig Argentina S.A. and MR Foods USA, Inc., both part of the Marfrig Beef business unit, and authorized the Corporation s management to carry out all efforts to comply with said decision. On December 29, 2015, the Corporation decided to sell the assets of the company MFG Agropecuária Ltda, which is part of the Marfrig Beef business segment, to Mr. Marcos Antonio Molina dos Santos. The Moy Park segment and the companies of the Marfrig Beef segment were not previously classified as a discontinued operation or held-for-sale asset in accordance with NBC TG 31 (R3), and the results and cash flow of discontinued operations for the period ended March 31, 2016 and 2015 are presented as follows: Result from discontinued operations Consolidated 3/31/2016 (*) 3/31/2015 (*) Net Revenue 268,089 1,654,980 Cost of Goods Sold (253,926) (1,497,899) Gross Profit 14, ,081 Operating and financial income (expenses) (21,278) (153,958) Net operating income (loss) (7,115) 3,123 Income and social contribution taxes 2,846 (9,689) Net income from discontinued operations (4,269) (6,566) Non-controlling interest (2) 12 Net income (loss) from discontinued operations (4,271) (6,554) 101

102 Cash flow from discontinued operations Consolidated 3/31/2016 (*) 3/31/2015 (*) Net income for the period (4,271) (6,554) Non-cash items 14, ,111 From changes in equity (35,502) 27,163 Used in investing activities 9,352 (48,469) Used in financing activities (5,132) 11,680 Exchange variation on cash and equivalents 7,733 16,923 Write-off of cash from discontinued operations 1,994 - Discontinued operations, net of cash (10,868) 102,854 (*) Operations of the Moy Park and Marfrig Beef segment; 37. Events after the reporting period On April 4, 2016, Marfrig Global Foods S.A. announced the repurchase and cancelation of the senior notes issued by the subsidiaries Marfrig Overseas Limited and Marfrig Holdings (Europe) B.V. in the aggregate amount of US$71,778 million, through repurchases in the market between October 2015 and February The amount includes repurchases of US$2,147 maturing in 2017, US$6,922 maturing in 2018, US$50,693 maturing in 2019 and US$1,271 maturing in 2021, all of them issued by the subsidiary Marfrig Holdings (Europe) B.V., and US$10,745 maturing in 2020 issued by the subsidiary Marfrig Overseas Limited. On April 5, 2016, the Board of Directors of the Corporation approved a capital increase within the limit of authorized capital, in accordance with Article 6 of the Bylaws of the Corporation, to meet the needs of the stock option plan in force ( Stock Option ), upon the issue of new common shares of the Corporation. The issue of 44,201 new common shares was approved, in the total amount of R$115,400. The issue of 58,397 new common shares was approved on April 25, 2016, in the total amount of R$177,858. The share capital of the Corporation therefore increased from 520,747,405 common shares, to 520,850,003 registered common shares without par value. On April 6, 2016, Marfrig announced to the market, through a Material Fact notice, the execution of an agreement for the sale ( Transaction ) of certain units in Argentina to Bamboo Enterprises S.A. (Foresun Group People s Republic of China). The units are located in a) Hughes (Santa Fé Province); b) Vivoratá (Buenos Aires Province); c) Unquillo (Córdoba Province); and d) Monte Ralo (Córdoba Province). The total amount of the Transaction is around US$75 million and payment will be made in installments. The initial payment, of US$34 million, was made on the disclosure date, upon delivery of the Hughes unit. The remaining balance will be paid within 12 months upon delivery of the other units. The Corporation also informed that it will continue to operate the unit of Villa Mercedes (San Luis Province) in Argentina. On May 2, 2016, the Corporation announced its new organizational structure, in which Eduardo Miron, currently Executive Financial Vice-President of the Keystone business unit, 102

103 has accumulated, as of said date, the positions of Chief Financial Officer, previously held by Ricardo Florence, and Investor Relations Officer, previously held by Marcelo Di Lorenzo. * * * 103

104 1Q16 Earnings Release Adjusted EBITDA of R$443 million, up 25% from 1Q15 São Paulo, May 12, 2016 Marfrig Global Foods S.A. Marfrig (BM&FBOVESPA NOVO MERCADO: MRFG3 and Level 1 ADR: MRTTY) announces today its results for the first quarter of 2016 (1Q16). Except where stated otherwise, the following operating and financial information is presented in nominal Brazilian real, in accordance with International Financial Reporting Standards (IFRS), and should be read together with the income statement and notes to the financial statements for the period ended March 31, 2016 filed at the Securities and Exchange Commission of Brazil (CVM). HIGHLIGHTS Marfrig posted Net Revenue of R$4.9 billion in 1Q16, expanding 16.1% from 1Q15. In 1Q16, Marfrig Global Foods posted Adjusted EBITDA of R$443 million, up 25.3% from 1Q15. Adjusted EBITDA margin was 9.0%, expanding approximately 60 bps. Keystone posted Adjusted EBITDA of US$57 million in 1Q16, 17.4% higher from 1Q15. Marfrig Beef recorded Adjusted EBITDA of R$222 million in 1Q16, an increase of 3.4% over the same period of last year. In 1Q16, the operating cash flow of Marfrig Global Foods was R$298 million, up 28.5% from the first quarter of As part of its Liability Management process, in April, the Company cancelled senior notes at the face value of US$72 million. The risk-rating agency Fitch published a report on March 30, 2016, in which it reaffirmed Marfrig s rating of B+, with a stable outlook. 1

105 GUIDANCE 2016 Revenue Target 2016 (1) R$22 to R$24 billion 1Q16 R$4.9 billion Adjusted EBITDA Margin (2) 8.5% - 9.5% 9.0% Capex Free Cash Flow to shareholders (3) R$450 to R$600 million R$100 to R$250 million R$108 million R$(122) milion (1) Assumptions based on the exchange rate of R$4.10/US$1.00. (2) Excludes non-recurring items. (3) Operating cash flow after capital expenditure, interest expenses and income tax. First quarter results are in line with the guidance attainment in all metrics, including EBITDA and cash flow. Free cash flow was negative in R$122 million, and is within the expected for the first quarter of the year. Besides the seasonal effect, the result was impacted by the financial expenses, which despite the decrease when measured in US dollars, was negatively affected by the 36.6% average Brazilian real depreciation in 1Q16 compared to 1Q15. Marfrig, however, recorded operating cash flow of R$298 million in 1Q16, up 28.5% from 1Q15. Keystone s continued solid performance was partially offset by Marfrig Beef results, negatively influenced by the quarterly seasonality of the sector. 2

106 CONSOLIDATED RESULTS Net Revenue Consolidated net revenue in 1Q16 was R$4.9 billion, up 16.1% from 1Q15, which is mainly explained by the effect from the 36.6% appreciation of the U.S. dollar against the Brazilian real on revenue from the international units and from Brazilian exports. It is important to remember that Marfrig is a global company, in which a relevant part of its revenues comes from other currencies in the first quarter, 81% of Marfrig s revenues was denominated in foreign currency. Net Revenue (R$ million) 4,228 16% 4,906 1Q15 1Q16 Revenue Breakdown 1Q16 By business By product By currency 62% of net revenue came from the international operations (Keystone and Beef International); 81% of sales was linked to currencies other than the BRL. 3

107 Gross Profit and Gross Margin Consolidated gross profit in 1Q16 was R$576 million, a growth of 21.5% compared to 1Q15, also benefitting from the weaker Brazilian real. Gross margin stood at 11.7%, expanding 50 bps from 1Q15, primarily explained by the gross margin expansion at Keystone. Gross Profit (R$ million) and Gross Margin (%) 11.2% 11.7% 21% Q15 1Q16 Selling, General and Administrative Expenses (SG&A) In the quarter, SG&A expenses as a ratio of net revenue (SG&A/NOR) stood at 5.2%, virtually stable compared to 1Q15. In nominal terms, SG&A expenses increased R$39.5 million, explained by the effect from exchange variation on the translation into Brazilian real of amounts from the international units. Compared to 4Q15, SG&A/NOR posted a slight decrease of 20 bps, which is primarily explained by the lower administrative expenses at both business units. SG&A Expenses (R$ million) and SG&A/NOR (%) 5.1% 5.2% 18% Q15 1Q16 4

108 Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA in 1Q16 was R$443 million, an increase of 25.3% from 1Q15. Adjusted EBITDA margin stood at 9.0%, increasing 60 bps from the same period of last year. The margin expansion at Keystone was partially offset by the margin compression at Marfrig Beef, whose operations followed the trend of the overall industry. Adjusted EBITDA (R$ million) and Adjusted EBITDA Margin (%) 8.4% 9.0% 25% Q15 In the quarter, Keystone accounted for 50% of Marfrig Global Foods Adjusted EBITDA, increasing its contribution by 110 bps compared to 1Q15. 1Q16 Financial Result The net financial result in 1Q16 was an expense of R$423 million, compared to an expense of R$1,019 million in 1Q15. The positive R$596 million variation was primarily driven by (i) the gain on exchange variation line between the periods; and (ii) the gross debt reduction resulting from the Liability Management process. Compared to 4Q15, which was an expense of R$439 million, the improvement was 3.5%. Excluding exchange variation effects, the financial result was an expense of R$460 million, improving R$59 million from 1Q15. 1Q16 1Q15 4Q15 R$ R$ R$ FINANCIALS REVENUES Interest income, income from marketablesecurities Market transactions Other revenues 3.4 (6.8) FINANCIALS EXPENSES (620.8) (599.6) (616.9) Interests provisioned, debentures and lease (324.8) (293.1) (335.2) Market transactions (89.8) (171.1) (30.7) Bank fees, commissions, finance. disc. and other (206.2) (135.5) (250.9) EXCHANGE VARIATION 36.8 (500.8) (44.8) NET FINANCIAL RESULT (423.2) (1,019.4) (438.7) Note: it s important to notice that any exchange variation on debt contracted by operational subsidiaries abroad, whose functional currency differs from that of the parent company, is recorded under shareholders equity. 5

109 Net Income (Loss) In 1Q16, Marfrig posted a net loss of R$106 million, an improvement of R$465 million from the same period last year. The highlights were the improvement in operational performance and financial result. Net Income (R$ million) 1Q15 1Q16 (106.2) (570.9) Indebtedness and Debt Profile Given that most of Marfrig s indebtedness is highly exposed to U.S. dollars, for analyses purposes, the variations here explained consider the Company s debt in U.S. dollar. On March , Marfrig recorded gross debt of US$3.3 billion, a decrease of 21.3% from 1Q15, explained by the assets divestments and the cancellation in senior notes repurchased in the tender offer and in the spot market from October 2015 to February In 1Q16, 4.4% of the gross debt was denominated in Brazilian real. Compared to 4Q15, gross debt increased 5.9%, reflecting the additional withdrawal of Keystone s term loan, at better rates, renegotiated in December In Brazilian real, gross debt reached R$11.7 billion, decreasing 3.4% and 12.6% from 4Q15 and 1Q15, respectively. Cash and marketable securities amounted to US$1.5 billion (R$5.2 billion), increasing 13.7% compared to 4Q15, reflecting the operating moves and funding during the quarter, besides exchange translation to Brazilian real kept the end balance virtually stable. Consequently, net debt stood at US$1.8 billion, in line with the balance at the end of 4Q15. In Brazilian real, net debt declined by 8.4%, influenced by the Brazilian real appreciation of 8.9%. Short Term Long Term Indebtedness in US$ million Indebtedness in R$ million 13,400 11,704 4,177 3,499 3,289 2, ( 1,457 ) 1,832 1Q15 1Q16 Cash & Equiv. Net Debt 1Q16 11,226 9,507 2,174 2,198 (5,184) 6,520 1Q15 1Q16 Cash & Equiv. Net Debt 1Q16 6

110 Indebtedness in in other currencies is 96%, profile that we consider appropriate given the international currencies share in our operations. Short Term Long Term 19% Debt in R$ Debt in other currencies 4% 81% 96% Debt Maturity Schedule (R$ million) On March 31, 2016, the average debt term was 4.1 years and the average debt cost was 7.64% compared to 7.88% in the prior quarter. Only 18.8% of total debt matures in the short term. The high liquidity level ensures that cash and marketable securities cover all maturities through 2018 (approximately 3 years). 5,184 Debt Maturity Schedule (R$ million) 1, ,130 2,447 2,871 1,413 Cash and Foward Average Cost (% p.a.) Average Term (months) Current Liquidity Net Debt / Total Assets Cash & Equiv. / Short Term Debt 7.64% x 0.32x 2.36x Leverage Ratios Net Debt / Adjusted EBITDA LTM 3.47x Net Debt / EBITDA LTM-Excl. FX Var 0.67x 7

111 Management believes that the ratio that best reflects current leverage is the ratio of net debt to Adjusted EBITDA excluding the positive effect from the capital gain derived of the assets divestiture registered in This ratio was 3.47x in 1Q16, which represents a decline of 12.6% from 4Q15. The calculation of the leverage ratio of bank and debt market funding transactions includes provisions that allow for excluding exchange variation effects. Accordingly, the ratio for this purpose ended 1Q16 at 0.67x, significantly below the ratio of 3.36x at the end of 1Q15 (for more information, see Note 33.6 to the financial statements). The EBITDA increase of the last twelve months, combined with the capital gain of R$1.4 billion from assets divesture, had a positive impact on financial leverage measured by the ratio of net debt to EBITDA LTM, which ended the quarter at 2.08x. Cash Flow Operating cash flow in the 1Q16 amounted to R$298 million in 1Q16, a decrease of R$177 million from 4Q15, reflecting the seasonality for the beef industry. Working capital had a negative impact of R$8.8 million. The reduction in Inventories was offset by the negative variation in (i) accounts receivable, due to the average appreciation of the U.S. dollar; and (ii) the normalization of payment terms in accounts payable. Free cash flow, however, was negative in R$122 million, primarily reflecting the interest expense of R$312 million, affected by the Brazilian real devaluation. Compared to 1Q15, Marfrig s operating cash flow increased by R$66 million, reflecting the improved operational performance between the periods, as previously explained. Cash Flow (R$ million) 448 (9) (39) 298 (108) (102) (312) (122) Net Income/Loss Non Cash Items Change in Working Capital Other CF from Operations Capex Interests Expenses Free Cash Flow 8

112 Capital Expenditure (CAPEX) In order to ensure the high operational efficiency of its assets, Marfrig s capital expenditure amounted to R$108 million in the quarter. (R$ Millions) 1Q16 Investments 15.2 Investments in Fixed Assets 89.8 Fixed Assets 68.0 Breeding Stock 21.8 Investment in Intangigle Assets 2.9 TOTAL R$ 9

113 KEYSTONE Keystone growth pillars remain (i) growth in the APMEA region, led by Thailand and China and (ii) further growth in Key Accounts globally, maintaining existing client base and further diversifying into additional food service channels. The subsidiary s result for this quarter continues to reflect its operational and strategic discipline, as well as proving the low volatility of its business model. Net Revenue Keystone posted net revenue of US$623 million in 1Q16, down 5.7% from the same quarter of The decrease was driven by (i) lower meat and feed costs, which translated into lower sales prices; (ii)sales volume decrease in APMEA against a particularly strong comparison period in 1Q15 given a very high level of promotional activity, particularly in China,; (iii) partially offset by the continued strong growth (22.6%) in Key Accounts in the U.S. In BRL, revenue amounted to R$2.4 billon, 27.8% higher than 1Q15. Compared to 4Q15 net revenue decreased by 1.9% reflecting sales mix change (including lower promotions) and lower sales prices due to commodities (Meat and Grains) as explained above, partially offset by the sales price increase of Leg Quarters (+19.5%) Revenue Profile 1Q15 1Q16 USA APMEA USA APMEA 30% 29% 70% 71% Gross Profit and Gross Margin In 1Q16, gross profit was US$56 million, with gross margin of 9.0%, increasing 23.3% from 1Q15 gross profit of US$45 million and margin of 6.9%. Including the exchange variation effect, 4Q15 gross profit was R$218 million, increasing 67% from 1Q15. The expansion in gross margin is mainly explained by (i) lower costs in meat purchases (15.4% drop in per-ton cost) and animal feed (15.5% drop in per-ton cost) in the United States; (ii) better product mix in Key Accounts in the U.S.; (iii) better product mix in Thailand and Malaysia (iv) and an unrealized mark-to-market (MTM) gain on grain hedge contract of US$1.4 million in 1Q16 representing a positive year-on-year variation of US$1.8 million. Compared to 4Q15, gross profit decreased 13.8% and gross margin went down 120 bps. The main factors were seasonal slowdown of some consumer markets and the efficiency gain of US$4 million registered last quarter. 10

114 Gross Profit and Gross Margin (US$ million and %) Gross Profit and Gross Margin (R$ million and %) 6.9% 9.0% 6.9% 9.0% 45 23% % 218 1Q15 1Q16 1Q15 1Q16 Selling, General and Administrative Expenses SG&A expenses reached US$16 million, increasing 7.7% from 1Q15. 1Q15 benefitted from US$ 1.5 million one-time insurance related benefit. SG&A expenses as a ratio of NOR stood at 2.6%, within the historical range. Compared to the previous quarter, which had a higher accrual of expenses, SG&A decreased US$4.6 million. Adjusted EBITDA and Adjusted EBITDA Margin Adjusted EBITDA reached US$57 million in 1Q16 increasing 17.4% from 1Q15. Adjusted EBITDA margin increased by 180 bps from 1Q15. These improvements reflect the Gross Profit increase as previously described. Considering the impact from exchange variation, Keystone recorded Adjusted EBITDA of R$222 million in 1Q16, up 58.7% from 1Q15. In comparison with the previous quarter, Adjusted EBITDA decreased 6.9% and Adjusted EBITDA margin was 50 bps lower. Adjusted EBTIDA and Adj. EBITDA Margin (US$ million and %) Adjusted EBTIDA and Adj. EBITDA Margin (R$ million and %) 7.3% 9.1% 7.3% 9.1% 48 17% % 222 1Q15 1Q16 1Q15 1Q16 11

115 MARFRIG BEEF Marfrig Beef s main strategy continues to be capturing operating efficiency gains with higher profitability and prioritizing the sales channels with higher value- added. In 1Q16, cattle slaughter volume fell by 6.5% over the same period of Regarding the Brazilian operation, cattle slaughter volume fell 7.7%, which represented a reduction of 42,000 heads out of an annual authorized capacity of 2.7 million heads. Meanwhile, the Uruguay unit posted a slight reduction in cattle slaughter volume of 1.1% compared to 1Q15. The reduction in slaughter volume reflects the Company s strategic decision to optimize its capacity in Brazil in order to adjust to the current scenario of cattle supply, Effective capacity utilization in Brazil, which takes into account the current workforce and number of deboning lines, stood at 83.0%, a decrease of 7.1 p.p. from 4Q15. This decrease is result of lower cattle availability, typical for a rainy season and the trading profile with cattle suppliers at this time of the year. In line with its strategy to increase profitability and to reach the best sales mix, Marfrig Beef exports revenue accounted for 53.6% of the unit s total revenue, compared to 48.0% in 1Q15. Net Revenue Net Revenue (R$ million) 6% 2,320 2,469 1Q15 1Q16 Net revenue amounted to R$2.5 billion in 1Q16, growing 6.4% from 1Q15. The higher average price in the Brazil s domestic market and the weaker Brazilian real offset the lower sales volume. Compared to 4Q15, net revenue contracted 9.3%. Net revenue from the Brazilian operation came to R$1.9 billion in the quarter, representing 76% of the unit s revenue and an increase of 4.0% from 1Q15. The international operations posted net revenue of R$601 million to account for 24% of Marfrig Beef total revenue. Brazil Domestic Market Net revenue from Brazil s domestic market came to R$933 million, decreasing 9.1% compared to 1Q15. The lower sales volume, in line with the slowdown in the Brazilian market, was partially offset by the higher average price resulting from the successful strategy to optimize the sales mix. As a result of this strategy, the food service and small-retailer channels accounted for 40.2% of revenue in the quarter, up from 38.7% in 1Q15. 12

116 Brazil Export Market Net revenue from the export market amounted to R$934 million, increasing 21.4% from 1Q15. The higher average price, benefitted from the continued weakening of the Brazilian real, offset the lower export volume. In USD, net revenue was US$239 million, down 11.1% from 1Q15. Moving forward with its strategy to increase profitability and achieve the optimal sales mix to improve the Business Unit s margins, in 1Q16, exports accounted for 50% of Marfrig Beef Brazil revenue, compared to 43% in 1Q15. The following chart presents the main export destinations of Marfrig Beef Brazil, which clearly shows the growing share of exports to Asia: Exports Profile (% of Net Revenue) Exports Profile (% of Volume) 1Q15 22% 17% 1Q15 28% 18% 23% 37% 24% 31% 1Q16 11% 33% 1Q16 20% 31% 32% 24% 34% 15% Asia Europe Middle East Other International Units In 1Q16, consolidated net revenue from the international units amounted to US$154 million, decreasing 15.7% from 1Q15, reflecting the lower average price, which accompanied the trend in the international market. In Brazilian real, net revenue amounted to R$601 million, increasing 14.8% from 1Q15, given the 36.6% depreciation of the Brazilian real against the U.S. dollar between the periods. The following chart presents the main export destinations of Marfrig Beef Uruguay: 13