1. Operations

Marfrig Alimentos S.A. was set up on June 6, 2000 and became a corporation on March 26, 2007. The Company was registered with the Brazilian Securities and Exchange Commission (CVM) under nº 20.788 on June 18, 2007 and made its initial public offering (IPO) on June 29, 2007. Its shares were listed on the New Market of São Paulo Stock Exchange (BM&FBovespa) under code nº MRFG3. On April 28, 2009 its corporate name was changed to Marfrig Alimentos S.A. As of December 31, 2011, its subscribed and paid-in share capital is represented by 346,983,954 common shares, of which 164,623,644 shares or 47.44% are controlled by MMS Participações S.A. and 182,360,310 shares or 52.55% are outstanding free float shares in capital markets. MMS Participações S.A. is controlled by Marcos Antonio Molina dos Santos and Márcia Aparecida Pascoal Marçal dos Santos, each holding a 50% ownership interest.

As a participant in BM&FBOVESPA’s New Market, the Company is subject to arbitration under the Market Arbitration Chamber, pursuant to an arbitration clause included in its by-laws.

Company’s shares are also part of the main performance indicators of the Brazilian capital market, such as Ibovespa (the most important indicator of the Brazilian stock market’s average quotation performance), IBrX-50 (theoretical portfolio composed of 50 shares selected amongst the most traded on BM&FBOVESPA in terms of liquidity) and ICO2 (theoretical portfolio composed of companies that adopted transparent practices regarding their GHG emissions). Marfrig shares also comprise the following indexes of the Brazilian stock exchange: Brazil Index - IBrX; Bovespa Index - IVBX-2; Small Cap Index - SMLL, MidLarge Cap Index - MLCX; Industrial Sector Index - INDX; Consumption Index - ICON; Share Index with Differentiated Tag Along - ITAG and Share Index with Differentiated Corporate Governance - IGC.

The Company’s financial and equity position should be considered within the context of the integrated activities of the following segments, organized according to the respective animal protein business from which revenue is derived, with own professional structures established and segmented into:

• Cattle, Lamb and Leather, with animal slaughtering operations located in South America (Brazil, Argentina, Uruguay and Chile) and Europe; and

• Poultry, Pork and manufactured and processed products, with operations in Brazil, Europe, United States, Middle East and Asia.

CATTLE, LAMB AND LEATHER BUSINESS SEGMENT

Beef - Brazil:

• Marfrig Alimentos S.A. (Brazil), which is made up of nine cattle slaughtering and beef processing facilities, one of which is also used for slaughtering of sheep, two tanneries, one factory which produces cleaning and hygiene products and one feedlot, located in the States of São Paulo, Rio Grande do Sul, Goiás, Mato Grosso do Sul, Mato Grosso and Rondônia, in addition to three Distribution Centres in the State of São Paulo;

• MFB Marfrig Frigoríficos Brasil S.A., consists of 14 cattle slaughtering and beef processing facilities, one of which is also used for slaughtering of sheep and three for industrialization of beef, located in the States of São Paulo, Rio Grande do Sul, Goiás, Mato Grosso do Sul, Pará, Paraná and Rondônia. Marfrig’s ownership interest is 100%;

• Masplen Ltd. (Jersey Island), (company which holds 100% of Pampeano Alimentos S.A. (Brazil)). Pampeano produces canned meat and other processed products in the State of Rio Grande do Sul. Marfrig’s ownership interest is 100%;

• Marfrig Overseas Ltd. (Cayman Islands), company set up for purposes of raising funds abroad by issuing Notes. Marfrig’s ownership interest is 100%.

• Marfood USA Inc. (USA), producer and distributor of beef jerky for the US market. It holds 100% of the Pemmican trademark. Marfrig’s ownership interest is 100%.

• MFG Agropecuária Ltda. develops livestock activities comprising the breed, treatment, handling, fatstock, purchase and sale and transportation of cattle, horses, pork, goat, lamb, poultry and buffaloes - living and embryos, with nine feedlots. Marfrig’s ownership interest is 99.99%;

• MFG Comercializadora de Energia Ltda., which trades energy, provides services associated or related to or necessary for the trade of energy, and makes researches on solutions for quality and efficiency of electric energy. Marfrig’s ownership interest is 99.99%.

Beef - Abroad (Argentina, Uruguay, Chile and Europe):

• Quickfood S.A. (Argentina) is a publicly-traded company, listed at the Argentinean securities exchange commission, holder of PATY brand, producer and distributor of beef jerky in the US market and several other export destinations, and a leader in the Argentine, Uruguayan and Chilean hamburger markets, with five slaughter facilities, three beef processing facilities and one frozen legumes and vegetables plant. Marfrig’s ownership interest is 90.05%. On May 1, 2011, the companies Argentine Breeders & Packers S.A., Best Beef S.A. and Mirab S.A. were merged into Quickfood S.A. Therefore, Estância Del Sur S.A. is directly controlled by Quickfood S.A., which now holds 99.96% of ownership interest.

• Frigorífico Tacuarembó S.A. (Uruguay), which operates a cattle slaughter and beef processing facility - Marfrig’s ownership interest is 93.68%;

• Inaler S.A. (Uruguay), a cattle and lamb slaughter facility - Marfrig’s ownership interest is 100%;

• Marfrig Chile S.A. (Chile), which operates a meat deboning and trading facility, both in the Chilean market - Marfrig holds a 99.47% ownership interest. On December 21, 2009, Marfrig Chile took over Quinto Cuarto S.A. and PBP Chile Limitada, which were previously its subsidiaries. In addition, Marfrig Chile S.A. holds 100% of Frigorífico Patagonia S.A. (Chile), which operates a lamb packing plant in Patagonia;

• Prestcott International S.A. (Uruguay) which holds 100% of Cledinor S.A. (Uruguay), a beef and lamb packing plant in the city of Salto - Marfrig’s ownership interest is 100%;

• Establecimientos Colonia S.A. (Uruguay), a beef packing plant in the city of Colonia - Marfrig’s ownership interest is 100%;

• Columbus Netherlands B.V. (Netherlands) - Marfrig holds a 100% interest, which holds 59.17% of Gideny S.A., which is a holding company that controls 100% of Zenda Group, which operates in Uruguay in turn produces and sells finished and cut leather, besides its affiliated companies in Argentina, Mexico, United States, Germany, South Africa, Chile, Hong Kong and China.

• Weston Importers Ltd. (United Kingdom), trading company which operates in the European market and holds 100% of CDB Meats Ltd. (United Kingdom), a producer of processed meat - Marfrig’s ownership interest is 100%.

POULTRY, PORK AND MANUFACTURED AND PROCESSED PRODUCTS BUSINESS SEGMENT

Poultry, pork and manufactured and processed products - Brazil (SEARA):

• Seara Holdings (Europe) BV, which holds 99.9% of Babicora Holding Participações Ltda., that holds 99.9% of Seara Alimentos S.A. (Brazil) besides its affiliated companies in Europe and Asia - Marfrig’s ownership interest is 100%.

• Secculum Participações Ltda. (Brazil) (Marfrig’s ownership interest is 99%) and União Frederiquense Participações Ltda. (Brazil) (Marfrig’s ownership interest is 99.99%), which together hold 100% of Frigorífico Mabella Ltda. Mabella operates a pig slaughter facility in the State of Santa Catarina and one pork slaughter and pork processing facility in the State of Rio Grande do Sul. It is also responsible for Marfrig’s poultry and pork operations, and has the following percentages of ownership interest in the companies:

– DaGranja Agroindustrial Ltda. - Mabella’s indirect ownership interest is 94%;

– Braslo Produtos de Carnes Ltda. - Mabella’s ownership interest is 99.99%;

– MAS Frangos Participações Ltda. - Mabella’s ownership interest is 100%, which holds 100% of Agrofrango Indústria e Comércio de Alimentos Ltda.;

– Penasul Alimentos Ltda. - Mabella’s ownership interest in 100%.

Poultry operations consist of seven poultry slaughter facilities and seven poultry processing facilities in the States of Santa Catarina, Rio Grande do Sul, Paraná, São Paulo, Minas Gerais and Distrito Federal.

– MBL Alimentos S.A., company that is engaged in pork raising - Mabella’s ownership interest is 100%.

The poultry and pork operations in Brazil produce and sell products under Seara, Mabella, Pena Branca and DaGranja trademarks, the last two pertaining to Marfrig Alimentos S.A.

Poultry, pork and manufactured and processed products - abroad (Moy Park, Kitchen Range and Keystone)

• Marfrig Holdings (Europe) - B.V. (Netherlands) holds

– 100% of Moy Park Holdings (Europe) Limited (company headquartered in Northern Ireland), which in turn holds 100% of Moy Park Group (Northern Ireland) and Kitchen Range Foods Ltd. (England), which operates three poultry slaughter facilities and eight processing facilities in England, Northern Ireland, France and the Netherlands.

– 100% of MFG (USA) Holdings Inc., which holds the assets of Keystone in the United States; that, jointly with other Keystone units, operates worldwide in the development, production, sale and distribution of poultry, fish, pork and beef-based food, specialized in the Food Services channel.

• McKey Luxembourg Holdings S.a.r.l.:

Marfrig Alimentos S.A. holds the assets of Keystone in Europe and Asia by means of the subsidiary McKey Luxembourg Holdings S.a.r.l. Both operate in the development, production, sale and distribution of poultry, fish, pork and beef-based food, and are specialized in Food Services channel.

Keystone divisions in United States, Europe and Asia jointly supply over 28,000 restaurants in 14 countries, including USA, France and United Kingdom (Europe), China, Thailand, Malaysia and South Korea (Asia), Australia and New Zealand, and United Arab Emirates, Kuwait, Bahrain, Qatar and Oman (Middle East).

Marfrig Group’s strategy is based on pursuing business sustainability on a long-term basis and return to its shareholders. Therefore, the following pillars for the next years are the Company’s strategic objectives:

The Company’s consolidated gross indebtedness grew R$ 2,034.3 million from December 31, 2010 to December 31, 2011, while cash and cash equivalents decreased R$ 399.4 million in the same period, evidencing the R$ 946.6 million investments in the year, as shown in the statement of cash flows, which focused working capital employed in meat-processing plants and Seara’s sales growth, besides financing and interest expense related to indebtedness, amounting to R$ 1,528.2 million.

Leverage level (considering net debt of R$ 7,785.1 million) was 4.39 times, lower than covenant of 4.75 times, which guides in its most restrictive form the covenant specified in loan agreement as maximum quotient of Net Debt/EBITDA ratio.

At the end of 2011, 20.8% of debt was in the short term, against 30.9% in 2010. In 2011, the Company will keep the management strategy of its capital structure, focused on long-term operations. Cash and cash equivalents on December 31, 2011 was R$ 3,477.0 million, 10.3% lower than the amount of R$ 3,876.4 million recorded in the previous year, but sufficient to cover by 1.48 times the current indebtedness of R$ 2,342.1 million (compared to a coverage index of 1.36 times in 2010).

Initiatives and priorities in 2012 are:

• Focus on the company’s core business, i.e., production of protein-based food products, with emphasis in higher added-value manufactured and processed products, including the following measures:

The two transactions described above are disclosed in the Note 34 - Subsequent Events.

• Focus on consolidating all divisions and implementing operating measures to optimize the organizational structure, management and production platform, aiming at improving margins and profitability, pointing out following actions:

The successful conclusion of aforementioned initiatives and priorities will allow the Company to achieve its financial deleverage strategic objective and increase free cash flow generation.