Company - Alpargatas

Transcription

AL PARGATAS INGLES linhas.qxp
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The Future
100 Years
of Brazilian Talent
Alpargatas looks to the future as a global company, operating in harmony with the three
Alpargatas combines talent with sustainability to consolidate itself as a company that, even
dimensions of sustainability: economic, social and environmental.
upon completing 100 years in April 2007, has not ceased to grow, innovate, reinvent itself
and, above all, be admired. It is ready to face another hundred years, with an operation that
To reach this goal, the Company will use its talents and competences to grow in the local
is economically viable, socially just and environmentally correct.
and international markets via acquisitions and expansion of its businesses.
This talent melded efficiency and quality to produce improving economic results and, in
We already have initiated a number of the stages that lead to globalization.
2006, to win the title of “Company of the Year” by Exame magazine. The Company has
Success in sales, brands, marketing, innovation as well as market position all contributed
created employment opportunities for many people in different parts of Brazil and the
to Alpargatas become the Brazilian domestic leader. Subsequently, through significant
world. It grew even more with the support of the Camargo Corrêa Group - whose holding
sales in opinion makers markets, the Company became an exporter, operating on a
company is Alpargatas' controlling shareholder - that drives its gains of efficiency and
country-by-country basis.
global competitiveness.
An important step in this internationalization process is the startup of operations in the
This talent created the world's top selling footwear, Havaianas, a symbol of Brazilianism
United States in 2007.
that became fashionable in the most important centers of consumption. It was this talent
that conquered one of the most competitive markets, Japan, with the Topper brand. It also
This is Brazilian talent bringing to the world brands and products that are admired and
contributes to the development of Brazilian sports by sponsoring athletes. And it develops
consumed by millions of people in every part of the planet.
products that win over consumers through comfort and performance.
This talent also has helped to build a better future for millions of children and youths
assisted by the Education through Sport program, involving actions coordinated by the
Alpargatas and Camargo Corrêa Institutes. And it motivates volunteers among the
employees to join programs for enhancing quality of life, training and community
development. This talent is concerned with tomorrow's world. It increasingly is focused on
the environment and the correct use of natural resources, such as water, power and fuels.
And, today, it creates products for the future, using materials that are more and more
environmentally appropriate.
Annual Report
2006
It is Brazilian talent driving Alpargatas to achieve its vision to be a global company of
desired brands in sporting goods, footwear and industrial textiles. A hundred years ago,
today, and a hundred years from now.
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1910s
1920s
1930s
1940s
1950s
1960s
1970s
1980s
1990s
21st Century
19071908190919101911191219131914191519161917191819191920192119221923192419251926192719281929 193019311932193319341935193619371938193919401941194219431944194519461947194819491950195119521953195419551956195719581959 196019611962196319641965196619671968196919701971197219731974197519761977197819791980198119821983198419851986198719881989 199019911992199319941995199619971998199920002001200220032004200520062007
Robert Fraser, a Scotsman,
arrives in Brazil and founds
the Sociedade Anonyma
Fábrica Brazileira de
Alpargatas e Calçados that
two years later is renamed
São Paulo Alpargatas
Company S.A.. It begins
production of the Alpargatas
Roda and Encerados
Locomotiva brands, in the
Mooca factory, in São Paulo.
The Alpargatas Roda brand is such a
success in the coffee plantations. The
Company lists its shares on the São Paulo
Stock Exchange. The talent of the Brazilians
from Alpargatas faces and overcomes the
difficulties of a lack of raw materials, due to
World War I, and the Spanish influenza that
affected half of the employees.
In 1922, the Company exhibits its talent
at the Rio de Janeiro International Fair
with a full range of its products. At the
end of the decade the economic crisis,
triggered off by the super production of
coffee and the collapse of the New York
Stock Exchange, halts the production of
Alpargatas Roda, one of the most
accessible and popular shoe of Brazil.
The Company resumes the production of
Alpargatas Roda and launches its first
leather footwear. During the Revolution of
1932, the talent of the Company is called
upon to provide knapsacks, tents and
uniforms for the combatants.
The Company displays competence and talent
not only in launching innovative products but
also in its management: Alpargatas is awarded
the Prêmio Mauá prize, sponsored by the São
Paulo Stock Exchange and Jornal do Brasil, for
its relationship with the capital market. In the
economy, Brazil faces ups and downs and
witnesses mounting inflation. Despite this, the
Company grows and develops and is elected
the best in its sector by Exame magazine. In
The Company launches Havaianas Top and
the international Mizuno and Timberland
brands on the Brazilian market. Another
factory is opened in João Pessoa in the
Northeast of Brazil. The Real Economic
Plan puts an end to hyperinflation and
places the country on the path to
economic stability. In the United States,
the talent of our soccer stars wins another
World Cup for Brazil, the fourth. Havaianas
Alpargatas enters the 21st century expanding its activities: Havaianas, which is
considered one of the most important brands of the 20th century, conquers store
windows worldwide. Thanks to team talents, the Company launches the System
3000 technology for Rainha and Dynatech Visible for Topper. Conga and Bamba,
two great sales hits, are re-launched. The unequalled talent with the ball at their
feet makes Brazil the only five-time world soccer champion. Camargo Corrêa S.A.
becomes the main shareholder of Alpargatas, which joins the Level 1 Corporate
Governance companies of Bovespa (the São Paulo Stock Exchange).
The Company sets up the Alpargatas Institute and is elected again “Company of
the Year” by Exame magazine.
first World Cup for Brazil. Alpargatas
São Paulo, the headquarters move from the
sales hit an all-time record: a hundred
At the beginning of this century, Alpargatas celebrates a hundred years of
sponsors the pioneering transmissions of
Mooca neighborhood to Itaim Bibi. Alpargatas
million pairs are sold.
activities with great optimism and eyes turned to the future. After all, it was the
the World Cup games by Rádio
completes the nationalization process of its
Bandeirantes.
capital and launches the Night&Day canvas.
The setting up of a pioneering social
program demonstrates the concern of the
Company in retaining its talents. This
program includes a supplies shop, Christmas
Bonus and payment for Sundays and
holidays not worked, years before all this
became compulsory. Brazil joins World War II:
there is a lack of food and fuel, but the talent
of the Brazilians from Alpargatas keeps up its
With the launching of the Conga and
Bamba Basquete tennis shoes, Alpargatas
initiates a new era in footwear in Brazil. The
country lives days of optimism, and the
Company launches the Sempreviva canvas.
Brazilian President Juscelino Kubitschek
begins the building of a new capital in the
country and the workers that raise Brasilia
wear Sete Vidas footwear. In Sweden, the
pace of growth and pushes ahead.
talent of the Brazilian soccer stars wins the
Another sample of Brazilian talent is
launched: the Havaianas sandals that were
immediately a great success.In Chile, Brazil
becomes bi-champion of world soccer. The
Beatles enrapture the planet. The Hippies
preach “peace and love.”And Brazilians
incorporate Havaianas into their day-today lives, creating a success that captivates
millions of fans.
The campaign “Shoed Children, Healthy
Children,” a pioneer social responsibility
initiative, is launched by Alpargatas. The
Brazilian talent in football conquers the trichampionship of world soccer in Mexico.
Brazil undergoes the so-called Economic
Miracle era and attracts world attention.
The Company launches Kichute and the
Topper lines as well as concluding the
purchase of the Rainha brand.
New factories are opened in Campina Grande
and Santa Rita, in Paraíba State.
talent of our people that brought us here. And we will rely on this talent for the
next hundred years to enable us to become a worldwide reference in desirable
brands of footwear, sporting goods and industrial textiles.
2006Annual Report
SUMMARY
A Brand Company
Conquests in 2006
Consolidated Numbers
Message from the Chairman of the Board of Directors
Message from the Chief Executive Officer
02
04
06
08
10
ECONOMIC RESPONSIBILITY
Corporate Governance
Growth Strategies
Business Performance
Financial Performance
Capital Market
Risk Management
12
16
18
44
48
50
SOCIAL RESPONSIBILITY
Talent in Human Resources Management
The Alpargatas Institute
52
56
ENVIRONMENTAL RESPONSIBILITY
Talent in Environmental Management
58
Financial Statements
Corporate Information
60
90
0 2 | Alpargatas
A Brand Company
Alpargatas is the largest company of its own
The products are manufactured in seven
and licensed brands of sporting goods, footwear
industrial units and 10 satellite factories, where
and industrial textiles in Brazil. Its growth is based
12,850 employees work. In retailing Alpargatas
on brands that are assets both competitive and
operates through the Timberland and Meggashop
strategic by nature, since they assure market share,
stores. Product research and development is now
stimulate consumption and influence the capacity
carried out at the R&D Center in São Leopoldo.
to sell a certain product for a specific price. On
In 2006, with gross sales of R$ 1.6 billion – a
associating its brands with innovative and quality
14.3% increase over the previous year – the
products, thanks to its talent in identifying
Company made an important step in globalization
consumers’ needs and cravings, Alpargatas
by merging jointly controlled Santista Têxtil with
continues to hold the leadership in the market
Tavex Algodonera of Spain, thus setting up the
segments where it operates, establishing new
largest denim manufacturer in the world, with
records each year – sales, profit and investment –
factories located in the Americas, Europe and Africa.
100th
Alpargatas is listed on the São Paulo Stock
and in 2007, when it celebrates its
anniversary, it plans to grow even more.
Exchange, where its shares have been traded since
The manufacturer of the sandal the whole world
1913. During the year its shares appreciated well
wears – Havaianas, which have an 80% share of
above the main performance indices of the capital
the Brazilian rubber sandal market – Alpargatas
market.
also has an important presence in the sports
The Alpargatas Institute, run by the Company,
footwear segment – with the Mizuno, Topper and
aims to improve the quality of education for
Rainha brands, which together have a 10% share
children and teenagers via the practice of sports in
of the market, as well as Timberland. Locomotiva,
all the communities where it operates. In relation to
one of its oldest brands, dominates covers for the
the environment, the majority of the materials not
cargo transport, with 45% of this market.
used are recycled and preventive measures are
taken to avoid damage to the air, water and soil.
2006 Annual Report | 0 3
Vision
To b e a g l o b a l c o m p a n y o f d e s i re d b ra n d s in sporting
goods, footwear and industrial textiles.
Spot Color
pantone reflex blue
Vermelho (100% M, 100% Y)
Color Process
C 100 - M 90 - Y 0 - K 0
0 4 | Alpargatas
Conquests
in 2006
A focus on brands, associated with innovative
The sale of 174.7 million pairs of footwear was
products of modern design that bring value to the
9.4%
consumer, resulted in a 14.3% rise in gross sales.
manufactures approximately a third of the footwear
Efficient management of manufacturing costs
leading to a 2.1 percentage point rise in the
gross margin.
Talent in managing Alpargatas’ businesses
greater
than
in
2005. Alpargatas
consumed by Brazilians.
Investments in innovation, research and
development made the launching of 380 footwear
models possible.
resulted in a 43.2% rise in earnings before interest,
Consumers in 70 countries have the opportunity
taxes, depreciation and amortization (EBITDA) and
to use Alpargatas products. Dollar revenues from
a 4.7 percentage points rise in the EBITDA margin.
exports rose 57%.
Company operations provided net income of
R$ 126.6 million and net margin of 10.1%.
The value of preferred shares rose by 79% and
common shares by 84% to the benefit of the
shareholders.
A total of R$ 50.5 million was paid out in the
form of interest on own capital and dividends,
42% of the net income of 2006, adjusted by the
legal reserve.
Our respect of people and the concern for the
quality of life of employees influenced positively on
the organizational climate. The survey favorability
index rose eight percentage points.
The merger of Santista Têxtil with the Spanish
firm Tavex Algodonera created the largest denim
company in the world.
Innovative talents along with the dedication
of almost 13 thousand employees, was how
Alpargatas was elected “Company of the Year” by
Exame magazine.
Awards
Company of the Year and Best Company in the Apparel and Textile Sector, by
Exame magazine.
Best Company in the Textile, Leather and Apparel Sector, by Valor 1000
magazine.
FGV (Getúlio Vargas Foundation) Award for Business Excellence 2006, as the
Best Company of the Year in the Leather and Footwear Sector.
Best Company in the Textile, Leather, Footwear and Apparel Sector, by
Balanço Anual magazine.
Best National Company in Social Responsibility, by IstoÉ Dinheiro magazine.
Best Company in the Footwear Sector, by IstoÉ Dinheiro magazine.
The Most Admired Company in Brazil in the Footwear Sector, by Carta Capital
magazine.
The Best of Agribusiness 2006, by Globo Rural magazine in the Leather and
Footwear Category.
0 6 | Alpargatas
Consolidated
Numbers
Financial
R$ million, except when otherwise stated
Gross sales
Net sales
Gross profit
EBITDA
Net income
Gross margin
EBITDA margin
Net margin
Cash
Gross debt
Net cash
Stockholders’ equity
Gross debt /EBITDA
Return on stockholders’ equity
2002
816.2
683.9
257.9
89.6
47.8
37.7%
13.1%
7.0%
120.7
82.8
37.9
438.7
0.9x
11.0%
2003
919.6
767.2
290.0
90.2
82.0
37.8%
11.8%
10.7%
136.6
67.1
69.5
493.4
0.7x
17.5%
2004
1,138.2
904.1
375.5
104.8
95.5
41.5%
11.6%
10.6%
183.2
63.9
119.3
554.7
0.6x
23.5%
2005
1,369.4
1,090.0
491.3
204.6
165.0
45.1%
18.8%
15.1%
294.4
52.5
241.9
655.3
0.3x
37.2%
2006
1,565.4
1,247.6
589.3
293.0
126.6 *
47.2%
23.5%
10.1%
256.4
59.7
196.7
757.6
0.2x
38.6%
2002
2003
2004
2005
2006
129.8
2.3
19.3
63.6
123.7
2.6
19.7
77.7
142.0
2.9
19.5
86.8
160.0
2.9
16.4
100.0
174.7
2.9
16.0
101.2
2002
11.3
25.0%
212.0
2.4x
2003
27.2
35.0%
390.0
4.3x
2004
36.0
39.0%
702.0
6.7x
2005
54.9
35.0%
1,360.0
6.7x
2006
50.5
42.0%
2,297.0
7.8x
2002
10,686
2003
9,966
2004
10,950
2005
11,400
2006
12,850
*2006’s net income does not include the investment grant. See note nº 5, page 72.
Operational
Sales volume:
Footwear (million pairs)
Sportswear and accessories (million items)
Industrial textiles (million m2)
Sales per employee (R$ thousand)
Capital Market
Dividends and interest on own capital (R$ million)
Payout
Market capitalization (R$ million)
Market capitalization /EBITDA
Social
Number of employees
Gross Sales
R$ million
Gross Margin
Selling, General and
Administrative Expenses
EBITDA
% of net sales
EBITDA Margin
R$ million
%
%
40
50 2,000
25 300
23.5
47.2
34.2
45.1
30.9
28.9
37.8
37.7
293.0
33.0 32.7
1,565.4
41.5
18.8
1,369.4
204.6
1,138.2
919.6
13.1
816.2
11.8 11.6
104.8
90.2
89.6
0
0
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
Stockholders’ Equity
Sales Volume of Footwear
Market Capitalization
R$ million
million pairs
R$ million
Return on stockholders’ equity
Multiple of EBITDA
%
number of times
7.8
40 1,000
38.6
7.5 2,500
200
2,297.0
37.2
174.7
6.7
6.7
160.0
757.6
23.5
142.0
17.5
655.3
129.8
11.0
123.7
554.7
1,360.0
4.3
493.4
0
438.7
702.0
2.4
390.0
212.0
0
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
0 8 | Alpargatas
Message from the
Chairman of the Board of Directors
The Board of Directors, representing its
The Alpargatas performance reflects the
shareholders as a whole, is very proud of the
teamwork of generations who have used their
celebration of 100 years of activities by Alpargatas
talents to make the Company a benchmark in the
in 2007. But, above all, this landmark represents a
Brazilian market. This ongoing appreciation of
greater responsibility for the future. Over these
people is what will ensure that we will remain a
years, the Company has demonstrated its talent to
daring company that will continue to exist for
always learn to reinvent itself, enabling it to
many more years.
develop and reach its
100th
anniversary year ready
The nature of this growth should come from a
100th
business culture that contemplates diversity and
to fly even higher and to celebrate its next
birthday as a global company.
sustainability – essential for a company that
And, as a publicly-held corporation for nine
desires to be a leader in the 21st century. We have
decades, it has always been transparent in its
already begun to move down this path by
relationship with shareholders and the society,
increasingly incorporating the aims of sustainable
demonstrating capacity to continue attracting
development into our desires and in our businesses.
investors that believe in the future and support its
We have signed the Letter of Sustainability, an
projects for growth.
initiative of the Camargo Corrêa Group, to generate
investments in the striving for innovative solutions
that will provide growing financial results, social
equality and environmental equilibrium.
We are all prepared for the next challenges,
We are strongly convinced that Alpargatas
especially speeding up expansion through
has the potential to grow more quickly,
globalization of Havaianas, consolidating our
more profitably and transform itself into an
business leadership for sporting goods in Brazil and
important Brazilian multinational corporation,
Latin America and focusing on the profitability of
with well-known brands and that is recognized
the other operations.
worldwide. Based on the competence and
In this sense, and as a company of brands, we
resources built with great success during a
continue to offer products that, besides having
century of growth, we understand that it is the
quality and an attractive cost/benefit ratio, express
duty of the Board to support and further challenge
our values and inspire our consumers. Havaianas,
the Executive Board and Alpargatas’ talents as we
more than any other, has the responsibility to pass
strive to achieve this vision of the future.
along the positive aspects of Brazilianism and, at
the same time, represent the incentive for a full,
Thus, we are prepared, as is the Company, to
dare more.
authentic, happy and stylish life.
Marcelo Araujo
1 0 | Alpargatas
Message from the
Chief Executive Officer
The results of 2006 have made Alpargatas more
• globalization of the Company, with the startup of
solid, healthy and profitable. The sales volume rose
Alpargatas USA, to increase the Sandal business in
9.4% and totaled 174.7 million pairs of footwear.
the North American market;
Our gross sales totaled R$ 1.6 billion, a 14.3%
• production increase of Havaianas, to guarantee a
increase compared to 2005; earnings before
growth in the sandals market in Brazil and
interest, taxes, depreciation and amortization
abroad;
(EBITDA) was R$ 293,0 million, a rise of 43.2%.
We believe that Alpargatas also has the
• industrial upgrading of the sporting goods
factories to become even more cost effective;
talent to grow in the global market. During the
• inauguration of a R&D center, to bring innovation
year, we carried out specific projects with this
to the full footwear manufacturing process,
objective in mind:
fostering development, creation and commercialization of products that continue to delight the
consumer;
• setting up the SAP management system, with the
AFS (Apparel and Footwear Solution) module,
which is specific for the footwear and apparel
industries;
• adoption of a new model of human resources
management, that prepares executives capable of
managing a company that is more and more
global in its businesses.
Due to its excellent performance over recent
We are a company with brands that are desired
years Alpargatas received various important awards
in Brazil and in the world, while our businesses –
in 2006, such as being nominated “Company of the
Sandals, Sporting Goods, Industrial Textiles and
Year” (2005) by Exame magazine as well as the
Retail – are all profitable. This success allows us to
other awards received from important entities.
view the future with great optimism, especially
We have worked through the year without
now as we are approaching our 100th anniversary.
forgetting such fundamental aspects as brand
These conquests have only been possible thanks
valuation, which is our main competitive
to our group of talents and the support that
advantage; relationship with the community,
guarantees
through the Alpargatas Institute; and paying
encouragement from our shareholders, especially
increased attention to the environment, an
from the controlling Camargo Corrêa S.A.;
essential factor for human existence and
acceptance of our products by consumers; the
conservation of the planet.
confidence of clients, that bet on us; the input of
our
performance. We
receive
Our path has always been marked by a
innovative raw materials from suppliers; and the
pioneering attitude, by innovation and by
dedication of the people who work with us – all
increasing solidity. We now move forward to
permanently challenging us to make Alpargatas a
become a global company, a goal that is based on
better, more efficient and winning company.
three growth strategies: consolidation on the
Brazilian market, globalization and brand
extension. To reach these goals, we have invested
in innovation, research and development; our
capital structure is ideal and we can rely on the
talent and capacity of our employees.
Márcio Utsch
1 2 | Alpargatas
ECONOMIC
RESPONSIBILITY
Corporate Governance
Growth Strategies
Business Performance
Financial Performance
Corporate
Governance
Capital Market
Risk Management
Alpargatas continually strives to perfect its
corporate governance practices, incorporating in its
strategic management model principles of
transparency, accountability, corporate responsibility
and equality. The Company belongs to the group of
Bovespa’s Level 1 Corporate Governance companies,
committing itself to even more transparent
standards of management and communication
with the market.
Alpargatas’ governance is conducted by the
Board of Directors and Executive Management that
rely on Management Committees and on a Board
of Auditors.
The Board of Directors sets the strategies of the
Company and accompanies the execution of the
policies established. Matters with high impact on
the businesses and the performance of operations
are subject to its approval.
Elected at the General Shareholders Meeting for
The administration of Alpargatas is the
mandates of three years, the six effective members
responsibility of the Executive Management, made
of the Board – four members of the controlling
up of a president and up to five statutory officers,
shareholder and two representatives of non-
elected by the Board of Directors for the period of a
controlling shareholders – meet at least six times a
year. It is up to the Executive Management to
year, an occasion when the Executive Officers are
execute the strategic decisions of the Board and the
invited to present and debate strategic questions
direct management of the Company’s businesses.
referring to their areas of operation. All the
The operation at Alpargatas is divided into four
Board’s members have wide professional
business units: Sandals, Sporting Goods, Industrial
experience with knowledge of various areas of
Textiles and Retail. The corporate areas that support
administration. The exchange of experiences with
the business units are: Administration and Finance,
the Executive Management has been important for
which covers IT, Investor Relations, Legal and
Alpargatas’ development.
Accounting; Human Resources and Operations –
The Board of Auditors is made up of five
Procurement, Logistics, Quality, Environmental,
effective members. Three are elected by the
Health and Safety.The Audit Officer reports directly to
controlling shareholder and two are representatives
the Board of Directors. An area of Strategic Planning
of minority holders of common and preferred
supports the Executive Management in planning and
shares. Its main responsibility is to discuss the
in the follow up of strategic actions applied.
Company’s financial operations. Its members are
elected once a year at the General Shareholders
Meeting and meet, on average, four times in each
financial year.
1 4 | Alpargatas
Corporate Governance Structure
Board of Directors
Board of Auditors
Marcelo Pereira Malta de Araujo
Chairman
Carlos Pires Oliveira Dias
Antonio Carlos da Silva
Flavia Buarque de Almeida
Carlos Alberto Nunes
José Édison Barros Franco
Fernando Dias Gomes
Oscar de Paula Bernardes Neto
Jorge Michel Lepeltier
Silvio Tini de Araújo
José Ferraz Ferreira Filho
Board of
Directors
Board of
Auditors
Auditing
Chief
Executive
Officer
Sandals
Sporting Goods
Industrial
Textiles
Retail
Administration
and Finance
Executive Officers
Márcio Luiz Simões Utsch
Chief Executive Officer
Antonio Carlos Boscatto – Auditing
Carla Schmitzberger – Sandals
Cícero Lopes de Barros Júnior – Industrial Textiles
Francisco Silverio Morales Cespede – Administration and Finance
Gumercindo Corrêa de Almeida Moraes Neto – Sporting Goods
José Eduardo Carmagnani – Operations
Márcia Cristina Lucena do Nascimento Costa – Human Resources
Rogério Bastos Shimizu – Retail
Rui La Laina Porto – Communication and Media
Human
Resources
Operations
Legal Structure
São Paulo Alpargatas S.A. is a publicly-held
corporation, controlled by Camargo Corrêa S.A..
With shares traded on the São Paulo Stock
Exchange since 1913, it has 5,000 shareholders.
The operations of the Company are conducted by
São Paulo Alpargatas S.A., Amapoly Indústria e
Comércio Ltda. and Alpargatas USA, Inc. Without
The Camargo Corrêa Group is one of the largest
an ownership connection but integrated to
non-financial Brazilian conglomerates. Activities
Alpargatas are Spasaprev – a private pension fund
began in 1939, as a small construction company.
for the employees of the Company – and Instituto
Today, its companies operate in the engineering
Alpargatas. São Paulo Alpargatas S.A. holds 22.2%
and construction markets, real estate, cement
of the capital of Tavex Algodonera S.A., a Spanish
production, environmental management and the
company in the textile sector.
textile industry, as well as in footwear. It also
participates in the control of various companies,
among them Usiminas, one of the largest Brazilian
steel mills; CCR, the largest highway concessions
company; CPFL, the largest energy distributor; and
one of the largest financial conglomerates of Brazil,
Camargo Corrêa S.A.
Itaúsa. The companies controlled by the Group
employee some 36,000 people directly. Camargo
Corrêa S.A., holding controller of the Group, is a
Total capital 42.9%
66.9% Common shares
18.9% Preferred shares
strategic
shareholder
of Alpargatas, with
participation in the capital since the 1980s,
performing a fundamental role in the definition of
São Paulo
Alpargatas S.A.
strategies, improvement of processes and business
practices. Its support is expressed through the
exchange of experiences, knowledge and
100.0%
100.0%
22.2%
orientation for businesses that have driven
Alpargatas’ financial results and operations.An
Amapoly
Ind. Com. Ltda.
example is the globalization of the Company,
Alpargatas USA, Inc.
Tavex Algodonera S.A.
aligned with the Camargo Corrêa Development
Project. The Group understands that this process is
fundamental to gain economies of scale and
competitiveness in the global economy and on the
domestic market.
Spasaprev
Instituto Alpargatas
1 6 | Alpargatas
Growth
Strategies
Alpargatas defined three major strategic projects to
reach its growth target:
• consolidation on the Brazilian market;
• globalization; and
• brand extension.
Consolidation on the
Brazilian Market
Brazilian
annual
per
capita
footwear
consumption is almost three pairs, compared with
an average of seven in more developed markets.
This low consumption represents a growth
opportunity for Alpargatas. The Company has the
competence to manufacture innovative products,
associated to the consumers’ desired brands, in
order to grow on the domestic market and,
consequently, consolidate itself as the largest
footwear company in the country.
Brazilian per capita consumption of sports
footwear is 0.6 pairs, while in the United States it
is 6.7. The strength and the constant innovation of
the sports footwear brands Rainha, Topper, Mizuno
and Timberland are important factors for the
expansion in this segment.
Globalization
Brand Extension
One way for the Camargo Corrêa Group to
The extension to other product categories and
expand its businesses is to operate globally through
market niches – running, indoor, lifestyle, outdoor,
its various companies. Alpargatas aligned itself with
soccer and infantile, among others – allows
this strategy in 2007, when it began to operate in
sustainable growth, assuring permanence and
the United States, with the opening up of an office
adding value to the brands, as well as creating
the
opportunities for consumers to come into contact
commercialization of Havaianas. The North
with these product lines. The Sporting Goods
American operation seeks to obtain higher value for
business increased the presence of the brands
the product, in a market in which the original
Rainha, Topper, Mizuno and Timberland in apparel,
Brazilian sandal already is recognized by the
accessories and equipment categories that, in
public opinion makers.
Brazil, respond to 80% of the sporting goods
in
New York
initially
dedicated
to
The Sporting Goods business is also moving
market and have a high added value.
towards globalization, with the opening up of new
The extension process of the Havaianas brand
markets in Latin America. Economies of scale and
began with the launching of Havaianas Socks,
enhanced value of the sports brands, through
a sock especially designed to be worn with
increased exposure outside Brazil, should help this
a sandal.
business become even more profitable. Opportunities
for the acquisition of local or regional sporting goods
companies could be seen as boosters for this strategy.
1 8 | Alpargatas
Business
Performance
The performance of Alpargatas reflects a brand
management strategy. It allows distinctive and
greater added value products that satisfy needs,
create identities and win consumer loyalty, to be
kept on the market. These actions produced sales
of 174.7 million pairs of footwear, 2.9 million
items of apparel and sports accessories and
16,0 million m2 of industrial textiles, for the
domestic and export markets.
Footwear Sales Volume
Sales per Business Units
Exports Destinations
g
g
million pairs
200
174.7
160.0
142.0
129.8
123.7
g
g
g
2002
2003
2004
2005
Sandals
Sporting Goods
Industrial Textiles
Retail
2006
51%
38%
6%
5%
g
g
g
g
South America
Asia and Oceania
North America
Europe
Africa
43%
23%
18%
14%
2%
Rio Grande do Norte
Natal
Rainha and Mizuno
Amazonas
Manaus
Paraíba
Santa Rita
Topper, Rainha,
Timberland
and Bamba
Campina Grande Havaianas
Night&Day
Minas Gerais
Pouso Alegre
São Paulo
Mogi Mirim
Rio Grande do Sul
Veranópolis
Balls
Rainha and Topper
São Leopoldo
R&D Center
São Paulo
Conga and
Sete Léguas
Headquarters
Locomotiva
Brazilian
Talent
to create Havaianas,
the sandal the whole world wears.
Anailda Viana Andrade
Machine operator at the sandal factory, in Campina Grande,
Anailda combines her talent at Alpargatas with athletic
activities, for which she has already won various awards.
2 2 | Alpargatas
Sandals
162 million pairs sold
10% growth in sales volume
36% increase in exports
Havaianas sandal sales rose 10% and totaled 162.0 million pairs.The volume of exports soared,
with a rise of 36%.The sandal that the whole world wears reveals the Brazilian talent to create and
maintain consumer icons. So much so that it is number one in the country and now is celebrating
its 45th anniversary in 2007,innovating and anticipating trends in search of greater global reach.
It is sold in 70 countries,reflecting the indisputable prestige of the
Alpargatas businesses that has been conquered over time. In a
survey carried out by Millward Brown in 2006,Havaianas
were the sandals most recognized by the consumers.
For 75% of those interviewed,it was the first brand
that came to their minds. And 94% of those
interviewed said they have or they already have
had a pair of Havaianas. On a scale of 0 to 100,
Havaianas received a score of 93.The R&D talent
at Alpargatas showed that a continuous
launching of models and colors, to be worn by a
well-defined public and in various situations,
further enhanced the brand value. In 2006,77 new
models were launched,34 of them developed
exclusively for abroad and 43 for the domestic market.
The highlights were the Havaianas Slim and Slim Season,exclusively
feminine lines,with finer straps and light metallic colors.The Kids and
Baby collections were expanded,in order to grow in the children’s category.
Another novelty was the launching of Havaianas Socks,especially developed to be
worn with sandals.
As important as launching new products was the participation in the sector’s traditional
fairs,in Brazil and abroad,such as Francal,Couromoda and the
European Barcelona Fair,as well as of São Paulo,Rio de Janeiro and
New York Fashion Weeks.
Brazilian
Talent
to develop technologies
in sporting goods.
Henry Nydson Ferreira
Warehouse operator at Santa Rita sporting
goods factory, Henry uses his talent for
operating forklift trucks as well as
for practicing indoor soccer.
2 6 | Alpargatas
Sporting Goods
Responsible for the management of Rainha, Topper, Mizuno, Timberland,
Conga, Bamba and Sete Léguas brands, the business unit uses a
management model based on division by market categories – such as
running, indoor, lifestyle, outdoor, soccer and infantile, among others.
In supporting this strategy, the Company links its brands to talented
athletes who are idols or potential stars, helping to develop Brazilian sport.
11.6 million pairs of footwear and
2.1million items of apparel
and sports accessories sold
5.5% growth in footwear sales volume
System 3000
Technology
With 54 models launched in 2006,Rainha’s sales volume rose 6.3 %,
the result of a repositioning strategy in the value and premium
market segments.
For the value segment,products were imported to increase the mix offered by
the brand. Examples were the Rainha Australian and Uranus outdoor models.
Rainha operated in the premium segment with the System 3000 line. Alpargatas’
talent to develop technology into sporting goods created this line,which reduces
the risk of injury,improves posture and increases the comfort and durability of
the tennis shoe.
The System 3000 collection,launched during the year,produced good
sales results due to new colors and new materials employed in the
footwear. Examples are Ultegra and the Ares women’s model.
In apparel the novelties that were launched included the
Vôlei Seleções collection,with T-shirts of the main sports
teams of various countries,and the Swimming line.
This volume of innovation displays the
Company’s talent for creating products
that are in step with market
trends.
2 8 | Alpargatas
Dynatech Visible
Technology
Black
pantone 485 C (100% M, 91% Y)
Topper is the market leader for soccer products,a sport in which Brazilians showcase all
their talent.
Following the Alpargatas policy for continuous product innovation, the Dynatech Visible
shock absorbing system was developed for Topper,bringing lightness and enhanced
performance kicking and ball control.
In 2006, the 50 product launched during the year contributed to an 11% rise in sales of
this brand.The highlights included the Megara models for field,indoor and society soccer
and the Extreme model,for the children’s line.The brand also launched the Noataki
Fashion Soccer collection,idolized in Japan,a top market of Topper exports.
In the ball category version 2007 of the KV Carbon 12 model,manufactured
with Kevlar® fiber,was launched and used in the São Paulo Soccer
Tournament.
Topper’s homage to the 2006 World Cup was through its
Seleção BR ball and the collection of T-shirts –
Selection and Cities.The talent of Topper to
develop products that delight the
enthusiastic universe of soccer fansconsumers,secured the renewal of the
contract with the São Paulo Soccer
Federation.
3 0 | Alpargatas
Wave and VS-1
Technologies
Talent and technology make Mizuno the brand leader in the running category,preferred by
runners and sports practitioners.
The Wave shock absorbing technology, that distinguishes Mizuno from other international
brands,received a new sole composition,making the tennis shoe more durable. And, to add
value to all of its footwear,VS-1 shock absorbing technology is
now built-in to all models.
Of the 49 models launched, the highlights were
Wave Creation 7 and the soccer shoe Wave
Shinken,with the Compact Wave technology.
Another novelty was Wave Aero used by
triathlon athletes.
In apparel the innovation was Night Run,a
collection developed to provide runners
enhanced safety during night training.
Other novelties were the Seamless lines,
regatta T-shirts and running shorts made
with the DF-Cut technology.
Some of the exposure strategies for the
brand included placing the step test
devices in large sports stores; the
sponsorship of running groups,via the
Mizuno Runner’s Team;and partnerships with
the main workout academies in São Paulo and
Rio de Janeiro.
Mizuno inaugurated its virtual store
(www.mizunobr.com.br) that presents novelties and
allows consumers,sports enthusiasts and Internet surfers
to interact directly with the brand.
The contract with Mizuno International was renewed for another
10 years.
3 2 | Alpargatas
Smart Comfort
Technology
Alpargatas’talent in brand management made Timberland the leader in the outdoor
market category.
The expansion of points-of-sale and the launching of greater added value footwear were
strategies that resulted in a 40% rise in the Timberland footwear sales volume in Brazil.
Timberland launched 98 footwear models during the year. Highlighted among them are the
masculine boot Cadion Longreach GTX and the feminine Summitscape version; the Trailscape
Low tennis shoe made especially for trail running and mountain biking;and the casual Speke
Oxford masculine shoes.
In order to strengthen the relationship with public opinion makers,for the sixth consecutive
year, the brand participated in the Adventure Sports Fair, the most important adventure event
in the southern hemisphere.
It also was present at the Ecomotion Pro, the top adventure running
competition in Brazil.
3 4 | Alpargatas
Vermelho (100% M, 100% Y)
On the market since the 1950s,Conga and Bamba symbolize Alpargatas’talent of
how to create brands associated with products that are increasingly winning over
consumer loyalty. In 2006,46 models were launched that further reinforced its
market positions,in line with the strategy to grow in the infantile-juvenile
category. Conga Baby received different colors and the Conga Barbie line was
expanded.The brand appeared in events such as Fashion Weekend Kids and
sponsored the Conga Customization Program,in Kids Land,an initiative that
allowed the children to color their shoes. For Bamba
brand,Bamba Náutico and an exclusive model for
the Rockstter store,were launched.
Various models were launched during the year supporting Sete Léguas
brand position and demonstrating the ability of Alpargatas’talent to satisfy
niche market segments. For the construction industry, the Sete Léguas
Pro-Service boot was launched while the Sete Léguas Motoboy was
introduced for motorcycle messengers. New types of boots for firemen,
professional fishermen and for use
in the mining industry and
forestry activities were also
noteworthy among the year’s
novelties.
Brazilian
Talent
for manufacturing the
canvases and tarpaulins
that protect the wealth produced in Brazil.
Zacarias Teotônio
Zacarias works as a production supervisor at
Pouso Alegre industrial textile factory. His talent
is also used for playing the flute and guitar.
3 8 | Alpargatas
Industrial Textiles
16 million m of industrial textiles sold
45% market share of cargo transport coverings
2
In 2006, this business unit followed a market diversification and developement of
new products strategy. Positive results came from these efforts during the year,with a
larger presence of the Locomotiva and Night&Day brands on the market.
The sales volume reached 16,0 million m2 of industrial textiles.
Locomotiva,one of the oldest brands in Brazil,widened its participation in the
home&leisure segment with the Locomotiva Multiuso polyethylene cover. In the
fashion accessories market, the launching of Locomotiva Stone was well received by
many manufacturers of bags,knapsacks,footwear and jackets,revealing Alpargatas’
innovative talent.
In visual communication,Night&Day Sign expanded its product line through two
launches: the fabric canvas and three versions of PVC sheets with widths of up to
3.2 meters.The line of fabrics for visual communication is the result of more than
two years of research and development.
Another novelty of the brand was the semipermeable Night&Day Acrylic. It is an
acrylic fabric indicated for awnings,
an innovative product for the
architectural and nautical
covers markets.
Brazilian
Talent
Store at Shopping SP Market, in São Paulo
to set up the largest network
of outlet stores in Brazil.
Felipe Lima de Oliveira
Felipe uses his talent in mangá, a Japanese design technique,
also to promote the satisfaction of consumers at Meggashop,
where he works as a store operator, in Shopping D, in São Paulo.
42 | Alpargatas
Retail
34 stores
1.1 million pairs of footwear and
805 thousand
items of sportswear
and accessories sold
The network of the Meggashop and Timberland stores ended 2006 with 34 points-ofsale,with sales of 1.1 million pairs of footwear and 805 thousand items of sportswear
and accessories.
In 2006,Meggashop’s same store sales rose 12% while Timberland’s increased 28%.
With the opening of two new stores,Timberland finished 2006 with 10 points-of-sale
in São Paulo,Rio de Janeiro and Belo Horizonte,while Meggashop ended the year with
24 stores.
For its performance Meggashop was elected the best outlet of Brazil by Escola Superior
de Propaganda e Marketing,rewarding the talent of the store network for creating a
competent sales model.
Several stores were refurbished during the year,following more modern display
concepts – with a focus on Alpargatas’brand footwear,sportswear and accessories.
44 | Alpargatas
Financial
Performance
The Company began posting subsidies for
Gross Sales
investment and generation of employment,
deriving from its operations in Paraíba State, in the
capital reserve account, as of January 1, 2006. For
comparable effects, the pro forma numbers of
Gross sales totaled R$ 1,565.4 million, a 14.3%
rise compared to 2005, due to brand management
strategy. This strategy kept differentiated, higher
added value products on the market, satisfying
operating income and net income of 2005 are also
consumer needs, creating identities and winning
presented in this accounting format. The financial
customer loyalty. Export revenues came to 7% of
analysis is based on Appendix I, pages 87 and 88,
the Company’s net sales.
of the Financial Statements.
Gross Profit
Alpargatas has invested in industrial upgrading
of its factories (development of materials, new
technologies, quality, improvement of industrial
processes and logistics and labor training) with the
aim of reducing production costs. These factors,
associated with the higher added value sales mix,
brought about an increase of 20% in gross profit,
totaling R$ 589.3 million. The gross margin was
47.2%, 2.1 percentage points above 2005.
2006 Annual Report | 45
Gross Sales
R$ million
Gross Margin
%
50 2,000
47.2
45.1
1,565.4
41.5
37.7
37.8
1,369.4
1,138.2
919.6
816.2
0
2002
2003
2004
2005
2006
Operating Income
(before exchange rate variation,
financial charges on taxes and
equity in subsidiaries)
Equity in Subsidiaries
Equity in subsidiaries, resulting from the
investment in Santista Têxtil (first semester of
2006) and in Tavex Algodonera (second semester of
Operating income totaled R$ 199.5 million,
2006), was negative by R$ 32.4 million. This result
12.7% higher than the previous year. Using pro
is mainly due to the restructuring implemented in
forma income of 2005 (R$ 125.8 million) as a base
the second half of the year, involving industrial
for comparison, the increase was 58.6%. The rise in
reconfiguration in Spain, the shutdown of
operating profitability was a consequence of an
operations, adjustment of the organizational and
increase in sales, higher gross profitability and
production structures as well as the adaptation of
dilution of operating expenses. The Company has
the product portfolio. The impact on Tavex of these
continuously practiced strict control of operating
non-recurring measures was € 31.1 million, after
expenses (sales, general and administrative). Its
taxes, and did not represent an immediate payout
share of net sales was 28.9%, two percentage
of cash. Additionally, the largest competition of
points less than in 2005. The significant variation in
Asian fabrics and the low competitiveness of
the other operating income/expense account is the
Santista exports, caused by the appreciation of the
result of booking a R$ 71.5 million subsidy for
real, also negatively affected performance during
investment on stockholders’ equity account.
the year. As of 2007, the structural adjustments
implemented and foreseen capture of synergies in
the merger project should produce an overall
positive impact on Tavex.
46 | Alpargatas
EBITDA
R$ million
EBITDA Margin
%
25 300
23.5
293.0
18.8
204.6
13.1
11.8 11.6
104.8
89.6
90.2
0
2002
2003
2004
2005
2006
EBITDA
Net Income
The good sales performance, resulting in the
The net income in 2006 was R$ 126.6 million,
success of the brand positioning strategy and
and the net margin was 10.1%. The net pro forma
valorizing the mix of products commercialized,
result of 2005 was R$ 131.2 million. 2006’s net
along with improved operational performance,
income was affected by higher equity in subsidiaries
generated a cash, measured by EBITDA (earnings
expense and the non-recurrence of R$ 35.0 million
before
in revenues deriving from the sale of a real estate
interest,
taxes,
depreciation
and
amortization), of R$ 293.0 million, 43.2% higher
in 2005. Net income per share was R$ 7.14.
than registered in 2005. The EBITDA margin rose by
4.7 percentage points, reaching 23.5%.
Cash Flow
In the 12-month period ending December 2006,
the operational cash generation (EBITDA) of
R$ 293.0 million was the main source for
investments of R$ 86.3 million in working capital
and R$ 113.1 million in fixed assets, shareholder
compensation and repurchase of Company shares.
Gross Debt
Capital Expenditures
On 12/31/2006, Alpargatas’ gross debt totaled
The Company invested in its calling and its
R$ 59.7 million, 13.7 % higher than at the end of
talent to grow and contribute to the development
the previous year. In March, a contract for a
of the country. In 2006, it invested R$ 113.1 million
R$ 112.0 million loan, with Banco do Nordeste do
in projects for expansion of sandal production
Brasil, was signed as a source of funds for the
capacity, modernization of footwear factories, the
Company’s capital expenditure program. The loan
setting up a R&D center and implementation of
will be repaid over a period of 10 years, beginning
SAP management system, among others. The
in 2008. The first tranche of R$ 50.7 million was
source of funds was operational cash generation
received in September. In June, the Company
and the loan from Banco do Nordeste do Brasil.
prepaid R$ 36.1 million of a loan that it maintains
The first phase of the project to increas e .
with the International Finance Corporation.
production capacity of the sandal. factory,
Net cash, at the end of the fiscal year, was
in Campina Grande, was concluded in October.
R$ 196.7 million.
Production of sports footwear was transferred to
the Santa Rita and Natal plants, in order to obtain
economies of scale, increase productivity and reduce
costs. The R$ 2.5 million R&D center in São Leopoldo
was inaugurated in May. The SAP management
system came on stream in January 2007.
48 | Alpargatas
Capital Market
Performance of Shares and
Shareholder Compensation
Ownership Control
Alpargatas’ preferred shares rose 79% in value
Camargo Corrêa S.A., with 66.9% of the
and its common shares 84%, in 2006. The Ibovespa
common shares, controls Alpargatas, besides
(São Paulo Stock Exchange Index) rose 32.9% in
holding 18.9% of the Company’s preferred shares
the same period.The shares are part of the
and 42.9% of the total capital. The investment in
Corporate Governance Index (IGC) that increased
the footwear sector is part of Camargo Corrêa
41.3% over the year. The preferred shares were
Group’s business diversification strategy.
traded during 100% of the Bovespa trading
sessions, with a total of 3,693 completed
transactions, 43% more than in 2005, revealing a
Repurchase of Shares
significant improvement in their liquidity. The
During the year, a share-repurchasing program
financial volume of transactions was R$ 343 million.
was conducted to invest available cash funds. Some
The market capitalization at the end of the year
561,190 of the Company’s shares were acquired
was R$ 2.3 billion, compared to R$ 1.4 billion in
via the stock market.
2005. This performance reflects the sustainable
growth of the Company’s businesses and
improvements in Corporate Governance practices,
Cancellation of Shares
primarily in terms of the principle of transparency.
A total of 375,720 preferred shares and 116,990
The net income of 2006 led to a distribution of
common shares were canceled. After the
R$ 50.5 million in dividends and interest on own
cancellation, capital stock totaled 18,190,613 shares.
capital. This amount was equivalent to 42% of the
accumulated net income for the period, adjusted by
the legal reserve.
Total capital
Common Shares
Preferred Shares
18,190,613 shares
9,090,604 shares
9,100,009 shares
g
g
g
g
g
Camargo Corrêa
Bonsucex Group
Investment Funds
Individuals
Treasury
g
42.9%
22.7%
21.8%
10.1%
2.5%
g
g
g
Camargo Corrêa
Bonsucex Group
Investment Funds
Individuals
g
66.9%
18.9%
7.2%
7.0%
Camargo Corrêa
Bonsucex Group
Investment Funds
Individuals
Treasury
g
g
g
g
18.9%
26.4%
36.6%
13.1%
5.0%
Dividends and
Interest on Own Capital
Market Capitalization
R$ million
Multiple of EBITDA
Payout %
40 75
R$ million
number of times
42.0
7.8
7.5 2,500
39.0
2,297.0
6.7
35.0
35.0
6.7
54.9
50.5
25.0
1,360.0
4.3
36.0
27.2
702.0
2.4
390.0
11.3
212.0
0
0
2002
2003
2004
2005
2006
2002
2003
2004
2005
2006
1,500
Performance of Preferred Shares
Index 100=01/01/2002
1,200
Alpargatas Preferred
Ibovespa
328
2002
2003
2004
2005
2006
50 | Alpargatas
Risk Management
Identification of risks inherent to Alpargatas’ business and the adoption of preventive
measures to minimize the probability of any impact, is part of the risk management routine. A
matrix of probability versus impact of various types of risks is monitored with frequency and
actions to mitigate any highlighted risk are rapidly defined and implemented. The main risks
monitored by Management are:
Operational Risks
Market – Since Alpargatas operates in a sector
Raw materials and supplies – Alpargatas
that suffers strong impact due to oscillations of
uses a Supplier Quality Management system that
employment levels and population income, the
applies a series of indices to assure the quality of
Company reduces the risk of shrinkage in sales
supplies and raw materials acquired, as well as
through the maintenance of a diversified portfolio
compliance to its specifications by suppliers.
of products and brands.
Investments – The investment policy involves
Products – With the strong acceptance of its
critical analysis for the approval of projects and
brands by the public, thanks to its talent to anticipate
resources, taking into account, among other
trends and satisfy consumer needs, the Company
factors, the market scenario, economic and financial
protects its products from imitations supporting the
feasibility studies and the projected results.
actions of regulatory bodies and legal resources.
These risks are also reduced by the constant renewal
Information technology – Installation of the
of footwear lines and, internationally, using carefully
SAP management system widened control over all
selected points-of-sales.
Company operations, which now operate with the
support of an integrated technological platform.
Assets – Insurance is contracted for buildings
and facilities, including clauses covering loss of
Environmental – Even though the environmental
profits. In addition, third-party civil responsibility
risks are small concerning footwear production,
insurance is taken out to cover any demands from
Alpargatas constantly invests in ways to prevent
consumers in Brazil and abroad.
environmental accidents and in research to identify
the use of more environmentally friendly materials
in the production of their products.
Legal Risks
Financial Risks
Customs – The risk of alteration or elimination
Interest – The Company’s real-denominated
of entry barriers in the sports footwear and sandals
debts are contracted with prefixed interest rates
sectors – protected by import tariffs of 35% and
and the cash balances are invested in investments
20% respectively – is lessened by the increase of
following the Selic rate and managed by solid
the profit margin, stemming from continuous
financial institutions.
productivity growth and cost reductions.
Exchange – Hedging instruments are used to
absorb the impact of exchange rate swings on
eventual short-term dollar debts. Also, exports
lessen the possible effects of exchange rate
variations on royalties and imports.
Client credit – The Alpargatas credit policy
includes authority levels for the approval of limits
and a conservative criterion is adopted in
calculating client debts. In order to protect itself
against defaults, the Company adopts a client
spread strategy. Its largest client corresponds to
only 5% of its revenues.
52 | Alpargatas
S O C I A L
RESPONSIBILITY
Talent in Human Resources
Management
The Alpargatas Institute
Talent in
Human Resources
Management
Gender
g
g
Male
Female
Age Breakdown
69%
31%
Length of Employment
g
g
g
Up to 5 years
From 6 to 16 years
Over 17 years
g
g
g
Up to 25 years old
42%
From 26 to 45 years old 53%
Over 46 years old
5%
Education
69%
27%
4%
g
g
g
Elementary
High School
College
34%
58%
8%
Alpargatas constantly strives to align its growth with the
development of its 12,850 employees, orienting and subsidizing
them in the search of sustainable growth and innovation. This
action demonstrates that we believe it is always possible to
invest in the training and improvement of these talents, which
make Alpargatas a company with a difference.
Accordingly, the focus on human resources management in 2006
was to train and instruct employees on how to improve their job
performances within the Company.
Through the Caminhar e Aprender program, 239 people completed elementary and high school education in classrooms
set up within the factories. Different types of training were conducted at all units, totaling 116 thousand hours. Employees
were encouraged to develop their professional skills and talents through subsidies for technical, undergraduate,
postgraduate and languages courses.
Actions to strengthen innovation practices and culture among employees were planned to motivate the creation and
application of new ideas that add value to Alpargatas. The Ciranda de Ideas program, to stimulate innovation, received
5,543 improvement suggestions, of which 646 were put into practice, leading to savings of some R$ 4.3 million.
The search for continuous improvement of the organizational climate included activities to improve the quality of life
of employees and their greater well being in the workplace. The results appeared in an organizational climate satisfaction
survey, that was eight percentage points higher in 2006 than a similar survey conducted in 2003.
The preparation of executives, with talent to manage a company that increasingly
is going global, began with the evaluation of the profiles of these
professionals, based on Alpargatas Integrated Management System criteria.
The rules that make up the health and safety policies have led to a
reduction in accidents. The talent of the team responsible for setting up of
the policies reduced the number of work-related accidents with lost time to
four, a low number when compared to the textile and footwear industry
average. The Accident Frequency Rate presented a reduction of 59.5%
compared to the previous year.
During the year, multidisciplinary teams reinforced efforts on behalf of the revision of security projects, designed to ensure
the physical integrity and health of employees, preservation and maintenance of industrial installations and quality of
the environment. Moreover, programs for ergonomic, auditory conservation, respiratory protection, medical.
.control and occupational health were maintained.
Brazilian
Talent
to educate the youth
through sport.
Jaciel Claudino Feitosa
Jaciel uses his talent as a leader-operator, at the
sporting goods factory in Santa Rita, also for the
practice of taekwondo, a sport in which he is champion
in the State of Paraiba and a teacher in the municipality.
56 | Alpargatas
The Alpargatas talent also helps to create a
Alpargatas’ main social project, Education
better future for thousands of children. With the
through Sport, has been run since 2003 in the
mission to improve, through sport, the quality of
municipalities of Santa Rita, João Pessoa and
education of children and adolescents, from 7 to 17
Campina Grande, in Paraíba State, and Natal, in the
years, in the communities where the Company
State of Rio Grande do Norte, and includes the
operates, the Alpargatas Institute works on three
following initiatives:
fronts: Education through Sport, Corporative
• School Action, where the practice of sports is
Volunteering and Donations. As a consequence, the
adopted as a methodological instrument to
lives of many Brazilians were changed and
improve the education during school time;
contributed to Alpargatas being recognized as a
• After School Action, which consists in fostering
socially responsible company. In 2006, the title of
monitored after school sports activities for
Best National Company in Social Responsibility was
students.
bestowed upon Alpargatas by IstoÉ Dinheiro
magazine.
Based on these actions, 54 activities were
organized in 2006, benefiting 41 thousand young
students from 49 public schools.
The results of this work are reflected in the
The Institute also coordinated the Citizen
improvement of the students’ performance in 2006.
Employee program for employees and their families
In Santa Rita, there was a school performance gain
to become more aware of the need to be involved
of 10.3%, in João Pessoa it was 18.8% and for
in permanent social activities, encouraging them to
Natal the increase was 50.9%. In Campina Grande,
use their talents and spirit of solidarity for the
the grading system is based on abilities – cognitive,
development of their society. The program is
psychomotor, social-affective and cultural – and
going forward in all Company units, with the
overall student progress was recorded in the first
participation of 597 volunteers. During the year,
semester. The project produced other gains such as
various actions helped 1,655 people just in the
a significant reduction in truancy and levels of
Northeast of Brazil alone. Through the Education
aggressiveness. In partnership with the Camargo
through Sport project, a number of employees who
Corrêa Institute, the Alpargatas Institute invested in
act as volunteers in Santa Rita use their talents in
renovation of sports courts in five Santa Rita
activities such as IT classes, taekwondo and basic
schools, which directly benefited 3,300 students. In
electricity for the development of youngsters.
João Pessoa, the support of 13 nuclei for the
Program for the Eradication of Child Labor directly
benefited 994 children.
58 | Alpargatas
ENVIRONMENTAL
RESPONSIBILITY
Talent in
Environmental Management
Talent in
Environmental
Management
The talent to always do more and to do it better
has also been applied to the environment, thinking
in terms of the world of tomorrow. In 2006,
Alpargatas invested R$ 5.0 million to reduce the
impacts of its activities. After revamping the
boilers at the Campina Grande and Santa Rita
industrial facilities, in Paraíba State – now fueled by
natural gas, which is less polluting than BPF fuel oil
– it restored the residues disposal area for these
units, which will have a Temporary Storage Center.
Through the Selective Waste Collection Program,
all residues of the factories are separated and sent
for correct disposal, such as scrap iron, wood,
cardboard, paper, plastic and rubber. This initiative
resulted in part of the materials being reused
internally. In the case of rubber 80% of the.
.residues are reincorporated into the process.
.and 12% is co-processed.
Footwear Factories
Generation of
Residues
Energy
Consumption
Water
Consumption
kg per unit
produced
kwh per unit
produced
m3 per unit
produced
0.40
0.050
0.0020
0.39
0.37
0.0018 0.0018
0.040
0.036
2005
2006
2006 2005
2006
2005
2006
The unused residues are sent to accredited
The expansion of the Campina Grande and
companies qualified by local environmental
Santa Rita factories was planned following
agencies for recycling. Final disposal is regularly
environmentally correct concepts. The roofs were.
audited in order to avoid improper use of these
.constructed in such a way as to optimize.
materials, damaging the environment. In 2006, the
.ventilation and natural light. The separation of
generation of residues from the footwear factories
the internal electric power distribution circuits
was greater than the previous year due to an
reduced consumption by 5% in 2006. The recycling
increase in production, greater absorption of
of industrial water, with treatment and reuse in the
residues from third parties – for example raw
sanitary system, and the installation of hydrometers
materials packaging – and more employees
in all factory wells, to control the use of water, were
working in the factories.
important steps to reduce water consumption.
2006
60 | Alpargatas
Financial Statements
Independent Auditors’ Report
To the Shareholders and Management of
São Paulo Alpargatas S.A.
São Paulo - SP
1.
We have audited the accompanying individual (Company) and consolidated balance sheets of São Paulo Alpargatas S.A.
and subsidiaries as of December 31, 2006 and 2005, and the related statements of income, changes in shareholders’ equity
(Company), and changes in financial position for the years then ended, all expressed in Brazilian reais and prepared under
the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements.
2.
Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work,
taking into consideration the significance of the balances, volume of transactions, and the accounting and internal control
systems of the Company and its subsidiaries; (b) checking, on a test basis, the evidence and records that support the
amounts and accounting information disclosed; and (c) evaluating the significant accounting practices and estimates
adopted by management, as well as the presentation of the financial statements taken as a whole.
3.
In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, the individual
and consolidated financial positions of São Paulo Alpargatas S.A. and subsidiaries as of December 31, 2006 and 2005,
and the results of their operations, the changes in shareholders’ equity (Company), and the changes in their financial
position for the years then ended in conformity with Brazilian accounting practices.
4.
Our audits were conducted for the purpose of forming an opinion on the basic financial statements referred to in
paragraph 1 taken as a whole. The accompanying consolidated additional information without the subsidiary Santista
Têxtil S.A. (Appendix I) and the individual and consolidated statements of cash flows (Appendix II) are presented for
purposes of additional analysis and are not a required part of the basic financial statements in conformity with Brazilian
accounting practices. Such information has been subjected to the auditing procedures described in paragraph 2 and, in
our opinion, is fairly stated in all material respects in relation to the basic financial statements for the years ended
December 31, 2006 and 2005 taken as a whole.
São Paulo, March 2, 2007
DELOITTE TOUCHE TOHMATSU
Edimar Facco
Independent Auditors
Engagement Partner
Board of Auditors’ Statement
As per its legal attributes, on this date the Board of Auditors for São Paulo
Alpargatas S.A. reviewed Management’s Annual Report and Financial Statements,
which include the Balance Sheet, Statement of Income, Statement of Changes in
Financial Position and Notes to the Financial Statements for the period ended
December 31, 2006. Based on an examination of the above-mentioned statement
and on the Statement from the Independent Auditor – Deloitte Touche Tohmatsu –
published on March 2, 2007 the Board hereby recommends that the statements be
submitted for approval at the Annual Shareholders’ Meeting. The Financial
Statements for the period ended December 31, 2006 of Tavex Algodonera S.A. were
examined by Deloitte Touche Tohmatsu. In their opinion the Financial Statements
present fairly, in all material respects, the financial position of Tavex Algodonera S.A.
São Paulo, March 2, 2007
Antonio Carlos da Silva
Carlos Alberto Nunes
Fernando Dias Gomes
Jorge Michel Lepeltier
José Ferraz Ferreira Filho
62 | Alpargatas
Balance Sheets
As of December 31, 2006 and 2005
(In thousands of Brazilian reais - R$, except for book value per share)
Note
ASSETS
CURRENT ASSETS
Cash and banks
Temporary cash investments
Trade accounts receivable
Inventories
Deferred income and social contribution taxes
Other receivables
Recoverable taxes
Interest on capital and dividends receivable
Prepaid expenses
Total current assets
NONCURRENT ASSETS
Assets held for sale
Recoverable taxes
Escrow deposits
Other receivables
Investments:
Subsidiaries and affiliate
Negative goodwill - subsidiary
Other investments
Property, plant and equipment
Deferred charges
Total noncurrent assets
TOTAL ASSETS
6
7
8
18.a
9
18.a
10
10
11
Company
Consolidated
2006
2005
2006
2005
13,984
242,326
263,716
81,852
16,898
8,495
8,434
1,808
637,513
14,601
279,764
186,791
68,912
14,435
9,194
2,565
1,028
2,640
579,930
14,115
242,326
266,636
85,868
16,898
8,566
10,324
1,820
646,553
17,705
281,806
231,276
129,348
14,435
25,318
19,223
4,655
723,766
10,024
4,172
4,463
4,825
43,280
66,764
13,445
6,351
3,309
5,453
50,572
79,130
10,024
4,270
4,515
5,148
43,280
67,237
14,227
6,426
4,746
6,590
64,528
96,517
231,009
195
194,669
11,373
437,246
504,010
258,505
(4,809)
195
110,182
12,668
376,741
455,871
131,805
196
201,192
11,492
344,685
411,922
196
271,716
12,742
284,654
381,171
1,141,523
1,035,801
1,058,475
1,104,937
The accompanying notes are an integral part of these financial statements.
Balanços Patrimoniais
Em 31 De Dezembro De 2006 E De 2005
(Em milhares de reais, exceto o valor patrimonial por lote de mil ações)
Note
LIABILITIES AND SHAREHOLDERS' EQUITY
Company
Consolidated
2006
2005
2006
2005
54,451
2,295
42,314
5,865
3,522
10,578
52
41,588
160,665
39,731
16,439
37,352
6,073
2,780
9,524
6,163
32,109
150,171
56,250
5,583
42,883
5,865
3,522
10,832
153
41,958
167,046
51,358
45,010
45,357
12,762
2,914
20,356
16,120
36,916
230,793
89,433
54,138
48,698
13,140
13,281
4,612
223,302
68,681
35,179
48,446
12,214
54,310
11,482
230,312
54,138
48,698
13,143
13,281
4,613
133,873
2,575
76,308
54,973
14,536
54,310
11,482
214,184
DEFERRED INCOME
-
-
-
4,809
MINORITY INTEREST
-
-
-
5
391,804
92,001
(33,465)
307,216
757,556
343,598
8,527
(13,994)
317,187
655,318
391,804
92,001
(33,465)
307,216
757,556
343,598
8,527
(13,994)
317,015
655,146
1,141,523
1,035,801
1,058,475
1,104,937
42.71
35.81
CURRENT LIABILITIES
Trade accounts payable
Loans and financing
Payroll and related charges
Reserve for contingencies
Interest on capital and dividends payable
Taxes payable
Provision for income and social contribution taxes
Other payables and provisions
Total current liabilities
NONCURRENT LIABILITIES
Intercompany payable
Loans and financing
Provision for taxes
Other payables
Total noncurrent liabilities
SHAREHOLDERS' EQUITY
Capital
Capital reserve
Treasury shares
Profit reserves
Total shareholders' equity
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
Book value per share - R$
12
16
13
15
12
18.a
16
17
19.a
19.b
64 | Alpargatas
Statements of Income
For the years ended December 31, 2006 and 2005
(In thousands of Brazilian reais - R$, except for earnings per share)
Note
Company
Consolidated
2006
2005
2006
2005
GROSS SALES
Sales of products
Sales taxes
NET SALES
1,535,026
(313,540)
1,221,486
1,335,450
(274,368)
1,061,082
1,703,280
(344,833)
1,358,447
1,701,673
(344,676)
1,356,997
COST OF SALES
(646,058)
(584,809)
(749,715)
(819,427)
GROSS PROFIT
575,428
476,273
608,732
537,570
(292,711)
(60,262)
(4,896)
(22,686)
(51,777)
(432,332)
(270,790)
(57,457)
(5,345)
43,046
(2,687)
(293,233)
(307,571)
(66,526)
(4,896)
(27,941)
(51,956)
(458,890)
(296,015)
(71,187)
(5,345)
(3,283)
(375,830)
143,096
41,407
(19,525)
2,484
167,462
2,074
183,040
41,100
(24,706)
6,039
205,473
(5,776)
149,842
43,007
(23,047)
(941)
168,861
1,242
161,740
43,542
(33,875)
6,405
177,812
28,532
169,536
(42,918)
126,618
199,697
(34,675)
165,022
170,103
(43,485)
126,618
206,344
(41,100)
165,244
7.14
9.02
OPERATING (EXPENSES) INCOME
Selling
General and administrative
Management fees
Equity in subsidiaries and affiliate
Other operating expenses, net
INCOME FROM OPERATIONS BEFORE
FINANCIAL INCOME (EXPENSES)
Financial income
Financial expenses
Exchange variation, net
INCOME FROM OPERATIONS
Nonoperating income (expenses), net
INCOME BEFORE INCOME
AND SOCIAL CONTRIBUTION TAXES
Income and social contribution taxes
NET INCOME
Earnings per share - R$
10
20
10
18.b
Statements of Changes in Shareholders' Equity (Company)
(In thousands of Brazilian reais - R$)
Profit reserves
Note
BALANCES AS OF DECEMBER 31, 2004
Capital increase
Acquisition of treasury shares
Cancellation of treasury shares
Income tax incentive
Net income
Allocation of net income:
Recognition of reserves:
Legal
Investment reserve
Sale of treasury shares
Proposed dividends and interest on capital
Capital increase
Cancellation of treasury shares
Investment grant
Net income
Allocation of net income:
Recognition of reserves:
Legal
Investment reserve
Proposed dividends and interest on capital
Capital
293,615
49,983
-
343,598
19.a
19.b
19.b
5
19.b
19.c
48,206
-
391,804
Capital
reserve
Treasury
shares
11,215
(7,165)
- (16,165)
(9,063)
9,063
6,355
-
20
8,527
Investments
Retained
earnings
Total
20,225 236,793
- 554,683
- (49,983)
- (16,165)
6,355
- 165,022 165,022
8,251
(8,251)
- 101,901 (101,901)
273
293
- (54,870) (54,870)
(13,994)- 28,476 288,711
- 655,318
- (59,132)
(432) 35,047
12,414
71,492
-
92,001
Legal
4,614
(33,465)
-
(48,206)
- (59,132)
(34,615)
- 12,414
- 71,492
- 126,618 126,618
6,331
(6,331)
- 69,769 (69,769)
(3,250)
1,364
- (50,518) (50,518)
34,807 272,409
- 757,556
66 | Alpargatas
Statements of Changes in Financial Position
Company
Note
SOURCES OF FUNDS
From operations:
Net income
Items not affecting working capital:
Depreciation and amortization
Net book value of property, plant and
equipment and deferred charges written off
Net book value of noncurrent assets written off
Provision for losses on property, plant and
equipment and deferred charges
Equity in subsidiaries
Exchange variation on permanent investment
Interest and monetary and exchange variations
on loans, noncurrent taxes and escrow deposits
Amortization of deferred income
Reserve for contingencies and provision
for industrial optimization
Adjusted net income
Dividends and interest on capital received/receivable
Total from operations
11
From shareholders:
From third parties:
Increase in noncurrent liabilities
Decrease in noncurrent assets
Investment grant
Total sources
USES OF FUNDS
Effect on working capital arising from
nonconsolidation of investment
Increase in noncurrent assets
Decrease in noncurrent liabilities
Transfer from noncurrent to current liabilities
Interest on capital and dividends paid/payable
Acquisition of property, plant and equipment
and deferred charges
Total uses
INCREASE (DECREASE) IN WORKING CAPITAL
Current assets:
At end of year
At beginning of year
Current liabilities:
At end of year
At beginning of year
INCREASE (DECREASE) IN WORKING CAPITAL
5
19.b
19.c
4,11
Consolidated
2006
2005
2006
2005
126,618
165,022
126,618
165,244
27,047
27,692
37,522
48,149
1,250
3,421
1,031
1,839
3,395
3,421
1,852
1,904
672
22,686
-
8,954
(43,046)
-
672
27,941
5,887
8,770
4,339
4,193
7,292
-
4,888
(4,513)
-
2,804
6,850
-
2,321
(8,607)
(2,697)
(4,518)
188,661
188,661
5,072
166,939
2,282
169,221
(4,823)
210,287
210,287
6,183
227,458
227,458
1,364
293
1,439
293
71,454
2,807
12,414
71,492
348,192
34,269
6,355
210,138
70,085
2,497
12,414
71,492
368,214
18,418
6,355
252,524
1,154
70,981
59,132
7,157
50,443
2,397
16,165
15,274
54,870
60,180
1,738
70,981
59,132
23,024
50,443
450
16,165
20,227
54,960
112,161
301,028
49,477
138,183
116,107
381,605
71,122
162,924
47,164
71,955
(13,391)
89,600
637,513
579,930
57,583
579,930
503,074
76,856
646,553
723,766
(77,213)
723,766
649,451
74,315
160,590
150,171
10,419
150,171
145,270
4,901
166,971
230,793
(63,822)
230,793
246,078
(15,285)
47,164
71,955
(13,391)
89,600
Notes to the Financial Statements
(Amounts in thousands of Brazilian reais - R$, unless otherwise stated)
1.
OPERATIONS
The Company is primarily engaged in the manufacture and sale of:
• Footwear and respective components.
• Clothing, textile goods and respective components.
• Leather, resin and natural or synthetic rubber goods.
• Sporting goods.
• Cotton processing, spinning, weaving and fabric finishing.
These activities are performed by geographically distributed plants.
The Company has tax incentives granted by the State governments where the factories are located, which
are scheduled to expire between 2008 and 2020. These incentives are accounted for as described in note 5.
The Company and its subsidiaries also have Federal tax incentives for operating profit in the Northeast
Region and Manaus Free Trade Zone. The tax benefit arising from these incentives is recognized in
shareholders’ equity as capital reserve.
As of December 31, 2006, the Company has equity interests in certain companies, the principal of which are:
• Amapoly Indústria e Comércio Ltda. (direct 100% interest): production of PVC and polyester laminates
for use in the manufacture of tarpaulins, backlights, frontlights, banners and awnings, and
polyethylene laminates used in the manufacture of covers for agribusiness, home and leisure. Its plant
is located in the city of Manaus, State of Amazonas.
• Tavex Algodonera S.A. (indirect 22.164% interest), through the holding company Alpargatas
International APS (note 10): Spanish publicly-traded company, operating in the areas of cotton
processing, spinning, weaving and fabric finishing; sale, import and export of these products; and
clothing and related businesses. It has also equity interests in other companies.
Through June 30, 2006, the Company had an indirect interest in Santista Têxtil S.A., through the holding
company Participaciones Santista Textil España, S.L., represented by 30.66% of the capital of that company,
which operates in the areas of cotton processing, spinning, weaving and fabric finishing; sale, import and
export of these products and their raw materials; and clothing and related businesses (note 10).
68 | Alpargatas
2.
PRESENTATION OF FINANCIAL STATEMENTS
The financial statements have been prepared and are presented in conformity with Brazilian accounting
practices and standards established by the Brazilian Securities Commission (CVM). These financial statements
reflect the changes introduced by the following accounting standards:
a)
Accounting Standard and Procedure 27 (NPC 27)
“Presentation and Disclosures”, issued by the Brazilian Institute of Independent Auditors (IBRACON) on
October 3, 2005, and approved by CVM Resolution No. 488 on the same date.
b)
Accounting Standard and Procedure 22 (NPC 22)
“Provisions, Liabilities, Contingent Liabilities and Contingent Assets”, issued by IBRACON on October 3, 2005,
and approved by CVM Resolution No. 489 on the same date.
Certain reclassifications have been made to the financial statements for the year ended December 31, 2005,
presented for comparative purposes, to conform them to the aforementioned accounting standards and
allow comparability with the current year. The main changes resulting from applying these standards are
as follows:
• Presentation of the group “Noncurrent” in assets and liabilities.
• Presentation of the account “Escrow deposits” as a reduction of the respective reserve for contingencies.
The preparation of financial statements requires management to make estimates that affect the
reported amounts of certain assets, liabilities and other transactions. Therefore, the Company’s financial
statements include estimates related to the useful lives of property, plant and equipment, provisions for
contingent liabilities and income tax, and other. Actual results could differ from those estimates.
Effect on the comparability
As mentioned in note 10, on July 1, 2006 the Company started holding an indirect interest in Tavex
Algodonera S.A., through 22.164% of its capital as a result of the replacement of the shares held by the
Company in Santista Têxtil S.A. with shares of that Spanish company.
In view of this transaction, beginning July 1, 2006, the financial statements of Santista Têxtil S.A. are no
longer consolidated into the Company, and only the new investment (Tavex) is accounted for under the
equity method, in proportion to the Company’s new interest in that company.
Therefore, the comparability of the Company’s consolidated financial statements is affected as follows:
• Balance sheet: as of December 31, 2005, the balance sheet includes the proportional consolidation
of 30.66% of the indirect interest in Santista Têxtil S.A., whereas as of December 31, 2006 it includes
only the new indirect investment in Tavex.
• Net income: for the year ended December 31, 2005, net income includes the partial consolidation of
30.66% of the indirect investment in Santista Têxtil S.A., whereas in the year ended December 31, 2006
it includes: (a) the same consolidation through June 30; and (b) the equity gain or loss on the new
indirect investment in Tavex for the second half of this year.
The comparative amounts related to said accounting information (except for the consolidation of the
information on Santista Têxtil S.A., considering this information only in the accounts “Investments” and “Equity
in subsidiaries and affiliate”) are reflected in Appendix I to the financial statements, as additional information.
In addition, the comparability is affected by the accounting treatment mentioned in note 5.
3.
a.
SIGNIFICANT ACCOUNTING PRACTICES
Results of operations
Results of operations are determined on the accrual basis of accounting. Sales revenues and the
corresponding costs are recorded upon the delivery of products.
b.
Assets and liabilities
Earnings, charges and monetary variations on current and noncurrent assets and liabilities are recorded
on a daily “pro rata” basis.
c.
Temporary cash investments
Stated at cost, plus income earned through the balance sheet dates, less, if applicable, a provision for
write-down to market value.
d.
Allowance for doubtful accounts
Recorded based on an individual analysis of receivables, analysis of the economic scenario and prior
years’ experience, in an amount considered sufficient to cover probable losses on trade accounts receivable.
e.
Inventories
Raw materials, packaging and goods for resale are stated at average cost of acquisition. Finished
products and work in process are stated at average cost of production, and adjusted, if necessary, to market
value. A provision for inventory loss is recognized in an amount considered sufficient to cover possible losses
on realization or obsolescence.
70 | Alpargatas
f.
Represented by land and buildings that are not expected to be used in the Company’s operations and,
therefore, are held for sale. These assets are stated at cost and, when necessary, adjusted to the estimated
realizable market value.
g.
Investments
Investments in subsidiaries are accounted for under the equity method based on the balance sheet of
the subsidiaries as of the same date as the Company’s financial statements.
The Company reviews the accounting practices of the foreign subsidiary and affiliate and, should there
be any differences with Brazilian accounting practices, adjustments are made to these investments’
shareholders’ equity and income before computing income and equity in subsidiaries and affiliate.
The Company records a provision for a subsidiary’s shareholders’ deficit as a reduction of “Investments”
group. The supplement to the provision is recorded under the caption “Equity in subsidiaries and affiliate”.
h.
Negative goodwill on acquisition of investments
As of December 31, 2005, the negative goodwill generated on the acquisition of investments is presented
in the Company as a reduction of the related investment and was realized pursuant to the procedures
mentioned in note 10. In consolidated as of that date it was presented in liabilities as “Deferred income”.
i.
Stated at acquisition or construction cost plus monetary adjustment through December 31, 1995, less
depreciation calculated under the straight-line method at the rates described in note 11 and less a provision
for loss in an amount considered sufficient to cover probable losses, based on an analysis of assets not in use.
j.
Loans and financing
Monetarily adjusted according to the terms of the agreements, plus interest accrued through the balance
sheet dates. Exchange variation is fully recorded in income.
k.
Calculated based on book income, adjusted by additions and deductions according to prevailing
tax legislation.
Income tax is calculated at the rate of 15%, plus a 10% surtax on annual taxable income exceeding
R$240, and social contribution tax is calculated at the rate of 9%.
Deferred income and social contribution taxes are calculated at the rates of 25% and 9%, respectively, on
prior years’ tax loss carryforwards. The tax benefit on temporary differences is calculated at the rate of 34%.
Pursuant to CVM Instruction No. 371, the history of profitability and expected generation of future
taxable income are taken into consideration based on feasibility studies.
l.
Provisions
Recognized in accounting records when the Company has a legal obligation as a result of a past event
and, in the opinion of management and its legal counsel, it is likely that funds will be required to settle
the obligation. Provisions are recognized based on the best estimates of the risk involved, less any respective
escrow deposits.
m.
Interest on capital
For corporate purposes, interest on capital is stated as an allocation of income directly in shareholders’ equity.
For tax purposes, it is considered financial expenses, reducing the income and social contribution tax basis.
n.
Earnings per share
Recorded based on the number of shares, except for treasury shares, at the balance sheet dates.
o.
Consolidation criteria
The criteria adopted are set forth in Law No. 6,404/76 and CVM standards, among which are:
• Consolidation of all subsidiaries (note 10).
• Elimination of intercompany balances.
• Elimination of intercompany transactions and unrealized profit on intercompany transactions.
• Elimination of the Company’s investment balance proportionally to the subsidiary’s shareholders’ equity.
• Recording of minority interest in shareholders’ equity and income of subsidiaries.
The financial statements of the foreign subsidiary and affiliate have been translated into Brazilian reais
based on the foreign currency’s exchange rate prevailing at the balance sheet dates.
72 | Alpargatas
Reconciliation between individual and consolidated net income and shareholders’ equity for the years
ended December 31, 2006 and 2005 is as follows:
Net income
Company
Santista Têxtil S.A.’s unrealized income (loss)
Consolidated
p.
Shareholders’ equity
2006
2005
2006
2005
126,618
126,618
165,022
222
165,244
757,556
757,556
655,318
(172)
655,146
Additional information
As mentioned in note 2, in order to allow for greater clarity in the financial statements, the following
is presented as additional information, although not required by accounting practices:
(i)
the
consolidated balance sheet and statement of income, except for the accounting information on Santista
Têxtil S.A., maintaining its equity in subsidiary; and (ii) the individual and consolidated statements of cash
flows, except for the same information on that company (Appendixes I and II).
4.
INDUSTRIAL EXPANSION, MODERNIZATION AND OPTIMIZATION PROJECT
According to the “communication to the market” on September 1, 2005, on August 12, 2005 the Board
of Directors approved a project for expansion and modernization of its plants, with an investment
estimated at approximately R$95,000, which is included in the capital budget approved by the Annual
Shareholders’ Meeting on April 1, 2005. As a result of this project, an amount was also estimated to cover
said implementation costs. In 2005 the Company recognized a provision for industrial optimization to cover
these costs in the amount of R$17,351.
Said expense was recorded as “Other operating expenses” (R$12,637) and “Nonoperating expenses”
(R$4,714). In addition, in 2006, the Company supplemented said provision by R$6,191. As of December 31, 2006,
the provision for this project is R$12,162 (R$16,681 in 2005), of which R$7,448 is recorded in current
liabilities, recognized in the account “Other payables and provisions”, and R$4,714 as a reduction of
property, plant and equipment.
5.
NEW ACCOUNTING PROCEDURE FOR INVESTMENT GRANT
As mentioned in note 1, the Company receives tax incentives from State governments. Until December
31, 2005, these tax incentives were recorded in income, since they were not directly related to the
Company’s investment projects.
As mentioned in note 4, the Board of Directors approved the project for expansion and modernization
of its plants, consisting of increasing installed capacity, expanding manufacturing facilities, increasing
production and creating jobs in the State of Paraíba. Thus, the State of Paraíba government began to link
the grant to investment in that State, which led the Company to record said investment grant in the
account “Capital reserve” in shareholders’ equity, beginning January 1, 2006, since the more significant
investments began that year.
The amount related to 2006, arising only from that State’s investment grant, recorded under “Capital
reserve”, is R$71,492 (R$51,273 in 2005, although recognized under “Other operating income”).
Other locations’ investment grants not yet linked to specific projects remain recognized under “Other
operating income” in the statement of income, in the amount of R$12,218 (R$19,124 in 2005).
6.
TEMPORARY CASH INVESTMENTS
Company
Investment funds
Bank certificates of deposit (CDBs)
(a)
(b)
Consolidated
2006
2005
2006
2005
158,250
84,076
242,326
119,552
160,212
279,764
158,250
84,076
242,326
119,552
162,254
281,806
(a) Investment funds in several banks with average yield of 100.59% of the interbank deposit rate (CDI) (96.94% in 2005).
(b) CDBs in several banks with average yield of 100.59% of the CDI (100.7% in 2005).
7.
TRADE ACCOUNTS RECEIVABLE
Company
Domestic market
Foreign market
Vendor financing
Discounted bills of exchange
8.
Consolidated
2006
2005
2006
2005
265,788
19,386
(12,723)
(8,735)
263,716
199,825
13,695
(14,897)
(11,832)
186,791
270,927
19,386
(14,942)
(8,735)
266,636
232,885
32,811
(16,378)
(4,448)
(13,594)
231,276
INVENTORIES
Company
Finished products
Work in process
Raw materials
Other
Provision for inventory losses
Consolidated
2006
2005
2006
2005
52,456
5,250
28,955
250
(5,059)
81,852
44,422
9,627
18,344
1,413
(4,894)
68,912
53,423
6,163
31,235
250
(5,203)
85,868
65,365
23,043
44,054
1,723
(4,837)
129,348
74 | Alpargatas
9.
ESCROW DEPOSITS
As of December 31 the balance is basically represented by escrow deposits related to labor and tax
lawsuits that do not involve current obligations as defined by CVM Resolution No. 489/05, and whose
deposit was necessary to proceed with the lawsuits. In the opinion of management and its legal counsel,
the likelihood of unfavorable outcome is not considered probable, and, therefore, no reserve for
contingencies was recognized.
10.
INVESTMENTS IN SUBSIDIARIES AND AFFILIATES
Amapoly
Indústria e
Com. Ltda.
Fibrasil
Agríc. e
Coml.
Ltda.
Expasa
Flórida
Inc.
Tavex
Algodonera
S.A.(indirect)
(*)
Total
Number of shares held
Capital
Net income (loss)
6,557,122
10,045
69,945
7,489
25,583
1,157
32,093
-
2,500
12,266
(2,834)
(1,976)
18,101,850
211,420
594,687
(127,581)
-
Ownership interest - %
100
100
100
22.164
-
69,945
32,093
(2,834)
131,805
231,009
11,607
7,615
30,579
(1,894)
(170)
(32,399)
5,022
(22,686)
43,046
Information as of December 31, 2006
Book value of the Company’s investment
Equity in subsidiaries and affiliate:
In 2006
In 2005
(*) Includes the equity loss on the indirect investment in Tavex (R$27,941) for the period from July 1 to December 31, 2006 and the
indirect investment in Santista Têxtil S.A. (R$4,458) for the first half of 2006. For 2005, refers to the equity gain on the indirect
investment in Santista Têxtil S.A.
Amapoly
Indústria e
Com. Ltda.
Fibrasil
Agríc. e
Coml.
Ltda.
Expasa
Flórida
Inc.
Santista
Têxtil
S.A.
Total
Number of shares held
Capital
6,557,122
10,045
58,338
25,583
1,157
32,093
2,500
13,429
(941)
6,132,841
407,720
555,970
-
Ownership interest - %
100
100
100
30.6642
-
58,338
32,093
(941)
164,206
253,696
Information as of December 31, 2005
Book value of the Company’s investment,
net of negative goodwill
Assignment of shares of Santista Têxtil S.A.
According to the Significant Event Notice of March 6, 2006, the Company entered into an agreement
with a Spanish publicly-traded company operating in the textile industry, Tavex Algodonera S.A. (“Tavex”),
with the purpose of integrating the Spanish company’s businesses with those of Santista Têxtil S.A. As part
of the implementation of this integration, on March 27, 2006 the Company contributed its shares in Santista
Têxtil S.A. and the respective negative goodwill on the capital of the holding company located in Spain,
Participaciones Santista Textil España, S.L. (“PSTE”).
As announced in the Significant Event Notice on June 20, 2006, in the Shareholders’ Meetings of Tavex
and PSTE the merger of PSTE into Tavex was approved, with the consequent dissolution of PSTE and
succession by Tavex of all rights and obligations. Although the approvals of the Shareholders’ Meetings
occured on that date, according to Spanish corporate law, such merger was only effected in July 2006. As
a result of the merger, the PSTE’s shares were replaced with Tavex’ shares.
The investment in Tavex has been indirectly held by the Company through a holding company,
Alpargatas Internacional APS, located in Denmark, established upon the aforementioned merger.
In July 2006, the Company started accounting for the investment in Tavex under the equity method, in
proportion to its indirect interest of 22.164%.
Incorporation of subsidiary
In December 2006, the company Alpargatas USA Inc., with head office in Delaware, United States of
America, was incorporated and merged the subsidiary Expasa Flórida Inc., becoming its successor. The
merger will become effective on January 1, 2007.
Sale of real properties by subsidiary
On March 21, 2005, the subsidiary Fibrasil Agrícola e Comercial Ltda. sold a real property to third parties
for R$17,800, generating a gain of R$15,727, and on August 31, 2005 the same subsidiary sold another real
property to third parties, for R$19,800, generating a gain of R$19,013 (in consolidated), recognized in
“Nonoperating income” account.
11.
PROPERTY, PLANT AND EQUIPMENT
2006
Company
Land
Buildings and constructions
Machinery and equipment
Furniture and fixtures
Vehicles
Trademarks and patents
in progress:
Integration system IT platform project
Industrial optimization
Other
Provision for loss
Annual
depreciation
rate (%)
Accumulated
Cost depreciation
2005
Net
Cost
Accumulated
depreciation
Net
4
10
10
20
10
2,671
69,412
210,547
34,349
3,551
21,061
(44,162)
(128,453)
(20,905)
(2,009)
(17,861)
2,671
25,250
82,094
13,444
1,542
3,200
2,671
59,257
181,840
29,957
3,785
19,142
(42,454)
(122,184)
(19,656)
(2,421)
(16,554)
2,671
16,803
59,656
10,301
1,364
2,588
-
38,330
30,058
7,852
(9,772)
408,059
(213,390)
38,330
30,058
7,852
(9,772)
194,669
13,960
1,895
11,023
(10,079)
313,451
(203,269)
13,960
1,895
11,023
(10,079)
110,182
76 | Alpargatas
2005
2006
Annual
depreciation
rate (%)
Consolidated
Land
Buildings and constructions
Machinery and equipment
Furniture and fixtures
Vehicles
Trademarks and patents
Property, plant and equipment in progress:
Integration system - IT platform project
Other
Provision for loss
Accumulated
Cost depreciation
Net
Cost
Accumulated
depreciation
Net
4
10
10
20
10
3,147
74,808
224,247
35,123
3,696
21,061
(48,092)
(138,202)
(21,355)
(2,115)
(17,861)
3,147
26,716
86,045
13,768
1,581
3,200
17,430
134,194
444,412
51,099
5,658
19,142
(78,147)
(292,695)
(34,526)
(3,899)
(16,554)
17,430
56,047
151,717
16,573
1,759
2,588
-
38,330
30,058
8,347
(10,000)
428,817
(227,625)
38,330
30,058
8,347
(10,000)
201,192
13,960
1,895
20,576
(10,307)
698,059
(522)
(426,343)
13,960
1,895
20,054
(10,307)
271,716
According to the project for industrial expansion, modernization and optimization, as mentioned in note 4,
in 2006 the Company invested its funds basically in the industrial expansion of the Northeast units,
recognized in “Construction in progress” account.
In addition, in 2006 the Company significantly invested in a project for implementation of an integrated
corporate system for its operations. During the year approximately R$24,370 (R$13,960 in 2005) has been
invested, also recognized in “Construction in progress” account.
12.
LOANS AND FINANCING
Currency
Bank loans
US$
Bank loans
(b)
CHF
Bank loans
(b)
EUR
Bank loans
(b)
CHLP
FNE (BNB)
FINAME (BNDES)
(a)
R$
R$
BNDES
(b)
R$
Rural Credit
Total
Current liabilities
Noncurrent liabilities
(b)
R$
Index and average
annual interest rate
Exchange variation and
interest of 6.25% to 7.94%
Exchange variation
and interest of 3.58%
Exchange variation
Exchange variation
Interest of 11.19%
TJLP (a) + interest
of 1.90% to 4.0%
Currency basket with
interest of 6.51% and TJLP
plus interest of 4.48%
Interest of 8.75%
Company
2006
2005
Consolidated
2006
2005
-
44,402
3,288
81,285
-
-
-
367
-
-
-
1,856
51,200
-
51,200
9,262
-
5,233
7,216
5,233
7,216
56,433
2,295
54,138
51,618
16,439
35,179
59,721
5,583
54,138
18,145
3,187
121,318
45,010
76,308
Maturities of noncurrent loans and financing are as follows:
Company
Consolidated
Year
2006
2005
2006
2005
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
7,361
7,686
6,894
6,334
6,334
6,334
6,334
6,334
527
54,138
6,694
6,542
6,344
5,567
5,016
5,016
35,179
7,361
7,686
6,894
6,334
6,334
6,334
6,334
6,334
527
54,138
22,222
17,075
14,442
7,256
6,469
6,468
1,453
923
76,308
(a) On February 23, 2006, the Company signed with Banco do Nordeste do Brasil - BNB a financing agreement, in the limit of
R$112,000, intended to support programs for investments in the Northeast region. The financing will be paid in ten years beginning
2008, with monthly payments. The release of the installments is dependent on the investment disbursement schedule, and on
September 1, 2006 the first installment of R$50,671 was released. The financing is collateralized by a bank guarantee letter obtained
by the Company.
(b) Loans related to Santista Têxtil S.A., whose balances were proportional to the Company’s interest that year.
On June 29, 2006, the Company decided to settle the remaining balance of R$36,083 related to loan
agreements signed with International Finance Corporation - IFC in 1996 and 2002.
The other loans are collateralized by sureties and real properties of the Company.
13.
OTHER PAYABLES - CURRENT LIABILITIES
Company
Royalties
Freight
Advertising and promotion services payable
Other (commissions, outside services,utilities, etc.)
14.
Consolidated
2006
2005
2006
2005
4,603
6,301
6,643
7,448
16,593
41,588
3,876
4,952
1,985
6,523
14,773
32,109
4,603
6,594
6,643
7,448
16,670
41,958
3,876
5,320
1,985
6,523
19,212
36,916
PROFIT SHARING PROGRAM (PPR)
The Company offers its employees a profit sharing program linked to the achievement of operating goals
and specific objectives annually established and approved for each plant/unit. In 2006, the amount of
R$18,060 (R$19,168 in 2005) was recorded under the caption “Other operating expenses”, in the statement
of income, as profit sharing. As of December 31, 2006, the balance payable related to this profit sharing is
R$17,017 (R$15,380 in 2005), recorded under the caption “Payroll and related charges”, in current liabilities.
78 | Alpargatas
15.
a)
RELATED-PARTY TRANSACTIONS
Consolidated
Company
Amapoly Indústria e Comércio Ltda.
Fibrasil Agrícola e Comercial Ltda.
Camargo Corrêa S.A.
(i)
(i)
(ii)
2006
2005
2006
2005
57,340
32,093
89,433
47,394
21,287
68,681
-
2,575
2,575
(i) Represented by an intercompany account between the Company and its subsidiaries, in view of centralized cash management, not
subject to financial charges.
(ii) Refers to financing obtained by Santista Têxtil S.A. for purchase of shares in Santista Têxtil Brasil S.A., subject to the general market
price index of Fundação Getúlio Vargas (IGP-M/FGV) plus 8% per year.
b)
Current balances and transactions - Company
Amapoly
Indústria e
Comércio Ltda.
Current (included in):
Other payables
Transactions for the year:
Purchases
Operating expenses
Grupo
Camargo
Corrêa
Santista
Têxtil
Brasil S.A.
2006
2005
2006
2005
2006
2005
-
353
-
371
-
-
-
24,154
-
26,112
-
1,548
278
-
3,673
-
In April 2006, a service order was signed between the Company and Construções e Comércio Camargo
Corrêa S.A. for the expansion of two plants in the State of Paraíba. The service amount of R$34,000,
including direct and indirect costs, was formalized in September 2006 by signing of a Piecemeal Contract.
The total amount of direct costs to be paid to the contracting party is R$6,192, of which R$5,473 has already
been disbursed through December 31, 2006.
In September 2006, a commercial lease agreement was signed with Participações Morro Vermelho S.A.,
in an estimated amount of R$6,490 for a period of 60 months beginning July 2007.
In addition, the Company has shared telephony, insurance and corporate project services with Camargo
Corrêa Group through the Shared Services Center (CSC), supported by a contract with Construções e
Comércio Camargo Corrêa S.A., and costs incurred in 2006 were R$10,027, allocated in operating expenses
and information technology projects.
Purchase and sale transactions were carried out under usual market prices and conditions.
16.
RESERVE FOR CONTINGENCIES
As of December 31, 2006, the Company and its subsidiaries are parties to tax, civil and labor lawsuits arising
from assessments by tax authorities and from claims filed by third parties and former employees or from legal
proceedings and questionings. Reserves were recognized for these contingencies when, in the opinion of
management and its legal counsel, the risk of loss was considered probable. These reserves are as follows:
Company
Labor lawsuits
Tax lawsuits
Escrow deposits
Civil lawsuits
Other
Total
Current
(a)
(b)
Consolidated
2006
2005
2006
2005
15,274
8,082
(7,508)
3,157
19,005
13,140
5,865
11,719
9,019
(6,798)
2,889
1,458
18,287
12,214
6,073
15,274
8,267
(7,690)
3,157
19,008
13,143
5,865
18,864
10,131
(6,798)
2,889
2,212
27,298
14,536
12,762
(a) Refer to lawsuits filed against the Company and its subsidiaries by former employees claiming principally for termination pay, salary
premiums, overtime and other amounts due for joint liability. The accrued amounts refer to the best estimates for each lawsuit
calculated as actual loss, regardless of the likelihood of loss.
(b) Consist basically of tax deficiency notices related to São Paulo State ICMS (State VAT) and questioning of COFINS (tax on revenue),
SAT (occupational accident insurance) and INCRA (contribution to the National Institute of Rural Settlement and Agrarian Reform).
Changes in reserve for contingencies - Company
Labor lawsuits
Tax lawsuits
Civil lawsuits
Other
2005
Additions
Utilization
2006
11,719
9,019
2,889
1,458
25,085
6,261
3,966
381
10,608
(2,706)
(4,903)
(113)
(1,458)
(9,180)
15,274
8,082
3,157
26,513
Possible losses (Company)
Lawsuits for which the risk of loss was assessed as possible by management and its legal counsel were
not recorded as reserve for contingencies in the financial statements as of December 31, 2006 and are
represented by tax lawsuits, in the amount of R$2,180 (R$6,387 in 2005), and civil lawsuits, in the amount
of R$3,087 (R$2,772 in 2005).
In December 2005, a company holding the rights for a certain sports brand filed a lawsuit for
compensation of losses on supposed breaches of the license agreement, which was terminated in prior
years. In the opinion of the Company’s legal counsel, the likelihood of unfavorable outcome was considered
possible; the amount involved had not yet been calculated, and no reserve had been recognized to cover
this contingency. In February 2007, a decision was rendered in favor of the Company, terminating the
lawsuit. This decision is subject to an appeal that will be judged by the São Paulo Court of Justice.
80 | Alpargatas
17.
PROVISION FOR TAXES - NONCURRENT LIABILITIES
Company and consolidated
COFINS
PIS
Escrow deposits
Other
2006
2005
31,603
1,518
(22,432)
2,592
13,281
70,987
1,424
(20,345)
2,244
54,310
On March 8, 1999, the Company obtained an injunction on the ordinary lawsuit challenging the
constitutionality of Law No. 9,718/98 and Constitutional Amendment No. 20, which consisted basically in
the increase in the COFINS rate and expansion of the COFINS and PIS tax basis. This injunction allows the
payment of COFINS and PIS as provided for in legislation prevailing until January 1999.
The amounts of these taxes for the periods under litigation were accrued and are being monetarily
adjusted based on the Central Bank overnight rate (SELIC), charged to “Financial expenses”, in the
statement of income. From September 2002 to January 2004, the Company made an escrow deposit in the
amount under litigation.
On March 2, 2006, the extraordinary appeal related to this matter was accepted by the Federal Supreme
Court, and the payment of the debt or an escrow deposit was required. On March 30, 2006, the Company
opted to pay R$43,041, which did not affect the continuity of the litigation.
As of December 31, 2006, the COFINS accrued balance refers to challenge of the expansion of the tax basis.
Changes in provision for taxes
COFINS
PIS
Escrow deposits
Other
2005
Update
Payments
2006
70,987
1,424
(20,345)
2,244
54,310
3,657
94
(2,087)
348
2,012
(43,041)
(43,041)
31,603
1,518
(22,432)
2,592
13,281
18.
a)
INCOME AND SOCIAL CONTRIBUTION TAXES
Assets and liabilities - Company
Deferred income and social contribution taxes:
Current assets - temporary differences:
Provision for inventory loss
Provision for industrial optimization
Other temporary differences
Noncurrent assets:
Tax loss carryforwards (*)
Temporary differences:
Provision for taxes
Provision for loss on property, plant and equipment
Other temporary differences
Noncurrent liabilities:
Provision for income and social contribution taxes (*)
Escrow deposits
Temporary differences
Provision for income tax on royalties
2006
2005
2,970
1,720
1,994
4,104
6,110
16,898
4,023
1,664
1,569
2,217
4,962
14,435
26,083
26,083
6,987
4,462
1,603
2,328
1,817
17,197
43,280
4,165
12,235
3,454
1,824
2,811
24,489
50,572
52,289
(6,277)
2,686
48,698
51,885
(6,277)
2,838
48,446
(*) The Company is challenging in court the right to offset credits derived from tax loss carryforwards against the total income and social
contribution tax amounts payable each year without observing the legal limit of 30%. As a result, the Company has recorded in
noncurrent liabilities the portion in excess of the legal limit of 30% that it has offset, plus financial charges, based on the SELIC rate.
In view of this lawsuit, the deferred tax credit was recognized on tax loss carryforwards, as if the legal limit of 30% for offset had
been met.
If the final court decision is favorable to the Company, the deferred asset will be matched with the related liability, and accrued
charges will be reversed and credited to income for the year at that time.
82 | Alpargatas
b)
Net income
As of December 31, 2006, the reconciliation of income and social contribution tax expense, recorded in
the statement of income, is represented by:
Consolidated
Company
Income before taxes
Statutory tax rates
Income and social contribution taxes at statutory rates
Effect of income and social contribution taxes
on permanent differences:
Prepaid interest on capital
Other permanent deductions, net
Adjustment of nominal rate of subsidiaries
Reversal of deferred tax liabilities
Federal tax incentive of subsidiary
Other effects
Income and social contribution tax expense
19.
a)
2006
2005
2006
2005
169,536
34%
(57,642)
199,697
34%
(67,897)
170,103
34%
(57,835)
206,344
34%
(70,157)
(7,713)
16,327
3,211
2,167
732
(42,918)
14,636
17,609
215
762
(34,675)
(9,500)
16,327
314
(24)
2,167
4,118
948
(43,485)
17,609
1,503
9,116
829
(41,100)
SHAREHOLDERS’ EQUITY
Capital
Paid-up capital as of December 31, 2006 is R$391,804 (R$343,598 in 2005) represented by 18,190,613 shares
without par value, of which 9,090,604 are common shares and 9,100,009 are preferred shares.
In the Extraordinary Shareholders’ Meeting held on April 7, 2006, a capital increase in the amount of
R$48,206 was approved, using the profit reserve.
b)
Treasury shares
In the Board of Directors’ Meetings held on October 28, 2005 and April 28 and November 10, 2006, the
acquisition of 442,200 preferred shares (383,200 in 2005) was approved, for the average price of R$92.38,
and 116,900 common shares, for the average price of R$87.91, totaling R$51,129 (R$16,165 in 2005),
acquired on the stock exchange.
In addition, 75,216 preferred shares were acquired for R$8,003 for the stock option program mentioned
in note 22.
The acquisition amounts reflect market prices, supported by existing reserves.
At the Extraordinary Shareholders’ Meeting held on October 23, 2006, the cancellation of 492,710 treasury
shares was approved, of which 116,990 common shares and 375,720 preferred shares.
As of December 31, 2006, the Company has 451,680 preferred shares, for the average price of R$74.09.
c)
Interest on capital
Every year the shareholders are entitled to receive dividends of at least 25% of net income, calculated
in accordance with Brazilian corporate law and the bylaws. In 2006, the calculation was performed as follows:
2006
2005
126,618
(6,331)
120,287
165,022
(8,251)
156,771
Mandatory minimum dividends - 25%
30,072
39,193
Management’s proposal:
Dividends
Interest on capital
Withholding income tax (IRRF) on interest on capital
Total, net
2,498
48,020
(5,662)
44,856
1,783
53,087
(6,047)
48,823
Net income for the year
Recognition of legal reserve - 5%
Amount available for distribution
Details on the payment of dividends and interest on capital proposed by management are as follows:
R$ per share (gross)
Interest on capital:
Interim
Accrued
d)
Common
2006
Preferred
Common
2005
Preferred
2.5460
0.1340
2.6800
2.8000
0.1480
2.9480
0.5790
1.2593
1.8383
0.6369
1.3848
2.0217
Investment reserve
As of December 31, 2006, this reserve was recognized for use in future investments in the amount of
R$69,769, which will be submitted for approval in the Annual Shareholders’ Meeting to be held.
20.
OTHER OPERATING EXPENSES, NET
Company
Profit sharing program
State tax incentives
Amortization of deferred charges
Other
Consolidated
2006
2005
2006
2005
(16,120)
(10,608)
12,218
(6,191)
(7,825)
(23,251)
(51,777)
(17,046)
(8,802)
70,397
(12,637)
(8,318)
(26,281)
(2,687)
(16,120)
(10,608)
12,218
(6,191)
(7,847)
(23,408)
(51,956)
(17,046)
(8,802)
70,397
(12,637)
(8,341)
(26,854)
(3,283)
84 | Alpargatas
21.
a)
FINANCIAL INSTRUMENTS
General considerations
The Company and its subsidiaries conduct transactions involving financial instruments, all of which
recorded in balance sheet accounts, which are intended to meet their needs and reduce exposure to market
risks. These risks are managed by means of strategies predefined by the Company’s management.
b)
Fair values
As of December 31, 2006 and 2005, the fair values of cash and cash equivalents, temporary cash
investments and trade accounts receivable approximate their carrying amounts due to their short-term
nature. Financing substantially approximates fair value, including noncurrent financing.
In the Company, intercompany balances refer to the management of a single cash (cash and cash
equivalents) by the Company, and there are no financial charges on these transactions.
c)
Credit and exchange rate risks
Sales are substantially to retailers and hypermarkets. Credit risk is reduced due to the large customer
portfolio and the control procedures that monitor such risk. Exchange rate risk arises from fluctuations in
exchange rates on loans and accounts receivable in foreign currency.
22.
STOCK OPTION PROGRAM
At the Extraordinary Shareholders’ Meeting held on April 26, 2002, the shareholders approved the São
Paulo Alpargatas S.A. Stock Option Program whereby employees are granted preferred stock options, so
as to retain them or provide an incentive for them to contribute to the interests and objectives of the
Company and its shareholders. The program is managed by the Company’s Human Resources department.
As of December 31, 2006, the following stock options have been granted:
Plan
Effective period
2002
2003
2004
2005
2006
July 1, 2002 to June 30, 2012
July 1, 2003 to June 30, 2013
July 1, 2004 to June 30, 2014
July 1, 2005 to June 30, 2015
July 1, 2006 to August 31, 2011
Historical
exercise price
Number of options
per option
Granted
Exercised
- R$ (*)
35,980
63,060
90,630
91,010
36,059
16,248
8,900
5,340
-
10.46
15.25
21.30
32.30
94.69
(*) The stock options exercise price is equivalent to the trading volume weighted average of the closing prices of preferred shares, in
the 60 trading sessions prior to the approval date of each annual plan, subsequently adjusted based on the IGP-M/FGV, except for
the 2006 plan, in which the extended consumer price index (IPC-A) began being used.
In the Extraordinary Shareholders’ Meeting held on October 23, 2006, the Steering Committee was terminated, and decisions should
be made directly by the Company’s Board of Directors. In addition, in the Extraordinary Shareholders’ Meeting, the quantitative
limit was changed to 599,660 stock options (396,810 prior to that Extraordinary Shareholders’ Meeting), and the option exercise
term was reduced from ten to five years (beginning with the 2006 plan).
As mentioned in note 19, as of December 31, 2006 the Company has 451,680 treasury shares supporting the program’s quantity limit.
Vesting criterion
For the 2002 to 2005 plans, the vesting period for each option exercise of each plan is two years, with
releases of 20% in the third, fourth and fifth years after approval, and 40% in the sixth year and thereafter.
For the 2006 plan, as approved in the Extraordinary Shareholders’ Meeting held on October 23, 2006, the
vesting period for option exercise became three years, with release of 30% in the third and fourth years,
and 40% in the fifth year and thereafter.
The exercise of options entitles beneficiaries to the same rights granted to the Company’s other shareholders.
Upon release of the shares, due to entitlement to the option, the known effects on the transaction will
be recorded in shareholders’ equity.
23.
EMPLOYEE BENEFITS
The Company sponsors two pension plans and grants, through its own retirement plan, life annuity and
health care benefits for a group of former employees and their spouses. The actuarial liability related to
these plans as of December 31, 2006 is R$3,917 (R$5,276 in 2005), which is recorded under caption “Other
payables”, in noncurrent liabilities. The pension plans are as follows:
a)
Pension plan - SPASAPREV
This plan was implemented in May 1991 as a defined benefit plan fully funded by the sponsor’s
contributions. In August 2000, the “Super Prev” plan was created as a defined contribution plan, to which
employees equivalent to 99% of required reserves have already migrated.
Actuarial amounts recognized are:
2006
Present value of actuarial obligation
Fair value of plan assets
Unrecognized actuarial gain
Total liability recognized in the Company as of December 31, 2006
b)
26,735
(31,663)
6,784
1,856
Pension plan - HSBC
This plan is for a closed group of former employees and is funded by a multiemployer pension fund. This
plan covers only participants who are receiving retirement and survivorship benefits.
86 | Alpargatas
Actuarial calculation for the HSBC plan:
R$
Fair value of plan assets
Total net asset (*)
586
(2,601)
685
(1,330)
(*) This asset was not recognized in the Company’s financial statements as of December 31, 2006 due to the lack of evidence of
reimbursement or deductions of future contributions.
c)
Pension plan for former employees
The Company sponsors a pension plan to provide a life annuity to former employees, which, upon their
death, is extended to their spouses.
There are presently six plan participants: five former employees receiving retirement benefits and one
pensioner receiving a survivorship benefit.
Actuarial amounts recognized are:
R$
d)
1,120
(119)
1,001
Health care plan for retirees
The Company maintains a health care plan for a group of former employees and their spouses, according
to the rules established by it.
Recognized actuarial balances are:
R$
24.
4,464
(3,404)
1,060
INSURANCE
The Company and its subsidiaries have insurance coverage in amounts considered sufficient to cover
potential risks on their assets. The insurance coverage as of December 31, 2006 is for the following: operational
risks - R$721,892, general civil liability - R$6,500, optional civil liability - bodily injury - R$1,000, sundry risks
(robbery) - R$786, domestic transportation limited to R$500 per shipment, and international transportation
of US$5 million in import and US$5 million in export.
Appendix I
Consolidated Additional Information
Except for the Subsidiary Santista Têxtil S.A.
(Amounts in thousands of Brazilian reais - R$)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
Inventories
Other receivables
Total current assets
NONCURRENT ASSETS
Recoverable taxes
Escrow deposits
Other receivables
Investments
Property, plant and equipment and deferred charges
Total noncurrent assets
TOTAL ASSETS
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Loans and financing
Accounts payable
Interest on capital and dividends payable
Taxes payable
Total current liabilities
NONCURRENT LIABILITIES
Loans and financing
Provision for taxes
Other payables
Total noncurrent liabilities
SHAREHOLDERS' EQUITY
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
2006
2005
256,441
266,636
85,868
37,608
646,553
294,390
190,003
72,859
40,941
598,193
10,024
4,270
43,280
4,515
5,148
67,237
132,001
212,684
411,922
1,058,475
13,445
6,426
50,571
3,401
5,453
76,296
164,401
129,522
373,219
971,412
56,250
5,583
42,883
41,958
5,865
3,522
10,985
167,046
41,687
17,342
37,857
32,602
6,073
2,780
16,119
154,460
54,138
48,698
13,281
13,143
4,613
133,873
757,556
1,058,475
35,179
48,446
54,310
17,661
6,038
161,634
655,318
971,412
88 | Alpargatas
2006
2005
1,565,434
(317,851)
1,247,583
1,369,375
(279,574)
1,089,801
COST OF SALES
(658,234)
(598,538)
GROSS PROFIT
589,349
491,263
(296,831)
(60,933)
(2,956)
42,036
(17,415)
(7,847)
(45,902)
(389,848)
(274,319)
(57,998)
(3,223)
41,233
(14,827)
(8,341)
3,297
(314,178)
199,501
2,502
(2,506)
(32,399)
167,098
177,085
6,185
(10,258)
5,022
178,034
2,075
29,443
169,173
(42,555)
126,618
207,477
(42,455)
165,022
STATEMENTS OF INCOME
GROSS SALES
Sales taxes
NET SALES
OPERATING (EXPENSES) INCOME
Selling
General and administrative
Management fees
Financial income
Financial expenses
Amortization of deferred charges
Other operating (expenses) income
INCOME FROM OPERATIONS BEFORE EXCHANGE VARIATION,
FINANCIAL CHARGES ON TAXES AND EQUITY IN SUBSIDIARIES AND AFFILIATE
Exchange variation
Financial charges on taxes
INCOME FROM OPERATIONS
NONOPERATING INCOME, NET
INCOME BEFORE INCOME AND SOCIAL CONTRIBUTION TAXES
NET INCOME
Appendix II
Statements of Cash Flows
2006
2005
Consolidated
without
Company Consolidated
Santista
Company Consolidated
126.618
126.618
126.618
165.022
165.244
165.022
27.047
1.250
(1.929)
37.522
3.395
(1.929)
28.022
1.283
(1.929)
27.692
(1.017)
(2.161)
48.149
(402)
(36.900)
28.578
(1.313)
(36.900)
672
22.686
672
27.941
672
32.399
8.954
(43.046)
8.770
-
8.770
(5.021)
4.638
8.005
4.638
8.009
12.239
8.010
(3.804)
4.829
(3.097)
1.028
179.938
(5.184)
4.387
(3.067)
4.240
1.028
203.628
(3.804)
4.829
(3.097)
1.028
190.659
12.872
(10.106)
(740)
4.633
170.112
16.302
(14.919)
(2.697)
(1.693)
3.380
197.473
12.872
(10.106)
(740)
4.633
173.805
(73.828)
(12.940)
832
(3.684)
2.024
(87.596)
(76.037)
(17.031)
1.597
(2.870)
(2.328)
(96.669)
(73.536)
(13.009)
852
(5.471)
1.460
(89.704)
1.290
(2.808)
26.721
5.836
4.024
35.063
12.353
1.438
26.430
4.720
(4.182)
40.759
1.186
(4.065)
26.700
5.679
(5.218)
24.282
14.720
(42.390)
4.962
(5.953)
20.752
7.127
(782)
91.560
11.888
(42.134)
3.675
(7.656)
7.871
(26.356)
80.603
14.563
(42.465)
5.026
(5.958)
7.008
(21.826)
79.129
(10.966)
3.810
6.907
2.297
30.108
3.864
36.020
241.195
(4.159)
2.273
3.173
3.987
(4.441)
1.245
2.078
240.310
(8.040)
2.374
6.926
2.408
4.088
7.756
205.843
(112.161)
3.500
(108.661)
(116.107)
14.630
(7.948)
(109.425)
(113.139)
14.630
(98.509)
(49.477)
7.046
(42.431)
(71.122)
43.896
(27.226)
(51.207)
43.896
(7.311)
CASH FLOWS FROM FINANCING ACTIVITIES
Obtaining (repayment) of loans and financing
Income tax incentives
Investment grant
Acquisition of treasury shares, net of sales
Dividends and interest on capital paid
NET CASH USED IN FINANCING ACTIVITIES
2.683
12.414
71.492
(57.767)
(49.776)
(20.954)
10.367
12.414
71.492
(57.685)
(50.836)
(14.248)
5.068
12.414
71.492
(57.767)
(49.776)
(18.569)
(9.256)
6.355
(15.872)
(68.690)
(87.463)
(24.868)
6.355
(15.872)
(68.834)
(103.219)
(9.165)
6.355
(15.872)
(68.690)
(87.372)
INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR (*)
(38.055)
294.365
256.310
(43.070)
299.511
256.441
(37.949)
294.390
256.441
111.301
183.064
294.365
109.865
189.646
299.511
111.161
183.230
294.390
CASH FLOWS FROM OPERATING ACTIVITIES
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
Proceeds from sale/write-off of property, plant and equipment
Proceeds from sale of noncurrent assets
Provision for losses on property, plant
and equipment and deferred charges
Interest and monetary and exchange variations on loans,
noncurrent taxes and escrow deposits
Reserve for contingencies and provision
for industrial optimization
Amortization of deferred income
Reversal for doubtful accounts
Exchange variation on investments
Dividends and interest on capital received
Cash provided by operating activities
Decrease (increase) in assets:
Inventories
Prepaid expenses
Recoverable taxes
Other receivables
Increase (decrease) in liabilities:
Taxes payable
Intercompany payables
Other payables
NET CASH PROVIDED BY OPERATING ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property, plant and equipment and deferred charges
Proceeds from sale of permanent assets
Effect on cash due to nonconsolidation of investment
NET CASH USED IN INVESTING ACTIVITIES
(*) Cash and cash equivalents refer to the accounts "Cash and banks" and "Temporary cash investments".
Consolidated
without
Santista
90 | Alpargatas
Corporate Information
Investor Relations
Stock Market
Francisco Silverio Morales Cespede
BOVESPA – Bolsa de Valores de São Paulo
[email protected]
Common shares: ALPA 3
Preferred shares: ALPA 4
José Sálvio Ferreira Moraes
[email protected]
Shareholder Services
Information Disclosure
Banco Itaú S.A.
Diário Oficial do Estado de São Paulo
Rua Boa Vista, 176 – 1° subsolo
Valor Econômico
São Paulo – SP
http://ri.alpargatas.com.br
Brazil
tel. (55 11) 3247-3139
www.itaucustodia.com.br
Independent Auditors
Headquarters
Deloitte Touche Tohmatsu
Rua Funchal, 160
Edimar Facco
04551-903
Partner
São Paulo – SP
Brazil
The Talent of these people and companies
contributed to the preparation of this Report:
Coordination
Rui La Laina Porto
José Sálvio Ferreira Moraes
Cássia Navarro
Graphic Design
Adroitt Bernard
Text
Editora Contadino
English Version
Steve Yolen
Time Line Graphic Design
Talent
Historical Research
Sinopse
Photographs
João Musa and Mario Castelo
Pre-printing
Perfectto
Printing
Laborgraf
92 | Alpargatas
www.alpargatas.com.br
This report was printed in couché matte 170 g/m2 paper of Suzano Papel e Celulose. This paper is made from renewable eucalyptus forests.

Company - Alpargatas

Transcription

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