SPRINGS GLOBAL PARTICIPAÇÕES S.A. CNPJ/MF – 07.718.269

Transcrição

SPRINGS GLOBAL PARTICIPAÇÕES S.A.
CNPJ/MF – 07.718.269/0001-57
NIRE 3130002243-9
Publicly Traded Company
The management of Springs Global Participações S.A. submits for your consideration the Company’s Management´s
Discussion and Analysis and Financial Statements for the year of 2015. Such information, prepared in accordance
with the International Financial Reporting Standards (IFRS), as well as the accounting practices adopted in Brazil
and standards established by “CVM”, the Brazilian Securities Exchange Commission, is accompanied by its
Independent Auditors’ report.
Macroeconomic Environment
During the year 2015, we witnessed an unfortunate chain of events that have poisoned the already battered
economy, resulting in a GDP decrease of approximately 4%, the highest in decades. While the Brazilians followed –
through the press – the investigations conducted by the Federal Public Ministry and the Federal Police, the political
situation deteriorated.
Since the inauguration of President Dilma Rousseff to her second term, the Brazilian political environment has
become unpredictable. The victory at the polls by a narrow margin of votes called for the pursuit of national unity, but
- on the contrary - the open wounds from the fierce election battle, were greater than the collective interest, and a
highly devastated political environment prevailed. Operation “Lava Jato” reached many political leaders and large
companies, making reconciliation more difficult.
Popular dissatisfaction crystallized and public demonstrations gave no relief, resonating in the Parliament. The
government began to embitter an avalanche of losses in the congress, losing control of the political agenda. The first
defeat came with the election of presiding officers for the House of Representatives. Followed by the approval by the
congressional opposition, with the help of a portion of the government’s base support, of various projects called
“bombastic agenda.”
They all acted as if they were betting on "the worse, the better". The national interest did not seem to be the priority,
the positions of the political parties collapsed, as they voted inconsistently with their historical banners, further
destabilizing the country.
The lack of conviction in the actions of the Executive branch, which adopted a speech of fiscal austerity, while
favoring the increase of taxes, and minimizing the indispensable spending cuts and reducing the size of the
Brazilian state, bloated and inefficient, which did not help to reassure economic agents.
In addition, the government continued to attribute the difficulties of the economy to the international crisis, without
acknowledging the mistakes made in the economic policy of previous years, which led to an unsustainable fiscal
situation.
The inevitable failure, the depletion of the temporary effects of the so called new economic matrix, which conjugated
intervention in the economy - through control of public prices, the practice of subsidized interest rates, tax
exemptions aimed at stimulating consumption, countercyclical fiscal policies adopted in a generalized way, no costbenefit assessment - the use of creative accounting, quickly led economic agents to lose confidence, and not
submitting minimally credible measures to put the public accounts in order, accelerated the downward spiral of the
indicators.
GDP shrank by around 4%, drained by the unprecedented decline of industry activity, which fell 8.3%. Retail
retreated an unparalleled 4.3%. The unemployment rate has grown continually, and over 1.5 million jobs were
slashed. Inflation reached 10.7% during the year, driven by the increase of public prices, until then repressed by the
government. Electricity cost has risen more than 50%. Public transportation fares increased, oil byproducts also rose,
despite the fall in oil prices in the international markets. We live in a paradoxical situation, while the world
experienced a reduction in energy prices, in Brazil the prices have increased.
Due to a very high level of debt, partially caused by delayed price adjustments of oil byproducts; corruption
investigations of some of its former executives; and the fall in oil prices, Petrobrás continued to lose market value.
These factors led the company to sharply cut its investments, negatively impacting the entire oil and gas chain, and
giving an additional push to the huge drop in the rate of gross capital formation that Brazil recorded in the year
(14.7%).
The Brazilian uncertainties, the Chinese slowdown, with the resulting fall in commodity prices, coupled with the
perspective that the Federal Reserve would start raising the interest rate in the United States - which was 0.25%
since 2008 - caused many investors to prefer the safety of the American currency.
The Brazilian Real suffered a significant devaluation, ending the year at a level not seen since 2002 (R$3.90). The
average exchange rate ended the year at R$3.38, compared to R$2.37 in the previous year, a devaluation of 49%.
The passthrough of exchange rate devaluation to domestic prices was not significant, partly due to the recession that
continued to deepen.
Even without a demand that would sanction a continued increase of prices, the Central Bank raised the basic interest
rates to 14.25%, probably in an attempt to regain its credibility, too tarnished after accepting to live for a long time
with inflation at target ceiling.
The high interest rate, and losses on currency swaps, cost the public coffers around R$500 billion in 2015,
aggravating the State accounts. Brazil closed the year with a primary deficit of 1.9%, which - added to the interest
expense on debt - deepened the hole in the public accounts to more than 10% of GDP, bringing the total government
debt to over 66% of GDP at the end of 2015.
The positive side of the new level of the US dollar against the Real, was the robust adjustment to the Current Trade
Account, which will continue in 2016. The deficit was reduced to USD58.9 billion, while in the previous year it had
been USD104.7 billion. The competitiveness of the domestic production sector increased, and higher value-added
manufactured goods returned to compete in the international markets.
This troubled scenario was the keynote of 2015.
Company´s Performance
In this highly challenging environment, the Springs Global had a satisfactory performance. Our competitiveness, our
production scale, our brands, our geographic diversity and especially our team allowed the company to record
growth of 8.4% of net revenue, 22.8% of EBITDA growth and 48.8% growth of operating income.
The gross margin achieved in our sales was the highest in the last five years, and we have achieved or exceeded all
guidance targets that we had proposed in the beginning of 2015. Over 90% of our sales were consumer products,
higher added value, and distributed mainly through the network of more than 5,000 customers in Brazil, Argentina,
United States and Canada.
Our brands and exclusive licensed brands, leaders in each of their market segments served, labeled more than 90%
of our finished goods, whether in South America or in North America. Geographically, our sales were 59% in South
America and 41% in North America.
The reduction in the company's leverage has been consistent, year after year, and reached the lowest level in the
last five years (3.4 times, measured by the Net Debt/EBITDA), despite the higher consumption of working capital,
which grew 6.3% in the year. We are confident that this indicator will continue on a downward path, through the
combination of the reduction of the numerator and the growth of the denominator.
The business unit Wholesale South America, despite suffering a decline in net sales of 2.3%, showed cash
generation 5.2% higher than the previous year. The leadership of our brands in the markets has been strengthened,
thanks to the significant gain in competitiveness made possible by the devaluation of the real. Our collections have
been enhanced, innovations were introduced especially with the new lines of pillows and decorative items, which
expanded the range of products offered to our customers. In the Argentine market, we grew our sales and
consolidated our leadership.
2
The business unit Wholesale North America grew significantly. In that market, the operations are prepared to seize
the momentum of the US economy and contribute decisively to the consolidated results of Springs Global. Revenue
grew 32.3% and gross profit had an improvement of 83.3%, with EBITDA 4.5 times the previous year, despite the
weight of legacy costs, which will gradually decline over the next years, which will further leverage the performance
of this business unit.
The positive results generated by these two major business units offset the investments that were still needed in the
Retail business unit. The year was tough for AMMO, and the combination of falling sales and increased rent costs
led to the generation of negative cash. The speed of transferring owned stores to franchises was also impacted,
preventing us to reach the desired number of franchises. Although AMMO results were not satisfactory, the
dedication of the team is preparing this business unit to fly higher in the near future. Our processes and management
model significantly evolved and our continuously investment in staff’s training are noteworthy.
We continue to believe in the strategic importance of contact with end consumers, made possible by AMMO. We are,
day-by-day, better serving our customers, developing further our collections and adding attributes valued by the
market and improving the supply chain, in order to have the right product at the right time, at point of sale. The
learning afforded by AMMO has allowed us to bring innovation to all of our product lines and distribution channels.
The evolution of our business was supported by continuous improvement of our manufacturing facilities. We are
proud of the actions that positively impacted the sustainability indicators such as the implementation of the pretreatment procedure based on enzymatic process, allowing us to save on chemical products, which consequently
reduced the environmental impact and increased the reuse of water with our own treatment, that allowed us to reuse
more than 30% of the water consumed in the industrial process.
The company has won several awards during the year, highlighting those that made us very proud - best customer
service in the segment of bedding, tabletop and bath, most admired company in the segment and best practice for
internship.
Perspective
The economy ended the year of 2015 in decline, and the difficulties should extend throughout the next quarters,
leading to a new significant GDP contraction in 2016. There is already an expectation of a further drop of 4.0%.
Brazil is at a crossroad, and its society needs to decide which direction to take. The State’s growth process started
with the 1988 Constitution. The Citizen Constitution enabled the society to benefit from rights and constitutional
guarantees long claimed. We experienced a long period of restrictions, with no political freedom, and it was natural
that the constituents broaden the rights and guarantees of society. It is not a coincidence that the word “right”
appears several times in the Constitution.
The rights anticipated by our constituents were being expanded throughout the 27 years since the promulgation.
Corporations were advancing on the Brazilian State, obtaining more and more benefits for specific groups. We
created an obese State provider, inefficient, voracious, which withdraws resources from efficient sectors of the
economy and does not return to the society the minimal and acceptable level of services.
It is necessary to rethink about the role of the government in our economy, whose performance currently prevents us
from reaching the ultimate goal of any society: the common good.
Although Brazil goes through tough times, Springs Global Participações S.A. is prepared to face and overcome the
difficulties of another challenging year. We have all of the elements required to grow our sales and profitability.
We are concerned with the state of the Brazilian economy, but confident that Springs Global will perform according to
our 2016 guidance, which we are publishing today.
3
2015
in R$ million
Projection
2016
Actual
Projection
Net revenue
South America - Wholesale*
1,150 - 1,260
1,152.9
1,170 - 1,330
South America - Retail
260 - 300
265.4
230 - 270
North America - Wholesale
740 - 790
923.8
1,000 - 1,100
2,267.1
2,400 - 2,700
Total net revenue
2,150 - 2,350
EBIT
110 - 140
154.3
160 - 200
EBITDA
200 - 230
233.0
240 - 280
CAPEX
40 - 50
42.2
60 - 70
* Including intercompany revenue
Relationship with Independent Auditors
In 2015, the Company did not engage its independent auditors for services other than those related to the audit
work.
Acknowledgements
We would like to express our appreciation to SUDENE, BNDES, BDMG, BNB, Banco do Brasil, our network of
commercial banks, the press, our customers and suppliers, our shareholders, government officials, trade and social
organizations, our employees and everyone that has contributed directly or indirectly to the achievement of the
Company´s social goals.
Management
Company overview
Springs Global Participações S.A. (Springs Global) is the America’s largest company in bedding, tabletop and bath
products, with traditional and leading brands in the segments in which it operates, strategically positioned to target
customers of different socioeconomic profiles.
In Brazil, Springs Global´s main brands are Santista, Artex, MMartan and Casa Moysés, The first is only sold in the
wholesale channel, while the last two are only sold in the monobrand retail channel. The Artex brand is sold in both
distribution channels. In Argentina, the Company has the brands Palette, Arco-Íris, and Fantasia, which are market
leaders. The Springmaid brand is sold in the USA and in Canada. We also provide Wabasso, Texmade and Springs
Home products, and distribute licensed Serta brand products. Our brands have a high rate of awareness among
consumers and specialists, being a quality reference in the sector.
Springs Global operates vertically integrated plants, from spinning, through weaving, preparation, dyeing, printing,
finishing and cutting and sewing, with 9 units located in Brazil, 3 in the United States and 1 in Argentina. All plants
have high degree of automation and flexibility.
Springs Global’s products sold in the wholesale market are classified as: (a) Bedding, Tabletop and Bath
(“CAMEBA”), (b) utility bedding, and (c) intermediate products. The CAMEBA line, responsible for 48% of 2015
revenue, includes bed sheets and pillow cases, sheet sets, tablecloths, towels, rugs and bath accessories. The utility
bedding line, responsible for 32% of 2015 revenue, includes pillows, mattress pads and quilts. Intermediate products,
responsible for 9% of 2015 revenue, are yarns and fabrics, in their natural state or dyed and printed, sold to small
and medium-sized clothing, knitting and weaving companies.
The Company distributes its products through the wholesale channel, in all its markets, and in its monobrand retail
stores, in Brazil.
4
Financial performance1
Springs Global reported in 2015 net revenues of R$2,267.1, 8.4% above the 2014 amount, with gross margin of
26.9%, which was the largest in the last five years.
Cash generation, as measured by EBITDA, reached R$233.0 million in 2015, with a 22.8% year-over-year (yoy)
increase. The EBITDA margin was 10.3% in 2015, versus 9.1% in 2014.
Income from operations grew 48.8% yoy, totaling R$154.3 million. Net income reached R$22.6 million.
Revenue and Gross margin
in R$ million and %
3,000
30%
26.3%
25%
24.5%
23.9%
2,092.0
2,043.0
23.6%
1,682.9
20%
26.9%
2,267.1
2,500
2,000
1,407.8
1,500
1,000
15%
500
0
10%
2011
2012
2013
2014
2015
Adjusted EBITDA and Adjusted EBITDA margin
in R$ million and %
12%
10%
350
9.1%
8%
6%
10.3%
10.0%
7.1%
140.3
233.0
7.6%
189.7
300
250
200
155.1
150
120.3
4%
100
2%
50
0%
0
2011
2012
2013
2014
2015
1
The financial and operational information presented in this release, except when otherwise indicated, is in accordance with accounting policies
adopted in Brazil, which are in accordance with international accounting standards (International Financial Reporting Standards – IFRS.)
5
Capex and working Capital
Capital expenditures (Capex) totaled R$42.2 million in 2015, of which R$37.3 million was in manufacturing facilities,
mainly aimed at asset modernization, and R$4.9 million in monobrand retail for improvement and visual
merchandising adjustments in our owned stores.
The working capital needs amounted to R$1,054.1 million at the end of 2015, in which the exchange rate contributed
to a portion of the R$62.4 million yoy increase.
We expect a reduction in the Company´s working capital due to the conversions of owned to franchised stores and to
the increase of the share of Brazilian products in our 2016 collections.
Capex
in R$ million
112.5
62.5
59.3
55.3
42.2
2011
2012
2013
2014
2015
Working Capital
in R$ million
1,054.1
1,001.5
991.7
911.1
2011
2012
929.0
2013
2014
2015
Debt indicators
Springs Global’s net debt was R$786.2 million as of December 31, 2015, of which 91% was denominated in Brazilian
Reais and 9% in US Dollars. By the end of the year, our leverage, as measured by net debt/EBITDA, was 3.4.
6
Performance of the business units
Springs Global presents its results segregated in the following business units: (a) South America – Wholesale, (b)
South America - Retail, and (c) North America – Wholesale.
2015 Revenue
in R$ million
North
America Wholesale
40.7%
South
America Wholesale
47.5%
South
America Retail
11.7%
South America - Wholesale
Net revenue from the South America – Wholesale business unit amounted to R$1,152.9 million in 2015, 2.3% below
2014, mainly due to the 12.4% decrease in revenue of intermediate products. Gross profit totaled R$349.2 million,
with a yoy growth of 2.8%, and gross margin was 30.3%.
EBITDA reached R$211.8 million, with a 5.2% yoy expansion. The EBITDA margin was 18.4%, against 17.1% in
2014.
South America - Wholesale - Revenue and gross margin
in R$ million and %
35%
2,000
30%
25.3%
25%
28.8%
1,400
1,081.9
760.5
1,800
1,600
22.9%
20%
15%
26.4%
30.3%
1,180.0
1,152.9
1,200
1,000
794.9
800
600
10%
400
5%
200
0
0%
2011
2012
2013
2014
2015
7
South America - Retail
Net revenue from the South America – Retail business unit totaled R$265.4 million in 2015, with a 6.3% yoy
reduction, negatively impacted by the lower number of stores and the conversion of 13 owned stores to franchises in
2015, of which nine were Artex and four MMartan.
At the end of 2015 we had 229 stores, of which 92 were owned and 137 franchises, compared to 239 at the end of
2014. Sell-out revenue was R$449.1 million in 2015, 6.6% lower yoy.
Gross profit amounted to R$121.3 million, with gross margin of 45.7%. EBITDA was a R$22.8 million loss in 2015,
against a R$18.5 million loss in 2014, negatively impacted by R$6.3 million due to the closing of seven owned
stores.
South America - Retail - Revenue and Gross Margin
in R$ million and %
60%
400
54.4%
49.9%
48.3%
50%
47.3%
45.7%
283.1
40%
30%
224.7
265.4
248.0
181.4
300
200
20%
100
10%
0%
0
2011
2012
2013
2014
2015
8
North America - Wholesale
Net revenue from the North America – Wholesale business unit reached R$923.8 million in 2015, with a 32.3% yoy
increase. Gross profit amounted to R$139.5 million, higher 83.3% yoy. Gross margin expanded to 15.1% in 2015
from 10.9% in 2014.
EBITDA totaled R$47.7 million, 358.7% above 2014. EBITDA margin was 5.2%, against 1.5% in 2014.
North America - Wholesale - Revenue and Gross margin
in R$ million and %
20%
1,600
15.5%
15%
15.1%
1,200
13.4%
10.6%
10%
663.3
1,400
713.1
10.9%
923.8
1,000
800
698.2
600
465.9
5%
400
200
0%
0
2011
2012
2013
2014
2015
Value generation to shareholders
The 2015 closing price of Springs Global’s shares, traded on the BM&FBovespa under the ticker SGPS3,
wasR$2.89, 12.9% higher than the 2014 closing price. While, the IBOVESPA and SmallCap indices declined 13.3%
and 22.4%, respectively, in the same period.
9
Human Resource
At the end of 2015, we had 10,377 direct employees, of which 8,657 in Brazil and 1,720 overseas, against 11,994 at
the end of 2014, primarily reflecting the labor adjustment done in accordance with the level of production in Brazil.
Number of employees
12,799
11,994
11,707
10,377
2012
2013
2014
2015
Awards and recognitions
The company have received several awards and recognitions in 2015, among them: Reclame Aqui Award – 1st
place in 2015 Reclame Aqui Award in the bedding, tabletop and bath category, represented by the Santista brand;
IEL Trainee/RN – Brazilian state of Rio Grande do Norte Award – 1st and 2nd places in the Trainee – College level
category and 2nd place in the Large Company category; IEL Trainee/SC – Brazilian state of Santa Catarina Award –
1st place in the Large Company category, national level; Selo Amigo Pró-Família/SC 2015 Award – partner in the
Fundação do Bem Estar da Família Blumenauense projects; Melhores Empresas para Você Trabalhar (Best
Companies to Work for) – Among the top 200 best companies to work for, promoted by Exame and Você S/A
magazines; Quality Management /PB – Brazilian state of Paraíba Award; VALORIZARH 2015/PB Award – Quality of
Life Program, promoted by the Paraíba unit of the Brazilian Association of Human Resources – 1st place in the Large
Company category .
Shareholder structure
In the beginning of 2015, Springs Global’s voting and total capital stock was represented by 200,000,000 common
shares. The controlling shareholders owned, in aggregate, 57.1% of the total and voting capital. The free float was
42.9%.
The Extraordinary Shareholders’ Meeting, held on October 21, 2015, approved the reverse split of the Company’s
shares, representative of the capital stock, pursuant to Article 12 of the Brazilian law nº 6.404/76, in the ratio of four
shares to one share, without changing the value of the capital stock, so that the capital stock became represented by
50,000,000 common shares.
Therefore, Springs Global’s voting and total capital stock was, at the end of 2015, represented by 50,000,000
common shares.
10
Business outlook
Springs Global maintains its strategy to consolidate its leading market position in the bedding, tabletop and bath
market, and to expand its monobrand retail channel, prioritizing franchises, which are less capital intensive.
We will continue to improve the profitability of our business by (a) higher capacity utilization of our plants in Brazil,
mainly by export growth, resulting in higher absorption of fixed costs; (b) conversion of intermediate products into
finished products with higher value added; (c) conversion of owned stores into franchises, in addition to the growth of
the number of franchises.
Devaluation of the Brazilian Real increases our competitiveness in the international market and, therefore, places an
opportunity to increase the volume of exports sales, which will contribute to higher revenue and margin, through the
dilution of fixed costs.
We will prioritize in 2016 new conversion of owned stores into franchises, which will lead to a decrease in revenue,
but also lower SG&A expenses, enabling margin expansion. At the same time, we will increase the number of Artex
franchises, which will help to boost monobrand retail sales.
11
(Convenience Translation into English from the
Original Previously Issued in Portuguese)
Springs Global
Participações S.A.
Consolidated and Individual
Financial Statements for the Year
Ended December 31, 2015 and
Independent Auditors’ Report
on the Financial Statements
BDO RCS Auditores Independentes
Tel.: +55 11 3848 5880
Fax: + 55 11 3045 7363
www.bdobrazil.com.br
Rua Major Quedinho 90
Consolação – São Paulo, SP - Brasil
01050-030
(Convenience translation into English from the original previously issued in Portuguese)
INDEPENDENT AUDITORS’ REPORT ON THE FINANCIAL STATEMENTS
To the
Shareholders, Board Members and Management of
Springs Global Participações S.A.
Montes Claros – MG
Introduction
We have audited the individual and consolidated financial statements of Springs
Global Participações S.A. (“Company”) identified as Company and Consolidated,
respectively, for the year ended December 31, 2015, which include the balance
sheet and the related statements of income, comprehensive income, changes in
shareholders’ equity and cash flows for the year then ended, as well as a summary
of the main accounting practices and related notes.
Management’s responsibility for the financial statements
The Company's management is responsible for the fair presentation and preparation
of the individual and consolidated financial statements in accordance with Brazilian
accounting practices and the consolidated financial statements according to the
International Financial Reporting Standards (IFRS) issued by the International
Accounting Standards Board (IASB) and for the internal controls considered
necessary to allow the preparation of financial statements free of material
misstatement, whether due to fraud or error.
Independent auditors’ responsibility
Our responsibility is to express an opinion on these financial statements based on
our audit, conducted in accordance with Brazilian and international auditing
standards. These auditing standards require that we comply with relevant ethical
requirements relating to audit engagements and plan and perform the audit to
obtain reasonable assurance whether the financial statements are free from
material misstatement.
An audit includes performing procedures to obtain evidence supporting the
amounts and disclosures in the financial statements. The procedures selected
depend on our judgment, including the assessment of the risks of material
misstatement of the financial report, whether due to fraud or error. In making
those risk assessments, we consider internal controls relevant to the fair
preparation and presentation of the Company’s financial statements in order to
design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Company’s internal
controls. An audit also includes evaluating the appropriateness of accounting
3
policies used and the reasonableness of accounting estimates made by
Management, as well as evaluating the overall financial statement presentation.
We believe that the audit evidence we have obtained is sufficient and appropriate
to provide a basis for our audit opinion.
Opinion on the individual and consolidated financial statements
In our opinion, the individual and consolidated financial statements referred to
above present fairly, in all material respects, the individual and consolidated
financial position of Springs Global Participações S.A., as of December 31, 2015,
and the individual and consolidated results of its operations and its cash flows for
the year then ended, according to the International Financial Reporting Standards
(IFRS) issued by the International Accounting Standards Board (IASB).
Other issues
Supplementary Information - Statements of value added
We have also examined the individual and consolidated Statements of Value Added,
prepared under the responsibility of the Company’s management for the year
ended December 31, 2015, whose reporting is required by Brazilian legislation for
public companies and is considered supplementary information by the IFRS, which
do not require the presentation of the statement of value added. These statements
were subjected to the same auditing procedures previously described and, in our
opinion, are fairly stated, in all material respects, in relation to the basic financial
statements taken as a whole.
The accompanying financial statements have been translated into English for the
convenience of readers outside Brazil.
São Paulo, March 01, 2016.
BDO RCS Auditores Independentes
CRC 2SP 013846/O-1-S-MG
Paulo Sérgio Tufani
Accountant CRC 1 SP 124504/O-9–S-MG
4
(Convenience Translation into English from the Original Previously Issued in Portuguese)
BALANCE SHEETS AS OF DECEMBER 31, 2015 AND 2014
(In thousands of Brazilian Reais)
A S S E T S
Company
Note
CURRENT:
Cash and cash equivalents
Marketable securities
Financial instruments
Accounts receivable
Inventories
Advances to suppliers
Recoverable taxes
Receivable – sale of
property
Other receivables
3
4
22.d.3
5
6
17.d
16
Total current assets
NONCURRENT:
Long-term assets:
Receivable – sale of
property
Related parties
Recoverable taxes
Deferred income and social
contribution taxes
Property, plant and equipment
held for sale
Escrow deposits
Others
Investments in subsidiaries
Other investments
Property, plant and equipment
Intangible assets
Total noncurrent assets
Total assets
16
15
17.d
17.c
8.b
18
7.a
8.a
9
2015
2014
Consolidated
2015
2014
128
1,066
136
8,076
149,925
2,000
19,882
508,826
657,992
39,479
31,421
129,570
1,360
522,489
589,566
46,667
47,355
1,012
-------------2,206
--------------
992
-------------9,204
--------------
8,318
35,383
--------------1, 453,226
---------------
23,248
-------------1,360,255
--------------
-
-
40,899
23,503
3,586
7,535
4,595
1,905
-
1,905
-
58,298
59,132
62,512
40,527
4,221
-------------6,172
4,221
-------------6,126
20,486
23,234
-------------229,138
17,495
6,850
-------------139,514
1,147,459
27,303
-------------1,180,934
-------------1,183,140
========
1,119,462
27,303
-------------1,152,891
-------------1,162,095
========
3,897
784,893
127,182
-------------1,145,110
-------------2,598,336
========
1,968
847,260
119,574
-------------1,108,316
-------------2,468,571
========
46
The accompanying notes are an integral part of these financial statements.
BALANCE SHEETS AS OF DECEMBER 31, 2015 AND 2014
LIABILITIES AND EQUITY
Note
LIABILITIES
CURRENT:
Loans and financing
Debenture
Suppliers
Taxes
Payroll and related charges
Government concessions
Noneconomic leases
Other payables
12
13
11
Total current liabilities
NONCURRENT:
Loans and financing
Debenture
Noneconomic leases
Related parties
Employee benefit plans
Miscellaneous accruals
Subsidiaries obligations
Other obligations
12
13
10
15
20
19
18
7.a
Total noncurrent liabilities
EQUITY:
Capital
Capital reserves
Assets and liabilities valuation
adjustment
Cumulative translation adjustment
Earnings reserves
Accumulated deficit
Total equity attributable to the owners
of the Company
NON-CONTROLLING INTERESTS
Total equity
Total liabilities and equity
-
-
45
------------60
-------------
39
------------42
-------------
396,747
134,484
152,156
17,299
55,083
18,337
7,048
69,542
------------850,696
-------------
46,847
4,317
61,360
2,056
------------114,580
-------------
16,714
4,317
60,879
2,056
------------83,966
-------------
292,975
133,848
20,607
84
49,044
131,729
23,296
17,089
------------668,672
-------------
191,458
263,748
12,822
7,969
47,875
101,102
21,962
19,691
------------666,627
-------------
1,860,265
79,381
(33,480)
1,860,265
79,381
(40,369)
1,860,265
79,381
(33,480)
1,860,265
79,381
(40,369)
(248,116)
25,170
(614,720)
-------------
(209,176)
25,170
(637,184)
-------------
(248,116)
25,170
(614,720)
-------------
(209,176)
25,170
(637,184)
-------------
1,068,500
1,078,087
1,068,500
1,078,087
------------1,068,500
------------1,183,140
========
------------1,078,087
------------1,162,095
========
10,468
------------1,078,968
------------2,598,336
========
7,684
------------1,085,771
------------2,468,571
========
15
-
20
10
Consolidated
2015
2014
Company
2015
2014
3
-
403,748
1,685
167,095
12,089
51,559
16,556
4,286
59,155
------------716,173
-------------
14
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014
Note
Company
2015
2014
NET REVENUES
25
COST OF GOODS SOLD
24
-------------
24
24
24
7.a
21
GROSS PROFIT
OPERATING INCOME (EXPENSES):
Selling expenses
General and administrative expenses
Management fees
Equity in subsidiaries
Others, net
INCOME (LOSS) FROM OPERATIONS
Financial expenses – interests
Financial expenses – bank charges and others
Financial income
Exchange rate variations, net
INCOME (LOSS) FROM OPERATIONS BEFORE
TAXES
Income and social contribution taxes:
Current
Deferred
17.b
17.b
NET INCOME (LOSS) FOR THE YEAR
-
-
2,267,095
2,091,956
-------------
(1,657,135)
------------609,960
(1,542,249)
------------549,707
(3,133)
(415)
28,142
------------24,594
(3,159)
(432)
(25,667)
------------(29,258)
(294,795)
(139,202)
(9,520)
(12,106)
------------154,337
(303,928)
(124,066)
(9,395)
(8,628)
------------103,690
(2,131)
(346)
347
-------------
(1,401)
(450)
2,858
(3,021)
-------------
(150,739)
(63,540)
25,810
69,702
-------------
(110,338)
(58,608)
16,321
12,505
-------------
22,464
(31,272)
35,570
(36,430)
-----------22,464
=======
968
1,905
-----------(28,399)
=======
(8,340)
(4,653)
-----------22,577
=======
3,310
4,015
-----------(29,105)
=======
22,464
113
-----------22,577
=======
(28,399)
(706)
-----------(29,105)
=======
ATTRIBUTED TO:
Owners of the Company
Non-controlling interests
BASIC AND DILUTED EARNINGS (LOSS) PER
SHARE — R$
26
Consolidated
2015
2014
0.4493
======
(0.5680)
======
STATEMENTS OF COMPREHENSIVE INCOME
Company
2015
NET INCOME (LOSS) FOR THE YEAR
Other comprehensive income (loss):
- Items that will impact the statements of operations:
Exchange rate variations on foreign investments
- Items that will not impact the statements of operations:
Actuarial gain (loss) on pension plans
COMPREHENSIVE INCOME (LOSS) FOR THE YEAR
ATTRIBUTABLE TO:
Owners of the Company
Non-controlling interests
2014
Consolidated
2015
2014
22,464
(28,399)
22,577
(29,105)
(38,940)
-------------
(19,171)
-------------
(36,269)
-------------
(18,647)
-------------
6,889
-------------
(18,440)
-------------
6,889
-------------
(18,440)
-------------
(9,587)
=======
(66,010)
=======
(6,803)
=======
(66,192)
=======
(9,587)
2,784
-----------(6,803)
=======
(66,010)
(182)
-----------(66,192)
=======
The accompanying notes are an integral part of these financial statements
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2014
Assets and
Note
BALANCES AS OF DECEMBER 31, 2013
Capital
1,860,265
Total equity
liabilities
Cumulative
Capital
valuation
translation
reserve
adjustment
adjustment
79,381
(21,929)
(190,005)
Earnings reserves
Legal
1,842
attributable to the
Non-
Retained
Accumulated
owners of the
controlling
earnings
deficit
Company
interests
Total equity
23,328
(608,785)
1,144,097
7,866
1,151,963
(29,105)
Comprehensive income (loss):
Net loss for the year
2.1.b
Actuarial loss on pension plans
-
-
-
-
-
-
-
-
(18,440)
(8,043)
-
-
-
(28,399)
(28,399)
(706)
-
-
-
(8,043)
524
-
-
-
(18,440)
-
(7,519)
(18,440)
Impact of subsidiariesExchange rate variations on foreign investments
2.1.b
-------------
Total comprehensive loss
-
-
-
----------
----------
--------------
(11,128)
-
(18,440)
(19,171)
-
-
-
-----------
-----------
------------
-------------
(11,128)
------------
-
-------------
(11,128)
-
-
(28,399)
(66,010)
(182)
(66,192)
-------------
----------
----------
--------------
-----------
-----------
------------
-------------
------------
-------------
1,860,265
79,381
(40,369)
(209,176)
1,842
23,328
(637,184)
1,078,087
7,684
1,085,771
========
======
======
========
======
======
======
========
========
========
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2015
Assets and
Note
Capital
1,860,265
Total equity
liabilities
Cumulative
Capital
valuation
translation
reserve
adjustment
adjustment
79,381
(40,369)
(209,176)
Earnings reserves
Legal
1,842
attributable to the
Non-
Retained
Accumulated
owners of the
controlling
earnings
deficit
Company
interests
23,328
(637,184)
1,078,087
7,684
Total equity
1,085,771
Comprehensive income (loss):
Net loss for the year
2.1.b
Actuarial gain on pension plans
-
-
-
-
-
-
22,464
113
22,577
-
-
-
(32,570)
-
-
-
(32,570)
2,671
(29,899)
-
-
-
-
-
-
6,889
6,889
22,464
-
6,889
Impact of subsidiariesExchange rate variations on foreign investments
2.1.b
-------------
Total comprehensive loss
-------------
-
-
----------
----------
--------------
6,889
(38,940)
----------
--------------
----------
(6,370)
-
-
-
------------
-----------
------------
-------------
(6,370)
------------
-
-------------
(6,370)
-
-
22,464
(9,587)
2,784
(6,803)
----------
------------
------------
-------------
------------
-------------
1,860,265
79,381
(33,480)
(248,116)
1,842
23,328
(614,720)
1,068,500
10,468
1,078,968
========
======
======
========
======
======
=======
========
========
========
STATEMENTS OF CASH FLOWS
Company
2015
Cash flows from operating activities
Net income (loss) for the year
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization
Income and social contribution taxes
(Gain) Loss on disposal of property, plant and
equipment and intangibles
Reversal of impairment losses of property, plant and
equipment
Exchange rate variations
Bank charges and interests
Changes in assets and liabilities
Accounts receivable
Inventories
Advances to suppliers
Suppliers
Others
Net cash provided by (used in) operating activities
Interest paid
Income and social contribution taxes paid
Net cash provided by (used in) operating activities after
interest and income taxes
Cash flows from investing activities
Acquisition of permanent investments
Acquisition of property, plant and equipment
Acquisition of intangible assets
Disposal of property, plant and equipment
Loans between related parties
Net cash provided by (used in) investing activities
Consolidated
2014
2015
2014
22,464
(28,399)
22,577
(29,105)
(28,142)
-
25,667
(2,873)
78,687
12,993
85,995
(7,325)
-
-
(25,248)
15,756
2,110
-----------(3,568)
3,021
(843)
-----------(3,427)
(34,913)
113,117
-----------167,213
(1,181)
(10,196)
88,343
-----------142,287
-
-
12
6,996
-----------3,440
3
130
-----------(3,294)
(640)
13,663
(68,426)
7,188
(14,939)
(24,486)
-----------79.573
(168)
(9,183)
(30,576)
4,030
(26,869)
(49,925)
-----------29,596
------------
(411)
------------
(152,582)
(5,891)
------------
(66,157)
1,139
------------
3,440
------------
(3,705)
------------
(78,900)
------------
(35,422)
------------
(3,448)
-----------(3,448)
------------
6,708
-----------6,708
------------
(2,000)
(42,179)
(5)
6,964
17,152
-----------(20,068)
------------
(55,050)
(220)
39,245
2,036
-----------(13,989)
------------
STATEMENTS OF CASH FLOWS
Company
2015
Cash flows from financing activities
Proceeds from new loans
Issuance of debenture
Repayment of loans
Net cash provided by (used in) financing activities
Effect of exchange rate variations on cash and cash
equivalents in foreign currency
Increase (decrease) in cash and cash equivalents
Cash and cash equivalents:
At the beginning of the year
At the end of the year
Increase (decrease) in cash and cash equivalents
Consolidated
2014
2015
2014
-----------------------
19,130
(22,043)
-----------(2,913)
------------
728,429
(616,060)
-----------112,369
------------
323,212
270,000
(496,243)
-----------96,969
------------
-----------(8)
------------
-----------90
------------
6,954
-----------20,355
------------
421
-----------47,979
------------
136
128
-----------(8)
=======
46
136
-----------90
=======
129,570
149,925
-----------20,355
=======
81,591
129,570
-----------47,979
=======
STATEMENTS OF VALUE ADDED
Company
REVENUES
Sales of products, goods and services
Allowance for doubtful accounts
Gain (loss) on disposal of property, plant and equipment and
intangibles
MATERIALS ACQUIRED FROM THIRD PARTIES
Cost of goods and services sold
Materials, energy, third party services, and others
Reversal of impairment losses of property, plant and equipment
GROSS VALUE ADDED
RETENTIONS
NET VALUE ADDED PRODUCED BY THE COMPANY
VALUE ADDED RECEIVED BY TRANSFER
Financial income
Exchange rate variation gains
Royalties
TOTAL VALUE ADDED FOR DISTRIBUTION
DISTRIBUTION OF VALUE ADDED
Salary, wages and compensation
Taxes, duties and contributions
Payments to third parties
Equity – Net loss
VALUE ADDED DISTRIBUTED
2015
2014
-
-
-----------
Consolidated
2015
2014
2,531,673
(1,333)
2,395,802
(5,590)
-----------
25,248
--------------2,555,588
(15,756)
--------------2,374,456
(3,402)
----------(3,402)
----------(3,402)
(3,468)
----------(3,468)
----------(3,468)
(1,213,410)
(360,845)
--------------(1,574,255)
--------------981,333
(1,106,017)
(364,043)
1,181
--------------(1,468,879)
--------------905,577
----------(3,402)
----------(3,468)
(78,687)
--------------902,646
(85,995)
--------------819,582
28,142
347
----------28,489
----------25,087
======
(25,667)
2,858
4,444
----------(18,365)
----------(21,833)
======
25,810
89,674
13,327
--------------128,811
--------------1,031,457
=========
16,321
33,572
12,226
--------------62,119
--------------881,701
=========
491
2,132
22,464
----------25,087
======
(2,300)
8,866
(28,399)
----------(21,833)
======
443,830
232,223
332,827
22,577
--------------1, 031,457
=========
421,810
219,629
269,367
(29,105)
--------------881,701
=========
NOTES TO THE FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2015
(Amounts in thousands of Brazilian Reais)
1. OPERATIONS
Springs Global Participações S.A. (the “Company”), domiciled in Montes Claros – MG, Brazil, was
incorporated on November 24, 2005 and, on January 24, 2006 received as capital contribution 100%
of the shares of Coteminas S.A. (“CSA”) and Springs Global US, Inc. (“SGUS”), privately-held
companies headquartered in Brazil and in the United States, respectively, whose shareholders were
Companhia de Tecidos Norte de Minas - Coteminas (“CTNM”) and the former shareholders of
Springs Industries, Inc. (“SI”), respectively. On April 30, 2009, the Company acquired a controlling
interest in Springs e Rossini Participações S.A. (“SRPSA”), the parent of MMartan Têxtil Ltda
(“MMartan”).
On July 27, 2007, the Company’s stock began trading on the “Bolsa de Valores, Mercadorias e
Futuros” – BM&FBOVESPA S.A., in the “Novo Mercado” segment, under the code “SGPS3”.
The Company functions as the holding company of CSA and SGUS, companies that focus their
manufacturing and distribution operations on bed and bath linens, previously carried out by CTNM
and SI. This joint venture created a textile industrial complex of bed linens and bath products, with
production units in Brazil, Argentina and the United States.
The Company also has leading brands in their markets, such as MMartan, Casas Moysés, Artex,
Santista, Paládio, Calfat, Garcia, Arco Íris, Magicolor, among others. The Company’s products have
a privileged market standing on the shelves of the largest and most demanding retail channels of the
world.
The Company’s products are sold in the United States and Canada by SGUS through its vast
distribution chain that is close to the largest retailers in those markets. In Brazil and Argentina, its
products are sold by CSA and its subsidiary Coteminas Argentina S.A.
In April 2009, the Company started its bed, tabletop and bath retail operations, under the brand
MMartan and later, in October 2011, with the brand Artex. The retail operation of these two brands is
run by subsidiary AMMO Varejo Ltda. (“AMMO”).
2. PRESENTATION OF FINANCIAL STATEMENTS
The financial statements were approved by the Company’s Board of Directors on March 1, 2016.
The Company presents its individual (“Company”) and consolidated (“Consolidated”) financial
statements, prepared, simultaneously, in accordance with International Financial Reporting
Standards (“IFRS”) issued by the International Accounting Standards Board ("IASB"), and
accounting practices adopted in Brazil, which include the standards in the Brazilian Corporate Law
and the pronouncements, orientations and interpretations issued by Brazilian Committee of
Accounting Pronouncements (“CPC”), approved by the CVM (Brazilian Securities and Exchanges
Commission) and the CFC (Federal Accounting Council).
The Company adopted all standards, review of standards and interpretations issued by the IASB
and the CPC which were effective on December 31, 2015.
1
2.1 – Translation of balances in foreign currency
a) Functional and presentation currency
The financial statements of each subsidiary included in the consolidation of the Company and used
as a basis for valuation of investments through the equity method are prepared using the functional
currency of each entity. The functional currency of an entity is the currency of the primary economic
environment in which it operates. By defining the functional currency of each of its subsidiaries,
Management considered which currency significantly influences the selling price of their products
and services, and the currency in which most of the production cost inputs are paid or incurred.
The consolidated financial statements are presented in Reais (R$), which is the functional and
presentation currency of the Company.
b) Conversion of balances
The results and financial position of all subsidiaries included in the consolidation that have functional
currencies different from the presentation currency are translated to the presentation currency as
follows:
i) assets and liabilities are translated at the exchange rate prevailing on the date of the financial
statements;
ii) income and expenses are translated at the monthly rate of exchange, and
iii) all differences resulting from the translation are recognized in equity under the caption
"Cumulative translation adjustment" and are presented as other comprehensive income in the
statement of comprehensive income.
2.2 – Accounting policies
The significant accounting policies used in the preparation of the financial statements are as follows:
(a) Results of operations--Results of operations are calculated in accordance with the accrual
basis of accounting. Revenue is not recognized if there is significant uncertainty regarding its
realization. Interest income and expense are recognized using the effective interest rate as
financial income and expenses in the statements of operations. The extraordinary gains and
losses and the transactions and provisions involving property, plant and equipment are recorded
in the statements of operations as "Others, net ".
(b) Non-derivatives financial instruments--Non-derivative financial instruments include cash and
cash equivalents, accounts receivable and other current and noncurrent receivables, loans and
financing, suppliers, other accounts payable and other equity and debt instruments. The nonderivative financial instruments are initially recognized at fair value plus costs directly attributable
to their acquisition or issuance. Subsequent to the initial recognition, non-derivative financial
instruments are measured at each balance sheet date, according to their classification, which is
defined in the initial recognition based on the purposes for which they were acquired or issued.
The financial instruments classified as assets fall into the category of "Loans and receivables"
and, together with the financial liabilities, after the initial recognition at fair value, are valued
based on amortized cost using the effective interest rate method. Interest, monetary and
exchange rate variations, less impairment losses, if any, are recognized as revenue or expense
in the statements of operations as incurred.
2
The Company does not have any non-derivative financial assets classified in the following
categories: (i) held for trading, (ii) held to maturity, and (iii) available for sale, and also does not
have any non-derivative financial liabilities classified as "Fair value through profit or loss”.
(c) Derivative financial instruments--Derivative financial instruments are initially recognized at fair
value and, subsequently, the change in fair value is recorded in the statements of operations,
unless the derivative is designated as a cash flow hedge, which should follow the method of
accounting for cash flow hedges.
A derivative financial instrument is classified as a cash flow hedge when its purpose is to protect
against exposure to cash flow variability that is attributable both to a particular risk associated
with a recognized asset or liability, as well as to a transaction that is probable to occur, or to
exchange rate risk related to an unrecognized firm commitment.
When initiating a derivative transaction intended to hedge a risk, the Company formally
designates and documents the hedged item, as well as the objective of the risk policy and
strategy of the hedge transaction. The documentation includes identification of the hedging
instrument, the item or transaction being hedged, the nature of the risk to be protected and how
the entity will assess the effectiveness of the hedging instrument in offsetting the exposure to
changes in fair value of the hedged item or cash flows attributable to the hedged risk. The
purpose is that these hedging instruments are effective to offset changes in fair value or cash
flows and are assessed on an ongoing basis to determine if they have been actually effective
throughout the year for which they were designated.
The effective portion of gain or loss on change in fair value of the hedging instrument is
recognized directly in equity in the caption “Assets and liabilities valuation adjustments”, while
any ineffective portion is recognized immediately as income or expense in the statements of
operations.
The amounts classified in equity as asset and liability valuation adjustment are reflected in the
statements of operations in the period in which the hedged item affects the results, adjusting the
value of the hedged expense.
If the firm commitment is no longer expected to occur, amounts previously recognized in equity
are reflected in the statements of operations. If the hedged instrument expires or is sold,
terminated or exercised without replacement or rollover, or if its designation as a hedge is
revoked, the amounts previously recognized in equity are reflected in the statements of
operations.
(d) Cash and cash equivalents--Includes cash, deposits, cash in transit and short-term
investments with immediate liquidity and original maturities of 90 days or less (or without fixed
maturity), which are subject to an insignificant risk of change in its value. Cash and cash
equivalents are classified as non-derivative financial assets, measured at amortized cost, and its
earned income is recognized in the statements of operations of the year.
(e) Marketable securities--Represented by amounts of immediate liquidity with maturities of more
than 90 days and are subject to an insignificant risk of change in their value. Marketable
securities are classified as non-derivative financial assets measured at amortized cost and
interest earned is recognized in the statements of operations of the year.
(f) Accounts receivable and allowance for doubtful accounts--Accounts receivable from
customers are presented net of the allowance for doubtful accounts, which is determined
based on a credit risk analysis, in an amount considered sufficient by Management to
cover possible losses on receivables. Accounts receivable arising from retail sales are
adjusted at present value, based on the market interest rates or the transaction interest
rate. Current accounts receivable are adjusted whenever effects are significant. Accounts
3
receivable from customers are classified as non-derivative financial assets measured at
amortized cost.
(g) Inventories--Valued at average acquisition or production cost, which is lower than net
realizable value and are stated net of provision for losses on discontinued and/or obsolete
items. The net realizable value is the estimated selling price in the ordinary course of
business less the estimated costs of completion of manufacturing and directly related
selling expenses.
(h) Property, plant and equipment held for sale--Includes out-of-use machinery and
equipment measured at fair value less selling expenses, when this amount is lower than
net book value.
(i) Investments--Investments in subsidiaries are accounted for using the equity method
based on the balance sheet of the respective subsidiaries as of the same date as the
Company’s balance sheet. The value of the equity of foreign subsidiaries is converted into
Reais based on the current rate of its functional currency and the foreign exchange rate
variation is recorded in "Cumulative translation adjustment" in equity and presented as
other comprehensive income.
(j) Business combinations--The cost of the acquired entity is allocated to the acquired
assets and liabilities, based on their estimated fair value at the acquisition date. Any
difference between the entity’s cost and the fair value of the acquired assets and liabilities
is recognized as goodwill.
(k) Research and development expenses--Are recognized as expenses when incurred.
(l) Lease--Operating leases are recognized as expense on a straight-line basis over the
lease term, except when another systematic basis is more representative of the future
economic benefits. Contingent leases, related to either capital or operating leases, are
recognized in the statements of operations when incurred. Subsidiary SGUS records an
accrual for unrecoverable lease costs based on the estimated present value of future lease
obligations (whose contracts are still valid after the closing of the leased facilities), net of
existing sublease income and estimated sublease income for closed facilities which were
not yet subleased.
(m) Property, plant and equipment--Recorded at acquisition or construction cost.
Depreciation is calculated using the straight-line method based on the estimated useful
lives of the assets. Expenses incurred that increase the value and extend the estimated
useful lives of the assets are capitalized; maintenance and repairs are recorded as
expenses when incurred.
The estimated useful life of property, plant and equipment is as follows:
Useful life
Buildings
Installations
Equipment
Hydroelectric Plant - Porto Estrela
Furniture and fixtures
Vehicles
Computers and peripherals
40 years
15 years
15 years
35 years
10 years
5 years
5 years
The residual value and useful life of the assets are assessed by Management at least at
the end of each year.
4
(n) Intangible assets--Represented by trademarks acquired, and goodwill on companies
acquired. Intangible assets with finite useful lives are amortized using the straight line
method, over their estimated useful lives. Intangible assets with indefinite useful lives are
tested for impairment annually, or as deemed necessary, in order to determine the
recoverability of their net book values.
(o) Impairment of assets--Assets included in property, plant and equipment, intangible
assets, and other noncurrent assets are tested for impairment annually, or when
circumstances indicate that the net book value may not be recoverable. When impairment
is required, it is recognized in the statements of operations. Previous period impairment
losses on fixed assets may be reversed whenever there is an assessment or reliable
evidence that the value of the asset has recovered. The reversal is recognized in the
statement of operations to the extent it does not exceed the previously recognized
impairment losses.
(p) Income and social contribution taxes--The provision for income and social contribution
taxes is calculated at the rate of approximately 34% on taxable income and is recognized
net of the portion related to the income tax exemption. The accrual balance is net of
prepayments made during the year, if applicable. For foreign subsidiaries, the tax rate
ranges from 35% to 38%, according to the tax legislation of each country.
(q) Deferred income and social contribution taxes--Deferred income and social contribution taxes
are recognized on net operating losses and temporary differences arising from provisions stated
in the accounting records, which, according to the tax rules, will only be considered deductible or
taxable when realized. A deferred tax asset is recognized only when there is an expectation of
future taxable income.
(r) Miscellaneous accruals--Recorded at an amount considered sufficient by Management to
cover probable losses. The escrow deposits related to the accruals are presented in noncurrent
assets.
(s) Employee benefit plans--Pension plans and postretirement benefit costs are recognized on
an accrual basis, based on actuarial calculations. Actuarial gains and losses are recognized in
the statements of operations when incurred.
(t) Basic and diluted earnings (loss) per share--Basic earnings (loss) per share is calculated by
dividing the income or loss for the year attributable to the Company’s shareholders by the
weighted average number of shares outstanding. Diluted earnings per share is calculated by
adjusting the weighted average number of shares outstanding to assume conversion of potential
shares to be issued. The Company did not identify any potential issuance of new shares and,
therefore, a potential dilution in earnings (loss) per share.
(u) Monetary and exchange rate variations--Assets and liabilities subject to monetary or
exchange rate variations are restated on the balance sheet dates, in accordance with the
Brazilian Central Bank (BACEN) published rates or other contractual indices. Exchange gains
and losses and monetary variations are recognized in the statements of operations for the year,
except for the exchange gains and losses on investments in foreign subsidiaries, which are
recognized in “Cumulative translation adjustment” in equity.
(v) Revenue recognition--Revenue is measured at fair value of the consideration received or
receivable, less any estimates of returns, cash discounts and/or unconditional trade discounts
given to the buyer and other similar deductions. Revenue from product sales is recognized when
all the following conditions are met: (i) the Company transferred to the buyer the significant risks
and rewards related to ownership of the products, (ii) the Company does not maintain continuing
involvement in the management of goods sold in a degree usually associated with ownership or
effective control over such products, (iii) the amount of revenue can be reliably measured, (iv) it
5
is probable that the economic benefits associated with the transaction will flow to the Company
and (v) costs incurred or to be incurred related to the transaction can be measured reliably.
(w) Statements of Value Added ("DVA")--The purpose of these statements is to highlight the
wealth created by the Company and its distribution over a given year. They are presented by the
Company as required by the Brazilian Corporate Law, as part of its individual financial
statements and as supplemental information for the consolidated financial statements, since it is
not a statement provided nor required by IFRS standards. The DVAs have been prepared based
on information obtained from accounting records that are the basis for the preparation of the
financial statements.
(x) Owners of the Company and non-controlling interests--In the financial statements, "owners of
the Company" represents all the shareholders of the Company and “non-controlling interests"
represents the minority interest of the Company’s subsidiaries.
2.3 – Accounting estimates
The preparation of financial statements makes use of estimates in order to record certain assets,
liabilities and other transactions. To make these estimates, Management used the best information
available at the time of preparation of the financial statements, as well as the experience of past
and/or current events, also considering estimates regarding future events. Therefore, the financial
statements include estimates related mainly to the determination of useful lives of property, plant
and equipment, estimated recoverable value of noncurrent assets, provisions necessary for tax, civil
and labor liabilities, determination of provisions for income tax, determination of fair value of financial
instruments (assets and liabilities) and others, estimates related to the selection of interest rate,
expected return on assets and the choice of mortality table and expected wage increases applied to
the actuarial calculations. Actual results of transactions and information could differ from the
estimates.
2.4 – Consolidation criteria
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries CSA, AMMO and SGUS.
The subsidiary CSA, parent company of Coteminas Argentina S.A. with 100% of its capital, was
included in consolidation based on its consolidated financial statements.
The subsidiary SGUS, parent company of (i) Warbird Corporation (Delaware, US); (ii) Springs Home
Textiles Reynosa, S.A. de C.V. (Mexico); (iii) Casa Springs S.A. de C. V. (Mexico); (iv) Charles D.
Owen Mfg. Co. (Delaware, US); (v) Springmaid International, Inc. (India); (vi) Springs International
Services Inc. (South Carolina, US); (vii) Sabre US, Inc. (Delaware, US), (viii) Espacio LLC
(Delaware, US) all wholly-owned and (ix) Springs Canada Holdings, LLC (Delaware, US); (x)
Springs Canada, Inc. (Ontario, Canada); (xi) Springs Brands, LLC (Delaware, US); (xii) Springs
Cayman Holding Ltd. (Cayman Islands); (xiii) Springs Shanghai Trading Co., Ltd. (China) all with
87.5% ownership; was included in consolidation based on its consolidated financial statements.
The consolidation of the balance sheets and statement of operations accounts corresponds to the
sum of assets, liabilities, revenues and expenses, according to their nature, after eliminating
investments in subsidiaries, unrealized profits or losses and intercompany balances.
The effect of the exchange rate variations on foreign investments is disclosed in a separate caption
in the statement of changes in equity, “Cumulative translation adjustment”. The accounting practices
of the foreign subsidiaries were adjusted to conform to accounting practices of the parent company.
Non-controlling interest is presented separately in the statements of operations and equity.
6
The financial statements of foreign subsidiaries have been translated into Brazilian Reais based on
the US Dollar exchange rate as of December 31, 2015 and 2014, for balance sheet accounts and
the average monthly exchange rate for statement of operations accounts, as follows:
2015
2014
Variance
Exchange rate as of:
December 31
3.9048
2.6562
47.0
Average exchange rate:
December 31 (12 months)
3.3876
2.3599
43.5
2.5 – New IFRS, revised IFRS and IFRIC interpretations (IASB International Financial Reporting
Interpretations Committee).
a) Certain new IASB accounting pronouncements and IFRIC interpretations were published and/or
revised and have their mandatory adoption for the annual periods beginning after January 1, 2015.
These new pronouncements did not generate significant impact on the financial statements.
Standard
Main requirements
Annual Improvements to IFRSs: 2010 –
2012 Cycle (*)
Amendments to several standards.
Annual Improvements to IFRSs: 2011 –
2013 Cycle (*)
Amendments to IAS 19 — Employee
contributions to defined benefit plans
and revision to CPC technical
pronouncements no. 06 (CVM
resolution no. 728/14) (*)
Change the requirements for the recognition of the contributions made
by employees or third parties that are linked to the services.
b) Certain new IASB accounting procedures and IFRIC interpretations were published and/or
revised and have their mandatory adoption for the periods beginning after December 31, 2015.
However, the early adoption of these new and revised standards was not allowed:
Standard
Main requirements
Effective date
IFRS 9, Financial Instruments
(issued July 24, 2014) (*)
Effective for annual
IFRS 9 (2014) was issued as a complete standard
periods beginning on or
including the requirements previously issued and
after January 1, 2018.
the additional amendments to introduce a new
expected loss impairment model and limited
changes to the classification and measurement
requirements for financial assets. This amendment
completes the IASB’s financial instruments project.
Agriculture: Bearer Plants amendments to IAS 16 and 41
(issued June 30, 2014) (*)
Amendments to the guidance on bearer plants that
are now included within the scope of IAS 16 rather
than IAS 41 because the IASB has determined that after January 1, 2016.
they “should be accounted for in the same way as
property, plant and equipment.”
7
Standard
Main requirements
Effective date
IFRS 15, Revenue From
Contracts With Customers
(issued May 28, 2014) (*)
The standard outlines a single comprehensive
model for entities to use in accounting for revenue
arising from contracts with customers and
supersedes most current revenue recognition
guidance. The standard specifies how and when
an entity will recognize revenue through a single
five-step model to be applied to all contracts with
customers, and requires such entities to provide
users of financial statements with more informative
and relevant disclosures.
Clarification of Acceptable
Methods of Depreciation and
Amortization — Amendments to
IAS 16 and IAS 38 (issued May
12, 2014) (*)
The amendments clarify that a depreciation or an
amortization method that is based on revenue that
is generated by an activity that includes the use of
an asset is not appropriate, except in some limited
circumstances for intangible assets.
The amendments determine that the acquirer of an Effective for annual
Accounting for Acquisitions of
interest in a joint operation in which the activity
Interests in Joint Operations —
constitutes a business is required to apply all of the after January 1, 2016.
Amendments to IFRS 11 (issued
principles on business combinations accounting in
May 6, 2014) (*)
IFRS 3.
IFRS 14, Regulatory Deferral
Accounts (issued January 30,
2014) (*)
The standard permits an entity which is a first-time
adopter of IFRS to continue to account for
'regulatory deferral account balances' in
accordance with its previous GAAP, both on initial
adoption of IFRS and in subsequent financial
statements.
Annual Improvements to IFRSs:
2012–2014 Cycle (issued
September 25, 2014) (*)
Sale or Contribution of Assets
Amendments to IAS 28 and IFRS 10 to resolve an
Between an Investor and Its
inconsistency between the guidance in IFRS 10
Associate or Joint Venture —
and that in IAS 28 with respect to “the sale or
amendments to IFRS 10 and IAS contribution of assets between an investor and its
28 (issued September 11, 2014)
associate or joint venture.” Under the
(*)
amendments, an entity would recognize a full gain
or loss “when a transaction involves a business”
and would recognize a partial gain or loss “when a
transaction involves assets that do not constitute a
business”.
Effective prospectively
for sales or
contributions of assets
occurring in annual
8
Standard
Main requirements
Effective date
Investment Entities: Applying the
Amendments to IFRS 10, 12 and IAS 28 to confirm Effective for annual
Consolidation Exception that (1) the exemption from preparing consolidated
amendments to IFRS 10, IFRS
financial statements for an intermediate parent
12 and IAS 28 (issued December entity is available to a parent entity that is a
18, 2014) (*)
subsidiary of an investment entity, even if the
investment entity measures all of its subsidiaries at
fair value; (2) a subsidiary that provides services
related to the parent's investment activities should
not be consolidated if the subsidiary itself is an
investment entity; (3) when applying the equity
method to an associate or a joint venture, a noninvestment entity investor in an investment entity
may retain the fair value measurement applied by
the associate or joint venture to its interests in
subsidiaries; and (4) an investment entity
measuring all of its subsidiaries at fair value
provides the disclosures relating to investment
entities required by IFRS 12.
Effective Date of Amendments to
IFRS 10 and IAS 28 (issued
December 17, 2015) (*)
The effective date of the amendments to IFRS 10
and IAS 28, which address how an entity
determines any gain or loss related to
transactions with an associate or joint venture
was indefinitely deferred by the IASB.
The effective date is
postponed to an
indefinite date to be
determined by the
IASB.
IFRS 16 – Leases (*)
The standard brings most leases on-balance sheet
for lessees under a single model, eliminating the
distinction between operating and finance leases.
Lessor accounting however remains largely
unchanged and the distinction between operating
and finance leases is retained. IFRS 16
supersedes IAS 17 'Leases' and related
interpretations.
Effective for periods
beginning on or after 1
January 2019, with
earlier adoption
permitted if IFRS 15
'Revenue from
Contracts with
Customers' has also
been applied.
9
Standard
Disclosure Initiative
(Amendments to IAS 7) (*)
Main requirements
Effective date
Entities should disclose the following changes in Effective for annual
periods beginning on
liabilities arising from financing activities are
or after January 1,
disclosed (to the extent necessary): (i) changes
2017.
from financing cash flows; (ii) changes arising
from obtaining or losing control of subsidiaries or
other businesses; (iii) the effect of changes in
foreign exchange rates; (iv) changes in fair
values; and (v) other changes.
The IASB defines liabilities arising from financing
activities as liabilities "for which cash flows were,
or future cash flows will be, classified in the
statement of cash flows as cash flows from
financing activities". It also stresses that the new
disclosure requirements also relate to changes in
financial assets if they meet the same definition.
The amendments state that one way to fulfil the
new disclosure requirement is to provide a
reconciliation between the opening and closing
balances in the statement of financial position for
liabilities arising from financing activities. The
amendments state that changes in liabilities
arising from financing activities must be disclosed
separately from changes in other assets and
liabilities.
Amendments to IAS 12 —
Recognition of deferred tax
assets for unrealised losses (*)
The amendments clarifies that unrealised losses on Effective for annual
periods beginning on
debt instruments measured at fair value and
or after January 1,
measured at cost for tax purposes give rise to a
2017.
deductible temporary difference regardless of
whether the debt instrument's holder expects to
recover the carrying amount of the debt
instrument by sale or by use.
The carrying amount of an asset does not limit the
estimation of probable future taxable profits.
Estimates for future taxable profits exclude tax
deductions resulting from the reversal of
deductible temporary differences.
An entity assesses a deferred tax asset in
combination with other deferred tax assets.
Where tax law restricts the utilisation of tax
losses, an entity would assess a deferred tax
asset in combination with other deferred tax
assets of the same type.
(*) The CPC has not yet issued the statements and changes corresponding to the new and revised
IFRS and the IFRIC discussed earlier. Due to the commitment of the CPC and the CVM to maintain
an updated set of standards issued based on the updates made by the IASB, it is expected that
these pronouncements and changes will be edited by the CPC and approved by the CVM before the
date of its mandatory application.
10
3. CASH AND CASH EQUIVALENTS
Company
2014
2015
Repurchase transactions (*)
Foreign exchange funds (US$)
Foreign deposits
Checking accounts deposits
128
----------128
======
136
----------136
======
Consolidated
2015
2014
41,461
162
91,391
16,911
-----------149,925
=======
67,158
954
46,914
14,544
-----------129,570
=======
(*) Income from financial investments ranges from 90% to 100% of the rates earned on Interbank
Deposit Certificate – CDI.
4. MARKETABLE SECURITIES
Consolidated
2014
2015
Restricted cash (*)
2,000
--------2,000
=====
1,360
--------1,360
=====
(*) On December 31, 2015, the subsidiary SGUS had restricted cash in financial institutions in the
amount of US$512 thousand (US$512 thousand as of December 31, 2014) related to a
compensating balance arrangement.
5. ACCOUNTS RECEIVABLE
Consolidated
2014
2015
Domestic customers
Foreign customers
Credit card companies
Related parties – domestic market
Related parties – foreign market
Allowance for doubtful accounts
368,214
153,097
4,119
5,430
3,930
----------534,790
(25,964)
----------508,826
======
405,139
103,193
18,221
12,745
7,272
----------546,570
(24,081)
----------522,489
======
The credit sales made by MMartan and Artex stores are made directly to the consumer that can pay
in up to 10 installments by instruments of credit granted by credit card companies. Present value
adjustments on these amounts are made considering the market rates, since cash sales prices do
not differ from installment sales prices. On December 31, 2015, the installment receivables under
this type of sale were R$6,815 (R$20,856 as of December 31, 2014), with an average collection
period of 90 days, totaling to an adjustment in the amount of R$2,697 (R$2,635 as of December 31,
2014), using 100% of the CDI as the interest rate.
11
Accounts receivable from customers consist of receivables with an average collection period of
approximately 72 days (78 days as of December 31, 2014). The past due amounts are not
significant and the allowance for doubtful accounts is considered by Management sufficient to cover
expected losses.
The Company's Management believes that the risk related to accounts receivable is minimized
because the composition of the company's customer portfolio is diluted. The Company has over
10,000 active clients as of December 31, 2015 and only one customer accounts for approximately
10% of sales.
The aging list of the consolidated accounts receivable is as follows:
2015
Current
Past due up to 30 days
Past due from 31 to 60 days
Past due greater than 360 days
2014
451,069
22,004
13,281
1,392
3,660
5,578
37,806
455,477
33,551
8,595
6,155
5,717
2,746
34,329
-------------
-------------
534,790
=======
546,570
=======
Changes in the consolidated allowance for doubtful accounts are as follows:
Balance at the beginning of the year
Additions
Write-offs
Exchange rate variation
Balance at the end of the year
2015
2014
(24,081)
(1,421)
248
(710)
------------(25,964)
=======
(18,375)
(6,133)
543
(116)
------------(24,081)
=======
6. INVENTORIES
Consolidated
2014
2015
Raw materials and supplies
Work in process
Finished products
Repair parts
170,792
161,489
274,546
51,165
-----------657,992
=======
175,357
125,709
235,499
53,001
-----------589,566
=======
Inventories are presented net of the provision for losses, which, based on Management’s
assessment, is sufficient to cover losses related to obsolete and/or discontinued inventories.
12
Changes in the provision are as follows:
Raw materials and supplies
Finished products
Repair parts
2014
Additions
Write-offs
Exchange
rate
variations
(1,313)
(1,101)
(1,099)
------------(3,513)
=======
(8,671)
(336)
------------(9,007)
=======
229
------------229
======
(700)
(30)
------------(730)
======
2015
(1,313)
(10,243)
(1,465)
-----------(13,021)
======
7. INVESTMENTS IN SUBSIDIARIES
a) Direct investments:
Net income
Subsidiaries
SGUS (1)
CSA
AMMO(2)
Equity
Ownership
(loss) for the
(deficit)
interest %
year
(61,360)
1,050,222
97,237
100.00
100.00
100.00
25,200
37,334
(44,556)
Total investment
2015
2014
1,050,222
97,237
------------1,147,459
=======
1,019,258
100,204
------------1,119,462
=======
(Company)
2015
2014
25,200
37,334
(34,392)
------------28,142
=======
(3,966)
16,957
(38,658)
------------(25,667)
=======
(1) As of December 31, 2015, the investment in subsidiary SGUS is a deficit of R$61,360 (R$60,879
as of December 31, 2014) and it is presented in noncurrent liabilities under “Subsidiaries
obligations”.
(2) On August 31, 2014, subsidiary CSA made a capital investment in the amount of R$47,153 using
a portion of its outstanding credits with subsidiary AMMO on that date, in exchange to 29.33% of its
capital. On October 31, 2015, the Company acquired all of these shares, and now holds 100% of
the capital of this subsidiary.
13
b) Indirect investments:
SGUS’ investments
Warbird Corporation (Delaware, US)
Springs Home Textiles Reynosa, S.A. de C.V.
(Mexico) (1)
Casa Springs S.A. de C.V. (Mexico) (1)
Charles D. Owen Mfg. Co. (Delaware, US)
Springmaid International, Inc. (India)
Springs International Services Inc.
(South Carolina, US)
Sabre US, Inc. (Delaware, US)
Espacio LLC (Delaware, US)
Springs Canada Holdings, LLC (Delaware, US)
Springs Canada, Inc. (Ontario, Canada) (2)
Springs Brands, LLC (Delaware, US) (2)
Springs Cayman Holding Ltd. (Cayman Islands) (2)
Springs Shanghai Trading Co., Ltd. (China) (3)
Total investment
Ownership
Equity
(deficit)
interest %
2015
2014
2015
2014
(14)
100.0
(14)
44
(78)
(45)
2,167
1,859
(1,007)
207
100.0
100.0
100.0
100.0
2,167
1,859
(1,007)
207
1,435
1,395
(693)
142
59
(23)
12
-
50
(199)
(2,090)
117
(1,108)
34,872
(894)
39,048
44,080
(3,488)
4,353
(245)
100.0
100.0
100.0
87.5
87.5
87.5
87.5
87.5
(1,108)
34,872
(894)
34,167
38,570
(3,052)
3,809
(214)
(754)
25,281
(608)
23,242
30,483
(2,474)
2,599
(59)
(2,186)
472
585
(13)
(1,317)
(7,278)
2,356
(388)
(1) Warbird Corporation’s (Delaware, US) wholly-owned subsidiaries.
(2) Springs Canada Holdings, LLC’s (Delaware, US) wholly-owned subsidiaries.
(3) Springs Cayman Holding Ltd.’s (Cayman Islands) wholly-owned subsidiary.
CSA’s investment
Equity
Ownership
Net loss for
interest %
the period
100.0
33,041
Total investment
2015
2014
2015
2014
Subsidiary Coteminas Argentina S.A.
104,016
104,016
77,344
33,041
(4,456)
======
======
----------
----------
41,588
(10,163)
(4,440)
======
----------
----------
Affiliated AMMO Varejo Ltda.
-
-
-
======
22,878
(8,896)
======
======
14
8. PROPERTY, PLANT AND EQUIPMENT AND PROPERTY, PLANT AND EQUIPMENT HELD
FOR SALE
a. Property, plant and equipment
Consolidated
2015
Rate
Accumulated
depreciation
Cost
(*)%
2014
Net
book value
Net
book value
Land and improvements
8.1
60,245
(23,278)
36,967
46,833
Buildings
2.4
430,430
(181,042)
249,388
257,453
Installations
5.3
229,754
(145,717)
84,037
94,489
Machinery and equipment
5.2
1,126,284
(819,607)
306,677
333,111
Hydroelectric Plant - Porto Estrela (**)
3.8
37,552
(13,722)
23,830
25,247
9.7
49,651
(32,817)
16,834
18,142
Vehicles
16.1
17,687
(15,334)
2,353
2,516
15.9
62,873
(58,895)
3,978
4,292
-
52,289
52,289
55,630
Construction in progress
Others
10.1
-
168,576
---------------
(160,036)
---------------
8,540
---------------
9,547
---------------
2,235,341
=========
(1,450,448)
=========
784,893
=========
847,260
=========
(*) Weighted average annual depreciation rate.
(**) See note 20.
Considering the operating profitability and cash generation, the Company and its subsidiaries
concluded that there is no evidence of deterioration or failure to recover the balances held as
property, plant and equipment.
The changes in consolidated property, plant and equipment are as follows:
Cost:
2014
Buildings
Installations
Additions
Disposals
Transfers to
held for sale
Transfers
69,228
3,588
(12,828)
-
-
420,969
5
(11,442)
-
10,142
Exchange
rate
variations
2015
257
60,245
10,756
430,430
233,539
2,587
(8,527)
(2)
2,755
(598)
229,754
1,094,065
10,236
(15,638)
(666)
9,053
29,234
1,126,284
37,534
18
45,742
1,349
-
-
(2,204)
(1)
-
-
37,552
1,178
3,587
49,651
17,687
Vehicles
15,456
679
(541)
69
55
1,969
49,286
1,405
(826)
(1,222)
307
13,923
62,873
Construction in progress
55,630
22,307
(2,419)
(23,513)
284
52,289
119,022
---------------
5
---------------
(6)
--------------
(67)
---------------
23
---------------
49,599
--------------
168,576
--------------
2,140,471
=========
42,179
========
(54,431)
=========
(1,889)
=========
========
109,011
=========
2,235,341
=========
Others
-
15
Accumulated depreciation:
2014
Buildings
Additions
Disposals
Transfers to
held for sale
2015
(22,395)
(7,520)
6,724
-
-
(87)
(23,278)
(163,516)
(9,985)
3,220
-
-
(10,761)
(181,042)
Installations
(139,050)
(9,501)
2,998
-
(760,954)
(41,815)
11,827
(1,119)
(12,287)
(1,435)
-
(27,600)
(2,920)
1,013
Vehicles
(12,940)
(953)
(44,994)
(2,073)
(109,475)
--------------(1,293,211)
=========
Others
Transfers
Exchange
rate
variations
(385)
221
(145,717)
27
(27,573)
(819,607)
-
1
5
541
(68)
(12)
772
1,224
(1,461)
-------------
6
-------------
67
---------------
(77,663)
========
27,101
=========
105
=========
-
-
(13,722)
(3,316)
(32,817)
(1,902)
(15,334)
(13,824)
(58,895)
365
---------------
(49,538)
---------------
(160,036)
---------------
=========
(106,780)
=========
(1,450,448)
=========
b. Property, plant and equipment held for sale
The Company’s subsidiaries identified assets that were removed from operations and considered
held for sale. These assets include machinery and equipment removed as a result of the
modernization of the Brazilian subsidiary manufacturing facilities and machinery and equipment from
the American subsidiary manufacturing facilities that were shutdown. Additionally, the equipment
available for sale from the readjustment of productive capacities was also included in this category.
These assets were measured at the lower of the net book value or market value, resulting in the
recognition of probable impairment losses (reduction of recoverable value).
As a result of this analysis, the recoverable value of R$59,132 (R$40,527 as of December 31, 2014)
was presented in noncurrent assets under “Property, plant and equipment held for sale”, and,
consequently, removed from the table above based on its net book value.
Changes in the property, plant and equipment held for sale are as follows:
Additions
Disposals
361,459
260
(15,579)
1,889
156,233
504,262
(283,066)
(1,036)
12,491
(105)
(123,594)
(395,310)
(49,820)
2014
Cost
Depreciation
Provision for losses
Exchange
rate
variations
Transfers
from PP&E
2015
(37,866)
(53)
2,617
-
(14,518)
----------
---------
----------
---------
---------
----------
40,527
(829)
(471)
1,784
18,121
59,132
=====
=====
=====
=====
=====
=====
9. INTANGIBLE ASSETS
Consolidated
2014
2015
Goodwill from the acquisition of North American
companies
Goodwill from the acquisition of AMMO (parent company)
Trademarks
Store locations (real estate intangible)
Total
43,929
27,303
16,307
39,643
----------127,182
======
30,616
27,303
16,307
45,348
----------119,574
======
16
The Company and its subsidiaries evaluate the recoverability of goodwill on investments annually
and use accepted market practices, such as discounted cash flow for business units that have
goodwill. Recoverability of goodwill is evaluated based on analysis and identification of facts and
circumstances that could require the tests to be performed at an earlier date. If a fact or
circumstance indicates that the recoverability of goodwill is affected, then the test is anticipated.
The projection period for the December 2015 cash flows was five years. The assumptions used to
determine the fair value through the discounted cash flow method include: cost of capital, growth
rate and adjustments used for perpetual cash flows, methodology for determining working capital,
investment plans, and long-term economic-financial forecasts. Additionally, the perpetuity has been
calculated considering the stabilization of the operating margins, working capital and investments.
The annual discount rate used was 13.3% and the perpetuity growth rate considered was 3% per
year, for both SGUS goodwill, the acquisition of North American companies and the Company’s
goodwill in the acquisition of AMMO. The discount rates used were determined taking into
consideration market information available on the test date.
Changes in consolidated intangible assets for the year were as follows:
2014
Goodwill from the acquisition of North
American companies
Goodwill from the acquisition of AMMO
Trademarks
Store locations (real estate intangible)
30,616
27,303
16,307
45,348
----------119,574
======
Total
Disposals
Exchange
rate
variations
(5,705)
--------(5,705)
=====
13,313
--------13,313
=====
2015
43,929
27,303
16,307
39,643
----------127,182
======
The intangible assets presented above have indefinite useful lives, and therefore are not amortized,
but their recoverable values are tested for impairment annually. Trademarks are recorded at their
acquisition cost. The amounts related to the store locations (real estate intangible) are recorded at
acquisition cost.
10. LEASES
Subsidiary SGUS leases properties and equipment under operating leases. Total leasing expense in
2015 was R$41,310 (R$32,713 in 2014). Subsidiary SGUS contractually agreed with third-parties to
sublease certain vacant facilities that no longer provide economic benefit. Total sublease income in
2015 was R$12,958 (R$7,089 in 2014).
Lease payments scheduled for the future years are estimated as follows:
Year
2016
2017
2018
2019
2020
2015
38,802
36,326
34,991
30,750
27,853
Beginning in 2020, lease payments continue to decrease until the contracts terminate on several
dates through 2030, totaling R$270,935.
17
For the years between 2016 and 2024, subsidiary SGUS is scheduled to receive sublease payments
of R$60,670.
The subsidiary SGUS has short- and long-term accruals totaling R$27,655 (R$17,108 as of
December 31, 2014) which consists of the present value of estimated future lease obligations (for
the agreements that remained effective after the closing of certain leased facilities in the U.S.), net of
existing sublease income and estimated sublease income of closed facilities, which were not yet
subleased. This potential sublease income would result in a reduction of the above obligations by
R$221,729.
11. SUPPLIERS
Consolidated
2014
2015
Domestic market
Foreign market
24,388
127,768
---------152,156
======
82,848
84,247
---------167,095
======
Accounts payable to suppliers consist of amounts with an average maturity term of approximately 33
days (27 days as of December 31, 2014). Domestic suppliers include credits to purchase raw
material (cotton) amounting to R$2,405 (R$54,011 as of December 31, 2014).
12. LOANS AND FINANCING
Local currency:
BNDES (Revitaliza)
BNDES (Finame)
Banco do Brasil S.A.
Banco Santander S.A.
Banco Votorantim S.A.
Banco Itaú BBA S.A. (a)
Banco Bradesco S.A.
Outros
Foreign currency:
Deutsche Bank (Securitization)
Banco Patagonia
Total
Current liabilities
Noncurrent liabilities
Consolidated
Currency
Annual interest
rate - %
Maturity
R$
R$
R$
R$
R$
R$
R$
R$
R$
4.5 to 9.0
3.0 to 9.5
118.5 and 120.0 of CDI
109.0 and 119.0 of CDI
120.0 and 123.5 of CDI
TJLP+3.30
117.8 e 121.0 do CDI
134.0 do CDI
-
2016
2023
2016
2019
2017
2015
2016
2016
2023
9,680
4,787
37,125
380,189
54,773
105,341
10,726
80
----------602,701
26,272
5,210
30,401
307,006
37,648
17,407
104,684
13,023
83
----------541,734
US$ and CAD$
$ARG
US$
Libor+2.5
15.3
3.5
2016
2016
2016
66,422
1,032
19,567
----------87,021
----------689,722
(396,747)
----------292,975
=======
50,104
3,368
----------53,472
----------595,206
(403,748)
----------191,458
=======
2015
2014
(a) Original loan contract in Dollars plus 2.466% per annum with a swap for approximately 117.8%
and 121.0% of CDI with the same counterparty.
Loans are collateralized by: (i) registered security interest in real estate, machinery and equipment
located in the city of Montes Claros, as well as a guarantee from the controlling shareholder for the
“Revitaliza” loans; and (ii) by sureties and bank guarantees for the remaining financing.
18
Maturities are as follows:
2016
Local currency:
BNDES (Revitaliza)
BNDES (Finame)
Banco Bradesco S.A. (overdraft account)
Banco do Brasil S.A. (overdraft account)
Banco Santander S.A.
Banco Itaú BBA S.A.
Outros
Foreign currency:
Deutsche Bank (Securitization)
Banco Patagonia
2017
2018
2019 to 2023
Total
9,680
1,186
10,726
37,125
105,831
39,784
105,341
53
----------309,726
1,227
109,721
14,989
7
----------125,944
1,181
109,721
7
----------110,909
1,193
54,916
13
----------56,122
9,680
4,787
10,726
37,125
380,189
54,773
105,341
80
----------602,701
66,422
1,032
19,567
----------87,021
----------396,747
=======
--------------------125,944
=======
--------------------110,909
=======
--------------------56,122
=======
66,422
1,032
19,567
----------87,021
----------689,722
=======
13. DEBENTURE
Through a privately-negotiated debenture agreement, on May 30, 2014, subsidiary CSA issued a
non-convertible debenture with the following characteristics, which, on July 7, 2014, was fully
subscribed by Banco Votorantim. Subsequently, Banco Votorantim sold the Debenture to Gaia
Securitizadora Agro SA ("Gaia"), which became entitled to receive the full amount of subsidiary
CSA’s debt represented by the Debenture, plus the Debenture’s return and applicable default
charges, as well as other financial obligations under the Indenture, which are as follows:
Debenture Characteristics
-----------------------------------------------------------------------------------------------Quantity of issued Debentures
1
Debenture unit price (amount in Brazilian Reais)
R$270,000,000
Amortization
2 equal installments
Maturity of 1st installment
06/13/2016
Maturity of 2nd installment
06/13/2017
Return
110% of CDI
Interest amortization
Semiannual
Guarantees
(1)
Covenants
(2)
The Debenture was subject to public distribution with restricted placement efforts, pursuant to CVM
Instruction 476, subscribed by Banco Votorantim.
On June 11, 2014, it was signed with Gaia the Agribusiness Credit Rights Securitization Term
Sheet, for the 1st Series of the 3rd Issue of Agribusiness Receivables Certificates ("CRA"), binding
the Debenture to the issuance of the CRA.
On July 3 and 7, 2014, announcements of opening and closing of the distribution of the CRA were
published, respectively, and all 864 CRA were issued and subscribed with a unit price of R$312.5,
bringing the total amount of the offer to R$270,000, with the same return and guarantees as the
backing Debenture.
19
The funds were available to subsidiary CSA on date of the subscription of the CRA. The issuance
costs of the Debenture and the CRA, in the amount of approximately R$7,700, equivalent to 2.85%
of the total issuance amount, will be amortized as transaction cost, along with the Debenture
charges, prorated to the outstanding debt balance.
Balances on December 31, 2015 were as follows:
Original
amount
updated
Current
Noncurrent
Total
135,000
135,000
----------270,000
=======
Prepaid
interest
(2,550)
(1,152)
----------(3,702)
=======
Accrued
interest
2,034
----------2,034
=======
Balances on
2015
Balances on
2014
134,484
133,848
----------268,332
=======
1,685
263,748
----------265,433
=======
(1) Guarantees:
Secured guarantee: Real estate of subsidiary CSA which market valuation is greater than 120% of
the CRA issuance value. At any time, one or more real estate may be disposed at the discretion of
subsidiary CSA and without consent of the CRA holders, provided that: (i) such sale shall not
decrease the rate of 120% guarantee of the secured obligations to the CRA holders; and (ii)
subsidiary CSA uses the net proceeds of the disposed assets for repayment of bank loans.
Fidejussory guarantee: Surety given by the Company.
(2) Covenants:
In addition to the usual covenants, subsidiary CSA has agreed to comply with the following financial
ratios: (i) Net Debt to Adjusted EBITDA ratio, equal to or less than 4.25 (four and twenty-five
hundredths) during the year 2014; (ii) Net Debt to Adjusted EBITDA ratio, equal to or less than 4.10
(four and ten hundredths) during the year 2015; (iii) Net Debt to Adjusted EBITDA ratio, equal to or
less than 4.00 (four) during the year 2016; (iv) Net Debt to Shareholders' Equity ratio, equal to or
less than 0.7 (seven tenths); and (v) Adjusted EBITDA to Interest ratio, less than 2 (two). The ratios
set forth in items (iv) and (v) are planned for the entire contract period. The terms used to describe
the ratios have their particular definition set forth in the contract and may differ from the financial
statement lines. On December 31, 2015, subsidiary CSA complied with all the ratios above.
14. EQUITY
a. Capital
The subscribed and paid in capital is represented by 50,000,000 common shares with voting rights.
There was no change in the number of shares subscribed and paid for the period between January
1, 2014 and December 31, 2015, except for the reverse split of the Company’s shares described
below.
The Extraordinary General Meeting held on October 21, 2015 approved the reverse split of the
Company's shares in accordance with Article 12 of Law No. 6,404 / 76, totaling 200,000,000
registered common shares, without par value, representing the capital at a ratio of 4 shares for one,
without changing the amount of the capital, so that the capital as of that date is represented by
50,000,000 registered common shares, with no par value.
20
b. Dividends and realizable earnings reserve
Shareholders are entitled to dividends equivalent to 1/3 of annual net income, adjusted as per
Company’s bylaws and the Brazilian Corporate Law.
c. Retained earnings reserve
The retained earnings reserve is determined in compliance with article 196 of law 6,404/76.
15. RELATED-PARTY BALANCES AND TRANSACTIONS
Receivable
2015
2014
Company:
Coteminas S.A.
Companhia de Tecidos Norte de Minas Coteminas
AMMO Varejo Ltda.
Consolidated:
Coteminas International Ltd.
Companhia Tecidos Santanense
Encorpar – Empresa Nacional de
Comércio, Redito e Participações S.A.
Fazenda do Cantagalo Ltda.
Argentina branch
-
-
Payable
2015
2014
46,763
16,714
46
---------46
======
---------======
84
---------46,847
======
---------16,714
======
23,332
19
7,451
11
84
-
7,969
-
84
13
55
---------23,503
======
73
---------7,535
======
---------84
======
---------7,969
======
Finance charges
2015
2014
Company:
Coteminas S.A.
Springs Global US, Inc.
AMMO Varejo Ltda.
Consolidated:
Companhia de Tecidos Norte de Minas –
Coteminas
Companhia Tecidos Santanense
Encorpar – Empresa Nacional de
Comércio, Redito e Participações S.A.
Coteminas International
(2,139)
(3)
(780)
(1)
32
---------(2,110)
======
2,035
---------1,254
======
5,684
2,505
2
12
(53)
4
(7)
---------5,691
======
(99)
---------2,357
======
21
The balances held with related parties have long-term maturities, and charges are calculated
according to the rates equivalent to those in effect in the financial market, namely, 115% to 120% of
the Certificate of Interbank Deposit – CDI variance and LIBOR plus 3% per year for foreign
companies
The related party balances with direct subsidiary SGUS refer to a revolving loan agreement with a
limit of US$30 million, due by April 1, 2016. The finance charges include the exchange rate variation
plus interest calculated based on one-month LIBOR plus 3% per year. On August 30, 2014, these
loans were transferred to subsidiary CSA.
As stated in the Company’s shareholders’ agreement, the subsidiary SGUS must pay annually
US$1,429 thousand for services provided; net of expenses, to the shareholder Heartland Industrial
Partners, L.P. and the subsidiary CSA must pay US$3,500 thousand to the controlling shareholder
CTNM. In 2015, the total amount of R$16,370 (R$11,582 in 2014) was accrued for services provided
and R$5,563 (R$8,445 in December 31, 2014) is accrued under the caption “Other payables”, in
current liabilities. During the Board of Directors meeting held on December 29, 2015 it was decided
to terminate the above service agreements.
The Board of Directors meeting held on December 29, 2015 also approved, payment of 2%
commission (two percent annually), limited to the cumulative amount of R$47,750, on sureties/
guarantees provided by the controlling shareholder on loans and financing contracted by the
Company and its subsidiaries. As of December 31, 2015, the amount of R$29,414 was recorded
(R$10,882 in the caption "Other receivables" in current assets and R$18,532 in "Others" in
noncurrent assets), related to guarantees on existing contracts.
In 2015, CSA supplied intermediate products to a related party, Companhia Tecidos Santanense, in
the amount of R$28,806 (R$48,807 in 2014). The transactions are conducted at market prices.
Rossini Administradora de Bens Ltda. and subsidiary AMMO entered into a real estate lease
agreement for AMMO’s manufacturing facility and its offices. In 2015, R$3,289 was accrued under
this lease (R$3,289 in 2014). The valuation of the property and its lease were conducted by a
specialized company and represent market prices.
The amounts paid to key Management personnel are disclosed in the statements of operations,
under caption “Management fees” and include existing long-term and post-employment benefits.
16. RECEIVABLE – SALE OF PROPERTY
In May 2015, the subsidiary CSA sold real estate located in the city of Montes Claros - MG, to the
municipality, for R$48,000, to be received in 12 monthly installments of R$1,000 each, plus 24
monthly installments of R$1,500 each, adjusted for inflation using the “IGP-M” from the date the
agreement was signed and including a grace period of 12 months before the first payment. The
subsidiary CSA has a guarantee for the installments, through revenue and quotas of the Municipality
Participation Fund – “FPM”.
17. INCOME TAX AND OTHER TAXES
a. Tax incentives
All manufacturing units of the subsidiary CSA in Brazil, except for the Blumenau-SC and AcreúnaGO facilities, are located in the area of the Northeast Development Superintendence (SUDENE),
which provides federal and state tax incentives.
22
Federal and state tax incentives of the Company and its plants are scheduled to expire on different
dates, depending on the manufacturing facility’s location. Federal tax incentives are valid until
December 31, 2016 and state incentives are valid until December 31, 2021.
Federal tax incentives are calculated based on income tax generated by the manufacturing and
commercial operations, recorded as a reduction of the income tax payable and income tax expense.
b. Income taxes reconciliation (income and social contribution taxes)
Company
2015
Loss from operations before taxes
Permanent differences:
Nontaxable income (RTT)
Transfer price
Permanent differences from
foreign subsidiary
Other
Income tax basis
34% tax rate
Unrecognized tax credits
Other
Total income taxes
Income taxes – current
Income taxes – deferred
2014
Consolidated
2015
2014
22,464
(31,272)
35,570
(36,430)
(28,142)
-
25,667
-
(37,509)
-
(34,849)
1,523
-----------(5,678)
-----------(5,605)
(1,931)
55
-----------(3,815)
538
744
-----------(68,474)
1,931
(1,931)
-----------------------
1,905
968
-----------2,873
------------
1,297
(12,527)
(1,763)
-----------(12,993)
------------
23,281
(16,993)
1,037
-----------7,325
------------
=======
968
1,905
=======
(8,340)
(4,653)
=======
3,310
4,015
=======
As a holding Company, the Company’s operations consist of equity in subsidiaries and income from
investment activities. Foreign subsidiaries’ income is taxed as an addition to the taxable income and
they receive tax credits for taxes paid in their respective countries, which is up to 25% of its income
tax base. If there are tax losses, tax credits are not considered in Brazil, but they are offset with
future income generated by the foreign subsidiary. Therefore, as a holding Company, tax credit
recognition is allowed in specific situations.
CSA’s Management, in prior years, based on a business plan and future projections, partially
recognized deferred tax assets arising from accumulated net operating losses. As of December 31,
2015, subsidiary CSA had net operating losses of R$506,222 (R$507,750 as of December 31, 2014)
and social contribution tax losses of R$511,773 (R$513,281 as of December 31, 2014), whose tax
assets were not recognized. The tax assets recognized by this subsidiary are net of its tax benefits.
CSA’s future projections consider a greater concentration on the domestic market since these sales
are more profitable, a greater profit margin due to the sales of higher value-added products, among
others. Based on these actions and the business plan assumptions, CSA’s Management expects
future taxable income that will allow the realization of the subsidiary’s deferred tax assets.
c. Deferred income and social contribution taxes
Deferred income and social contribution taxes recorded in the consolidated financial statements
arise from subsidiaries’ temporarily nondeductible provisions, transferred tax credit, and subsidiaries’
net operating losses.
23
Deferred income and social contribution taxes are composed as follows:
Balances
on
12/31/2014
Assets:
Temporarily nondeductible provisions
Net operating losses
Tax credits from foreign subsidiaries
Recognized
in statement
of operations
19,466
30,720
12,326
---------62,512
======
Noncurrent assets
354
152
(5,159)
---------(4,653)
======
Other
439
---------439
======
Balances
on
12/31/2015
20,259
30,872
7,167
---------58,298
======
Based on business plan and future projections, Management estimates that the deferred taxes will
be realized in the following years, as follows:
Consolidated
2015
Year
2017
2018
2019
2020
2021 and thereafter
5,849
10,115
14,948
14,569
12,817
---------58,298
=====
d. Recoverable taxes
Company
ICMS (state VAT)
Income and social contribution
taxes prepayments
Recoverable PIS and COFINS
IVA – Gross Proceeds (Argentina)
VAT – China and Mexico
Recoverable IPI
Reintegra
Other recoverable taxes
Current
Noncurrent
2015
2014
-
-
1,066
----------1,066
(1,066)
----------=======
8,076
----------8,076
(8,076)
----------=======
Consolidated
2015
2014
4,001
4,428
22,202
1,909
806
1,609
34
3,309
1,137
----------35,007
(31,421)
----------3,586
=======
26,773
7,434
7,743
1,329
22
4,070
151
----------51,950
(47,355)
----------4,595
=======
18. MISCELLANEOUS ACCRUALS
The Company and its subsidiaries are challenging in court the legality of certain taxes and labor
claims. The accrual was recognized based on the risk assessment made by Management and its
legal counsel for all lawsuits in which losses are considered probable.
The Company and its subsidiaries have tax and civil claims, whose loss was estimated as possible
in the amount of R$18,427 and R$11,568, respectively.
24
The claims for which losses are considered probable are summarized as follows:
Company
Tax litigation claims:
-Temporary contribution over
financial transactions (CPMF)
-INSS
-Reintegro
-Others
Labor
Civil and others
Total
Escrow deposits
2015
2014
Consolidated
2015
2014
4,317
----------4,317
=====
4,317
----------4,317
=====
4,317
1,998
64
14,121
2,796
----------23,296
=====
4,317
1,998
561
13
11,337
3,736
----------21,962
=====
4,221
=====
4,221
=====
20,486
=====
17,495
=====
CPMF – The Company is a plaintiff in a lawsuit to avoid the application of CPMF on the “symbolic”
exchange rate contracts incurred during the process of issuing stock to a foreign investor.
INSS – The subsidiary CSA is a plaintiff in a lawsuit against the Brazilian Treasury Department,
disputing the INSS tax assessment on amounts considered to be employee termination costs and
FAP (Accident Prevention Factor).
Labor – The subsidiary CSA is the defendant in lawsuits from former employees and third parties.
Civil – The subsidiary CSA is a plaintiff in a lawsuit against the Federal Government disputing the
legality of the collection of “COFURH – Compensação Financeira pela Utilização de Recursos
Hídricos”.
Changes in the consolidated accrual are as follows:
2014
Tax litigation claims:
-Temporary contribution over
financial transactions (CPMF)
-INSS
-Reintegro
-Others
Labor
Civil and others
4,317
1,998
561
13
11,337
3,736
---------21,962
======
Additions
Reductions
201
51
3,813
55
--------4,120
=====
(762)
(1,029)
(995)
--------(2,786)
=====
2015
4,317
1,998
64
14,121
2,796
---------23,296
======
19. EMPLOYEE BENEFIT PLANS
Substantially all the employees of the subsidiary SGUS are covered by defined-contribution plans.
Some executives of SGUS are covered by a defined-benefit plan. Subsidiary SGUS may make
contributions to the defined-contribution plan at its discretion, and these contributions are considered
by means of a percentage of each participant’s eligible compensation. In addition, should eligible
participants contribute a percentage of their compensation to some defined-contribution plans,
SGUS may, at its discretion, make a contribution in the proportion of the amounts contributed by the
participants.
25
Subsidiary SGUS sponsors a defined-benefit pension plan for some of its employees, whose
expected pension costs are accrued based on actuarial studies. Contributions of retired employees
and subsidiary SGUS are adjusted periodically. Subsidiary SGUS’ contributions to the definedbenefit plans are made pursuant to the “US Employee Retirement Income Security Act”, and
benefits are generally based on years of service and salary (compensation) levels.
The defined-benefit plan’s assets are invested in diversified equity securities and fixed-income funds
(including US government debt). Subsidiary SGUS also provides retirement benefits to eligible
executives under nonqualified supplemental executive retirement plans.
The table below includes summarized information on the pension and postretirement plans as of
December 31, 2015 and 2014:
2015
Changes in benefit obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Actuarial (gain) loss
Benefit payments
2014
139,465
1,115
7,416
(9,685)
(14,462)
62,769
----------186,618
111,594
899
5,465
19,117
(11,861)
14,251
----------139,465
37,079
(921)
12,493
(14,462)
16,586
----------50,775
----------135,843
======
31,740
3,318
9,881
(11,861)
4,001
----------37,079
----------102,386
======
Actuarial assumptions to determine the benefit
obligations at year end
Discount rate (per annum)
Rate of compensation increase (per annum)
4.00% to 4.50%
2.50%
3.70% to 4.26%
2.50%
Assumptions used to determine net expense for
the years ended
Discount rate and expected rate of return on
assets (per annum)
Rate of compensation increase (per annum)
3.70% to 4.26%
2.50%
4.30% to 5.05%
2.50%
1,115
4,539
---------5,654
======
899
3,327
----------4,226
======
Benefit obligation at end of year
Changes in plan assets:
Fair value of plan assets at beginning of year
Return on assets
Employer contributions
Benefit payments
Fair value of plan assets at end of year
Present value of unfunded obligations
Components of net periodic benefit cost:
Service cost
Interest cost, net
Net periodic benefit cost
SGUS’ investment strategy is to invest in a diversified portfolio that will maximize returns,
considering an acceptable risk level. Pension plan assets are invested in mutual funds which have a
target allocation of 45% to 54% in domestic equity securities and 46% to 55% in fixed income funds.
The expected returns on plan assets were developed in conjunction with external advisors and take
into account long-term expectations for future returns based on SGUS’ current investment strategy.
2015
Investments on plan assets:
Equity securities
Fixed income
23,096
26,904
2014
16,679
19,747
26
Plan assets fair value at the end of year
775
---------50,775
======
653
---------37,079
======
The subsidiary SGUS expects to contribute R$14,367 to the defined-benefit plans in 2016. Expected
benefits payments for the next 10 years are:
Defined-benefit
pension plans
2016
2017
2018
2019
2020
2021 – 2025
15,355
14,827
14,464
13,851
13,489
62,581
The balances of employee benefit plans and deferred compensation are as follows:
2015
Pension plan obligations
Pension plan obligations (multiple-employer) (a)
Other employee benefit obligations
Total employee benefit plans
Current (b)
Noncurrent
2014
135,843
8,367
-----------144,210
102,386
179
7,270
-----------109,835
(12,481)
-----------131,729
=======
(8,733)
-----------101,102
=======
(a) Until December 30, 2010, SGUS was one of the plan sponsors of the South Jersey Labor and Management
Pension Fund, a multiemployer defined benefit pension plan. On December 30, 2010, the Company withdrew
from the Plan and recorded a liability corresponding to the estimated cost of withdrawal.
(b) Presented on caption “Payroll and related charges”.
20. GOVERNMENT CONCESSIONS
The subsidiary CSA has equity interest in a consortium for an electric power generation concession
with the companies CEMIG Geração e Transmissão S.A. and Vale (formerly known as Companhia
Vale do Rio Doce), in equal percentages of 33.33%. No legally independent entity was established
for the management of this consortium. Accounting records, equivalent to its interest, are maintained
under the Company’s control.
In compensation for the concession granted, Company, together with the other consortium
members, will pay installments over the concession period to the Federal Government, as presented
below:
Beginning of concession period:
Concession period:
Total concession amount:
Monetary adjustment:
July 10, 1997
35 years
R$333,310
IGP-M (general market price index)
27
Total annual installments of the concession:
Historical amounts:
Minimum installment
Additional installment
Annual installment
Total installments
Monetarily adjusted installments
Years 5 to 15
2002 to 2012
--------------------
Years 16 to 25
2013 to 2022
--------------------
Years 26 to 35
2023 to 2032
--------------------
120
-------------------120
120
12,510
-------------------12,630
120
20,449
-----------------20,569
1,320
5,749
===========
126,300
550,094
===========
205,690
895,864
==========
For accounting purposes, subsidiary CSA recognizes expenses incurred on an accrual basis, as a
contra entry to noncurrent liabilities, on a straight-line basis, based on its share in the total
concession amount, 33.33%, at present value, considering a basic interest rate, monetarily adjusted
based on the IGPM. As of December 31, 2015, this amount represents R$67,381, of which,
R$18,337 is classified as “other payables” in current liabilities and R$49,044 is classified as
noncurrent liabilities (R$64,431 as of December 31, 2014, of which, R$16,556 is classified as “other
payables” in current liabilities and R$47,875 is classified as noncurrent liabilities).
As of December 31, 2015, the net book value of the property, plant and equipment related to the
current concession is R$23,830 (R$25,247 as of December 31, 2014) (see note 8), considering the
Company’s equity interest in the investments for the construction of the Porto Estrela Hydroelectric
Plant, located on the Santo Antônio River, 270 km from Belo Horizonte, with installed capacity of
112 MW. The plant began generation activities at the end of 2001.
21. OTHER OPERATING EXPENSES AND INCOME, NET
The composition of the caption “Others, net” in the statement of operations is as follows:
Consolidated
2015
2014
Net gain (loss) on sale of assets(*)
Fixed costs not allocated to production
Non-operating lease expense
Others
25,247
(14,544)
(15,765)
(12,152)
(5,215)
(9,436)
11,131
---------------------(12,106)
(8,628)
======== ========
(*) See Note 16 of the financial statements.
22. FINANCIAL INSTRUMENTS
a) General--The Company and its subsidiaries maintain derivatives and non-derivatives financial
instruments transactions, whose risks are managed through strategic financial positions and controls
to limit exposure to such risks. All transactions are fully recorded in the Company’s books and
described in the tables below.
The main risk factors to which the Company and its subsidiaries are exposed reflect strategicoperational and economic-financial matters. The strategic-operational risks (such as, demand trend,
competition, technological innovation, significant changes in the industry structure, among others)
are inherent to the Company’s operating activities and are addressed by its Management. The
economic-financial risks mainly reflect customers’ delinquency, macro-economic trends, such as,
28
currency exchange and interest rates, as well as the nature of the derivative instruments used by the
Company, its subsidiaries, and its counter-parties. These risks are managed through internal control
policies, specific strategies and establishment of approval authorities.
b) Fair value--The fair value of the financial instruments previously mentioned are as follows:
Consolidated
Company
2015
Book
value
ASSETS -CURRENT:
Accounts receivable
Receivable – sale of property
Other receivables
NONCURRENT:
Long-term assets:
Related parties
Receivable – sale of property
Fair
value
2014
Book
Fair
Value
value
2015
2014
Book
value
Fair
value
Book
value
Fair
Value
128
-
128
-
136
-
136
-
149,925
2,000
19,882
508,826
149,925
2,000
19,882
508,826
129,570
1,360
522,489
129,570
1,360
522,489
1,012
1,012
992
992
8,318
35,383
8,318
35,383
23,248
23,248
46
46
-
-
23,503
23,503
7,535
7,535
-
-
-
-
40,899
23,234
40,899
23,234
6,850
6,850
LIABILITIES -CURRENT:
Loans and financing (*)
Debenture (*)
Suppliers
Noneconomic lease
Other accounts payable
15
-
15
-
-
-
396,747
134,484
152,156
18,337
7,048
69,542
396,747
134,484
152,156
18,337
7,048
69,542
403,748
1,685
167,095
16,556
4,286
59,155
403,748
1,685
167,095
16,556
4,286
59,155
NONCURRENT:
Loans and financing (*)
Debenture (*)
Noneconomic lease
Related parties
Other obligations
46,847
2,056
46,847
2,056
16,714
2,056
292,975
133,848
20,607
84
49,044
17,089
292,975
133,848
20,607
84
49,044
17,089
191,458
263,748
12,822
7,969
47,875
19,691
191,458
263,748
12,822
7,969
47,875
19,691
Others
3
-
16,714
2,056
3
(*) The fair values of loans and financing and debentures are similar to their amortized cost recorded
in the financial statements because they are indexed to floating interest rates (TJLP, CDI and
LIBOR), which accompany market rates.
Considering that the remaining financial instruments have short-term maturities, the Company
estimates that the fair values of other financial instruments approximate their carrying book values.
The fair values of the financial instruments listed above are determined based on unobservable
inputs and are, therefore, classified as Level III information.
c) Classification of financial instruments--Except derivatives, all financial instruments listed above
are classified as “Loans and receivables”, in the case of assets, and as “Other financial liabilities”, in
the case of liabilities, initially measured at fair value and restated at amortized cost. The derivative
financial instruments are “Measured at fair value through profit or loss” and the portion related to the
29
cash flow hedge, for which its effectiveness can be measured, has its gains and losses recognized
directly in equity as assets and liabilities valuation adjustment and presented in the statements of
comprehensive income.
d) Risk management and derivative and non-derivative financial instruments:
d.1 – Objectives and risk management strategies--The Company believes that risk management is
important in driving its strategy of profitable growth. The Company is exposed to market risks, mainly
related to changes in exchange rates, commodity prices (cotton) and volatility of interest rates. The
goal of managing these risks is to eliminate possible unexpected variations in the results of the
group’s companies, arising from these variations.
The purpose of derivative transactions is always related to the elimination of market risks, identified
in our policies and guidelines and, also, to the management of the volatility of financial flows. The
measurement of efficiency and evaluation of results occurs during the term of the contracts. The
monitoring of the impact of these transactions is analyzed quarterly by the Cash and Debt
Management Committee, when the mark-to-market of these transactions is discussed and validated.
All derivative financial instruments are recorded at fair value in the Company’s financial statements.
d.2 – Derivatives use policy--According to internal policies, the Company’s financial results should
be related to cash provided by its business and not by gains in the financial market. Therefore, it
considers the use of derivatives as a tool to protect eventual exposures related to risks arising from
such exposures, and not for speculative purposes. The derivative transactions goal is to reduce
Company’s market risks exposures.
d.3 – Exchange rate risk--This risk arises from the possibility that the Company and its subsidiaries
may incur losses due to exchange rate fluctuations that would reduce the nominal billed amounts or
increase funds raised in the market.
d.3.1) Exchange rate risk on foreign investments:
The Company has foreign investments that increase its foreign currency exchange exposure, as
follows:
Total of foreign investments
2015
2014
Investments
Subsidiaries’ obligations
104,016
(61,360)
----------42,656
======
77,344
(60,879)
----------16,465
======
In equivalent thousands of US Dollars
10,923
======
6,199
======
30
d.3.2) Exchange rate risks on the Company and on subsidiary CSA’s non-derivative financial
instruments:
The non-derivative financial instruments exposure of the Company and its Brazilian subsidiaries is
as follows:
2015
2014
Accounts receivable
Suppliers, net
Loan and financing
Related parties (SGUS)
162
56,987
(1,475)
(19,567)
109,831
----------145,938
======
954
40,457
(2,216)
80,654
----------119,849
======
37,374
======
45,120
======
Total exposure in Brazilian Reais
Total exposure in equivalent
thousands of US Dollars
The sensitivity analysis of non-derivative financial instruments, considering the US Dollar
denominated cash flows, as of December 31, 2015, is shown below:
Maturity
Risk
2016
2018
Dollar depreciation
Dollar depreciation
Exposure value in
thousands of US$
9,247
28,127
---------37,374
======
Probable
(879)
45,767
---------44,888
======
Scenarios
II
(9,686)
6,867
---------(2,819)
======
III
(18,493)
(32,032)
----------(50,525)
======
Amounts in parenthesis (negative numbers) stated in the scenarios above refer to exchange rate
variance losses. The positive amounts relate to exchange rate variations gains.
The “Probable” scenario represents the result of the probable exchange rate variation, considering
the cash flow of the assets and liabilities presented above, applying future Dollar exchange rates
and comparing to the Dollar exchange rate at the end of the current year. Scenarios II and III reflect
25% and 50% deterioration of future Dollar exchange rates, respectively.
The future Dollar exchange rates were obtained from BM&FBOVESPA – “Bolsa de Valores,
Mercadorias e Futuros” (Brazilian Commodities and Futures Exchange).
d.3.3) Exchange rate risk on derivative instruments transactions of the Company and its
subsidiaries:
31
Consolidated information for derivative instruments with exchange rate risk is shown below:
Notional Value –
US$ thousands
2015
2014
Description
Forward Contract (NDF) (1) -Position: Buy
Currency: US$/Pesos Argentinos
Dollar settlement: $11.72
Counterpart: Banco da Patagonia
Other information:
Fair Value – Asset (Liability)
2015
2014
1 contract of US $15.000
thousands, maturing on
03.30.2016
15,000
-
14,149
7,000
----------22,000
=======
----------=======
-
Forward Contract (NDF) (1) -Position: Buy
Currency: US$/Pesos Argentinos
Dollar settlement: $11.12
Counterpart: Banco da Patagonia
Other information:
1 contract of US $7.000
thousands, expiring on
03.31.2016
Total current liabilities
5,733
----------19,882
=======
----------=======
(1) Forward contracts (NDF - "Non Deliverable Forward") raw materials--are presented and
measured at fair value through the statement of operations, and aim to protect the foreign exchange
risk on purchases of raw materials at each contract’s settlement date. Although the Company uses
these derivatives for hedging purposes, it did not adopt the hedge accounting practice for these
transactions.
The balance corresponds to the financial instruments’ fair values which were calculated based on
data obtained from BM&FBOVESPA - “Bolsa de Valores, Mercadorias e Futuros” for operations in
Brazil and the Central Bank of Argentina for operations in Argentina, such as the future Dollar
exchange rate at the settlement dates, interest rates and algorithms, and compared to data obtained
directly from the counterparty financial institutions, which evaluate those instruments.
The derivatives are traded in the over-the-counter market, registered at the competent agencies,
and are not subject to margin deposits. In 2015, a gain of R$31,076 was recorded from derivatives
related to foreign exchange risk included in “Exchange rate variations, net”. Except for the swap
contract mentioned in note 12.a, and the forward contracts shown above, there were no other
exchange rate derivatives in 2015 and 2014.
The sensitivity analysis of the above derivative financial instruments, considering the flows of
receipts and payments in US Dollars already contracted on December 31, 2015 is as follows:
Scenarios
Maturity
2016
Country
Argentina
Risk
US Dollar depreciation
Exposure value US$ thousands
22,000
======
Probable
II
III
19,882
======
(4,079)
======
(28,029)
======
Amounts in parenthesis (negative numbers) stated in the scenarios above refer to exchange rate
variance losses. The positive amounts relate to exchange rate variations gains.
The “Probable” scenario represents the result of the probable exchange rate variation, considering
the cash flow of the assets and liabilities presented above, applying US Dollar forward exchange
rates and comparing to the US Dollar exchange rate at the end of the current year. Scenarios II and
32
III reflect 25% and 50% deterioration of US Dollar forward exchange rates, respectively. The US
Dollar forward exchange rates were obtained from BM&FBOVESPA – “Bolsa de Valores,
Mercadorias e Futuros” (Brazilian Commodities and Futures Exchange).
d.4 – Commodities price risk (cotton)--This risk arises from the possibility of the Company and its
subsidiaries may incur losses due to fluctuations in the price of cotton, its main raw material. A
significant increase in price of cotton may cause an increase in the cost of its products in an amount
that the Company may be unable to pass such increases to its customers, reducing its margins. In
2015 and 2014, there were no results with this type of derivatives.
d.5 - Interest rates risk--Cash and cash equivalents and marketable securities yield, approximately,
the equivalent to CDI (Certificate of Interbank Deposit) rates. Interest-bearing liabilities (except as
described in d.5.1 and d.5.2 below), which reflect rates equivalent to LIBOR, TR and IRP, are
disclosed in notes 12 and 15. Considering the cash flows of these liabilities and the contracted
interest rates, Management determined that the exposure to market changes on the contracted
interest rates is not significant. Therefore, the sensitivity analysis is deemed unnecessary.
d.5.1 – Variable interest rate risks on derivative financial instruments:
Interest rates swap contracts--Are presented and measured at fair value and are based on the cash
flow of the loans denominated in foreign currency. Gains or losses are recorded under the “Financial
expenses – interests” caption in the statements of operations. Except for the swap contract
mentioned in note 12.a, there were no interest rate derivatives in 2015 and 2014.
d.5.2 – Variable interest rate risk on non-derivatives financial instruments:
The amounts related to the Company and its subsidiaries’ non-derivatives financial instruments
subject to variable interest rate exposure are as follows:
2015
Description
Principal
amount
R$
thousands
Accrued
interest
2014
Prepaid
interest
Payable
Payable
Loan Agreement -Interest: 108.5% of CDI
Counterpart: Banco do Brasil S.A.
Maturity: May/2015
-
-
-
-
236,157
Maturity: April/2016
-
-
-
-
43,529
-
-
-
-
27,320
-
165,103
-
Counterpart: Banco Brasil S.A. – NCE
Maturity: December/2018
165,000
103
165,000
672
(922)
164,750
-
Maturity: June/2016
25,000
273
(10)
25,263
-
33
2014
2015
Principal
amount
R$
thousands
Description
Counterpart: Banco Brasil S.A. – NC
Maturity: March/2016
Accrued
interest
25,000
73
Counterpart: Banco Santander S.A.
Maturity: May/2017
30,000
536
2,500
Maturity: May/2016
Prepaid
interest
Payable
-
Payable
25,073
---------380,189
----------
---------307,006
----------
(128)
30,408
30,055
89
(24)
2,565
7,593
20,000
2,010
(210)
21,800
---------54,773
----------
---------37,648
----------
Loan Agreement e swap -Interest: 121.0% of CDI
Counterpart: Banco Itaú BBA S.A.
Maturity: agosto/2016
66,667
3,830
-
70,497
104,684
Loan Agreement e swap -Interest: 117.8% of CDI
Counterpart: Banco Itaú BBA S.A.
Maturity: fevereiro/2016
33,000
1,844
-
34,844
---------105,341
----------
---------104,684
----------
270,000
-----------802,167
=======
2,034
----------11,464
=======
268,332
-----------808,635
=======
265,433
-----------714,771
=======
(Refer to Note 12)
(Refer to Note 12)
(Refer to Note 12)
Debenture-Interest: 110.0% of CDI
Counterpart: Gaia Agro Sec. S.A.
Maturity: June/2017
(Refer to Note 13)
(3,702)
-----------(4,996)
=======
The sensitivity analysis of the non-derivative financial instruments above, considering the scheduled
payments of principal and interest as of December 31, 2015, is as follows:
Maturity
2016
2017
2018
2019
Risk
CDI increase
CDI increase
CDI increase
CDI increase
Principal
average
balance
722,380
390,545
129,282
55,669
Scenarios
Probable
II
III
91,388
47,539
18,962
2,925
======
130,135
73,684
29,358
4,339
======
157,134
88,963
35,371
5,236
======
Amounts shown in the scenarios above represent projected interest expense, in their respective
years and scenarios, considering the average loan balances on each year.
34
The “Probable” scenario represents the result of the probable CDI variations, considering the
principal and interest maturity dates. Scenarios II and III reflect 25% and 50% increase in the future
CDI index, respectively.
The future CDI rates were obtained from BM&FBOVESPA – “Bolsa de Valores, Mercadorias e
Futuros”.
d.6 – Credit risk--The Company is subject to credit risk on its cash and cash equivalents,
marketable securities, and derivative instruments. This risk is mitigated by the policy of entering into
transactions only with major financial institutions.
The credit risk on accounts receivable is reduced due to the selectivity of customers and credit
policy. The Company has a credit management system based on the combination of information
originated by several departments of the Company, primarily sales, finance, accounting, legal and
external sources that enable the credit and collection departments to establish credit limits for its
customers that are approved by a credit committee.
d.7 – Liquidity risk management--The Company’s financial liabilities, according to their cash flows,
based on their approximate maturity date, and using nominal contractual interest rates, are
summarized as follows:
Contractual obligations
Total
Less than
1 year
Loans and financing
Debenture
Suppliers
Related parties
823,813
312,583
152,314
84
-------------1,288,794
========
468,263
168,093
152,314
84
-----------788,754
=======
Estimated settlement
From 1 to From 3 to
3 years
5 years
More than
5 years
296,906
144,490
-
58,607
-
37
-
-----------441,396
=======
----------58,607
======
----------37
======
.
d.8 - Capital management risk--The Company manages its capital structure to ensure the continuity
of its operational activities and, at the same time, to maximize the returns to its shareholders. The
Company’s strategy remained unchanged in the period covered by these financial statements.
The Company’s net debt is as follows:
Consolidated
2015
2014
Loans and financing
Debenture
Financial instruments, net
Total net debt
Total equity
Total net debt and equity
689,722
268,332
(149,925)
(2,000)
(19,882)
------------786,247
------------1,078,968
------------1,865,215
========
595,206
265,433
(129,570)
(1,360)
------------729,709
------------1,085,771
------------1,815,480
========
35
23. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise for which separate financial
information is available and evaluated regularly by the decision maker, with the purpose of
determining the allocation of resources to an individual segment and evaluate its performance.
Decisions on strategic planning, finance, purchasing, investment and application of resources, as
well as evaluation of investment and key executives performance of the Company are made on a
consolidated basis, the Company and its subsidiaries have concluded that they have two operating
segments: “Wholesale" and "Retail". The Wholesale segment is subdivided into two sub-segments:
South America, which includes operations in Brazil and Argentina; and North America, which
includes operations in the United States of America and Canada.
The Company owns several factories that supply each other so that, together, they form an
integrated industry in spinning, weaving, finishing and manufacturing of home textile products. The
Company does not have separate operating segments in its sales categories and the reports used
for strategic and operational decision making are always consolidated. There are no specific
operational units for each category of goods sold. Therefore, these operations are denominated
“Wholesale” because its products are not sold to the final consumer.
The subsidiary AMMO has a set of separate information and investment decisions, pricing, store
expansion and others that are individually made, and are denominated “Retail” as its products are
sold directly to the final consumer.
The financial information, segregated by the segments previously explained, is presented below (in
millions of Reais):
2015
South America
Wholesale
Retail
Net revenues
Cost of goods sold
Gross profit
Selling, general and
administrative expenses
Other
Operating results
Financial results
Income (loss) before taxes
Total
North
America
Wholesale
Others
unallocated
Total
1,152.9
(803.7)
---------349.2
265.4
(144.1)
---------121.3
1,418.3
(947.8)
---------470.5
923.8
(784.3)
---------139.5
(75.0)
75.0
----------
2,267.1
(1,657.1)
---------610.0
(208.4)
7.7
---------148.5
---------148.5
======
(149.1)
(6.2)
---------(34.0)
---------(34.0)
======
(357.5)
1.5
---------114.5
---------114.5
======
(82.4)
(13.6)
---------43.5
---------43.5
======
(3.6)
---------(3.6)
(118.8)
---------(122.4)
======
(443.5)
(12.1)
---------154.4
(118.8)
---------35.6
======
63.3
======
11.2
======
74.5
======
4.2
======
======
78.7
======
36
2014
South America
Wholesale
Retail
Net revenues
Cost of goods sold
Gross profit
Selling, general and
administrative expenses
Other
Operating results
Financial results
Income (loss) before taxes
Total
North
America
Wholesale
Others
unallocated
Total
1,180.0
(840.2)
---------339.8
283.1
(149.3)
---------133.8
1,463.1
(989.5)
---------473.6
698.2
(622.1)
---------76.1
(69.3)
69.3
----------
2,092.0
(1,542.3)
---------549.7
(206.7)
1.0
---------134.1
---------134.1
======
(161.1)
(4.1)
---------(31.4)
---------(31.4)
======
(367.8)
(3.1)
---------102.7
---------102.7
======
(66.0)
(5.5)
---------4.6
---------4.6
======
(3.6)
---------(3.6)
(140.1)
---------(143.7)
======
(437.4)
(8.6)
---------103.7
(140.1)
---------(36.4)
======
67.3
======
12.9
======
80.2
======
5.8
======
======
86.0
======
The Company, through the analysis of sales performance, classifies its products under the
categories of sales (or product lines) such as: bedding, tabletop and bath, utility bedding,
intermediate products, and retail.
Revenue information by category or product lines is as follows:
Consolidated
2015
2014
Net revenues (in millions of Reais):
Bedding, tabletop and bath
Utility bedding
Intermediate products
Retail
Volume (in thousands of tons):
Bedding, tabletop and bath
Utility bedding
Intermediate products
1,083.6
718.0
200.1
265.4
------------2,267.1
========
1,087.9
492.6
228.4
283.1
------------2,092.0
========
35.5
42.5
24.8
------------102.8
========
41.7
40.7
29.2
------------111.6
========
The Company has over 10,000 active clients as of December 31, 2015 and only one customer
accounts for approximately 10% of sales.
37
24. EXPENSES BY NATURE
The Company presents its consolidated statements of operations by function. The consolidated
statements of operations by nature are as follows:
By nature:
Consolidated
2015
2014
Cost of raw materials, goods and services acquired from third parties
Employee benefits
INSS
Finished goods and work in process inventory variations
Exchange rate variations in inventories from foreign subsidiaries
Other
Total by nature
(1,548,902)
(443,830)
(37,656)
(78,687)
83,968
41,152
(116,697)
--------------(2,100,652)
=========
(1,353,629)
(421,810)
(30,931)
(85,995)
5,053
10,964
(103,290)
-------------(1,979,638)
========
By function:
Consolidated
2015
2014
Cost of goods sold
(1,657,135)
Selling expenses
(294,795)
General and administrative expenses
(139,202)
Management fees
(9,520)
-------------Total by function
(2,100,652)
========
(1,542,249)
(303,928)
(124,066)
(9,395)
-------------(1,979,638)
========
25. NET REVENUES
The reconciliation between gross revenues and net revenues presented in the statements of
operations is as follows:
Consolidated
2014
2015
OPERATING REVENUES:
Gross revenues
Sales deductions
NET REVENUES
2,707,309
(440,214)
------------2,267,095
2,573,695
(481,739)
------------2,091,956
========
=======
38
26. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share was calculated as follows:
2015
NET EARNINGS (LOSS) FOR THE YEAR
Weighted-average outstanding common shares
2014
2014(*)
22,464
(28,399)
(28,399)
50,000,000
50,000,000
200,000,000
0.4493
======
(0.5680)
=====
(0.1420)
=====
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (R$):
(*) As presented on the December 31, 2014 Financial Statements. Refer to Note 14.
The Company does not have shares with dilutive potential. Therefore, the basic earnings (loss) per
share equals the diluted earnings (loss) per share.
**************
39

SPRINGS GLOBAL PARTICIPAÇÕES S.A. CNPJ/MF – 07.718.269

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