Companhia de Tecidos Norte de Minas - COTEMINAS Financial Statements for the Years Ended December 31, 2006 and 2005 and Independent Auditors’ Report Deloitte Touche Tohmatsu Auditores Independentes

(Convenience Translation into English from the Original Previously Issued in Portuguese)

(Convenience Translation into English from the Original Previously Issued in Portuguese)

COMPANHIA DE TECIDOS NORTE DE MINAS - COTEMINAS

BALANCE SHEETS AS OF DECEMBER 31, 2006 AND 2005

(In thousands of Brazilian reais - R$)

A S S E T S

Company Consolidated 2006 2005 2006 2005 CURRENT ASSETS Cash and cash equivalents 322,560 494,815 444,591 527,460 Accounts receivable 11,646 33,132 794,347 402,719 Inventories - - 1,077,771 384,362 Advances to suppliers 13,956 19,831 31,369 100,352 Recoverable taxes 63,515 103,387 132,856 116,111 Other receivables 7,175 142 23,557 4,353 ------------- ------------- ------------- ------------- Total current assets 418,852 651,307 2,504,491 1,535,357 ------------- ------------- ------------- ------------- NONCURRENT ASSETS Long-term assets: Accounts receivable 7,594 6,988 22,233 11,735 Advances to suppliers 20,791 - 113,266 42,758 Subsidiaries 158,677 27,339 - - Affiliates - 200 2,934 1,310 Debentures issued by subsidiary 51,018 - - - Deferred income taxes - - 42,830 - ------------- ------------- ------------- ------------- 238,080 34,527 181,263 55,803 Investments: Subsidiaries 1,154,258 1,195,186 - - Other 4,073 2,956 4,717 3,598 Property, plant and equipment 47,295 50,935 1,636,194 1,178,531 Intangible - - 92,429 14,331 Deferred charges 904 1,873 6,058 7,224 ------------- ------------- ------------- ------------- Total noncurrent assets 1,444,610 1,285,477 1,920,661 1,259,487 ------------- ------------- ------------- ------------- Total assets 1,863,462 1,936,784 4,425,152 2,794,844 ======= ======= ======= =======

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese)

COMPANHIA DE TECIDOS NORTE DE MINAS - COTEMINAS

BALANCE SHEETS AS OF DECEMBER 31, 2006 AND 2005

(In thousands of Brazilian reais - R$)

LIABILITIES AND SHAREHOLDERS’ EQUITY

Company Consolidated 2006 2005 2006 2005 CURRENT LIABILITIES Loans and financing 33,237 15,354 273,685 617,074 Suppliers 195 26,138 456,870 119,968 Payroll and related charges 635 8,646 83,136 40,670 Provision for restructuring costs - - 27,514 - Provision for income and social contribution taxes - 5,531 87 5,621 Dividends payable 16,238 33,201 17,824 33,940 Other payables 6,698 2,426 81,155 23,052 ------------- ------------- ------------- ------------- Total current liabilities 57,003 91,296 940,271 840,325 ------------- ------------- ------------- ------------- NONCURRENT LIABILITIES Long-term liabilities: Loans and financing 48,703 89,504 750,488 128,590 Subsidiaries 658 32,134 - - Affiliates 7,333 6,998 7,675 8,205 Government concessions - - 24,679 18,670 Pension plan - - 167,202 - Other payables 11,122 12,019 47,459 18,380 ------------- ------------- ------------- ------------- Total noncurrent liabilities 67,816 140,655 997,503 173,845 ------------- ------------- ------------- ------------- DEFERRED INCOME - NEGATIVE GOODWILL - - 14,851 14,851 MINORITY INTEREST - - 733,884 60,990 SHAREHOLDERS’ EQUITY Capital 870,000 870,000 870,000 870,000 Capital reserves 286,308 285,083 286,308 285,083 Profit reserves 582,335 549,750 582,335 549,750 ------------- ------------- ------------- ------------- 1,738,643 1,704,833 1,738,643 1,704,833 ------------- ------------- ------------- ------------- Shareholders’ equity and minority interest of Coteminas companies 1,738,643 1,704,833 2,472,527 1,765,823 ------------- ------------- ------------- ------------- Total liabilities and shareholders’ equity 1,863,462 1,936,784 4,425,152 2,794,844 ======= ======= ======= =======

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese)

COMPANHIA DE TECIDOS NORTE DE MINAS - COTEMINAS

STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(In thousands of Brazilian reais - R$)

Company Consolidated 2006 2005 2006 2005 OPERATING REVENUES: Gross sales 28,853 1,484,860 4,165,317 1,718,976 Sales deductions (21,479) (311,476) (594,174) (359,194) ---------- ------------- ------------- ------------- NET SALES 7,374 1,173,384 3,571,143 1,359,782 COST OF SALES (7,433) (904,560) (3,144,977) (994,791) ---------- ------------- ------------- ------------- GROSS PROFIT (59) 268,824 426,166 364,991 OPERATING EXPENSES: Selling (374) (71,754) (163,512) (80,345) General and administrative (11,817) (53,183) (245,422) (70,249) Management compensation (817) (5,304) (5,916) (5,782) ---------- ------------- ------------ ------------ (13,067) 138,583 11,316 208,615 Financial expenses (13,917) (66,552) (123,176) (75,343) Financial income 91,111 38,073 80,477 36,184 Exchange variations, net (6,410) (4,733) (6,059) (3,015) Exchange variation on equity in subsidiaries - - (32,211) - Equity in subsidiaries and affiliates (193,182) 29,455 (5,036) 1,017 Other nonrecurring, net 1,105 6,381 (27,479) 6,323 ---------- ------------- ---------- ---------- INCOME (LOSS) FROM OPERATIONS (134,360) 141,207 (102,168) 173,781 NONOPERATING INCOME 200,292 1,307 141,066 1,123 ---------- ------------- ---------- ---------- INCOME BEFORE TAXES ON INCOME AND PROFIT SHARING 65,932 142,514 38,898 174,904 PROVISION FOR SOCIAL CONTRIBUTION TAX (4,951) (10,897) (4,968) (13,960) PROVISION FOR INCOME TAX (13,296) (29,075) (2,062) (38,658) PROFIT SHARING - (627) - (627) ---------- ----------- ---------- ---------- INCOME BEFORE MINORITY INTEREST 47,685 101,915 31,868 121,659

MINORITY INTEREST

-

- 15,817 (19,744) ---------- ----------- ---------- ---------- NET INCOME 47,685 101,915 47,685 101,915 ====== ======= ====== ====== EARNINGS PER THOUSAND SHARES OUTSTANDING AT YEAREND - R$ 8.17 16.77 ==== ====

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese)

COMPANHIA DE TECIDOS NORTE DE MINAS - COTEMINAS

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(In thousands of Brazilian reais - R$)

Capital reserves Profit reserves Tax Income tax Profit Retained Capital incentives exemption Legal retention earnings Total BALANCES AS OF DECEMBER 31, 2004 870,000 96,316 144,886 24,872 455,236 - 1,591,310 Income tax exemption (Law No. 4,239/63) - - 19,700 - - - 19,700 Investment grants - 24,181 - - - - 24,181 Net income - - - - - 101,915 101,915 Proposed allocation of net income: Legal reserve - - - 5,095 - (5,095) - Profit retention reserve - - - - 64,547 (64,547) - Proposed dividends (Note 12.b.) - - - - - (32,273) (32,273) ---------- ---------- ---------- --------- ---------- ---------- ------------- BALANCES AS OF DECEMBER 31, 2005 870,000 120,497 164,586 29,967 519,783 - 1,704,833 Investment grants - 1,225 - - - - 1,225 Net income - - - - - 47,685 47,685 Proposed allocation of net income: Legal reserve - - - 2,384 - (2,384) - Profit retention reserve - - - - 30,201 (30,201) - Proposed dividends (Note 12.b.) - - - - - (15,100) (15,100) ---------- ---------- ---------- --------- ---------- ---------- ------------- BALANCES AS OF DECEMBER 31, 2006 870,000 121,722 164,586 32,351 549,984 - 1,738,643 ====== ====== ====== ===== ====== ====== ========

The accompanying notes are an integral part of these financial statements.

(Convenience Translation into English from the Original Previously Issued in Portuguese)

COMPANHIA DE TECIDOS NORTE DE MINAS - COTEMINAS

STATEMENTS OF CHANGES IN FINANCIAL POSITION

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(In thousands of Brazilian reais - R$)

Company Consolidated 2006 2005 2006 2005 SOURCES OF FUNDS:

From operations- Net income 47,685 101,915 47,685 101,915 Items not affecting working capital-

Depreciation and amortization 4,610 76,516 157,940 89,975 Financial income on noncurrent items (14,498) (6,093) (21,584) (9,505) Loss (gain) on sale of permanent assets - (1,307) 17,141 (1,787) Provision for losses on property, plant and

equipment - - 9,067 - Loss on subsidiary - - 46,495 - Loss on foreign investment - - 32,211 - Equity in subsidiaries 193,182 (29,455) 5,036 (1,017) Nonoperating equity in subsidiaries (206,846) - (206,846) - Income tax exemption (Law No. 4,239/63) - 19,700 - 23,957 Investment grants 1,225 24,181 1,736 24,181 Minority interest - - (15,817) 19,744 Deferred income realization - - (4,007) - Deferred income taxes - - (27,069) - Noncurrent reserves 2,974 8,076 4,121 5,460 ----------- ----------- ----------- ----------- Total from operations 28,332 193,533 46,109 252,923

----------- ----------- ----------- -----------

Other sources- Increase in noncurrent liabilities - 2,174 - - Dividends receivable 2,555 - - - Increase in loans and financing - 58,879 584,052 58,879 Loans from affiliates - 1,528 - 8,952 Disposal of permanent assets 410 8,471 35,447 20,281 Net working capital - new companies - - 672,532 -

----------- ----------- ------------- ----------- 2,965 71,052 1,292,031 88,112 ----------- ----------- ------------- -----------

Total sources 31,297 264,585 1,338,140 341,035 ------------ ----------- ------------- -----------

COMPANHIA DE TECIDOS NORTE DE MINAS - COTEMINAS

STATEMENTS OF CHANGES IN FINANCIAL POSITION

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(In thousands of Brazilian reais - R$)

Company Consolidated 2006 2005 2006 2005 USES OF FUNDS:

Additions to permanent assets- Investments 234 16,720 244 3,310 Property, plant and equipment - 130,715 153,416 160,120 Deferred charges - 219 - 2,760

----------- ----------- ----------- ----------- 234 147,654 153,660 166,190

In distributions- Proposed dividends 15,100 32,273 17,034 34,774 Interim dividends - - 17,086 -

----------- ----------- ----------- ----------- 15,100 32,273 34,120 34,774

Other- Increase in noncurrent assets 33,846 46,153 118,792 50,293 Transfer from noncurrent to current liabilities 33,694 12,522 106,947 12,522

Loans to affiliates 146,585 - 6,681 - Decrease in noncurrent liabilities - 4,150 18,082 5,514 Working capital of spun-off companies - 33,209 30,670 -

----------- ----------- ----------- ----------- 214,125 96,034 281,172 68,329 ----------- ----------- ----------- ----------- Total uses 229,459 275,961 468,952 269,293 ----------- ----------- ----------- ----------- INCREASE (DECREASE) IN WORKING CAPITAL (198,162) (11,376) 869,188 71,742 ====== ====== ====== ====== REPRESENTED BY: Current assets- At beginning of year 651,307 904,541 1,535,357 1,001,277 At end of year 418,852 651,307 2,504,491 1,535,357 ----------- ----------- ------------- ------------- (232,455) (253,234) 969,134 534,080 Current liabilities- At beginning of year 91,296 333,154 840,325 377,987 At end of year 57,003 91,296 940,271 840,325 ----------- ----------- ------------- ------------- (34,293) (241,858) 99,946 462,338 ----------- ----------- ------------- ------------- INCREASE (DECREASE) IN WORKING CAPITAL (198,162) (11,376) 869,188 71,742 ====== ====== ======= =======

The accompanying notes are an integral part of these financial statements.

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(Convenience Translation into English from the Original Previously Issued in Portuguese)

COMPANHIA DE TECIDOS NORTE DE MINAS - COTEMINAS

NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

(Amounts in thousands of Brazilian reais - R$)

1. OPERATIONS Companhia de Tecidos Norte de Minas - COTEMINAS is a publicly-traded company engaged in the manufacturing and sale of yarns and fabrics in general, import and export, and may hold equity interest in other companies and purchase marketable securities in the capital market. The Company is the parent company of Springs Global Participações S.A. (“Springs”), which is the parent company of Coteminas S.A. (“CSA”) and Springs Global US, Inc. (“SGUS”), whose manufacturing activities are focused on the production of bed and bath textiles previously carried out by the Company and Springs Industries Inc. These companies have become the world’s largest bed and bath textiles complex, with manufacturing plants in Brazil, Argentina, the United States and Mexico. These companies manufacture products with strong brand names, such as Springmaid, Wamsutta, Regal, Artex, Santista, Paládio, Calfat, Garcia, Arco Íris, Magicolor, Attitude and Jamm, among others. Through their brands and products, they occupy a prominent position on the shelves of the world’s most demanding and largest retailers and are prepared to capture an increasingly greater share of the consumer market. Their products are sold in the United States and Canada by Springs Global US, Inc. through its vast distribution chain, close to the largest retailers in those countries, and in Brazil and Argentina by Coteminas S.A. The Company is also the parent company of Oxford Comércio e Participações S.A., which is the parent company of Companhia Tecidos Santanense, a public company engaged in textile manufacturing, related activities, garment manufacturing and sales, including professional uniforms, and personal protective equipment and accessories for occupational safety. 2. PRESENTATION OF FINANCIAL STATEMENTS a. Accounting practices The financial statements were prepared in conformity with Brazilian accounting practices and standards established by the Brazilian Securities Commission (CVM). These financial statements reflect the changes introduced by the following accounting standards: (I) Accounting Standards and Procedures 27 (NPC 27), “Presentation and Disclosures”, and (II) Accounting Standards and Procedures 22 (NPC 22), “Provisions, Liabilities, Contingent Liabilities and Contingent Assets”, both issued by the Brazilian Institute of Independent Auditors (IBRACON) on October 3, 2005, and approved by CVM Resolutions No. 488 and 489, respectively, on the same date. Certain reclassifications have been made to the financial statements for the year ended December 31, 2005, presented for comparative purposes, to conform them to the aforementioned accounting standards and allow comparability with the current year. The main changes resulting from applying these standards are as follows:

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• Presentation of the group “Noncurrent” in assets and liabilities; • Presentation of the account “Intangible assets”, classified in the group “Noncurrent”;

and • Reclassification of escrow deposits, previously classified in assets, to liabilities as a

reduction of the account “Reserve for contingencies”, where applicable.

The significant criteria adopted in the preparation of the financial statements are as follows:

(a) Results of operations - Income and expenses are recorded on the accrual basis.

(b) Monetary and exchange variations - Assets and liabilities subject to monetary and exchange variations are restated through the balance sheet dates, in accordance with Central Bank of Brazil (BACEN) published exchange rates or contractual indexes. Monetary and exchange variations are recognized in income.

(c) Temporary cash investments - Stated at cost, plus income earned through the balance sheet dates, which do not exceed market value.

(d) Allowance for doubtful accounts - Recognized based on an analysis of accounts receivable, in an amount considered sufficient by management to cover possible losses on receivables.

(e) Export prepayment - Recorded as a reduction to the related balance of accounts receivable - foreign market until the corresponding settlement.

(f) Inventories - Stated at average acquisition or production cost, lower than realizable values.

(g) Investments - Investments in subsidiaries are accounted for under the equity method based on the balance sheet of the subsidiaries as of the same date as the Company. Other investments are recorded at monetarily restated cost, adjusted to net realizable value, whenever necessary.

(h) Property, plant and equipment - Stated at acquisition or construction cost, monetarily adjusted through December 31, 1995. Depreciation is calculated under the straight-line method based on the estimated useful lives of the assets. Expenditures that increase amounts or extend the estimated useful lives of assets are included in their respective cost; expenditures related to maintenance and repairs are recorded in income as incurred.

(i) Intangible - Refer to trademarks and patents acquired, software and goodwill generated upon the acquisitions made by the subsidiary Springs Global U.S. Inc. The intangibles with a determined useful life are amortized using the straight line method, based on their estimated useful lives.

(j) Deferred charges - Substantially represented by organization expenses incurred during the preoperating stage, amortized at the annual rates of 10% to 20%.

(k) Reserves - Reserves for contingencies are recognized based on the assessment by management and its legal counsel of probable losses, in an amount considered sufficient to cover such probable losses.

(l) Provision for income tax - Provision for income tax of the Brazilian subsidiaries is calculated at the rate of 15% on taxable income, plus a surtax of 10%, according to tax regulation. The portion of the provision related to tax incentives is reclassified as a credit to shareholders’ equity. The provision recorded in liabilities is stated net of prepayments made during the year. Foreign subsidiaries’ provision is calculated at tax rates that vary from 25% to 35%, according to the tax legislation of each country.

3

(m) Provision for social contribution tax - Recognized after operating income from operations and calculated at the rate of 9% on the taxable income of Brazilian subsidiaries. The provision is stated net of prepayments made during the year. (n) Profit sharing - Recognized at the probable payment value, which is lower than the limit set forth in the bylaws and the law.

b. Consolidation criteria The consolidated financial statements include the accounts of the Company and the following subsidiaries:

Total ownership interest -

% 12/31/2006 12/31/2005 Coteminas International Ltd. 100 100 Companhia de Tecidos Norte de Minas - COTEMINAS (Argentina Branch) 100 100 Springs Global Participações S.A. 62 100 Oxford Comércio e Participações S.A. 59 59 American Sportswear Ltda. 50 50 Companhia Tecidos Santanense 2 2 Fiação Canadá S.A. - 100 Coteminas S.A. - 100 Coteminas Argentina S.A. - 100 Wentex International Ltd. - 100

The consolidation process of the balance sheet and statement of income captions corresponds to the sum of assets, liabilities, income and expenses, according to their nature, and elimination of the companies’ investments in the subsidiaries, intercompany accounts and unrealized profits. The financial statements of foreign subsidiaries were translated into Brazilian reais based on the dollar exchange rate in effect as of December 31, 2006, R$2.1380 (R$2.3407 in 2005) for balance sheet accounts, and the average monthly exchange rate for statement of income accounts. The accounting practices of foreign subsidiaries have been adjusted to the same accounting principles of the Company. Minority interest is stated in a separate caption in income and in the balance sheet. The subsidiary Springs Global Participações S.A., (“Springs”), the parent company of Coteminas S.A. and Springs Global US, Inc., holding 100% of the capital of both companies, was included in consolidation based on its consolidated financial statements as of December 31, 2006. Springs has been a subsidiary of the Company since October 2006 and until then it was under joint control. This subsidiary’s consolidated statements of income were included in consolidation proportionally to the Company’s equity interest, 61.65%, for the nine-month period ended September 30, 2006, under CVM Instruction No. 247/96, and fully consolidated for the three-month period ended December 31, 2006. Note 25 to the financial statements presents, for information purposes, the main captions of the consolidated statement of income as if they had been fully consolidated in 2006. The subsidiary Oxford Comércio e Participações S.A., the parent company of Companhia Tecidos Santanense with 85.91% of its capital, was consolidated based on the already consolidated financial statements as of December 31, 2006.

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3. ACCOUNTS RECEIVABLE

Company Consolidated 2006 2005 2006 2005 Domestic customers - - 356,617 322,715 Foreign customers 2,113 21,058 558,093 111,317 Subsidiary Foreign market 9,533 24,002 - - ---------- --------- ---------- ---------- 11,646 45,060 914,710 434,032 Export prepayment/ACE (advance on export contracts) - (11,928)

- (11,928)

Allowance for doubtful accounts - - (120,363) (19,385) ---------- --------- ---------- ---------- 11,646 33,132 794,347 402,719 ====== ===== ====== ======

Accounts receivable consist basically of notes with an average collection period of approximately 80 days (92 days as of December 31, 2005). On December 31, 2006 past-due accounts receivable are not significant and the allowance for doubtful accounts is sufficient to cover expected losses. 4. INVENTORIES

Consolidated 2006 2005 Raw materials and supplies 208,048 216,335 Work in process 375,360 91,648 Finished products 494,363 76,379 ------------ ---------- 1,077,771 384,362 ======= ======

The finished product inventories are stated net of the provision for losses in the amount of R$103,735 (R$1,848 in 2005), which is sufficient to cover losses on obsolete and/or discontinued inventories. 5. ADVANCES TO SUPPLIERS

Company Consolidated 2006 2005 2006 2005 Raw material suppliers 34,747 19,831 101,883 92,058 Electric energy suppliers - - 42,752 51,052 ---------- ---------- ---------- ---------- 34,747 19,831 144,635 143,110 Current (13,956) (19,831) (31,369) (100,352) ---------- ---------- ---------- ---------- Noncurrent 20,791 - 113,266 42,758 ====== ====== ====== ======

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6. INVESTMENTS IN SUBSIDIARIES

Shareholders’ Ownership Total investments - Company Equity in subsidiaries

equity interest - % Net income 2006 2005 2006 2005

Springs Global Participações S.A. (a) 1,751,673 61.65 (302,164) 1,079,907 1 (186,284) - Coteminas S.A. (b) - - - - 1,109,437 - - Oxford Comércio e Participações S.A. (c) 108,121 58.88 5,522 63,662 62,936 3,251 21,522 Coteminas International Ltd. 8,240 100 (12,849) 8,240 16,054 (14,254) 4,559 Wentex International Ltd. 6,535 100 2,422 - 4,428 2,107 3,217 Companhia Tecidos Santanense (d) 140,252 2 5,945 1,650 1,545 134 779 American Sportswear Ltda. 1,598 50 33 799 785 14 45 Fiação Canadá S.A. (e) - - - - - - (2,544) COTEMINAS (Argentina Branch) (f) (10,112) 100 774 - - 1,850 1,877 ------------- ------------- ---------- ----------

1,154,258 1,195,186 (193,182) 29,455 ======== ======== ====== ======

(a) Springs Global Participações S.A. was established on November 24, 2005 as a subsidiary of the Company. On January 24, 2006, it received a capital contribution in assets consisting of 100% of the

shares of Coteminas S.A. and Springs Global US, Inc. The Company recorded R$197,442 in capital gains as a result of these contributions. (b) Coteminas S.A. was established on October 17, 2005, as a subsidiary of the Company, and its shares were used in a capital contribution to the subsidiary Springs Global Participações S.A. on January

24, 2006. (c) The subsidiary Oxford is the parent company of Companhia Tecidos Santanense, holding 85.91% of its capital since July 2004, when it recorded negative goodwill on its equity interest amounting to

R$13,598, classified under the caption “Deferred income - negative goodwill” in liabilities. The negative goodwill is based on other economic fundamentals and will be amortized when the investment is sold.

(d) The Company acquired a direct investment in Companhia Tecidos Santanense, on February 22, 2005, when it recorded negative goodwill on its equity interest amounting to R$1,253, classified under

the caption “Deferred income - negative goodwill” in liabilities. Negative goodwill is based on other economic fundamentals and will be amortized when the investment is sold. (e) The investment in Fiação Canadá S.A. was included in the capital contribution mentioned in items (a) and (b) of this note. (f) Shareholders’ deficit refers basically to payables to the Company and was reclassified to the caption “Other payables” in noncurrent liabilities.

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7. PROPERTY, PLANT AND EQUIPMENT a. Consolidated

2006 2005

Annual depreciation rate

- %

Monetarilyadjusted

cost Accumulateddepreciation Net Net

Land and improvements - 40,046 (11,314) 28,732 19,262 Buildings 1.67 to 5 564,856 (212,403) 352,453 281,957 Installations 5 to 10 206,431 (89,883) 116,548 101,923 Equipment 4 to 20 2,690,726 (1,681,745) 1,008,981 683,514 Furniture and fixtures 5 to 10 74,439 (61,831) 12,608 6,778 Vehicles 20 to 33.34 28,117 (24,547) 3,570 3,260 Computer hardware 16.7 to 20 13,084 (10,897) 2,187 2,203 Hydroelectric plant - Porto Estrela (*) 2 to 10 36,137 (4,135) 32,002 32,831 Construction in progress - 30,525 - 30,525 14,301 Advances to suppliers - 10,399 - 10,399 15,065 Other 5 to 10 211,575 (173,386) 38,189 17,437 -------------- -------------- -------------- -------------- 3,906,335 (2,270,141) 1,636,194 1,178,531 ======== ======== ======== ========

(*) See Note 18. The subsidiary SGUS has registered a provision for losses in the amount of R$9,067 related to reduction in the recoverable values of machinery and equipment that are not expected to generate future benefits and that are part of the restructuring mentioned in Note 19. 8. DEFERRED CHARGES

Company Consolidated 2006 2005 2006 2005 Preoperating and other expenses 33,667 33,667 43,136 50,080 Accumulated amortization (32,763) (31,794) (37,078) (42,856) --------- --------- --------- --------- 904 1,873 6,058 7,224 ===== ===== ===== =====

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9. LEASING The subsidiary Springs Global US, Inc. rents buildings and equipment under the terms of operating leases. The total expense for the year 2006 related to these operating leases amounted to approximately R$69,200. The installments for the coming years are as follows:

2006 Years R$

2007 51,278 2008 44,765 2009 37,595 2010 28,534 2011 21,630

As from 2011 the installments keep on decreasing until the end of the contracts, amounting to R$270,194. 10. SUPPLIERS

Company Consolidated 2006 2005 2006 2005 Domestic suppliers 195 - 131,243 116,935 Foreign suppliers - - 325,627 3,033 Subsidiary Domestic market - 3 - - Foreign market - 26,135 - - ---------- ---------- ---------- ---------- 195 26,138 456,870 119,968 ====== ====== ====== ======

Accounts payable to suppliers are substantially composed of amounts with an average maturity term of approximately 53 days. The domestic trade payables include credits to purchase raw material (cotton) in the amount of R$75,714 (R$74,234 in 2005), with maturities through December 2007.

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11. LOANS AND FINANCING Company Consolidated

Currency

Annual interest rate -

% Maturity 2006 2005 2006 2005 Export prepayment: Banco Real ABN Amro US$ 0.2 (a) 2007 8,557 11,703 17,288 11,703 Banco Real ABN Amro (b) US$ 1.35 (a) 2013 - - 235,620 16,428 Banco Itaú S.A. (b) US$ 1.35 (a) 2013 - - 235,620 - BankBoston US$ 1.15 (a) 2010 42,368 47,192 42,368 47,192 BNDES - TJLP R$ TJLP + 2.6 2008 - - 69,045 - BNDES - TJFPE US$ TJFPE + 2.6 2008 - - 17,142 - ----------- ----------- ----------- ----------- 50,925 58,895 617,083 75,323 Local currency:

Industrial Development Support Program (PROADI) R$ TR + 3.0 2007 10 19 10 19

Banco Real ABN Amro R$ (b) 2006 - - - 285,193 Banco Itaú S.A. R$ (b) 2006 - - - 285,193

National Bank for Economic and Social Development (BNDES) R$ TJLP + 3.0 2014 - - 28,382 30,696

Unibanco S.A. R$ TJLP + 3.9/5.0 2006 - - - 229 Banco Bradesco S.A. R$ 103% of CDI 2007 - - 4,445 47 Banco Alfa S.A. R$ TJLP + 4.0/5.5 2006 - - - 77 Banco do Brasil S.A. R$ TJLP + 2.53 2008 - - 10,106 51 Banco Real ABN Amro R$ TJLP + 4.0 2007 - - 353 765 ----------- ----------- ----------- ----------- 10 19 43,296 602,270 Foreign currency:

International Finance Corporation - IFC US$ 2.75 (a) 2007 4,190 9,049 4,190 9,049

Banco Itaú S.A. $ Arg 10.2/11.5 2007 - - 11,719 12,700 Banco Francês $ Arg 10.25 2007 - - 6,764 - Citicorp US$ 1.85 (a) 2009 26,815 36,895 26,815 36,895 Dresdner Bank US$ 1.125 (a) 2006 - - - 341 Banco do Brasil S.A. $ Arg 10.25 2006 - - - 9,086 Wachovia Bank (c) US$ 4.7 2007 - - 198,426 -

Wachovia Bank (d) US$ LIBOR + spread 2011 - - 115,880 -

----------- ----------- ----------- ----------- 31,005 45,944 363,794 68,071 ----------- ----------- ----------- ----------- Total 81,940 104,858 1,024,173 745,664 Current portion (33,237) (15,354) (273,685) (617,074) ----------- ----------- ----------- ----------- Noncurrent portion 48,703 89,504 750,488 128,590 ====== ====== ====== ====== TJLP - Long-term Interest Rate TJFPE - Pre-shipment Fixed Interest Rate TR - a managed prime rate CDI - Interbank Deposit Rate (a) Plus LIBOR. (b) Joint lead underwriters and underwriters. (c) Trade receivable securitization facility. (d) Asset-backed Loan/Revolving credit facility.

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Loans are collateralized by: (I) export rights, agreements, credit notes and related products for export prepayment financing, and (II) receivables, inventories, sureties and bank guarantees for other financing. Maturities are as follows:

Consolidated

2007

2008

2009

2010 2011 to

2014

Total Export prepayment: Banco Real ABN Amro 17,288 - - - - 17,288 Banco Real ABN Amro 440 - 41,502 55,337 138,341 235,620 Banco Itaú S.A. 440 - 41,502 55,337 138,341 235,620 BankBoston 13,510 14,260 13,978 620 - 42,368 BNDES - TJLP 142 68,903 - - - 69,045 BNDES - TJFPE 38 17,104 - - - 17,142 ----------- ----------- ----------- ----------- ----------- ----------- 31,858 100,267 96,982 111,294 276,682 617,083 Local currency: Industrial Development Support Program (PROADI)

10

-

-

-

-

10

National Bank for Economic and Social Development (BNDES) (*)

3,844

3,775

3,775

3,775

13,213

28,382

Banco Bradesco S.A. 4,445 - - - - 4,445 Banco do Brasil S.A. 5,106 5,000 - - - 10,106 Banco Real ABN Amro 353 - - - - 353 ----------- ----------- ----------- ----------- ----------- ----------- 13,758 8,775 3,775 3,775 13,213 43,296 Foreign currency:

International Finance Corporation - IFC

4,190

-

-

-

-

4,190

Banco Itaú S.A. 11,719 - - - - 11,719 Banco Francês 6,764 - - - - 6,764 Citicorp 6,970 6,885 12,960 - - 26,815 Wachovia Bank 198,426 - - - - 198,426 Wachovia Bank - - - - 115,880 115,880 ----------- ----------- ----------- ----------- ----------- ----------- 228,069 6,885 12,960 - 115,880 363,794 ----------- ----------- ----------- ----------- ----------- ----------- Total 273,685 115,927 113,717 115,069 405,775 1,024,173 ====== ====== ====== ====== ====== ======

(*) Monthly, consecutive installments of R$313 are due over the period from January 2009 to June 2014. 12. SHAREHOLDERS’ EQUITY a. Capital Subscribed and paid-up capital is represented as follows:

2006 2005 Common 2,176,597,891 2,176,597,891 Preferred 3,657,166,671 3,900,240,221 ------------------ ------------------ 5,833,764,562 6,076,838,112 =========== ===========

10

All shares are registered and without par value. Preferred shares are nonvoting and have the following advantages: (a) priority in the reimbursement of capital in case of liquidation of the Company, and (b) tag-along rights in any public offering for the sale of control, according to the law, and right to dividends at least equal to those paid for common shares. At the Extraordinary Shareholders' Meeting held on April 28, 2006, the cancellation of 243,073,550 preferred shares issued by the Company was approved, without capital reduction, acquired for the symbolic amount of R$1.00 as part of the transactions performed on January 24, 2006. b. Proposed dividends Shareholders are entitled to dividends equivalent to 33.33% of annual net income, adjusted according to the bylaws and the legislation. Proposed dividends were calculated as follows:

2006 2005 Net income for the year 47,685 101,915 Legal reserve (2,384) (5,095) ---------- ---------- Adjusted net income 45,301 96,820 ====== ====== Proposed dividends 15,100 32,273 Prior periods’ balance 1,138 928 --------- --------- Dividends payable 16,238 33,201 ===== =====

Proposed dividends total R$15,100, equivalent to R$2.59 per thousand outstanding shares (R$32,273 in 2005, equivalent to R$5.31 per thousand shares). c. Profit retention reserve The profit retention reserve was recognized in accordance with article 196 of Law No. 6,404/76 to be used in future investments.

11

13. RELATED-PARTY TRANSACTIONS

Intercompany receivables

Intercompany payables

Financial charges

2006 2005 2006 2005 2006 2005 Subsidiaries: Coteminas International Ltd. 7,909 26,869 - - 1,805 1,971 Wentex International Ltd. - - - 20,271 (718) (1,452) Coteminas (Argentina Branch) - - - 448 39 60 American Sportswear Ltda. - - 658 629 (92) (101) Fiação Canadá S.A. - 470 - - 73 1,106 Companhia Tecidos Santanense 12,601 - - 10,786 942 (3,281) Coteminas S.A. 138,167 - - - 5,472 - ---------- ---------- ---------- ---------- ---------- ---------- 158,677 27,339 658 32,134 7,521 (1,697) ====== ====== ====== ====== ====== ====== Affiliates: Empresa Nacional de Comércio, Rédito e Participações S.A. - Encorpar

-

-

953

6,692

(572)

(903) Holtex Inc. - - 293 306 (20) (11) Wembley Sociedade Anônima - 200 6,087 - (401) 177 ---------- ---------- ---------- ---------- ---------- ---------- - 200 7,333 6,998 (993) (737) ====== ====== ====== ====== ====== ======

The balances with affiliated companies refer to loans with long-term maturities, whose charges were calculated according to the rates equivalent to those in effect in the financial market (100% of the CDI [interbank deposit rate] for companies in Brazil and LIBOR plus 3% per year or 100% of the CDI plus 1.375% per year for companies located abroad). The Company receives an annual commission of 1.3% on guarantee from its indirect subsidiary Companhia Tecidos Santanense, which as of December 31, 2006 totals R$595 (R$682 in 2005), recognized as financial income. As mentioned in note 24, the indirect subsidiary SGUS has sold its net assets corresponding to the “Creative Products” business unit to a shareholder of the Company. As foreseen in a shareholders’ agreement, the subsidiary SGUS shall pay US$2,000 thousand to the shareholder Heartland Industrial Partners and US$1,500 thousand to a group that represents the Close family, and the indirect subsidiary CSA shall pay US$3,500 thousand to the Company, all for services rendered, plus out-of-pocket expenses. In 2006 a total of US$3,500 thousand has been paid and the amount of US$3,500 thousand is accrued under “Other payables” caption.

12

14. DEBENTURES SUBSCRIBED BY THE COMPANY In the Extraordinary Shareholders’ Meeting of the subsidiary Coteminas S.A., held on January 24, 2006, the first issuance of nonconvertible debentures was approved, for private distribution, as follows:

Issue Date: January 24, 2006 Series: Single series Quantity: 50,057 debentures Nominal value at the issuance date:

R$1

Remuneration: Exchange rate variation plus LIBOR for 3 months, plus annual surcharge of 3%

Interest maturity: Quarterly with last maturity date on 06/21/2013. Principal maturity: 17 quarterly and consecutive installments, with first

maturity date on 06/21/2009, and last on 06/21/2013. The Company subscribed all the debentures. The Company accrued through December 31, 2006 “pro rata” interest in the amount of R$2,335 in current assets and R$51,018 was recorded in noncurrent assets. In 2006, total charges of R$3,296 related to the debentures were recorded. These amounts were eliminated in consolidation. 15. INCOME AND SOCIAL CONTRIBUTION TAXES AND OTHER TAXES a. Tax incentives All Brazilian manufacturing units of the indirect subsidiary Coteminas S.A., except the Blumenau and Goiás units, and a unit of the subsidiary Companhia Tecidos Santanense are located within the jurisdiction of ADENE (Northeast Development Agency) area, which provides Federal and State tax benefits. The Federal and State tax incentives of these manufacturing units expire on different dates, depending on the plant in question, by December 31, 2016. The Federal tax benefits are calculated based on income tax due on income from sales and industrial operations, recorded as income tax expense and credited to a capital reserve in shareholders’ equity. In 2006, there were no incentives at the indirect subsidiary CSA, since there was no taxable income. The subsidiary Companhia Tecidos Santanense recognized R$512 as tax incentives.

13

b. Reconciliation of income tax expenses

Company 2006 2005 Income before taxes and profit sharing 65,932 142,514 Permanent differences: Equity in subsidiaries 193,182 (29,455) Nonoperating equity in subsidiaries (206,846) -

Effect of foreign subsidiaries’ income 2,621 7,938 Other, net 180 927 ---------- ---------- Taxable income 55,069 121,924 Rate of 25% 13,735 30,456 Other deductions, net (439) (1,381) --------- --------- Income tax expenses 13,296 29,075 --------- --------- Current 9,756 27,757 Deferred 3,540 1,318 ===== =====

c. Reconciliation of social contribution tax expenses

Company 2006 2005 Taxable income (see item “b” above) 55,069 121,924 Permanent differences: Profit sharing - (627) Other, net (54) (224) ---------- ---------- Tax basis 55,015 121,073 ====== ====== Social contribution tax expenses (9%) 4,951 10,897 ---------- ---------- Current 4,932 9,851 Deferred 19 1,046 ====== ======

14

d. Recoverable taxes and deferred income tax

Company Consolidated 2006 2005 2006 2005

ICMS (State VAT) (a) 32,190 63,378

78,166 68,125 PIS and COFINS (taxes on revenue) 20,393 31,445 25,403 32,017 Deferred income tax (b) - - 42,830 - IPI (federal VAT) 1,925 3,517 3,716 3,936 IVA (Value-added tax) - - 4,181 3,117 Income tax 1,447 4,987 3,055 6,338 Social contribution tax 38 57 617 543 Tax on net income 3,934 - 3,934 - Other 3,588 3 13,784 2,035 --------- --------- --------- --------- 63,515 103,387 175,686 116,111 Current assets (63,515) (103,387) (132,856) (116,111) --------- --------- --------- --------- Noncurrent assets - - 42,830 - ===== ===== ====== ======

(a) Refers mainly to credits arising from export volumes. (b) Refers to deferred income tax over temporary differences and tax losses of the indirect

subsidiary Springs Global US, Inc. expected to be realized in 2008 and 2009, in the amounts of R$34,796 and R$7,950, respectively.

16. RESERVE FOR CONTINGENCIES The Company and its subsidiaries are challenging in court the legality of certain taxes and labor claims. The reserve for contingencies was recorded based on management’s and legal counsel’s risk assessment for all lawsuits in which the Company’s chances of losses are considered probable.

15

Regarding taxes under litigation, the Company has adopted the policy of accruing and making escrow deposits for the full amounts. These reserves are recorded net of the corresponding escrow deposits, in the amount of R$83,391.

Company Consolidated 2006 2005 2006 2005 Tax: Social contribution tax 40,915 40,915 41,872 41,891 CPMF (tax on banking transactions) 102 102 5,122 805 Semiannual PIS (tax on revenue) - - 4,732 4,732 INSS (social security contribution) 2,518 2,518 4,152 4,152 COFINS (tax on revenue) - - 1,036 536 IPI (Federal VAT) on imports 2,653 2,653 2,653 2,653 Social contribution tax on severance pay fund (FGTS) 2,383 2,594

2,383 2,594

Other 285 285 828 707 Labor 1,625 1,509 2,971 1,937 Civil and other 16,490 16,490 22,104 22,261 --------- --------- --------- --------- 66,971 67,066 87,853 82,268 Escrow deposits (65,963) (65,846) (83,391) (73,524) --------- --------- --------- --------- 1,008 1,220 4,462 8,744 ===== ===== ===== =====

Changes in the consolidated reserve for contingencies are as follows:

Balance as of

12/31/05 Additions

Write-offs

Balance as of

12/31/06 Tax: Social contribution tax 41,891 - (19) 41,872 CPMF 805 4,317 - 5,122 Semiannual PIS 4,732 - - 4,732 INSS 4,152 - - 4,152 COFINS 536 500 - 1,036 IPI on imports 2,653 - - 2,653 Social contribution tax on FGTS 2,594 58 (269) 2,383 Other 707 121 - 828 Labor 1,937 1,409 (375) 2,971 Civil and other 22,261 3,104 (3,261) 22,104 --------- --------- --------- --------- 82,268 9,509 (3,924) 87,853 Escrow deposits (73,524) (8,914) (953) (83,391) --------- --------- --------- --------- 8,744 595 (4,877) 4,462 ===== ===== ===== =====

16

17. PENSION PLAN Substantially all the employees of the indirect subsidiary Springs Global US (“SGUS”) are covered by defined-contribution plans. Some executives of SGUS are covered by a defined- -benefit plan. 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.

Springs Global US sponsors a defined-benefit pension plan for some of its employees, in addition to a postretirement healthcare plan, whose expected pension and postretirement healthcare benefit costs are accrued, based on actuarial studies, and contributions of retired employees and SGUS are adjusted periodically. SGUS’ contributions to the defined-benefit 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 cash investments, fixed-income funds (including US government debt) and the financial market. SGUS also provides retirement benefits to eligible executives according to unqualified supplementary executive retirement plans.

The tables below include summary information on the pension and postretirement plans for the year ended December 31, 2006:

Defined-benefit

pension plan Postretirement Change in benefit obligation: Benefit obligation at beginning of year 136,018 81,325 Cost of service 1,973 1,204 Interest cost 6,599 3,691 Participants’ contribution 6,080 Actuarial gain (3,403) (2,407)Payment of benefits (8,057) (14,368) Exchange rate variation (11,736) (6,955)

------------- ------------ Benefit obligation at end of year 121,394 68,570

Change in plan assets: Fair value of assets at beginning of year 30,574 - Actual return on plan assets 2,166 - Employer contributions 7,476 - Benefit payments (8,057) - Exchange rate variation (2,671) -

------------ ------------ Fair value of assets at end of year 29,488 -

17

Defined-benefit

pension plan Postretirement Funded status: Funded status at end of year 91,906 68,570 ====== ======Weighted average assumptions Discount rate 5.75% - Expected return on plan assets 7.80% - Rate of compensation increase 3.50% - Initial health care cost trend rate (1) - 11% Components of net periodic benefit costs: Cost of service 1,973 1,204 Interest cost 6,599 3,691 Expected return on assets (2,283) - Amortization of prior service cost 327 (978)Net amortization of actuarial loss 2,196 - ----------- ----------- Net periodic benefit cost 8,812 3,917 ====== ======

(1) Assumed to decrease gradually to 5% in 2019 and remain at this level thereafter.

SGUS recorded R$17,800, net of deferred income tax asset of R$10,900, in actuarial losses. The net actuarial loss and past service credits for the post-retirement benefit plan that will be amortized in the benefit’s net costs during 2007 are R$1,700 and R$600, respectively. SGUS’ investment strategy is to invest in a diversified portfolio considering an acceptable risk level. Pension plan assets are invested in a balanced fund that has a fixed allocation of 60% in cash investments and 40% in fixed-income financial instruments. The expected return on the plan’s assets has been developed in conjunction with the outside consultants, and took into consideration the long-term expectations for future returns based on SGUS’ current investment strategy. SGUS expects to contribute R$8,223 to the defined-benefit plan and R$8,712 to the post- -retirement healthcare plan in 2007. Payments of future benefits for the next 10 years are as follows:

Defined-benefit

pension plan Postretirement

2007 8,223 8,712 2008 8,321 9,087 2009 8,620 9,003 2010 8,541 8,719 2011 8,415 8,806 2012 - 2016 44,686 35,555

18

Assuming a change of one percentage point in healthcare cost growth rates, the effects would be as follows in the postretirement healthcare plan:

1%

Increase 1%

Decrease

Effect on total service and interest cost components

109

64

Effect on post-retirement benefit obligation

1,736

1,584

The long-term balance of benefit obligations and deferred returns are as follows:

2006

Consolidated Pension plan obligations 92,541 Post-retirement healthcare plan obligations 53,031 Other employee benefit obligations 21,630 ------------ Total 167,202 =======

These are long-term liabilities and will be subsequently paid according to the terms of the plans.

Springs Global US is one of the four companies sponsoring the South Jersey Labor and Management Pension Fund, a multiple-employer defined-benefit pension plan. In 2006, SGUS contributed approximately R$400 to the plan. As of December 31, 2006, the balances in liabilities are R$600, represented by the plan’s underfunded portion as of that date. 18. GOVERNMENT CONCESSIONS The indirect subsidiary CSA has equity interest in a consortium for an electric power generation concession with the companies CEMIG Geração e Transmissão S.A. and Companhia Vale do Rio Doce, in equal percentages of 33.33%. No legally independent entity was established for the management of this consortium. Controls are maintained in each company’s accounting records, equivalent to each one’s interest. In return for the granting of the concession, the subsidiary, together with the other companies in the consortium, will pay installments to the federal government in different amounts over the course of the concession, as stated below. Beginning of concession period: July 10, 1997 Concession period: 35 years Total concession amount: R$333,310 Monetary adjustment: IGP-M (General Market Price Index)

19

Total annual installments of the concession:

Years 5 to 15 Years 16 to 55 Years 26 to 35 2002 to 2012 2013 to 2022 2023 to 2032 -------------------- -------------------- -------------------- Historical amounts: Minimum installment 120 120 120 Additional installment - 12,510 20,449 ------ ----------- ----------- Annual installment 120 12,630 20,569 Total installments 1,320 126,300 205,690 Monetarily adjusted installments 3,245 310,441 505,573 ===== ====== ======

For accounting purposes, the indirect subsidiary CSA recognizes expenses incurred on the accrual basis, as a contra entry to noncurrent liabilities - other payables, on the straight-line basis, based on its share in the total concession amount, 33.33%, discounted to present value, considering an interest rate of 4% per year, monetarily adjusted based on the IGP-M. As of December 31, 2006, this amount totals R$24,679. The amounts recorded under property, plant and equipment, R$32,002 (see note 7), related to the current concession, consider CSA’s equity interest in 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 and, since May 2002, the subsidiary CSA has used its full share of the generated power (33.33%) in its manufacturing units in Minas Gerais State. 19. OTHER OPERATING INCOME (EXPENSES)

2006

Company Consolidated Restructuring costs - headcount reduction and closing of industrial units in the US

-

(25,948)

Administrative expenses recovery - 8,488 Expenses with technology systems integration - (2,740) Gains (losses) on tax lawsuits 1,051 (3,224) Others 54 (4,055) ---------- ---------- 1,105 (27,479) ====== ======

The indirect subsidiary Springs Global US has announced and is executing the shutdown of some industrial units which have the production substantially transferred to the subsidiary in Brazil (Coteminas S.A.) and its subsidiary in Argentina. As a result of the announcement, this indirect subsidiary has recorded the amount of R$27,514 to cover the expenses with the labor force contract termination.

20

In 2006 the following announcements have been made: (I) the shutdown of home furnishing products “Elliott” and “Frances” plants in South Carolina, USA, and “Hartwell Finishing, Griffins #1 and Griffins #5” in Georgia, USA. (II) the home furnishing products “Hartwell Yarn” and “Hartwell Weaving” plants will be shut down. This will generate a cost reduction in the USA, and will allow the machinery and equipment to be used in the plants of Coteminas S.A. in Brasil and Argentina. (III) the home furnishing products “Piedmont 5th Ave. Plant” has been shut down and will be consolidated with the “Piedmont” plant in Alabama, USA. (IV) the home furnishing products “Grace Finishing” and “Grace Fabrication” plants in South Carolina will be converted into a distribution center. The capacity reduction in the plant will allow the machinery and equipment to be used in the plants of Coteminas S.A. in Brasil. (V) the home furnishing products “Katherine Plant” in South Carolina, USA, will be shut down. This will generate a cost reduction in the USA, and will allow the machinery and equipment to be used in the plants of Coteminas S.A. in Brasil and Argentina. (VI) the “Calhoun Plant” in Georgia, USA, will be shut down until the end of 2007 and its production will be transferred to the bathroom rug “Nashville Plant”, in Tennessee, USA. 20. NONOPERATING INCOME

2006

Company Consolidated Nonoperating equity in subsidiaries 206,846 206,846 Contractual adjustments in the subsidiary Springs Global US - (59,763) Contractual adjustments in the subsidiary Coteminas S.A. (9,404) (3,607) Impairment for discontinued fixed assets - (9,067) Income on sale of investments - 3,940 Other 2,850 2,717 ----------- ----------- Total nonoperating expenses 200,292 141,066 ======= ======

The contractual adjustments in subsidiary Springs Global US refer to disproportionate payment of dividends prior to January 24, 2006, date of the capital investment, and other adjustments that affected shareholders’ equity of that indirect subsidiary, which was the basis for the initial capital contribution and share issuance.

21

21. FINANCIAL INSTRUMENTS The Company’s operations and its subsidiaries comprise the production and trade of threads in general. The main market risk factors affecting the Company’s business are as follows:

a) Risk management- The Company and its subsidiaries have transactions involving financial instruments, exclusively related to their activities, to reduce the exposure of its operating assets and liabilities to market, currency and interest rate risks.

b) 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. Beginning in 2006, the Company and its subsidiaries have indirect foreign investments that increase their exposure to exchange rate risk.

c) Estimated fair values- Financial assets and liabilities are stated in the balance sheet at cost, reflecting the respective revenues earned and expenses incurred through the balance sheet date, which approximate fair value. For temporary cash investments, fair value was determined based on market quotations of these investments.

d) Credit risk- The Company and its subsidiaries are subject to credit risk on its temporary cash investments. This risk is mitigated by the policy of maintaining investments only at major financial institutions. Cash and cash equivalents are summarized as follows:

Company Consolidated

2006 2005 2006 2005 Fixed-income fund (DI) 77,455 487,720 84,653 489,493 Foreign exchange funds (US$) - 7,095 31,329 8,651 Foreign deposits - - 22,024 29,316 Bank certificates of deposit (CDBs) 124,477 - 125,727 - Debentures 120,628 - 180,858 - ------------ ------------ ------------ ------------ 322,560 494,815 444,591 527,460 ======= ======= ======= =======

The credit risk on trade accounts receivable is reduced due to the selectivity of customers and the credit policy.

22

22. INSURANCE COVERAGE The Company and its subsidiaries maintain insurance coverage for property, plant and equipment, inventories and other assets exposed to risk. As of December 31, 2006, insurance coverage is as follows:

Effective date Risk From Until

Value at risk

Amount insured

Automobiles December 2006 December 2007 4,276 4,276 Products in general December 2006 December 2007 2,138 2,138 Employee salaries August 2006 August 2007 4,276 4,276 Property, plant and equipment December 2006 December 2007 5,345,000 5,345,000 Fire August 2006 August 2007 2,515,183 2,267,674 “Umbrella” (a) December 2006 December 2007 160,350 160,350 Civil responsibility December 2006 March 2008 98,310 98,310 Life August 2006 August 2007 299,193 299,193 Other December 2006 December 2007 307,450 307,450 -------------- ------------- 8,736,176 8,488,667 ======== ========

(a) The “umbrella” insurance covers the amount exceeding other insurance coverages retained by the indirect subsidiary SGUS in the cases where the casualty exceeds the individual amounts insured. 23. STOCK COMPENSATION Certain Springs Global US’ employees were participants in the stock option plan of Springs Industries Inc., prior to the formation of Springs Global Participações S.A. As part of the restructuring on December 30, 2005, the exercise price of all outstading Springs Industries stock options were separated on a “pro rata” basis between Springs Industries and Springs Global US based on the fair value of the underlying price of each company’s share (option repricing). This was accomplished by the: (I) creation of a new stock option plan for Springs Global US that is separate from that of Springs Industries, and (II) issuance of an equivalent number of Springs Global US options to each stock option beneficiary. The Springs Global US stock option plan maintained the same vesting requirements, expiration dates, and appreciation rights, if applicable, as set forth in the Springs Industries stock option agreements. Springs Global US exercised the repricing option mentioned above, which is not considered a change and, therefore, does not have accounting implications. Springs Global US continued to measure stock-based compensation using the intrinsic value method for all shares issued to its employees as a direct result of the option repricing. Between January 1 and 24, 2006, there was no issuance, cancellation or expiration of stock options and no option was exercised. On January 24, 2006, the shareholders of Springs Global US exchanged all equity interests with Springs Global Participações S.A. (“Springs”).

23

According to Springs Global US’ stock option plan, the exchange of equity interests made exercisable the call option for all shares granted to employees that were not exercisable as of January 24, 2006. Concurrently, the shareholders of Springs approved the stock option plan (SGP Option Plan). On January 24, 2006, Springs converted the exercisable stock option plan of the indirect subsidiary Springs Global US, totaling 1,145,097 stock options, into a plan equivalent to that of Springs. On that date, the stock option plan of the indirect subsidiary Springs Global US ceased to exist. Of the stock options issued by Springs, 175,000 have appreciation rights. Appreciation rights allow the beneficiary to receive, for each option exercised, payment in cash (or Springs shares, if the employee is still employed in the indirect subsidiary SGUS on the exercise date) in the amount equal to the difference between the fair market value of Springs’ shares, as defined in the plan, and the option’s exercise price.

A summary of the stock options for the period between January 24, 2006 and December 31, 2006 and the changes in this period is as follows:

Existing options

Weighted average exercise

price Existing and exercisable as of January 24, 2006 1,145,097 R$49.24 Cancelled/expired (50,000) R$50.96 --------------- -------------- Existing and exercisable as of December 31, 2006 1,095,097 R$49.16 ======== ========

The table below summarizes the information on stock options as of December 31, 2006:

Exercise price

- R$

Existing options

Weighted average remaining

contractual life 31.02 89,700 4.21 years 36.69 27,000 1.79 years 42.44 22,000 2.96 years 48.11 18,000 2.86 years 48.75 58,000 0.14 year 50.96 830,397 4.30 years 62.24 50,000 1.12 years

----------- --------------- 49.16 1,095,097

====== ========

24

24. SUBSEQUENT EVENT On March 2, 2007 the subsidiary SGUS sold certain assets related to its Creative Products business unit to an affiliate. The assets at book value of the aforementioned business unit are as follows:

R$ (Unaudited) Accounts receivable 23,875 Inventories 44,009 Property, plant and equipment, net 3,842 Other assets 376 ---------- 72,102 ======

The sales price was R$43,258 with a down payment amounting to R$33,614 and a promissory note amounting to R$9,623 due in 5 years and subject to cumulative interest of 5.92% per year. In 2006, such business unit had sales of R$201,690, gross profit of R$24,596 and sales, administrative and general expenses of R$28,177. The depreciation and amortization charge of the year was R$3,607. 25. CONSOLIDATED FINANCIAL STATEMENTS As described in Note 2.b. to the financial statements, the Company presents below the main captions of the consolidated statements of income as if they had been fully consolidated in 2006.

Consolidated 2006 2005 Net operating revenue 4,961,889 1,359,782 Gross profit 565,894 364,991 Selling, general and administrative expenses (555,694) (156,376) Other nonrecurring, net (57,162) 6,323 Financial expenses, net (93,415) (42,174) Exchange variation on foreign investment (46,129) - Nonoperating income 120,803 1,123 Net income 47,685 101,915 Depreciation 217,650 89,975

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