Earnings Report. 3rd Quarter Earnings Report 3rd Quarter 2007 MANAGEMENT S COMMENTS MAIN INDICATORS

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1 Earnings Report 3rd Quarter 2007 The acquisitions of Alpargatas Argentina and Companhia Brasileira de Sandálias DUPÉ are important strategic actions that are designed to consolidate Alpargatas in the Brazilian footwear market and further internationalize its brands/operations. Price (9/30/07): ALPA3 - R$ ALPA4 - R$ Market Cap (30/09/07): R$ 2.9 billion Conference Call: 11/12/07 at 12 noon Telephone: (55 11) Password: ALPARGATAS Contacts: Francisco Cespede Director Adm. And Finance and IR cespede@alpargatas.com.br Tel: (11) José Sálvio Ferreira Moraes IR Manager jsalvio@alpargatas.com.br Tel: (11) Doris Pompeu Brasil Global RI doris.pompeu@globalri.com.br Tel: (11) São Paulo, March 09, 2007 São Paulo Alpargatas S.A., (Bovespa: (Bovespa: ALPA3 and ALPA4), a company listed on the Bovespa for the past 93 years and a part of its Corporate Governance Level 1, and named Company of the Year in the Exame magazine s annual survey of the Biggest and the Best, today disclosed its results for 3rd. The financial information that follows is presented in Brazilian reais, in compliance with corporate legislation. When not mentioned, the comparison of numbers is to those from MANAGEMENT S COMMENTS In the third quarter, Alpargatas continued implementing strategic projects designed to boost its size and make it a Global Company of brands. Highlights included an historic record of sales of Havaianas sandals in September, a 44% increase in exports revenues in dollar terms on a 25% volume increase and acquisitions to consolidate the Company on the Brazilian footwear market and further internationalize its brands/operations. FINANCIAL INDICATORS MAIN INDICATORS R$ thousand 3Q07 3Q06 9M07 9M06 Gross Sales Revenues 395, ,869 1,100,998 1,124,003 Net Sales Revenues 314, , , ,755 Gross Income 127, , , ,788 Gross Margin 40.6% 45.8% 44.4% 46.3% EBITDA R$ million EBITDA Margin 15.1% 23.5% 17.2% 23.0% Net Income 19,573 28,589 95, ,609 Net Margin 6.2% 9.3% 10.8% 11.8% 1

2 OPERATING INDICATORS 3Q07 9M07 Physical sales Shoes (million pairs) Sports clothes and accessories (million pieces) Industrial textiles (million m2) SALES REVENUES PER BUSINESS UNIT 9M07 Sandals 58.9% Sporting Goods 29.6% Industrial Textiles 6.6% Retail 4.9% SHARE PERFORMANCE 3Q07 9M07 In 12 months (September 07) Share Appreciation ALPA3 0.0% 47.3% 113.7% ALPA4 3.5% 27.0% 82.8% IBOVESPA 11.2% 36.0% 65.9% 240 Index 100 = 09/29/ / / / / / / / / / / / / /2007 ALPA3 ALPA4 IBOVESPA 2

3 GROWTH STRATEGIES Internationalization: Alpargatas Argentina An important step was taken toward consolidating Alpargatas position in the Latin American sporting goods market with the acquisition of 34.5% of the capital of Alpargatas S.A.I.C. (Alpargatas Argentina), representing control of the Company. Moreover, a request for a public offer to acquire up to 25.5% of the Company s capital stock was filed with the CNV da Argentina (Comisión Nacional de Valores), the country s Securities Exchange Commission. The shares acquired are in custody at The Bank of New York while the process is reviewed by the Argentine competition defense agency (CNDC - Comisión Nacional de Defensa de la Competencia de Argentina). After approval, the shares shall automatically be transferred to São Paulo Alpargatas, which will then begin its management of the company. Alpargatas Argentina is the largest footwear and textile company in Argentina, with net sales in 2006 of US$ 160 million. It has 11 factories, 5,000 employees and sells 10 million pairs of shoes/year under the Topper, Pampero, Rueda and Palette brand names, among others. The merger of the companies will make a significant reinforcement in the Alpargatas sporting goods portfolio, with the Topper brand a highlight, now assuming an important role in Latin America. Havaianas also will benefit from direct operations in Argentina. National Consolidation: Companhia Brasileira de Sandálias DUPÉ The process for acquisition of Companhia Brasileira de Sandálias, the company that is owner of the Dupé trademark, among others, was concluded in November. Founded in 1988, Dupé has a factory in Pernambuco, employs 1,000 persons and has capacity to manufacture 30 million pairs of sandals/year. It had gross sales in 2006 of approximately R$ 90 million. The purchase of this company allows us to expand Alpargatas portfolio, consolidating its position in the domestic market for sandals. The acquisition will permit gains in scale and synergies in processes, with a reduction of production costs, thus further improving the results of the Havaianas and Dupé brands. These two important acquisitions Alpargatas Argentina and Companhia Brasileira de Sandálias are leading Alpargatas to a new level. Considering a pro-forma result that consolidates these companies, Alpargatas sales in 2006 would be approximately R$ 2 billion. RECOGNITION For its performance in 2006 Alpargatas received prizes as being the best company in these sectors: Clothing and Textiles, on Exame magazine s Largest and Best list. Textiles, Leather and Apparel, by Valor Textiles and Apparel, by the Exame Agribusiness annual issue. Sports Goods, by Carta Capital magazine. Apparel, by Financial Officer. Foreign Trade with France, by the France-Brazil Chamber of Commerce. 3

4 HAVAIANAS BRAND HIGHLIGHTS Elected one of the 101 most important innovations of recent times, by Innovation Management, of the Monitor Group. Beginning of the advertising campaign on behalf of Havaianas Wave, a new line of injected rubber sandals aimed at the male public. Success of new 2007/2008 collection at points-of-sale. Participation in the New York Fashion Week. A 25% increase in the volume of pairs exported compared to the third quarter of Historic sales record in September, of 16.2 million pairs. RAINHA A sales success with the Organic System tee-shirt line, produced with naturally colored cotton that does not impact the environment. The T-shirts peaked the interest of the press, generating spontaneous media in Veja magazine and the Folha de S.Paulo newspaper. The Energy line s Fusion and System Electric models were big sellers, based on technology that guarantees greater absorption of impact and improved impulsion and resistance. TOPPER Launch of Scorpion, Maverick and Fusion soccer shoes for the premium market segment. Launch of the special edition of the HS Seleção Pró ball, containing the autograph of indoor soccer star Neto, who is sponsored by Topper and was on the championship team in the Pan American Games. Organization of the Topper Indoor Soccer Cup competition. Signing for another year of a contract with the Paulista Football Federation, with the launch of the Peace in Soccer collection. MIZUNO Launch of the Wave Universe line, reinforcing the running category positioning. Worldwide launch of the Premium Tech and New Run t-shirts, produced from 100% polyamide fabric and Ice Touch technology, offering athletes more comfort. Conquest, for the 4 th time, of the BR Concept and Image Running Prize, awarded by Running Brasil magazine in the running shoe for racing segment. TIMBERLAND Launch of the Earthkeepers collection of warm-up suits, t-shirts and caps made out of natural and recycled materials, reinforcing the brand s commitment to environmental protection. Launch of the ladies collection for the multi-brand stores. Participation in the 9 th edition of the Adventure Sports Fair, the largest sports, tourism and adventure fair in Latin America. 4

5 SETE LÉGUAS Launch of boot models (children s and ladies ) aligned to the co-branding project with important brands such as Daslú and Farm. RETAIL Installation of two additional corners of Mizuno products at A!BodyTech workout academies in Rio de Janeiro, now totaling six units. Inauguration of a Timberland store in Brasília. FINANCIAL PERFORMANCE The execution of the growth strategies is consuming funds, for which reason through September of this year the Company s financial performance was not at the same level as last year s. However, the preliminary numbers, coupled with Management s expectations for the fourth quarter, indicate an improvement in the main performance indicators. The analysis of the financial performance is based on the financial statements contained in Annex I of the Quarterly Information (ITR) of the third quarter of In the following section, quarter refers to results from July-September of this year, and nine months refers to the January-September 2007 period. Comparisons are made to the results of the third quarter of 2006 (3Q06) and the first semester of 2006 (9M06). Gross Sales Revenues Gross sales revenues totaled R$ million for the quarter, a rise of 2.8% over revenues in 3Q06, a period when sales increased substantially. Shoe sales volume was 1.4% higher than in 3Q06 and 3.8% up over the second quarter of this year. A highlight was the positive performance of exports during the quarter, with a 25% increase in the volume of pairs exported compared to to 3Q06, and a 44% increase in dollar revenues. During the quarter, exports represented 8% of the Company s overall sales. Gross revenues accumulated in nine months totaled R$ 1.1 billion, in line with those of 9M06 Receita Bruta de Vendas R$ milhões + 2,8% 395,5 384, , ,0 3T06 3T07 9M06 9M07 Gross Profitability In nine months, the cost of products sold (CPS) remained stable compared to 9M06. During the quarter, the CPS was R$ million, was represents a 12% rise over the same period the previous year. Such growth was due to a combination of different timely factors, such as inventory adjustments and the sell off of previous collections The quarter s gross income totaled R$ million, with a 40.6% margin. In nine months, gross income was R$ million, with a 44.4% margin. Margem Bruta % das Vendas líquidas 45,8% 40,6% 46,3% 44,4% Operating Expenses 3T06 3T07 9M06 9M07 Sales, general and administrative expenses during the quarter totaled R$ million. In nine months, these expenses totaled R$ million, going from representing 34.9% of net sales, compared to 30% for the same period of The current level of these expenses is a consequence of Alpargatas international expansion process, with expenses for setting up and operating offices in the U.S. and Chile, and for advertising of the brands that are initially being introduced into these markets. This stage of the internationalization process requires assuming a new level of expenditures to obtain the growth that is planned and the subsequent counterpart in revenues. 5

6 Adjusted EBITDA EBITDA for the quarter totaled R$ 47.6 million (a 15.1% margin) and for nine months was R$ million (margin of 17.2%). With the increase in the size of the Company, resulting from the consolidation of the Brazilian market and its international expansion, we expect to recover both EBITDA and its respective margin. EBITDA Breakdown R$ million. 3Q06 3Q07 9M06 9M07 Operating income (-) Financial revenues (+) Financial expenses (+) Depreciation and amortization (+) Subvention for investment (+) Provisions without affecting cash flow (=) Adjusted EBITDA (*) before exchange variation, financial charges on taxes and financial charges on taxes Tavex Algodonera / Equity Restatement The result of equity restatement totally refers to the investment of Alpargatas in Tavex Algodonera, a textile company with head offices in Spain. Tavex s performance has been presenting improvements over the period as a result of its industrial restructuring, a better mix of products and the capture of synergies stemming from the merger with Santista Têxtil. The strategic actions for its growth proceeded during the third quarter, involving an investment of 44 million in the acquisition of two factories in México and 22 million in the modernization of plants in Brazil and Morocco. According to European accounting principles (IFRS), Tavex reported net income totaling 2.5 million, equivalent to R$ 6.6 million. Tavex s performance led to posting of R$ 2.2 million in equity restatement revenues for the quarter and negative income of R$ 7.3 million over the accumulated nine-month period, considering that R$ 8.7 million derived from losses due to the devaluation of the euro against the real. Net Income For the quarter, Alpargatas posted net income totaling R$ 19.6 million and, for nine months, totaling R$ 95.1 million (profit per share of R$ 5.36). This year s income is mainly being influenced by operating expenses stemming from the Company s international expansion. Use of Capital The movement of capital employed during the third quarter was as follows: Cash Flow During the quarter, the cash balance increase was R$ 27.2 million. The main cash inputs derived from operational generation (EBITDA of R$ 47.6 million) and financial income of R$ 3.8 million. Most cash outflow came from investments in fixed assets and share buy backs (R$ 18.1 million and R$ 3.7 million, respectively). The cash balance went from R$ 278,9 million on June 30 to R$ million on September 30. Discounting total indebtedness (R$ million), accumulated net cash was R$ million at the closing of the quarter. According to Relevant Facts published, the investments for acquisition of Alpargatas Argentina and Companhia Brasileira de Sandálias will have a R$ million impact owned the cash balance for the fourth quarter of the this year. This amount does not include the public offer for the acquisition of Alpargatas Argentina s shares, currently undergoing approval by the Argentine securities exchange commission (Comisión Nacional de Valores). 6

7 Working capital At the end of June, Alpargatas had R$ million maintained in working capital, an increase of 2.1% over the position at the end of June, evidencing productivity in the accounts that make up this group. Debt Short-term debt rose R$ 5.2 million during the quarter, due to new loans contracted by our subsidiary in the United States to finance its working capital. At the end of the quarter, short-term debt totaled R$ 23.8 million. Long-term loans totaled R$ 79.5 million on September 30, remaining stabled compared to the position on June 30. It should be noted that 77% of the Company s debt is long-term. Capital Expenditures - Alpargatas had capital expenditures of R$ 80.1 million in the first nine months of the year, earmarked for industrial revamping, expansion of sandal production capacity, the integrated management system, moderniziation/substitution of machinery and research and development. CAPITAL MARKETS Alpargatas market capitalization was R$ 2.9 billion at the end of the quarter. Preferred shares increased in value by 82.8% over the last 12 months ending June 30, 2007, while the Ibovespa posted an increase of 65.9%. During the semester, the Company s shares were traded during 100% of the Bovespa sessions. A total of 3,902 trades were recorded (35% more than in 9M06), involving approximately 2.83 million preferred shares (40% more than in 9M06). In a meeting of the Board of Directors held on November 9, payment of R$ 11.9 million was approved as interest on net equity. With this decision, the overall value of Alpargatas shareholder compensation totaled R$ 47.4 million, 52.5% of the accumulated net income through September 30, adjusted by the legal reserve. SUSTAINABILITY Aligned with the Camargo Corrêa Group s Sustainability program as a signatory of the Sustainability Letter, Alpargatas is implementing a project to disseminate the concept of sustainability that encourages engagement on the part of all of its employees. During the quarter, a number of actions were conducted, such as the World No Car Day movement, Sports Day and the Serv-a Palooza community project, organized annually in all countries where the Timberland is present. The Alpargatas Institute s actions are focused on education through sports, contributing to the development of needy communities in the regions where its industrial units are located and coordinating the volunteer work of its employees. The ecologically-themed product lines have become highlights of the Company s different brand collections: Rainha Organic, Mizuno Run Cycle, Havaianas, Sete Léguas and Conga IPÊ, Timberland Earthkeepers and Locomotiva Eco. EARNINGS CONFERENCE CALL Monday, November 12 at 12 noon. Telephone for connection: (55 11) (for participants who call from Brazil and overseas) Password Alpargatas Participants: Márcio Utsch and Francisco Cespede 7

8 BALANCE SHEET R$ thousand ASSETS 9/30/2007 9/30/2006 Short-Term 780, ,712 Cash and Banks 16,816 5,446 Financial investments 289, ,201 Clients (net of PDD) 273, ,281 Inventory 142,133 93,547 Other accounts receivable 19,459 18,748 Anticipated Expenses 6,059 1,128 Taxes to Recover 16,996 12,857 Deferred income tax and social contribution 15,720 16,504 Long-Term 66,083 72,898 Assets earmarked for sale 7,439 10,024 Taxes to Recover 6,774 8,342 Deferred income tax and social contribution 43,151 44,906 Mandatory tax and labor deposits 3,702 4,710 Other accounts receivable 5,017 4,916 Permanent 384, ,689 Capital Expenditures 124, ,389 Fixed Assets 192, ,020 Intangíble 56,394 5,478 Deferred 10,196 4,802 Total Assets 1,230,743 1,052,299 LIABILITIES 9M07 9M06 Short-Term 200, ,676 Suppliers 83,785 68,945 Loans 23,848 3,979 Wages and social charges 54,812 49,492 Provisions for contingencies 4,749 6,210 Deferred income tax and social contribution 972 2,082 Taxes to pay 3,268 12,343 INE and dividends payable 11,237 1,043 Other accounts payable 17,968 26,582 Long-Term 162, ,402 Loans 79,511 54,522 Provision for taxes payable 13,950 13,061 Provision for income tax and social contribution payable 48,831 48,679 Provisions for contingencies 15,674 14,137 Other accounts payable 4,450 9,003 Net assets 867, ,221 Realized capital stock 391, ,804 Capital reserves 147,334 66,709 Shares in treasury (24,515) (53,230) Profit reserves 353, ,938 Total Liabilities 1,230,743 1,052,299 Book value per share - R$

9 EARNINGS STATEMENT R$ Thousand 3T07 3T06 9M07 9M06 Gross Sales Revenues 395, ,869 1,100,998 1,124,003 Net sales revenues 314, , , ,755 Cost of products sold 186, , , ,967 Gross Income 127, , , ,788 gross margin 40.6% 45.8% 44.4% 46.3% Operating Revenues (Expenses) (104,576) (95,672) (303,830) (273,939) Sales (84,013) (75,289) (246,121) (219,487) General and Administrative (20,117) (16,144) (58,284) (50,333) Management fees (794) (804) (2,300) (2,179) Financial revenues 8,773 8,736 26,641 31,650 Financial expenses (5,302) (4,416) (11,531) (12,801) Amortization of deferred items (1,931) (1,861) (4,522) (6,264) Others (1,192) (5,894) (7,713) (14,525) Operating income I 23,066 45,404 87, ,849 Operating margin I 7.3% 14.7% 9.9% 16.1% Exchange variation (1,355) (819) (1,520) 3,094 Financial charges exc/ taxes (83) (333) (810) (2,444) Equity Restatement 2,169 (5,554) (7,254) (10,012) Operating income II 23,797 38,698 77, ,487 Non-Operating Revenues 419 1,306 40,341 2,110 Pre-Income Tax Profit 24,216 40, , ,597 Income tax and social contribution (4,643) (11,415) (22,773) (31,988) Net Income 19,573 28,589 95, ,609 Net Margin 6.2% 9.3% 10.8% 11.8% Income per share R$ EBITDA R$ million EBITDA Margin 15.1% 23.5% 17.2% 23.0% 9