TUPY. Global reference in castings Quartely Financial Report June 30, 2015 Release Financial Information Explanatory Notes Independent auditor s report www.tupy.com.br
TUPY - Global reference in castings A free translation of the original in Portuguese Z 2Q15 Highlights Diversification enables robust margins. Conference Call Date: 08/13/2015 English/Portuguese 10:00 AM (EST) / 11:00 AM (BRT) Dial in USA: +1 786 924-6977 Toll free USA: +1 888 700-0802 Dial in Brazil: +55 11 3193-1001 Dial in Brazil: +55 11 2820-4001 Code: Tupy Site: www.tupy.com.br/ri Investor Relations Leonardo Gadelha VP Finance and Administration Investor Relations Officer Jonathan Santos Lucas Brandao IR Team Sales volume: 142 thousand tons 4% lower than 2Q14. Revenues: R$911 million 20% increase compared to same quarter in 2014. Gross Profit: R$198 million 21.7% margin on revenues 4.8p.p. higher than 2Q14. Adjusted EBITDA: R$184 million 65% increase compared to 2Q14 and equivalent to 20.2% of revenues in 2Q15, best margin since 3Q10. Net income: R$61 million 6.7% on revenues, for the 2Q since 2011. Investments: R$43 million, 17% decrease compared to 2Q14. dri@tupy.com.br +55 (11) 2763-7844/7842
RELEASE SUMMARY OF RESULTS (R$ Thousand) SUMMARY 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Revenues 911,082 758,558 20.1% 1,699,159 1,563,597 8.7% Cost of goods sold (713,448) (630,504) 13.2% (1,353,271) (1,286,592) 5.2% Gross profit 197,634 128,054 54.3% 345,888 277,005 24.9% % on revenues 21.7% 16.9% 20.4% 17.7% Operating expenses (62,844) (56,784) 10.7% (119,524) (111,943) 6.8% Other net operating expenses (16,928) (23,458) -27.8% (35,241) (49,972) -29.5% Income before financial result 117,862 47,812 146.5% 191,123 115,090 66.1% % on revenues 12.9% 6.3% 11.2% 7.4% Net financial result (6,948) (8,231) 21,047 (24,825) -184.8% Net income before income taxes 110,914 39,581 180.2% 212,170 90,265 135.1% % on revenues 12.2% 5.2% 12.5% 5.8% Income tax and social contribution (49,502) (16,238) 204.9% (90,171) (36,822) 144.9% Net income 61,412 23,343 163.1% 121,999 53,443 128.3% % on revenues 6.7% 3.1% 7.2% 3.4% EBITDA (according to CVM 527/12 inst.) 184,988 102,645 80.2% 320,399 224,543 42.7% % on revenues 20.3% 13.5% 18.9% 14.4% Adjusted EBITDA 184,041 111,725 64.7% 320,866 245,148 30.9% % on revenues 20.2% 14.7% 18.9% 15.7% Average exchange rate (R$/US$) 3.091 2.225 38.9% 3.003 2.283 31.6% Average exchange rate (R$/EUR) 3.431 3.056 12.3% 3.329 3.129 6.4% TUPY S.A. Release 2
RELEASE SALES VOLUME (Tons) 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Domestic market 33,207 39,164-15.2% 67,320 86,174-21.9% Automotive 27,342 32,916-16.9% 56,576 73,184-22.7% Hydraulics 5,865 6,248-6.1% 10,744 12,990-17.3% Foreign market 109,240 109,183 0.1% 203,337 218,244-6.8% Automotive 104,429 103,629 0.8% 195,198 208,295-6.3% Hydraulics 4,811 5,554-13.4% 8,139 9,949-18.2% Total sales volume 142,447 148,347-4.0% 270,657 304,418-11.1% During 2Q15, sales volume decreased 4.0% compared to 2Q14 due to the 16.9% retraction in sales to the automotive segment in the domestic market, reflecting the decline in production of vehicles in all segments in Brazil, and reduced sales volume of hydraulic products to both domestic and foreign markets. Although partly offset by the performance of the global off-road market, automotive sales volume to foreign markets grew by 0.8%, especially due to the passenger cars and light commercial vehicles applications, as result of the ramp-up of new products and inventory replenishment by specific clients, and also the positive performance of medium and heavy commercial vehicles. The automotive product portfolio was composed by approximately 18% of machined products (vs. 15% in 2Q14). The distribution by alloy points to 14% of sales volume in CGI (Compacted Graphite Iron) (vs. 10% in 2Q14). Hidráulica utopeças 9% 7% 18% Machined 14% CGI otes 19% Volume total 65% Blocos Unmachined 82% Automotive sales volume Gray/Nodular Automotive sales volume 86% TUPY S.A. Release 3
RELEASE REVENUES Revenues presented a 20.1% growth in comparison with 2Q14. As result of the sales volumes performance, revenues from the domestic market dropped 13.4%, being offset by a 32.7% growth in the foreign market revenues, which were positively affected by a 38.9% depreciation in the average foreign exchange ( FX ) rate Real vs. US Dollar in 2Q15 (3.091 R$/US$), versus 2Q14 (2.225 R$/US$), and a 12.3% depreciation in the average foreign exchange ( FX ) rate Real vs. Euro in 2Q15 (3.431 R$/EUR), versus 2Q14 (3.056 R$/EUR), as well as by the return of the Reintegra tax benefit. (R$ thousand) 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Revenues by market 911,082 758,558 20.1% 1,699,159 1,563,597 8.7% Domestic market 179,215 206,870-13.4% 357,025 441,120-19.1% % Share 19.7% 27.3% 21.0% 28.2% Foreign market 731,867 551,688 32.7% 1,342,134 1,122,477 19.6% % Share 80.3% 72.7% 79.0% 71.8% Revenues by segment Automotive 845,581 694,645 21.7% 1,585,217 1,441,458 10.0% % Share 92.8% 91.6% 93.3% 92.2% Hydraulics 65,501 63,913 2.5% 113,942 122,139-6.7% % Share 7.2% 8.4% 6.7% 7.8% Revenues by market and performance in the period During 2Q15, North America was responsible for 56.2% of Tupy s revenues. In turn, South and Central America represented 20.4%, Europe accounted for 18.2% and the remaining 5.2% came from Asia, Africa and Oceania. +53% 396 +29% 512 109 167 56.2% 2Q14 2Q15 2Q14 2Q15 18.2% +32% 20.4% 5.2% 35 46-14% 218 187 2Q14 2Q15 2Q14 2Q15 TUPY S.A. Release 4
RELEASE (R$ thousand) REVENUES BY MARKET AND APPLICATION 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Revenues 911,082 758,558 20.1% 1,699,159 1,563,597 8.7% Domestic market 179,215 206,870-13.4% 357,025 441,120-19.1% Automotive 139,167 166,379-16.4% 284,951 360,736-21.0% Passenger cars 52,927 54,951-3.7% 104,826 131,197-20.1% Commercial vehicles 71,648 93,814-23.6% 148,438 195,052-23.9% Off-road 14,592 17,614-17.2% 31,687 34,487-8.1% Hydraulics 40,048 40,491-1.1% 72,074 80,384-10.3% Foreign market 731,867 551,688 32.7% 1,342,134 1,122,477 19.6% Automotive 706,414 528,266 33.7% 1,300,266 1,080,722 20.3% Passenger cars 129,636 78,999 64.1% 231,581 157,922 46.6% Light commercial vehicles 238,720 165,457 44.3% 427,529 330,601 29.3% Medium and heavy commercial vehicles 126,646 96,397 31.4% 238,621 199,935 19.3% Off-road 211,412 187,413 12.8% 402,535 392,264 2.6% Hydraulics 25,453 23,422 8.7% 41,868 41,755 0.3% In some cases, the same product is used in passenger and commercial vehicles, or off-road; therefore, it is not possible to measure their application precisely. Thus, we adopt assumptions of division between applications, considering our best inference. 7.2% 4.4% 2.8% 5.8% 20.0% Hydraulics 14.2% 24.8% 23.2% Off-road Passenger cars 7.9% Passenger cars Commercial vehicles Off-road Hydraulics Domestic market 1.6% 13.9% Medium and Heavy Commercial vehicles Light 26.2% Foreign markets 48.0% TUPY S.A. Release 5
RELEASE DOMESTIC MARKET (DM) Passenger cars % Revenues % Revenues % Revenues DM 3.7% 5.8% 29.5% 20% Machined CGI 0% % ton % ton Unmachined 80% Gray/Nodular 100% The rising unemployment, and reduced credit availability and disposable household hurt demand for automobiles. As result, the OEMs kept in place the inventory adjustment initiatives, implemented since 2014, leading to a decreased production of light vehicles (attachment I). Despite the performance of the domestic market, Tupy s sales reduction was softened by the ramp-up of new projects. In this context, revenues from sales of Tupy s automotive products for this application fell by only 3.7% in the quarter. Commercial vehicles % Revenues % Revenues % Revenues DM 23.6% 7.9% 40.0% 12% Machined CGI 9% % ton % ton Unmachined 88% 91% Gray/Nodular The retraction of civil construction, the decline of commodity prices, the slowdown of the economic activity, the worsening of industry confidence indices and deteriorated credit conditions (FINAME) resulted in a reduced demand for commercial vehicles. In order to adjust to the new demand levels, the OEMs kept in place the inventory adjustment initiatives leading to a decreased production of trucks and buses (attachment II). In spite of the complex scenario, a slight gain of market share in nationalized products and products that are indirectly exported by clients resulted in a less sharp drop in revenues from automotive products sales with commercial vehicle applications in the domestic market, which fell 23.6% in 2Q15 TUPY S.A. Release 6
RELEASE Off-road % Revenues % Revenues % Revenues DM 17.2% 1.5% 8.1% Machined CGI 0% 56% % ton 44% % ton Unmachined Gray/Nodular 100% Following the performance of national economic activity and the global reduction of commodities prices, Brazilian agricultural machinery market has fallen in 2015. In line with the market, revenues from sales of products with off-road application decreased by 17.5% in 2Q15. Hydraulics % Revenues % Revenues % Revenues DM 1.1% 4.4% 22.3% Iron bars 26% Pipe fittings 26% % ton 48% Steel shots The national macroeconomic situation, the reduced investments in civil construction and infrastructure resulted in a 1.1% drop in revenues from sales of pipe fittings, steel shots and iron bars in the domestic market in 2Q15. TUPY S.A. Release 7
RELEASE FOREIGN MARKETS (FM) Passenger cars 61% Europe Other 38% NAFTA The positive economic indices presented by the United States has allowed the maintenance of a favorable performance of the passenger car market. In turn, the gradual recovery of the economy and consumption in Europe is sustaining a continuous growth in the auto market in the continent (attachment III). As result of the heated demand, altogether with the ramp up of machined and high complexity CGI products, revenues from the sales of automotive products with passenger car applications in foreign markets grew by 64.1% in 2Q15. Light commercial vehicles 0% % BRL 71% Unmachined % ton Machined 29% 61% Gray/Nodular % ton 39% CGI Europe Other 9% 11% Machined 28% 22% CGI % BRL % ton % ton 79% NAFTA 72% Unmachined Gray/Nodular The advance of employment and income indices, the decline in fuel prices and the positive performance of housing starts allow growth in the demand for light commercial vehicles in North America (attachment III). As result, Tupy s revenues from sales of automotive products for light commercial vehicles in foreign markets grew by 44.3% in 2Q15. On top of the strong market, the product portfolio for this application was benefited by the ramp-up of a new block made of CGI applied to SUVs and light pick-up trucks, as well as sedans (this last application is classified in our revenues as passenger cars), delivered to North America. 78% TUPY S.A. Release 8
RELEASE Medium and heavy commercial vehicles % Revenues % Revenues % Revenues FM 31.4% 13.9% 17.3% Europe Other 6% 1% Machined 7% 17% CGI % BRL % ton % ton 83% 93% 93% Gray/Nodular NAFTA Unmachined The good performance of the North American economy sustains the demand for medium and heavy commercial vehicles in North America, to a greater extent for class 8 trucks (heady duty class with low share of Tupy s products), and to a lesser extent for other classes (attachment III). As result of the market behavior, Tupy s revenues from sales of automotive products applied to medium and heavy commercial vehicles in foreign markets grew by 31.4% in 2Q15. Off-road % Revenues % Revenues % Revenues FM 12.8% 23.2% 28.9% Other 6% Europe 23% % BRL Machined 9% % ton CGI 0% % ton 71% NAFTA 91% Unmachined Gray/Nodular The Company s off-road product portfolio is applied to sectors as diverse as agriculture, construction, mining, as well as power generation, maritime engines, amongst others, the drivers for demand are spread throughout the global market. The main sectors with the application of Tupy s products behaved in 2Q15 as follows: As result of declining commodities prices, the global agricultural machinery market showed decline in the quarter, factor which was worsened by the recently renewed fleet (attachment IV); The demand for residential and non-residential construction in North America has had positive performance. Similar behavior can be found in Europe and China; Still pressured by the decline in global iron ore prices, mining companies have been reducing their investments in fixed assets, therefore causing a retraction in the demand for mining machinery, leading to inventory adjustments by the OEMs. Despite of the cautious scenario for the global demand of machinery and equipment, still affected by the 2014 pre-buy due to change in emissions legislation, Tupy saw a 12.8% increase in revenues from sales of off-road products versus 2Q14, benefited by FX depreciation. 100% TUPY S.A. Release 9
RELEASE Hydraulics % Revenues % Revenues % Revenues FM 8.7% 2.8% 3.5% NAFTA 17% Pipe fittings 32% Other 51% % BRL 32% Europe 65% Iron bars % ton 3% Steel shots Regardless of the deceleration of Gas For All program in Bolivia, the performance of spot sales to the United Arab Emirates allowed an 8.7% growth in revenues from sales of pipe fittings, steel sheets and iron bars in the international market. TUPY S.A. Release 10
RELEASE COST OF GOODS SOLD AND OPERATING EXPENSES The cost of goods sold (COGS) in 2Q15 added up to R$713.4 million, 13.2% higher than 2Q14. Consequently, the quarter registered a gross margin of 21.7%, a 4.8pp increase in comparison with 2Q14. Operating expenses reached R$62.8 million, 10.7% higher than 2Q14. (R$ thousand) 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Revenues 911,082 758,558 20.1% 1,699,159 1,563,597 8.7% Cost of goods sold (713,448) (630,504) 13.2% (1,353,271) (1,286,592) 5.2% Raw material (366,734) (347,188) 5.6% (686,807) (712,592) -3.6% Labor (149,164) (141,547) 5.4% (288,294) (271,527) 6.2% Energy (47,228) (15,861) 197.8% (92,385) (54,484) 69.6% Maintenance materials (57,447) (48,360) 18.8% (111,579) (98,348) 13.5% Profit sharing program (12,960) (6,727) 92.7% (22,166) (16,379) 35.3% Depreciation (48,182) (39,684) 21.4% (92,537) (78,537) 17.8% Others (31,733) (31,137) 1.9% (59,503) (54,725) 8.7% Gross profit 197,634 128,054 54.3% 345,888 277,005 24.9% % on revenues 21.7% 16.9% 20.4% 17.7% Operating expenses (62,844) (56,784) 10.7% (119,524) (111,943) 6.8% The 2Q15 COGS variation versus the same quarter of 2014 is explained below: Due to FX depreciation, partly offset by lower use of materials due to the reduced sales volume, raw material costs grew 5.6%; Labor costs increased by 5.4% due to FX depreciation and collective bargaining, partly offset by a reduced labor force; Energy costs grew 197.8% in 2Q15. The significant increase is related to the hike in energy generation and distribution in Brazil, as well as lower sales of excess energy capacity in the spot market (-R$19 million vs. 2Q14); Maintenance costs rose 18.8% due to FX depreciation and in line with input price inflation in the period; Profit sharing costs ( PSP ) went up by 92.7% and reflect the collective bargaining agreement, adjustment in PSR provisions in Mexico and better operating result in 1H15; The increasing in non-cash costs with depreciation (+21.4%) is due to FX devaluation and increase of fixed asset base; Other costs grew by 1.9%, especially costs related to health insurance. Excluding FX depreciation effects on expenses from foreign units, there is no significant change in the operating expense levels in 2Q15. TUPY S.A. Release 11
RELEASE OTHER NET OPERATING EXPENSES Net operating expenses were R$16.9 million in 2Q15, 27.8% reduction compared to 2Q14. (R$ thousand) 2Q15 2Q14 Var. [%] 2H15 2H14 Var. [%] Depreciation of non-operating assets (597) (490) 21.8% (1,202) (874) 37.5% Amortization of intangible assets (17,278) (13,888) 24.4% (33,572) (28,493) 17.8% Other 947 (9,080) (467) (20,605) Other net operating expenses (16,928) (23,458) -27.8% (35,241) (49,972) -29.5% The improvement is due to the sales of third party tools, which are invoiced in US Dollars and were affected by FX depreciation. NET FINANCIAL RESULT Net financial expense was R$6.9 million in 2Q15, 15.6% improvement over 2Q14. (R$ thousand) 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Financial expenses (36,983) (22,806) 62.2% (72,699) (47,923) 51.7% Financial income 31,798 20,841 52.6% 60,953 38,091 60.0% Net exchange variation (1,763) (6,266) -71.9% 32,793 (14,993) Net financial result (6,948) (8,231) -15.6% 21,047 (24,825) The improvement is result of lower net exchange variation expenses. NET INCOME BEFORE TAXES AND NET INCOME Due to the aforementioned factors, the net income before taxes in 2Q15 was R$110.9 million, 180.2% increase over 2Q14. (R$ thousand) 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Net income before income taxes 110,914 39,581 180.2% 212,170 90,265 135.1% Tax effects before foreign exchange impacts (44,996) (21,072) 113.5% (79,399) (37,444) 112.0% Tax rates before foreign exchange effects -41% -53% -37% -41% Net income before foreign exchange effects on tax base 65,918 18,509 256.1% 132,771 52,821 151.4% Foreign exchange effects on tax base (4,506) 4,834 (10,772) 622 Net income 61,412 23,343 163.1% 121,999 53,443 128.3% % on revenues 6.7% 3.1% 7.2% 3.4% The company recorded R$45.0 million in expenses with income tax and social contribution before foreign exchange variation on the tax base in 2Q15, a 41% effective tax rate. The deferred income tax of the Mexican plants is calculated in Mexican pesos. In the translation into the functional currency (U.S. dollar), a decrease of R$4.5 million was recorded due to the 2.7% depreciation of the Mexican Peso against the U.S. Dollar (going from MXN 15.247/US$ in mar/15 to MXN 15.660/US$ in jun/15). Due to accumulated tax loss resulting from the effect of FX depreciation on the Company s Dollar denominated financial debt and the use of recurring tax credits as compensation for tax expenses, no cash tax outflow was verified in the quarter. The net income arising from the previously mentioned effects amounted to a profit of R$61.4 million, 163.1% higher than that recorded in 2Q14, best net income recorded by the Company for the 2Q since 2011, and representing a margin of 6.7% on revenues. TUPY S.A. Release 12
RELEASE ADJUSTED EBITDA The combination of the aforementioned factors resulted in an adjusted EBITDA of R$184,0 million in 2Q15, equivalent to a 64.7% increase when compared to 2Q14 and a 20.2% margin on revenues, 5.5 percentage point higher than 2Q14. This is the best EBITDA margin since 3Q10. (R$ thousand) RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Net income 61,412 23,343 163.1% 121,999 53,443 128.3% (+) Net financial result 6,948 8,231-15.6% (21,047) 24,825 (+) Income tax and social contribution 49,502 16,238 204.9% 90,171 36,822 144.9% (+) Depreciation and amortization 67,126 54,833 22.4% 129,276 109,453 18.1% EBITDA (according to CVM 527/12) 184,988 102,645 80.2% 320,399 224,543 42.7% % on revenues 20.3% 13.5% 18.9% 14.4% (+) Other net operating expenses* (947) 9,080 467 20,605-97.7% Adjusted EBITDA 184,041 111,725 64.7% 320,866 245,148 30.9% % on revenues 20.2% 14.7% 18.9% 15.7% (*) Other net operating expenses are presented net of amortization and depreciation expenses. INVESTMENTS IN PP&E AND INTANGIBLE ASSETS Total investments in PP&E and intangible assets in 2Q15 reached R$43.3 million. The main investments during the quarter were the transfer of a machining line to Mexico, workplace safety, sand regeneration in Mexico, expansion of CGI production capacity and the final stage of the ERP implementation project. (R$ thousand) 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] PP&E Strategic investments 13,777 14,910-7.6% 29,619 43,587-32.0% Maintenance and sustenance 19,191 26,913-28.7% 35,637 39,137-8.9% Environment 5,255 4,831 8.8% 9,980 12,781-21.9% Interest and financial expenses 221 167 32.3% 473 655-27.8% Intangible assets Software 4,892 5,409-9.6% 8,861 11,736-24.5% Total 43,336 52,230-17.0% 84,570 107,896-21.6% INDEBTEDNESS The Company ended 2Q15 with a net debt of R$891.2 million, which results in an index of 1.53x net debt/adjusted EBITDA. Regarding the currency breakdown, 35% of the debt is BRL denominated and 65% is in foreign currencies. In terms of maturity, 33% is short-term debt and 67% long-term debt. (R$ thousand) INDEBTEDNESS 2Q15 1Q15 4Q14 Debt short term 754,226 545,583 428,559 Debt long term 1,515,716 1,849,003 1,706,082 Gross debt 2,269,942 2,394,586 2,134,641 Cash and cash equivalents 1,367,837 1,426,722 1,336,916 Financial investments 10,876 10,614 10,365 Net debt 891,229 957,250 787,360 Gross debt/ltm adjusted EBITDA 3.89x 4.69x 4.21x TUPY S.A. Release 13
RELEASE Net debt/ltm adjusted EBITDA 1.53x 1.87x 1.55x The current indebtedness profile is as follows: 1,076.8 2,269.9 1,378.7 304.4 27.0 15.6 754.2 91.9 Cash Up to 12 months 2016* 2017 2018 2019-2023 All amounts in R$ million. (*) Does not include short term debt. 2024-2025 Gross debt WORKING CAPITAL (R$ thousand) 2Q15 1Q15 4Q14 Accounts receivable 523,255 542,258 423,815 Inventories 474,008 472,808 379,221 Accounts payable 288,517 317,790 256,057 Days Sales Outstanding [days] 59 64 50 Days Inventories Outstanding [days] 66 68 54 Days Payable Outstanding [days] 40 44 36 Cash conversion cycle [days] 85 88 68 Compared to march/15, the reduction in accounts receivable is due mainly to the foreign exchange rate appreciation, from BRL 3.208/US$ in March 31 to BRL 3.103/US$ in June 30, affecting the receivables from foreign markets. The inventory buildup was part of the final stage of the implementation of the ERP system that began operating on July 7, the Company believes that inventory levels should be normalized during 2H15. Also as result of the ERP implementation, the Company anticipated payments to key suppliers due to the temporary interruption of accounts payable activities in July/2015. TUPY S.A. Release 14
RELEASE CASH FLOW (R$ thousand) CASH FLOW SUMMARY 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Cash and cash equivalents at the end of the period 1,367,837 1,075,793 27.1% 1,367,837 1,075,793 27.1% Cash flow from operating activities 82,592 69,616 18.6% 121,800 156,065-22.0% Cash flow from investment activities (39,964) (52,440) -23.8% (79,357) (109,593) -27.6% Cash flow from financing activities (84,513) (44,596) 89.5% (85,061) (60,349) 40.9% Effect of exchange variation on cash (17,000) (16,708) 1.7% 73,539 (33,776) Increase (decrease) in cash (58,885) (44,128) 33.4% 30,921 (47,653) The Company generated R$82.6 million in cash from operations in 2Q15, versus R$69.6 million in 2Q14. The improvement is mainly due to the increase in the net income before taxes, partly offset by and increased consumption of working capital related to the ERP migration, as previously mentioned. As for the investment activities, a R$40.0 million cash outflow was related to additions to PP&E and intangible assets. As for the financing activities, during 2Q15 the Company disbursed R$84.5 million due to the partial amortization of Finem and Export Pre-Payment debt lines. The combination of these factors, in addition the foreign exchange effects on the Company s cash, resulted in a R$58.9 million increase in cash and cash equivalents in the period, reaching R$1,367.8 million. SHAREHOLDER STRUCTURE The shareholding structure at June 30, 2015 was distributed as follows: Previ 27.8% 22.7% Brazilian institutional investors BNDESPar 28.2% 0.4% Retail 21.0% Foreign investors Controlling group Free float Our Company is subject to the rules of the Market Arbitration Panel of the Novo Mercado, pursuant to article 60 of our Bylaws. ***************************** TUPY S.A. Release 15
RELEASE Attachment I Light vehicles production and sales in Brazil (Units) Production 2Q15 2Q14 Var. (%) 1H15 1H14 Var. (%) Production Passenger cars 500.183 614.597-18.6% 1.033.838 1.248.167-17.2% Light commercial 87.694 117.261-25.2% 187.305 222.685-15.9% Light vehicles 587.877 731.858-19.7% 1.221.143 1.470.852-17.0% Sales Passenger cars 530.197 678.612-21.9% 1.076.261 1.328.165-19.0% Light commercial 91.929 130.933-29.8% 195.728 256.751-23.8% Light vehicles 622.126 809.545-23.2% 1.271.989 1.584.916-19.7% Exports Passenger cars 88.127 73.484 19.9% 149.762 132.085 13.4% Light commercial 22.010 14.391 52.9% 34.130 24.670 38.3% Light vehicles 110.137 87.875 25.3% 183.892 156.755 17.3% Source: ANFAVEA. TUPY S.A. Release 16
RELEASE Attachment II Commercial vehicles production and sales in Brazil (Units) 2Q15 2Q14 Var. (%) 1H15 1H14 Var. (%) Production Trucks Semi-light 488 614-20.5% 793 1.256-36.9% Light 5.698 5.614 1.5% 10.938 14.258-23.3% Medium 1.332 1.840-27.6% 2.621 4.790-45.3% Semi-heavy 8.152 13.665-40.3% 16.511 27.990-41.0% Heavy 4.264 11.466-62.8% 10.767 27.699-61.1% Total trucks 19.934 33.199-40.0% 41.630 75.993-45.2% Buses 5.728 9.323-38.6% 13.865 19.204-27.8% Commercial vehicles 25.662 42.522-39.7% 55.495 95.197-41.7% Sales Trucks Semi-light 912 843 8.2% 1.883 1.899-0.8% Light 4.840 6.274-22.9% 10.321 12.186-15.3% Medium 1.690 2.839-40.5% 3.636 5.247-30.7% Semi-heavy 5.795 11.511-49.7% 12.287 21.538-43.0% Heavy 4.750 12.718-62.7% 9.168 23.771-61.4% Total trucks 17.987 34.185-47.4% 37.295 64.641-42.3% Buses 4.458 6.436-30.7% 9.665 13.363-27.7% Commercial vehicles 22.445 40.621-44.7% 68.415 123.313-44.5% Exports Trucks Semi-light 401 415-3.4% 766 676 13.3% Light 1.218 782 55.8% 2.106 1.925 9.4% Medium 352 410-14.1% 548 772-29.0% Semi-heavy 2.022 1.537 31.6% 3.322 2.794 18.9% Heavy 2.028 1.708 18.7% 3.450 3.155 9.4% Total trucks 6.021 4.852 24.1% 10.192 9.322 9.3% Buses 1.812 1.921-5.7% 3.264 3.217 1.5% Commercial vehicles 7.833 6.773 15.7% 20.228 18.488 9.4% Source: ANFAVEA TUPY S.A. Release 17
RELEASE Attachment III Production and sales of light and commercial vehicles in foreign markets (Units) 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] North America Production/factory shipments Passenger cars 1.928.148 1.856.577 3.9% 3.763.463 3.683.934 2.2% Light commercial vehicles Class 1-3 2.734.353 2.667.378 2.5% 5.292.391 5.221.718 1.4% Light Duty - Class 4-5 14.142 12.900 9.6% 26.777 23.437 14.3% Medium Duty - Class 6-7 33.252 33.992-2.2% 66.417 65.771 1.0% Heavy Duty - Class 8 86.745 74.107 17.1% 166.022 138.718 19.7% United States Sales Passenger cars 2.111.205 2.175.211-2.9% 3.949.112 4.015.958-1.7% Light commercial vehicles Class 1-3 2.456.907 2.245.415 9.4% 4.573.946 4.148.689 10.3% Light Duty - Class 4-5 29.205 29.361-0.5% 52.945 51.516 2.8% Medium Duty - Class 6-7 27.085 26.529 2.1% 53.581 51.240 4.6% Heavy Duty - Class 8 67.395 55.279 21.9% 123.234 99.845 23.4% Europe Sales Passenger cars 3.777.323 3.499.586 7.9% 7.414.958 6.853.139 8.2% Sources: Automotive News; Bloomberg; ACEA. TUPY S.A. Release 18
RELEASE Attachment IV Production and sales of agricultural machinery in global markets (Units) 2Q15 2Q14 Var. [%] 1H15 1H14 Var. [%] Production Americas Brazil 15.069 20.513-26.5% 30.544 40.386-24.4% Sales Americas Brazil 12.834 18.109-29.1% 24.706 33.003-25.1% United States and Canada 77.222 78.890-2.1% 120.198 124.959-3.8% Europe Germany 11.488 11.670-1.6% 20.302 21.180-4.1% France 8.554 8.681-1.5% 14.260 15.260-6.6% United Kingdom 3.334 3.702-9.9% 5.964 6.942-14.1% Russia 9.244 17.929-48.4% 14.675 24.902-41.1% Asia India* 25.090 20.731 21.0% 63.694 76.105-16.3% Sources: ANFAVEA; AEM; AEA; Bloomberg. (*) Figures up to April 2014/5. TUPY S.A. Release 19
(A free translation of the original in Portuguese) TUPY S.A. AND SUBSIDIARIES BALANCE SHEETS AT JUNE 30, 2015 AND DECEMBER 31, 2014 (All amounts in thousands of reais) A S S E T S Note 6/30/2015 12/31/2014 6/30/2015 12/31/2014 CURRENT ASSETS Cash and cash equivalents 3 871,597 948,978 1,367,837 1,336,916 Trade receivables 4 373,497 264,175 523,255 423,815 Inventories 5 307,795 236,006 474,008 379,221 Third-party tools 38,972 52,234 116,053 121,849 Income tax and social contribution recoverable 12,880 80,418 13,944 81,356 Other taxes recoverable 6 51,717 30,392 82,153 56,916 Related parties 7 3,821 3,055 - - Notes and other receivables 27,020 28,988 39,339 35,007 1,687,299 1,644,246 2,616,589 2,435,080 NON-CURRENT ASSETS Financial investments 10,876 10,365 10,876 10,365 Income tax and social contribution recoverable 76,245-76,245 - Other taxes recoverable 6 146,039 124,651 146,039 124,651 Deferred income tax and social contribution 12 5,272 - - - Credits - Eletrobras 102,170 99,327 102,170 99,327 Judicial deposits and other 40,839 38,917 41,836 39,914 Investments in equity instruments 538 520 5,176 4,526 Investment properties - - 6,544 6,544 Investments 8 1,735,577 1,482,728 - - Property, plant and equipment 9 1,159,536 1,195,619 1,792,314 1,728,694 Intangible assets 9 57,076 48,515 559,289 513,829 Total non-current assets 3,334,168 3,000,642 2,740,489 2,527,850 Total assets 5,021,467 4,644,888 5,357,078 4,962,930 The accompanying notes are an integral part of this quarterly information. TUPY S.A. Quarterly Information 20
(A free translation of the original in Portuguese) BALANCE SHEETS AT JUNE 30, 2015 AND DECEMBER 31, 2014 (All amounts in thousands of reais) L I A B I L I T I E S Note 6/30/2015 12/31/2014 6/30/2015 12/31/2014 CURRENT LIABILITIES Trade payables 183,692 157,892 288,517 256,057 Borrowings 10 754,059 426,515 752,781 425,420 Derivative financial instruments 22 1,445 3,139 1,445 3,139 Financing of taxes and social security charges - - 4,787 14,441 Other taxes payable 4,557 6,380 45,807 39,314 Salaries, social security charges and profit sharing 100,750 97,358 121,329 116,610 Advances from customers 31,255 27,097 104,089 95,949 Related parties 7 950 995 - - Dividends and interest on capital 139 139 139 139 Provision for tax, civil, social security and labor 11 11,579 9,514 11,695 10,025 contingencies Notes and other payables 80,298 62,539 62,777 55,535 Total current liabilities 1,168,724 791,568 1,393,366 1,016,629 NON-CURRENT LIABILITIES Borrowings 10 1,522,304 1,712,077 1,515,716 1,706,082 Provision for tax, civil, social security and labor 11 82,207 74,899 82,970 75,662 contingencies Deferred income tax and social contribution 12-22,790 91,096 99,060 Retirement benefit obligations - - 25,698 21,367 Other long-term liabilities 9,172 11,180 9,172 11,756 Total non-current liabilities 1,613,683 1,820,946 1,724,652 1,913,927 EQUITY Share capital 13 1,060,301 1,060,301 1,060,301 1,060,301 Share issue costs (6,541) (6,541) (6,541) (6,541) Share-based payments 2,015 1,196 2,015 1,196 Carrying value adjustments 450,517 373,176 450,517 373,176 Revenue reserves 604,242 604,242 604,242 604,242 Retained earnings 128,526-128,526 - Total equity 2,239,060 2,032,374 2,239,060 2,032,374 Total liabilities and equity 5,021,467 4,644,888 5,357,078 4,962,930 The accompanying notes are an integral part of this quarterly information. TUPY S.A. Quarterly Information 21
(A free translation of the original in Portuguese) TUPY S.A. AND SUBSIDIARIES STATEMENTS OF INCOME SIX-MONTH PERIODS ENDED JUNE 30, 2015 AND 2014 (All amounts in thousands of reais, except earnings per share) Note 6/30/2015 3/31/2014 6/30/2015 3/31/2014 NET REVENUE 14 1,099,429 1,012,936 1,699,159 1,563,597 Cost of products sold 15 (893,940) (844,317) (1,353,271) (1,286,592) GROSS PROFIT 205,489 168,619 345,888 277,005 Selling expenses 15 (40,011) (36,698) (63,703) (62,435) Administrative expenses 15 (35,193) (32,025) (50,450) (44,437) Management fees (5,371) (5,071) (5,371) (5,071) Other operating expenses, net 17 (5,910) (21,141) (35,241) (49,972) Share of results of subsidiaries 8 28,483 26,699 - - PROFIT BEFORE FINANCE RESULTS AND TAXES 147,487 100,383 191,123 115,090 Finance costs 16 (72,295) (45,419) (72,699) (47,923) Finance income 16 59,417 37,025 60,953 38,091 Monetary and foreign exchange variations, net 16 31,705 (10,139) 32,793 (14,993) PROFIT BEFORE TAXATION 166,314 81,850 212,170 90,265 Income tax and social contribution 18 (44,315) (28,407) (90,171) (36,822) NET INCOME FOR THE PERIOD 121,999 53,443 121,999 53,443 EARNINGS PER SHARE Basic earnings per share 19 0.84617 0.37068 0.84617 0.37068 Diluted earnings per share 19 0.84411 0.37068 0.84411 0.37068 The accompanying notes are an integral part of this quarterly information. TUPY S.A. Quarterly Information 22
TUPY S.A. AND SUBSIDIARIES STATEMENTS OF INCOME QUARTERS ENDED JUNE 30, 2015 AND 2014 (All amounts in thousands of reais, except earnings per share) Note 4/01/2015 to 6/30/2015 4/01/2014 to 6/30/2014 4/01/2015 to 6/30/2015 4/01/2014 to 6/30/2014 NET REVENUE 14 561,165 492,974 911,082 758,558 Cost of products sold 15 (458,257) (416,793) (713,448) (630,504) GROSS PROFIT 102,908 76,181 197,634 128,054 Selling expenses 15 (20,660) (18,343) (33,826) (31,435) Administrative expenses 15 (17,792) (16,965) (25,964) (22,746) Management fees (3,054) (2,603) (3,054) (2,603) Other operating expenses, net 17 242 (10,779) (16,928) (23,458) Share of results of subsidiaries 8 25,484 14,302 - - PROFIT BEFORE FINANCE RESULTS AND TAXES 87,128 41,793 117,862 47,812 Finance costs 16 (36,857) (21,264) (36,983) (22,806) Finance income 16 30,650 20,285 31,798 20,841 Monetary and foreign exchange variations, net 16 (1,364) (4,084) (1,763) (6,266) PROFIT BEFORE TAXATION 79,557 36,730 110,914 39,581 Income tax and social contribution 18 (18,145) (13,387) (49,502) (16,238) NET INCOME FOR THE PERIOD 61,412 23,343 61,412 23,343 EARNINGS PER SHARE Basic earnings per share 19 0.42595 0.16190 0.42595 0.16190 Diluted earnings per share 19 0.42491 0.16190 0.42491 0.16190 The accompanying notes are an integral part of this quarterly information. TUPY S.A. Quarterly Information 23
(A free translation of the original in Portuguese) TUPY S.A. AND SUBSIDIARIES STATEMENTS OF COMPREHENSIVE INCOME SIX-MONTH PERIODS ENDED JUNE 30, 2015 AND 2013 (All amounts in thousands of reais) Note 6/30/2015 3/31/2014 6/30/2015 3/31/2014 NET INCOME FOR THE PERIOD 121,999 53,443 121,999 53,443 Components of other comprehensive income to be reclassified to the results Foreign exchange variation of investees located abroad 8 224,366 (70,935) 224,366 (70,935) Hedge of net investment abroad 22 (212,875) 53,820 (212,875) 53,820 Tax effect on hedge of net investment abroad 12 72,377 (18,299) 72,377 (18,299) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 205,867 18,029 205,867 18,029 TUPY S.A. AND SUBSIDIARIES STATEMENTS OF COMPREHENSIVE INCOME QUARTERS ENDED JUNE 30, 2015 AND 2013 (All amounts in thousands of reais) Note 4/01/2015 to 6/30/2015 4/01/2014 to 6/30/2014 4/01/2015 to 6/30/2015 4/01/2014 to 6/30/2014 NET INCOME FOR THE PERIOD 61,412 23,343 61,412 23,343 Components of other comprehensive income to be reclassified to the results Foreign exchange variation of investees located abroad 8 (64,061) (30,931) (64,061) (30,931) Hedge of net investment abroad 22 50,647 18,150 50,647 18,150 Tax effect on hedge of net investment abroad 12 (17,220) (6,171) (17,220) (6,171) TOTAL COMPREHENSIVE INCOME FOR THE PERIOD 30,778 4,391 30,778 4,391 61,412 23,343 61,412 23,343 The accompanying notes are an integral part of this quarterly information. TUPY S.A. Quarterly Information 24
(A free translation of the original in Portuguese) TUPY S.A. AND SUBSIDIARIES STATEMENT OF CHANGES IN EQUITY (All amounts in thousands of reais) Carrying value adjustments Revenue reserves Share Shared issue cost Shared based Exchange variation of Deemed cost of fixed Legal Reserve for Proposed additional Retained Note capital payments investees assets reserve investments dividends earnings Total AT DECEMBER 31, 2013 1,060,301 (6,541)- 217,356 103,862 45,087 480,808 1,028-1,901,901 Comprehensive income for the period Profit for the period - - - - - - - 53,443 53,443 Realization of carrying value adjustments - - 0 (6,642) - - - 6,642 - Foreign exchange variation of investees located abroad (70,935) 0 (70,935) Hedge of net investment abroad 8 - - 53,820 0 - - - - 53,820 Tax impact on hedge of net investment abroad (18,299) 0 (18,299) Total comprehensive income for the period - - (35,414) (6,642) - - - 60,085 18,029 Contributions from stockholders and distributions to stockholders Approval of 2012 additional dividends - - - - - - (1,028) - (1,028) - - - - - - (1,028) - (1,028) AT JUNE 30, 2014 1,060,301 (6,541) - 181,942 97,220 45,087 480,808 0 60,085 1,918,902 AT DECEMBER 31, 2014 1,060,301 (6,541) 1,196 283,840 89,336 49,547 554,695-2,032,374 Comprehensive income for the period Profit for the period - - - - - - - 121,999 121,999 Realization of carrying value adjustments - - 0 (6,527) - - - 6,527 0 Foreign exchange variation of investees located abroad 8 - - 224,366 0 - - - - 224,366 Hedge of net investment abroad 22 - - (212,875) 0 - - - - (212,875) Tax impact on hedge of net investment abroad 12 - - 72,377 0 - - - - 72,377 Total comprehensive income for the period 83,868 (6,527) 128,526 205,867 Contributions from stockholders and distributions to stockholders Management share option plan - 819- - - - - - 819-819- - - - - - 819 AT JUNE 30, 2015 1,060,301 (6,541) 2,015 367,708 82,809 49,547 554,695 0 128,526 2,239,060 The accompanying notes are an integral part of this quarterly information. TUPY S.A. Quarterly Information 21
(A free translation of the original in Portuguese) TUPY S.A. AND SUBSIDIARIES STATEMENTS OF CASH FLOWS SIX-MONTH PERIODS ENDED MARCH, 2015 AND 2014 (All amounts in thousands of reais) Cash flows from operating activities: Note 6/30/2015 3/31/2014 6/30/2015 3/31/2014 Profit for the period before income tax and social contribution 166,314 81,850 212,170 90,265 Adjustment to reconcile profit with cash provided by operating activities: Depreciation and amortization 8 e 9 70,287 63,167 129,276 109,453 Share of results of subsidiaries 8 (28,483) (26,699) - - Disposals of property, plant and equipment (632) 1,735 (897) 2,265 Interest accrued and foreign exchange variations 39,098 53,185 37,414 58,039 Provision for impairment of trade receivables 117 (3) (6) 17 Provision for losses on inventories (1,682) (44) (882) (362) Provision for tax, civil, social security and labor contingencies 11 18,635 14,880 18,759 15,812 Change in fair value - IPI premium credit 819-819 - Change in fair value - Eletrobras credit (3,133) (407) (3,133) (407) (2,861) (4,223) (2,861) (4,223) Changes in operating assets and liabilities: Trade receivables (79,659) (81,513) (57,832) (33,195) Inventories (70,107) (44,536) (79,616) (53,177) Third-party' tools 13,262 (19,595) 18,022 (18,550) Other taxes recoverable (48,287) (13,587) (76,976) (8,616) Notes and other receivables 1,968 (11,164) (4,297) (8,238) Judicial deposits and other (1,922) (91) (1,922) (82) Trade payables 27,952 46,514 18,671 44,556 Other taxes payable (1,823) (835) 2,912 (603) Salaries, social security charges and profit sharing 3,392 7,348 1,364 5,681 Advances from customers 4,158 12,243 93 10,429 Notes and other payables 11,221 12,514 3,319 (3,540) Retirement benefit obligations - - 8,050 (605) Other long-term liabilities (11,270) (4,726) (12,365) (6,359) Cash provided by operations 107,364 86,013 210,082 198,560 Interest paid (70,049) (41,328) (68,825) (41,328) Income tax and social contribution paid - - (19,457) (1,167) Net cash generated from operating activities 37,315 44,685 121,800 156,065 Cash flows from investing activities: Additions to investments (50,441) (70,742) (86,250) (110,086) Cash generated on PPE disposals 6,628 493 6,893 493 Subsidiaries and associates (811) (1,869) - - Cash used in investment activities (44,624) (72,118) (79,357) (109,593) Cash flows from financing activities: Payment of borrowings (103,567) (40,379) (103,567) (40,379) Repayment of tax financing - (331) - (331) New borrowings 18,506 5,369 18,506 5,369 Interest on capital and dividends paid - (25,008) - (25,008) Cash (used in) financing activities (85,061) (60,349) (85,061) (60,349) Effect of exchange rate differences on cash for the period 14,989 (17,898) 73,539 (33,776) Increase (decrease) in cash and cash equivalents (77,381) (105,680) 30,921 (47,653) Cash and cash equivalents at the beginning of the period 948,978 830,499 1,336,916 1,123,446 Cash and cash equivalents at the end of the period 871,597 724,819 1,367,837 1,075,793 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 22
(A free translation of the original in Portuguese) TUPY S.A. AND SUBSIDIARIES STATEMENT OF VALUE ADDED SIX-MONTH PERIODS ENDED MARCH, 2015 AND 2014 (All amounts in thousands of reais) Note 6/30/2015 6/30/2014 6/30/2015 6/30/2014 Origination of value added 1.187.011 1.131.947 1.786.864 1.682.588 Sale of products, net of returns and rebates 14 1.187.128 1.131.944 1.786.858 1.682.605 Provision for impairment of trade receivables (117) 3 6 (17) (-) Inputs acquired from third parties 703.046 698.043 1.071.369 1.078.854 Raw materials and processing material consumed 564.977 595.707 846.471 894.573 Materials, energy, third-party services and other 138.069 102.336 224.898 184.281 GROSS VALUE ADDED 483.965 433.904 715.495 603.734 Retentions: 70.287 63.167 129.276 109.453 Depreciation and amortization 8 and 9 70.287 63.167 129.276 109.453 Net value added generated by the Company 413.678 370.737 586.219 494.281 Value added received through transfer 87.900 63.724 60.953 38.091 Share of results of subsidiaries 8 28.483 26.699 - - Finance income 16 59.417 37.025 60.953 38.091 VALUE ADDED TO DISTRIBUTE 501.578 434.461 647.172 532.372 Distribution of value added Personnel 290.465 275.303 390.166 356.722 Employees 182.282 186.599 276.559 265.596 Social charges - Government Severance Indemnity Fund for Employees (FGTS) 25.665 16.419 25.665 16.419 Profit sharing 21.731 18.318 24.864 18.449 Management fees 5.371 5.071 5.371 5.071 Workplace healthcare and safety 42.635 36.066 42.635 36.066 Food 6.529 6.681 7.879 8.045 Professional education, qualification and development 868 1.114 1.010 1.294 Other amounts 5.384 5.035 6.183 5.782 Government 48.524 50.157 95.101 59.291 Federal taxes and contributions 42.114 54.117 87.970 62.532 State taxes and rates 4.043 (5.844) 4.043 (5.844) Municipal taxes, rates and other 2.367 1.884 3.088 2.603 Third-party capital 40.590 55.558 39.906 62.916 Finance costs 16 72.295 45.419 72.699 47.923 Monetary and foreign exchange variations, net 16 (31.705) 10.139 (32.793) 14.993 Own capital 121.999 53.443 121.999 53.443 Retained earnings 121.999 53.443 121.999 53.443 TOTAL VALUE ADDED 501.578 434.461 647.172 532.372 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 23
(A free translation of the original in Portuguese) NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION... 25 2. PRESENTATION AND PREPARATION OF THE QUARTERLY INFORMATION... 25 3. CASH AND CASH EQUIVALENTS... 26 4. TRADE RECEIVABLES... 27 5. INVENTORIES... 27 6. OTHER TAXES RECOVERABLE... 28 7. RELATED-PARTY TRANSACTIONS... 28 8. INVESTMENTS... 31 9. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS... 31 10. BORROWINGS... 32 11. PROVISION FOR TAX, CIVIL, SOCIAL SECURITY AND LABOR CONTINGENCIES... 34 12. DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION, NET... 35 13. SHARE CAPITAL... 36 14. REVENUE... 36 15. COSTS AND EXPENSES BY NATURE... 36 16. FINANCE RESULTS... 38 17. OTHER OPERATING INCOME (EXPENSES)... 38 18. INCOME TAX AND SOCIAL CONTRIBUTION IN THE RESULTS... 39 19. EARNINGS PER SHARE... 40 20. SEGMENT REPORTING... 41 21. FINANCIAL INSTRUMENTS... 44 22. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE OF NET INVESTMENT ABROAD... 44 23. FINANCIAL RISK MANAGEMENT... 45 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 24
(A free translation of the original in Portuguese) 1. GENERAL INFORMATION Tupy S.A. (the "") and its subsidiaries (together the "Company" or "") have an important position in the domestic and foreign iron casting markets, the largest foundry in the West manufacturing cast-iron engine blocks and cylinder heads with diversified customer base in the Americas, Europe and Asia. They also operate in the automotive (blocks, cylinder heads and parts) and hydraulics (connections, abrasives and shapes) segments. The Company has plants in Brazil, in Joinville and Maua, and Mexico, in Saltillo and Ramos Arizpe. In addition to its plants, the has investments in companies abroad that operate in logistics, trading and technical assistance. Tupy S.A. is a publicly-held corporation headquartered in Joinville, State of Santa Catarina, listed on the São Paulo Stock Exchange (BOVESPA: ticker TUPY3) and in the Novo Mercado segment of BM&FBOVESPA. This quarterly information was approved for issue by the Company's Board of Directors on August 12 nd, 2015. 2. PRESENTATION AND PREPARATION OF THE QUARTERLY INFORMATION The parent company quarterly information, which have been prepared in accordance with accounting practices adopted in Brazil, including the pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC), as well as in accordance with the International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), since, as from 2014, the IFRS applicable to separate quarterly information allowed the use of the equity method of accounting for subsidiaries in quarterly information. These parent company quarterly information are disclosed together with the consolidated quarterly information. The consolidated quarterly information, which have been prepared in accordance with accounting practices adopted in Brazil, including the pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC), as well as in accordance with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). Circular Letter CVM/SNC/SEP 003, of April 28, 2011, permits entities to present selected explanatory notes in cases of redundancy or duplication in relation to the information already presented in the Company's annual financial statements. The quarterly information does not include all of the disclosures required in a complete set of financial statements, and should be read together with the annual financial statements for the year ended December 31, 2014. Accordingly, the Company discloses below a list of the explanatory notes that are not partially or completely repeated in the quarterly information at June 30, 2015: All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 25
Not completely repeated Financial investments Income tax and social contribution recoverable Credits - Eletrobras Investment properties Financing of taxes and social security charges Salaries, social security charges and profit sharing Defined benefit obligations Insurance Business combination Commitments Not partially repeated Trade receivables Other taxes recoverable Property, plant and equipment Intangible assets Borrowings Provision for tax, civil, social security and labor contingencies Defined benefit obligations Share capital 2.1. Basis of preparation The quarterly information has been prepared under the historical cost convention, except for certain financial instruments which are measured at their fair values, as described in the accounting policies. The historical cost is generally based on the fair value of the consideration paid in exchange for assets. The functional and presentation currency are in accordance with annual financial statements for the year ended December 31, 2014. 2.2. Use of critical accounting estimates and judgments The preparation of and quarterly information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the amounts reported for assets, liabilities, revenue and expenses. In the preparation of this quarterly information, the decisions made by the Company regarding the application of accounting policies and in relation to the main sources of uncertainty in estimates were the same as those for the annual financial statements for the year ended DECEMBER 31, 2014. In the annual financial statements, these critical accounting estimates and judgments are disclosed in Note 2.4. 2.3. Significant accounting policies The accounting policies used in the preparation of this quarterly information for the period ended June 30, 2015 are consistent with those used to prepare the annual financial statements for the year ended December 31, 2014. In the annual financial statements, these policies are disclosed in Note 2. 3. CASH AND CASH EQUIVALENTS Jun/15 Dec/14 Jun/15 Dec/14 Cash and banks 1,127 3,090 1,381 3,387 Financial investments in Brazil 851,741 915,058 851,741 915,058 Financial investments abroad 18,729 30,830 514,715 418,471 871,597 948,978 1,367,837 1,336,916 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 26
The financial investments disclosed as cash and cash equivalent are highly-liquid securities with immaterial risk of change in value. Those investments in Brazil are remunerated at the variation of the Interbank Deposit Certificate (CDI) rate, with an average rate equivalent to 12.89% per annum (11.13% at December 31, 2014). The investments abroad are denominated mostly in U.S. Dollars (US$) at the average rate of 0.50% per annum (0.33% per annum in December 2014). 4. TRADE RECEIVABLES The composition of trade receivables from clients by market is as follows: Jun/15 Dec/14 Jun/15 Dec/14 Domestic market 126,731 93,717 126,731 93,717 Foreign market 247,897 171,489 398,521 332,083 Provision for impairment of trade receivables (1,131) (1,031) (1,997) (1,985) 373,497 264,175 523,255 423,815 Trade receivable in the domestic market are denominated in Brazilian Reais and in the foreign market primarily in U.S. Dollars. The Company's trade receivable in the foreign market include related-party amounts which are eliminated in the consolidation. (Note 7) The increased share of the foreign market in the Company's sales reflected in the increase in receivables, as foreign market sales have longer receivables cycle than domestic market sales, the amount was also impacted by the devaluation of the foreign exchange rate (R$2.6562/US$ in December 31, 2014 versus R$3.1030/US$ in June 30, 2015). 5. INVENTORIES Jun/15 Dec/14 Jun/15 Dec/14 Finished products 177,196 121,213 280,477 212,520 Work in progress 37,435 40,379 57,940 52,409 Raw materials 55,805 43,574 106,287 88,570 Maintenance and other materials 39,634 34,797 37,497 34,797 Provision for losses (2,275) (3,957) (8,193) (9,075) 307,795 236,006 474,008 379,221 Inventories are carried at the average acquisition and/or production cost, considering the full manufacturing costs absorption method, adjusted to the net realizable value, when applicable. The costs of inventory recorded as expenses during the period in relation to the continuing operations totaled R$893,940 in the (R$844,317 in June 30,, 2014) and R$1,353,271 in the (R$1,286,592 in June 30, 2014). In June 30, 2015 the Company offered finished product inventories as collateral for labor and social security litigation in the amount of R$10,220 in the and. All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 27
The Company is currently building safety inventories as part of the implementation process of the new ERP system, which requires higher levels of inventory than the usual. 6. OTHER TAXES RECOVERABLE Jun/15 Dec/14 Current Noncurrent Total Current Noncurrent Total IPI premium credit - 1988/1990-59,687 59,687-57,723 57,723 ICMS recoverable - São Paulo 768 40,541 41,309-41,837 41,837 ICMS recoverable - Santa Catarina 29,172 23,287 52,459 9,816 25,091 34,907 Reintegra benefit - 22,524 22,524 10,579-10,579 COFINS, PIS and IPI recoverable 21,777-21,777 9,997-9,997 51,717 146,039 197,756 30,392 124,651 155,043 Subsidiaries Value-Added Tax (VAT) 30,436-30,436 26,524-26,524 82,153 146,039 228,192 56,916 124,651 181,567 7. RELATED-PARTY TRANSACTIONS The main transactions of the Company with related parties are summarized as follows: a. Subsidiaries: Assets Jun/15 Dec/14 Trade receivables 132,118 74,756 Tupy American Foundry Corporation 116,716 47,643 Tupy Europe GmbH 15,402 27,113 Related parties loans 3,821 3,055 Tupy Agroenergética Ltda. 3,821 3,055 135,939 77,811 Liabilities Jun/15 Dec/14 Borrowings 1,116,660 955,996 Tupy Overseas S.A. 1,116,660 955,996 Advances from customers 2,777 2,378 Tupy American Iron & Alloys Corporation 2,777 2,378 Notes and other payables 68,268 40,455 Tupy American Foundry Co. 23,585 8,401 Tupy American Iron & Alloys Corporation 1,160 1,037 Tupy Europe GmbH 43,523 31,017 Related parties loans 950 995 Sociedade Técnica de Fundições Gerais S.A. - Sofunge "in liquidation" 950 995 1,188,655 999,824 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 28
Statement of income 2Q 2015 2Q 201 1H 2015 1H 201 Revenue 186,929 142,705 405,402 292,915 Tupy American Foundry Corporation 153,200 107,851 317,764 222,891 Tupy American Iron & Alloys Corporation - 35 13 77 Tupy Europe GmbH 33,729 34,819 87,625 69,947 Tupy Agroenergética Ltda. - - - (388) Purchase - - - (388) Tupy Mexico Saltillo, S.A. de C.V (18,486) (7) (35,742) (8) Finance costs (18,498) - (35,759) - Tupy Overseas S.A. Sociedade Técnica de Fundições (4) (3) (6) (4) Gerais S.A. - Sofunge "in liquidation" 16 (4) 23 (4) Tupy Agroenergética Ltda. 168,443 142,698 369,660 292,519 186,929 142,705 405,402 292,915 The receivables and sales revenue of the Company with its subsidiaries mainly represent sales of products from the automotive and hydraulic segments. Prices charged are in compliance with the Company's price lists, and terms range from 60 to 90 days, as established by the parties. At June 30, 2015, the Company's related parties had no overdue receivables and, therefore, the Company did not record a provision for the impairment of these receivables. Advances from customers correspond to amounts sent by the subsidiaries abroad for future delivery of goods Notes and other payables to subsidiaries abroad represent advances for the future delivery of products and the current account between the subsidiaries and the, with an unspecified maturity. The loan conditions granted by Tupy Overseas S.A. to the are disclosed in note 15 from annual financial statements of the year ended December 31, 2014. The other operations refer to loan agreements between the subsidiaries in Brazil and the Company, with no defined maturities, which bear interest equivalent to the Referential Rate (TR). b. Main stockholders: The Company's main stockholders are BNDES Participações S.A. - BNDESPAR and PREVI - Caixa de Previdência dos Funcionários do Banco do Brasil.. The had a financing agreement with BNDES (the controlling shareholder of BNDES Participações S.A. - BNDESPAR), the residual amount in June 30, 2015 is R$146.601, as detailed in note 10. All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 29
c. Management remuneration: Board of Directors Board of Officers Total 1H 2015 1H 201 1H 2015 1H 201 1H 2015 1H 201 Fixed remuneration 521 432 2,349 2,530 2,870 2,962 Variable remuneration - - 2,501 2,109 2,501 2,109 521 432 4,850 4,639 5,371 5,071 d. Board of Directors Board of Officers Total 2Q 2015 2Q 201 2Q 2015 2Q 201 2Q 2015 2Q 201 Fixed remuneration 305 216 1,132 1,302 1,437 1,518 Variable remuneration - - 1,617 1,085 1,617 1,085 305 216 2,749 2,387 3,054 2,603 The overall amount of the annual remuneration for the current year approved by the Extraordinary and Ordinary General Meeting was R$19,952. Statutory management remuneration is paid only at the level and, therefore, no management remuneration has been recorded in the subsidiaries. The amounts recorded as variable remuneration of the Board of Officers are considered as a provision, according to the goals established for the period. Information about the Stock option plna to the Company s statutory board members and the current Chairman of the Bord of Directors (Plan), approved in November 24, 2014, are presented in annual financial statements from year ended December 31, 2014. (note 21). On June 24th, 2015, the Extraordinary General Meeting approved the 2nd annual stock option plan program, according the Plan. Officers receive additional corporate benefits, such as company vehicles, reimbursement of vehiclerelated expenses, health insurance, pension plan and severance pay. In the quarter ended June 30, 2015, these benefits totaled R$521 (R$432 in the same period of the previous year). The Company does not offer its officers a post-employment benefit plan. e. Other related parties: The sponsors the Associação Atlética Tupy (Tupy Athletic Association), a not-forprofit foundation that offers leisure activities and sports to the Company's employees. During the period ended June 30, 2015, the Company recognized sponsorship expenses of R$371 (R$439 in the same period of the previous year). All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 30
8. INVESTMENTS a. Composition of investments Total assets Equity Goodwill Profit (loss) for the period Interest in capital (%) Share in the results of subsidiaries (*) Book value (*) At June 30, 2015 Investments in subsidiaries Tupy Mexico Saltillo, S.A. de C.V. 1,116,096 794,671 30,513 16,275 100,00 16,275 825,184 Technocast, S.A. de C.V. 807,251 718,255 10,713 (4,053) 100,00 (4,053) 728,968 Servicios Industriales Technocast, S.A. de C.V. 19,563 7,013 - (49) 100,00 (49) 7,013 Tupy Overseas S.A. 1,118,711 9,540-234 100,00 234 9,540 Tupy American Foundry Co. 221,746 73,683-1,556 100,00 6,191 64,488 Tupy American Iron & Alloys Co. 4,580 4,517 - (38) 100,00 (38) 4,517 Tupy Europe GmbH 125,505 89,909-9,119 100,00 10,326 87,806 Tupy Argentina S.R.L. 33 33 - - 100,00 3 33 Tupy Agroenergética Ltda. 10,587 6,636 - (362) 100,00 (362) 6,636 Sociedade Técnica de Fundições Gerais S.A. - Sofunge "in liquidation" 2,155 1,392 - (44) 100,00 (44) 1,392 28,483 1,735,577 (*) Adjusted by unrealized profits b. Changes in investments At January 1, 2014 1,340,660 Share in the results of subsidiaries (40,065) Additions to investments 6,214 Exchange variation of investee located abroad 175,919 At December 31, 2014 1,482,728 Share in the results of subsidiaries 931,927 Exchange variation of investee located abroad 140,708 At June 30, 2015 8,748 9. PROPERTY, PLANT AND EQUIPMENT AND INTANGIBLE ASSETS Parental company Dec/14 Additions Disposals Transfers Depreciation/ Amortization Jun/15 Historical Cost Accumulated Depreciation Property, plant and equipment Machinery, facilities 931,927 - (5,983) 51,477 (64,916) 912,505 1,847,819 (935,314) and equipment Buildings 140,708 - (12) 7,676 (3,886) 144,486 249,904 (105,418) Land 8,748 - - - - 8,748 8,748 - Vehicles 13,709 - - 601 (1,285) 13,025 32,464 (19,439) Furniture, fittings and 2,424 - (1) 184 (200) 2,407 10,408 (8,001) other Construction in 98,103 40,200 - (59,938) - 78,365 78,365 - progress 1,195,619 40,200 (5,996) - (70,287) 1,159,536 2,227,708 (1,068,172) Intangible assets Software 48,515 8,561 - - - 57,076 57,076-48,515 8,561 - - - 57,076 57,076 - All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 31
Dec/14 Additions Disposals Transfers Depreciation/ Amortization Exchange variation Jun/15 Historical Cost Accumulated Depreciation Property, plant and equipment Machinery, facilities and equipment 1,202,614 - (5,983) 63,376 (86,729) 45,392 1,218,670 3,208,810 (1,990,140) Buildings 267,958 - (12) 7,979 (7,107) 21,320 290,138 568,641 (278,503) Land 48,578 - - - - 6,626 55,204 55,204 - Vehicles 13,702 - - 609 (1,306) 92 13,097 33,681 (20,584) Furniture, fittings and other 7,877 - (1) 285 (562) 256 7,855 22,738 (14,883) Construction in progress 187,965 75,709 - (72,249) - 15,925 207,350 207,350-1,728,694 75,709 (5,996) - (95,704) 89,611 1,792,314 4,096,424 (2,304,110) Intangible assets Contractual customer relationships 409,535 - - - (31,578) 67,789 445,746 765,486 (319,740) Non-competition agreement 1,766 - - - (429) 284 1,621 4,421 (2,800) Goodwill 41,226 - - - - - 41,226 41,226 - Software 61,302 8,861 - - (1,565) 2,098 70,696 70,696-513,829 8,861 - - (33,572) 70,171 559,289 881,829 (322,540) The Company offered property, plant and equipment items as collaterals for borrowings amounting to R$306,226 and R$3,520 as collaterals for tax litigation ( and ). Construction in progress mainly comprises finishing automation projects carried out in the Joinville plant; transfer of a machining line to México, sand regeneration in Mexico; expansion of one of the Company's production line of Compacted Graphite Iron (CGI) and a job safety program. 10. BORROWINGS Maturity Average cost Jun/15 Dec/14 Local currency 791,963 803,434 (a) Expansion project of Tupy S.A. - BNDES Jul/2018 TJLP + 2,53% a.a. 114,453 143,028 BNDES Exim - Pre-shipment of the Nov/2017 7,00% a.a. 506,228 506,220 Investment Sustainability Program (PSI) (b) Export credit notes Mar/2018 6,27% a.a. 140,425 125,431 (c) Finame (PSI) Jan/2025 5,66% a.a. 30,857 28,755 Foreign currency 1,484,400 1,335,158 (a) Expansion project of Tupy S.A. - BNDES Jul/2016 VC+6,06% a.a. 32,148 34,453 (d) Export Prepayments Set/2017 VC+Libor+4,00% a.a. 335,593 344,708 (e) Export Prepayments Tupy Overseas S.A. Jul/2024 VC+6,78% a.a. 1,116,659 955,997 Current 754,059 426,515 Non-current 1,522,304 1,712,077 2,276,363 2,138,592 Maturity Average cost Jun/15 Dec/14 Local currency 791,963 803,434 (a) Expansion project of Tupy S.A. - BNDES Jul/2018 TJLP + 2,54% a.a. 114,453 143,028 BNDES Exim - Pre-shipment of the Nov/2017 7,00% a.a. 506,228 506,220 Investment Sustainability Program (PSI) (b) Export credit notes Mar/2018 6,27% a.a. 140,425 125,431 (c) Finame (PSI) Jan/2025 5,68% a.a. 30,857 28,755 Foreign currency 1,476,534 1,328,068 (a) Expansion project of Tupy S.A. - BNDES Jul/2016 VC+6,06% a.a. 32,148 34,453 (d) Export Prepayments Set/2017 VC+Libor+4,00% a.a. 335,593 344,708 (f) Senior Unsecured Notes - US$350.000 Jul/2024 VC+6,76% a.a. 1,108,793 948,907 Current 752,781 425,420 Non-current 1,515,716 1,706,082 2,268,497 2,131,502 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 32
Long-term maturities are as follows: Year Jun/15 Dec/14 Jun/15 Dec/14 2016 91,924 472,016 91,924 472,016 2017 304,358 276,131 304,358 276,131 2018 26,998 23,364 26,998 23,364 2019-2023 15,635 13,444 15,635 13,444 2024 1,083,352 927,122 1,076,764 921,127 2025 37-37 - 1,522,304 1,712,077 1,515,716 1,706,082 The fair value of the Company's borrowings (classified in Level 2 of the fair value hierarchy) is calculated through the discount of future flows of their payments at the curves, interest rates and currencies observable in the financial market. At June 30, 2015, the fair value of borrowings was R$2.281.938 (R$2,094,604 at December 31, 2014). a. Expansion project of Tupy S.A. (BNDES) The variation in the period is substantially because of the amortization of R$28,504 in Finem modality in Brazilian Reais during the semester. In U.S. Dollar the amortization was R$7,645 and there is an increase because foreign exchange variation of R$5,359. b. Export credit notes In March 2015 the Company realized a new fund raising in the amount of R$15,000 maturing in March 2018 and with an interest rate of 11% p.a. c. Finame (PSI) In February and March 2015, the Company entered into new Finame transactions for purchases of machinery and equipment, amounting to R$3,506, with a two-year grace period and repayment over eight years with monthly payments and with an interest rate of 6%p.a. d. Export prepayments The variation in the period reflects the devaluation of the foreign exchange variation, resulting in R$57,628 e amortization of R$65,991 in April, 2015. e. Export Prepayments Tupy Overseas S.A. The impact from foreign exchange variation over the export prepayment amount with Tupy Overseas S.A. was R$156,430. f. Senior Unsecured Notes - US$350.000 The foreign exchange variation recognize in the period from senior unsecured notes in the period was R$147,685. All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 33
11. PROVISION FOR TAX, CIVIL, SOCIAL SECURITY AND LABOR CONTINGENCIES The Company is a party to ongoing litigation arising in the normal course of its business and for which provision (in the case of probable losses) was constituted based on estimates made by its legal counsel. The changes in the provision for tax, civil, social security and labor contingencies in the period ended June 30, 2015 and the related judicial deposits were as follows: Civil Tax Labor Social security Judicial deposits Total At December 31, 2014 51,327 12,626 25,497 7,020 (12,057) 84,413 Additions 685 7,475 7,125 - (39) 15,246 Restatements 2,032 375-943 (210) 3,140 Payments (180) (956) (7,877) - - (9,013) At June 30, 2015 53,864 19,520 24,745 7,963 (12,306) 93,786 Current 11,579 Non-current 82,207 93,786 Civil Tax Labor Social security Judicial deposits Total At December 31, 2014 51,786 12,669 26,478 7,020 (12,266) 85,687 Additions 685 7,475 7,249 - (39) 15,370 Restatements 2,032 375-943 (210) 3,140 Payments (180) (956) (8,396) - - (9,532) At June 30, 2015 54,323 19,563 25,331 7,963 (12,515) 94,665 Current 11,695 Non-current 82,970 94,665 The aforementioned provisions are adjusted mainly based on the Special System for Settlement and Custody (SELIC) rate and General Market Price Index (IGPM), the impact of which on profit or loss for the period is described in Note 17. Generally, the Company's provisions for contingencies are long-term provisions. Considering the period necessary to conclude the judicial proceedings in the Brazilian judicial system, making accurate estimates about the specific year when a certain lawsuit will be concluded is difficult, in face of that, the Company does not disclose the settlement flow of these liabilities. Contingencies involving possible losses The contingencies involving the risk of possible loss are, substantially, the same as disclosure in annual financial statements from year ended in December 31, 2014, nota 19. Jun/15 Dec/14 Jun/15 Dec/14 IRPJ and CSLL processes 126,587 116,689 127,173 117,288 PIS, COFINS and IPI credits 61,807 61,614 61,807 61,704 ICMS credits 97,193 95,054 97,193 95,054 Expired tax debts 126,717 125,604 126,717 125,604 Customs 47,028 47,028 47,028 47,028 Social security 71,963 73,142 84,515 85,694 Labor lawsuits 22,306 24,489 23,479 24,630 Civil and other 27,046 26,569 29,435 29,448 580,647 570,189 597,347 586,450 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 34
12. DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION, NET The composition of deferred tax assets and liabilities relating to income tax and social contribution, presented in balance sheet accounts, is as follows: Jun/15 Dec/14 Jun/15 Dec/14 Deferred tax liabilities Property, plant and equipment - carrying value 42,659 46,021 42,659 46,021 adjustments Depreciation rate differences 59,637 55,149 59,637 55,149 Deferred tax on intangible assets - - 134,210 123,388 Subtotal 102,296 101,170 236,506 224,558 Deferred tax assets Provision for impairment of trade receivables 4,803 2,274 4,803 2,274 Provision for losses on inventories 727 1,346 727 1,346 Taxes and contributions recoverable 13,449 14,515 13,449 14,515 Third-party tools 4,020 1,687 4,020 1,687 Credits - Eletrobras 6,653 6,220 6,653 6,220 Salaries, social security charges and profit sharing 8,440 12,089 21,846 24,264 Provision for contingencies 35,216 32,799 43,510 43,721 Income tax and social contribution losses 27,951-27,951 - Other items 6,309 7,450 6,309 7,450 Property, plant and equipment - tax basis (Mexico) - - 10,322 20,732 Unrealized profits in subsidiaries - - 5,820 3,289 Subtotal 107,568 78,380 145,410 125,498 Net deferred tax liabilities (5,272) 22,790 91,096 99,060 The Mexican tax legislation allows depreciation of property, plant and equipment on a tax basis and, accordingly, the Company records the temporary difference of the depreciation between the tax and the accounting bases. The temporary difference at June 30, 2015 was R$10,322 (R$20,732 at December 31, 2014). The change in the year is due to the foreign exchange difference between the currency in which the taxes are charged in Mexico (Mexican pesos) and the functional currency (U.S. Dollar) of the subsidiaries in Mexico. The Company estimates that the balance in June 30, 2015, relating to deferred tax assets, will be recovered through future income tax. During the period ended June 30, 2015, the changes in deferred tax assets and liabilities were as follows: Expense (Income) Jun/15 Dec/14 Jun/15 Dec/14 At December 31, 2014 22,790 21,840 99,060 101,632 Loss for the period 44,315 57,325 55,723 42,354 Comprehensive income for the period (72,377) (56,375) (72,377) (56,375) Foreign exchange variation 8,690 11,449 At June 30, 2015 (5,272) 22,790 91,096 99,060 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 35
13. SHARE CAPITAL Jun/15 Dec/14 Composition of share capital in number of shares Number % Number % Controlling stockholders BNDES Participações S.A. - BNDESPAR 40,645,370 28.2% 40,645,370 28.2% Caixa de Previdência dos Funcionários do Banco do Brasil - PREVI 40,061,154 27.8% 40,061,154 27.8% Management 4 0.0% 6 0.0% Non-controlling interests Fundação Embratel de Seguridade Social - TELOS 15,108,656 10.5% 15,109,156 10.5% Other stockholders 48,362,316 33.5% 48,361,814 33.5% Total shares outstanding 144,177,500 100.0% 144,177,500 100.0% 14. REVENUE The reconciliation between gross and net sales and service revenue for the period is as follows: 1H 2015 1H 201 1H 2015 1H 201 Gross revenue 1,206,264 1,149,649 1,818,902 1,712,194 Returns and rebates (19,136) (17,705) (32,044) (29,589) Revenue net of returns and rebates 1,187,128 1,131,944 1,786,858 1,682,605 Sales taxes (87,699) (119,008) (87,699) (119,008) Net revenue 1,099,429 1,012,936 1,699,159 1,563,597 Net revenue Domestic market 357,025 441,120 357,025 441,120 Foreign market 742,404 571,816 1,342,134 1,122,477 1,099,429 1,012,936 1,699,159 1,563,597 2Q 2015 2Q 201 2Q 2015 2Q 201 Gross revenue 619,041 556,125 974,422 828,224 Returns and rebates (12,259) (8,538) (17,723) (15,053) Revenue net of returns and rebates 606,782 547,587 956,699 813,171 Sales taxes (45,617) (54,613) (45,617) (54,613) Net revenue 561,165 492,974 911,082 758,558 Net revenue Domestic market 179,215 206,870 179,215 206,870 Foreign market 381,950 286,104 731,867 551,688 561,165 492,974 911,082 758,558 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 36
15. COSTS AND EXPENSES BY NATURE The composition of costs and expenses by nature, reconciled with costs and expenses by function presented in the statement of income, is as follows: 1H 2015 1H 2014 1H 2015 1H 2014 Raw and processing materials 422,691 436,823 686,807 712,592 Maintenance and consumption materials 73,232 64,466 122,365 108,035 Salaries and payroll taxes 220,526 217,256 314,803 296,253 Profit sharing 21,731 18,318 24,864 18,449 Social benefits 55,348 48,896 57,639 51,187 Electricity 60,103 22,669 92,653 54,659 Freight and commissions on sales 30,833 27,681 47,186 46,451 Management fees 5,371 5,071 5,371 5,071 Other costs 15,590 14,633 26,605 25,752 905,425 855,813 1,378,293 1,318,449 Depreciation 69,090 62,298 94,502 80,086 Total costs and expenses 974,515 918,111 1,472,795 1,398,535 Cost of products sold 893,940 844,317 1,353,271 1,286,592 Selling expenses 40,011 36,698 63,703 62,435 Administrative expenses 35,193 32,025 50,450 44,437 Management fees 5,371 5,071 5,371 5,071 Total costs and expenses 974,515 918,111 1,472,795 1,398,535 2Q 2015 2Q 2014 2Q 2015 2Q 2014 Raw and processing materials 208,871 212,440 366,734 347,188 Maintenance and consumption materials 38,943 31,968 63,091 53,213 Salaries and payroll taxes 114,201 117,110 162,322 153,958 Profit sharing 11,596 8,247 14,414 7,738 Social benefits 28,323 25,463 29,600 27,249 Electricity 33,079 1,158 47,364 15,967 Freight and commissions on sales 15,795 13,486 25,320 22,979 Management fees 3,054 2,603 3,054 2,603 Other costs 9,837 10,626 15,142 15,938 463,699 423,101 727,041 646,833 Depreciation 36,064 31,603 49,251 40,455 Total costs and expenses 499,763 454,704 776,292 687,288 Cost of products sold 458,257 416,793 713,448 630,504 Selling expenses 20,660 18,343 33,826 31,435 Administrative expenses 17,792 16,965 25,964 22,746 Management fees 3,054 2,603 3,054 2,603 Total costs and expenses 499,763 454,704 776,292 687,288 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 37
16. FINANCE RESULTS Finance results 1H 2015 1H 201 1H 2015 1H 201 Financial liabilities at amortized cost (71,298) (44,429) (70,702) (44,429) Borrowings (71,207) (43,878) (70,611) (43,878) Financing of taxes and social security charges - (482) - (482) Notes payable and other financial liabilities (91) (69) (91) (69) Derivative financial instruments (107) 685 (107) 685 Interest rate swaps (107) 685 (107) 685 Other finance costs (890) (1,675) (1,890) (4,179) Finance costs (72,295) (45,419) (72,699) (47,923) Financial assets at fair value through profit or loss 4,645 5,077 4,645 5,077 Credits - Eletrobrás 4,116 4,412 4,116 4,412 Financial investments 511 629 511 629 Investments in equity instruments 18 36 18 36 Loans and receivables 48,781 25,845 48,781 25,845 Cash and cash equivalents 48,781 25,845 48,781 25,845 Tax credits and other finance income 5,991 6,103 7,527 7,169 Finance income 59,417 37,025 60,953 38,091 Derivative financial instruments - 5,598-5,598 Non Deliverable Forward (NDF) - 5,598-5,598 Foreign exchange variations 31,705 (15,737) 32,793 (20,591) Foreign exchange variations, net 31,705 (10,139) 32,793 (14,993) Finance results 18,827 (18,533) 21,047 (24,825) Finance results 2Q 2015 2Q 201 2Q 2015 2Q 201 Financial liabilities at amortized cost (36,363) (21,239) (35,980) (21,239) Borrowings (36,316) (21,330) (35,933) (21,330) Financing of taxes and social security charges - 110-110 Notes payable and other financial liabilities (47) (19) (47) (19) Derivative financial instruments (88) 1,402 (88) 1,402 Interest rate swaps (88) 1,402 (88) 1,402 Other finance costs (406) (1,427) (915) (2,969) Finance costs (36,857) (21,264) (36,983) (22,806) Financial assets at fair value through profit or loss 368 2,369 368 2,369 Credits - Eletrobrás - 2,076-2,076 Financial investments 262 317 262 317 Investments in equity instruments 106 (24) 106 (24) Loans and receivables 24,831 11,960 24,831 11,960 Cash and cash equivalents 24,831 11,960 24,831 11,960 Tax credits and other finance income 5,451 5,956 6,599 6,512 Finance income 30,650 20,285 31,798 20,841 Derivative financial instruments - - - - Non Deliverable Forward (NDF) - - - - Foreign exchange variations (1,364) (4,084) (1,763) (6,266) Foreign exchange variations, net (1,364) (4,084) (1,763) (6,266) Finance results (7,571) (5,063) (6,948) (8,231) All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 38
17. OTHER OPERATING INCOME (EXPENSES) 1H 2015 1H 201 1H 2015 1H 201 Constitution and restatement of provision (13,607) (14,880) (13,731) (15,812) Reversal of provision 632 (1,735) 897 (2,265) Loss on the sale of unusable assets and write-off of third party tools and other assets 8,262 (3,657) 12,367 (2,528) (4,713) (20,272) (467) (20,605) Depreciation of non-operating assets (1,197) (869) (1,202) (874) Amortization of intangible assets - - (33,572) (28,493) Total other operating expenses, net (5,910) (21,141) (35,241) (49,972) 2Q 2015 2Q 201 2Q 2015 2Q 201 Constitution and restatement of provision (4,730) (8,834) (4,854) (9,084) Reversal of provision - (341) - (341) Disposals of property, plant and equipment 972 (1,720) 972 (2,250) Loss on the sale of unusable assets and write-off of 4,594 603 4,829 2,595 third party tools and other assets 836 947 (10,292) (9,080) Depreciation of non-operating assets (594) (487) (597) (490) Amortization of intangible assets - - (17,278) (13,888) Total other operating expenses, net 242 (10,779) (16,928) (23,458) 18. INCOME TAX AND SOCIAL CONTRIBUTION IN THE RESULTS 1H 2015 1H 2014 1H 2015 1H 2014 Profit before tax effects 166,314 81,850 212,170 90,265 Statutory tax rate 34% 34% 34% 34% Expenses at statutory rate (56,547) (27,829) (72,138) (30,690) Tax effect of permanent (additions) exclusions: Share of results of subsidiaries 9,684 9,078 - - Depreciation of non-operating assets (407) (295) (407) (415) Additional income tax (Services Companies Mexico ) - - (2,995) (2,638) Effect of correction of fixed assets - - (2,403) 1,210 Reintegra benefit (a) 3,732-3,732 - Other permanent (additions) exclusions (777) 38 (5,188) 3,183 Effects of different rate in subsidiaries - (9,399) - (8,094) Tax effects recorded in the statement of income before exchange (44,315) (28,407) (79,399) (37,444) effects Effective rate of income tax before exchange effects 27% 35% 37% 41% Effect of functional currency over tax base (b) - - (10,772) 622 Tax effects recorded in the statement of income (44,315) (28,407) (90,171) (36,822) Effective rate of income tax 27% 35% 42% 41% All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 39
2Q 2015 2Q 2014 2Q 2015 2Q 2014 Profit before tax effects 79,557 36,730 110,914 39,581 Statutory tax rate 34% 34% 34% 34% Expenses at statutory rate (27,049) (12,488) (37,711) (13,458) Tax effect of permanent (additions) exclusions: Share of results of subsidiaries 8,664 4,863 - - Depreciation of non-operating assets (202) (165) (202) (285) Additional income tax (Services Companies Mexico ) - - (1,943) (1,773) Effect of correction of fixed assets - - (1,066) (4,180) Reintegra benefit (a) 922-922 - Other permanent (additions) exclusions (480) (268) (4,996) 3,281 Effects of different rate in subsidiaries - (5,329) - (4,657) Tax effects recorded in the statement of income before exchange (18,145) (13,387) (44,996) (21,072) effects Effective rate of income tax before exchange effects 23% 36% 41% 53% Effect of functional currency over tax base (b) - - (4,506) 4,834 Tax effects recorded in the statement of income (18,145) (13,387) (49,502) (16,238) Effective rate of income tax 23% 36% 45% 41% a) Reintegra fiscal benefit Credits arising from the benefit established by Provisional Measure 540 of August 2, 2011, reestablished by Law 13,043/14 and regulated by Decree 8,304/14 b) Effect of Functional currency over tax The tax bases of assets and liabilities of the companies located in Mexico, where the functional currency is the US Dollars, are held in Mexican Pesos for their historical values. Fluctuations in exchange rates change the tax bases and consequently exchange effects are recognized as revenues and / or expenses of deferred income tax. c) Composition of the tax effects recorded in the statement of income is as follows: 1H 2015 1H 2014 1H 2015 1H 2014 Tax effects recorded in the statement of income Current income tax and social contribution - (42,259) (34,448) (55,267) Deferred income tax and social contribution (44,315) 13,852 (55,723) 18,445 (44,315) (28,407) (90,171) (36,822) 2Q 2015 2Q 2014 2Q 2015 2Q 2014 Tax effects recorded in the statement of income Current income tax and social contribution - (18,632) (22,389) (23,932) Deferred income tax and social contribution (18,145) 5,245 (27,113) 7,694 (18,145) (13,387) (49,502) (16,238) 19. EARNINGS PER SHARE 2Q 2015 2Q 2014 1H 2015 1H 2014 Profit attributable to the stockholders of the Company 61,412 23,343 121,999 53,443 Outstanding shares 144,177,500 144,177,500 144,177,500 144,177,500 Basic earnings per share - R$ 0.4259 0.1619 0.84617 0.37068 2Q 2015 2Q 2014 1H 2015 1H 2014 Profit attributable to the stockholders of the Company 61,412 23,343 121,999 53,443 Outstanding shares 144,529,806 144,177,500 144,529,806 144,177,500 Diluted earnings per share - R$ 0.4249 0.1619 0.84411 0.37068 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 40
20. SEGMENT REPORTING The Company discloses information by operating segment based on the information reported to management and utilized in decision-making, in order to allocate funds to the segments and to assess their performance, as described below: Automotive - Manufacture, to order, of cast and machined products, with significant technological content, such as powertrain (blocks and cylinder heads), brake, transmission, steering, axle and suspension components for the worldwide manufacturers of engines, passenger vehicles, commercial vehicles (trucks, buses, etc.), construction machines, tractors, agricultural machines and power generators. Hydraulics - Manufacture of flexible iron connections for the construction industry, iron and steel grits for the marble and granite processing industry and cast-iron shapes for general use. The following is information on each reported segment: a) Reconciliation of revenue, costs and expenses and profit Automotive Hydraulics Total 1H 2015 1H 2014 1H 2015 1H 2014 1H 2015 1H 2014 Net revenue (Note 14) 1,585,217 1,441,458 113,942 122,139 1,699,159 1,563,597 Costs and expenses, except depreciation (Note 15) (1,288,769) (1,237,001) (89,524) (81,448) (1,378,293) (1,318,449) Other operating expenses, net, except amortization of (437) (19,346) (30) (1,259) (467) (20,605) intangible assets and depreciation (Note 17) EBITDA (according to the methodology of CVM Instruction (527/12) 296,011 185,111 24,388 39,432 320,399 224,543 Depreciation and amortization (124,429) (105,426) (4,847) (4,027) (129,276) (109,453) Profit before finance results 171,582 79,685 19,541 35,405 191,123 115,090 Finance results (Note 16) 21,047 (24,825) Profit before taxation 212,170 90,265 Income tax and social contribution (Note 18) (90,171) (36,822) Profit for the period 121,999 53,443 Automotive Hydraulics Total 2Q 2015 2Q 2014 2Q 2015 2Q 2014 2Q 2015 2Q 2014 Net revenue (Note 14) 845,581 694,645 65,501 63,913 911,082 758,558 Costs and expenses, except depreciation (Note 15) (677,322) (608,604) (49,719) (38,229) (727,041) (646,833) Other operating expenses, net, except amortization of 891 (8,554) 56 (526) 947 (9,080) intangible assets and depreciation (Note 17) EBITDA (according to the methodology of CVM Instruction (527/12) 169,150 77,487 15,838 25,158 184,988 102,645 Depreciation and amortization (64,644) (52,812) (2,482) (2,021) (67,126) (54,833) Profit before finance results 104,506 24,675 13,356 23,137 117,862 47,812 Finance results (Note 16) (6,948) (8,231) Profit before taxation 110,914 39,581 Income tax and social contribution (Note 18) (49,502) (16,238) Profit for the period 61,412 23,343 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 41
b) Reconciliation of costs and expenses by segment Automotive Hydraulics Total 1H 2015 1H 2014 1H 2015 1H 2014 1H 2015 1H 2014 Raw and processing materials 648,695 676,269 38,112 36,323 686,807 712,592 Maintenance and consumption 114,524 101,432 7,841 6,603 122,365 108,035 materials Salaries and payroll taxes 294,632 278,147 20,171 18,106 314,803 296,253 Profit sharing 22,307 16,987 2,557 1,462 24,864 18,449 Social benefits 53,946 48,059 3,693 3,128 57,639 51,187 Electricity 86,716 50,882 5,937 3,777 92,653 54,659 Depreciation 89,655 76,059 4,847 4,027 94,502 80,086 Freight and commissions on sales 38,023 36,383 9,163 10,068 47,186 46,451 Management fees 5,027 4,761 344 310 5,371 5,071 Other costs 24,899 24,081 1,706 1,671 26,605 25,752 1,378,424 1,313,060 94,371 85,475 1,472,795 1,398,535 Automotive Hydraulics Total 2Q 2015 2Q 2014 2Q 2015 2Q 2014 2Q 2015 2Q 2014 Raw and processing materials 344,964 330,422 21,770 16,766 366,734 347,188 Maintenance and consumption 58,839 50,096 4,252 3,117 63,091 53,213 materials Salaries and payroll taxes 151,383 144,900 10,939 9,058 162,322 153,958 Profit sharing 12,985 7,057 1,429 681 14,414 7,738 Social benefits 27,605 25,643 1,995 1,606 29,600 27,249 Electricity 44,169 14,541 3,195 1,426 47,364 15,967 Depreciation 46,769 38,434 2,482 2,021 49,251 40,455 Freight and commissions on sales 20,398 18,080 4,922 4,899 25,320 22,979 Management fees 2,850 2,450 204 153 3,054 2,603 Other costs 14,129 15,415 1,013 523 15,142 15,938 724,091 647,038 52,201 40,250 776,292 687,288 c) Reconciliation of assets and liabilities Automotive Hydraulics Total ASSETS Jun/15 Dec/14 Jun/15 Dec/14 Jun/15 Dec/14 Trade receivable, net (Note 5) 474,340 380,656 48,915 43,159 523,255 423,815 Inventory (Note 6) 404,915 321,291 69,093 57,930 474,008 379,221 Third-party tools 115,997 120,762 56 1,087 116,053 121,849 Notes and other receivables 36,733 29,910 2,606 5,097 39,339 35,007 Property, plant and equipment (Note 13) 1,744,160 1,681,743 48,154 46,951 1,792,314 1,728,694 Intangible assets (Note 14) 559,289 513,829 - - 559,289 513,829 Other assets not allocated - - - - 1,852,820 1,760,515 Total consolidated assets 3,335,434 3,048,191 168,824 154,224 5,357,078 4,962,930 Automotive Hydraulics Total LIABILITIES Jun/15 Dec/14 Jun/15 Dec/14 Jun/15 Dec/14 Accounts payable 259,894 229,556 28,623 26,501 288,517 256,057 Taxes and contributions 45,441 37,041 366 2,273 45,807 39,314 Salaries, social security charges and profit 113,192 107,814 8,137 8,796 121,329 116,610 sharing Advances from customers 94,854 89,181 9,235 6,768 104,089 95,949 Notes and other payables 58,427 51,973 4,350 3,562 62,777 55,535 Deferred tax on intangible assets (Note 20) 134,210 123,388 - - 134,210 123,388 Other liabilities not allocated - - - - 2,361,289 2,243,703 Equity - - - - 2,239,060 2,032,374 Total consolidated liabilities 706,018 638,953 50,711 47,900 5,357,078 4,962,930 Segment-specific assets and liabilities are allocated directly to each segment, and criteria relating to the applicability and origin are used for common assets and liabilities. The Company does not allocate cash and cash equivalents, recoverable and deferred taxes, judicial and other deposits, and investments in All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 42
companies to the reporting segments, as they are not directly related to the operations. For the same reason, borrowings, dividends, provisions, deferred taxes and other long-term liabilities are also not allocated to the segments. d) Major customers accounting for over 10% of the Company's total revenue The Company has a diversified portfolio of local and foreign customers. The automotive segment has customers that individually account for more than 10% of consolidated revenues, as follows: Revenues 2Q 2015 % 2Q 2014 % 1H 2015 % 1H 2014 % Automotive 845,581 92.8 694,645 91.6 1,585,217 93.3 1,441,458 92.2 Customer A 181,888 20.0 141,080 18.6 337,938 19.9 293,906 18.8 Customer B 169,284 18.6 113,215 14.9 312,281 18.4 223,729 14.3 Customer C 86,612 9.5 82,600 10.9 169,192 10.0 173,042 11.1 Other customers 407,798 44.8 357,750 47.2 765,807 45.1 750,781 48.0 Hydraulics 65,501 7.2 63,913 8.4 113,942 6.7 122,139 7.8 Total revenues 911,082 100 758,558 100 1,699,159 100 1,563,597 100 The sales in the Hydraulics segment are diversified. e) Information on the countries from which the Company derives revenue The revenue derived from customers in Brazil and from customers in each foreign country and their respective shares in the Company's total revenue for the period, are as follows: 2Q 2015 % 2Q 2014 % 1H 2015 % 1H 2014 % North America 511,871 56.2 396,429 52.3 959,028 56.5 806,176 51.5 United States 320,855 35.2 223,570 29.5 588,848 34.7 455,032 29.1 Mexico 170,186 18.7 146,111 19.3 327,460 19.3 297,734 19.0 Canada 20,830 2.3 26,748 3.5 42,720 2.5 53,410 3.4 South and Central Americas 186,641 20.4 218,234 28.8 371,596 21.9 462,364 29.6 Brazil - head office 175,308 19.2 206,870 27.3 353,118 20.8 441,120 28.2 Other countries 11,333 1.2 11,364 1.5 18,478 1.1 21,244 1.4 Europe 166,642 18.2 109,017 14.4 290,029 16.9 223,153 14.3 United Kingdom 60,071 6.6 43,002 5.7 111,116 6.5 83,117 5.3 Hungary 55,724 6.1 22,476 3.0 82,140 4.8 41,859 2.7 Italy 26,748 2.9 14,673 1.9 46,054 2.7 26,232 1.7 France 5,474 0.6 7,509 1.0 17,796 1.0 24,965 1.6 Netherlands 10,349 1.1 8,529 1.1 17,762 1.0 21,907 1.4 Other countries 8,276 0.9 12,828 1.7 15,161 0.9 25,073 1.6 Asia, Africa and Oceania 45,928 5.2 34,878 4.5 78,506 4.7 71,904 4.6 South Africa 19,082 2.1 8,384 1.1 31,207 1.8 17,069 1.1 Japan 10,051 1.1 8,380 1.1 17,238 1.0 18,007 1.2 Other countries 16,794 2.0 18,114 2.3 30,060 1.9 36,828 2.3 Total 911,082 100.0 758,558 100.0 1,699,159 100.0 1,563,597 100.0 All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 43
21. FINANCIAL INSTRUMENTS Note Jun/15 Dec/14 Jun/15 Dec/14 Loans and receivables 1,312,953 1,281,058 1,972,267 1,835,652 Cash and cash equivalents 3 871,597 948,978 1,367,837 1,336,916 Trade receivables 4 373,497 264,175 523,255 423,815 Notes and other financial assets 67,859 67,905 81,175 74,921 Effect on the result of six months 48,664 25,848 48,787 25,828 Financial assets at fair value through profit or loss 113,584 110,212 118,222 114,218 Financial investments 10,876 10,365 10,876 10,365 Credits Eletrobras 102,170 99,327 102,170 99,327 Investments in equity instruments 538 520 5,176 4,526 Effect on the result of six months 4,645 5,077 4,645 5,077 Financial liabilities at amortized cost 2,549,664 2,370,342 2,629,102 2,454,989 Trade payables 183,692 157,892 288,517 256,057 Borrowings 10 2,276,363 2,138,592 2,268,497 2,131,502 Dividends and interest on capital 139 139 139 139 Notes payable and other financial liabilities 89,470 73,719 71,949 67,291 Effect on the result of six months (71,298) (44,429) (70,702) (44,429) Financial liabilities at fair value through profit or loss 1,445 3,139 1,445 3,139 Derivative financial instruments 22 1,445 3,139 1,445 3,139 Effect on the result of six months (107) 6,283 (107) 6,283 22. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGE OF NET INVESTMENT ABROAD a) Derivative financial instruments and Characteristic of the transaction Fair value Identification Exposure of the principal Hedge Reference value Maturity Jun/15 Dec/14 Transactions at fair value through profit or loss Interest rate swaps Fixed rate (contractual) CDI 200,000 July/15 (1,445) (3,139) (1,445) (3,139) Current liabilities (1,445) (3,139) (1,445) (3,139) At June 15, 2013, the Company had purchase an interest rate swap transaction to mitigate the fixed interest rate risk of BNDES EXIM PSI contracts (Nota 10), the notional value of the transaction is R$200,000 with maturity on July 15, 2015, which it receives 8% p.a. and pays the equivalent to 86.55% of the CDI rate. No collaterals were given for these derivative transactions. b) Hedge of net investment abroad With the objective of mitigating the effects of foreign exchange volatility on the results, the Company adopted the hedge of the net investment abroad on January 10, 2014, as presented in annual financial statement of year ended December 31, 2014 note 33.b. In June 30, 2015 the Company has export prepayment contracts amounting to US$456,143, equivalent to R$1,415,229 as hedge instruments for the investments in the subsidiaries in Mexico, Tupy México Saltillo, S.A. de C.V. and Technocast, S.A. de C.V., the functional currency of which is the U.S. Dollar (US$), All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 44
and which had net assets of US$488,092, equivalent to R$1,514,353, representing a 93.5% of effectiveness. In the period ended June 30, 2015, the Company recognized in carrying value adjustments, within equity, the loss of R$2212,875 (R$140,498 liquid of fiscal effects) arising from the conversion of the prepayment contracts designated as hedge instruments. As a result, the investments in Mexicans subsidiaries results in a gain of R$224.366. The net result was a gain of R$83.868. 23. FINANCIAL RISK MANAGEMENT 23.1 Financial risk factors The Company has a financial management policy, which determines limits of exposure to the financial risk factors (credit, liquidity and market) and provides guidance on the mechanisms that the Company can use to mitigate them, including the contracting of derivative financial instruments and the utilization of hedge accounting, as well as the forms of monitoring by management to verify the efficiency of the application of the financial management policy. 23.2 Credit risk Credit risk arises from cash and cash equivalents, derivative financial instruments and financial investments, as well as from credit exposure to customers, including outstanding trade receivables. The Company sets exposure limits for each customer to limit the credit risk of trade receivables and risks are managed according to specific credit rating criteria, which include an analysis of customers in accordance with their payment ability, indebtedness level, market behavior and history with the Company. Furthermore, the Company realizes quantitative and qualitative analyses of its portfolio of trade receivables in order to determine the provision for probable losses with receivables. At June 30, 2015, estimated losses on trade receivables amounted to R$1,997 (R$1,985 at December 31, 2014), representing 0.4% of the consolidated balance of outstanding receivables at that date (0.5% at December 31, 2014). The Company does not hold any credit guarantee to cover credit risks related to its financial assets. 23.3 Liquidity risk Liquidity risk is the risk that the Company will have difficulty complying with its obligations associated with financial liabilities that are to be settled in cash or other financial assets. The Company's approach to managing this risk is the maintenance of the minimum cash. Conform is determined in the financial management policy, which aims at ensuring that it has sufficient liquidity to settle its obligations without incurring losses or affecting its operations of the Company, this minimum cash amount corresponds to a three-month projection of: operating cash generation and investments in property, plant and equipment and intangible assets, plus the balance of the short-term borrowings, net of derivative instruments. Moreover, the Company manages its investment portfolio using criteria for concentration in financial institutions, in addition to global and local ratings. The contractual maturities of financial liabilities are as follows: All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 45
Contractual cash flows FINANCIAL LIABILITIES 6 months or less 6 to 12 months 1 to 2 years 2 to 5 years Over 5 years Total flow Borrowings 371,010 464,193 277,410 471,790 1,420,072 3,004,475 Derivative financial instruments 1,445 - - - - 1,445 Trade payables and notes and other 351,294 - - - - 351,294 payables Dividends payable 139 - - - - 139 723,888 464,193 277,410 471,790 1,420,072 3,357,353 The Company does not expect that the cash outflows, included in its maturity analyses, will occur significantly sooner or at amounts which are significantly different. Furthermore, the Company presents the generation of sufficient cash to cover future payment obligations. 23.4 Market risk Market risk is the risk of changes in the value of the Company's financial instruments as a result of changes in interest and foreign exchange rates and market prices. The objective of market risk management is to maintain exposure to market risks within acceptable levels, while optimizing returns. Interest rate risk This risk refers to the Company's financial investments and borrowings. The financial instruments with floating rates expose the Company to the cash flow variation risk, whereas the financial instruments with fixed rates expose the Company to the fair value risk. The Company can use derivative financial instruments, as follows: Note Jun/15 Dec/14 Floating-rate instruments 212,571 237,687 Financial assets 862,617 925,423 Financial liabilities 10 (450,046) (487,736) Derivative financial instruments - notional 22 (200,000) (200,000) Fixed-rate instruments (1,103,736) (1,025,295) Financial assets 514,715 418,471 Financial liabilities 10 (1,818,451) (1,643,766) Derivative financial instruments - notional 22 200,000 200,000 Sensitivity analysis of variations in floating interest rates The Company has financial investments and derivative financial instruments exposed to the CDI rate variation, as well as borrowings linked to the TJLP and LIBOR rates. The fluctuation in the interest rate may affect the Company's future results. Presented below are the impacts that would have been generated by changes in interest rates to which the Company is exposed. All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 46
Interest rate risk Scenarios - Normative Instruction 475 Floating-rate instruments Risk Disclosed Probable +25% +50% -25% -50% In Reais Investments Interest rate (CDI - % p.a.) 13.65 14.50 18.13 21.75 10.88 7.25 Financial assets 862,617 862,617 862,617 862,617 862,617 862,617 Potential impact - - 27,310 54,620 (28,203) (58,312) Borrowings Interest rate (TJLP - % p.a.) 6.00 7.00 8.75 10.50 5.25 3.50 Financial liabilities 114,453 114,453 114,453 114,453 114,453 114,453 Potential impact - - (1,872) (3,744) 1,903 3,870 Derivative financial instrument Interest rate (CDI - % p.a.) 13.65 14.50 18.13 21.75 10.88 7.25 Financial liabilities 200,000 200,000 200,000 200,000 200,000 200,000 Potential impact - - (6,332) (12,664) 6,539 13,520 In U.S. dollars Borrowings Interest rate (Libor - %) 0.45 0.71 0.89 1.07 0.53 0.36 Financial liabilities 335,593 335,593 335,593 335,593 335,593 335,593 Potential impact - - (591) (1,183) 593 1,187 Currency risk The Company is exposed to currency risk on sales, purchases and borrowings denominated in currencies other than the Company's functional currency, the Brazilian Real. The main currency in which these transactions are denominated is the U.S. Dollar. The Company manages its exposure to exchange rates through a combination of debts, financial investments, accounts receivable and export revenues in foreign currency, derivative transactions and hedge of the net investment abroad. The Company's exposure to foreign currency risk considering the subsidiaries that use the Real (R$) as its functional currency is as follows: Net exposure impacting the results Note Jun/15 Dec/14 Assets 266,626 202,319 Cash and cash equivalents abroad 18,729 30,830 Customers in the foreign market 247,897 171,489 Liabilities (153,475) (137,020) Borrowing in foreign currency 10 (1,484,400) (1,335,158) Hedge of net investment abroad 22 1,415,229 1,268,525 Other amounts (84,304) (70,387) (149,356) (137,020) Net exposure impacting the results In thousands of R$ 113,151 65,299 In thousands of US$ 36,470 24,584 Subsidiaries that use a functional currency other than the Brazilian real have limited exposure to the Mexican peso and the euro. Sensitivity analysis of foreign exchange exposure This analysis is based on the foreign exchange rate fluctuation, pursuant to CVM Normative Instruction 475, in which the risk variable is evaluated with a 25% and 50% fluctuation as compared to the probable scenario estimated by the Company. This analysis assumes that all other variables, especially the interest rates, will remain constant. All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 47
Scenarios - CVM Normative Instruction 475 Disclosed Probable +25% +50% -25% -50% U.S. Dollar rate 2.9936 3.20 4.00 4.80 2.40 1.60 Asset position 266,626 285,009 356,261 427,514 213,757 142,505 Liability position (153,475) (164,056) (205,070) (246,084) (123,042) (82,028) Net exposure (thousands of R$) 113,151 120,953 151,191 181,430 90,715 60,477 Net exposure (thousands of US$) 37,798 37,798 37,798 37,798 37,798 37,798 - Potential impact (thousands of R$) 7,802 38,040 68,279 (22,436) (52,674) Price risk This risk relates to the possibility of fluctuations in the market prices of the inputs used in the manufacturing process, especially scrap, pig iron, metal alloys, coke and electricity. These price fluctuations could have an impact on the Company's costs. The Company monitors these prices to pass on to customers any changes in its input prices. 23.5 Operating risk This risk arises from all of the Company's operations and can cause direct or indirect losses associated with a variety of factors, such as processes, personnel, technology, infrastructure and external factors. The Company's objective is to manage the operating risk to avoid losses and damages to its reputation, and to seek cost efficiency. The primary responsibility for developing and implementing operating risk controls is with a centralized area of internal controls reporting to senior management. 23.6 Capital management The Company's objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for its stockholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, management can make, or can propose to the stockholders, when their approval is required, adjustments to the amount of dividends paid to stockholders, return capital to stockholders, issue new shares or sell assets to reduce, for example, debt. The Company's management monitors the relation between the Company's own capital (equity) and third-party capital that the Company utilizes to finance its operations. To mitigate liquidity risks and optimize the average cost of capital, the Company monitors the compliance with financial ratios required under its borrowing agreements. The relation of own capital versus third-party capital, at the end of each period, was as follows: All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 48
Jun/15 Dec/14 Own capital 2,239,060 2,032,374 Equity 2,239,060 2,032,374 Third-party capital 1,750,181 1,593,640 Total current and non-current liabilities 3,118,018 2,930,556 Cash and cash equivalents (1,367,837) (1,336,916) Own capital versus third-party capital ratio 1.28 1.28 23.7 Fair value The carrying values of cash and cash equivalents and trade receivables and payables, less impairment provision in the case of trade receivables, are assumed to approximate their fair values. All financial instruments classified as financial assets and financial liabilities at fair value through profit or loss (Note 16) and the fair value of the borrowings disclosed in Note 10 are calculated by discounting the future contractual cash flows at the current market interest rate that is available to the Company for similar financial instruments. The valuations technique used by the Company are classified as Level 2 of the fair value hierarchy. The fair value of financial instruments that are not traded in an active market (Level 2) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on Company-specific estimates. 23.8 Credit quality of financial assets The credit quality of financial assets is assessed by reference to external credit ratings (if available) or according to historical information about counterparty default rates. Jun/15 Dec/14 Jun/15 Dec/14 Counterparties with external credit rating* Cash and cash equivalents 871,597 948,978 1,367,837 1,336,916 AAA 726,028 695,110 1,185,954 1,035,482 AA+ 145,565 253,842 158,644 285,568 A+ - 0 20,108 13,966 Other 4 25 3,131 1,900 Financial investments AA+ 10,876 10,365 10,876 10,365 Credits - Eletrobras BB 102,170 99,327 102,170 99,327 Trade receivables 373,497 264,175 523,255 423,815 Low risk 357,171 244,568 504,077 402,616 Moderate risk 15,131 18,421 17,982 20,013 High risk 1,195 1,186 1,196 1,186 Other financial assets 68,397 68,425 86,351 79,447 Total 1,426,537 1,391,270 2,090,489 1,949,870 (*) The Company considers, for classification of risk, the lowest rating between the rating agencies. All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 49
The risk assessment of trade receivables is as follows: Low risk - automotive segment customers, except those customers with a history of losses. Moderate risk - hydraulics segment customers, except those who already have a history of losses. High risk - customers with provisioned balances and historical losses. The other financial assets held by the Company are considered of high quality and do not present indications of losses. * * * All amounts in thousands of Reais unless otherwise stated. TUPY S.A. Quarterly Information 50
Report on review of quarterly information TUPY S.A. Quarterly Information 51
Tupy S.A. Quarterly Information (ITR) at June 30, 2015 and report on review of quarterly information
Report on review of quarterly information To the Board of Directors and Stockholders Tupy S.A. Introduction We have reviewed the accompanying parent company and consolidated interim accounting information of Tupy S.A. ("Company"), included in the Quarterly Information Form (ITR) for the quarter ended June 30, 2015, comprising the balance sheet at that date and the statements of income, comprehensive income for the quarter and six-month periods then ended, and the statements of changes in equity and cash flows for the six-months period then ended, and a summary of significant accounting policies and other explanatory information. Management is responsible for the preparation of the parent company and consolidated interim accounting information in accordance with the accounting standard CPC 21, Interim Financial Reporting, of the Brazilian Accounting Pronouncements Committee (CPC) and International Accounting Standard (IAS) 34, Interim Financial Reporting issued by the International Accounting Standards Board (IASB), as well as the presentation of this information in accordance with the standards issued by the Brazilian Securities Commission (CVM), applicable to the preparation of the Quarterly Information (ITR). Our responsibility is to express a conclusion on this interim accounting information based on our review. Scope of review We conducted our review in accordance with Brazilian and International Standards on Reviews of Interim Financial Information (NBC TR 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity and ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, respectively). A review of interim information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Brazilian and International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion on the interim information Based on our review, nothing has come to our attention that causes us to believe that the accompanying parent company and consolidated interim accounting information included in the quarterly information referred to above has not been prepared, in all material respects, in accordance with CPC 21 and IAS 34 applicable to the preparation of the Quarterly Information, and presented in accordance with the standards issued by the CVM. 2 PricewaterhouseCoopers Auditores Independentes, Avenida Rio Branco, 847, Salas 401, 402, 403 e 409, Florianópolis, SC, Brasil 88015-215T: (48) 3212-0200, F: (48) 3212-0210, www.pwc.com/br
Tupy S.A. Other matters Statements of value added We have also reviewed the parent company and consolidated statements of value added for the six-month period ended June 30, 2015. These statements are the responsibility of the Company's management, are required to be presented in accordance with standards issued by the CVM applicable to the preparation of Quarterly Information (ITR) and are considered supplementary information under IFRS, which do not require the presentation of the statement of value added. These statements have been submitted to the same review procedures described above and, based on our review, nothing has come to our attention that causes us to believe that they have not been prepared, in all material respects, in a manner consistent with the parent company and consolidated interim accounting information taken as a whole. Florianópolis, 12 August 2015 PricewaterhouseCoopers Auditores Independentes CRC 2SP000160/O-5 "F" SC Maurício Colombari Contador CRC 1SP195838/O-3 "S" SC 3