20-F 1 cbdform20f2008.htm FORM 20-F 2008 Provided by MZ Data Products
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

  FORM 20-F   
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   
  For the fiscal year ended: December 31, 2008   
  Commission file number: 1-14626   

COMPANHIA BRASILEIRA DE DISTRIBUIÇãO
(Exact name of Registrant as specified in its charter)
Brazilian Distribution Company
(Translation of Registrant’s Name into English)

Federative Republic of Brazil
(Jurisdiction of Incorporation)
Avenida Brigadeiro Luiz Antonio, no. 3,142
01402-901 São Paulo, SP, Brazil
(Address of Principal Executive Offices)
__________________________
Securities registered or to be registered pursuant to Section 12(b) of the Act:
  Title of Each Class  Name of Each Exchange on Which Registered:   
  Preferred Shares, without par value*  New York Stock Exchange**   
  American Depositary Shares (as evidenced by  New York Stock Exchange   
         American Depositary Receipts), each     
         Representing two Preferred Shares     
  ________________
*The Preferred Shares are non-voting, except under limited circumstances. 
  **Not for trading purposes, but only in connection with the listing on the New York Stock Exchange of American Depositary Shares representing those Preferred Shares. 
_____________________________

Securities registered or to be registered pursuant to Section 12(g) of the Act:
None.
_____________________________

Securities for which there is a reporting obligation
pursuant to Section 15(d) of the Act:
None.
_____________________________
The number of issued shares of each class of stock of COMPANHIA BRASILEIRA DE DISTRIBUIÇãO as of December 31, 2008 was:
99,679,851 Common Shares, no par value per share
135,569,492 Preferred Shares, no par value per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
  Yes   No
 If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
  Yes   No
Note—Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes      No     
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
  Large Accelerated Filer      Accelerated Filer Non-accelerated Filer     

 

U.S. GAAP   International Financial Reporting Standards as issued by the International Accounting Standards Board Other

Indicate by check mark which financial statement item the registrant has elected to follow.

Item 17      Item 18     
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
  Yes   No

TABLE OF CONTENTS

        Page 
PART I          
ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS    4 
ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE    4 
ITEM 3.    KEY INFORMATION    4 
3A.    Selected Financial Data    4 
3B.    Capitalization and Indebtedness    8 
3C.    Reasons for the Offer and Use of Proceeds    8 
3D.    Risk Factors    9 
ITEM 4.    INFORMATION ON THE COMPANY    12 
4A.    History and Recent Development of the Company    12 
4B.    Business Overview    16 
4C.    Organizational Structure    27 
4D.    Property, Plants and Equipment    27 
ITEM 4A.    UNRESOLVED STAFF COMMENTS    28 
ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS    28 
5A.    Operating Results    28 
5B.    Liquidity and Capital Resources    39 
5C.    Research and Development, Patents and Licenses, Etc.    42 
5D.    Trend Information    42 
5E.    Off-balance sheet arrangements    42 
5F.    Tabular disclosure of contractual obligations    42 
ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES    43 
6A.    Directors and Senior Management    43 
6B.    Compensation    46 
6C.    Board Practices    48 
6D.    Employees    52 
6E.    Share Ownership    53 
ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS    54 
7A.    Major Shareholders    54 
7B.    Related Party Transactions    58 
7C.    Interests of Experts and Counsel    58 
ITEM 8.    FINANCIAL INFORMATION    59 
8A.    Consolidated Statements and Other Financial Information    59 
8B.    Significant Changes    62 
ITEM 9.    THE OFFER AND LISTING    62 
9A.    Offer and Listing Details    62 
9B.    Plan of Distribution    64 
9C.    Markets    64 
9D.    Selling Shareholders    66 
9E.    Dilution    66 
9F.    Expenses of the Issue    66 
ITEM 10.    ADDITIONAL INFORMATION    66 
10A.    Share Capital    66 
10B.    Memorandum and Articles of Association    67 
10C.    Material Contracts    78 
10D.    Exchange Controls    80 
10E.    Taxation    81 
10F.    Dividends and Paying Agents    87 
10G.    Statement by Experts    87 
10H.    Documents on Display    87 
10I.    Subsidiary Information    87 
ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    88 
ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES    91 
ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES    91 

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ITEM 14.    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS   
91 
ITEM 15.    CONTROLS AND PROCEDURES    91 
ITEM 16.    [RESERVED]    92 
16A.    Audit Committee Financial Expert    92 
16B.    Code of Ethics    92 
16C.    Principal Accountant Fees and Services    92 
16D.    Exemptions from the Listing Standards for Audit Committees    93 
16E.    Purchases of Equity Securities by the Issuer and Affiliated Purchasers    93 
16F.    Change in Registrant’s Certifying Accountant    93 
16G.    Corporate Governance    93 
ITEM 17.    FINANCIAL STATEMENTS    96 
ITEM 18.    FINANCIAL STATEMENTS    96 
ITEM 19.    EXHIBITS    96 

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INTRODUCTION

     All references in this annual report to (i) “CBD,” “we,” “us,” “our” or “Company” are references to Companhia Brasileira de Distribuição and its consolidated subsidiaries, (ii) the “Brazilian government” are references to the federal government of the Federative Republic of Brazil, or Brazil, and (iii) “preferred shares” and “common shares” are references to our authorized and outstanding shares of non-voting preferred stock, designated as ações preferenciais, and common stock, designated as ações ordinárias, respectively, in each case without par value. All references to “ADSs” are to American depositary shares, each representing two preferred shares. All references herein to the “real,” “reais” or “R$” are to Brazilian reais, the official currency of Brazil. All references to “U.S.$,” “dollars” or “U.S. dollars” are to United States dollars.

     At June 9, 2009, the commercial selling rate for purchasing U.S. dollars was R$1.9385 to U.S.$ 1.00.

     We have prepared our consolidated financial statements included in this annual report in conformity with accounting practices adopted in Brazil, or Brazilian GAAP, which are based on:

  • Brazilian Law No. 6,404/76 dated December 15, 1976 as amended by Law No. 11,638 dated December 28, 2007, or the Brazilian Corporation Law;

  • the rules and regulations of the Brazilian Securities Commission, or Comissão de Valores Mobiliários, or CVM; and

  • the accounting standards issued by the Brazilian Institute of Independent Accountants (Instituto dos Auditores Independentes do Brasil or IBRACON) and the Brazilian Committee on Accounting Pronouncements, or “CPC”.

     These financial statements are prepared in accordance with Brazilian GAAP and include a reconciliation to U.S. GAAP.

     Brazilian GAAP differs in significant respects from accounting principles generally accepted in the United States, or U.S. GAAP. For more information about the differences between Brazilian GAAP and U.S. GAAP and a reconciliation of our net income and shareholders’ equity from Brazilian GAAP to U.S. GAAP, see note 26 to our consolidated financial statements. The financial information contained in this annual report is in accordance with Brazilian GAAP, except as otherwise noted.

FORWARD-LOOKING STATEMENTS

     This annual report includes forward-looking statements, principally in “Item 3D — Key Information — Risk Factors”, “Item 4B — Information on the Company — Business Overview” and “Item 5 — Operating and Financial Review and Prospects”. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends affecting our business. These forward-looking statements are subject to risks, uncertainties and assumptions including, among other things:

  • the effects of the global financial and economic crisis in Brazil,

  • our ability to sustain or improve our performance,

  • competition in the Brazilian retail food industry,

  • government regulation and tax matters,

  • adverse legal or regulatory disputes or proceedings,

  • credit and other risks of lending and investment activities, and

  • other risk factors as set forth under “Item 3D. Key Information — Risk Factors.”

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     The words “believe”, “may”, “will”, “estimate”, “continue”, “anticipate”, “intend”, “expect” and similar words are intended to identify forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements because of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

     Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.

ITEM 3. KEY INFORMATION

     3A. Selected Financial Data

     The following table presents selected financial data as of the dates and for each of the periods indicated. The selected financial data at December 31, 2008 and 2007 and for each of the three years ended December 31, 2008, 2007 and 2006 have been derived from our consolidated financial statements prepared under Brazilian GAAP. The selected financial data at December 31, 2006, 2005 and 2004 and for each of the two years ended December 31, 2005 and 2004 have been derived from our consolidated financial statements prepared under Brazilian GAAP that are not included in this annual report.

     On December 28, 2007, Law No. 11,638/07 was enacted, amended by a number of new laws and rules. The new rules modified and introduced changes to Brazilian corporate law. The main purpose of the changes was to update Brazilian corporate law and harmonize Brazilian GAAP with IFRS. We had to comply with the new legal requirements for financial statements starting in 2008. In addition, we elected to apply these new rules retroactively to our financial statements with an effective date as of January 1, 2007 pursuant to CVM Resolution No. 565 to make them comparable to our financial information for 2008. As a result, certain adjustments have been made to our financial statements for 2007. We have elected not to restate our financial statements for fiscal years prior to 2007 and, consequently, the financial information prior to 2007 is only to a limited extent comparable to the financial information for 2007 and 2008. Please see note 2 (c) to our financial statements for 2008 included in this annual report for a qualitative and quantitative analysis of the changes resulting from the new accounting criteria.

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    At and for the Year Ended December 31, 
   
        (restated)   (not restated)   (not restated)   (not restated)
    2008(1) (5)   2007(1) (5)   2006(1) (5)   2005(1) (5)   2004(1) (5)
           
Statement of operations data 
                   
Brazilian GAAP:                     
Net sales revenue    18,033.1    14,902.9    13,880.4    13,413.4    12,565.0 
Cost of sales    (13,279.5)   (10,724.5)   (9,963.0)   (9,438.1)   (8,891.5)
           
Gross profit    4,753.6    4,178.4    3,917.4    3,975.3    3,673.5 
Selling, general and administrative expenses    (3,431.1)   (3,186.0)   (3,031.0)   (2,868.8)   (2,690.1)
Depreciation and amortization    (604.7)   (546.6)   (547.9)   (625.3)   (489.6)
Financial income    291.5    299.7    382.8    446.7    330.3 
Financial expenses    (608.3)   (501.6)   (603.4)   (683.5)   (618.3)
Equity results    2.9    (28.9)   (53.2)   (16.2)   5.3 
           
Operating income    403.9    215.0    64.7    228.2    211.1 
Operating income (expense), net    (10.9)   (9.1)   (323.2)   32.1    80.3 
Income (loss) before income taxes    393.0    205.9    (258.5)   260.3    291.4 
Income tax (expense) benefit:                     
         Current    (144.3)   (49.7)   (92.2)   (133.9)   (39.0)
         Deferred    33.3    36.2    90.7    80.9    88.5 
Employee profit sharing    (22.2)   (13.4)   (13.4)   (14.5)   (14.3)
Minority interest    0.7    6.7    359.0    64.2    43.2 
           
Net income    260.5    185.7    85.6    257.0    369.8 
 
Number of shares outstanding at year end(1)                    
         Preferred shares    135,569    128,240    127,863    127,656    100,103 
         Common shares    99,680    99,680    99,680    99,680    126,942 
 
Net income per share at year end (2)   1.11    0.81    0.38    1.13    1.63 
 
U.S. GAAP:                     
Net income    309.1    270.4    14.5    270.6    488.9 
 
Basic earnings per share (2)(3)                    
         Preferred    1.35    0.66    0.07    1.25    2.27 
         Common    1.25    0.60    0.06    1.13    2.06 
Diluted earnings per share (2)(3)                    
         Preferred    1.35    0.66    0.07    1.24    2.27 
         Common    1.25    0.60    0.06    1.13    2.06 
 
Basic earnings (loss) per ADS (2)   1.35    0.66    0.07    1.25    2.27 
Diluted earnings (loss) per ADS (2)   1.35    0.66    0.07    1.24    2.27 
 
Weighted average number of shares outstanding (1)                    
         Preferred    132,170    128,010    127,807    118,117    100,065 
         Common    99,680    99,680    99,680    108,941    126,942 
           
Total    231,850    227,690    227,487    227,058    227,007 
 
Dividends declared and interest on shareholders’ equity                     
per share(1)(3)(4)                    
         Preferred    0.28    0.23    0.09    0.29    0.41 
         Common    0.25    0.21    0.08    0.26    0.38 
Dividends declared and interest on shareholders’ equity per ADS(1)(3)(4)   0.28    0.23    0.09    0.29    0.41 
 
Balance sheet data                     
Brazilian GAAP:                     
Cash and cash equivalents    1,625.6    1,064.1    1,281.5    1,710.8    1,179.5 
Property and equipment, net    4,859.5    4,891.1    4,241.0    3,861.7    4,425.4 
Total assets    13,546.2    12,750.3    11,672.3    10,923.2    11,040.2 
Short-term debt (including current portion of long-term debt)   337.4    1,470.3    1,286.1    440.6    1,304.3 
Long-term debt    3,078.1    1,747.8    1,382.2    2,353.9    1,400.5 
Shareholders’ equity    5,407.7    4,949.7    4,842.1    4,252.4    4,051.0 
Capital stock    4,450.7    4,149.9    3,954.6    3,680.2    3,509.4 

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    At and for the Year Ended December 31, 
   
        (restated)   (not restated)   (not restated)   (not restated)
    2008(1) (5)   2007(1) (5)   2006(1) (5)   2005(1) (5)   2004(1) (5)
           
U.S. GAAP:                     
Total assets    13,574.2    12,536.8    11,225.0    10,513.7    9,396.4 
Shareholders’ equity    5,272.9    4,766.6    4,658.0    4,148.0    3,922.5 
 
Other financial information                     
Brazilian GAAP:                     
Net cash provided by (used in):                     
         Operating activities    1,241.0    976.8    937.6    1,063.5    406.5 
         Investing activities    (484.7)   (1,265.1)   (918.4)   62.2    (133.2)
         Financing activities    (194.7)   71.0    (448.5)   (594.3)   (148.7)
         Capital expenditures    (517.1)   (1,293.9)   (902.2)   (899.6)   (559.4)

___________________
(1) The 500:1 reverse stock split that became effective on September 1, 2007. In order to facilitate the comparison of the per share information in all periods presented, we restated our financial statements for the years ended December 31, 2004 to 2007 to take into account the 500:1 stock split as if it had already occurred on January 1, 2004.

(2) Net income per share or ADS under Brazilian GAAP is based on shares outstanding at the end of each year. Earnings per share or ADS under U.S. GAAP are based on the weighted average number of shares outstanding during each period. Per share or ADS data takes into account the 500:1 reverse stock split that became effective on September 1, 2007. In order to facilitate the comparison of the per share information in all periods presented, we restated our financial statements for the years ended December 31, 2004 to 2007 to take into account the 500:1 stock split as if it had already occurred on January 1, 2004.

(3) In accordance with Brazilian Corporation Law, we can distribute a notional, tax-deductible interest charge attributable to shareholders’ equity as an alternative form of payment to shareholders. A dividend of R$0.27 per preferred share and R$0.25 per common share was approved and declared at our general shareholders’ meeting held on April 30, 2009 and was paid on June 10, 2009. Dividends declared and interest on shareholders’ equity per preferred share, per common share and per ADS, were U.S.$0.12, U.S.$0.11 and U.S.$0.12, respectively. The payments were translated into U.S. dollars using the exchange rate at December 31, 2008 of R$2.3370 per U.S.$1.00 and take into account the 500:1 reverse stock split that became effective on September 1, 2007.

(4) Each preferred share received a dividend 10% higher than the dividend paid to each common share. See “Item 8A — Financial Information — Consolidated Statements and Other Financial Information — Dividend Policy and Dividends.”

(5) The financial information for 2007 and 2008 was calculated based on the new rules introduced by Law No. 11,638/07. The new rules were not applied for the preparation of the financial information prior to 2007. Consequently, the financial information for 2007 and 2008 is only to a limited extent comparable to the financial information for the years prior to 2007. Please see note 2 (c) to our financial statements for 2008 included in this annual report for a qualitative and quantitative analysis of the changes resulting from the new accounting criteria.

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    At and for the Year Ended December 31, 
   
    2008    2007    2006    2005    2004 
           
 
    (millions of reais, except as indicated)
 
Operating Data                     
Employees at end of period    70,656    66,165    63,607    62,803    63,484 
Total square meters of selling area at end of period    1,360,706    1,338,329    1,217,984    1,206,254    1,144,749 
Number of stores at end of period:                     
Pão de Açúcar    145    153    164    185    196 
CompreBem    165    178    186    176    165 
Extra (1)   139    125    87    79    72 
Extra Eletro    47    42    50    50    55 
Assai (2)   28    15       
Sendas (3)   73    62    62    66    63 
Total number of stores at end of period    597    575    549    556    551 
 
Net sales revenues per employee (4):                     
Pão de Açúcar    R$ 229,131    R$ 220,827    R$ 220,246    R$ 222,565    R$ 214,883 
CompreBem    325,737    299,372    270,280    255.681    224,435 
Extra (1)   339,614    311,826    273,978    280.753    273,659 
Extra Eletro    409,722    399,083    446,178    408,056    380,098 
Assai (2)(6)   437,538    423,158       
Sendas (3)   244,060    235,897    252,224    195,347    150,098 
Total net sales revenues per employee    R$ 297,550    R$ 286,662    R$ 259,467    R$ 252,186    R$ 234,423 
 
Net sales revenues by store format:                     
Pão de Açúcar    R$ 3,379    R$ 3,149    R$ 3,092    R$ 3,245    R$ 3,315 
CompreBem    2,573    2,477    2,278    2,194    2,016 
Extra (1)   9,120    7,665    7,050    6,532    5,996 
Extra Eletro    295    261    286    233    240 
Assai (2)   1,269    201       
Sendas (3)   1,397    1,150    1,174    1,209    998 
Total net sales    R$ 18,033    R$ 14,903    R$ 13,880    R$ 13,413    R$ 12,565 
 
Average monthly net sales revenue per square meter (5):                     
Pão de Açúcar    R$ 1,481.5    R$ 1,296.2    R$ 1,163.7    R$ 1,094.1    R$ 1,033.8 
CompreBem    1,085.4    912.2    841.0    852.4    834.3 
Extra (1)   1,025.3    868.7    933.0    921.2    951.9 
Extra Eletro    881.1    787.7    706.9    575.9    559.2 
Assai (2)(6)   2,486.1    2,461.2       
Sendas (3)   897.1    905.8    911.0    839.7    745.3 
CBD average monthly net sales revenue per square meter    R$ 1,104.4    R$ 990.5    R$ 949.7    R$ 856.7    R$ 917.8 
 
Average ticket amount:                     
Pão de Açúcar    R$ 26.1    R$ 23.2    R$ 21.5    R$ 20.5    R$ 19.2 
CompreBem    19.3    18.0    16.7    16.0    14.9 
Extra (1)   43.7    41.5    41.6    40.2    39.1 
Extra Eletro    299.1    303.2    310.5    283.5    261.9 
Sendas (3)   21.9    19.9    19.0    18.8    18.0 
Assai (6)   78.9                 
CBD average ticket amount    R$ 32.6    R$ 28.8    R$ 27.1    R$ 25.7    R$ 24.3 
 
Average number of tickets per month:                     
Pão de Açúcar    10,769,076    11,324,400    11,978,947    13,189,705    14,356,288 
CompreBem    11,128,328    11,464,794    11,344,846    11,415,478    11,284,705 
Extra (1)   17,406,079    15,373,736    14,123,289    13,538,497    12,779,828 
Extra Eletro    82,185    71,729    76,762    68,497    76,366 
Sendas (3)   5,315,750    4,827,581    5,138,482    5,348,968    4,619,534 
Assai (2)(6)   1,340,148         
CBD average number of tickets per month    46,041,566    43,062,240    42,662,326    43,561,146    43,116,721 

__________________
(1) Includes 32 Extra Fácil convenience stores and 5 Extra Perto supermarket stores.
(2) We acquired Assai, our cash and carry format, in November, 2007.
(3) Sendas stores, which are part of Sendas Distribuidora.
(4) Based on the average of the full-time equivalent number of employees calculated by dividing the total number of hours worked by all employees at the end of each month in the period presented by 220 hours.

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(5) Calculated using the average of square meters of selling area on the last day of each of the months in the period.
(6) In 2008, the figure was calculated based on the Assai stores with at least 12 months of operation under the Assai banner.

Exchange Rates

     The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

      From March 1995 through January 1999, the Central Bank of Brazil (Banco Central do Brasil), or the Central Bank allowed the gradual devaluation of the real against the U.S. dollar under an exchange rate policy that established a band within which the real/U.S. dollar exchange rate could fluctuate. Since January 1999, the Central Bank of Brazil has allowed the real/U.S. dollar exchange rate to float freely, and, since then, the real/U.S. dollar exchange rate has fluctuated considerably. Since the beginning of 2001, the Brazilian exchange market has been increasingly volatile, and, until early 2003, the value of the real declined relative to the U.S. dollar. The real appreciated against the U.S. dollar from 2003 to mid 2008 and depreciated in second half of 2008. On December 31, 2008, the exchange rate for U.S. dollars was R$2.337 per U.S.$1.00. In the past, the Central Bank has intervened occasionally to control unstable movements in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian government will continue to allow the real float freely or will intervene in the exchange rate market through the return of a currency band system or otherwise. The real may depreciate or appreciate against the U.S. dollar substantially in the future. For more information on these risks, see “Item 3D. Key Information – Risk Factors—Risks Relating to Brazil.”

     The following tables set forth the commercial selling rate, expressed in reais per U.S. dollar (R$/U.S.$), for the periods indicated.

    Exchange Rate of Brazilian Currency per U.S.$1.00 
   
Year     Low    High    Average(1)   Year-End 
       
2004    2.6544     3.2051     2.9171    2.6544 
2005    2.1633     2.7621     2.4125    2.3407 
2006    2.0586     2.3711     2.1770    2.1380 
2007    1.7325    2.1556     1.9483    1.7713 
2008    1.5593    2.5004     1.8375    2.3370 
 
    Exchange Rate of Brazilian Currency per U.S.$1.00 
   
Month     Low    High    Average(1)   Year-End 
       
December 2008     2.3370    2.5004     2.3944    2.3370 
January 2009     2.1889    2.3803     2.3074    2.3162 
February 2009     2.2446    2.3916     2.3127    2.3784 
March 2009     2.2375    2.4218     2.3138    2.3152 
April 2009     2.1699    2.2899     2.2059    2.1783 
May 2009    1.9730     2.1476     2.0609    1.9730 
June 2009 (through June 9)    1.9370    1.9704     1.9504    1.9385 

________________
Source: Central Bank
(1) Represents the average of the exchange rates of each trading date.

     3B. Capitalization and Indebtedness

     Not applicable.

     3C. Reasons for the Offer and Use of Proceeds

     Not applicable.

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     3D. Risk Factors

     This section is intended to be a summary of more detailed discussions contained elsewhere in this document. The risks described below are not the only ones we face. Additional risks may impair our business operations. Our business, results of operations or financial condition could be harmed if any of these risks materializes and, as a result, the trading price of the ADSs could decline.

Risks Relating to Brazil

     The Brazilian government has exercised, and continues to exercise, significant influence over the Brazilian economy. This involvement, as well as Brazilian political and economic conditions, may adversely affect us and the market price of the preferred shares and the ADSs.

     The Brazilian government frequently intervenes in the Brazilian economy and occasionally makes significant changes in policies and regulations. The Brazilian government’s actions to control inflation and other policies and regulations have often involved, among other measures, increases in interest rates, changes in tax policies, price controls, currency devaluations, capital controls and limits on imports. We may be adversely affected by changes in policies or regulations involving or affecting factors, such as:

  • interest rates;

  • monetary policy;

  • exchange controls and restrictions on remittances outside Brazil;

  • currency fluctuations;

  • inflation;

  • liquidity of the domestic capital and lending markets;

  • tax and regulatory policies; and

  • other political, social and economic developments in or affecting Brazil.

     Although the Brazilian government has implemented sound economic policies over the last few years, uncertainty over whether the Brazilian government will implement changes in policies or regulations affecting these or other factors in the future may contribute to economic uncertainty in Brazil and to heightened volatility in the Brazilian securities markets and securities issued abroad by Brazilian issuers.

     Brazilian government efforts to combat inflation may hinder the growth of the Brazilian economy and could harm us and the market price of our preferred shares and the ADSs.

     Brazil has in the past experienced extremely high rates of inflation and therefore followed monetary policies that have resulted in one of the highest real interest rates in the world. According to General Market Price Index (Índice Geral de Preços do Mercado), or IGP-M, the inflation rates for 2004, 2005, 2006, 2007 and 2008 were 12.4%, 1.2%, 3.8%, 7.7% and 9.8%, respectively. Between 2004 and 2008, the base interest rate (SELIC) in Brazil varied between 17.75% per year and 13.75% per year.

     The Brazilian government’s measures to combat inflation, principally through the Central Bank, and public speculation about possible future government measures to combat inflation have had and may have significant effects on the Brazilian economy and our business, contributing to economic uncertainty and weaken investors’ confidence in Brazil. The Brazilian government’s measures to control inflation have often included maintaining a tight monetary policy with high interest rates and high compulsory deposit requirements, thereby restricting Brazil’s growth and the availability of credit.

     Conversely, more lenient government and Central Bank policies and interest rate decreases may trigger increases in inflation, and consequently, growth volatility and the need for sudden and significant interest rate increases. If Brazil experiences high inflation in the future, we may not be able to adjust the rates we charge our customers to offset the effects of inflation on our cost structure. Inflationary pressures may also hinder our ability to access foreign financial markets or lead to government policies to combat inflation that could harm our business or adversely affect the market price of our preferred shares and, as a result, the ADSs.

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     Exchange rate instability may adversely affect the Brazilian economy, our business and the market price of our preferred shares and the ADSs.

     During the last decades, the Brazilian currency has experienced frequent and substantial variations in relation to the U.S. dollar and other foreign currencies. Between 2000 and 2002, the real depreciated significantly against the U.S. dollar, reaching an exchange rate of R$3.53 per US$1.00 at the end of 2002. Between 2003 and mid-2008, the real appreciated significantly against the U.S. dollar due to the stabilization of the macro-economic environment and a strong increase in foreign investment in Brazil, with exchange rate reaching R$1.63 per US$1.00 in August 2008. In the context of the crisis in the global financial markets since mid-2008, the real depreciated 31.3% against the U.S. dollar over the year 2008. On June 9, 2009, the exchange rate was R$1.9385 per US$1.00. See “Item 3A – Key Information – Selected Financial Data – Exchange Rates” for more information on exchange rates.

     Depreciation of the real against the U.S. dollar could create inflationary pressures in Brazil and cause increases in interest rates, which could negatively affect the growth of the Brazilian economy as a whole and result in a material adverse effect on us. Depreciation would also reduce the U.S. dollar value of distributions and dividends and the U.S. dollar equivalent of the market price of our preferred shares and the ADSs.

     Developments and the perception of risk in other countries, especially in the United States and in emerging market countries, may adversely affect our business and the market price of Brazilian securities, including our preferred shares and the ADSs.

     The market price of securities of Brazilian issuers is affected by economic and market conditions in other countries, including the United States and other Latin American and emerging market countries.

     Although economic conditions in those countries may differ significantly from economic conditions in Brazil, investors’ reactions to developments in these other countries may have an adverse effect on the market price of securities of Brazilian issuers. Crises in other emerging market countries may diminish investor interest in securities of Brazilian issuers, including our preferred shares. This could adversely affect the market price of our preferred shares, and the ADSs, and could also make it more difficult for us to gain access to the capital markets and finance our operations on acceptable terms, or at all.

     The global financial crisis has had significant consequences, including in Brazil, such as stock and credit market volatility, unavailability of credit, higher interest rates, a general economic slowdown, volatile exchange rates and inflationary pressure, among others, which have and may continue to, directly or indirectly, adversely affect our operating results, financial position and the market price of our preferred shares and the ADSs.

Risks Relating to the Food Retail Industry and Us

     We face significant competition, which may adversely affect our market share and net income.

     The food retail industry in Brazil, including the cash and carry segment (atacarejo), a wholesale format in the retail food sector, is highly competitive. We face intense competition from small food retailers that often benefit from inefficiencies in the Brazilian tax collection system. These small food retailers also frequently have access to merchandise from irregular and informal distribution channels at lower prices than those charged by manufacturers and stores in the conventional supply chain of the organized retail food sector. In addition, in our markets, and particularly in the São Paulo City area, we compete with a number of large multinational retail food and general merchandise and cash and carry chains, as well as local supermarkets and independent grocery stores. Some of these international competitors have greater financial resources than we have. Acquisitions or consolidations within the industry may also increase competition and adversely affect our market share and net income.

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     We are co-controlled by two groups of shareholders.

     The Diniz group and the Casino group share our control through a holding company that owns 65.6% of our voting shares. This holding company is also referred to herein as the Holding Company. See “Item 7A. Major Shareholders and Related Party Transactions—Major Shareholders.” Consequently, our two indirect co-controlling shareholders have the power to control our company, including the power to:

  • appoint the members to our board of directors, who, in turn, name our executive officers,

  • determine the outcome of any action requiring shareholder approval, including the timing and payment of any future dividends, and

  • transfer our control.

     Mr. Abilio Diniz has been Chairman of both the Holding Company and us since 2003. Although in accordance with the terms of our shareholders’ agreements, we anticipate that Mr. Diniz will remain Chairman of the Holding Company and us until 2012, thereby retaining decision-making powers in the ordinary course of business, the co-control of our Company could result in deadlocks with respect to certain important issues. For additional information on shared decision-making, see “Item 7A. Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Transactions.”

     We engage in, and expect from time to time in the future to engage in, commercial and financial transactions with our controlling shareholders or their affiliates. Neither the Casino group nor the Diniz group can enter into transactions with us without the approval of the other.

     Our operations are subject to environmental risks.

     We are subject to a number of different national, state and municipal laws and regulations relating to the preservation and protection of the environment and specially related to our gas stations. Among other obligations, these laws and regulations establish environmental licensing requirements and standards for the release of effluents, gaseous emissions, management of solid waste and specially protected areas. Costs are incurred for prevention, control, reduction or elimination of releases into the air, ground and water at our gas stations, as well as in the disposal and handling of wastes at our stores and distribution centers. A violation of applicable environmental laws may subject us to administrative and criminal sanctions, in addition to the obligation to repair or indemnify the damages caused to the environment and third parties. The increase in environmental protection and control costs related to our gas station operation and other potentially polluting activities could adversely affect us and the market value of our preferred shares and the ADSs.

Risks Relating to the Preferred Shares and ADSs

     If you exchange the ADSs for preferred shares, as a result of Brazilian regulations you may risk losing the ability to remit foreign currency abroad.

     The Brazilian custodian for the preferred shares must register with the Central Bank of Brazil to remit U.S. dollars abroad. If you decide to exchange your ADSs for the underlying preferred shares, you will be entitled to continue to rely, for five business days from the date of the exchange, on the custodian’s registration. Thereafter, you may not be able to obtain and remit U.S. dollars abroad unless you obtain your own registration. Obtaining your own registration will result in expenses and may cause you to suffer delays in receiving distributions. See “Item 10D. Additional Information—Exchange Controls.”

     You might be unable to exercise preemptive rights with respect to the preferred shares underlying the ADSs.

     You will not be able to exercise the preemptive rights relating to the preferred shares underlying your ADSs unless a registration statement under the Securities Act of 1933 is effective with respect to those rights, or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement or to take any action to make preemptive rights available to holders of ADSs. Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the depositary or, if the preemptive rights cannot be sold, they will lapse and you will not receive any value for them.

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     The relative volatility and illiquidity of the Brazilian securities markets may substantially limit your ability to sell the preferred shares underlying the ADSs at the price and time you desire.

     Investing in securities that trade in emerging markets, such as Brazil, often involves greater risk than investing in securities of issuers in more developed markets, and such investments are generally considered to be more speculative in nature. The Brazilian securities market is substantially smaller, less liquid, more concentrated and can be more volatile than more developed securities markets. Accordingly, although you are entitled to withdraw the preferred shares underlying the ADSs from the depositary at any time, your ability to sell the preferred shares underlying the ADSs at a price and time at which you wish to do so may be substantially limited. There is also significantly greater concentration in the Brazilian securities market than in more developed securities markets. The top ten stocks in terms of trading volume accounted for approximately, 70%, 50% and -53% of all shares traded on the BOVESPA in 2006, 2007 and 2008, respectively.

ITEM 4. INFORMATION ON THE COMPANY

     4A. History and Recent Development of the Company

     We were incorporated in Brazil under Brazilian law on November 10, 1981 as Companhia Brasileira de Distribuição for an indefinite period of time. Our principal executive offices are located at Avenida Brigadeiro Luis Antonio, 3,142, CEP 01402-901 São Paulo, SP, Brazil (telephone: 55-11-3886-0421). Our agent for service of process in the United States is CT Corporation, 1633 Broadway, New York, New York, 10019.

     We have been a pioneer in the Brazilian retail food industry, opening our first store, a pastry shop, in 1948 in São Paulo City under the name Pão de Açúcar. We established one of the first supermarket chains in Brazil, opening our first supermarket in 1959, and opened the first hypermarket in Brazil in 1971.

     Brazilian economic reforms implemented in 1994, including the introduction of the real as the Brazilian currency and the drastic reduction of inflation rates, resulted in an unprecedented growth in local consumer markets. It has been estimated that more than 19 million people gained access to consumer goods markets for the first time after 1994, as Brazilians, predominantly in lower and middle-income households, generally experienced real income gains. This increase in available income and the resulting increase in consumer confidence broadened our potential customer base and provided us with growth opportunities.

     We responded to these changes by strengthening our capital structure, increasing our logistics and technology investments and implementing an expansion strategy focused on the different consumer preferences of the Brazilian population. To support our expansion strategy, consisting of acquisitions and organic growth, we defined the format of our stores in terms of the expectations, consumption patterns and purchasing power of the different income levels in Brazil. In order to implement such strategy and to increase our market share, over the last few years we acquired important supermarket chains such as Coopercitrus, Lourenção, Barateiro (we operate these stores under the CompreBem banner), Peralta, Paes Mendonça, ABC Supermercados, Sé Supermercados and other small chains, such as São Luiz, Nagumo and Rosado.

     In December 2003, we entered into an association called Sendas Distribuidora S.A., or the Sendas Association, with Sendas S.A. (of which we currently hold 57.4%) and investment funds of the AIG Group in order to acquire the Sendas chain. The Sendas chain operates retail stores in Rio de Janeiro state. The parties of the Sendas Association have mutual put/call options. For further information on the Sendas Association, see “Item 10C-Additional Information-Material Contracts—The Sendas Shareholders’ Agreement”.

     On July 27, 2004, we entered into a financial partnership called Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento, or FIC, with Banco Itaú Unibanco Holding S.A., or Itaú Holding which exclusively offers private label and co-branded credit cards, personal and consumer credit, extended warranties and insurance at our stores.

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     In November 2006, we entered the convenience market segment with our newly established Extra Fácil stores.

     In July 2007, we launched Extra Perto, a compact hypermarket model.

     On August 03, 2007, we started to lease from the Rossi Monza supermarket chain, five stores (four located in São Paulo and one in Guarulhos) representing 15,000 m² sales area for a period of five years. We converted four of these stores into the Extra Perto format and one into the CompreBem format. In the context of these leases, we made a prepayment of R$45.5 million and agreed to make monthly payments of R$0.1 million until termination of the leases. Pursuant to the lease agreement, we acquired accounts receivable representing R$4.7 million and inventories representing R$16.7 million. At the end of the leases, we may purchase the fixed assets at the residual book value.

     In September 2007, we formed a purchasing group partnership with União Brasil, or the Purchasing Group.

     In November 2007, we acquired a 60% ownership interest in the Assai chain, through a company controlled by our subsidiary Sevilha Empreendimentos e Participações Ltda., or Sevilha. This acquisition enabled us to enter the cash and carry segment in São Paulo, a wholesale format in the retail food sector.

     On October 16, 2008, we started cash and carry operations in the state of Rio de Janeiro through Xantocarpa, a company organized for this purpose, which assumed the operation of three stores of Sendas Distribuidora converted into Assai stores.

     Acquisition of Globex

     On June 8, 2009, we entered into a share purchase agreement, or the Globex Purchase Agreement, to acquire shares representing 70.2% of Globex Utilidades S.A., or Globex. Globex has been operating in the Brazilian non-food retail business under the brand name Ponto Frio for more than 60 years and currently has stores in ten Brazilian states and in the federal district, through a network of 455 stores. In 2008, Globex’s gross revenue is R$4.8 billion.

     The acquisition of the control of Globex will allow us to significantly strengthen and increase our activities in the electronics supply market and increase our overall market share in the Brazilian retail market. We expect to benefit from significant synergies as a result of the acquisition through (i) scale gains and an increase in our operating, commercial and administrative efficiency, (ii) taking advantage of additional financial products and services; (iii) an increase in revenues resulting from the offering of new products and services to an already consolidated client base; and (iv) the integration of our operations of electronic commerce, information technology and logistic.

     The acquisition of Globex was carried out through our subsidiary Mandala Empreendimentos e Participações S.A., or Mandala, which we used as a vehicle to acquire common shares representing 70.2% of the total voting capital of Globex. The Globex Purchase Agreement and the transaction will be submitted to the approval of the Brazilian antitrust authorities. The transaction will also be submitted to the approval of the holders of our common shares.

     Pursuant to the terms of the Globex Purchase Agreement, the purchase price will total R$824.5 million, equivalent to R$9.48 per share. This purchase price will be paid as follows: (i) R$373.4 million at the closing date (representing approximately 45.3% of the purchase price); and (ii) a credit in the amount of R$451.1 million (representing approximately 54.7% of the purchase price) at the forth anniversary of the closing date, adjusted by the variation of the Brazilian interbank variable interest rate (Certificado de Depósito Interbancário), or CDI rate.

     In accordance with the Globex Purchase Agreement, the controlling shareholders of Globex have elected to use the proceeds that will be generated through the transaction to subscribe Class B preferred shares issued by us. The credit amount described in item (ii) above will be increased by 10% for the purpose of being used to subscribe the Class B preferred shares. Consequently, we will increase our capital stock through the issuance of up to 16,609,046 Class B preferred shares, at an issuance price of R$40.00 per share. These shares will be subscribed by the controlling shareholders of Globex.

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     The Class B preferred shares will entitle its holders to a fixed dividend in the amount of R$0.01 per share and a preference in the receipt of proceeds in case of our liquidation. The Class B preferred shares will not have voting rights.

     On the date of the general shareholders’ meeting, our existing preferred shares will be converted into Class A preferred shares. Their rights will remain unchanged.

     The Class B preferred shares will be converted into Class A preferred shares, in the proportion of one to one, in accordance with the following: (i) 32% of the Class B preferred shares will be converted five days after our capital stock increase; (ii) 28% of the Class B preferred shares will be converted six months after the closing date; (iii) 20% of the Class B preferred shares will be converted 12 months after the closing date; and (iv) 20% of the Class B preferred shares will be converted 18 months after the closing date.

     In respect of the conversion of the Class B preferred shares into Class A preferred shares pursuant to item (i) above, Mandala will pay to each former shareholder of Globex, as shortfall, the amount of R$3.69 per Class B preferred share held by such former shareholder, adjusted by the variation of the CDI. Within five days after the conversion of the Class B preferred shares pursuant to the terms set forth in items (ii), (iii) and (iv) above, Mandala will pay to the shareholders of Globex who have elected to subscribe the Class B preferred shares the positive shortfall between the amount of R$40.00 per share, adjusted by the variation of the CDI, and the market value of the Class A preferred shares at such time, calculated in accordance with the weighted average price within the 15 trading sessions of BOVESPA immediately prior to each date of conversion.

     In addition, we, through Mandala, will launch a tender offer for the acquisition of the remaining common shares of Globex for a price per share equivalent to 80% of the price per share paid to the controlling shareholders of Globex, according to Brazilian law. Alternatively, prior to the tender offer, the minority shareholders of Globex will also be given the option to adhere to the Globex Stock Purchase Agreement and subscribe shares issued by us pursuant to the terms and conditions above indicated. Exclusively in case these minority shareholders elect to use their credits in the subscription of Class B preferred shares to be issued by us, the credit amount of the purchase price of Globex will be increased by 10% for the purpose of being used to subscribe the Class B preferred shares.

     The shares of Globex will remain regularly traded on BOVESPA. Dividend payments or payments on interests on capital that have already been declared will be made.

Capital Expansion and Investment Plan

     As part of our capital expansion and investment plan, we have invested approximately R$2,713.2 million in our operations for the three years ended December 31, 2008. Our investments included:

     Acquisitions of retail chains – When entering new geographic markets, we have generally sought to acquire local supermarket chains to benefit from existing know-how of the geographic region. For expansion within urban areas where we already have a presence, we have in the past preferred to open new stores. Currently, our main focus is to expand organically, but we may continue carrying out strategic acquisitions, to the extent that they result in synergies and added value. Since 2006, we have acquired 21 stores. We have spent an aggregate of R$359.4 million on acquisitions from 2006 through 2008.

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     The following table presents information regarding our acquisitions and the regional distribution of the stores we acquired since 2006:

        Number of     
Year    Chains Acquired    Stores    Geographic Distribution 
       
2006    Lourenção      São Paulo 
2007    Rossi      São Paulo 
2007    Assai *    14    São Paulo 
       
    Total    21     
       

* acquisition of a 60% ownership interest through an association

     Opening of new stores – We usually seek real estate properties to construct new stores under one of our banners in regions where there are no local supermarket chain acquisition opportunities that suit one of our formats. We have opened 97 new stores from 2006 through 2008, including five Pão de Açúcar stores, 15 CompreBem stores, 14 Extra stores, 10 Extra Perto stores, 31 Extra Fácil convenience stores and 22 Assai stores. The total cost of opening these new stores was R$699.3 million.

     Renovation of existing stores – We usually remodel some of our Pão de Açúcar, CompreBem, Extra stores, Sendas and Extra Eletro stores every year. Through our renovation program we add refrigeration equipment to our stores, create a more modern, customer-friendly and efficient environment, and outfit our stores with advanced information technology systems. The total cost of renovating stores from 2006 through 2008 was R$786.1 million.

     Improvements to information technology – We are committed to technology as an important component in our pursuit of greater efficiency and security in the flow of information among stores, distribution centers, suppliers and corporate headquarters. The information technology area has received significant investments in new technological solutions aimed at modernization, simplicity and reliability. We have spent an aggregate of R$396.1 million on information technology from 2006 through 2008. For more information on our information technology, see “—4B. Business Overview-Technology.”

     Expansion of distribution facilities – Since 2006, we have opened distribution centers in the cities of São Paulo, Brasília, Fortaleza, Rio de Janeiro, Recife, Salvador and Curitiba. The increase and improvement in storage space enables us to further centralize purchasing for our stores and, together with improvements to our information technology, improve the overall efficiency of our inventory flow. We have spent an aggregate of R$73.8 million on our distribution facilities from 2006 through 2008.

     The following table provides a summary description of our principal capital expenditures disbursed for the three years ended December 31, 2008:

    Year Ended December 31, 
   
    2008    2007    2006 
       
    (millions of reais)
 
Opening of new stores    R$    138.3    R$    350.2    R$    210.8 
Acquisition of retail chain              284.8        74.6 
Purchases of real estate        94.9        121.0        182.6 
Renovations        143.0        380.3        262.8 
Information technology        130.6        141.7        123.8 
        10.3        15.9        47.6 
       
Distribution centers                         
 
Total    R$    517.1    R$    1,293.9    R$    902.2 
       

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     4B. Business Overview

The Brazilian Retail Food Sector

     The Brazilian retail food sector represented approximately 5.5% of Brazil’s GDP (gross domestic product) in 2008. According to the Brazilian Supermarket Association (Associação Brasileira de Supermercados), or ABRAS, the food retail sector in Brazil had gross revenues of R$158.5 billion in 2008, representing a 16.3% increase over 2007.

     The Brazilian retail food sector is highly fragmented. Despite consolidation within the Brazilian retail food industry, in 2008, the three largest supermarket chains represented only approximately 38.1% of the retail food sector, as compared to 34.4% in 2004. We believe that future acquisitions will mainly involve smaller sized-stores. Another trend in the retail food sector is large chains migrating to smaller formats such as neighborhood banners. According to ABRAS, our gross sales represented 13.2% of the gross sales of the entire retail food sector in 2008.

     Foreign ownership in the Brazilian food retail sector began with Carrefour, a leading French retail chain, which opened its first hypermarket in Brazil 34 years ago. In the last decade, the international chain Wal-Mart has also entered the Brazilian market, mostly through acquisitions of domestic retail food chains, and competition in the industry has intensified. In addition to the organized retail food sector, the industry in Brazil also consists of small food retailers which frequently avail themselves of access to merchandise from irregular and informal distribution channels. This merchandise usually has lower prices than those charged by manufacturers and stores in the conventional supply chain of the organized retail food sector.

     The cash and carry segment (atacarejo), a wholesale segment in the retail food sector is one of the fastest growing market segments in Brazil in terms of new store openings. This segment was created in order to serve customers within a market niche that was neither reached by self-service retail nor by wholesale.

     Overall supermarket penetration in Brazil today, in terms of the number of supermarkets relative to overall population and area, is estimated to be below the levels in the United States, many western European countries such as France, and some South American countries such as Chile. Management believes that the population of Brazil is an important factor affecting the potential growth in supermarket activity. According to the Brazilian Institute of Geography and Statistics, or IBGE, the total population of Brazil was approximately 190.0 million in 2008, making Brazil the fifth most populous country in the world, with a population currently growing at a rate of 2% per year. Because more than 86% of the population lives in urban areas (where most of our operations are located) and the urban population has been increasing at a greater rate than the population as a whole, our business is particularly well positioned to benefit from Brazil’s urban growth and economies of scale related to urban growth. São Paulo, with a current population of approximately 11.0 million, and Rio de Janeiro, with a population of approximately 6.2 million, are the two largest cities in Brazil. São Paulo state has a total population in excess of 40.0 million, representing approximately 22% of the Brazilian population and is our largest consumer market. Rio de Janeiro state is our second largest consumer market.

     The Brazilian retail sector is perceived as essentially growth-oriented, because retail margins are substantially more constrained compared to other business sectors. We are therefore intrinsically dependent on the growth rate of Brazil’s urban population and its different income levels. While living expenses in Brazil are lower than those in North America, Western Europe and Japan, Brazilian household income levels are also substantially lower.

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     The following table sets forth the different income class levels of Brazilian households, according to the (Brazilian Institute of Public Opinion and Statistics) (Instituto Brasileiro de Opinião Pública e Estatística), or Ibope.

    Monthly Income (average)
Class Level    (in reais)
   
 
A1    14,250 
A2    7,557 
B1    3,944 
B2    2,256 
C1    1,318 
C2    861 
  573 
  329 

     Classes A1 and A2 households account for only 5% of the urban population and classes B1 and B2 households account for 24% of the urban population. Classes C1 and C2, D and E collectively represent 71% of all urban households. In recent years, the number of class C, D and E households has increased in terms of total urban households and their average purchasing power has become greater.

     Current salary levels in Brazil have generally lagged compared to increases in interest and exchange rates and increasing consumer prices. We expect that increased consumption by the lower income class levels will take place over time as a result of gradual salary increases and a steadily growing population. As seen in the years immediately following the introduction of the real, even small increments in purchasing power generally result in significant increases in consumption in absolute terms, as well as increased expenditures in premium priced food products and other non-food items, including home appliances and consumer electronics.

Our Company

     We are one of the largest food retailers in Brazil based on both gross revenues and number of stores. In 2008, we had a market share of approximately 13.2% in the Brazilian food retailing business, according to ABRAS, with annualized gross sales of R$20.9 billion. As of December 31, 2008, we operated 597 stores throughout Brazil, of which 550 were retail food stores. Of our retail food stores, 417 are located in São Paulo state, representing 64.7% of our net sales revenue from our retail food stores in 2008. São Paulo state is Brazil’s largest consumer market. We are among the market leaders in the retail food stores in the cities of São Paulo, Rio de Janeiro, Brasília, Curitiba, Belo Horizonte, Salvador and Fortaleza. Our sales are distributed through different formats under eight banners: Pão de Açúcar (145 supermarkets), CompreBem/Sendas (238 supermarkets), Extra (102 hypermarkets), Extra Eletro (47 home appliance stores), Extra Fácil (32 convenience stores), Extra Perto (5 supermarkets) and Assai (28 cash and carry stores).

The following table sets forth the number of our stores by region, as of December 31, 2008:

                South and Southeast (excluding São Paulo 
state and Rio de 
Janeiro state)(2)
       
        Rest of São    Rio de           
    City of São    Paulo    Janeiro          Center- 
    Paulo    state(1)   state      Northeast(3)   West(4)
             
Pão de Açúcar    59    36        24    13 
Extra    22    35    16      15   
CompreBem    80    79         
Sendas        73       
Extra Eletro    25    22         
Extra Fácil    32           
Extra Perto             
Assai    12    11         
 
     Total 
  230    188    101    11    47    20 

__________________
(1) The rest of São Paulo state consists of 39 cities, including Campinas, Ribeirão Preto and Santos.
(2) This area comprises the states of Minas Gerais and Paraná.
(3) This area comprises the following states: Piauí, Ceará, Pernambuco, Paraíba, Bahia, Rio Grande do Norte, Sergipe and Alagoas .
(4) This area comprises the following states: Mato Grosso do Sul, the federal district and Goiás

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     The following table sets forth the activity in our stores during the periods presented:

    Pão de            Extra        Extra    Extra         
    Açúcar    CompreBem    Extra    Eletro   Sendas     Fácil    Perto    Assai   Total 
At December 31, 2005    185    176    79    50    66    –    –    –    556 
         Opened          –    –      –    –    21 
         Closed    (21)   (3)   (1)   –    (3)   –    –    –    (28)
         Transferred (from)/to    (3)     –    –    (1)   –    –    –    – 
At December 31, 2006    164    186    83    50    62      –    –    549 
         Opened          –    –    13    10    15    51 
         Closed    (5)   (11)   –    (8)   –    (1)   –    –    (25)
         Transferred (from)/to    (7)   (2)       –        –   
At December 31, 2007    153    178    91    42    62    19    15    15    575 
         Opened            –    14    –      31 
         Closed    (2)   (4)   –    (1)   (1)   (1)   –    –    (9)
         Transferred (from)/to    (7)   (10)     –    12    –    (10)     – 
At December 31, 2008    145    165    102    47    73    32      28    597 

Our Competitive Strengths

     Our main competitive strengths are (i) our different retail food store formats; (ii) our extensive network of distribution centers; and (iii) our economies of scale.

     Different retail food store formats

     We conduct our retail food operations under different store formats, namely Pão de Açúcar, CompreBem/Sendas, Extra, Extra Fácil, Extra Perto and Assai. Each of these store formats has a distinct merchandising strategy and a strong brand name. The variety of our formats enables us to effectively target and earn the loyalty of different consumer segments. Our intimate understanding of the Brazilian consumer permits us to meet diverse customer needs. The Brazilian consumer associates with each of our brand concepts a specific combination of goods, services and price level. For example, the Pão de Açúcar format serves the higher income consumers through a combination of prime store locations, appealing store design and wide range of quality products and services. The CompreBem and Sendas banners, in turn, target the middle and lower income consumers and are usually located in lower income class neighborhoods. Our hypermarket format Extra offers the widest assortment of our store formats and allows us to target potential customers along the entire income spectrum. Our Extra format has the additional advantage of benefiting from the general lack of department stores and specialized stores in Brazil and offers a combination of food products and non-food products such as household appliances, consumer electronic products, general merchandise, clothing and textiles that is particularly appealing to Brazilian consumers. Through our Extra Perto and Extra Fácil banners, we operate in the supermarket and convenience store models, respectively and our Assai banner has allowed us to enter the cash-and-carry segment.

     Extensive network of distribution centers

     We operate distribution centers strategically located in the cities of São Paulo, Brasília, Fortaleza, Rio de Janeiro, Recife, Salvador and Curitiba. Our distribution centers have a total storage capacity of 401,208 square meters. Our management believes that our network of distribution centers is the most extensive one in the Brazilian retail food industry. We believe that our facilities are capable of servicing substantially all of our distribution requirements, both for our existing stores and for the stores that we plan to open in the near future. Approximately 85% of our inventory in 2008 was sourced from our distribution centers, and only 15% came directly from suppliers, which: resulted in (i) increased bargaining power with suppliers, (ii) fewer inventory shortages, (iii) lower shrinkage and (iv) improved working capital management. Many of the functions of our distribution centers are automated, allowing for quicker and more efficient handling of products. Our distribution centers are, among others, supported by pd@net, a business-to-business technology platform which links our computer automated ordering system, with our distribution centers and suppliers in order to automatically replenish our inventory.

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     Economies of scale

     We enjoy significant economies of scale resulting from our position as one of the largest food retailers in Brazil. Our size gives us increased bargaining power with suppliers, resulting in lower prices for consumers, higher operating margins and more favorable payment terms. Our size also allows us to benefit from important marketing channels including prime time television advertising, one of the most effective means to promote sales in Brazil, which is prohibitively expensive for smaller retail chains. Our scale also enables us to make major operational investments, that increase our efficiency, for instance extensive technology investments. We believe that we are at the forefront of the Brazilian retail industry in terms of using information technology and continually improving our sophisticated management information systems.

Our Strategy

     Our strategy is focused on: (i) efficient use of capital; (ii) pursuit of market share; and (iii) sustained growth with profitability.

     Efficient Use of Capital

     We intend to efficiently use our capital through: (i) the maintenance of our financial health by keeping a satisfactory cash position; (ii) the use of low cost methods to gain market share; and (iii) the maintenance of strict control of expenses and cash outflow.

     Pursuit of Market Share

     We aim at developing initiatives that will enhance our competitiveness, including the adoption of pricing policies and increasing our consumer flow and consumer fidelity. In addition, we aim at increasing the participation of non-food revenues as well as the expansion of our FIC financial services and private label products. We also intend to achieve higher sales levels through the expansion of our sales area as a result of new store openings in our different formats. We implemented a M&A (Merger and Acquisition) department focused on (i) improving the profitability of our acquisitions; (ii) ensuring synergy between our acquired businesses and our existing businesses; and (iii) assessing the market and investigating opportunities to acquire businesses.

     Sustained Growth with Profitability

     We intend to grow while increasing our profitability through: (i) improving the control our expenses; (ii) improving our logistic structure; (iii) investing heavily in the continued education of our personnel at all levels; (iv) achieving better price conditions with our suppliers; and (v) consolidating our multi-format structure by expanding e-commerce, convenience stores and cash and carry stores. In order to increase profitability, we also plan to invest in reducing breakage and shrinkage, improving the purchase process, increasing the store productivity index and strengthen our management model.

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Operations

     The following table sets forth the number of stores, the total selling area, the average selling area per store, total number of employees and the net sales revenue as a percentage of our total net sales revenue for each of our store formats at December 31, 2008:

                Average         
            Total    Selling Area        Percentage 
            Selling Area    Per Store    Total Number    of Our Net 
        Number of    (in square    (in square    of    Sales 
    Store Format    Stores    meters)   meters)   Employees(1)   Revenues 
             
Pão de Açúcar    Supermarket    145    190,072    1,311    14,747    18.8 
CompreBem    Supermarket    165    197,551    1,197    7,899    14.3 
Extra    Hypermarket    102    725,141    7,109    26,292    50.6 
Extra Eletro (2)   Home appliance store    47    27,902    594    720    1.6 
Extra Fácil(2    Convenience store    32    7,306    228    234   
Extra Perto    Compact hypermarket      8,790    1,758    328   
Assai    Cash and carry    28    74,180    2,649    4,661    7.0 
Sendas    Supermarket    73    129,764    1,778    5,724    7.7 
Head office &    –          10,051   
             
distribution center                         
 
       Total 
      597    1,360,706    16,624    70,656    100.0% 

______________________
(1) Based on the full-time equivalent number of employees calculated by dividing the total number of hours worked by all employees in December 2008 by 220 hours.
(2) Extra Perto and Extra Fácil sales included in Extra hypermarkets.

     For a detailed description of net sales revenue for each of our store formats, see “Item 5A. Operating and Financial Review and Prospects—Operating Results—Certain Operating Data.”

Pão de Açúcar Stores

     Pão de Açúcar operates convenient neighborhood stores, which are predominantly located in large urban areas (with over one-third located in the greater São Paulo City area). We believe that the locations of our Pão de Açúcar stores are a significant competitive advantage since available sites in those urban areas are scarce. The Pão de Açúcar stores target the Brazilian class A and class B household consumers. The stores are characterized by a pleasant shopping environment, a broad mix of quality products, innovative service offerings and high level of customer service, with an average of 77 employees per 1,000 square meters of store space. Many of these stores feature specialty areas such as perishables, baked goods, wine, ready-to-eat dishes, meat, cheese and seafood departments. Many stores have shopping advisors that assist customers with inquiries about their particular needs, prices, special discounts and brand information.

     As of December 31, 2008, we had 145 Pão de Açúcar stores. The Pão de Açúcar stores range in size from 331 to 4,730 square meters and as of December 31, 2008, averaged 1,311 square meters of selling space. Food products represented 93.5% of gross sales revenue attributable to Pão de Açúcar in 2008 and non-food products represented 6.5% .

      The Pão de Açúcar banner recorded gross sales of R$3.9 billion in 2008, representing an increase of 4.3% relative to 2007. This increase was a result of the strong performance of the Pão de Açúcar banner in the Northeast and Midwest regions and the consolidation of the management of the Pão de Açúcar banner that helped to create a single identity for this banner in Brazil while respecting regional characteristics.

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CompreBem Stores

     CompreBem supermarkets offer competitive prices and services. CompreBem stores target the Brazilian classes C, D and E household consumers, which collectively make up approximately 71% of all urban households in Brazil. Generally, products offered at our CompreBem stores are more competitively priced than products offered at our Pão de Açúcar stores. With an average of 40 employees per 1,000 square meters of store space, CompreBem stores are characterized by a lower level of personalized services than the Pão de Açúcar stores.

     As of December 31, 2008, we had 165 CompreBem stores. CompreBem’s stores range in size from 3,227 to 301 square meters and averaged 1,197 square meters of selling space at December 31, 2008. Food products represented 91.0% of gross sales revenue attributable to CompreBem stores in 2008 and non-food products represented 9.0% .

     Gross sales revenue of the CompreBem banner in 2008 amounted to R$2.9 billion, representing an increase of 0.8% compared to 2007. This increase was a result of the implementation of a new business operating model which improved the banner’s pricing strategies, marketing activities, understanding of customer needs, and management control.

Sendas Stores

     In December 2003, we formed the Sendas Association through which we subsequently acquired the Sendas chain. Similarly to our CompreBem banner, the Sendas banner offers competitively priced products and targets middle and lower income consumers, (i.e., the Brazilian classes C, D and E). Sendas stores are all located in lower-income neighborhoods in Rio de Janeiro.

     In July 2007, we hired the consultancy firm Galeazzi & Associados to implement a restructuring plan to enhance Sendas Distribuidora’s operational performance in the state of Rio de Janeiro. As part of the restructuring plan, Sendas Distribuidora became an independent business unit and adopted a result-oriented management model that aims at increasing competitiveness, reducing costs and expenses and establishing a balance between margins and sales. As a result of the new management model, in 2007, the Sendas chain’s EBITDA margin increased by 3.4% . In December 2007, we elected Cláudio Galeazzi as our CEO. Cláudio Galeazzi’s consultancy firm continues to render services to Sendas Distribuidora under the same conditions as agreed prior to Cláudio Galeazzi becoming our CEO. For further information on Cláudio Galeazzi, see “Item 6a. Directors, Senior Management and Employees - Directors and Senior Management - Executive Officers.”

     Sendas’ gross sales in 2008 totaled R$1.6 billion, equivalent to 7.6% of the Group’s total sales, representing an increase of 21.2% compared to 2007. This increase was mainly due to an increase of our customer base and a series of actions including clustering, which enabled better assortment of our products, improved communication with the diverse socio-economic classes in Rio de Janeiro, improved cash control, reduced dependence of sales on offers and the consolidation of partnerships with regional suppliers.

Extra Hypermarkets

     Extra hypermarkets are our largest stores. We introduced the hypermarket format in Brazil with the opening of our first 7,000 square meter store in 1971. The Extra hypermarkets offer the widest assortment of products of any of our store formats, with approximately 70,000 items being offered and an average selling area of 7,109 square meters at December 31, 2008. The Extra stores target the Brazilian classes B, C, D and E. As of December 31, 2008, we had 102 Extra stores, including two stores that opened in 2008 (in São Paulo state and ten stores that were converted from Extra Perto stores to Extra hypermarkets. The sale of food products and non-food products represented 61.5% and 38.5% of Extra’s gross sales in 2008, respectively.

     Gross sales of the Extra banner in 2008, including Extra Perto and Extra Fácil sales, reached R$10.6 billion, a 16.4% increase compared to 2007. This increase was a result of the new management model implemented by Claudio Galeazzi in 2008, which gave the regions greater autonomy and contributed to the integrated management of the banners with the focus on results in each region. The new positioning resulted in adjustments to headcount at stores, employee training, improvements in operations, revision of the destination categories, increase in customer flow and a more efficient pricing policy.

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Extra Fácil Stores

     With the establishment of the Extra Fácil banner in July, 2007, we significantly increased our presence in the convenience store segment, where we had already been operating through our Extra Perto stores. We opened 18 new stores in 2008, bringing the total of Extra Fácil stores to 32 units as of December 31, 2008. Extra Fácil is characterized by small retail stores with up to four check-outs and offers convenience, proximity and facility.

Extra Perto Stores

     The Extra Perto banner was launched in November 2006 within the convenience store segment. During 2008, 10 out of our 15 Extra Perto stores migrated to the Extra Hypermarket format, in order to achieve economies of scale and greater synergies. As a consequence, as of December 31, 2008, we operated five Extra Perto stores. Our Extra Perto banner, is characterized by stores with sales area of up to 1,500 square meters and a complete mix of food products and general merchandise. Our Extra Perto stores are positioned to serve consumers with a preference for smaller stores that offer a wide variety of products and services.

Extra-Eletro Stores

     Extra-Eletro stores are generally small showrooms that sell a broad range of home appliances and consumer electronic products. These stores had an average selling area of 594 square meters at December 31, 2008. Customers place orders in the stores, and products are shipped from a central warehouse. As of December 31, 2008, we operated 47 Extra-Eletro stores.

     In 2008, Extra-Eletro had gross sales of R$372.5 million, an increase of 12.9% as compared to gross sales in 2007. This increase was a result of the increase in our overall non-food sales, especially consumer electronics, operational improvements and a new credit policy with a closer partnership with FIC.

Extra.com.br

     In line with our strategy to restructure our e-commerce operations initiated in 2006, we consolidated our e-commerce performance through Extra.com.br, which focuses on the sale of non-food products. Gross sales of Extra.com.br in 2008 increased by 168% as compared to gross sales in 2007 and were equivalent to 1.7% of our gross sales in 2008. This performance is the result of a series of recently implemented initiatives to consolidate our presence in this important market niche, including the establishment of a broader assortment, which rose from 4,000 to 25,000 items.

Assai

     The cash and carry segment (atacarejo segment), a wholesale segment in the retail food sector, is one of the fastest growing market segments in Brazil in terms of new store openings. This segment was created in order to serve customers within an untapped market niche that was covered by neither self-service retailers nor wholesales.

     On November 1, 2007, we acquired one of the major players in the cash and carry segment, the Assai chain.

     The acquisition of Assai was carried out through our subsidiary Sevilha Empreendimentos e Participações Ltda., or Sevilha, which we used as a vehicle to acquire shares representing 60% of the total voting capital of Barcelona Comércio Varejista e Atacadista S.A., or Barcelona Comércio, a newly formed company to which all of Assai’s assets related to its operations had been transferred. The remaining 40% of ownership interest in Barcelona Comércio remained with the former controlling shareholders of Assai. The acquisition generated a goodwill of R$206.1 million and our acquisition costs amounted to R$208.5 million.

     Assai has been operating in the cash and carry segment for 35 years and as of December 31, 2008, Assai had 4,661 employees and 28 stores. In 2008, we opened 13 new Assai stores. Out of the 13 new Assai stores, seven stores were newly opened (including three stores in Rio de Janeiro and two stores in Fortaleza, the capital of Ceará state), and six stores were converted into Assai format from other banners. In 2008, the Assai banner recorded gross sales of R$1.5 billion.

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Gas Stations

     As of December 31, 2008, we were operating 74 gas stations, six of which were opened in 2008. Our gas stations are located within the parking area of certain of our stores. The location of our gas stations allows our customers to both go shopping and refuel their car while they are on our premises. Our strategy for gas stations is based on competitive prices and the reliability and quality of fuel, which is assured by the brand. We expect to increase the number of gas station units, especially in connection with the Extra and Assai banners, and increase synergies with drugstores and Extra Fácil stores.

Drugstores

     With more than 8.4 million tickets per year and 143 units in operation, we operate one of the largest drugstore chain in Brazil’s retail food sector. We opened a total of 10 new stores in 2008. In addition, we recently launched a series of initiatives that we believe contribute to the success of our drugstores, including: (i) reorganization of management, (ii) successful renegotiation of prices with suppliers and (iii) strategic adjustments to the assortment and services offered at our drugstores.

Seasonality

     We have historically experienced seasonality in our results of operations, principally due to traditionally stronger sales in the fourth quarter holiday season. Sales revenues in December are typically 45% above the average sales revenues in the other months.

Supply and Distribution

     Supply. The purchasing for our Pão de Açúcar, CompreBem, Sendas, Extra, Extra Eletro, Extra Perto and Extra Fácil stores is centralized. We purchase substantially all of our food products on a spot or short-term basis from unaffiliated suppliers. In the aggregate, we purchase approximately 170,000 products from approximately 10,000 suppliers.

     Distribution. In order to efficiently distribute perishable food products, grocery items and general merchandise, we operate 18 distribution centers strategically located within the cities of São Paulo, Brasília, Fortaleza, Curitiba, Rio de Janeiro, Salvador and Recife with a total storage capacity of 406,161 square meters. We were the first retailer in Brazil to have a centralized distribution center. The locations of our distribution centers enable us to make frequent shipments to stores, which reduces the need of in-store inventory space, and limits non-productive store inventories.

     Our distribution centers are, among others, supported by pd@net, a business-to-business technology platform which links our computer automated ordering system with our distribution centers and suppliers in order to automatically replenish our inventory.

     We currently focus on four main tasks to further improve our supply and distribution system: (1) ensuring the full availability of products and services, to indirectly contribute to our expansion; (2) improving the level of service to stores; (3) enhancing the inventory management; and (4) reducing costs in our supply chain.

Marketing

     Our marketing policy is aimed at attracting and retaining our customers. To this end, we conduct integrated marketing campaigns that are specific to each store banner in which we operate and are structured and directed at the target market for each store banner. Our marketing teams are media experts dedicated to developing quality marketing campaigns to emphasize our strength in terms of selection, service and competitive prices.

     In 2008 and 2007, we spent approximately R$180.2 million and R$199.1 million, respectively, on advertising (approximately 1% and 1.3% of total net sales revenues in each year, respectively).28.0% and 30.2% of our total marketing expenditures in 2008 and 2007, respectively, were spent on radio, newspaper and magazine advertising. Television advertisements accounted for 38.2% and 39.1% of advertising expenses in 2008 and 2007, respectively. We spent 33.8% in 2008 and 30.7% in 2007 on other promotional activities.

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Financeira Itaú CBD

     Financeira Itaú CBD, or FIC, operates service kiosks in our stores that have exclusive rights to offer private label and co-branded credit cards, personal and consumer credit, extended warranties and insurance. FIC has been operating for four years and has six million clients, which represents approximately one third of our customers. We and Itaú Holding each indirectly hold 50% of FIC’s capital stock. Itaú Holding is responsible for managing FIC and appoints the majority of its officers.

     With a receivables portfolio of R$1.6 billion, FIC’s share of our total gross sales amounted to 14.2% as of December 31, 2008. In 2008, FIC had an equity income of R$2.9 million – a significant improvement compared to the R$28.9 million loss in 2007. The positive performance is the result of a series of recently implemented actions, including the granting of special benefits to users of private label and co-branded cards.

The table below sets forth the breakdown of FIC’s clients in 2008 and 2007.

Total of clients (in thousands)   2008    2007 
     
Private label cards    4,422    3,997 
Co-branded cards    780    595 
CDC agreements    135    247 
Extended guarantee    678    640 
Personal loan    53    216 
     
Total    6,068    5,695 

Credit Sales

     In 2008 and 2007, 49.9% of our net sales revenue were represented by credit sales in the form of credit card sales, installment sales, post-dated checks and purchase vouchers.

     Credit card sales. All our store formats accept payment for purchases with MasterCard, Visa, Diners Club, American Express and our co-branded credit cards. Sales to customers using credit cards accounted for 40.6%, 39.8% and 38.6% of our net sales revenue in 2008, 2007 and 2006, respectively. From this total, sales through private label and co-branded credit cards accounted for 11.5% of our net sales revenue in 2008. An allowance for doubtful accounts is not required as credit risks are substantially assumed by credit card companies.

     Installment sales. Our Extra Eletro stores and Extra hypermarkets offer attractive consumer financing conditions to our customers who frequently purchase electronic goods or home appliances, respectively, on an installment basis. The installment sales accounted for 0.5%, 0.8% and 1.9% of our total net sales revenue in 2008, 2007 and 2006, respectively.

     Post-dated checks. Post-dated checks are used as financial instruments in Brazil to make purchases. Postdated checks are executed by a consumer with a future date (up to 60 days) instead of the date of the purchase. The retailer typically deposits the check only as of this future date, and interest for the time elapsed is included in the amount of the check. We currently have post-dated check programs in which interest is computed on the settlement amount based upon a fixed monthly rate of interest (to a lesser extent, for certain promotional programs no interest is charged). We limit the availability of post-dated checks to customers who meet our credit criteria and who hold our identification card. Sales to customers using post-dated checks accounted for 1.0%, 1.5% and 2.0% of our net sales revenue in 2008, 2007 and 2006, respectively.

     Purchase vouchers. We accept as payment in our stores vouchers issued by third party agents to participating companies who provide them to their employees as a fringe benefit. Purchase vouchers accounted for 7.8%, 7.8% and 8.0% of our net sales revenue in 2008, 2007 and 2006, respectively. An allowance for doubtful accounts is not required as credit risks are substantially assumed by third parties.

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Technology

     We invested R$130.6 million in information technology in 2008 and R$141.7 million in 2007. We consider information technology one of our pillars. Our information technology department interacts with our other departments, thereby streamlining our several strategic initiatives.

     During 2008, the information technology area received significant investments in new technological solutions aimed at modernization, simplicity, and reliability. These initiatives included the following ones:

     • Adoption of the Oracle Retail ERP, which will enable us to integrate our operations, ensuring better planned activities and a modern supply chain.

     • Implementation of the SAP Financial package, ensuring agility in obtaining results and rationalizing processes.

     • Evolution of the e-commerce platform (Extra.com.br).

     • Consolidation of DemadTec software as the pricing system.

     • Modernization of the technological systems for supplementary businesses such as gas stations and drugstores.

     • Adoption of the SAS module for analysis of campaigns by the Consumer Knowledge area.

Intellectual Property

     We consider our brands to be one of our most valuable assets and have worked extensively to define the characteristics of each of our banners (Extra, Extra Perto, Extra Fácil, Extra-Eletro, Pão de Açúcar, CompreBem, Sendas and Assai) in terms of expectations, consumption patterns and purchasing power of the different income levels in Brazil. We believe that Brazilian consumers associate with each of our banners a specific combination of products, services and price levels.

     In Brazil, one can only acquire a brand by officially registering it with Instituto Nacional de Propriedade Industrial (National Industrial Property Institute), or INPI, which registers trademarks and patents. This registration gives the owner the exclusive right to use the trademark throughout Brazil for a determined renewable period.

     As of December 31, 2008, our most important trademarks (Pão de Açúcar, Companhia Brasileira de Distribuição, Barateiro, Extra, Qualitá, CompreBem, Sendas, Taeq and Assai) were duly registered with INPI and we had approximately 1,601 other trademarks registered or in the process of being registered in Brazil. We did not have any registered patents as of December 31, 2008.

     We own the following domain names, among others: www.extra.com.br, www.paodeacucar.com.br, www.comprebem.com.br, www.assaiatacadista.com.br and www.sendas.com.br.

Competition

     The Brazilian food retailing business is highly competitive and has experienced consolidation in recent years. We believe that the acquisition activity will slow down because the principal chains have already been acquired by the main competitors on the market. We believe that future acquisitions will mainly involve smaller sized-stores. Another recent trend in the retail food sector is large chains migrating to smaller formats such as neighborhood banners. Hypermarkets are expected to gain market share in apparel, general merchandise, consumer electronics, furniture, home development and other non-food categories because of a general lack of department stores and specialized stores in Brazil.

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     In 2008, the five largest food retailers in Brazil accounted for 40.7% of the organized sector sales, which includes the aggregate sales by companies registered with ABRAS. In 2008, we accounted for 13.2% of the organized sector sales according to ABRAS.

     Although we operate stores in many regions throughout Brazil, the size, wealth and importance of the São Paulo state have led us to concentrate our stores in this particular market. In 2008, sales in São Paulo state accounted for 64.7% of our total sales. In São Paulo state and throughout Brazil, we compete principally on the basis of a combination of location, price, image, quality and service. In the food retail market, our competition includes hypermarkets, supermarkets and traditional wholesalers. Our principal competitors are multinational retail food chains, local supermarkets and grocery stores.

     Pão de Açúcar stores have different competitors in each of the markets where they operate. In São Paulo state, they compete with a number of local supermarkets and grocery stores such as Sonda, Pastorinho, Carrefour, Mambo, Futurama and Wal-Mart. The main competitors of Pão de Açúcar in Brasília are Carrefour, Super Maia, Super Cei and Big Box. In Rio de Janeiro state, our Pão de Açúcar format competes mainly with Supermercados Mundial and Zona Sul. In Paraíba, Pernambuco, Ceará and Piauí, our main competitors are local supermarkets and Bompreço (a Wal-Mart format).

     The main competitor of our Extra hypermarket is Carrefour, a leading French retail food chain, which at December 31, 2008 operated retail stores mainly in the southeast and south of Brazil. For the year ended December 31, 2008, Carrefour accounted for 14.2% of the organized sector’s sales pursuant to ABRAS. Pursuant to ABRAS, Wal-Mart, another competitor in the hypermarket and supermarket format, accounts for a 10.7% market share in Brazil.

     The principal competitors of our Extra Eletro stores are the non-food retailers Casas Bahia and Ponto Frio. On June 8, 2009, we entered into the Globex Purchase Agreement through which we will acquire control of Ponto Frio. For additional information on our acquisition of Ponto Frio, see “Item 4A. Information on the Company — History and Recent Development of the Company.”

     Assai chain competes mainly with Atacadão (a wholesale chain with 34 stores acquired by Carrefour in 2007), Roldão, Tenda and Makro.

     In São Paulo state, CompreBem stores face strong competition from a number of smaller regional chains. The main competitors of CompreBem/Sendas in Rio de Janeiro state are Guanabara, Prezunic, Zona Sul and Mundial.

     In other regional markets, we do not only compete within the organized food retail sector but also with several medium-size and small chains and family-owned and operated food retail businesses, which are estimated to represent approximately 50% of overall food sales in Brazil.

     Other international retailers may enter into the Brazilian retail market, either directly, by forming joint ventures or by acquiring existing chains. Some of these potential competitors may have greater financial resources than us. Moreover, to the extent that other large international food retailers enter the Brazilian market or the retail sector continues to consolidate through the acquisition of local supermarket chains, our market share may be adversely affected.

Regulatory Matters

     We are subject to a wide range of governmental regulation and supervision generally applicable to companies engaged in business in Brazil, including federal, state and municipal regulation, such as labor laws, public health and environmental laws. In order to open and operate our stores, we need a business permit and site approval, an inspection certificate from the local fire department as well as health and safety permits. Our stores are subject to inspection by city authorities. We believe that we are in compliance in all material respects with all applicable statutory and administrative regulations with respect to our business.

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     Our business is primarily affected by a set of consumer protection rules regulating matters such as advertising, labeling and consumer credit. We believe we are in compliance in all material respects with these consumer protection regulations.

     As a result of significant inflation during long periods in the past, it was commonly the practice in Brazil not to label individual items. However, a recently enacted federal regulation concerning this issue established that products exposed to consumers must contain information about prices (for instance price tags, signs or bar codes which can be read with scanners) in order to facilitate the identification of prices of each product by the consumer. Pursuant to these new rules, the pricing information must be physically attached or adjacent to the product. When bar codes are used, the commercial establishment is required to provide easily accessible scanners. We believe that we are in compliance with these new provisions in all material aspects.

     The Brazilian Congress is considering a bill requiring a prior assessment of the impact of the construction of a hypermarket in excess of 1,000 square meters on the relevant neighborhood. The proposed regulation is intended to protect traditional family-owned retailers that have increasingly lost market share in Brazil to the larger chains and hypermarkets. Regulations of this type already exist at the municipal level. For example, governmental authorities in the city of Porto Alegre in Rio Grande do Sul state issued a city ordinance in January 2001 prohibiting the construction of food retail stores with a selling area greater than 1,500 square meters, which in May 2005, was amended as to increase from 1,500 to 2,500 squares meters the selling area of food retail stores. Other jurisdictions may adopt similar laws, and, if the bill pending before the Brazilian Congress becomes law, our future expansion and growth may be subject to significant constraints.

     4C. Organizational Structure

     Companhia Brasileira de Distribuição conducts our operations. Our investments in subsidiaries are effected primarily to acquire the share capital of other retail chains from third parties. In most cases, the retail operations are transferred to retail stores under existing banners or the stores acquired begin operating under our banners. All our operations are conducted under the Pão de Açúcar, CompreBem, Sendas, Extra, Extra Eletro, Extra Fácil, Extra Perto and Assai banners. For further information on our subsidiaries see note 1 to our financial statements for the year ended December 31, 2008 included in this annual report.”

     4D. Property, Plants and Equipment

     We own 85 stores, seven warehouses and a part of our headquarters. The remaining 512 stores and 11 warehouses we operate and the remainders of our headquarters are leased. Leases are usually for a term of five to 25 years, and provide for monthly rent payments based on a percentage of sales above an agreed minimum value. We have ten leases expiring in 2009. Based on our prior experience and Brazilian law and leasing practices, we do not anticipate any material change in the general terms of our leases or any material difficulty in renewing them. As of December 31, 2008, we leased 16 properties from members of the Diniz family and 61 stores from Fundo de Investimento Imobiliário Península. Our management believes that these leases are based on normal market conditions. See “Item 7B – Major Shareholders and Related Party Transactions—Related Party Transactions—Leases.”

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     The following table sets forth the number and total selling area of our owned and leased retail stores by store format, the number and total storage area of our owned and leased warehouses and the total office area of our headquarters that is owned and leased as of December 31, 2008:

    Owned    Leased    Total 
       
        Area (in        Area (in        Area (in 
        aquare        square    Number    square 
    Number    meters)   Number    meters)   (*)   meters)
             
Pão de Açúcar    25    33,992    120    156,080    145    190,072 
Extra    24    174,218    78    550,923    102    725,141 
Extra Eletro      2,671    45    25,231    47    27,902 
Extra Perto      5,238      3,552      8,790 
Extra Fácil      209    31    7,097    32    7,306 
CompreBem    22    34,014    143    163,537    165    197,551 
Sendas      5,888    69    123,876    73    129,764 
Assai      7,492    24    66,688    28    74,180 
Warehouses      278,562    11    127,599    18    406,161 
Headquarters      28,591      13,043      41,634 

(*) 23 of our stores have been subject to liens as a result of judicial proceedings.

ITEM 4A. UNRESOLVED STAFF COMMENTS

None.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

5A. Operating Results

     The following discussion should be read in conjunction with our audited consolidated financial statements as of December 31, 2008 and 2007 and for the three years ended December 31, 2008, 2007 and 2006 appearing elsewhere in this annual report, and in conjunction with the financial information statements included under “Item 3A. Key Information – Selected Financial Data.”

Financial Presentation and Accounting Policies

     Presentation of Financial Statements

     We have prepared our consolidated financial statements as of December 31, 2008 and 2007 and for the three years ended December 31, 2008, 2007 and 2006. Except as otherwise indicated, all financial information in this annual report has been presented in reais and prepared in accordance with Brazilian GAAP, which differs in significant respects from U.S. GAAP. See note 26 to our audited consolidated financial statements for the year ended Dcember 31, 2008 included in this annual report for an explanation of these differences.

     On December 28, 2007, Law No. 11,638/07 was enacted, as amended by a number of new laws and rules. The new rules modified and introduced changes to Brazilian corporate law. The main purpose of the changes was to update Brazilian corporate law and harmonize Brazilian GAAP with IFRS. We had to comply with the new legal requirements for financial statements starting in 2008. In addition, we elected to apply these new rules retroactively to our financial statements with an effective date as of January 1, 2007 pursuant to CVM Resolution No. 565 to make them comparable to our financial information for 2008. As a result, certain adjustments have been made to our financial statements for 2007. We have elected not to restate our financial statements for fiscal years prior to 2007 and, consequently, the financial information prior to 2007 is only to a limited extent comparable to the financial information for 2007 and 2008. Please see note 2 (c) to our financial statements for 2008 included in this annual report for a qualitative and quantitative analysis of the changes resulting from the new accounting criteria.

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     Discussion of Critical Accounting Policies

     Management strives to report the financial results of the company in a clear and understandable manner, even though in some cases accounting and disclosure rules are complex and require us to use technical terms.

     In connection with the preparation of the financial statements included in this annual report, we have relied on variables and assumptions derived from historical experience and various other factors that we deem reasonable and relevant. Although we review these estimates and assumptions in the ordinary course of business, the portrayal of our financial condition and results of operation often requires our management to make judgments regarding the effects of inherently uncertain matters on the carrying value of our assets and liabilities. Actual results may differ from those estimated under different variables, assumptions or conditions. We provide below a summarized discussion of the significant accounting policies involving these management judgments, including the variables and assumptions underlying the policies:

     Inventories and payments from suppliers

     Inventories are accounted for at the lower of cost or market. We record the inventory losses (“shrinkage”) throughout the year.

     We receive cash consideration from suppliers for various programs, primarily volume incentives, warehouse allowances and reimbursements for specific programs such as markdowns, margin protection and cooperative advertising. Volume bonuses and discounts are received from suppliers in the form of product as zero-cost additions to inventories and the benefit is recognized as the additional products are sold. Discounts and bonuses in cash are considered reduction of the prices of the products and characterized as reduction of cost of sales. Substantially all cash consideration from suppliers is accounted for as a reduction of item cost and recognized as income when certain conditions are fulfilled and the related inventory is sold. When the consideration we receive is a payment for services delivered to the vendor, the amounts are recorded as other income; when the consideration we receive as a reimbursement of expenses incurred to sell the vendor’s products, the amounts are recorded as a reduction of such expenses.

     Leases

     Until December 31, 2006, under Brazilian GAAP, leases were treated as operating leases and the expenses were recognized at the time each lease installment became due. As of January 1, 2007, we apply the new rules under Law No. 11,638. Under the new rules, the criteria for financial lease recognition are similar to FAS 13 – “Accounting for lease”. Under both Brazilian GAAP and U.S. GAAP, we now estimate the expected term of leases of our stores by assuming the exercise of renewal options, that are at our sole discretion. This expected term is used in the determination of whether a store lease is capital or operating and in the calculation of straight-line rent expense. Additionally, the useful life of leasehold improvements is limited by the lease term.

     Valuation of long-lived assets

     Under Brazilian GAAP, in accordance with accounting pronouncements issued by the Brazilian Committee on Accounting Pronouncements and approved by Brazilian Securities and Exchange Commission and Federal Accounting Council, CPC 01 Impairment of Assets, approved by CVM Deliberation 527 of November 1, 2007), has the purpose of establishing procedures to ensure that assets are not recorded at a value higher than the amount that can be recovered through use in the entity’s operations or in a possible sale.

     We evaluate annually if there is an indication that our assets, or group of assets, has had a reduction in its economic value. If such indication exists, we carry out an evaluation and account for a possible asset impairment.

     The pronouncement establishes recoverable value as the higher value between the asset net sale price and its current value in use. If any of these values exceeds the book value of the asset, there is no impairment or the need to estimate another value.

     Reversal of impairment loss is allowed provided that there is an asset valuation and, in this case, the provision previously created for loss shall be totally or partially reversed to income.

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     Under U.S. GAAP, in accordance with SFAS No. 144, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

     A determination of the fair value of an asset and estimating recoverability require management to make certain assumptions and estimates with respect to projected cash inflows and outflows related to future revenues and expenditures and expenses. These assumptions and estimates can be influenced by different external and internal factors, such as economic and industry trends, interest rates and changes in the marketplace. A change in the assumptions and estimates that we use could change our estimate of the asset’s expected future net cash flows and lead to the recognition of an impairment charge in results of operations relating to our property and equipment.

     FIN 48

     Under U.S. GAAP, we adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, on January 1, 2007. Since January 1, 2007, we record the financial statement effects of an income tax position when it is more likely than not, based on the technical merits, that it will be sustained upon examination. A tax position that meets the more-likely-than-not recognition threshold is measured and recorded as the largest amount of tax benefit that is greater than 50 percent likely of being realized upon ultimate settlement with a taxing authority. Previously recognized tax positions are derecognized in the first period in which it is no longer more likely than not that the tax position will be sustained. The benefit associated with previously unrecognized tax positions is generally recognized in the first period in which the more-likely-than-not threshold is met at the reporting date, the tax matter is ultimately settled through negotiation or litigation or when the related statute of limitations for the relevant taxing authority to examine and challenge the tax position has expired. The recognition, derecognition and measurement of tax positions are based on our management’s best judgment given the facts, circumstances and information available at the reporting date.

     Differences between a tax position taken or expected to be taken in our tax returns and the amount of benefit recognized and measured in the financial statements result in unrecognized tax benefits, which are recorded in the balance sheet as either a liability for unrecognized tax benefits or reductions to recorded tax assets, as applicable. The liability for unrecognized tax benefits expected to be realized within one year is classified as current in the balance sheet.

     We will recognize penalties and interest accrued on any unrecognized tax benefits as a component of income tax expenses.

     The adoption of FIN 48 did not have a material impact on our statements of operations and financial position and did not result in a cumulative adjustment to retained earnings at adoption.

     We or our subsidiaries file income tax returns in Brazil and other foreign federal and state jurisdictions. The tax years 2003 through 2007 remain open and subject to examination by the relevant tax authorities.

     Goodwill and Business Combinations

     Under Brazilian GAAP, goodwill arises from the difference between the amount paid and the Brazilian GAAP book value (normally also the tax basis) of the net assets acquired. This goodwill is normally attributed to the difference between the book value and the market value of assets acquired or justified based on expectation of future profitability and is amortized on a straight line basis over the remaining useful lives of the assets or up to ten years. Goodwill in a subsidiary subsequently merged into its parent is reclassified to intangible assets. As from 2009, pursuant to CPC 01 (Impairment of Assets, approved by CVM Deliberation 527 of November 1, 2007) and CPC 04 (Intangible Assets, approved by CVM Deliberation 553 of November 12, 2008), goodwill balances will not be amortized, being subject to annual recovery analysis.

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     Under U.S. GAAP, we use the purchase method of accounting for business combinations and fair values are assigned to assets acquired and liabilities assumed in business combinations, including intangible assets. The difference between consideration paid over the fair value of assets acquired and liabilities assumed is recorded as goodwill. Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets” (FAS 142) requires that, effective January 1, 2002, goodwill, including those in the carrying value of investments accounted for under the equity method and certain other intangible assets deemed to have an indefinite useful life, cease to be amortized. FAS 142 also requires that goodwill and certain intangible assets be assessed for impairment using fair value measurement techniques. Goodwill is evaluated for impairment annually or whenever events or changes in circumstances indicate that the value of certain goodwill may be impaired. This evaluation requires management to make judgments relating to future cash flows, growth rates, economic and market conditions. These evaluations are based on discounted cash flows that incorporate the impact of existing company businesses. We allocate our goodwill to our reporting units. Historically, the company has generated sufficient returns to recover the cost of goodwill and other intangible assets. Because of the nature of the factors used in these tests, if different conditions occur in future periods, future operating results could be materially impacted.

     Deferred Taxes

     We compute and pay income taxes based on results of operations determined under Brazilian GAAP. Under Brazilian GAAP and U.S. GAAP, we recognize deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities. We regularly review the deferred tax assets for recoverability and establish a valuation allowance if, under U.S. GAAP, it is more likely than not that the deferred tax assets will not be realized, based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Under Brazilian GAAP, deferred tax assets are recorded when recoverability is considered probable, limited to the assets which will be recovered over the following 10 years against estimated taxable income at present values. When performing such reviews, we are required to make significant estimates and assumptions about future taxable income. In order to determine future taxable income, we need to estimate future taxable revenues and deductible expenses, which are subject to different external and internal factors, such as economic and industry trends, interest rates, changes in our business strategies and changes in the type of services it offers to the market. The use of different assumptions and estimates could significantly change our financial statements. A change in the assumptions and estimates with respect to our expected future taxable income could result in a reduction in deferred tax assets being charged to income. If we operate at a loss or are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or discount rates, the time period over which the underlying temporary differences become taxable or deductible, or any change in its future projections, we could be required to establish a valuation allowance against or write off all or a significant portion of our deferred tax assets resulting in a substantial increase of our effective tax rate and a material adverse impact on operating results.

     U.S. GAAP Reconciliation

     Our net income in accordance with Brazilian GAAP was R$260.5 million in 2008, R$185.7 million in 2007 and R$85.6 million in 2006. Under U.S. GAAP, we would have reported net income of R$309.1 million in 2008, R$270.4 million in 2007 and R$14.5 million in 2006.

     Our shareholders’ equity in accordance with Brazilian GAAP was R$5,407.7 million at December 31, 2008, R$4,949.7 million at December 31, 2007 and R$4,842.1 million at December 31, 2006. Under U.S. GAAP, we would have reported shareholders’ equity of R$5,272.9 million at December 31, 2008, R$4,766.6 million at December 31, 2007 and R$4,658.0 million at December 31, 2006.

     It should be noted that the U.S. GAAP figures at December 31, 2008 and 2007 mentioned above were affected by the application of the new Brazilian corporate law.

     The principal differences between Brazilian GAAP and U.S. GAAP that affected our net income in 2008 and 2007, as well as shareholders’ equity at December 31, 2008 and 2007, are described in note 26 to our audited consolidated financial statements for the years ended December 31, 2008 and 2007 included in this annual report. The major differences of the accounting treatment, in 2008 and 2007 are related to the following items:

• supplementary inflation restatement of permanent assets and shareholders’ equity in 1996 and 1997;

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• business combinations;

• accounting for put options;

• hedge accounting;

• sale leaseback transactions;

• deferred income taxes;

• consolidation of Sendas Distribuidora;

• stock options under SFAS 123R; and

• puttable minority interest.

     Some of the differences between Brazilian GAAP and U.S. GAAP were affected by the application of the new rules under Law No. 11,638/07 as of January 1, 2007:

• Leases – under Brazilian GAAP, we began applying the same criteria for financial leases recognition as under U.S. GAAP as of January 1, 2007;

• Stock options – under Brazilian GAAP, we are now following a rule similar to the rules of the International Financial Reporting Standards (IFRS) which requires the recognition of expenses with stock options. The differences to U.S. GAAP relate to the fact that (i) only instruments settled in cash should be classified as a liability and remeasured at each reporting date (under U.S. GAAP, we classify certain series as instruments of liability, remeasured at each reporting date, due to the variable exercise price, which are restated by inflation, under the plan rules);

• Under Brazilian GAAP all series are accounted for as equity instruments and (ii) U.S. GAAP has stricter rules for the definition of the grant date compared to Brazilian GAAP; under U.S. GAAP, stock options of the gold series are not considered to have a grant date, and will be measured and recorded when exercised; under Brazilian GAAP this series is accounted for as equity instrument;

• Deferred charges – In accordance with the new Brazilian rules, we wrote-off the deferred charges as of the transition date (January 1, 2007); the procedure is now with the same as under U.S. GAAP, and

• Derivatives – Under Brazilian GAAP, financial instruments and derivatives were accounted for until December 31, 2006, at cost or contract value with footnote disclosure of the type and amounts of financial instruments and derivatives. We recorded our derivative activities by the net assets or liabilities amounts measured at the spot rates at the balance sheet date. Under U.S. GAAP, SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" establishes accounting and reporting standards for derivative instruments and for hedging activities and requires an entity to recognize all derivatives as either assets or liabilities and measure those instruments at fair value. Differences between Brazilian GAAP and U.S. GAAP in 2007 and 2008 are related to the fact that we have used the exemption in the transition date and have applied hedge accounting under Brazilian GAAP. For U.S. GAAP, we do not apply hedge accounting.

     The principal differences between Brazilian GAAP and U.S. GAAP that affected our net income in 2008 and 2007, as well as shareholders’ equity at December 31, 2008 and 2007, are described in note 26 to our audited consolidated financial statements for the years ended December 31, 2008 and 2007 included in this annual report.

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Brazilian Economic Environment

     We operate our business in Brazil and therefore the Brazilian macroeconomic situation and factors such as unemployment rate, the availability of credit and average wages in Brazil have an impact on our financial condition and results of operations.

     The average unemployment rate in 2006 in the principal metropolitan regions of Brazil increased from 9.8% for the year ended December 31, 2005 to 10.0% for the year ended December 31, 2006, according to estimates from IBGE. In 2006, inflation, as measured by the Broad Consumer Price Index (Índice Nacional de Preços ao Consumidor Amplo), or IPCA, was 3.1% and the average long-term interest rate (Taxa de Juros de Longo Prazo), or TJLP interest rate was 6.9% per annum. GDP grew by 3.8% in the same year. In 2006, the real appreciated 9.5% against the U.S. dollar. Notwithstanding the real’s appreciation, Brazil’s current account balance was US$13.5 billion.

     The average annual unemployment rate in 2007 in the principal metropolitan regions of Brazil decreased from 10.0% for the year ended December 31, 2006 to 9.3% for the year ended December 31, 2007, according to estimates from the Development Studies Institute (Instituto de Estudos para o Desenvolvimento). In 2007, the inflation rate, as measured by the IPCA, was 4.5% and the average TJLP interest rate was 6.3% per annum. GDP grew by 5.4% in the same year. The real appreciated 20.7% against the U.S. dollar in 2007.

     The average annual unemployment rate in 2008 in the principal metropolitan regions of Brazil decreased from 9.3% for the year ended December 31, 2007 to 7.9% for the year ended December 31, 2008, according to estimates from IBGE.

     The year 2008 was marked by the worsening of the global financial and economic crisis. The main impact of the crisis on the Brazilian economy has been the deterioration of expectations for economic performance in 2009 and, to a lesser degree, in 2010. Consequently, the Brazilian economy has experienced higher lending rates, currency devaluation, fall in stock prices and shrinking industrial production.

     In 2008, inflation, as measured by IPCA, was 5.9% . Inflation remained within the targets established by the Central Bank, which were between 2.5% and 6.5% due to the monetary policy that resulted in the increase of the basic interest rate over the course of the year. The annual basic interest rate increased from 11.25% on December 31, 2007 to 13.75% on December 31, 2008.

     In the first half of 2008, retail business remained strong and according to Fecomércio – Federação de Comércio do Estado de São Paulo, the sector had a sales growth of 5.9% . In the second half of 2008 the economy began to reflect the effects of the international crisis due to decreasing liquidity and availability of consumer credit. This led to the slow down in sales in certain industries, in particular in the automobile industry, in which sales fell 10.2% in the fourth quarter of 2008, as compared to the same period in 2007, in accordance with data from IBGE. On the other hand, there was a growth of 2.8% in sales during the Christmas season as compared to the previous year according to SERASA, a provider of credit reporting services.

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     The table below shows real GDP growth, inflation, interest rates and the real/U.S. dollar exchange rate for the years indicated:

    For the year ended December 31, 
   
    2008    2007    2006    2005    2004 
           
Real GDP growth    5.1%    5.4%    2.9%    2.3%    4.9% 
Inflation (General Market Price Index, or IGP-M)(1)   9.8%    7.8%    3.8%    1.2%    12.4% 
Inflation (IPCA) (2)   5.9%    4.5%    3.1%    5.7%    7.6% 
SELIC rate at the end of the period    13.75%    11.3%    13.3%    18.0%    17.8% 
Exchange rate at end of period (U.S.$1.00)   R$2.337    R$1.771    R$2.138    R$2.341    R$2.654 
Average exchange rate (U.S.$1.00)   R$1.8375    R$1.948    R$2.177    R$2.413    R$2.917 

________
(1) Índice Geral de Preços – Mercado (general price index) compiled by the Fundação Getúlio Vargas.
(2) Índice de Preços ao Consumidor Amplo (consumer price index) compiled by IBGE.

     Effects of Exchange Rate Variation and Inflation on Our Financial Condition and Results of Operations

     The depreciation or appreciation of the real against the U.S. dollar has had and may continue to have multiple effects on our results of operations. Exchange gains and losses arising from our transactions in U.S. dollars (excluding transactions which are covered by cross-currency interest rate swaps) are recorded directly in our statement of operations.

     Inflation and exchange rate variations have had, and may continue to have, effects on our financial condition and results of operations. One significant effect of inflation and exchange rate variations relates to our costs and operating expenses. Substantially all our cash costs (i.e., other than depreciation and amortization) and operating expenses are in reais and tend to increase with Brazilian inflation because our suppliers and service providers generally increase prices to reflect Brazilian inflation.

     The devaluation of the real affects the amount available for distribution when measured in U.S. dollars. Amounts reported as available for distribution in our statutory accounting records prepared under Brazilian GAAP will decrease or increase when measured in U.S. dollars as the real depreciates or appreciates, respectively, against the U.S. dollar. In addition, the devaluation of the real creates foreign exchange losses which are included in the results of operations determined under Brazilian GAAP which affect the amount of inappropriate earnings available for distribution.

     We manage financial market risk, principally by “swapping” a substantial portion of our U.S. dollar-denominated liabilities for obligations denominated in reais. Our policy has been to swap all foreign currency debt at fixed rates for reais debt using a fixed percentage of a floating rate, except for import financing.

     We engage in cross-currency interest rate swaps under which we enter into an agreement typically with the same counter-party which provides the original U.S. dollar-denominated financing. A separate financial instrument is signed at the time the loan agreement is consummated, under which we are then effectively liable for amounts in reais and interest at a percentage of the CDI. The term of the swap contract matches the term of the underlying obligation; we have not terminated any of our contracts prior to maturity. The counter-parties to these contracts are major financial institutions that have acceptable credit ratings.

     We use these derivative financial instruments for purposes other than trading and do so only to manage and reduce our exposure to market risk resulting from fluctuations in interest rates and foreign currency exchange rates.

     Under Brazilian GAAP, we account for these instruments under the fair value hedge with resulting effect in the income statement. We record both the interest expense from the original loan and the net realized and unrealized effect of the results of the cross-currency interest rate swaps under “Financial expense – interest expense.” If the results of applying the variation of the U.S. dollar plus the original fixed coupon, that is, the original characteristics of the financial instrument, exceed the product of applying the CDI rate, we record this benefit reducing our “Financial expense – interest expense” to reflect the gain accruing as a result of our having opted to swap the currency and interest rate components. If the inverse were to occur, an additional charge is recorded under “Financial expense – interest expense” to reflect the loss accruing as a result of our having opted to swap the currency and interest rate components. Accordingly, if the real devalues against the U.S. dollar, the cross-currency interest rate swaps assure that we mitigate the effects of the loss from the devaluation. Under U.S. GAAP, we account for these financial instruments at fair value with resulting effect in the income statement.

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Tax Environment

     We are currently involved in tax proceedings as discussed in note 16 to our audited consolidated financial statements included in this annual report and “Item 8A – Financial Information – Consolidated Statements and Other Financial Information – Legal Proceedings.” We record provisions for our estimated costs for the resolution of these claims when we consider the loss of our claim to be probable and for existing tax obligations under dispute. The tax contingencies relate primarily to taxes on revenue, social security contributions and income tax. We have identified probable losses and existing tax obligations under dispute in the amount of R$1,479.2 at December 31, 2008 (R$1,309.8 million at December 31, 2007) that have been recorded as liabilities on our consolidated financial statements. This estimate has been developed based on consultation with outside legal counsel handling our defense in these matters and is based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. We do not believe these tax proceedings will have a material adverse effect on our financial position. It is possible, however, that future results of operations could be materially affected by changes in our assumptions and the effectiveness of our strategies with respect to these proceedings.

     Income taxes in Brazil generally include federal income tax and social contribution on net profits. The overall tax rate is currently 34%, which includes income tax (15% plus a surtax of 10% on taxable income exceeding R$20,000 per month, or R$60,000 per quarter, or R$240,000 per year) and social contribution on net profits (9%).

2008 Business and Economic Environment

     During 2008, we observed an increase of purchasing power mainly in respect of the classes B and C, which account for 74.2% of the Brazilian population. This increase resulted from the actual growth of the minimum wage and lower interest rates, resulting in a better consumption level.

Certain Operating Data

     The following table presents the net sales revenue in reais for each of our store formats for the years ended December 31, 2008, 2007 and 2006.

    Year Ended December 31, 
   
             
    2008    2007    2006 
       
    (millions of reais, except percentage amounts)
                         
Net sales revenue by store format:                         
Pão de Açúcar(a)   R$3,379.2    18.8%    R$3,149.1    21.1%    R$3,091.7    22.3% 
Extra(*)   9,120.0    50.6    7,664.8    51.4    7,050.1    50.8 
Extra Eletro    294.6    1.6    260.8    1.8    285.6    2.1 
CompreBem(b)   2,572.8    14.3    2,477.1    16.6    2,279.4    16.4 
Sendas(**)   1,397.2    7.7    1,150.5    7.7    1,173.6    8.4 
Assai    1,269.4    7.0    200.6    1.4     
     Total net sales revenue    R$18,033.1    100.0%    R$14,902.9    100.0%    R$13,880.4    100.0% 
             

(*) Includes Extra Perto and Extra Fácil sales.
(**) Sendas stores which are part of Sendas Distribuidora S.A.
(a) Six CompreBem stores in Pernambuco state were transferred from the Pão de Açúcar banner to the CompreBem banner.
(b) 14 CompreBem stores were transferred from the CompreBem banner to the Sendas banner.

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Results of Operations for 2008, 2007 and 2006

     The following table summarizes our historical results of operations for the years ended December 31, 2008, 2007 and 2006. The results of operations for the years ended December 31, 2008 and 2007 were calculated in accordance with the new rules under Law No. 11,638/07. Consequently, they are only to a limited extent comparable to the results of operations for the year ended December 31, 2006. For a qualitative and quantitative analysis of the impact of Law no. 11,638/07 on our results of operations, see note 2 (c) to our financial statements for the year ended December 31, 2008 included in this annual report.

    Year Ended December 31, 
   
        (restated)   (not restated)
    2008    2007    2006 
       
    (millions of reais, except percentages)
Statement of operations data                         
 
Brazilian GAAP:                         
Net sales revenue    18,033.1    100.0    14,902.9    100.0    13,880.4    100.0 
Cost of sales    (13,279.5)   (73.6)   (10,724.5)   (72.0)   (9,963.0)   (71.8)
             
                         
Gross profit    4,753.6    26.4    4,178.4    28.0    3,917.4    28.2 
Selling, general and administrative expenses    (3,431.1)   (19.0)   (3,186.0)   (21.4)   (3,031.1)   (21.8)
Depreciation and Amortization    (604.7)   (3.4)   (546.6)   (3.7)   (547.9)   (3.9)
Financial income    291.5    1.6    299.7    2.0    382.8    2.8 
Financial expense    (608.3)   (3.4)   (501.6)   (3.4)   (603.4)   (4.3)
Equity    2.9    0.0    (28.9)   (0.2)   (53.2)   (0.4)
             
                         
Operating income    403.9    2.2    215.0    1.4    64.7    0.5 
Operating income (expense), net    (10.9)   (0.1)   (9.1)   (0.1)   (323.2)   (2.3)
             
                         
Income / (loss) before income taxes    393.0    2.2    205.9    1.4    (258.5)   (1.9)
Income tax (expense) benefit:                         
     Current    (144.3)   (0.8)   (49.7)   (0.3)   (92.2)   (0.7)
     Deferred    33.3    0.2    36.2    0.2    90.7    0.7 
Employee profit sharing    (22.2)   (0.1)   (13.4)   (0.1)   (13.4)   (0.1)
Minority interest    0.7    0.0    6.7    0.0    359.0    2.6 
             
Net income    260.5    1.4    185.7    1.2    85.6    0.6 
             

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007 (restated)

     Net sales revenue. Net sales revenue increased by 21.0% to R$18,033.1 million in the year ended December 31, 2008 from R$14,902.9 million in the year ended December 31, 2007, mainly due to the following factors in each of our banners.

     Pão de Açúcar net sales revenue increased by 7.3% to R$3,379.2 million in 2008 from R$3,149.1 million in 2007. This increase was a result of the strong performance of the Pão de Açúcar banner in the Northeast and Midwest regions and the consolidation of the management of the Pão de Açúcar banner that helped to create a single identity for this banner in Brazil while respecting regional characteristics.

     CompreBem net sales revenue increased by 3.9% to R$2,572.8 million in 2008 from R$2,477.1 million in 2007. This increase was a result of the implementation of a new business operating model which improved the banner’s pricing strategies, marketing activities, understanding of customer needs, and management control.

     Sendas net sales revenue increased by 21.4% to R$1,397.2 million in 2008 from R$1,150.5 million in 2007. This increase was mainly due to an increase of our customer base and a series of actions including clustering, which enabled better assortment of our products, improved communication with the diverse socio-economic classes in Rio de Janeiro, improved cash control, reduced dependence of sales on offers and the consolidation of partnerships with regional suppliers.

     Extra net sales revenue increased by 19.0% to R$9,120.0 million in 2008 from R$7,664.8 million in 2007. This increase was a result of the new management model implemented by Claudio Galeazzi in 2008, which gave the regions greater autonomy and contributed to the integrated management of the banners with the focus on results in each region. The new positioning resulted in adjustments to headcount at stores, employee training, improvements in operations, revision of the destination categories, increase in customer flow and a more efficient pricing policy.

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     Extra Eletro net sales revenue increased by 13.0% to R$294.6 million from R$260.8 million in 2007. This increase was a result of the increase in our overall non-food sales, especially consumer electronics, operational improvements and a new credit policy with a closer partnership with FIC.

     Assai net sales revenue totaled R$1,269.4 million in 2008. The fiscal year of 2008 was the first full year of operation of this banner since it was integrated into our Group.

     Gross Profit. Our total gross profit increased by 13.8% to R$4,753.6 million in 2008 from R$4,178.4 million in 2007. Our gross margin decreased to 26.4% in 2008 from 28.0% in 2007. The increase of the gross profit and the decrease of the gross margin were mainly the result of : (i) the incorporation of the Assai chain, whose margins are lower than our average gross margin; (ii) the maintenance of a competitive price strategy and the increased sales participation in electronics, where margins are narrower than in the food products segment; and (iii) the change in the way is the State Value-Added Tax on Sales and Services (Imposto sobre Operações relativas à Circulação de Mercadorias e Serviços), or ICMS was collected as of the second quarter of 2008, especially in the São Paulo (state), which increased the cost of goods sold (COGS) and the net revenues because the ICMS is no longer booked under sales taxes but under COGS.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by 7.7% to R$3,431.1 million in 2008 from R$3,186.0 million in 2007. This increase was mainly a result of costs in connection with the implementation of a new management model. To a lesser extent, the increase was due to higher salary expenses in 2008 because of an increase in store openings and collective bargaining.

     Depreciation and Amortization. Depreciation and amortization increased by 10.6% to R$604.7 million in 2008 from R$546.6 million in 2007. This increase was a result of an overall increase in the depreciation of our assets because of additional store openings and the amortization of goodwill in connection with our acquisition of Assai.

     Financial Income. Our financial income decreased by 2.7% to R$291.5 million in 2008 from R$299.7 million in 2007. This decrease was a result of a reduction in interest revenues in connection with our installment sales.

     Financial Expenses. Our financial expenses increased by 21.3% to R$608.3 million in 2008 from R$501.6 million in 2007. This increase was result of an increase in gross debt, adjustments to provisions for contingencies and the consolidation of the leasing of the Assai stores in 2008.

     Equity income. Our equity income increased from negative R$28.9 million in 2007 to positive R$2.9 million in 2008. The increase was mainly due to a more stringent credit granting policy which resulted in FIC’s card portfolio recording one of the lowest default ratios since its creation, and, to a lesser extent, the implementation of initiatives that increased the use of private label and co-branded cards.

     Income (Expense) Before Income Taxes, Employee Profit Sharing and Minority Interest. Income taxes, employee profit sharing and minority interest increased by 90.9% to R$393.0 million in 2008 from R$205.9 million in 2007. This increase was a result of an increase in sales and a decrease in expenses.

     Income Tax Benefits (Expense). Income tax expenses increased by 722.2% to R$111.0 million in 2008 from R$13.5 million in 2007. The increase was mainly due to the increase in income before income taxes, employee profit sharing and minority interest as disclosed above and a deferred tax credit of R$ 55.0 million from Sendas Distribuidora that was recorded in 2007.

     Employee Profit Sharing. The profit sharing paid to employees in 2008 represented R$22.2 million compared to R$13.4 million in 2007. The increase was a result of our increased headcount and collective bargaining by our employees.

     Net Income. Net income increased by 40.3% to R$260.5 million in 2008 from R$185.7 million in 2007 as a result of the factors discussed above.

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Year Ended December 31, 2007 (restated) Compared to Year Ended December 31, 2006 (not restated)

     Net sales revenue. Net sales revenue increased by 7.4% to R$14,902.9 million in the year ended December 31, 2007 from R$13,880.4 million in the year ended December 31, 2006 mainly due to the following factors in each of our banners:

     Pão de Açúcar banner net sales revenue increased by 1.9% to R$3,149.1 million in 2007 from R$3,091.7 million in 2006. This increase was the result of the opening of three stores on the second half of 2006 and one store in 2007. Pão de Açúcar banner recorded the best performance in terms of store sales among our banners for 2007 with gross sales of R$3,743.6 million, representing an increase of 2.7% relative to 2006.

     CompreBem net sales revenue increased by 8.7% to R$2,477.1 million in 2007 from R$2,279.4 million in 2006. This increase was due to the opening of nine stores in late 2006 and five new store in 2007 as well as the renovation of 20 stores in 2007.

     Sendas net sales revenue decreased by 2.0% to R$1,150.5 million in 2007 from R$1,173.6 million in 2006. This decrease was due to the closing of three stores and the conversion of one store to the CompreBem banner in late 2006.

     Extra net sales revenue increased by 8.7% to R$7,664.8 million in 2007 from R$7,050.1 million in 2006, mainly as a result of the opening of five new stores in late 2006 and seven new stores in 2007 as well as the conversion of one store from the Pão de Açúcar format to the hypermarket format (fully rebuilt) in 2007.

     Extra Eletro net sales revenue decreased by 8.7% to R$260.8 million in 2007 from R$285.6 million in 2006. This decrease was mainly due to the closing of eight stores in 2007.

     We acquired the Assai stores in November 2007 and cannot therefore provide a year-to-year comparison of this banner’s net sales revenue.

     Gross Profit. Our total gross profit increased by 6.7% to R$4,178.4 million in 2007 from R$3,917.4 million in 2006, mainly as a result of a review of our pricing policy which enhanced our competitiveness and overall profitability beginning in the second half of 2006. In 2007, our new pricing policy was already fully reflected in our results. Our gross margin decreased to 28.0% in 2007 from 28.2% in 2006.

     Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by 5.1% to R$3,186.0 million in 2007 from R$3,031.1 million in 2006. This increase was mainly a result of costs in connection with an internal restructuring and an increase in store openings. In addition, the increase was a result of the application of the new rules under Law No. 11,638/07 for the calculation of our selling, general and administrative expenses in 2007. The application of the new rules increased our selling, general and administrative expenses in 2007 by R$33.6 million.

     Selling, general and administrative expenses as a percentage of net sales decreased by 0.4% to 21.4% in 2007 from 21.8% in 2006. This decrease resulted mainly from the expense reduction programs that were implemented in 2006 and consolidated in 2007. These programs modified our administrative structure and generated economies of scale and productivity gains in various managerial processes

     Depreciation and Amortization. Depreciation and amortization decreased by 0.2% to R$546.6 million in 2007 from R$547.9 million in 2006. The decrease was mainly a result of the application of the new rules under Law No. 11,368/07 for the calculation of our depreciation and amortization in 2007. The application of the new rules decreased our depreciation and amortization in 2007 by R$4.1 million.

     Financial Income. Financial income decreased by 21.7% to R$299.7 million in 2007 from R$382.8 million in 2006, mainly due to a 32.3% reduction in our average cash position in 2007 and lower interest rates in 2007 as compared to 2006. In addition, the decrease was a result of the application of the new rules under Law No. 11,638/07 for the calculation of our financial income in 2007. The application of the new rules decreased our financial expenses in 2007 by R$44.7 million

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     Financial Expenses. Financial expenses decreased by 16.9% to R$501.6 million in 2007 from R$603.4 million in 2006. This reduction resulted from lower interest rates (Selic of 11.3% per year in 2007 as compared to 13.3% per year in 2006). In addition, the decrease was a result of the application of the new rules under Law No. 11,638/07 for the calculation of our financial expenses in 2007. The application of the new rules decreased our financial expenses in 2007 by R$54.1 million.

     Operating Income. Operating income increased by 232.3% to R$215.0 million in 2007 from R$64.7 million in 2006 as a result of the foregoing.

     Non-operating Income (Expense). Non-operating expenses decreased by 97.2% to R$9.1 million in 2007 from R$323.2 million in 2006. This decrease was due to the constitution of a provision for the partial reduction of goodwill of Sendas Distribuidora in 2006. Net non-operating income in 2007 also includes asset write-offs related to the closing of stores.

     Income (Expense) Before Income Taxes, Employee Profit Sharing and Minority Interest. Income taxes, employee profit sharing and minority interest represented a positive result of R$205.9 million in 2007 as compared to a negative result of R$258.5 million in 2006 due to the factors described above. Our income (expense) before income taxes, employee profit sharing and minority interest in 2007 would have amounted to R$226.1 million without the application of the new rules under Law No. 11,638/07.

     Income Tax Benefits (Expense). Income tax expenses increased by 800.0%, to R$13.5 million in 2007 from R$1.5 million in 2006. The effective tax rate increased from a negative basis of 0.6% to a positive basis of 5%. The main reason for such fluctuation is related to the recognition of deferred income tax assets for Sendas Distribuidora (which is consolidated under BRGAAP) In addition, the increase was a result of the application of the new rules under Law No. 11,638/07 for the calculation of our income tax benefits (expense) in 2007. The application of the new rules increased our income tax benefits (expense) in 2007 by R$2.2 million

     Employee Profit Sharing. The profit sharing paid to employees in 2007 represented R$13.4 million, compared to R$13.4 million in 2006, taking into account the headcount and years of service at the Company.

     Net Income. Net income increased by 116.9% to R$185.7 million in 2007 from R$85.6 million in 2006 due to reasons mentioned above.

     5B. Liquidity and Capital Resources

     We have funded our operations and capital expenditures mainly from operating cash flows, loans obtained from the Brazilian National Bank for Economic and Social Development, or BNDES, issuances of debentures and loans from banks. In addition, we fund our working capital needs through a receivables securitization investment fund (PAFIDC).

     At December 31, 2008, we had R$1,625.6 million in cash and cash equivalents. We have a policy of maintaining substantial cash and cash equivalents in order to be in a position to respond immediately to liquidity requirements.

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     Our main cash requirements include:

  • the servicing of our indebtedness;

  • capital expenditures, including the construction and remodeling of new stores and investments in our infra-structure;

  • consumer credit;

  • acquisitions of other supermarket chains; and

  • distribution of dividends and interest on shareholders’ equity.

     Our primary sources of liquidity have historically been cash flows from our operating activities and borrowings. Net cash from operating activities was R$1,240.9 in 2008, R$976.8 million in 2007 and, R$1,051.1 million in 2006. Net cash provided by (used in) financing activities was R$(194.7) million in 2008, R$(71.0) million in 2007 (after payment of R$20.3 million in dividends) and R$(562.1) million in 2006 (after payment of R$62.1 million of dividends). In 2008, these cash flows were primarily used for investments in the capital expenditures program, totaling R$517.1 million.

     At December 31, 2008, our total outstanding debt was R$3,415.6 million, consisting of:

  • R$2,477.2 million in real-denominated loans,

  • R$926.9 million in U.S. dollar-denominated debt, and

  • R$11.5 million in debt linked to a basket of foreign currencies to reflect BNDES’ funding portfolio, plus an annual spread.

     At December 31, 2008, R$926.9 million of our debt was U.S. dollar denominated. In addition, we have R$11.5 million of debt in favor of BNDES that is linked to a basket of foreign currencies, for which we have swap agreements to mitigate foreign currency risk. During the last years we have adopted a treasury policy to manage financial market risk, principally by entering into swaps into reais for more than 95% of our U.S. dollar-denominated liabilities. We engage in cross-currency interest rate swaps under which we enter into an agreement typically with the same counter-party that provides the original U.S. dollar-denominated financing. A separate financial instrument is signed at the time the loan agreement is consummated, under which we are then effectively liable for amounts in reais and interest at a percentage of the CDI rate. The reference amounts and maturity periods of these swaps normally correspond to the original U.S. dollar-denominated loan. This policy protects us against losses resulting from currency devaluations. Under Brazilian GAAP and U.S. GAAP we account for these swap agreements as fair value hedge, the gain or loss from remeasuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreign currency component of its carrying amount. See “Item 5A. Operating and Financial Review and Prospects—Operating Results—Brazilian Economic Environment” for additional information on our swap transactions.

     We may in the future enter into cross-currency swap agreements and other swap transactions designed to manage our remaining exposure to foreign currency liabilities, namely our import-finance credit lines.

     Total debt at December 31, 2008 increased by R$197.5 million to R$3,415.6 in 2008 from R$3.218.1 million in 2007. Our most significant debt was incurred in connection with the acquisition and construction of new stores, and with the remodeling of the existing stores. Our cash interest expense was R$318.0 million in 2008, R$498.5 million in 2007 and R$113.6 million in 2006.

     We have entered into five lines of credit agreements with BNDES, which are either denominated in reais and subject to indexation, based on the TJLP plus an annual spread, or are denominated based on a basket of foreign currencies to reflect BNDES’ funding portfolio, plus an annual spread. Amortizations will be in monthly installments after a grace period. BNDES has been historically an important source of financing for new stores and the acquisition of supermarket chains. For more information regarding our lines of credit with BNDES, see note 13 (b) to our audited consolidated financial statements included in this annual report.

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     We cannot offer any assets as collateral for loans to third parties without the prior authorization of BNDES and must comply with the following negative covenants measured in accordance with Brazilian GAAP: (i) maintain a capitalization ratio (shareholders’ equity/total assets) equal to or in excess of 0.40 and (ii) maintain a current ratio (current assets/current liabilities) equal to or in excess of 1.05.

     We issued a number of convertible and non-convertible debentures between 1997 and 2007, some of which have since been converted into our non-voting preferred shares.

     On March 1, 2007, the shareholders approved the sixth issuance and public placement of debentures. We received proceeds equivalent to R$779.6 million, for 77,965 non-convertible debentures issued as the first (54,000) and second (23,965) series of this sixth issuance. The debentures are indexed to the average CDI rate and accrue an annual spread of 0.5%, which is payable semi-annually. The principal amount will be repaid in three equal installments on March 1, 2010, 2011 and 2012. At December 31, 2008, we had 77,965 non-convertible debentures outstanding from the first and second series of our sixth issuance, totaling R$814.7 million. We are required to comply with the following negative covenants measured in accordance with Brazilian GAAP: (i) net debt (debt less cash and cash equivalents and accounts receivable) no higher than the balance of shareholders’ equity; and (ii) maintenance of a ratio between net debt and EBITDA less than or equal to 3.25.

     For more information on our non-convertible debentures, see note 13 (d) to our audited consolidated financial statements included in this annual report.

     On September 19, 2003, we concluded the structure of “Pão de Açúcar Fundo de Investimento em Direitos Creditórios” (or “PAFIDC”), a receivables securitization fund. The PAFIDC has duration of five years, renewable for one additional five-year period, beginning from the date of the first subscription of quotas. The capital structure of PAFIDC was composed of 80.6% senior quotas held by third parties and 19.4% subordinated quotas held by us. Senior quotas were divided in two series: Series A for which the benchmark remuneration (i) was 103% of the CDI rate during the period beginning on the date of the first subscription of quotas and ending on February 20, 2004 and (ii) is 105% of the CDI rate as from February 21, 2004; and Series B for which the benchmark remuneration is 101% of the CDI rate. The holders of senior quotas series B redeemed on June 23, 2007 the principal amount of R$150.8 million. The series A quota holders of R$629.3 million will redeem their quotas at the end of the fund's duration. The senior C quota holders of R$150.7 million will redeem their quotas at the end of the fund's duration. Upon consolidation of PAFIDC, senior quotas are recorded as current and non-current loans and financing. Subordinated quotas have a single series. Beginning in February 2004, the quotas are nominative and could be listed for negotiation the over-the-counter market. We hold a retained interest of 19.2% (subordinated quotas) and will redeem the subordinated quotas only after the redemption of senior quotas (or at the end of the PAFIDC's duration). Subordinated quotas are non-transferable and nominative. Once the senior quotas have been remun erated, the subordinated quotas receive the balance of the PAFIDC's net assets after absorbing any default on the credit rights transferred to PAFIDC and any losses attributed to the PAFIDC.

     We invested R$100.0 million in October 2003, R$29.9 million in July 2004 and R$7.7 million in September 2007, in subordinated quotas of PAFIDC and transferred credit rights to the securitization fund. In 2008, we transferred to PAFIDC customer credit financing and accounts receivable from credit card companies, in securitization transactions totaling R$8,057.1 in 2008, R$7,381.4 million in 2007 and R$7,299.7 million in 2006. The outstanding balance of these receivables at December 31, 2008 was R$983.5 and R$825.6 million in 2007. For all securitizations, we retained servicing responsibilities and subordinated interests. The default credits will be collected by PAFIDC’s administrator, which will be assisted by our collection department, for which we do not receive fees for such service. The quota holders of senior quotas have no recourse to our other assets for failure of debtors to pay when due. As defined in the agreement between us and PAFIDC, the transfer of credit rights is irrevocable, non-retroactive and the transfer is definitive and not enforceable against us. PAFIDC is consolidated into our financial statements.

     In 2008, our capital expenditures totaled R$517.1 million. These investment projects were financed primarily from our operating cash flow and, to a lesser extent, by third parties. Our capital expenditures were R$1,293.9 in 2007 and R$902.2 million in 2006. For specific use of our capital expenditures in 2008, see “Item 4A – Information on the Company — History and Development of the Company — Capital Expansion and Investment Plan.”

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     We believe that existing resources and operating income will be sufficient to complete the capital expansion and investment program described above and meet our liquidity requirements. However, our capital expansion and investment plan is subject to a number of contingencies, many of which are beyond our control, including the continued growth and stability of the Brazilian economy. We cannot assure you that we will successfully complete all of or any portion of our capital expansion and investment plan. In addition, we may participate in acquisitions not budgeted in the capital expansion and investment plan, and we may modify these plans.

     5C. Research and Development, Patents and Licenses, Etc.

     We do not have any significant research and development policies.

     5D. Trend Information

     The trends, that influence our sales, are primarily the patterns of consumer purchases through the year and the effects on consumer disposable incomes of such factors as economic conditions, consumer confidence, level of employment and credit conditions.

     5E. Off-balance sheet arrangements

     We do not maintain any off-balance sheet transactions, arrangements, obligations or other relationships with unconsolidated entities or others that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

     5F. Tabular disclosure of contractual obligations

     The following table summarizes significant contractual obligations and commitments at December 31, 2008:

    Payment Due by Period 
   
        Less than one    One to three    Three to five    After five 
Contractual Obligations    Total    year    years    years    years 
           
        (in millions of reais)    
 
Long–term debt    2,043.6    259.6    1,756.0    28.0   
Debentures    814.8    36.9    518.6    259.3   
Estimated interest payments(1)   100.8    38.6    44.3    17.9   
Taxes, other than on income    266.1    65.3    108.5    82.2    10.1 
Sales lease back    1,060.0    13.1    29.6    35.0    982.3 
Financial Leasing    95.9    31.2    30.5    1.8    32.4 
Operating lease(2)   801.7    180.9    279.3    187.1    154.4 
Puttable Minority Interest    132.0        132.0   
Other                     
           
Total contractual obligations    5,314.9    625.6    2,766.8    743.3    1,179.2 
           

(1) Estimated interest payments include unrealized losses on cross-currency and interest rate swap contracts. Estimated interest payments and foreign currency losses were determined considering the interest rate and exchange rate at December 31, 2008. However, our long- term debt is subject to variable interest rates and inflation indices, and these estimated payments may differ significantly from the payments actually made.
(2) Operating leases include minimum rental obligations.

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ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     6A. Directors and Senior Management

Board of Directors

     Our board of directors is currently composed of the following members:

Name    Position    Since 
Abilio dos Santos Diniz    Chairman    1995 
Ana Maria Falleiros dos Santos Diniz D’Avila    Director    2003 
João Paulo Falleiros dos Santos Diniz    Director    1999 
Pedro Paulo Falleiros dos Santos Diniz    Director    2003 
Geyze Marchesi Diniz    Director    2005 
Jean-Charles Henri Naouri    Director    2005 
Jean Louis Bourgier    Director    2009 
Hakim Laurent Aouani    Director    2005 
Antonie Marie Remi Lazars Giscard D’Estaing    Director    2009 
Jacques-Edouard Marie Charret    Director    2008 
Maria Silvia Bastos Marques    Director    2003 
Candido Botelho Bracher    Director    2005 
Fábio Schvartsman    Director    2007 
Guilherme Affonso Ferreira    Director    2008 

     Mr. Abilio dos Santos Diniz is the chairman of our board of directors since 2003.   His professional career was entirely dedicated to the Pão de Açúcar Group, from his initial position as sales manager to the position he currently occupies. He was responsible for our Company’s major business upturn and, as chief executive officer, promoted the implementation of corporate governance policies and management professionalization. Since 1999, he is also a member of the board of directors of the Casino Group. Mr. Diniz is one of the founders of the São Paulo Supermarket Association ( Associação Paulista de Supermercados), or APAS, and ABRAS.  He was also member of the Brazilian Monetary Council for ten years. He is currently a member of the Federal Government Economic and Social Development Council. Mr. Abilio Diniz holds a bachelor’s degree in Business Administration from Fundação Getúlio Vargas and has attended Columbia University in New York and the University of Ohio in Dayton.

     Mrs. Ana Maria Falleiros dos Santos Diniz D’Avila is a member of our board of directors since 2003.  Previously, she was our chief operations officer and responsible for the human resources, marketing and consumer services departments. She is a founding partner of Sykué Bioenergia and also founder of Axialent do Brasil. Ms. D’Ávila holds a bachelor’s degree in business administration from Fundação Armando Álvares Penteado (FAAP) and a postgraduate degree in marketing from Fundação Getúlio Vargas. She graduated in owner/president management from Harvard Business School. She is involved in several educational projects including Todos Pela Educação and Parceiros da Educação. Mrs. Diniz D’Ávila is the daughter of Mr. Abilio Diniz.

     Mr. João Paulo Falleiros dos Santos Diniz is a member of our board of directors since 1999.  Mr. João Paulo Diniz started his career in the Company in 1985 and was director of development and new business and director responsible for our affiliated companies and international division, having also been responsible for the Company’s assets. Mr. Diniz holds a bachelor’s degree in business administration from Fundação Getúlio Vargas and has attended the London Business School.  Mr. João Paulo Diniz is the son of Mr. Abilio Diniz.

     Mr. Pedro Paulo Falleiros dos Santos Diniz is a member of our board of directors since 2003.  Mr. Pedro Paulo is a businessman, and shareholder of PPD Holding, an investment company, in addition to being partner and co-founder of Greentech, an investment fund that invests in environmentally friendly, clean technology companies including Sucral, Sykué, Veridas, Panozon, GT Water and Brazil Timber. He has also found companies in the gastronomy and leisure sector. Mr. Pedro Paulo Diniz is son of Mr. Abilio Diniz.

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     Mrs. Geyze Marchesi Diniz is a member of our board of directors since 2005.  Mrs. Marchesi Diniz is the owning-partner of ING11 Consultoria Empresarial e Planejamento Estratégico Ltda. She holds a bachelor’s degree in economy from Universidade Mackenzie, and an MBA in business management from Fundação Getúlio Vargas. Mrs. Marchesi Diniz is Mr. Abilio Diniz’s wife.

     Mr. Jean-Charles Henri Naouri is a member of our board of directors since 2005. Mr. Naouri is Chairman and Chief Executive Officer of Casino group. Mr. Naouri has a degree in sciences from Ecole Normale Supérieure, has studied at Harvard University and at Ecole Nationale d’Administration.

     Mr. Jean Louis Bourgier is a member of our board of directors since 2009. Mr Bourgier has been a member of the Casino Group since 1989 and is currently the director of international operations, having previously held the positions of restaurant activity director, supermarket and convenience store director, international vice president, manager of the Taiwan branch and director of corporate projects. Before working with the Casino Group, he worked at Procter & Gamble, RJ Reynolds and Burger King. Mr. Bourgier graduated in business management from ESSEC in France.

     Mr. Hakim Laurent Aouani is a member of our board of directors since 2005. Mr. Aouani is Director of Corporate Finance at Casino group. Mr. Aouani received a degree from SUPELEC Engineering School with a major in telecommunication and also holds a degree in business administration from HEC Business School.

     Mr. Antonie Marie Remi Lazars Giscard D’Estaing is a member of our board of directors since 2009. Mr. D’Estaing is the financial director of the Casino Group. He was previously financial, strategy and IT director of the Danone Group, and more recently, partner at Bain & Company. Mr. D’Estaing holds a degree in administration from the HEC Business School and the École Nationale d’Administration.

     Mr. Jacques-Edouard Marie Charret is a member of our board of directors since 2008. Mr. Charret is Marketing and Commercial – Food Products Director of Casino group. Mr. Charret has a degree in Economy and earned a MBA in marketing.

     Mrs. Maria Silvia Bastos Marques is a member of our board of directors since 2003. Mrs. Marques is the Chief Executive Officer of Icatu Hartford. She was the former President of the Instituto Brasileiro de Siderurgia, Chief Executive Officer of Companhia Siderúrgica Nacional, Municipal Secretary of Finance of the City of Rio de Janeiro and Director of Banco Nacional de Desenvolvimento Econômico e Social – BNDES. Mrs. Marques has a degree in Public Administration from Fundação Getúlio Vargas, where she also earned masters degree and doctoral degree in economics.

     Mr. Candido Botelho Bracher is a member of our board of directors since 2005. Mr. Bracher was a director of Banco Itamarati S.A. and Vice President of BADESP – Banco de Desenvolvimento do Estado de São Paulo S.A. Mr. Bracher is CEO of Banco Itaú BBA S.A. Mr. Bracher has a degree in Business Administration from Fundação Getúlio Vargas.

     Mr. Fábio Schvartsman is a member of our board of directors since 2007. Mr. Schvartsman was the chief executive officer of Telemar Participações and member of the board of directors of the companies Telemar Norte Leste, Contax and Gafisa. Mr. Schvartsman has a degree in Engineering and has post-graduation degrees in Production Engineering from Escola Politécnica da Universidade de São Paulo – USP and in Business Administration from Fundação Getúlio Vargas.

     Mr. Guilherme Affonso Ferreira is a member of our board of directors since 2008. Mr. Ferreira is the Chief Executive Officer of Bahema Participações S/A. Mr. Ferreira holds a degree in Production Engineering from Escola Politécnica da Universidade de São Paulo – USP and in Economics and Politics from Macalester College.

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Executive Officers

     The following table sets forth the name, position and the year of election of each of our executive officers. A brief biographical description of each of our executive officers follows the table:

Name    Position    First Year Elected 
Cláudio Eugênio Stiller Galeazzi    Chief Executive Officer    2007 
Enéas César Pestana Neto    Chief Financial Officer    2003 
José Roberto Coimbra Tambasco    Chief Operational Officer    2003 
Hugo Antonio Jordão Bethlem    Chief Supply Chain Officer    2003 
Antonio Ramatis Fernandes Rodrigues    Chief Commercial Officer    2007 
Caio Racy Mattar    Investment and Construction Officer    1995 
Sylvia de Souza Leão Wanderley    Hypermarkets Officer    2008 
Jorge Fernando Herzog    Regional Operations Officer    2008 
Claudia Elisa de Pinho Soares    Human Resources Officer    2009 
Daniela Sabbag    Investor Relations Officer    2006 

     Mr. Cláudio Galeazzi holds a degree in accounting and is partner and founder of Galeazzi & Associados. Due to the positive results of the work performed by Galeazzi & Associados in Sendas Distribuidora, he was hired as our Chief Executive Officer in 2007. He focused his professional activities in business management, participation in boards of directors and companies’ restructuring. At the age of 26, he served as Managing Director of the Argentinean and Brazilian subsidiaries of Dow Chemical Corp. Before the foundation of Galeazzi & Associados, he served as chairman of Cesbra, John Sommers (a joint venture between British Petroleum and Brascan) and as vice-chairman of British Petroleum Mineração do Brasil. He also served as Chairman of the Conselho Nacional do SESI (as appointed by the President of the Republic of Brazil), Executive Officer of Fiesp and IEL, and Vice-Chairman of ANFAC. During restructuring processes, he served as Chief Executive Officer of Artex, Mococa, Vila Romana, Cecrisa and Lojas Americanas, among others. Cláudio Galeazzi’s consulting firm will continue to render services to Sendas Distribuidora at the same conditions agreed before Cláudio became our Chief Executive Officer.

     Mr. Enéas César Pestana Neto has been our Chief Financial Officer since 2006 and began his career with us in 2003, as an Administrative Officer. He was the Vice-President of Laboratório Delboni Auriemo and has worked for GP Investimentos and Carrefour. Mr. Pestana holds a degree in Accounting from Pontifícia Universidade Católica de São Paulo – PUC.

     Mr. José Roberto Coimbra Tambasco is our Chief Operating Officer. Mr. Tambasco has a degree in Business Administration from Fundação Getúlio Vargas. Mr. Tambasco began his career with us in 1979 and has been our executive officer since 2003.

     Mr. Hugo A. Jordão Bethlem is our Chief Supply Chain Officer. Mr. Bethlem was the Commercial Officer of DiCicco, Jerônimo Martins, Parque Temático Play Center and Carrefour. Mr. Bethlem has a degree in Business Administration from Faculdades Metropolitanas Unidas – FMU and has a post-graduate degree in Administration from Cornell University. Mr. Bethlem began his career with us in 2001 and has been our executive officer since 2003.

     Mr. Antonio Ramatis Fernandes Rodrigues is our Chief Commercial Food Executive Officer. Mr. Rodrigues was the Commercial and Marketing vice-chairman of Grupo Bom Preço, the Commercial and Logistics vice-chairman of Grupo Sonae and the Commercial vice-chairman of C&A. Mr. Rodrigues has a degree in engineering from Fundação Armando Álvares Penteado – FAAP and holds a master degree in business administration from Universidade de São Paulo.

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     Mr. Caio Racy Mattar is our Investment and Construction Officer. He previously served as a member of the executive office of Reúne Engenharia e Construções Ltda. He is also a member of the board of directors of Paramount Lansul S.A., Sendas Distribuidora S.A. and Gafisa S.A. Mr. Mattar has an engineering degree from Instituto de Engenharia Paulista and has attended the London Business School. Mr. Mattar began his career with us in 1993 and has been our executive officer since 1995.

     Mrs. Sylvia de Souza Leão Wanderley is our Hypermarkets Officer. In 2000, Mrs. Leão began working at our Company as a commercial director. She has been an executive officer at our Company since April 2008. Prior to joining our Company, she worked as a Commercial and Marketing Director for Wal Mart and has also worked for Mesbla. Mrs. Leão has a degree in Social Communications from FACHA and an Executive MBA from UFRJ.

     Mr. Jorge Fernando Herzog has been our Regional Operations Officer since April 2008. He previously served as Sendas Distribuidora’s Operating Officer for two years. Prior to joining our Company, Mr. Herzog worked for Carrefour for 15 years in several areas such as Operating, Human Resources and Accounting. Mr. Herzog has a degree in Economy from Faculdade Dom Bosco.

     Mrs. Claudia Elisa de Pinho Soares has been our Human Resources Officer since 2009. Prior to joining our Company, she worked for Ambev for 17 years in managerial and director positions in Human Resources, Finance, Distribution and Logistics, and she also worked for Laticínios Morrinhos (Leitbom) as Director of Finance, IT and Human Resources. Mrs. Soares holds a degree in Business Administration from Pontifícia Universidade Católica do Rio de Janeiro – PUC, an MBA in General Management from INSEAD and in Human Resources from FIA – University of São Paulo – USP.

     Mrs. Daniela Sabbag is our Investor Relations Officer. Mrs. Sabbag has worked in our Investor Relations area since 2000, and in recent years was the Investor Relations Manager. Mrs. Sabbag has a degree in business administration and holds an MBA from Fundação Getúlio Vargas, with supplementary courses and post-graduate studies in business administration from Fipecafi at the Universidade de São Paulo. Previously, Mrs. Sabbag worked as an investment analyst (equity research) at Deutsche Bank, and with Supermercados in Jerônimo Martins. Mrs. Sabbag began her career with us in 2000 and has been our executive officer since 2006.

     6B. Compensation

     For the year ended December 31, 2008, the aggregate compensation paid in cash to all of our directors and executive officers and members of our committees as a group was approximately R$27.5 million. Non-cash benefits in 2008 included reimbursements of medical expenses to our executive officers and the use of our cars during working hours. There are no outstanding loans granted by us to our executive officers or members of our board of directors. We are not required under Brazilian law to disclose on an individual basis the compensation of our directors and executive officers, and we do not otherwise publicly disclose this information.

     In July 2007, the Company established a supplementary private pension plan of defined contribution to its employees by retaining the financial institution Brasilprev Seguros e Previdência S.A. for management purposes. When establishing the plan, the Company provides monthly contributions on behalf of its employees on account of services rendered to the Company. Contributions made by the Company in the year ended December 31, 2008, amounted to R$1.6 millions and employees’ contributions amounted to R$2.2 millions with 781 participants.

     First Stock Option Plan

     In 1997, our shareholders approved a compensatory stock option plan for our management and certain employees. Our stock option plan is designed to obtain and retain the services of executives and certain employees. Only options covering preferred shares are granted.

     Our stock option plan is managed by a committee elected by our board of directors, the plan management committee. This committee periodically grants share options setting the terms thereof and determining the employees to be included. In addition to managing our stock option plan, the committee is responsible for selecting the manager and employee beneficiaries who are entitled to benefit from the option plan as well as establishing the specific terms and conditions of each option agreement (including the quantity of shares to be acquired) applicable to each of the beneficiaries. The exercise price may not be lower than 60% of the weighted average market price of our shares on the BOVESPA during the four business days preceding the date of the option agreement.

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     When share options are exercised, we issue new shares to the beneficiaries. Under U.S. GAAP, our stock option plans are accounted for as variable plans as the indexed exercise price of the options is adjusted by dividends declared from the grant date through the exercise date.

     Our key executive officers and managers receive share-based payments as part of their compensation. We recognize expenses for our share-based compensation based on the fair value of the awards as of the grant date. The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton option valuation model that has no vesting restrictions and is fully transferable. Until 2006, the expenses were not recorded, but only disclosed in the footnotes to our financial statements. Our stock option plan stipulates that 50% of the options granted vest and can be exercised at the end of three years and the remaining 50% vest and can be exercised at the end of five years. The exercise term expires after a period of three months after the vesting dates. In 1999, our board of directors approved a new grant of options convertible into an additional 3.4 billion preferred shares to be granted under our stock option plan. In accordance with CPC 10 (Share-Based Payment, approved by CVM Deliberation 562 of December 17, 2008), the effects of share-based payment transactions are reflected in our statements of income and in our balance sheet.

Second stock option plan

     At the extraordinary general meeting held on December 20, 2006, our shareholders approved a second stock option plan.

     Since January 1, 2007, stock options are granted to our management and employees, in accordance with the following rules: (i) shares are classified into two types: Silver and Gold; (ii) the plan management committee may, at its sole discretion, decrease or increase the quantity of Gold-type shares (reducer or accelerator) during the 35 months following the grant date; (iii) the price for each Gold-type share corresponds to R$0.01 and the price for each Silver-type share corresponds to the average closing price of our preferred shares over the last 20 BOVESPA trading sessions prior to the grant date (with negative goodwill of 20%); (iv) in both cases, the prices will not be restated, and (v) the options granted vest as follows: from the 36th month to the 48th month from the grant date or a date to be defined by the plan management committee, the beneficiary will acquire the right to exercise: (1) 100% of its Silver-type options; and (2) the amount of Gold-type shares to be determined by the plan management committee.

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Outstanding Share Options (Restatement)

    Capital             
    increase    2008    2007   2006 
         
 
Options outstanding at beginning of year        3,162    2,941    3.243 
Options granted               
         Series 8 (granted on April 30, 2004)                
         Series 9 (granted on April 15, 2005)          
         Series 10 (granted on July 7, 2006)           901 
         Series A1 Gold (granted on April 13, 2007)         324   
         Series A1 Silver (granted on April 13, 2007)         1,122   
       Series A2 Silver (issued on March 3, 2008)       950     
       Series A2 Gold (issued on May 3, 2008)       848         
Options exercised                 
         Series 6 – April 7, 2006    R$ 7,120        (203)
         Series 7 – May 9, 2006    R$ 92        (4)
         Series 8 – May 15, 2007    R$ 5.631      (195)  
         Series 7 – July 10, 2007    R$ 13      (1)  
         Series 8 – July 10, 2007    R$ 542      (19)  
         Series A1 Gold - July 10, 2007    R$ 0      (3)  
         Series A1 Silver - July 10, 2007    R$ 260      (11)  
         Series 7 – November 28, 2007    R$ 13      (1)  
         Series A1 Gold - November 28, 2007    R$ 0      (11)  
         Series A1 Silver - November 28, 2007    R$ 878      (36)  
         Series A1 Gold - December 17, 2007    R$ 0      (31)  
         Series A1 Silver - December 17, 2007    R$ 1,734      (70)  
       Series A1 Silver – March 10, 2008    R$ 2,526    (103)    
         Series A2 Silver – March 10, 2008    R$ 5,034    (187)        
       Series A1 Gold – March 10, 2008    R$ 1    (42)    
       Series A2 Gold – March 10, 2008    R$ 2    (178)      
       Series 8 – May 27, 2008    R$ 9       
       Series A1 Silver – May 27, 2008    R$ 2,063    (84)    
       Series A1 Gold – May 27, 2008    R$ 0    (27)    
       Series A2 Silver – May 27, 2008    R$ 2,238    (83)      
       Series A2 Gold – May 27, 2008    R$ 1    (78)      
       Series 7 – June 10, 2008    R$ 4,059    (162)      
       Series 8 – June 10, 2008    R$ 49    (1)      
       Series 9 – June 10, 2008    R$ 5,151    (180)      
       Series A1 Silver – June 10, 2008    R$ 71    (3)      
       Series A2 Silver – June 10, 2008    R$ 155    (6)      
       Series A2 Gold – June 10, 2008    R$ 0    (5)      
       Series A1 Silver – July 22, 2008    R$ 44    (2)      
       Series A2 Silver – July 22, 2008    R$ 378    (14)      
       Series A2 Gold – July 22, 2008    R$ 1    (13)      
       Series 9 – September 11, 2008    R$ 6         
       Series A1 Silver – September 11, 2008    R$ 79    (3)      
       Series A2 Silver – September 11, 2008    R$ 204    (8)      
       Series A2 Gold – September 11, 2008    R$ 0    (6)      
Options forfeited        (374)   (605)   (517)
Options expired        (243)   (242)   (479)
       
Outstanding options granted at end of year        3,158    3,162    2,941 
       

(*) Restated taking into account the 500:1 reverse stock split that became effective on September 1, 2007.

     6C. Board Practices

     According to our by-laws, our board of directors consists of at least 3 (three) and up to 18 (eighteen) members. The directors meet ordinarily five times a year, and extraordinarily whenever required. The members of our board of directors are appointed at general shareholders’ meetings for a term of office of three years and are required to be our shareholders. At our general shareholders’ meeting held on April 30, 2009, our shareholders renewed the mandate of all our directors. The board’s responsibilities include leading the corporate governance process, electing our executive officers and supervising our management. Currently our board of directors consists of fourteen members elected by our shareholders, consisting of five representatives of the Diniz group, four external directors and five representatives of the Casino group, whose terms of office expire in 2011. We are managed by our board of directors (Conselho de Administração) and by our board of executive officers (Diretoria). None of our directors is party to an employment agreement providing for benefits upon termination of employment.

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     Mr. Abilio Diniz acts as the Chairman of our board of directors and the Chairman of the board of directors of the Holding Company. As part of his duties as Chairman of our board of directors, Mr. Abilio Diniz is responsible for the general supervision of our strategy and activities and liaises between our board of directors and our board of executive officers. As Chairman of our board of directors, Mr. Abilio Diniz has a casting vote for matters in the regular course of our business.

     Our board of executive officers is composed of at least 2 (two) and up to 14 (fourteen) members, being one the Chief Executive Officer and the other executive officers, elected by our board of directors. The general responsibilities of our executive officers are determined pursuant to our bylaws and their specific duties and titles are established by our board of directors.

     The responsibilities of our executive officers include adopting plans and rules related to our management and operations, reporting to shareholders each fiscal year on the status of our business activities and presenting the year-end balance sheets and other legally required financial statements, submitting investment programs and budgets to our board of directors.

     Our executive officers are elected by our board of directors for three-year terms, although any executive officer may be removed by our board of directors before the expiration of his or her term. On February 5, 2009, our directors elected our current executive officers. The current term of all executive officers expires in April, 2011.

   Committees

     Pursuant to our by-laws, we currently have the following three special committees: (i) Human Resources and Compensation Committee; (ii) Financial Committee; and (iii) Innovation and Development Committee. The attributions of each committee are set forth by our board of directors. The members of each committee are appointed by our board of directors, solely among its members, and the board of directors also designates the president of each special committee. Each special committee is composed of three and up to five members for a term of office of three years, reelection being permitted. In addition to these committees, the board of directors may create other committees with special roles.

     Human Resources and Compensation Committee

     The human resources and compensation committee holds meetings at least once every two months and has the following duties: (i) to provide guidelines for the selection of our Chief Executive Officer; (ii) to examine candidates for election to our board of directors; (iii) to examine candidates for appointment to our board of executive officers; (iv) to review and discuss management compensation and stock option plan for our officers; (v) to propose criteria for the assessment of the performance of our managers, using comparable Brazilian corporations as benchmark; (vi) to review the recruitment and hiring methods adopted by us and our controlled companies, using comparable Brazilian corporations as benchmark; (vii) to define the compensation and incentive policies for our managers; and (viii) to identify individuals within our Company and our controlled companies who could be our future leaders and follow up the development of their career. Our Human Resources and Compensation Committee is composed of Ana Maria Falleiros dos Santos Diniz D’Avila and Geyze Marchesi Diniz.

     Financial Committee

     The financial committee holds meetings at least once every two months and has the following duties: (i) to review the financial/economic viability of our investment plans and programs; (ii) to review and recommend actions for the negotiation of any merger and acquisition or of any similar transaction involving us or any of our controlled companies; (iii) to follow up any such transaction and negotiation referred to in item (ii); (iv) to review our cash flow, indebtedness policy and capital structure; (v) to monitor the implementation and accomplishment of our annual investment plan; (vi) to monitor the average cost of our capital structure and to make suggestions for modifications whenever deemed necessary; and (vii) to review and recommend opportunities related to financing transactions that may improve our capital structure. Our financial committee is currently composed of Ana Maria Falleiros dos Santos Diniz D’Avila, João Paulo Falleiros dos Santos Diniz, Hakim Laurent Aouani and Antonie Marie Remi Lazars Giscard d’ Estaing.

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     Innovation and Development Committee

     The innovation and development committee holds meetings at least once every three months and has the following assignments: (i) to review the projects related to business and technology innovations as well as to recommend to our Company the introduction of such innovations; (ii) to review and propose market opportunities or new business formats to strengthen our growth strategy; and (iii) to review the real estate expansion plans. Our innovation and development committee is composed of Pedro Paulo Falleiros dos Santos Diniz and Geyze Marchesi Diniz.

     In addition, to the three special committees mentioned above, we implemented a Fiscal Council that serves as our audit committee. The following section describes our fiscal council.

     Fiscal Council and Audit Committee

     Under the Brazilian Corporate Law, the Fiscal Council is a corporate body independent of management and of Company’s external auditors. The Fiscal Council has not typically been equivalent to or comparable with a U.S. audit committee; its primary responsibility has been to monitor management’s activities, review the financial statements and report its findings to the shareholders. However, pursuant to Exchange Act Rule 10A-3(c)(3) which provides for an exemption under the rules of the SEC, regarding the audit committees of listed companies, a foreign private issuer is not required to have a separate audit committee composed of independent directors if it has a board of auditors established and selected pursuant to home country legal or listing provisions expressly requiring or permitting such a board and such board meets certain requirements. Pursuant to this exemption, our Fiscal Council can exercise the required duties and responsibilities of a U.S. audit committee to the extent permissible under Brazilian Corporate Law. To comply with the new rules of the SEC, the board of auditors must meet the following standards: it must be separate from the full board, its members must not be elected by management, no executive officer may be a member, and Brazilian law must set forth standards for the independence of the members. In addition, in order to qualify for the exemption, the board of auditors must, to the extent permitted by Brazilian law:

• be responsible for the appointment, retention, compensation and oversight of the external auditors (including the resolution of disagreements between management and the external auditors regarding financial reporting);

• be responsible for establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls or auditing matters, and procedures for the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters;

• have the authority to engage independent counsel and other advisors as it determines necessary to carry out its duties; and

• receive appropriate funding from the Company for payment of compensation to the external auditors, for any advisors and ordinary administrative expenses.

     As a foreign private issuer, we decided to modify our Fiscal Council to comply with the exemption requirements. Our Board of Directors has delegated to the Fiscal Council certain additional responsibilities and the Fiscal Council and the Board of Directors adopted an additional charter delegating to the Fiscal Council the duties and responsibilities of a U.S. audit committee to the extent permitted under Brazilian Corporate Law. Because Brazilian Corporate Law does not permit the Board of Directors to delegate responsibility for the appointment, retention and compensation of the external auditors and does not provide neither the board nor the Fiscal Council with the authority to resolve disagreements between management and the external auditors regarding financial reporting, the Fiscal Council cannot fulfill these functions. Therefore, in addition to its oversight responsibilities, the Fiscal Council may only make recommendations to the Board of Directors with respect to the appointment, retention and compensation of the external auditors, and with regard to resolution of disagreements between management and the external auditors, the Fiscal Council may only make recommendations to management and the board.

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     Under the Brazilian Corporate Law, the Fiscal Council may not contain members who are members of the Board of Directors or management, or who are our employees or employees of a controlled company or of a company of this group, or a spouse or relative of any member of our management. In addition, the Brazilian Corporate Law requires that Fiscal Council members receive a compensation at least 10% of the average amount paid to each executive officer. The Brazilian Corporate Law requires a Fiscal Council to be composed of a minimum of three and a maximum of five members and their respective alternates.

     Our Fiscal Council is composed of three members who are elected at the annual shareholders’ meeting, with terms lasting until the next annual shareholders’ meeting after their election. Under the Brazilian Corporate Law, holders of preferred shares have the right to elect separately one member of the Fiscal Council. Also, under the Brazilian Corporate Law, minority groups of shareholders that hold at least 10% of the voting shares are entitled to elect one member of the Fiscal Council and his alternate by a separate vote. In any event, however, the common shareholders have the right to elect the majority of the members of the Fiscal Council. Set forth below are the names, ages and positions of the members of our Fiscal Council and their respective alternates indicated by the Holding Company and elected with previous consent of our preferred shareholders on April 30, 2009, the date of the last annual shareholders’ meeting.

Name    Age    Position    Year First Elected 
       
Miguel Roberto Gherrize    70    President    2009 
Oswaldo Orsolin    66    Alternate    2009 
Fernando Maida Dall Acqua    60    Effective member    2009 
Antonio Luiz de Campos Gurgel    68    Alternate    2009 
Mario Probst    56    Effective member    2009 
John Michael Streithorst    39    Alternate    2009 

     Mr. Miguel Roberto Gherrize is the chairman of the Fiscal Council. Previously, Mr. Gherrize was partner of Arthur Andersen and a member of the Fiscal Council of Companhia Siderúrgica de Tubarão, VCP Votorantim Celulose e Papel and Arcelor Brasil S.A. Today he serves as President of the Fiscal Council of TIM Participações S.A. and a technical advisor to Terco Grant Thornton Auditoria e Consultoria. He holds Bachelor’s degrees in Economics, Accounting Sciences and Business Administration.

     Mr. Oswaldo Orsolin is an alternate member of the Fiscal Council. Previously, Mr. Orsolin was the CEO of Spal Indústria Brasileira de Bebidas S.A., a member of the Fiscal Council of Rhodia Ster S.A. and of the Audit Committee of the American Chamber of Commerce and Magazine Luiza S.A. Today he serves as a member of the Board of Directors of Refrigerantes de Manaus Ltda. (Coca Cola da Amazônia), and of the Fiscal Council and Audit Committee of TIM Participações S.A. He graduated in Economics and Accounting Sciences.

     Mr. Fernando Maida Dall'Acqua is a member of the Fiscal Council. Previously, Mr. Dall'Acqua was a member of the Board of Directors of Companhia de Saneamento Básico do Estado de São Paulo (SABESP), Companhia Energética do Estado de São Paulo (CESP), Companhia de Processamento de Dados do Estado de São Paulo (PRODESP), DERSA Desenvolvimento Rodoviário S.A., Banco do Estado de São Paulo (BANESPA) and Nossa Caixa S.A. He was a member of the Audit Committee of SABESP and the Advisory Council of Companhia Brasileira de Distribuição. He has held the positions of Treasury Secretary and Deputy Secretary of São Paulo state. Today he serves as a member of the Board of Directors and of the Audit Committee of Companhia de Transmissão de Energia Elétrica Paulista (CTEEP), Project Coordinator of FGV Projetos and is a fellow at Michigan State University. He holds a Master’s degree in Business Administration from the Getúlio Vargas Foundation and a PhD in Economic Development from the University of Wisconsin-Madison. Mr. Dall'Acqua received the title of Business Administration Associate Professor from the Getúlio Vargas Foundation.

     Mr. Antonio Luiz de Campos Gurgel is an alternate member of the Fiscal Council. Previously, Mr. Gurgel served as Fiscal Auditor of the Brazilian Internal Revenue Service. Today he serves as advisor to companies such as Cargill Agricola S.A., Companhia Energética do Estado de São Paulo (CESP), Hewlett-Packard Brasil Ltda., IBM Brasil Indústria, Máquinas e Serviços Ltda., Telecomunicações de São Paulo S.A. (TELESP), Volkswagen do Brasil Indústria de Veículos Automotores Ltda., Banco Bradesco S.A., Banco Itaú S.A., Unibanco - União de Bancos Brasileiros. S.A. and Banco ABN Amro S.A. Currently, he works as associate professor in the Accounting, Finance and Control Department of FGV/EAESP. He graduated in Business Administration from FGV/EAESP and holds an MBA from the Michigan State University – USA.

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     Mr. Mario Probst is a member of the Fiscal Council. Previously, Mr. Probst was partner of KPMG Auditores Independentes. Today he serves as a member of the Fiscal Council of Odontoprev S.A. and Ultrapar Participações S.A. He graduated in Business Administration from the Getúlio Vargas Foundation and in Accounting Sciences from the College of Political and Economic Sciences of Rio de Janeiro.

     Mr. John Michel Pimenta de Moraes Streithorst is an alternate member of the Fiscal Council. Previously, Mr. Streithorst was a member of the Investment Committee and director of Icatu Equity Partners and a member of the Investment Committee of AIG Latin American Equity Partners. Today he serves as a member of the Investment Committee of Capital Mezanino FIP. He graduated in Computer Engineering from UNICAMP.

     Our board of directors has determined we do not appoint an audit committee financial expert (as defined under the rules and regulations of the SEC). We believe that the combined knowledge, skills and experience of the members of our Fiscal Council enable them, as a group, to act effectively in the fulfillment of their tasks. In addition, the members of our Fiscal Council have the power and authority to engage outside experts as they deem appropriate to provide them with advice on matters related to their responsibilities.

Advisory Board

     In addition to the committees described above, our by-laws provide for a non-permanent ad hoc advisory board, which whenever installed, must consist of up to 13 members, shareholders or not, elected by our shareholders’ meeting, whose purpose is to make recommendations to our board of directors on measures to be taken in order to ensure the development of our businesses and activities, as well as render opinion on any matters submitted by our board of directors. Our advisory board meets semi-annually and, in extraordinary circumstances, whenever called by the president of our board of directors. The current term of all members of our advisory board is three years, reelection being permitted, and such members may receive a compensation set forth by our general shareholders’ meeting. Our currently installed advisory board was elected by our shareholders in the shareholders’ meeting held on April 30, 2008 and is comprised of the following members, most of them economists or former ministers of economy of Brazil: Luiz Carlos Bresser Gonçalves Pereira, Mailson Ferreira da Nóbrega, Roberto Teixeira da Costa, José Roberto Mendonça de Barros, Manuel Carlos Teixeira de Abreu, Luiz Felipe Chaves D’Ávila, Luiz Marcelo Dias Sales and Yoshiaki Nakano.

     6D. Employees

     Our workforce at December 31, 2008 consisted of 70,656 employees (calculated on a full-time employee equivalent basis). Virtually all of our employees are covered by union agreements. The agreements are renegotiated annually as part of industry-wide negotiations between a management group representing the major participants in the retail food industry, including our management, and unions representing employees in the retail food industry. We believe we compensate our employees on a competitive basis, and we have developed incentive programs to motivate our employees and reduce employee turnover. Our management considers our relations with our employees and their unions to be good. We have not had a strike in our history.

     The following table sets forth the number of our employees at December 31, for each of the five years ended December 31, 2008, 2007, 2006, 2005 and 2004:

    At December 31(1)
   
    2008    2007    2006    2005    2004 
           
Operational    60,605    55,494    53,495    53,187    53,177 
Administrative    10,051    10,671    10,112    9,616    10,307 
Total    70,656    66,165    63,607    62,803    63,484 

________
(1) Based on the full-time equivalent number of employees calculated by dividing the total number of hours worked by all employees in the final month of each period presented by 220 hours.

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     6E. Share Ownership

     At December 31, 2008, the board members owned an aggregate amount of 156,455 preferred shares. The members of our board of directors and our executive officers, on an individual basis and as a group, own directly less than 1% of our common stock. See “Item 7A.—Major Shareholders and Related Party Transactions—Major Shareholders.” As of April 30, 2009, our management and some of our employees also owned options to purchase an aggregate amount of 3,055 preferred shares at per-share purchase price of R$20.83. None of the members of our management and our employees holds any options to purchase our common shares. See “Item 6B. Directors, Senior management and Employees – Compensation” for a description of our stock option plan applicable to our management and employees, including those of our subsidiaries.

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ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     7A. Major Shareholders

     The following table sets forth information relating to the beneficial ownership of our capital stock as of June 11, 2009, by each person known by us to beneficially own 5% or more of our common shares or preferred shares and all our directors and officers as a group.

Shareholder    Common Shares    Preferred Shares    Total Shares 
       
 
    Number    Percentage    Number    Percentage    Number    Percentage 
             
 
Wilkes Participações S.A    65,400,000    65.61    1,357,294    0.98    66,757,294    28.11 
Peninsula Particìpações Ltda        2,608,467    1.89    2,608,467    1.10 
Sudaco Participações Ltda    28,619,178    28.71        28,619,178    12.05 
Segisor S.A.        2,430,888    1.76    2,430,888    1.02 
Casino Guichard Perrachon S.A    5,600,052    5.62        5,600,052    2.36 
Abilio dos Santos Diniz    100          100    0.00 
João Paulo F. dos Santos Diniz        17,800    0.01    17,800    0.01 
Ana Maria F. dos Santos Diniz                         
D’Avila              0.00 
Pedro Paulo F. dos Santos Diniz        721    0.00    721    0.00 
Jean-Charles Naouri          0.00      0.00 
PAIC Participações Ltda        648,729    0.47    648,729    0.27 
Onyx 2006 Participações Ltda        20,527,380    14.90    20,527,380    8.64 
Rio Plate Empreendimentos e                         
Participações Ltda        4,055,172    2.94    4,055,172    1.71 
Swordfish Investments Limited        4,472,620    3.24    4,472,620    1.88 
Marlin Investments Ltd.        32,000    0.02    32,000    0.01 
Stanhore Trading Internacional                         
S.A.        300,234    0.22    300,234    0.13 
Directors and Officers        149,574   0.11   149,574   0.06
Others    60,520   0.06    101,245,736   73.46    101,306,256   42.63
TOTAL    99,679,851    100.0    137,846,616    100.0    237,526,467    100.00 

     On June 11, 2009, 34,219,331 of our preferred shares were held in form of ADSs, representing 34.3 % of the total of outstanding preferred shares.  None of our common shares are held in form of ADSs.

Holding Company Goodwill Amortization

     On May 3, 2005, the Diniz Group and the Casino Group formed Vieri Empreendimentos e Participações S.A. (“Vieri”), which became our parent company, whose control is shared by both groups of shareholders.

     When Vieri acquired our common shares, a higher price was paid in relation to our book value, thus generating goodwill. In 2006, we and Vieri began a restructuring process in order to transfer the goodwill to us to obtain the tax deductibility of the goodwill amortization, as a result, the tax benefit generated was approximately R$517.3 million.

     As a first step of the restructuring process, the goodwill was transferred from Vieri to us in two phases, including the creation of a new subsidiary by Vieri to where the goodwill was transferred, and subsequently the merger of this new subsidiary into us. This first step was concluded on December 20, 2006, with the approval by the shareholders at an extraordinary general meeting.

     A valuation allowance, denominated in the books as “Provision for maintenance of shareholders’ equity”, was recorded by the subsidiaries in relation to the goodwill. Accordingly, the remaining net balances correspond to the tax benefit resulting from the future amortization of goodwill.

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     On December 31, 2008 the value of the resulting tax benefit related to both our income taxes and our social contribution tax on profits was R$414.2 million (R$517.3 million in 2007 and 2006). This is shown in the balance sheet as part of deferred taxes which is R$103.1 million as current and R$311.1 million as non-current assets on December 31, 2008, respectively (R$48.7 million and R$468.6 million in 2007 and 2008).

     Under the terms of the reorganization, the resulting tax benefit reverts to the benefit of the controlling shareholder that originated the goodwill without, however, causing any negative effects to our profitability or the flow of dividends to our minority shareholders. The effect of the reorganization on our balance sheet and income statement accounts is shown below:

Balance sheet effects:    In thousands of reais 
 
 
Cash    37 
Unamortized balance of goodwill    2,061,951 
Provision for maintenance of shareholders equity    (1,546,463)
Deferred income tax    1,806 
     
 
Tax benefit balance presented under “Deferred income taxes”    517,331 

     In addition to the R$517.3 million tax benefits balance presented as deferred income taxes, this transaction also resulted in gains totaling R$1.8 million derived from deferred income tax which existed at Vieri.

     Since January 1, 2008, the goodwill is being amortized straight line over five years. The provision for maintenance of shareholders` equity was established at an amount sufficient to reduce the unamortized balance of the goodwill to the estimated value of the future tax benefits that will be generated by its amortization by us. This is also the amount necessary to ensure that there will be no reduction in the amount of retained earnings available for the distribution of dividends on account of the future amortization of the goodwill in excess of the related tax benefit. The offsetting entry to the initial recognition of the tax benefit balance is recognized directly in shareholders` equity as a capital reserve (goodwill special reserve). Also under the terms of the restructuring, the effective tax benefit realized in each fiscal year will subsequently be capitalized in the name of the controlling shareholder, and minority shareholders are ensured the right to preference in the acquisition of a proportional amount of new capital from the controlling shareholder.

Conditional Put Option Agreement and Shareholders’ Agreements

     Since May, 2005, the Diniz Group and the Casino Group share our control through the Holding Company which owns 65% of our voting shares. On November 27, 2006, the Diniz Group and the Casino Group entered into a conditional put option agreement, or the Conditional Put Option Agreement, which contemplates the conditional transfer of indirect equity interest in us from the Diniz Group to the Casino Group. At the same date, the Diniz Group and the Casino Group entered into a shareholders’ agreement, or the Holding Company Shareholders’ Agreement that outlines the rules for the exercise of our co-control, corporate governance and restrictions on transfer of the Holding Company’s shares.

     In addition, the Holding Company, the Diniz Group and the Casino Group entered into a separate shareholders’ agreement, or the CBD Shareholders’ Agreement, that contains rules on, among other matters, the transfer of our shares that are held by either of the Diniz Group and the Casino Group other than through the Holding Company. As of June 11, 2009, the Casino Group, through Sudaco Participações Ltda. and Casino Guichard Perrachon S.A., held an aggregate of 34,219,331 of our common shares, representing approximately 34.3% of our outstanding common shares.  As of the same date, the Diniz Group did not hold common shares other than through the Holding Company.

     The three following sections summarize certain provisions of the Conditional Put Option Agreement and the shareholders’ agreements. The below summaries are qualified by reference to the agreements that are filed as exhibits to this annual report.

     Conditional Put Option Agreement

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     The Conditional Put Option Agreement grants, among other rights, (i) a first put option, or the First Put Option, and a second put option, or the Second Put Option, to the Diniz Group and (ii) a distressful call option, or the Distressful Call Option, to the Casino Group.

     • First Put Option: in the event that the Casino Group elects the Chairman of the Holding Company from June 22, 2012, the Diniz Group will be entitled to cause the Casino Group to purchase a direct equity interest in the Holding Company corresponding to 1,000,000 shares of our issued and outstanding common shares.

     • Distressful Call Option: in the event that CBD experiences a distressful situation as defined in the Conditional Put Option Agreement, the Casino Group will be entitled to cause the Diniz Group to sell a direct equity interest in the Holding Company corresponding to 1,000,000 shares of our issued and outstanding common shares.

     • Second Put Option: in the event that either of the First Put Option or the Distressful Call Option is exercised, the Diniz Group will be entitled to cause the Casino Group to purchase a direct equity interest in the Holding Company corresponding to 19,375,000 shares of our issued and outstanding common shares. The Second Put Option may be exercised through the exercise of the First Put Option or through the exercise of the Distressful Call Option during the period of eight years commencing on June 22, 2014.

     The Conditional Put Option Agreement provides for the acceleration of the First Put Option and the Second Put Option under certain circumstances including the transfer by the Casino Group of (i) at least 10% of its shares of the Holding Company to a third party other than a competitor of CBD or (ii) any of its shares of the Holding company to a competitor of CBD.

     Should the Diniz Group not be allowed under the terms of the Put Option Agreement to exercise the First Put Option and the Second Put Option, the Diniz Group will be entitled at any time within a period starting on June 22, 2014 and ending on June 21, 2022 to convert or, at the Casino Group’s sole discretion, to exchange the common shares that would have been subject to the First Put Option and the Second Put Option into preferred shares of CBD at the ratio of 915 preferred shares for 1,000 common shares

     Holding Company Shareholders’ Agreement

     Pursuant to the Holding Company Shareholders’ Agreement, the Diniz Group is entitled to:

• appoint (i) two directors of the board of directors of the Holding Company composed of four directors, and (ii) two executive officers of the Holding Company;

• appoint the Chairman of the board of directors of the Holding Company until the Casino Group exercises its option to appoint the Chairman of the Holding Company as described below;

• appoint five directors of our board of directors; and

• appoint the Chairman of our board of directors until June 21, 2012; from June 22, 2012, the appointment will alternate every three years between the two groups, and the Casino Group will have the right to the first alternate appointment for a term-in-office from June 22, 2012 to June 21, 2015; however, the Casino Group has agreed, for this first alternate appointment, that Mr. Abilio Diniz will continue as Chairman of our board of directors, provided that we maintain a good performance track record; moreover, for any subsequent terms as to which the Casino Group is entitled to name our Chairman, Casino has agreed that Mr. Abilio Diniz will remain Chairman as long as he is mentally and physically fit for the functions and as long as we maintain a good performance track record.

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Pursuant to the Holding Company Shareholders’ Agreement, the Casino Group is entitled to:

• appoint (i) two directors of the board of directors of the Holding Company composed of four directors, and (ii) two executive officers of the Holding Company;

• exercise (i) the option, with an exercise period from June 22, 2012 to June 21, 2014, to appoint the Chairman of the board of directors of the Holding Company for the remaining term of the Holding Company Shareholders’ Agreement and (ii) after June 22, 2014, the option to appoint the Chairman of the Holding Company if the Diniz Group transfers common shares of the Holding Company to a third party; the appointment by the Casino Group of the Chairman of the Holding Company in accordance with items (i) or (ii) above will entitle the Diniz Group to exercise the First Put Option;

• appoint five directors to our board of directors; and

• appoint the Chairman of our board of directors if, after June 22, 2014, the Diniz Group transfers any common shares of the Holding Company to a third party.

     Both the Casino Group and the Diniz Group are subject to limitations on the purchase of our preferred shares on the open market, which limitations vary according to the percentage of shares freely available to the investing public. However, the Casino Group may acquire any of our common or preferred shares held by the Diniz Group.

     The Diniz Group may not sell its shares of the Holding Company until June 21, 2014 (or, if the Casino Group exercises the Distressful Call Option or appoints the Chairman of the board of directors of the Holding Company at an earlier date, until the date of such appointment or exercise of the Distressful Call Option). Both the Casino Group and the Diniz Group have a right of first offer with respect to shares or convertible securities of the Holding Company that any of them wishes to sell or otherwise dispose of.

     If the Casino Group (i) appoints the Chairman of the board of directors of the Holding Company or (ii) exercises the Distressful Call Option, the Diniz Group’s rights under the Holding Company Shareholders’ Agreement will be limited to (y) veto rights regarding certain major decisions of the Holding Company and (z) certain election rights.

     The Holding Company Shareholders’ Agreement will remain in effect until June 21, 2045 or, subject to limited exceptions, terminates automatically in the event either of the Casino Group or the Diniz Group ceases to hold 10% of the Holding Company’s shares or convertible securities.

     CBD Shareholders’ Agreement

     According to the CBD Shareholders’ Agreement, the Holding Company has, except in certain circumstances, the right of first refusal with respect to our shares or convertible securities to be disposed of by any affiliate of the Casino Group and/or the Diniz Group.

     If, in the future, our preferred shares are vested with voting rights by operation of law, the Casino Group and/or the Diniz Group will automatically transfer such voting rights to the Holding Company. During the period in which the preferred shares have any voting rights, the Casino Group will be allowed to acquire our preferred shares from any third party provided that it transfers such voting rights to the Holding Company.

     During the term of the CBD Shareholders’ Agreement, the Casino Group may not convert any of our common shares into preferred shares unless such conversion is authorized by the Holding Company.

     The CBD Shareholders’ Agreement will be valid as long as the Holding Company is our controlling shareholder.

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     7B. Related Party Transactions

     From time to time we have entered into transactions with the Diniz group and other related parties for the provision of certain services. In the past, we and our shareholders have advanced funds to each other and may do so in the future. If our shareholders advance funds to us, or if we advance funds to our shareholders, the transaction will be conducted on the same terms applied to third parties. The following discussion summarizes certain of the significant agreements and arrangements among us and certain of our affiliates.

Leases

     We currently lease properties from some members of the Diniz family, some of whom are our shareholders, and also lease properties from Fundo de Investimento Imobiliário Península, which is controlled by members of the Diniz Group. These properties include two stores from Mrs. Floripes Pires Diniz, four stores from Mr. Arnaldo dos Santos Diniz, three stores from Mrs. Vera Lúcia dos Santos Diniz and six stores from Mrs. Sonia Maria dos Santos Diniz Bernandini, 57 stores from the Sendas family, four stores from Barcelona Comércio and 61 stores from the Fundo de Investimento Imobiliário Península.

     Aggregate payments in 2008 under those leases equaled approximately R$12.7 million to the Diniz family, R$31.7 million to the Sendas family, R$3.5 million to the Barcelona Comércio and R$123.5 million to the Fundo de Investimento Imobiliário Península. We believe that all such leases are on terms at least as favorable to us as those which could be obtained from unrelated parties on an arm’s-length basis (market conditions). For further information on these leases, see note 21 and 26 (u) (i) to our audited consolidated financial statements included in this annual report.

Technical Assistance Agreement with Casino

     In July 2005, we entered into a technical assistance service agreement with Casino Group. Pursuant to the agreement, Casino Group provides us with technical assistance in the areas of human resources, trademarks, marketing and communication, global campaigns and administrative assistance, among others. In exchange, we pay to Casino Group a fixed annual fee in reais corresponding to US$2.7 million. The agreement will be automatically renewed in 2012 and will thereafter remain in force for an undetermined period of time.

Consultancy Agreement with Galeazzi & Associados

     In July 2007, we hired the consultancy firm Galeazzi & Associados to implement a restructuring plan to improve the Sendas Association’s operational performance in Rio de Janeiro state. Claudio Galeazzi, a partner with Galeazzi & Associados, is currently our Chief Executive Officer.

     The scope of the Consultancy Agreement involves: 1) the development of a Strategic and Operational Diagnosis Program, with a view to assessing all the business profitability opportunities, 2) Action Plan in order to take advantage of opportunities identified and 3) business management derived from the development of the Action Plan, aiming at making our operations more competitive, efficient and profitable.

     The timeframe to carry out the project was initially estimated to be 14.5 months. However, the conclusion of the project has been postponed to the end of 2009. The fees are divided into a monthly fixed amount of R$350,000 and a variable amount subject to the fulfillment of goals previously established to improve our profitability.

     7C. Interests of Experts and Counsel

     Not applicable.

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ITEM 8. FINANCIAL INFORMATION

     8A. Consolidated Statements and Other Financial Information

     The information included in Item 18 of this annual report is referred to and incorporated by reference into this Item 8A.

Legal Proceedings

     We are party to administrative proceedings and lawsuits that are incidental to the normal course of our business. These include general civil, tax and labor litigation and administrative proceedings. We believe that our provisions for legal proceedings are sufficient to meet probable and reasonably estimable losses in the event of unfavorable court decisions and that the ultimate outcome of these matters will not have a material effect on our financial condition or results of operations. We cannot estimate the amount of all potential costs that we may incur or penalties that may be imposed on us other than those amounts for which we have provisions. For further information on our legal proceedings, see note 16 to our audited consolidated financial statements included in this annual report.

     Based on the advice of our external legal counsel, we have identified, and provided for, the following probable losses that may result from current legal proceedings:

    2008    2007 
     
    (millions of reais)
COFINS and PIS Taxes    1,220.9    1,086.2 
Labor claims    55.8    50.2 
Civil and other claims    204.7    173.4 
     
    1,481.4    1,309.8 
         
Judicial deposits    (237.3)   (93.6)
         
Total accrued liabilities for legal proceedings    1,244.1    1,216.2 
     

     Taxes on Revenues

     We are discussing the constitutionality of the change in the basis of taxation of the Social Integration Program Tax (“PIS”), and the increase in the rate and basis of calculation of the Social Security Tax (“COFINS”). The provision includes unpaid amounts, monetarily restated, at December 31, 2008, amounting to R$1,049.0 million (R$971.0 million in 2007) resulting from de lawsuits in progress at the Regional Federal Court, and up to this moment, we have not been required to make judicial deposits.

     As the calculation of the Social Integration Program Tax (“PIS”) and Social Security Tax (“COFINS”) started to be based on the non-cumulative system (Law 10,637/02 to PIS and Law 10,833/03 to COFINS), we began to apply the new rules but also challenged the new tax base of such contributions, as well as the appropriation of credits not accepted by laws. The provision recorded in the balance sheet at December 31, 2008 in the amount of R$172.2 million (R$115.2 million in 2007) includes the unpaid installment, monetarily restated. There are guarantees for these discussions in order to ensure the suspension of liabilities, judicial deposit amounting to R$124.5 million.

     Social Security Contributions

     As of December 31, 2008, we were involved in two court proceedings where we challenge the constitutionality of certain social security contributions and assert our right to offset the amount of social security contributions we believe was overpaid with other social security contributions. Based on preliminary orders issued in our favor by the lower courts, we have not paid certain of these contributions and/or we have offset overpaid social security contributions with other such contributions. The lower courts provided a favorable decision in both lawsuits. The federal government appealed against these decisions and, with regard to one of these proceedings, the court ruled against us, prompting us to join the Special Installments Program (Parcelamento Especial - PAES) pursuant to Brazilian laws and pay outstanding social security contributions in installments in the amount of R$256.6 million. As of December 31, 2008, installments in the total amount of R$175.7 million remained outstanding.

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     Furthermore, the Social Security Institute (Instituto Nacional do Seguro Social), or INSS filed several assessment tax notices to charge social security contributions on payments that we do not believe should be included in the calculation of that contribution, representing an approximate amount of R$108.5 million as of December 31, 2008. We presented administrative defenses, and are awaiting a decision. In addition, it should be noted that R$95.6 million of that amount are already subjected to lawsuits and are guaranteed by real state seizure or bank letter of guarantee. We did not accrue a provision for this contingency.

     Income Tax

     In January 1995, we filed an injunction to obtain a judicial authorization to adjust our 1989 balance sheet using a rate relating to the inflationary index for January and February 1989 (70.3%), which generated an additional tax-deductible depreciation charge. In July 2000, a lower court issued a ruling, which was partially favorable to us, acknowledging our right to use a tax inflation index for the month of January 1989 of 42.7% for purposes of determining the depreciation charge. We appealed the decision and asserted the right to adjust our 1989 balance sheet according to the inflationary index of 6.3% for February 1989. The Brazilian government also appealed the decision and is awaiting a final judgment. Since it is probable that we will not prevail in this lawsuit, as of December 31, 2008, we had a provision of R$6.4 million that we believe corresponds to the difference between the 42.7% inflationary index for January 1989 and the 6.3% inflationary index for February 1989 and the 70.3% rate, which was fully settled in June 2005.

     ICMS - State Value-Added Tax on Sales and Services

     We were served notice by the state tax authorities for the non-payment and appropriation of undue credits related to the ICMS, in connection with, among others, (i) the appropriation of electricity credits, (ii) the acquisition of goods from suppliers considered to be disreputable, (iii) the return of goods to our stores, (iv) the tax refunds without due compliance with ancillary obligations. On December 31, 2008, the total amount of these assessments awaiting a final decision at the administrative and court levels Amounted to R$1,193.3 million.

     Other Tax-Related Matters

     In June 1990, we filed an injunction seeking protection for non-payment of the Brazilian social contribution on profits, which we claimed to be unconstitutional based on the fact that this tax should have been enacted by a complementary law to the Brazilian Constitution. We obtained a favorable decision from the lower court in March 1991. Although no appeal was presented by the Federal government, pursuant to Brazilian law, this lawsuit was submitted to mandatory review of the Regional Federal Court, which in February 1992, confirmed the lower court’s decision. Based on the opinion of our legal counsel, we believe that the federal tax authorities have no further legal appeal available to collect this contribution on a retroactive basis. To sum up, according to our lawyers, the chances of the Federal Tax Authorities succeed in any claim related to this subject are unlikely.

     COFINS and PIS we are involved in administrative proceedings regarding motion for offsetting, tax payment discrepancies, in addition to the aforementioned collection of taxes on soybean export operations. These proceedings await decision in the administrative level. The amount involved in these assessments is R$498.4 million (R$243.6 million in 2007) and await administrative decision.

     ISS, Municipal Real Estate Tax (“IPTU”), Property Transfer Tax (“ITBI”) and other – These are related to assessments on third parties retention, tax payment discrepancies, fines due to non-compliance of ancillary obligations and sundry taxes, the amount of which is R$34.6 million (R$17.8 million in 2007) and await administrative and court decisions.

     Other contingencies – These are related to administrative lawsuits and lawsuits under the civil court scope, special civil court, Consumer Protection Agency (“PROCON”) (in many states), Weight and Measure Institute (“IPEM”), National Institute of Metrology, Standardization and Industrial Quality (“INMETRO”) and National Health Surveillance Agency (“ANVISA”), in great majority related to suits for damages, amounting to R$69.1 million (R$45.1 million in 2007).

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     Labor Claims

     We are party to numerous lawsuits involving disputes with our employees, primarily arising from layoffs in the ordinary course of our business. At December 31, 2008, we had a provision of R$55.8 million (in addition to judicial deposits in the amount of R$2.2 million) for labor related loss contingencies, because we believe that it is probable that we will not prevail in these lawsuits and the damages are reasonably estimable.

     Other Proceedings

     In addition to the legal proceedings mentioned above, we are defendant, at several judicial levels, in various civil and other lawsuits. We have recorded provisions in amounts that our internal and external legal counsel considered to be sufficient to cover probable losses. For further information on these lawsuits, see note 16 to our audited consolidated financial statements included in this annual report. At December 31, 2008, we had a provision of R$171.0 million (in addition to judicial deposits in the amount of R$55.0 million) for liabilities in connection with civil and other lawsuits.

Dividend Policy and Dividends

     General

     Pursuant to the Brazilian corporate law, Brazilian corporations are required to hold an annual shareholders’ meeting in the first four months of each fiscal year at which time the allocation of the results of operations in any year and the distribution of an annual dividend are approved. Under the Brazilian corporate law, shareholders of a Brazilian corporation have the right to receive, as a mandatory dividend for each fiscal year, a part of the corporation’s net profits as established under its by-laws or, if not provided under such by-laws, an amount equal to that established 50% of the net profits adjusted pursuant to the Brazilian corporate law. Currently, the Brazilian corporate law generally requires that each Brazilian corporation distribute as a mandatory dividend an aggregate amount equal to at least 25% of the net profits adjusted according to Brazilian corporate law. Pursuant to the Brazilian corporate law, in addition to the mandatory dividend, the board of directors may recommend to the shareholders payment of interim dividends and payment of dividends from other legally available funds. Also pursuant to the Brazilian corporate law, a Brazilian company is allowed to suspend the distribution of the mandatory dividends in any year in which its management report to its shareholders´general meeting that the distribution would be incompatible with its financial condition. For further information see item “10B – Additional Information – Memorandum and Articles of Association – Allocation of Net Profits and Distribution of Dividends – Distribution of Dividends.”

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     Dividend Policy and History of Dividend Payments

     The following table sets forth the distributions paid to holders of our common shares and preferred shares since 2004:

                    Total amount 
                    in dividends and 
            R$per    R$per    interest on 
        First payment    preferred    common    shareholders’ equity (in 
Period    Description    date    share (1)   share (1)   R$ millions)
           
 
2004    Dividends    June 2005    0.4133    0.3757    89.1 
2005    Dividends    June 2006    0.3101    0.2819    62.0 
2006    Dividends    June 2007    0.0930    0.0845    20.3 
2007    Dividends    June 2008    0.2288    0.2080    50.1 
2008    Dividends    June 2009    0.2735    0.2486    61.8 

____________

(1) Taking into account the 500:1 reverse stock split that became effective on September 1, 2007. The dividend accrued in December 31, 2008 was approved at the annual shareholders’ meeting held on April 30, 2009 and will be paid in June 2009.According to Brazilian corporate law and our by-laws, we must pay declared dividends within 60 days after the approval.

     Shareholders who are not residents of Brazil must generally register with the Central Bank to have dividends and/or interest on shareholders’ equity, sales proceeds or other amounts with respect to their shares eligible to be remitted in foreign currency outside of Brazil. See “Item 10D. Additional Information — Exchange Controls.” The preferred shares underlying the ADSs are held in Brazil by the custodian, as agent for the depositary, the registered owner on the records of the registrar for the preferred shares underlying the ADSs. The current registrar is Banco Itaú S.A.

     Payments of cash dividends and distributions, if any, will be made in Brazilian currency to the custodian on behalf of the depositary, which will then convert the payments in Brazilian currency into U.S. dollars and thereafter will cause the U.S. dollars to be delivered to the depositary for distribution to holders of ADSs as described above. In the event that the custodian is unable to convert immediately the Brazilian currency received as dividends and/or interest on shareholders’ equity into U.S. dollars, the amount of U.S. dollars payable to holders of ADSs may be adversely affected by devaluations of the Brazilian currency that occur before the distributions are converted and remitted. See “Item 3A. Key Information — Selected Financial Data — Exchange Rates.” Dividends and interest on shareholders’ equity in respect of the preferred shares paid to shareholders, including holders of ADSs, are subject to the tax treatment outlined in “Item 10E — Additional Information — Taxation — Brazilian Tax Considerations.”

     8B. Significant Changes

     We are not aware of any significant changes bearing upon our financial condition since the date of the consolidated financial statements included in this annual report.

ITEM 9. THE OFFER AND LISTING

     9A. Offer and Listing Details

     Our preferred shares are traded on the BOVESPA under the trading symbol PCAR4. Our preferred shares in the form of ADSs also trade on the New York Stock Exchange, or NYSE, under the trading symbol “CBD” and on the Luxembourg Stock Exchange.

     Our ADSs commenced trading on the NYSE in May 1997. As of December 31, 2008, the ADSs represented 39.9% of our preferred shares. Each ADS represents two preferred shares, without par value. The ADSs are evidenced by American Depositary Receipts, or ADRs, issued by The Bank of New York.

     On July 30, 2007, we converted all of our common shares and preferred shares at the ratio of 500 existing shares for one share of the same type in a reverse stock split. In order to facilitate the comparison of per share information, we subsequently restated our financial statements for the years ended December 31, 2003 to 2006 to take into account the reverse stock split as if it had already occurred on January 1, 2003. The per share information in this annual report is presented on the basis of the restated financial statements.

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     The following table sets forth, for the period indicated, the reported high and low sales prices for the preferred shares on the BOVESPA:

                    R$ Average 
                    Daily 
                    Trading 
    High    Low    High    Low    Volume 
           
Calendar Period    R$    U.S.$(1)    
       
 
2004(2)   38.74    21.47    13.46    6.91    3,349,238 
2005(2)   38.50    28.40    16.45    12.13    5,841,394 
2006(2)   49.39    27.98    23.10    13.09    11,242,224 
2007:                     
   1st quarter    38.08    29.53    18.57    14.40    11,951,805 
   2nd quarter    38.25    29.50    19.86    15.32    19,037,432 
   3rd quarter    40.75    27.44    22.16    14.92    19,455,678 
   4th quarter    35.20    27.05    19.87    15.27    27,085,753 
2008:                     
   1st quarter    37.12    27.79    21.22    15.89    25,714,873 
   2nd quarter    40.67    33.88    25.55    21.28    21,096,954 
   3rd quarter    37.97    32.48    19.84    16.96    16,590,815 
   4th quarter    37.97    24.68    16.25    10.56    19,690,418 

Share prices for the most recent six months are as follows:

    High    Low    High    Low 
    R$    U.S.$ 
December 2008    37.97    30.98    16.25    13.26 
January 2009    32.68    27.97    14.11    12.08 
February 2009    30.67    28.38    12.89    11.93 
March 2009    31.77    28.64    13.72    12.37 
April 2009    35.13    31.98    16.13    14.68 
May 2009    37.75    33.93    19.13    17.20 
June 2009 (through June 10)   38.26    35.90    19.65    18.43 

____________

(1) Converted into U.S. dollars at the U.S. dollar-Brazilian real exchange rate in effect at the end of each period presented. See “Item 3A. Key Information — Selected Financial Data — Exchange Rates.”
(2) As restated due to the reverse stock split of the shares.

     On June 10, 2009, the closing sale price for the preferred shares on the BOVESPA was R$36.21 per preferred share, equivalent to U.S.$18.59 per ADS translated at the exchange rate of R$1.9474 per U.S.$1.00, the commercial market rate on such date. On the same date, the closing sale price for our ADSs on the NYSE was US$37.14.

     The following table sets forth, for the periods indicated, the reported high and low sales prices for our ADSs listed on the NYSE:

    High    Low    High    Low    U.S.$ Average 
           
                    Daily Trading 
Calendar Period    U.S.$ ADSs    R$ ADSs    Volume 
       
 
2004    27.74    13.37    80.68    41.55    3,287,320 
2005    34.61    25.53    81.01    59.76    6,392,071 
2006    46.08    25.58    98.53    54.70    9,526,871 
2007:                     
         1st quarter    34.33    27.83    70.39    57.06    6,133,913 
         2nd quarter    40.17    28.87    77.38    55.61    12,257,827 
         3rd quarter    43.77    27.50    80.49    50.57    15,403,909 
         4th quarter    39.68    29.73    70.29    52.66    14,960,591 
2008:                     
         1st quarter    44.51    31.62    77.84    55.30    16,828,875 
         2nd quarter    49.41    41.51    78.66    66.08    15,497,265 
         3rd quarter    47.01    33.44    89.99    64.01    13,532,917 
         4th quarter    35.59    22.18    83.17    51.83    12,516,369 

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Share prices for the most recent six months are as follows:

December 2008    31.77    25.74    74.25    60.15    13,149,267 
January 2009    28.13    23.38    65.15    54.15    9,673,056 
February 2009    27.12    23.30    64.50    55.42    8,228,904 
March 2009    28.61    23.32    66.24    53.99    7,781,592 
April 2009    32.29    28.03    70.34    61.06    8,613,338 
May 2009    37.42    32.28    73.82    63.69    7,810,707 
June 2009 (through June 10)   39.43    36.50    76.78    71.08    10,367,531 

     9B. Plan of Distribution

     Not applicable.

     9C. Markets

Trading on the BOVESPA

     The trading market for our preferred shares and common shares is the BOVESPA. The BOVESPA stock exchange is a stock corporation where all stock trades in Brazil are carried out, with the exception of public-debt bonds, which are traded electronically, and the privatization auctions, which are run by the Rio de Janeiro Stock Exchange. Settlement of transactions on BOVESPA occurs three business days after the trade date. Delivery of and payment for shares are made through the facilities of an independent clearinghouse. The clearinghouse for BOVESPA is Companhia Brasileira de Liquidação e Custódia, or CBLC. The CBLC is the central counterparty for transactions effected on BOVESPA, carrying out multi-party settlement for financial obligations and transfers of securities. Under the regulations of the CBLC, financial settlement is carried out through the Sistema de Transferência de Reservas (Reserve Transfer System) of the Central Bank. The settlement of trades of shares is carried out in the custodial system of CBLC. All deliveries against final payment are irrevocable.

     At December 31, 2008, there were 424 companies listed on the BOVESPA.

     Trading on the BOVESPA by non-residents of Brazil is subject to certain limitations under Brazilian foreign investment and tax legislation.

     As the result of a corporate restructuring on August 28, 2007, BOVESPA, which previously was a not-for-profit institution, started to operate as a joint stock corporation. At the same date, BOVESPA Holding was created. BOVESPA Holding operates the stock exchange and the organized over-the-counter markets, through its fully owned subsidiary BVSP. The provision of settlement, clearing and depository services are carried out by BOVESPA Holding’s fully owned subsidiary CBLC.

Regulation of the Brazilian Securities Markets

     The Brazilian securities markets are regulated by the CVM, which has authority over stock exchanges and the securities markets generally, the National Monetary Council (Conselho Monetário Nacional), or CMN and the Central Bank, which has, among other powers, licensing authority over brokerage firms and regulates foreign investment and foreign exchange transactions.

     Under the Brazilian corporate law, a company is either public, a companhia aberta, such as we are, or private, a companhia fechada. All public companies are registered with the CVM, and are subject to reporting requirements. A company registered with the CVM may have its securities traded either on the BOVESPA or in the Brazilian over-the-counter market. The shares of company listed on the BOVESPA may also be traded privately, subject to certain limitations. To be listed on the BOVESPA, a company must apply for registration with the CVM and with the BOVESPA. Trading of securities of a public company on the BOVESPA may be suspended at the request of such company in anticipation of a material announcement. Trading may also be suspended on the initiative of the BOVESPA or the CVM, based on or due to, among other reasons, a belief that a company has provided inadequate information regarding a material event or has provided inadequate responses to inquiries by the CVM or the BOVESPA.

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     The Brazilian securities law, the Brazilian corporate law and the laws and regulations issued by the CVM, the CMN, and the Central Bank provide for, among other things, disclosure requirements applicable to issuers of traded securities, restrictions on insider trading and price manipulation, and protection of minority shareholders. However, the Brazilian securities markets are not as highly regulated and supervised as the U.S. securities markets or markets in certain other jurisdictions.

Corporate Governance Practices

     In 2000, the BOVESPA introduced three special listing segments, known as Level 1 and 2 of differentiated Corporate Governance Practices and New Market (Novo Mercado), aiming at fostering a secondary market for securities issued by Brazilian companies with securities listed on the BOVESPA, by prompting such companies to follow good practices of corporate governance. The listing segments were designed for the trading of shares issued by companies voluntarily undertaking to abide by corporate governance practices and disclosure requirements in addition to those already imposed by applicable Brazilian law. These rules generally increase shareholders’ rights and enhance the quality of information provided to shareholders.

     To become a Level 1 (Nível 1) company, in addition to the obligations imposed by current Brazilian law, it must agree to (a) ensure that shares of the issuer representing at least 25% of its total capital are effectively available for trading, (b) adopt offering procedures that favor widespread ownership of shares whenever making a public offering, (c) comply with minimum quarterly disclosure standards including cash flow statements, (d) follow stricter disclosure policies with respect to transactions made by controlling shareholders, directors and officers involving securities issued by the respective company; (e) submit any existing shareholders’ agreements and stock option plans to the BOVESPA and (f) make a schedule of corporate events available to shareholders.

     We are a Level 1 listed company since March 31, 2003. As a result, we must comply with the corporate governance standards described in the previous paragraph in addition to other obligations imposed by Brazilian law.

Disclosure Requirements

     According to the CVM regulation, a public company must submit to the CVM and BOVESPA certain periodic information, including financial statements accompanied by the management report and independent audit report, annual and quarterly information and quarterly management reports and independent audit reports. This legislation also requires us to file with the CVM and the BOVESPA our shareholders’ agreements, notices of shareholders’ meetings and copies of the related minutes and communication regarding material acts or facts.

     The CVM rules also provide for requirements regarding the disclosure and use of information related to material acts or facts of publicly held companies, including the disclosure of information in the trading and acquisition of securities issued by publicly held companies.

Such requirements include provisions that:

• establish the concept of a material act or fact that gives rise to reporting requirements. Material acts or facts include decisions made by the controlling shareholders, resolutions of the general meeting of shareholders or of management of the company, or any other political, administrative, technical, financial or economic acts or facts related to the company’s business (whether occurring within the company or otherwise somehow related thereto) that may influence the price of its publicly traded securities, or the decision of investors to trade or maintain such securities or to exercise any of such securities’ underlying rights;

• specify examples of acts or facts that are considered to be material, which include, among others, the execution of agreements providing for the transfer of control of a public company, the entry or withdrawal of shareholders that maintain any managing, financial, technological or administrative function with or contribution to the company, and any corporate restructuring undertaken among related companies;

• oblige the public company to disclose material acts or facts to the CVM, to the BOVESPA and through the publication of such acts in the newspapers usually utilized by such company;

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• require the acquirer of a controlling stake in public company to publish a material fact, including its intentions as to whether or not to de-list the corporation’s shares, within one year;

• require management, members of the fiscal council, if active, or of any technical or advising body of a public company to disclose to the company, to the CVM and to the BOVESPA the number, type and form of trading of securities issued by the company, its subsidiaries and controlling public companies that are held by them or by persons closely related to them, and any changes in their respective ownership positions;

• require that, if any direct or indirect controlling shareholder or any shareholder electing members of the board of directors of a public company increases or decreases participation in such company by more than 5.0%, such person or entity must disclose information regarding such acquisition or disposition.

• forbid trading on the basis of insider information.

     9D. Selling Shareholders

     Not applicable.

     9E. Dilution

     Not applicable.

     9F. Expenses of the Issue

     Not applicable.

ITEM 10. ADDITIONAL INFORMATION

     10A. Share Capital

     On July 30, 2007, we converted all of our common shares and preferred shares, at the ratio of 500 existing shares for one share of the same type in a reverse stock split. In order to facilitate the comparison of the per share information, we subsequently restated our financial statements for the years ended December 31, 2003 to 2006 to take into account the reverse stock split as if it had already occurred on January 1, 2003. The per share information in this annual report is presented on the basis of the restated financial statements.

     At December 31, 2008, our capital stock consisted of a total of 235,249,343 non-par shares, of which 99,679,851 were common shares and 135,569,492 were preferred shares. As of the same date, no shares were held in treasury.

     At April 30, 2009, subsequent to the share buy-back program described immediately below, our capital stock consisted of a total of 235,328,939 non-par shares, of which 99,679,851 were common shares and 135,649,088 were preferred shares. As of the same date, 369,600 preferred shares were held in treasury and no common shares were held in treasury.

Share Buy-back

     On January 16, 2009, our board of directors approved a share buy-back program for our preferred shares, including those traded as ADRs. We were authorized to acquire up to an aggregate of 3,000,000 preferred shares, representing approximately 2.2% of the Company’s outstanding preferred stock as of December 31, 2008.

     The program was terminated on April 18, 2009. The acquisition of the preferred shares was made on the BOVESPA. A total of 369,600 preferred shares were purchased at an average price of R$15.21 per share. See “Item 16E. Purchase of Equity Securities by the Issuer and Affiliated Purchasers.”

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     The preferred shares acquired by us are held in treasury form. We intend to use these shares for subsequent sale and/or cancellation with no capital decrease.

10B. Memorandum and Articles of Association

     Set forth below is a brief summary of certain significant provisions of our by-laws and Brazilian corporate law. This description does not purport to be complete and is qualified by reference to our by-laws (an English translation of which has been filed with the SEC) and to the Brazilian corporate law.

Corporation Objects and Purposes

     We are a publicly held corporation with principal place of business and jurisdiction in the City of São Paulo, Brazil, governed mainly by Brazilian laws (including the Brazilian corporate law), CVM regulations and our by-laws.

     Our main business purpose is to sell manufactured, semi-manufactured and natural products of both national and foreign origin, of any and all kind and description, nature or quality, provided that they are not forbidden by law. Furthermore, we may also engage in a wide range of activities set forth in article 2 of our by-laws.

Preferred Shares and Common Shares

     Pursuant to the Brazilian corporate law and our by-laws, each common share entitles the holder thereof to one vote at meetings of our shareholders. Holders of common shares are not entitled to any preference relating to our dividends or other distributions or any preference upon our liquidation, provided that they may convert at any time their common shares into preferred shares. See “- Conversion of Common Shares into Preferred Shares” below.

     Pursuant to the Brazilian corporate law, each preferred share is non-voting, except under limited circumstances, and is entitled to:

(i) priority in the receipt of fixed or minimum dividend;

(ii) priority in the reimbursement of capital, with or without premium; or

(iii) cumulative preferences and advantages established in items (i) and (ii) above.

     Furthermore, the preferred shares will only be admitted for trading on the BOVESPA if they are entitled to at least one of the following preferences:

• right to participate in the distribution of the mandatory dividend of 25% of our adjusted net profits, pursuant to the following criteria (See “- Allocation of Net Profits and Distribution of Dividends – Mandatory Dividends” for a description of calculation of our adjusted net profits): (i) priority in the receipt of dividends corresponding to at least 3% of the shares’ book value; and (ii) right to participate in the profit distribution together with the common shares under equal conditions, after the common shares have received dividends as set forth in item (i) above.

• right to receive dividends in an amount per share at least 10% higher than the amount per share paid to holders of common shares; or

• tag-along right of at least 80% of the price paid to the controlling shareholder in case of transfer of control.

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     In this sense, our by-laws sets forth that the preferred shares are entitled to the following advantages and preferences:

(i) priority in receiving a minimum non-cumulative annual preferred dividend equal to R$0.08 per preferred share that is accounted for as a portion of the mandatory dividends (as mentioned below);

(ii) priority in the reimbursement of capital, which value will be calculated by the division of the corporate capital for the number of trading shares, without premium, in the event of our liquidation;

(iii) participation under equal conditions with common shares, in the distribution of bonus shares resulting from capitalization of reserves or retained earnings; and

(iv) each preferred share will be entitled to a mandatory dividend 10% higher than the dividend amount attributed to each common share (including, for purposes of such calculation, in the sum of the total amount of dividends paid to the preferred shares, the amount paid pursuant to item (i) above).

     In addition, pursuant to the Brazilian corporate law and our by-laws, the preferred shares will acquire the right to vote in the event that the minimum non-cumulative annual preferred dividend is not paid for a period of three consecutive years and such voting right will cease upon the payment of such minimum non-cumulative annual preferred dividend.

     Under the Brazilian corporate law, amendments reducing the rights of preferred shares entitle the holders of those shares to withdrawal rights. See “–Withdrawal Rights” for a description of withdrawal rights.

Allocation of Net Profits and Distribution of Dividends

     Allocation of Net Profits

     Brazilian corporate law defines the “net profit” as the results of the relevant fiscal year, reduced by accumulated losses of prior fiscal years, provisions for income tax and social contribution for such fiscal year, and amounts allocated to employees’ and management’s participation in the results in such fiscal year. The allocation of our net profits is proposed by our management and is subject to approval by our shareholders at a general shareholders’ meeting. The discretion of our management and our shareholders to determine the allocation of our net profits, however, is limited by certain rules that determine whether such net profits should be distributed as dividends or allocated to certain profit reserves or carried forward to future fiscal years, as follows:

     Mandatory dividends. Our shareholders are generally entitled to receive mandatory dividends each year, in an amount equivalent to 25% of our adjusted net profits. Adjusted net profits are net profits following the addition or subtraction of:

  • amounts allocated to the formation of a legal reserve account;

  • amounts allocated to the formation of a contingency reserve account and the return of any amounts in any contingency reserve accounts deposited in previous years;

  • amounts allocated to the formation of a tax incentives reserve account;

  • amounts allocated to the statutory reserve, if any;

  • amounts allocated to the unrealized profit reserve;

  • amounts allocated to the retained profit reserve; and

  • reversions of the amounts allocated to the unrealized profit reserve, when realized and not absorbed by losses.

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     The payment of our mandatory dividends may be limited to the profits actually realized in the fiscal year, if the portion of the profits not realized is allocated to the unrealized income reserve account (as described below).

     Legal reserve account. We are required to maintain a legal reserve to which we must allocate 5% of our net profits for each fiscal year until the amount of the reserve equals 20% of our paid-in capital. The allocation of a portion of the net profits to the legal reserve account is mandatory and it must be submitted to the approval by the shareholders voting at the general shareholders’ meeting and may only be transferred to our capital account or used to offset accumulated losses, if any. We are not required to make any allocations to our legal reserve for any fiscal year in which such reserve, when added to our capital reserves, exceeds 30% of our capital stock. The legal reserve account is not available for the payment of dividends.

     Expansion Reserve. Currently, our by-laws provide for an expansion reserve (Reserva de Expansão) which will be made of up to 100% of the remainder net profits adjusted after the establishment of the legal, contingency and unrealized income reserves. The total amount of this reserve may not exceed the amount corresponding to our share capital. Our shareholders may amend our by-laws in order to establish one or more other discretionary reserves. The allocation of our net profits to discretionary reserve accounts may not be made if it prevents the distribution of our mandatory dividends.

     Contingency reserve account. A portion of our net profits may also be allocated to a contingency reserve for an anticipated loss that is deemed probable in future years. Any amount so allocated in a prior year must either be reversed in the fiscal year for which the loss was anticipated if the loss does not occur or be charged off if the anticipated loss occurs.

     Tax incentives reserve account. According to the Brazilian Corporate Law, our shareholders’ meeting, upon a justified proposal of our board of directors or board of executive officers, may decide to allocate a percentage of our net profits resulting from government donations or subventions for investment purposes.

     Retention of our net profits. According to the Brazilian Corporate Law, the shareholders can decide to retain a portion of the net profit provided that such portion has been contemplated in the capital budget previously approved by the shareholders.

     Unrealized income reserve account. The portion of the mandatory dividends that exceeds the net profits actually realized in that year may be allocated to the unrealized income reserve account. Unrealized income is that resulting from the equity pick up result and/or the profits of earnings of any transaction, the financial satisfaction of which takes place in the subsequent fiscal year.

     The unrealized income reserve account, when realized, must be used first to offset accumulated losses, if any, and the remaining portion must be used for the payment of mandatory dividends.

     The balance of the profits reserve accounts, except for the contingency reserve account and unrealized income reserve account, may not exceed the share capital. If this occurs, a shareholders’ meeting must resolve if the excess will be applied to pay in the subscribed and unpaid capital, to increase and pay in the subscribed share capital or to distribute dividends.

     If our board of directors determines prior to a general shareholders’ meeting that payment of mandatory dividends with respect to the prior fiscal year would be incompatible in view of our financial condition, we are not required to pay the mandatory dividend. This determination must be reviewed by the fiscal council/audit committee, and our management must report to the CVM within five days of the relevant general shareholders meeting. The amount of mandatory dividends not distributed because of a Brazilian corporation’s financial condition will be registered on a special account and, if not offset against losses in future years, will be distributed as mandatory dividends as soon as the corporation’s financial condition permits.

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Distribution of Dividends

Under the Brazilian Corporate Law and our by-laws, we may pay dividends only from:

• our “net profits” earned in a given fiscal year, which is our result of the relevant fiscal year, reduced by: accumulated losses from prior fiscal years; provisions for income tax and social contribution for such fiscal year; and amounts allocated to employees’ and managers’ participation in the results in such fiscal year pursuant to our Profit Sharing Program (participações estatutárias). Furthermore, our by-laws allows us to implement a profit sharing plan for employees and managers and a stock option plan. The amount to be paid in connection with both plans is set forth by our board of directors and must not exceed an amount equal to 15% of our net profits. Under Brazilian corporate law, this profit sharing may only be paid to managers with respect to a fiscal year in which the mandatory dividend has been declared to the shareholders.

• our net profits accrued in previous fiscal years or in any six-month and/or quarterly interim periods of a fiscal year; or

• our profit reserves set aside in previous fiscal years or in the first six months of a fiscal year. In this case, “profit reserves” means any discretionary reserve account, contingency reserve account, amounts allocated to our capital expenditure budget approved by our shareholders’ resolution or unrealized income reserve account, not including the legal reserve account.

     Under our by-laws, the preferred shares are entitled to: (i) priority in receiving a minimum non-cumulative annual preferred dividend equal to R$0.08 per preferred share, (ii) priority in reimbursement of capital, without premium, in case of liquidation, (iii) participation on equal terms with common shares in the distribution of bonus shares resulting from capitalization of reserves of retained earnings and (iv) receipt of the mandatory dividend that is 10% higher than the dividend of each common share, including, for purposes of this calculation, in the sum of the total dividend amount paid to the preferred shares, the amount paid as a minimum non-cumulative annual preferred dividend equal to R$0.08 per share.

     Consequently, under our by-laws, to the extent funds are available, dividends and/or interest on shareholders’ equity are paid in the following order: (i) a minimum non-cumulative annual preferred dividend in respect of the preferred shares in the amount of R$0.08 per preferred share; and (ii) after common shares are assured a dividend equal to the minimum non-cumulative annual preferred dividend equal to R$0.08 per share, each preferred share receives a dividend that is 10% higher than the dividend of each common share, including, for purposes of this calculation, the amount paid as a minimum non-cumulative annual preferred dividend equal to R$0.08 per preferred share, subject to any determination by our board of directors that such distribution would be incompatible in view of our financial condition. We are authorized, but not required, to distribute a greater amount of dividends.

     Dividends are generally to be declared at general shareholders’ meetings in accordance with the recommendation of the board of directors. Our board of directors may declare interim dividends to be deducted from the accrued profits recorded in our annual or semiannual financial statements. In addition, our board of directors may pay dividends from the net income based on our unaudited quarterly financial statements. The interim dividends may be declared and debited to the profit reserve amount registered at the most recent annual or semiannual statement. These semiannual or quarterly interim dividends may not exceed the amounts accounted for in our capital reserve accounts. Any payment of interim dividends may be set off against the amount of mandatory dividends relating to the net profits earned in the year the interim dividends were paid.

     Distributions of interest on our shareholders’ equity may constitute an alternative form of payment to shareholders. These payments may qualify as part of the mandatory dividend at their net value. Please see “Item 10E – Additional information – Taxation –Brazilian Tax Considerations.”

     Dividends are generally available to the shareholders within 60 days after the date the dividends were declared to the holder of record on the declaration date. The amount is subject to monetary restatement, in accordance with recommendation of our board of directors and the Brazilian corporate law.

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     A shareholder has a three-year period following the dividend payment date to claim a dividend in respect of its shares. After the expiration of that period, we are no longer liable for the payment of such dividend.

     Our calculation of “net profits” and allocations to reserves for any fiscal year are determined on the basis of financial statements prepared in accordance with Brazilian GAAP. Although our allocations to reserves and dividends will be reflected in those financial statements, investors will not be able to calculate such allocations or required dividend amounts from the financial information in U.S. GAAP.

     Under the Brazilian Corporate Law, however, we are allowed to suspend the distribution of the mandatory dividends in any year in which our management report to our shareholders’general meeting that the distribution would be incompatible with our financial condition. Such suspension is subject to review by the fiscal council, if it is in place. In addition, in case of public companies, like us, our management must file a justification for such suspension with the Brazilian Securities Commission within five days from the date of the relevant general shareholders´ meeting. In case the mandatory dividend is not paid, the unpaid amount shall be attributed to a special reserve account and, if not absorbed by subsequent losses, those funds shall be paid out as dividends as soon as the financial condition of the company permits.

     Conversion of Common Shares into Preferred Shares

     Our by-laws do not provide for the conversion of preferred shares into common shares. In accordance with our by-laws, our shareholders may at any time convert our common shares into preferred shares, provided that such common shares are fully paid and that the total of preferred shares issued do not exceed the limit of two-thirds of all outstanding shares. The requests for conversion must be submitted in writing to our board of executive officers and subsequently ratified at the next board of directors meeting.

Interest on Shareholders’ Equity

     We are allowed to pay interest on shareholders’ equity as an alternative form of payment to shareholders, which payment may be treated as a deductible expense for income tax and social contribution purposes. Payments of interest on shareholders’ equity may be made at the discretion of our board of directors, subject to the approval of our shareholders in the shareholders’ meeting. The amount paid to shareholders as interest on shareholders’ equity, net of any withholding tax, may be included as part of the mandatory distribution. This interest is limited to the daily pro rata variation of the TJLP, as determined by the Central Bank from time to time, and cannot exceed, for tax purposes, the greater of (i) 50% of net income (after deduction of social contribution on profits and before taking such distribution and any deduction for corporate income tax) for the year in respect of which the payment is made; or (ii) 50% of the sum of retained profits and profit reserves in the beginning of the period with respect to which the payment is made.

     Distribution of interest on shareholders’ equity may also be accounted for as our tax deductible expense, and any payment of interest on preferred shares to shareholders, whether Brazilian residents or not, including holders of ADSs, is subject to Brazilian withholding tax at the rate of 15% or at the rate of 25% in case the beneficiary is resident and domiciled in a so-called tax haven - that is, a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% or where the local legislation imposes restrictions on disclosing the shareholding composition or the ownership of the investment. See “Item 10E – Additional information – Taxation – Brazilian Tax Considerations – Interest on Shareholders’ Equity.” To the extent we distribute interest on shareholders’ equity in any year, which distribution is not accounted for as part of the mandatory distribution, a Brazilian withholding tax would apply and we would not be required to make a gross-up.

Board of Directors

     Under the Brazilian Corporate Law, the members of a company’s board of directors must be shareholders of the company. There is no requirement as to the number of shares an individual must own in order to act as a member of the board of directors.

     According to the Brazilian Corporate Law, our officers and directors are prohibited from voting on, or acting in, matters in which their interests conflict with ours.

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     Our bylaws provide that the shareholders are responsible for determining the global remuneration of the members of our management bodies. There are no specific provisions regarding the directors’ power to vote on their compensation in the absence of an independent quorum.

     With respect to the borrowing powers of the Board of Directors, the Board of Directors has the power to authorize the borrowing of funds. Other financing arrangements, including bank loans, may be entered into by us upon the joint signatures of (i) one executive officer, acting jointly with the Chief Executive Officer or other executive officer indicated by the board of directors, (ii) one officer and one attorney-in-fact, or (iii) two attorneys-in-fact.

     There is no requirement under the Brazilian Corporate Law or our bylaws that directors retire upon reaching a certain age. In addition, our bylaws do not provide for the re-election of directors at staggered intervals.

     For a discussion of our Board of Directors, see “Item 6A. Directors, Senior Management and Employees—Directors and Senior Management—Board of Directors” and "Item 6C. Directors, Senior Management and Employees— Board Practices."

Voting Rights

     Each common share entitles the holder thereof to one vote at meetings of our shareholders. Preferred shares do not entitle the holder to vote.

     The Brazilian Corporate Law provides that non-voting or restricted voting shares (such as the preferred shares) entitled to fixed or minimum dividends acquire unrestricted voting rights if the company has failed for three consecutive fiscal years (or for any shorter period set forth in a company’s by-laws) to pay any fixed or minimum dividend to which such shares are entitled, and such voting rights exist until the payment thereof is made. Our by-laws do not set forth any shorter period.

     In any circumstance in which holders of preferred shares are entitled to vote, each preferred share will entitle the holder thereof to one vote.

     Any change in the preferences or advantages of the preferred shares, or the creation of a class of shares having priority or preference over the existing preferred shares, would require, in addition to the affirmative vote of shareholders holding the majority of our common shares in a shareholders’ meeting, the prior approval or the ratification by holders of a majority of the concerned outstanding preferred shares, voting as a class at a special meeting of holders of preferred shares. This meeting would be called by notice published at least three times in the Diário Oficial do Estado de São Paulo, as well as in a newspaper of wide circulation in São Paulo, at least 15 days prior to the meeting, but would not generally require any other form of notice. We have designated newspapers Folha de São Paulo, Valor Econômico or Estado de S. Paulo for this purpose.

     According to the Brazilian Corporate Law, (i) shareholders that jointly hold preferred shares that represent, at least, 10% of the total capital stock, and (ii) holders of common shares that are not controlling shareholders and represent, at least, 15% of the total voting stock, will have the right to elect one member of the board of directors and an alternate. In case non-controlling shareholders do not achieve the aforementioned percentage, they may combine their participation and, if they jointly hold at least 10% of the total capital, they may elect a member of the board of directors and an alternate director. Only shareholders that prove they have been holding the shares for at least 3 continuous months may exercise such rights.

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Shareholders’ Meetings

     Under the Brazilian Corporate Law, at an annual general meeting of shareholders, or an extraordinary general meeting, convened and held in accordance with such law and our by-laws, the shareholders are empowered to decide all matters relating to our business purposes.

     In accordance with Brazilian Corporate Law, shareholders voting at our general meeting have the power, among others, to:

• amend our by-laws;

• delisting from CVM (to become a closely held company);

• approve the issuance of convertible debentures and secured debentures;

• elect or dismiss members of the board of directors and of the fiscal council, at any time;

• receive the management’s accounts and approval of the financial statements, including the allocation of net profits;

• suspend the rights of a shareholder who has violated Brazilian corporate law or our by-laws;

• approve the valuation of assets offered by a shareholder in consideration for the subscription of shares of our capital stock;

• approve of the transformation of the corporate form or a merger with or into another company, spin-off, consolidation or split; and

• authorize the management to petition for bankruptcy, to declare our company insolvent and to request procedures involving protection from creditors similar in nature to reorganization under the U.S. Bankruptcy Code).

     In addition, our by-laws also establish that a general meeting of our shareholders will have the following duties:

• approval of our dissolution or liquidation and the appointment and dismissal of the respective liquidator and review the reports;

• appointment and removal of the Chairman of our board of directors;

• approval of the annual global compensation of the members of our management, including benefits;

• approval of or amendment to our annual investment program;

• approval of any issuance of common or preferred shares up to the limit of our authorized capital (400,000,000 shares), and/or any bonuses, debentures convertible into our shares or with secured guarantee or securities or other rights or interests which are convertible or exchangeable into or exercisable for our shares, or any other options, warrants, rights, contracts or commitments of any character pursuant to which we are or may be bound to issue, transfer, sell, repurchase or otherwise acquire any shares and the terms and conditions of subscription and payment;

• approval of any agreement or amendment to any agreement, directly or indirectly, between us and/or our affiliates and any of our controlling shareholders or their relatives, members of our management or any of our controlled companies and affiliates, except those agreements executed in ordinary course of business, which should be contracted on an arm’s-length basis (market conditions);

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• approval of any delisting from trading on any stock exchange or filings for new listings;

• approval of any change in our dividend policy;

• approval of any joint venture between us and third parties involving an individual investment or investments aggregated over a fiscal year in excess of the amount equivalent in reais to U.S.$100,000,000 or in excess of an amount equal to 6% of our shareholders equity as determined in its latest annual balance sheet, whichever is the higher, provided that the Joint Venture was previously approved by our board of directors;

• approval of any purchase, sale, disposal of or creation of any lien on any asset of ours or any other investment made by us in an individual amount or amounts aggregated over a fiscal year in excess of the amount in reais equivalent to U.S.$100,000,000, or in excess of an amount equal to 6% of our shareholders equity as determined in our latest annual balance sheet, whichever is higher; and

• approval of any financial arrangement, including the lending or borrowing by us of funds and the issuance of non-convertible debentures in excess of an individual amount equal to two times our EBITDA of the preceding 12 months.

     In relation to the matters described in the last two bullet points above, according to our by-laws, our board of directors has the following duties:

• approval of any purchase, sale, disposal of or creation of any lien on any asset of ours or any other investment made by us in an individual amount or cumulated over a fiscal year in excess of the amount in reais equivalent to U.S.$20,000,000 or in excess of an amount equal to 1% and up to 6% of our shareholders equity as determined in its latest annual balance sheet, whichever is the higher; and

• approval of any financial arrangement in excess of an individual amount equivalent to one half and up to two times our EBITDA of the preceding 12 months.

     According to Brazilian corporate law, neither a company’s by-laws nor actions taken at a shareholders’ meeting may deprive a shareholder of some specific rights, such as:

• the right to participate in the distribution of profits;

• the right to participate equally and ratably in any remaining residual assets in the event of liquidation of the company;

• the right to preemptive rights in the event of subscription of shares, convertible debentures or subscription warrants, except in some specific circumstances under the Brazilian law described under “—Preemptive Rights”;

• the right to withdraw from the company in the cases specified under Brazilian corporate law, see “—Withdrawal rights”; and

• the right to supervise, pursuant to Brazilian corporate law, the management of the company.

     Quorum

     Generally, Brazilian corporate law provides that a quorum at a shareholders’ meeting consists of shareholders representing at least 25% of a company’s issued and outstanding voting capital on the first call and, if that quorum is not reached, any percentage on the second call. If the shareholders are called to amend our by-laws, a quorum at a shareholders’ meeting consists of shareholders representing at least two-thirds of our issued and outstanding voting capital on the first call and any percentage on the second call.

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     As a general rule, the affirmative vote of shareholders representing at least the majority of our issued and outstanding common shares present in person or represented by proxy at a shareholders’ meeting is required to ratify any proposed action, and abstentions are not taken into account. However, the affirmative vote of shareholders representing more than one-half of our issued and outstanding voting capital is required to:

• modify a preference, privilege or condition of redemption or amortization conferred on one or more classes of preferred shares, or create a new class with greater privileges than the existing classes of preferred shares;

• reduce the percentage of mandatory dividends;

• change our corporate purpose;

• merge us into or with another company;

• spin off a portion of our assets or liabilities;

• approve our participation in a group of companies (as defined in the Brazilian corporate law);

• apply for cancellation of any voluntary liquidation;

• merge all our shares into another Brazilian company, so that we become a wholly-owned subsidiary of such company; and

• approve our dissolution.

     Notice of our shareholders’ meetings

     Notice of our shareholders’ meetings must be published at least three times in the Diário Oficial do Estado, the official newspaper of the state where our headquarters are located and another newspaper widely published, currently Folha de São Paulo, Gazeta Mercantil, Valor Econômico or Estado de S. Paulo. The first notice must be published no later than 15 days before the date of the meeting on the first call, and no later than eight days before the date of the meeting on the second call. However, in certain circumstances, the CVM may require that the first notice be published 30 days in advance of the meeting.

     Conditions of admission

     Shareholders attending a shareholders’ meeting must produce proof of their status as shareholders and proof that they hold the shares they intend to vote. A shareholder may be represented at a shareholders’ meeting by a proxy appointed less than a year before, which must be a shareholder, a corporation officer, a lawyer or a financial institution. Investment funds must be represented by their manager.

Preemptive Rights on Increase in Preferred Share Capital

     Under the Brazilian corporate law, each shareholder has a general preemptive right to subscribe for shares in any capital increase, in proportion to its shareholding, except in the event of the grant and exercise of any option to acquire shares of our capital stock under our stock option program. A shareholder has a general preemptive right to subscribe for debentures convertible into our shares and subscription warrants that we may issue. A minimum period of 30 days following the publication of the notice of a capital increase must be respected to exercise such right, except if otherwise determined by the by-laws or the shareholder meeting, and the right is negotiable.

     According to Brazilian corporate law, capital increases that do not change the proportion between the existing classes and types of shares entitle the shareholders to exercise their preemptive rights solely with respect to shares of equal class and type as the shares they already hold. However, if an issuance of shares changes the existing proportion of classes and types of shares, then (i) the shareholders may exercise their preemptive rights with respect to shares of equal class and type as the shares they already hold and, (ii) if necessary to maintain such shareholders’ ownership proportional with regard to the total capital stock, they may subscribe for other classes or types of shares.

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     Our board of directors is authorized to eliminate preemptive rights with respect to the issuance of shares, debentures convertible into shares and subscription warrants, provided that the distribution of such shares is effected (i) through a stock exchange or in a public offering or (ii) through an exchange of shares in a public offering, the purpose of which is to acquire control of another company.

     In the event of a capital increase, that maintains or increases the proportion of capital represented by preferred shares, holders of ADSs, may, under certain circumstances described above, exercise preemptive rights to subscribe newly issued preferred shares. In the event of a capital increase which would reduce the proportion of capital represented by preferred shares, holders of ADSs, may under certain circumstances described above, have preemptive rights to subscribe for preferred shares, in proportion to their shareholdings and for common shares only to the extent necessary to prevent dilution of their interest in us. For risks associated with preemptive rights, see “Item 3D – Key Information – Risk Factors.”

Withdrawal Rights

     Neither the common shares nor the preferred shares are redeemable. Any of our shareholders who dissent from certain actions taken by our shareholders in a shareholders’ meeting have the right to withdraw from our company and to receive the value of their shares. According to the Brazilian corporate law, the withdrawal rights of a dissenting shareholder may be exercised in the event that our shareholders representing at least one-half of our issued and outstanding voting capital authorizes:

(i) the creation of preferred shares or the disproportional increase of an existing class of preferred shares relative to the other classes of shares, unless such action is provided for or authorized by our by-laws;

(ii) the modification of a preference, privilege or condition of redemption or amortization conferred on one or more classes of preferred shares, or the creation of a new class with greater privileges than the existing classes of preferred shares;

(iii) a reduction in the mandatory distribution of dividends;

(iv) a change in our corporate purposes;

(v) the transfer of all of our shares to another company in order to make us a wholly owned subsidiary of such company or vice versa;

(vi) our merger into or with another company, including if we are merged into one of our controlling companies, or are consolidated with another company;

(vii) our participation in a group of companies as defined under the Brazilian corporate law and subject to the conditions set forth therein;

(viii) a spin-off of our company if it entails a change in the corporate purpose, a reduction in mandatory dividends or the participation in a centralized group of companies; or

(ix) the transformation of us into another type of company.

     Dissenting shareholders also have a right of withdrawal in the event that the entity resulting from (a) a transfer of all of our shares to another company in order to make us a wholly owned subsidiary of such company or vice versa, (b) a spin-off and, (c) a merger or a consolidation of a Brazilian publicly listed company, fails to become a Brazilian publicly listed company within 120 days of the general shareholders’ meeting in which such decision was taken.

     The right to withdraw lapses 30 days after publication of the minutes of the relevant shareholders’ meeting. In items (i) and (ii) above, the resolution will be effective only upon the prior approval or confirmation within one year by the preferred shareholders, which must be made at a special meeting, in which case the 30-day term is counted from the date the minutes of the special meeting are published. In any event, we are entitled to reconsider any action giving rise to withdrawal rights within ten days following the expiration of the 30-day term mentioned above, if the withdrawal of shares of dissenting shareholders would jeopardize our financial stability.

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     In addition, the rights of withdrawal in items (iv), (v), (vii) and (viii), above, may not be exercised by holders of shares if such shares have (a) liquidity, when such shares are part of the BOVESPA Index, or part of any other stock exchange index in Brazil or in the world, as defined by the CVM, and (b) dispersion, when the controlling shareholder or other companies under the same control has less than 50% of the shares or class of shares.

     Our preferred shares may be withdrawn at their book value, determined on the basis of the last balance sheet approved by the shareholders. If the shareholders’ meeting giving rise to withdrawal rights occurs more than sixty days after the date of the last approved balance sheet, a shareholder may demand that its shares be valued on the basis of a special balance sheet that is of a date within sixty days of such shareholders’ meeting. In this case, we must immediately pay 80% of the book value of the shares according to the most recent balance sheet approved by our shareholders, and the balance must be paid within 120 days after the date of the resolution of the relevant shareholders’ meeting.

Form and Transfer of Shares

     Our shares are in book-entry form, and the transfer of such shares is made by the registrar in our books, by debiting the share account of the transferor and crediting the share account of the transferee. We maintain book-entry form services with Banco Itaú S.A., or the registrar, which performs all the services of safekeeping and transfer of our shares and related services.

     Transfer of shares by a foreign investor is made in the same way and is requested by the investor’s local agent on the investor’s behalf. If the original investment is registered with the Central Bank pursuant to Resolution 2,689 of CMN, the foreign investor should also seek amendment through its local agent, if necessary, of the electronic registration to reflect the new ownership.

     The BOVESPA operates a clearing house through CBLC. CBLC is also responsible for settlement and custody of the shares.

Other Dispositions

     In addition to the provisions already described in this annual report, the Brazilian corporate law and current regulations set forth, among others:

• upon a sale of control, the acquirer is required to launch a tender offer to purchase all minority voting shares at a price equal to at least 80% of the control price;

• if provided for in the by-laws, disputes among our shareholders will be subject to arbitration; our by-laws currently do not provide for arbitration;

• upon the occurrence of a tender offer aiming at delisting our company or through which our controlling shareholders acquire more than one-third of the float shares, the purchase price will be equal to the fair value of the shares considering the total number of outstanding shares;

• members of our board of directors elected by the non-controlling shareholders will have the right to veto the choice of the independent accountant of the controlling shareholders; and

• the chairman of any shareholders’ or board of directors’ meeting will disregard any vote that is rendered against provisions of any shareholders’ agreement if that shareholders’ agreement has been duly filed with us.

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     10C. Material Contracts

     The two sections below summarize our material contracts. They are qualified by reference to the agreements that are filed as exhibits to this annual report.

     The Sendas Shareholders’ Agreement

     On September 16, 2005, Sendas S.A., our subsidiary Sé Supermercados Ltda., or Sé Supermercados, we and investment funds of the AIG Group entered into an amended and restated shareholders’ agreement, or the Sendas Shareholders’ Agreement, establishing our respective rights and obligations in the Sendas Association. Sendas S.A. and we hold 50% of the voting capital of the Sendas Association, respectively. Among other provisions, the Sendas Shareholders’ Agreement provides for the following rights and obligations among the parties:

• the board of directors of the Sendas Association is made up of 13 regular members and five alternates; as long as each of us and Sendas S.A. continues to own shares representing 50% of the voting capital of the Sendas Association, Sendas S.A. is entitled to appoint five members and two alternates and we are entitled to appoint seven members and two alternates, the AIG Group, which is an intervening consenting party to the Sendas Shareholders’ Agreement, is entitled to appoint one member and the respective alternate;

• in order to establish a quorum, a majority of the members of the board must be present; resolutions are approved by the majority vote of the board members present; however, any two directors appointed by Sendas S.A. can veto resolutions of the board of directors that are not covered by the business purpose of the Sendas Association;

• we have the right to appoint all executive officers of the Sendas Association, which enables us to be fully responsible for the operating and administrative management of the Sendas Association;

• as long as each of us and Sendas S.A. continues to own shares representing 50% of the voting capital of the Sendas Association, shareholders’ resolutions must be supported by both of Sendas S.A. and us; if the voting capital participation of any of us falls below 50%, the shareholders’ resolutions will be taken by simple majority; in such case, however, the minority shareholder will be given the right to veto certain major corporate decisions, such as amendments to the by-laws of the Sendas Association regarding its capital stock, the issuance of securities and dividend policies, mergers, spin-offs and other corporate actions; such veto right will exist provided that the minority shareholder continues to own more than 25% of the voting capital of the Sendas Association;

• as long as the AIG Group is a shareholder of the Sendas Association, it will have veto rights regarding certain major corporate decisions;

• each of Sendas S.A. and us has a right of first refusal in the event that the other party wishes to dispose of its shares;

• in the event that PAIC Participações Ltda., or PAIC, Península Participações Ltda. or Península, and Mr. Abilio Diniz decide to transfer, either directly or indirectly, our equity control or the equity control of our subsidiary Sé Supermercados, Sendas S.A. will be entitled to cause us to purchase all of its shares of the Sendas Association; on October 19, 2006, Sendas notified its put option exercise to us based on a transaction with the Casino Group in 2005, which would have constituted a change of control of CBD. We responded to the notification informing that the option is not exercisable on grounds that the transaction between Diniz group and Casino group did not constitute a transfer of our control and therefore it should not constitute a trigger to the put option right. On October 31, 2006, we were notified by the Fundação Getúlio Vargas Arbitration Chamber (Câmara de Conciliação e Arbitragem da Fundação Getúlio Vargas – FGV) of the arbitration proceeding initiated by Sendas. On March 13, 2007, we and Sendas executed the arbitration submission agreement, which marked the initiation of the arbitration proceeding. During the proceeding, we and Sendas submitted petitions and documents to the arbitral tribunal and a preliminary hearing was held on October 4, 2007. On April 29, 2008, the Fundação Getúlio Vargas Arbitration Chamber, ultimately expressed an opinion, which is favorable to CBD, that the transaction with the Casino Group in 2005 did not constitute a change of control of CBD as claimed by Sendas. Accordingly, the claims formalized by Sendas in the arbitration proceeding were denied, specifically the request for the recognition of its alleged right to exercise the put of its shares in Sendas Distribuidora and promptly receive the total amount in cash.

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• in the event that the controlling shareholder of Sendas S.A. receives from a third party an offer for disposal of the equity control of (i) Sendas S.A. and/or (ii) the controlling shareholder of Sendas S.A., we are entitled to either exercise a right of first refusal with regard to the shares being offered or we may acquire, at a price to be determined in accordance with the provisions of the Sendas S.A. Shareholders’ Agreement, all of the shares of the Sendas Association held by Sendas S.A.;

Sendas S.A. may at any time exercise the right to exchange all or a portion of its paid-in shares in the Sendas Association for preferred shares of our capital stock; in such case, we may either (i) agree to the share exchange; or (ii) purchase in cash, at a transfer price to be determined in accordance with the provisions of the Sendas S.A. Shareholders’ Agreement, the shares upon which the right of share exchange has been exercised; or (iii) exchange the shares through a capital increase, merger or other corporate action.

Barcelona Comércio Shareholders’ Agreement

     Within the scope of our acquisition of 60% of the total voting capital of Barcelona Comércio, we entered into a shareholders’ agreement with Assai’s former controlling shareholders that established a put and call option related to the 40% ownership interest in Barcelona Comércio owned by these former controlling shareholders.

     According to the shareholders’ agreement, in case the call or put options are exercised, the purchase or sales price shall be calculated as follows:

1) The highest amount of seven times EBITDA and 35.16% of net sales over the last 12 months immediately prior to the Option exercise date, deducting net indebtedness and contingencies with probable unfavorable outcome; if the EBITDA margin is lower than 4.625%, only the seven times EBITDA criterion will be taken into account; or

2) The initial purchase value net of distributed dividend, restated by IPCA plus 6.5% p.a. The exercise of the put and call options is subject to the following conditions:

• if the chairman of Barcelona Comércio does not meet certain parameters set forth in the shareholders’ agreement, the put and call options may be exercised by calculating the sales price pursuant to criterion 1 mentioned above;

• if the chairman of Barcelona Comércio resigns or if the chairman fails to attend more than 1/3 of the Board meetings held during a given fiscal year, the put and call options may be exercised by calculating the sales price pursuant to the lower value of criterion 1 or 125% of the sales price resulting pursuant to criterion 2 mentioned above;

• at any moment, until December 31, 2011, the put and call options may be exercised by calculating the sales price pursuant to the higher value of criterion 1 or 125% of the sales price calculated pursuant to criterion 2 mentioned above;

• from January 1 to January 15 of each calendar year between 2012 and 2014, the put and call options may be exercised by calculating the sales price pursuant to the higher value of criterion 1 or criterion 2 mentioned above; or

• if the chairman of Barcelona deceases or becomes disabled, the put and call options may be exercised by calculating the sales price pursuant to criterion 1 mentioned above.

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     In addition, the former controlling shareholders of Assai may exercise the put option as of January 1, 2012 pursuant to the conditions set forth in criterion 1 mentioned above.

     10D. Exchange Controls

     The ownership of preferred or common shares by individuals or legal entities domiciled outside Brazil is subject to certain conditions established under Brazilian Law.

     The right to convert dividend payments and proceeds from the sale of common shares or preferred shares into foreign currency and to remit those amounts outside Brazil is subject to exchange control restrictions and foreign investment legislation which generally requires, among other things, obtaining an electronic registration with the Central Bank.

     Resolution No. 1,927 of the CMN, which is the restated and amended Annex V to Resolution No. 1,289 of the CMN, or the Annex V Regulations, provides for the issuance of depositary receipts in foreign markets in respect of shares of Brazilian issuers. We filed an application to have the ADSs approved under the Annex V Regulations by the Central Bank and the CVM, and we received final approval before the offering of the preferred shares underlying the ADSs in May 1997.

     An electronic registration, which replaced the amended certificate of registration, was issued in the name of the depositary with respect to the ADSs and is maintained by the custodian on behalf of the depositary.

     This electronic registration was carried on through the Sistema do Banco Central–SISBACEN, a database of information provided by financial institutions to the Central Bank. Pursuant to the electronic registration, the custodian is able to convert dividends and other distributions with respect to the preferred shares represented by the ADSs into foreign currency and remit the proceeds outside Brazil. In the event that a holder of ADSs exchanges those ADSs for preferred shares, that holder will be entitled to continue to rely on the depositary’s electronic registration for only five business days after that exchange, following which that holder must seek to obtain its own electronic registration. Thereafter, unless the preferred shares are held pursuant to Resolution No. 2,689 of CMN, dated as of January 26, 2000, as amended, a holder of preferred shares who applies for and obtains a new electronic registration, that holder may not be able to obtain and remit abroad U.S. dollars or other foreign currencies upon disposal of the preferred shares, or distributions with respect thereto, and generally will be subject to a less favorable tax treatment on the proceeds arising from any sale of the preferred shares. In addition, if the foreign investor is domiciled in a Low or Nil Taxation Jurisdiction (as defined under “Brazilian Tax Considerations”), the investor will be also subject to a less favorable tax treatment, even if its registry before the Central Bank is in accordance with the provisions of Resolution 2,689. See “Item 10E. Additional Information — Taxation — Brazilian Tax Considerations.”

     Under Resolution 2,689, foreign investors may invest in almost all financial assets and engage in almost all transactions available in the Brazilian financial and capital markets, provided that the requirements described below are fulfilled. In accordance with Resolution 2,689, the definition of foreign investor includes individuals, legal entities, mutual funds and other collective investment entities domiciled or headquartered outside Brazil.

     Pursuant to Resolution 2,689, foreign investors must fulfill the following requirements before engaging in financial transactions:

• appoint at least one representative in Brazil with powers to perform actions relating to the foreign investment;

• appoint an authorized custodian in Brazil for the investments, which must be a financial institution duly authorized by the Central Bank and the CVM;

• complete the appropriate foreign investor registration form;

• register as a foreign investor with the CVM; and

• register the foreign investment with the Central Bank.

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     Securities and other financial assets held by foreign investors pursuant to Resolution 2,689 must be registered or maintained in deposit accounts or under the custody of an entity duly licensed by the Central Bank or the CVM. In addition, securities trading is restricted to transactions carried out on stock exchanges or through organized over-the-counter markets licensed by the CVM, except for subscription, bonification, conversion of debentures into shares, securities indexes, purchase and sale of investment funds quotas and, if permitted by the CVM, going private transactions, canceling or suspension of trading. Moreover, the offshore transfer or assignment of the securities or other financial assets held by foreign investors pursuant to Resolution 2,689 are prohibited, except for transfers resulting from a corporate reorganization, or occurring upon the death of an investor by operation of law or will.

     Investors under Resolution 2,689 who are not resident in a tax haven jurisdiction (i.e., a country that does not impose income tax or where the maximum income tax rate is lower than 20%) are entitled to favorable tax treatment. See “Item 10E. Additional Information — Taxation — Brazilian Tax Considerations.”

     10E. Taxation

     This summary contains a description of the principal Brazilian and U.S. federal income tax consequences of the purchase, ownership and disposal of preferred shares or ADSs, but it does not purport to be a comprehensive description of all the tax considerations that may be relevant to these matters based upon the particular circumstances of a holder.

     This summary is based upon tax laws of Brazil and the federal income tax laws of the United States in effect as of the date hereof, which laws are subject to change (possibly with retroactive effect) and differing interpretations. This summary is also based upon the representations of the depositary and on the assumption that each obligation in the Amended and Restated Deposit Agreement, dated as of May 28, 1997, among us, the depositary and the Owners from time to time of American Depositary Receipts, and any related documents, will be performed in accordance with its terms.

     Although there is presently no income tax treaty between Brazil and the United States, the tax authorities of the two countries have had discussions that may culminate in such a treaty. No assurance can be given, however, as to whether or when a treaty will enter into force or how such a treaty would affect a U.S. holder of preferred shares or ADSs.

Brazilian Tax Considerations

     The following discussion summarizes the principal Brazilian tax consequences of the acquisition, ownership and disposal of preferred shares or ADSs by a holder that is not domiciled in Brazil for purposes of Brazilian taxation (a “Non-Brazilian Holder”). It is based on Brazilian law as currently in effect, which is subject to change, possibly with retroactive effect, and to differing interpretations. Any change in such law may change the consequences described below. Each Non-Brazilian Holder should consult his or her own tax adviser concerning the Brazilian tax consequences of an investment in preferred shares or ADSs.

     Taxation of Dividends

     Dividends based on profits generated after January 1, 1996, including dividends paid in kind, payable by us to the depositary in respect of preferred shares underlying ADS or to a Non-Brazilian Holder in respect of preferred shares, are exempt from withholding income tax.

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     Distribution of Interest on Shareholders’ Equity

     In accordance with the Law No. 9,249, dated December 26, 1995, as amended, Brazilian corporations may make payments to shareholders characterized as distributions of interest on shareholder’s equity as an alternative to making dividend distributions. Such interest is calculated by reference to the TJLP (long term interest rate) as determined by the Brazilian Central Bank from time to time and cannot exceed the greater of:

• 50% of the net income (after the deduction of social contribution on net profits and before taking such distribution and the provision for corporate income tax into account) for the period in respect of which the payment is made; or

• 50% of the sum of retained profits and profits reserves, as of the date of the beginning of the period in respect of which the payment is made.

     Payments of interest on shareholder’s equity to a Non-Brazilian Holder may be deducted for purposes of calculating Brazilian corporate income tax and social contribution on net profits as far as the limits described above are observed. Such payments are subject to withholding income tax at the rate of 15%, or 25% if the Non-Brazilian Holder is domiciled in a country or location that does not impose income tax or where the maximum income tax rate is lower than 20% (“Low or Nil Taxation Jurisdiction”). These payments may be included, at their net value, as part of any mandatory dividend. To the extent that such payments are accounted for as part of the mandatory dividend, under current Brazilian law, we are obliged to distribute to shareholders an additional amount sufficient to ensure that the net amount received by the shareholders, after payment by us of applicable Brazilian withholding income tax, plus the amount of declared dividends, is at least equal to the mandatory dividend. The distribution of interest on shareholders’ equity is proposed by our board of directors and subject to subsequent declaration by the shareholders at the general meeting.

     Taxation of Gains

     According to Law No. 10,833 of December 29, 2003, capital gains realized on the disposal of assets located in Brazil by a Non-Brazilian Holder, whether to other non-Brazilian resident or to a Brazilian resident are subject to taxation in Brazil. In this sense, on the disposal of the preferred shares, as they are assets located in Brazil, the Non-Brazilian Holder will be subject to income tax on the gains assessed, following the rules described below, regardless of whether the disposal is conducted in Brazil or abroad and with a Brazilian resident or not.

     Regarding the ADSs, although the matter is not free from doubt, arguably the gains realized by a Non-Brazilian Holder on the disposal of ADSs to another non-Brazilian resident are not taxed in Brazil, based on the argument that ADSs would not constitute assets located in Brazil for purposes of Law No. 10,833/03. However, we cannot assure you of how Brazilian courts would interpret the definition of assets located in Brazil in connection with the taxation of gains realized by a Non-Brazilian Holder on the disposal of ADSs to another non-Brazilian resident. As a result, gains on a disposal of ADSs by a Non-Brazilian Holder to Brazilian resident, or even to a non-Brazilian resident in the event that courts determine that ADSs would constitute assets located in Brazil, may be subject to income tax in Brazil according to the rules described below.

     The withdrawal of ADSs in exchange for preferred shares is not subject to Brazilian income tax as long as registration rules for the preferred shares are appropriately observed with the Brazilian Central Bank. The deposit of preferred shares in exchange for ADSs may be subject to Brazilian income tax on capital gains at the rate of 15% or 25%, in case of a resident in a Low or Nil Taxation Jurisdiction, if the acquisition cost of the preferred shares is lower than (1) the average price per preferred share on a Brazilian stock exchange on which the greatest number of such shares were sold on the day of deposit, or (2) if no preferred shares were sold on that day, the average price on the Brazilian stock exchange on which the greatest number of preferred shares were sold in the fifteen trading sessions immediately preceding such deposit. In this case, the difference between the acquisition cost and the average price of the preferred shares, calculated as above, will be considered a capital gain subject to taxation. In some circumstances, there may be arguments to claim that this taxation is not applicable in the case of a Non-Brazilian Holder that is a 2,689 Holder (as defined below) and is not a resident in a Low or Nil Taxation Jurisdiction .

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     Under Brazilian law, income tax rules on such gains can vary, depending on the domicile of the Non-Brazilian Holder, the type of registration of the investment by the Non-Brazilian Holder before the Central Bank and how the disposal is carried out, as described below.

     Capital gains assessed by a Non-Brazilian Holder on a disposal of preferred shares carried out on the Brazilian stock exchange (which includes the transactions carried out on the organized over-the-counter market) are:

• exempt from income tax when assessed by a Non-Brazilian Holder that (1) has registered its investment in Brazil with the Central Bank under the rules of Resolution No. 2,689, of January 26, 2000, (“2,689 Holder”) and (2) is not a Tax Haven Resident; or

• subject to income tax at a rate of 15% in any other case, including a case of gains assessed by a Non-Brazilian Holder that is not a 2,689 Holder, or is a resident in a Low or Nil Taxation Jurisdiction.

In these cases, a withholding income tax of 0.005% of the sale value will be applicable and can be later offset with the eventual income tax due on the capital gain.

     Any other gains assessed on a disposal of the preferred shares that is not carried out on a Brazilian stock exchange are subject to income tax at the rate of 15%, except for a resident in a Low or Nil Taxation Jurisdiction or yet where the local legislation imposes restrictions on the disclosure of the shareholding composition, of the ownership of the investment or of the identity of the effective beneficiary of the income attributed to non-residents, which, in this case, is subject to income tax at the rate of 25%. If these gains are related to transactions conducted on the Brazilian non-organized over-the-counter market with intermediation, the withholding income tax of 0.005% shall also be applicable and can be offset against the eventual income tax due on the capital gain.

     In the case of a redemption of preferred shares or ADSs or a capital reduction by a Brazilian corporation, such as our company, the positive difference between the amount received by the Non-Brazilian Holder and the acquisition cost of the preferred shares or ADSs redeemed is treated as capital gain derived from the sale or exchange of shares not carried out on a Brazilian stock exchange market and is therefore subject to income tax at the rate of 15%, or 25%, as the case may be.

     As a general rule, the gains realized as a result of a disposal of preferred shares or ADSs is the positive difference between the amount realized on the sale or exchange of the shares and their acquisition cost.

     There is no assurance that the current preferential treatment for Non-Brazilian Holder of ADSs and 2,689 Holder of preferred shares will continue or that it will not be changed in the future.

     Any exercise of preemptive rights relating to the preferred shares or ADSs will not be subject to Brazilian income tax. Any gain on the sale or assignment of preemptive rights relating to the preferred shares or ADSs by a Non-Brazilian Holder will be subject to Brazilian taxation at the same rate applicable to the sale or disposal of preferred shares.

     Discussion on Low or Nil Taxation Jurisdictions

      On June 24, 2008, Law No. 11,727 introduced the concept of “privileged tax regime”, considered as such the tax regime that (i) does not tax income or taxes it at a maximum rate lower than 20%; or (ii) grants tax benefits to non-resident entities or individuals (a) without the requirement to carry out a substantial economic activity in the country or dependency or (b) contingent to the non-exercise of a substantial economic activity in the country or dependency; or (iii) does not tax or taxes the income generated abroad at a maximum rate lower than 20%; or (iv) does not provide access to information related to shareholding composition, ownership of assets and rights or economic transactions carried out. In principle, the best interpretation of Law No. 11,727/08 lead us to conclude that the new concept of “privileged tax regime” should be solely applied for purposes of transfer pricing rules in export and import transactions. However, due to the recent enactment of this Law, we are unable to ascertain whether or not the privileged tax regime concept will be extended to the concept of Low or Nil Taxation Jurisdiction. The provisions of Law No. 11,727/08 that refer to the “privileged tax regime” came into effect on January 1, 2009.

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     Other Brazilian Taxes

     There are no Brazilian inheritance, gift or succession taxes applicable to the ownership, transfer or disposal of preferred shares or ADSs by a Non-Brazilian Holder, except for gift and inheritance taxes, which are levied by some states of Brazil on gifts made or inheritances bestowed by the Non-Brazilian Holder within such states to individuals or entities resident or domiciled within such states in Brazil. There are no Brazilian stamp, issue, registration or similar taxes or duties payable by a Non-Brazilian Holder of preferred shares or ADSs.

     Tax on Bank Account Transactions (CPMF)

     Until December 31, 2007, as a general rule, transactions carried out in Brazil that resulted in the transfer of funds from an account maintained with a Brazilian financial institution were subject to the Temporary Contribution on Financial Transactions (“CPMF Tax”), at the rate of 0.38% .

     However, as of January 2008, the CPMF Tax is no longer in force. The Brazilian government may attempt to reestablish the CPMF Tax or to create an equivalent tax, by submitting a new proposal to the Brazilian Congress, which did not occur as of the date of this Form 20-F. In the event CPMF is reestablished or an equivalent tax is created, it will apply only after a period of 90 (ninety) days have elapsed after enactment of the respective introductory legislation (“vacatio legis”) and only in regard with respect to future transactions.

     Taxation of Foreign Exchange Transactions (IOF/Câmbio)

     Pursuant to Decree No. 6,306, dated December 14, 2007, the conversion of Brazilian currency into foreign currency (e.g., for purposes of paying dividends and interest) and on the conversion of foreign currency into Brazilian currency may be subject to the Tax on Foreign Exchange Transactions (“IOF/Exchange”). Currently, for most exchange transactions, the rate of IOF/Exchange is 0.38% . However, exchange transactions carried out by 2,689 Holders for investments in the Brazilian financial and capital markets are currently subject to IOF/Exchange at a zero percent rate. In any case, the Brazilian government may increase at any time the rate to a maximum of 25%, but only in relation to future transactions.

     Tax on Bonds and Securities Transactions (IOF/Títulos)

     Pursuant to Decree No. 6,306/07, the Tax on Bonds and Securities Transactions (“IOF/Bonds”) may be imposed on any transactions involving bonds and securities, including those carried out on Brazilian stock, futures and commodities exchanges. As a general rule, the rate of this tax is currently zero, although the Brazilian Government may increase such rate up to 1.5% per day, but only with respect to future transactions.

U.S. Federal Income Tax Considerations

     The following discussion summarizes the principal U.S. federal income tax considerations relating to the acquisition, ownership and disposition of preferred shares or ADSs by a U.S. holder (as defined below) holding such preferred shares or ADSs as capital assets (generally, property held for investment). This summary is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations, administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”) and judicial decisions, all as in effect on the date hereof, and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. This summary does not describe any implications under state, local or non-U.S. tax law, or any aspect of U.S. federal tax law other than income taxation.

     This summary does not purport to address all the material U.S. federal income tax consequences that may be relevant to the holders of the preferred shares or ADSs, and does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks or other financial institutions, insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, investors liable for the alternative minimum tax, partnerships and other pass-through entities, U.S. expatriates, investors that own or are treated as owning 10% or more of our voting stock, investors that hold the preferred shares or ADSs as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction and persons whose functional currency is not the U.S. dollar) may be subject to special tax rules.

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     As used below, a “U.S. holder” is a beneficial owner of preferred shares or ADSs that is, for U.S. federal income tax purposes:

(i) an individual citizen or resident of the United States;

(ii) a corporation (or an entity taxable as a corporation) created or organized in or under the laws of the United States, any state, or the District of Columbia;

(iii) an estate the income of which is subject to U.S. federal income tax regardless of its source; or

(iv) a trust if (A) a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust or (B) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

     If a partnership or other entity taxable as a partnership holds preferred shares or ADSs, the tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partners of partnerships holding preferred shares or ADSs should consult their tax advisors.

     In general, for U.S. federal income tax purposes, holders of American Depositary Receipts evidencing ADSs will be treated as the beneficial owners of the preferred shares represented by those ADSs.

     Taxation of Distributions

     In general, distributions with respect to the preferred shares or ADSs (which likely include distributions of interest on shareholders’ equity, as described above under “—Brazilian Tax Considerations—Interest on Shareholders’ Equity”) will, to the extent made from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, constitute dividends for U.S. federal income tax purposes. If a distribution exceeds the amount of our current and accumulated earnings and profits, as so determined under U.S. federal income tax principles, the excess will be treated first as a non-taxable return of capital to the extent of the U.S. holder’s tax basis in the preferred shares or ADSs, and thereafter as capital gain. As used below, the term “dividend” means a distribution that constitutes a dividend for U.S. federal income tax purposes.

     The gross amount of any dividends (including amounts withheld in respect of Brazilian taxes) paid with respect to the preferred shares or ADSs generally will be subject to U.S. federal income taxation as ordinary income and will not be eligible for the dividends received deduction allowed to corporations. Dividends paid in Brazilian currency will be included in the gross income of a U.S. holder in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date the dividends are actually or constructively received by the U.S. holder, or in the case of dividends received in respect of ADSs, on the date the dividends are actually or constructively received by the depositary, whether or not converted into U.S. dollars. A U.S. holder will have a tax basis in any distributed Brazilian currency equal to its U.S. dollar amount on the date of receipt by the U.S. holder or disposition, as the case may be, and any gain or loss recognized upon a subsequent disposition of such Brazilian currency generally will be foreign currency gain or loss that is treated as U.S. source ordinary income or loss. If dividends paid in Brazilian currency are converted into U.S. dollars on the day they are received by the U.S. holder or the depositary, as the case may be, U.S. holders generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. holders should consult their own tax advisors regarding the treatment of any foreign currency gain or loss if any Brazilian currency received by the U.S. holder or the depositary or its agent is not converted into U.S. dollars on the date of receipt.

     Subject to certain exceptions for short-term and hedged positions, under current law, the U.S. dollar amount of dividends received in taxable years beginning on or before December 31, 2010 by an individual with respect to the ADSs will be subject to taxation at a maximum rate of 15% if the dividends represent “qualified dividend income.” Dividends paid on the ADSs will be treated as qualified dividend income if (i) the ADSs are readily tradable on an established securities market in the United States and (ii) we were not in the year prior to the year in which the dividend was paid, and are not in the year in which the dividend is paid, a passive foreign investment company (“PFIC”). The ADSs are listed on the New York Stock Exchange, and should qualify as readily tradable on an established securities market in the United States so long as they are so listed. However, no assurances can be given that the ADSs will be or remain readily tradable. Based on our audited financial statements as well as relevant market and shareholder data, we believe that we were not treated as a PFIC for U.S. federal income tax purposes with respect to our 2008 taxable year. In addition, based on the our audited financial statements and current expectations regarding the value and nature of its assets, the sources and nature of its income, and relevant market and shareholder data, we do not anticipate becoming a PFIC for our 2009 taxable year. Because these determinations are based on the nature of our income and assets from time to time, and involve the application of complex tax rules, no assurances can be provided that we will not be considered a PFIC for the current (or any past or future) tax year.

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     Based on existing guidance, it is not entirely clear whether dividends received with respect to the preferred shares (to the extent not represented by ADSs) will be treated as qualified dividend income, because the preferred shares are not themselves listed on a U.S. exchange. In addition, the U.S. Treasury Department has announced its intention to promulgate rules pursuant to which holders of ADSs or preferred stock and intermediaries though whom such securities are held will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because such procedures have not yet been issued, we are not certain that we will be able to comply with them. U.S. Holders of ADSs and preferred shares should consult their own tax advisors regarding the availability of the reduced dividend tax rate in the light of their own particular circumstances.

     Dividends paid by us generally will constitute income from non-U.S. sources and will be subject to various classification and other limitations for U.S. foreign tax credit purposes. Subject to generally applicable limitations under U.S. federal income tax law, Brazilian income tax imposed or withheld on such dividends, if any, will be treated as a foreign income tax eligible for credit against a U.S. holder’s U.S. federal income tax liability (or at a U.S. holder’s election if it does not elect to claim a foreign tax credit for any foreign income taxes paid during the taxable year, all foreign income taxes paid may instead be deducted in computing such U.S. holder’s taxable income). In general, special rules will apply to the calculation of foreign tax credits in respect of dividend income that is subject to preferential rates of U.S. federal income tax. U.S. holders should be aware that the IRS has expressed concern that parties to whom ADSs are released may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holders of ADSs. Accordingly, the discussion above regarding the creditability of Brazilian income tax on dividends could be affected by future actions that may be taken by the IRS.

     Taxation of Capital Gains

     Deposits and withdrawals of preferred shares by U.S. holders in exchange for ADSs will not result in the realization of gain or loss for U.S. federal income tax purposes.

     In general, gain or loss, if any, realized by a U.S. holder upon a sale or other taxable disposition of preferred shares or ADSs will be subject to U.S. federal income taxation as capital gain or loss in an amount equal to the difference between the amount realized on the sale or other taxable disposition and such U.S. holder’s adjusted tax basis in the preferred shares or ADSs. Such capital gain or loss will be long-term capital gain or loss if at the time of sale or other taxable disposition the preferred shares or ADSs have been held for more than one year. Under current U.S. federal income tax law, net long-term capital gain of certain U.S. holders (including individuals) is eligible for taxation at preferential rates (which rates are scheduled to increase on January 1, 2011). The deductibility of capital losses is subject to certain limitations under the Code. Gain, if any, realized by a U.S. holder on the sale or other disposition of preferred shares or ADSs generally will be treated as U.S. source gain for U.S. foreign tax credit purposes. Consequently, if a Brazilian income tax is imposed on the sale or disposition of preferred shares, a U.S. holder that does not receive sufficient foreign source income from other sources may not be able to derive effective U.S. foreign tax credit benefits in respect of such Brazilian income tax. Alternatively, a U.S. holder may take a deduction for all foreign income taxes paid during the taxable year if it does not elect to claim a foreign tax credit for any foreign taxes paid or accrued during the taxable year. U.S. holders should consult their own tax advisors regarding the application of the foreign tax credit rules to their investment in, and disposition of, preferred shares or ADSs.

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     Passive Foreign Investment Company Rules

     Based upon our current and projected income, assets and activities, we do not expect the preferred shares or ADSs to be considered shares of a PFIC for our current fiscal year or for future fiscal years. However, because the determination of whether the preferred shares or ADSs constitute shares of a PFIC will be based upon the composition of our income, assets and the nature of our business, as well as the income, assets and business of entities in which we hold at least a 25% interest, from time to time, and because there are uncertainties in the application of the relevant rules, there can be no assurance that the preferred shares or ADSs will not be considered shares of a PFIC for any fiscal year. If the preferred shares or ADSs were shares of a PFIC for any fiscal year, U.S. holders (including certain indirect U.S. holders) may be subject to adverse tax consequences, including the possible imposition of an interest charge on gains or “excess distributions” allocable to prior years in the U.S. holder’s holding period during which we were determined to be a PFIC. If we are deemed to be a PFIC for a taxable year, dividends on our preferred shares or ADSs would not be “qualified dividend income” subject to preferential rates of U.S. federal income taxation. U.S. holders should consult their own tax advisors regarding the application of the PFIC rules to the preferred shares or ADSs.

     U.S. Backup Withholding and Information Reporting

     A U.S. holder of preferred shares or ADSs may, under certain circumstances, be subject to information reporting and “backup withholding” with respect to certain payments to such U.S. holder, such as dividends paid by our company or the proceeds of a sale of preferred shares or ADSs, unless such U.S. holder (i) is a corporation or comes within certain other exempt categories, and demonstrates this fact when so required, or (ii) in the case of backup withholding, provides a correct taxpayer identification number, certifies that it is a U.S. person and that it is not subject to backup withholding, and otherwise complies with applicable requirements of the backup withholding rules. Backup withholding is not an additional tax. Any amount withheld under these rules will be creditable against a U.S. holder’s U.S. federal income tax liability, provided the requisite information is timely furnished to the IRS.

     10F. Dividends and Paying Agents

     Not applicable.

     10G. Statement by Experts

     Not applicable.

     10H. Documents on Display

     We are subject to the information requirements of the Securities Exchange Act of 1934, as amended, pursuant to which we file reports and other information with the SEC. Reports and other information filed by us with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at Room 1580, 100 F Street N.E., Washington, D.C. 20549, and at the Commission’s Regional Offices at 233 Broadway, New York, New York 10279 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. Copies of such material can also be obtained at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street N.E., Washington, D.C. 20549. You may also inspect these reports and other information at the offices of the New York Stock Exchange Inc., 120 Broad Street, New York, New York 10005, on which our ADSs are listed.

     We also file financial statements and other periodic reports with the CVM.

     Copies of our annual reports on Form 20-F and documents referred to in this annual report and our bylaws will be available for inspection upon request at our headquarters at: Avenida Brigadeiro Luiz Antônio, no. 3,172, CEP 01402-901, São Paulo, SP, Brazil.

     10I. Subsidiary Information

     Not required.

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ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market Risk

     We are exposed to market risks from changes in foreign currency and interest rates. Market risk is the potential loss arising from adverse changes in market rates, such as foreign currency exchange rates and interest rates. See notes 20(c) and 26(i) to our financial statements for additional information regarding derivative financial instruments and our foreign exchange and interest rate risk management.

     We use derivative financial instruments for purposes other than trading and do so to manage and reduce our exposures to market risk resulting from fluctuations in interest rates and foreign currency exchange rates. These instruments do not qualify for deferral, hedge, accrual or settlement accounting, with the resulting gains and losses reflected in the statement of operations within “financial income” and “financial expense,” respectively.

     Since late 1999, we have adopted a treasury policy designed to manage financial market risk, principally by swapping a substantial part of our U.S. dollar-denominated liabilities to obligations denominated in reais. We engage in cross-currency interest rate swaps under which we enter into an agreement typically with the same counter-party which provides the original U.S. dollar-denominated financing. A separate financial instrument is signed at the time the loan agreement is consummated, under which we effectively are then liable for amounts in reais and interest at a percentage of the CDI rate. Amounts are normally consummated with the same financial institutions and for the same maturity periods. See “Item 5B. Operating and Financial Review and Prospects — Liquidity and Capital Resources.”

     We use derivative financial instruments, usually cross-currency interest rate swaps, to mitigate risk caused by fluctuating currency and interest rates. We enter into cross-currency interest rate swaps to protect foreign currency exposure. Decisions regarding swap contracts are made on a case-by-case basis, taking into consideration the amount and duration of the exposure, market volatility, and economic trends. We realized and unrealized gains and losses on these contracts which are included within “financial income” and “financial expense,” respectively.

     We do not hold or issue financial instruments for trading purposes.

     We use interest rate swap agreements to manage interest costs and risks associated with changing rates. The differential to be paid or received is accrued as interest rates change and is recognized in interest expense over the life of the agreements.

     We have a policy of entering into contracts only with parties that have high credit ratings. The counter-parties to these contracts are major financial institutions. We do not anticipate a credit loss from counter-party non-performance.

     In order to minimize credit risk from our investments, we have adopted policies restricting cash and/or investments that may be allocated among financial institutions, which take into consideration monetary limits and financial institution credit ratings.

     Interest Rate Risk

     We are exposed to interest rate volatility with regard to our cash and cash equivalents, fixed and floating rate debt. For cash and cash equivalents, we generally will swap the fixed interest rate for a floating rate, the CDI rate. The interest rate in our cash and cash equivalents denominated in reais is based on the CDI rate, the benchmark interest rate set by the interbank market on a daily basis.

     We are exposed to interest rate volatility with regard to future issuances of fixed rate debt, foreign currency fluctuations and existing issuances of fixed rate debt, foreign currency fluctuations and existing issuances of variable rate debt. We manage our debt portfolio in response to changes in interest rates and foreign currency rates by periodically retiring, redeeming and repurchasing debt, and using derivative financial instruments. Among other facilities, we also use bank loans to meet our financing requirements, originally denominated in U.S. dollars and swapped to obligations in reais accruing interest based on the CDI rate.

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     The table below provides information about our significant interest rate-sensitive instruments. For variable interest rate debt, the rate presented is the weighted average rate calculated as of December 31, 2008. See notes 13 and 14 to our financial statements.

    As of December 31, 2008 
   
    Expected Maturity Date             
         
                        There-         Fair    Annual Average 
    2009     2010    2011    2012    2013    after    Total    Value    Interest Rate 
                   
                    (millions of reais)            
Assets:                                     
   Cash and banks in reais    263.9              263.9    263.9     
   Cash equivalents                                     
   denominated in reais    1,361.7              1,361.7    1,361.7    103.8% of CDI 
                   
         Total cash and cash                                     
         equivalents    1,625.6              1,625.6    1,625.6     
                   
 
Liabilities:                                     
         Loans and financing                                     
         Floating rate,                                    4,1% over basket 
         denominated in US                                    of foreign 
         dollars    10.6    0.9            11.5    11.5    currencies (**)
         Floating rate,                                     
         denominated in US                                     
         dollars (*)   160.6    279.1    402.1    76.2        918.0    918.0    104.3% of CDI 
         Floating rate,                                     
         denominated in US                                     
         dollars (*)   8.9              8.9    8.9    95.4% of CDI 
         Floating rate,                                     
         denominated in reais      930.8            930.8    930.8    105% of CDI 
         Floating rate,                                     
         denominated in reais      430.2            430.2    430.2    93.8% of CDI 
         Floating rate,                                     
         denominated in reais    89.2    37.1    37.6    34.5        198.4    199.4    3.4% over TJLP 
         Floating rate,                                     
         denominated in reais    31.3    26.9    3.9    1.7    0.6    38.5    103.0    103.0    109.6% of CDI 
                   
         Total loans and financing    300.6    1,705.0    443.6    112.4    0.6    38.5    2,600.8    2,601.8     
                   
 
Debentures                                     
   Floating rate, denominated                                     
   in reais    36.9      259.3    259.3    259.3      814.8    775.8    0.5% over CDI 
                   
   Unrealized losses on cross-                                     
   currency interest rate swaps                     
                   
         Total Debentures    36.9      259.3    259.3    259.3      814.8    775.8     
                   

(*) We entered into cross-currency interest rate swaps in the same amount to mitigate our exposure to exchange rate variations.
(**) Based on a basket of foreign currencies to reflect BNDES’s funding portfolio
The annual TJLP, which is modified quarterly, was as follows:

    Three months             
    ended March 31,             
    2009    2008    2007   2006 
         
IGP-M(1)   -0.9%    9.8%    7.8%    3.8% 
CDI (2)   2.9%    12.4%    11.8%    15.0% 
TR (3)   0.4%    1.6%    1.5%    2.0% 

(1) Índice Geral de Preços ¯ Mercado (general price index) compiled by the Fundação Getúlio Vargas.
(2) Certificado de Depósito Interbancário (interbank variable interest rate), annualized rate at the end of each period.
(3) Taxa Referencial (reference rate)

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     We have not experienced, and we do not expect to experience, difficulty obtaining financing or refinancing existing debt. As of December 31, 2008, we had no committed line of credit agreements, other than the BNDES contracts. See “Item 5B. Operating and Financial Review and Prospects — Liquidity and Capital Resources” for a discussion of these agreements.

Foreign Currency Exchange Rate Risk

     We are exposed to fluctuations in foreign currency cash flows related to certain short-term and long-term debt payments. We are principally exposed to fluctuations of the exchange rate with the U.S. dollar. Additionally, certain lines of credit agreements entered into with BNDES are subject to indexation based on a basket of foreign currencies to reflect BNDES’s funding portfolio.

     Since January 1, 2004 and through December 31, 2008, the U.S. dollar depreciated by 23.6% against the real, and as of December 31, 2008, the commercial market rate for purchasing U.S. dollars was R$2.3367 to U.S.$ 1.00. In the first three months of 2009, the real depreciated by 0.9% against the U.S. dollar, and as of March 31, 2009, the commercial market rate for purchasing U.S. dollars was R$2.3152 to U.S.$1.00.

     Our foreign currency exposure gives rise to market risks associated with exchange rate movements against the U.S. dollar. Foreign currency-denominated liabilities at December 31, 2008 included debt denominated mainly in U.S. dollars. Our net foreign currency exposure (U.S. dollar-denominated debt less our cross-currency interest rate swaps in our U.S. dollar-denominated debt) was R$19.3 million at December 31, 2008 compared to R$14.3 million at December 31, 2007. Our net foreign currency exposure is represented by the debt due to import financing. Our cross-currency interest rate swaps partially protect our exposure arising from our U.S. dollar-denominated debt.

     The table below provides information on our debt outstanding as of December 31, 2008.

    Expected Maturity Date             
         
    2009    2010    2011    2012    2013    Thereafter    Total    Fair Value 
                 
    (millions of reais)
Loans and financing                                 
   Foreign currencies (**)   10.6    0.9            11.5    11.5 
   US dollars (*)   169.5    279.1    402.1    76.2        926.9    926.9 
reais    120.5    1,425.0    41.5    36.2    0.6    38.5    1,662.4    1,663.4 
                 
         Total loans and                                 
               financing    300.6    1,705.0    443.6    112.4    0.6    38.5    2,600.8    2,601.8 
                 
Debentures                               
   reais    36.9      259.3    259.3    259.3      814.8    775.8 
                 
         Total Debentures    36.9      259.3    259.3    259.3      814.8    775.8 
                 

(*) Originally US dollar-denominated and swapped to CDI.
(**) Based on a basket of foreign currencies to reflect BNDES’s funding portfolio.

     Our utilization of derivative financial instruments is substantially limited to the use of cross-currency interest rate swap contracts to mitigate foreign currency risks. Foreign currency swap contracts allow us to swap fixed rate U.S. dollar-denominated short-term and long-term debt for Brazilian real-denominated floating rate debt, based on the CDI rate variation. See notes 13 and 14 to the financial statements. As of December 31, 2008, the originally U.S. dollar-denominated debt of R$926.9 million (2007 – R$1,147.8 million) which were covered by floating rate swaps in reais, based on the CDI rate, has been treated on a combined basis as if these loans had been originally denominated in reais and accrued CDI. In addition, the swap agreements do not provide for collateral.

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The table below provides information about our cross-currency interest rate swaps:

    Expected Maturity Date 
   
                                    Average     
                                Fair Value    Paying    Average 
                        There–        of (Assets)   Rate in    Receiving 
    2009    2010    2011    2012    2013    after    Total    Liabilities    reais    Rate 
                     
 
Cross currency and                                         
   interest rate                                         
   swap contracts                                         
   notional amount                                    102.2%    5.3% over 
US dollars to reais    142.4    180.8    365.1    68.0        756.3   109.6    over CDI    U.S.dollar 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     No matters to report.

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     None.

ITEM 15. CONTROLS AND PROCEDURES

     Evaluation of Disclosure Controls and Procedures. Management, with the participation of our chief executive officer and our chief financial officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the U.S. Securities Exchange Act of 1934 under Rules 13a-15(e)) as of the end of the period covered by this annual report, has concluded that, as of that date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and is accumulated and communicated to management, including our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure.

     Management’s Report on Internal Control over Financial Reporting. Management of the Registrant is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements.

     Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

     Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. Based on this assessment, management believes that, as of December 31, 2008, our internal control over financial reporting is effective based on those criteria.

     The effectiveness of internal controls over financial reporting as of December 31, 2008 has been audited by Ernst & Young Auditores Independentes S.S., the independent registered public accounting firm who also audited our consolidated financial statements. Ernst & Young’s attestation report on our internal controls over financial reporting is included herein as Exhibit 15.1.

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ITEM 16. [RESERVED]

     16A. Audit Committee Financial Expert

     Our board of directors has determined that we do not appoint an audit committee financial expert (as defined under the rules and regulations of the SEC). We believe that the combined knowledge, skills and experience of the members of our Fiscal Council enable them, as a group, to act effectively in the fulfillment of their tasks. In addition, the members of our Fiscal Council have the power and authority to engage outside experts as they deem appropriate to provide them with advice on matters related to their responsibilities.

     16B. Code of Ethics

     In 2000, our board of directors adopted a code of ethics for our directors, officers and employees, including our chief executive officer and chief financial officer and controller. The code of ethics is available at our website www.gpa-ri.com.br. Information from that website is not incorporated by reference into this document.

     16C. Principal Accountant Fees and Services

     Ernst & Young Auditores Independentes acted as our independent registered public accounting firm for the fiscal year ended December 31, 2008 and 2007. The chart below sets forth the total amount billed to us by Ernst & Young Auditores Independentes for services performed in 2008 and 2007, and a breakdown of these amounts by category of service:

    2008    2007 
     
    (millions of reais)(1)
Audit Fees    5.7    6.1 
Audit–Related Fees    0.2    1.3 
Total    5.9    7.4 
   

________________

(1) Fees including out-of-pocket expenses.

     Audit Fees

     Audit fees are fees billed for the audit of our annual financial statements and for the reviews of our quarterly financial statements in connection with statutory and regulatory filings or engagements.

     Audit-Related Fees

     Audit-related fees were comprised of assurance and related services that are related to the performance of the audit or review of the financial statements, including due diligence related to mergers and acquisitions, audit in connection with acquisitions, internal control reviews, attest services that are not required by statute or regulation, consultations concerning financial accounting and reporting standards and tax compliance review.

     Pre-Approval Policies and Procedures

     The board of directors approves all audit, audit-related, tax and other services provided by Ernst & Young Auditores Independentes. Any services provided by Ernst & Young Auditores Independentes that are not specifically included within the scope of the audit must be pre-approved by the board of directors prior to any engagement. The board of directors is permitted to approve certain fees for audit-related services, tax services and other services pursuant to a de minimis exception before the completion of the engagement. In 2008, none of the fees paid to Ernst & Young Auditores Independentes were approved pursuant to the de minimis exception.

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     16D. Exemptions from the Listing Standards for Audit Committees

     Under the listed company audit committee rules of the NYSE and the SEC, effective July 31, 2005, we were required to comply with Exchange Act Rule 10A-3, which requires that we either establish an audit committee composed of members of the Board of Directors that meets specified requirements or designate and empower our Fiscal Council to perform the role of the audit committee in reliance on the exemption set forth in Exchange Act Rule 10A-3(c)(3). In our assessment, our Fiscal Council is able to act independently in performing the responsibilities of an audit committee under the Sarbanes-Oxley Act of 2002 and to satisfy the other requirements of Exchange Act Rule 10A 3. For a further discussion of our Fiscal Council and the audit committee exemption, see “Item 6C. Directors, Senior Management and Employees—Board Practices—Fiscal Council.”

     16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     The following table shows the results of the share buy-back program for the Company’s preferred shares which was completed on April 18, 2009 for a total amount of US$5.6 million.

  Total 
Number of
 
Shares
 
Purchased (1)
Average Price Paid 
per Share (2)
Total Number of 
Shares Purchased as
 
Part of Publicly
 
Announced Program
 
(3)
Maximum Number 
of Shares that May
 
Yet Be Purchased
 
Under the Program
 
January 19-30, 2009  177,400  US$15.08  177,400  Not applicable 
February 2-27, 2009  128,300  US$15.28  128,300  Not applicable 
March 2-19, 2009  63,900  US$15.41  63,900  Not applicable 
April 1-18, 2009  Not applicable 

(1) All shares were purchased through a publicly announced program, in open-market transactions on the BOVESPA and on the NYSE.
(2) For the purposes of this calculation, the purchases made on the BOVESPA were translated from nominal reais into U.S. dollars at the commercial selling rate of June 9, 2009 (R$1.9385 to U.S.$ 1.00) .
(3) The share buyback program was approved by our board of directors on January 19, 2009, in accordance with applicable Brazilian legislation. We were authorized to buy back up to an aggregate of 3,000,000 preferred shares, including those traded in the form of ADRs, representing approximately 2.21% of our outstanding preferred capital as of December 31, 2008. The program was terminated on April 18, 2009. A total of 369.600 preferred shares were purchased at an average price of US$15.21 per share.

     16F. Change in Registrant’s Certifying Accountant

     Not applicable.

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     16G. Corporate Governance

Significant Differences between our Corporate Governance Practices and NYSE Corporate Governance Standards

     We are subject to the NYSE corporate governance listing standards. As a foreign private issuer, the standards applicable to us are considerably different than the standards applied to U.S. listed companies. Under the NYSE rules, we must disclose any significant differences between our corporate governance practices and those followed by U.S. companies under NYSE listing standards. As a Brazilian company listed on BOVESPA, we are required to comply with the corporate governance standards set forth in the Brazilian Corporate Law, and the rules of CVM. The following is a summary of those differences.

Independence of Directors and Independence Tests

     The NYSE rules require that a majority of the board must consist of independent directors. Independence is defined by various criteria, including the absence of a material relationship between the director and the listed company. Brazilian law does not have a similar requirement. Under Brazilian law, neither our board of directors nor our management is required to test the independence of directors before their election to the board. However, both the Brazilian Corporate Law and the CVM have established rules that require directors to meet certain qualification requirements and that address the compensation and duties and responsibilities of, as well as the restrictions applicable to, a company’s executive officers and directors.

     While our directors meet the qualification requirements of the Brazilian Corporate Law and the CVM, we do not believe that a majority of our directors would be considered independent under the NYSE test for director independence. The Brazilian Corporate Law requires that our directors be elected by our shareholders at a general shareholders’ meeting. Currently our board of directors consists of fourteen members elected by our shareholders, consisting of five representatives of the Diniz Group, five representatives of the Casino Group, and four external directors.

Executive Sessions

     NYSE rules require that the non-management directors must meet at regularly scheduled executive sessions without management present. The Brazilian Corporate Law does not have a similar provision. According to the Brazilian Corporate Law, up to one-third of the members of the board of directors can be elected from management. There is no requirement that non-management directors meet regularly without management. As a result, the non-management directors on our board do not typically meet in executive session.

     Our board of directors consists of fourteen members elected by our shareholders, all of whom are non-management directors.

Nominating/Corporate Governance Committee

     NYSE rules require that listed companies have a nominating/corporate governance committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, identifying and selecting qualified board member nominees and developing a set of corporate governance principles applicable to the company.

     We are not required under applicable Brazilian corporate law to have, and accordingly we do not have, a Nominating Committee and a Corporate Governance Committee.

People Management Policies Committee

     NYSE rules require that listed companies have a compensation committee composed entirely of independent directors and governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities, which include, among other things, reviewing corporate goals relevant to the chief executive officer’s compensation, evaluating the chief executive officer’s performance, approving the chief executive officer’s compensation levels and recommending to the board non-chief executive officer compensation, incentive-compensation and equity-based plans.

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     We are not required under applicable Brazilian law to have a compensation committee. Under the Brazilian Corporate Law, the total amount available for compensation of our directors and executive officers and for profit-sharing payments to our executive officers is established by our shareholders at the annual general meeting. The board of directors is then responsible for determining the individual compensation and profit-sharing of each executive officer, as well as the compensation of our board and committee members. In making such determinations, the board reviews the performance of the executive officers, including the performance of our chief executive officer, who typically excuses himself from discussions regarding his performance and compensation.

     We do, however, have a Human Resources and Compensation Committee, which, among other assignments, reviews management compensation. For further information on our Human Resources and Compensation Committee, see “Item 6C. Directors, Senior Management and Employees — Board Practices — Committees.”

Audit Committee and Audit Committee Additional Requirements

     NYSE rules require that listed companies have an audit committee that (i) is composed of a minimum of three independent directors who are all financially literate, (ii) meets the SEC rules regarding audit committees for listed companies, (iii) has at least one member who has accounting or financial management expertise and (iv) is governed by a written charter addressing the committee’s required purpose and detailing its required responsibilities. However, as a foreign private issuer, we need only to comply with the requirement that the audit committee meet the SEC rules regarding audit committees for listed companies to the extent compatible with Brazilian corporate law.

     The Brazilian Corporate Law requires companies to have a permanent or non‑permanent Fiscal Council composed of three to five members who are elected at the general shareholders’ meeting.  If a non-permanent Fiscal Council is established, meetings of such Fiscal Council shall be convened upon request of shareholders representing a certain percentage of the share capital of the company, as set forth in the Brazilian Corporate Law. The Fiscal Council operates independently from management and from a company’s external auditors.  Its main function is to monitor the activities of management, examine the financial statements of each fiscal year and provide a formal report to our shareholders.

     We have a permanent Fiscal Council that consists of three members and three alternates and which has ordinary meetings at least every three months. In order to comply with the exemption requirements that allow our Fiscal Council to act as an audit committee pursuant to SEC rules, our board of directors approved the delegation to the Fiscal Council of certain additional responsibilities and the Fiscal Council and the board of directors adopted an additional charter that delegates to the Fiscal Council the duties and responsibilities of a U.S audit committee to the extent permitted under Brazilian Corporate Law. For further information on our Fiscal Council, see “Item 6C. Directors, Senior Management and Employees—Board Practices.”

Shareholder Approval of Equity Compensation Plans

     NYSE rules require that shareholders be given the opportunity to vote on all equity compensation plans and material revisions thereto, with limited exceptions. Under the Brazilian Corporate Law, shareholders must approve all stock option plans. In addition, any issuance of new shares that exceeds our authorized share capital is subject to shareholder approval.

     Our board of directors is responsible for voting on the issuance of new equity in connection with our existing stock option plans, provided that the limit of our authorized capital is respected. However, any issuance of new shares that exceeds such authorized capital is subject to shareholder approval.

Corporate Governance Guidelines

     Under NYSE listing standards, a listed U.S. company must adopt and disclose corporate governance guidelines that cover certain minimum specified subjects. We have adopted and observed corporate governance guidelines in accordance with Brazilian legislation, including a disclosure policy which requires, among other things, the disclosure of our corporate governance guidelines, material facts and annual Financial Reports. In addition, we have adopted and observed a policy on business conduct and ethics.

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Code of Business Conduct and Ethics

     NYSE rules require that listed companies adopt and disclose a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. Applicable Brazilian law does not have a similar requirement.

     Although we were not required to adopt a code of ethics, we implemented a code of ethics in 2000 to regulate our employee’s conduct with us and our customers, suppliers, competitors and the public at large. In order to comply with the requirements of the Sarbanes-Oxley Act and NYSE rules, we implemented rules applicable to our managers’ conduct in connection with the registration and control of financial and accounting information and their access to privileged and non-public information and data in 2005. For more information about our code of ethics, see “Item 16B – Code of Ethics”.

Internal Audit Function

     NYSE rules require that listed companies maintain an internal audit function to provide management and the fiscal council / audit committee with ongoing assessments of the company’s risk management processes and system of internal control. Our internal audit department and our compliance department are responsible for our compliance with the requirements of Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal control over financial reporting. The internal audit department reports to our Board of Directors and Fiscal Council and our compliance department reports to our chief financial officer.

Sarbanes Oxley Act of 2002

     We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC. We have filed the relevant officer certifications under Section 404 of the U.S. Sarbanes Oxley Act of 2002 regarding internal controls over financial reporting as Exhibits 12.1 and 12.2 to this annual report.

PART III

ITEM 17. FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this item.

ITEM 18. FINANCIAL STATEMENTS

     The consolidated financial statements, together with the Reports of Independent Registered Public Accounting Firms, are filed as part of this annual report.

ITEM 19. EXHIBITS

Exhibit Number  Description 
 
1.1  English translation of our Estatuto Social (by-laws), as amended* (7)
 
2.(a) Form of Amended Deposit Agreement, among us, The Bank of New York, as depositary, and each Owner and Beneficial Owner from time to time of ADRs issued thereunder, including the form of American Depositary Receipt.(1)
 
4.(b)(1) Partnership Agreement dated February 5, 2004, among us, Sendas S.A., Sé Supermercados Ltda., Novasoc Comercial Ltda., Arthur Antonio Sendas, Sendas Empreendimentos e Participações Ltda., Pão de Açúcar S.A. Indústria e Comércio, Península Participações Ltda., Nova Península Participações S.A. and Abilio dos Santos Diniz.(2)

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4.(b)(2) 2nd Addendum to and Restatement of the Shareholders Agreement of Sendas Distribuidora S.A. dated September 16, 2005, among us, Sendas S.A., Sé Supermercados Ltda., Novasoc Comercial Ltda., Arthur Antonio Sendas, Sendas Empreendimentos e Participações Ltda., Pão de Açúcar S.A. Indústria e Comércio, Península Participações Ltda., Nova Península Participações S.A. and Abilio dos Santos Diniz.(4)
 
4.(b)(3) Joint Venture Agreement dated as of May 3, 2005 among Abilio dos Santos Diniz, Ana Maria Falleiros dos Santos Diniz D’Avila, Adriana Falleiros dos Santos Diniz, João Paulo Falleiros dos Santos Diniz, Pedro Paulo Falleiros dos Santos Diniz, Península Participações Ltda., Casino Guichard Perrachon S.A., and Companhia Brasileira de Distribuição.(2)
 
4.(b)(4) Conditional Put Option Agreement dated as of November 27, 2006 by and between Abilio dos Santos Diniz, Ana Maria Falleiros dos Santos Diniz D’Avila, Adriana Falleiros dos Santos Diniz, João Paulo Falleiros dos Santos Diniz, Pedro Paulo Falleiros dos Santos Diniz, Península Participações Ltda., AD Península Empreendimentos e Participações Ltda. and Casino Guichard Perrachon S.A. and Segisor.(*)
 
4.(b)(5) Private Instrument of Institution of Usufruct dated as of July 8, 2005 among Vieri Participações S.A., Casino Guichard Perrachon, Segisor, Abilio dos Santos Diniz, Ana Maria Falleiros dos Santos Diniz D’Avila, Adriana Falleiros dos Santos Diniz, João Paulo Falleiros dos Santos Diniz, Pedro Paulo Falleiros dos Santos Diniz, Península Participações Ltda. and Companhia Brasileira de Distribuição.(2)
 
4.(b)(6) Technical Assistance Agreement dated as of July 8, 2005 by and between us and Casino Guichard Perrachon.(3)
 
4.(b)(7) Real Estate Structure Agreement dated as of October 3, 2005 by and between us, Zabaleta Participações, and Rio Plate Empreendimentos e Participações Ltda. (4)
 
4.(b)(8) First Amendment to the Real Estate Structure Agreement dated as of December 30, 2005 by and between us, Zabaleta Participações, and Rio Plate Empreendimentos e Participações Ltda. (4)
 
4.(b) (9) Wilkes’ Shareholders’ Agreement dated as of November 27, 2006 among Sudaco Participações S.A., Segisor, Abilio dos Santos Diniz, Ana Maria Falleiros dos Santos Diniz D’Avila, Adriana Falleiros dos Santos Diniz, João Paulo Falleiros dos Santos Diniz, Pedro Paulo Falleiros dos Santos Diniz, and Península Participações Ltda.* (5)
 
4.(b) (10) CBD Shareholders’ Agreement dated as of December 20, 2006 among Wilkes Participações S.A., Segisor, Abilio dos Santos Diniz, Ana Maria Falleiros dos Santos Diniz D’Avila, Adriana Falleiros dos Santos Diniz, João Paulo Falleiros dos Santos Diniz, Pedro Paulo Falleiros dos Santos Diniz, and Península Participações Ltda.* (5)
 
4.(b) (14) English translation of Acordo de Acionistas (Stockholders’ Agreement) of Barcelona Comércio Varejista e Atacadista S.A., as amended.* (7)
 
6.1  See notes 2(o) to our financial statements for information explaining how earnings per share information was calculated.* 
 
8.1  List of Subsidiaries. See note 3 (s) to our financial statements for information regarding our subsidiaries.* 
 
11.1  Code of Ethics and Conduct. (6)
 
12.1  Section 302 Certification of the Chief Executive Officer.* 

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12.2  Section 302 Certification of the Administrative Financial Officer.* 
13.1  Section 906 Certification of the Chief Executive Officer.* 
13.2  Section 906 Certification of the Administrative Financial Officer.* 
15.1  Report of Independent Registered Public Accounting Firm.* 
 
(1) Incorporated herein by reference to our registration statement on Form F-6 (No. 333-145679). 
(2) Incorporated herein by reference to our annual report on Form 20-F filed on September 15, 2005. 
(3) Incorporated herein by reference to our 6-K filed on August 1, 2005. 
(4) Incorporated herein by reference to our annual report on Form 20-F filed on June 27, 2006. 
(5) Incorporated herein by reference to our annual report on Form 20-F filed on June 28, 2007. 
(6) Incorporated herein by reference to our annual report on Form 20-F filed on June 21, 2004. 
(7) Incorporated herein by reference to our annual report on Form 20-F filed on [Ï], 2008 
Filed herewith 

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SIGNATURES
 
                   The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this Annual Report on its behalf. 
 
  COMPANHIA BRASILEIRA DE DISTRIBUIÇãO 
 
By:    /s/ Claudio Eugenio Stiller Galeazzi 
    Name: Claudio Eugenio Stiller Galeazzi 
    Title: Chief Executive Officer 
 
By:    /s/ Enéas César Pestana Neto
    Name: Enéas César Pestana Neto 
    Title: Chief Financial Officer 
 
Dated: June 22, 2009     


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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS     
Report of Independent Registered Public Accounting Firm  F-3 
Consolidated Balance Sheets at December 31, 2008 and 2007  F-5 
Consolidated Statements of Income for the years ended December 31, 2008, 2007 and 2006  F-7 
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2008, 2007 and 2006  F-8 
Consolidated Statements of Cash Flow for the years ended December 31, 2008, 2007 and 2006  F-9 
Notes to Consolidated Financial Statements  F-12 
Miravalles - Report of Independent Registered Public Accounting Firm  A - 1 
PAFIDC - Report of Independent Registered Public Accounting Firm  B - 1 
Sendas - Report of Independent Registered Public Accounting Firm  C - 1 
Consolidated Balance Sheets at December 31, 2008 and 2007  C - 2 
Statements of Income for the years ended December 31, 2008, 2007 and 2006  C - 4 
Statements of Changes in Shareholders’ Equity for the years ended December 31, 2008, 2007 and 2006  C - 5 
Statements of Cash Flows for the years ended December 31, 2008 and 2007  C - 6 
Statements of Changes in Financial Position for the year ended December 31, 2006  C - 8  
Notes to Consolidated Financial Statements  C – 9  


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Report of independent registered public accounting firm

The Board of Directors and Shareholders of
Companhia Brasileira de Distribuição

We have audited the accompanying consolidated balance sheets of Companhia Brasileira de Distribuição and subsidiaries as of December 31, 2008 and 2007, and the related consolidated statements of income, shareholders' equity, cash flows and value added for each of the three years in the period ended December 31, 2008. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Miravalles Empreendimentos e Participações Ltda., an equity investment stated at R$110,681 thousand as of December 31, 2007 (R$79,256 thousand as of December 31, 2006), and equity loss of R$28,909 thousand for the year then ended (R$53,191 thousand of equity loss for December 31, 2006). We also did not audit the financial statements of Pão de Açúcar Fundo de Investimentos em Direitos Creditórios – PAFIDC, a consolidated entity, which statements reflect total assets of R$890,072 thousand as of December 31, 2007 (R$921,357 thousand as of December 31, 2006) and total of revenues of R$131,499 thousand for the year then ended (R$166,981 thousand for December 31, 2006). Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for those Companies, is based solely on the reports of the other auditors.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

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In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Companhia Brasileira de Distribuição and subsidiaries as of December 31, 2008 and 2007, and the consolidated results of their operations, shareholders' equity, cash flows and value added for each of the three years in the period ended December 31, 2008, in conformity with accounting practices generally accepted in Brazil, which differ in certain respects from accounting principles generally accepted in the United States of America (see Note 26 to the consolidated financial statements).

As discussed in Note 2 to the consolidated financial statements and as prescribed by CVM Resolution N°565, the Company has set the transition date for the adoption of the new accounting practices introduced by Law 11,638/07 and MP 449/08 as of January 1, 2007. Accordingly, the financial statements for the year ended December 31, 2006 have not been adjusted to reflect the changes in the accounting practices adopted in Brazil.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Companhia Brasileira de Distribuição and subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated February 26, 2009 expressed an unqualified opinion thereon.

ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP015199/O-6

Sergio Citeroni

São Paulo, Brazil
February 26, 2009 (except for Note 26, as to which date is June 15, 2009)

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Report of independent registered public accounting firm

The Board of Directors and Shareholders of
Companhia Brasileira de Distribuição

We have audited Companhia Brasileira de Distribuição and subsidiaries’ internal control over financial reporting as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Companhia Brasileira de Distribuição’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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In our opinion, Companhia Brasileira de Distribuição and its subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2008, based on the COSO criteria.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Companhia Brasileira de Distribuição and subsidiaries as of December 31, 2008 and 2007, and related consolidated statements of income, shareholder’s equity, cash flows and value added for each of the three years in the period ended December 31, 2008 and our report dated February 26, 2009 expressed an unqualified opinion thereon.

ERNST & YOUNG
Auditores Independentes S.S. CRC-2-SP-015199/O-6

 

Sergio Citeroni
Partner

 

São Paulo, Brazil
February 26, 2009

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Companhia Brasileira de Distribuição

Consolidated balance sheets
December 31, 2008 and 2007
(In thousands of reais)

    2008    2007 
     
         Restated 
   
Assets         
Current Assets         
   Cash and cash equivalents    263,910    414,013 
   Marketable securities    1,361,702    650,119 
   Accounts receivable , net    1,519,966    1,362,473 
   Inventories    1,570,863    1,534,242 
   Recoverable taxes    322,368    379,935 
   Deferred income taxes    94,358    88,128 
   Accounts receivable from vendors    356,962    453,889 
   Other    162,347    119,345 
     
Total current assets    5,652,476    5,002,144 
     
 
Noncurrent assets         
Long-term assets         
   Accounts receivable    374,618    371,221 
   Recoverable taxes    283,861    141,791 
   Deferred income taxes    1,035,716    1,047,426 
   Related parties    276,472    258,232 
   Restricted deposits for legal proceedings    250,595    205,000 
   Other    39,355    47,466 
     
Total long term assets    2,260,617    2,071,136 
     
 
Permanent assets         
     Investments    113,909    110,987 
     Property and equipment, net    4,859,481    4,846,512 
     Intangible assets    659,710    719,477 
     
   Total permanent assets    5,633,100    5,676,976 
     
   Total non-current assets    7,893,717    7,748,112 
     
 
     
Total assets    13,546,193    12,750,256 
     

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         2008         2007 
     
         Restated 
   
Liabilities and shareholders' equity         
Current liabilities         
   Accounts payable to suppliers    2,409,501    2,339,262 
   Loans and financing    300,580    1,440,570 
   Debentures    36,861    29,765 
   Payroll and related charges    224,103    173,053 
   Taxes and social contributions payable    110,234    102,418 
   Related parties    12,433    13,106 
   Dividens payable    67,994    50,084 
   Financing due to purchase of real estate    45,747    15,978 
   Rentals payable    42,130    44,159 
   Other    168,412    162,031 
     
   Total current liabilities    3,417,995    4,370,426 
 
Noncurrent liabilities         
   Loans and financing    2,300,235    970,815 
   Debentures    777,868    777,024 
   Taxes paid by installments    200,827    250,837 
   Provision for contingencies    1,244,125    1,216,189 
   Other    93,152    77,612 
     
   Total noncurrent liabilities    4,616,207    3,292,477 
 
   Minority interest    104,275    137,676 
 
Shareholders’ equity         
Capital    4,450,725    4,149,858 
Capital reserves    574,622    555,185 
Revenue reserves    382,369    244,634 
     
    5,407,716    4,949,677 
     
Total liabilities and shareholders’ equity    13,546,193    12,750,256 
     

See accompying notes.

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Companhia Brasileira de Distribuição

Consolidated statements of income
Years ended December 31, 2008, 2007 and 2006
(In thousands of reais, except earnings per thousand shares)

    2008    2007    2006 
     
            Not 
         Restated    Restated 
   
 
 Gross sales    20,856,769    17,642,563    16,460,296 
       Taxes on sales    (2,823,659)   (2,739,676)   (2,579,893)
     
 
 Net ofsales    18,033,110    14,902,887    13,880,403 
 Cost of sales    (13,279,497)   (10,724,499)   (9,962,965)
     
 
 Gross profit    4,753,613    4,178,388    3,917,438 
 
 Operating (expenses) income             
       Selling    (2,857,116)   (2,646,845)   (2,503,852)
       General and administrative    (574,023)   (539,175)   (527,145)
       Depreciation and amortization    (604,743)   (546,648)   (547,943)
       Net financial expenses    (316,788)   (201,809)   (220,627)
       Equity pickup results    2,922    (28,923)   (53,197)
       Other operating income (expenses), net    (10,914)   (9,084)   (323,229)
     
    (4,360,662)   (3,972,484)   (4,175,993)
     
 
 Income (loss) before income and social contribution             
   taxes and employees’ profit sharing and minority             
   interest    392,951    205,904    (258,555)
 Income and social contribution taxes    (111,006)   (13,558)   (1,472)
     
 
 Income (loss) before employees' profit sharing             
   and minority interest    281,945    192,346    (260,027)
 Employees’ profit sharing    (22,173)   (13,399)   (13,421)
 Minority interest    655    6,708    358,972 
     
 
 Net income    260,427    185,655    85,524 
     
 
 Outstanding shares (in thousand shares) at the             
 year end    235,249    227,920    227,543 
 
 Net income for the year per thousand shares    1.11    0.81    0.38 
 
 
See accompanying notes.             

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Companhia Brasileira de Distribuição

Consolidated statements of changes in shareholders’ equity – parent company
Years ended December 31, 2008, 2007 and 2006
(In thousands of reais)

      Capital                             
      Reserve        Revenue reserves         
       
      Goodwill                    Retention         
  Share    special    Granted            Unrealized    of    Retained     
  capital    reserve    options    Legal    Expansion    earning    earnings    earnings    Total 
                   
 
Balances at December 31, 2005  3,680,240        118,797    240,460      212,875      4,252,372 
 
Capitalization of reserves  267,177          (240,460)     (26,717)    
Stock options exercised  7,212                    7,212 
Appropriation of reserve          167,542      (167,542)    
Merger of parent company    517,331                517,331 
Net income for the year                85,524    85,524 
Appropriation of net income to legal                                   
reserve        4,276          (4,276)  
Dividends proposed                (20,312)   (20,312)
Transfer to retention of earnings reserve              60,936    (60,936)  
                   
 
Balances at December 31, 2006  3,954,629    517,331      123,073    167,542      79,552      4,842,127 
                   
 
Capitalization of reserves  186,158    -    -    -    (167,542)   -    (18,616)   -    - 
Stock options exercised  9,071    -    -    -    -    -    -    -    9,071 
Allocation of reserves  -    -    -    -    54,842    -    (54,842)   -    - 
First adoption of Law 11,638/07 and                                   
Provisional Measure 449/08  -    -    12,685    -    -    -    -    (74,946)   (62,261)
Recognized granted option  -    -    25,169    -    -    -    -    -    25,169 
Net income for the year  -    -    -    -    -    -    -    185,655    185,655 
Appropriation of net income to legal                                   
reserve  -    -    -    10,544    -    -    -    (10,544)   - 
Dividends proposed  -    -    -    -    -    -    -    (50,084)   (50,084)
Transfer to retention of earnings reserve  -    -    -    -    -    -    150,250    (150,250)   - 
                   
 
Balances at December 31, 2007  4,149,858    517,331    37,854    133,617    54,842    -    156,344    (100,169)   4,949,677 
                   

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Companhia Brasileira de Distribuição

Consolidated statements of changes in shareholders’ equity – parent company
Years ended December 31, 2008, 2007 and 2006
(In thousands of reais)

      Capital                             
      Reserve        Revenue reserves         
       
      Goodwill                    Retention         
  Share    special    Granted            Unrealized    of    Retained     
  capital    reserve    option    Legal    Expansion    earning    earnings    earnings    Total 
                   
 
Balances at December 31, 2007  4,149,858    517,331    37,854    133,617    54,842    -    156,344    (100,169)   4,949,677 
                   
 
Capitalization of reserves  60,936    -    -    -    (54,842)   -    (6,094)   -    - 
Stock options exercised  22,070    -    -    -    -    -    -    -    22,070 
Private subscription of shares  217,861    -    -    -    -    -    -    -    217,861 
Recognized granted option  -    -    19,437    -    -    -    -    -    19,437 
Net income for the year                  -    -    -    260,427    260,427 
Appropriation of net income to legal reserve      -    -    13,021    -    -    -    (13,021)   - 
Dividends proposed  -    -    -    -    -    -    95    (61,851)   (61,756)
Transfer to retention of earnings reserve  -    -    -    -    -    -    85,386    (85,386)   - 
                   
 
Balances at December 31, 2008  4,450,725    517,331    57,291    146,638    -    -    235,731    -    5,407,716 
                   

See accompanying notes.

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Companhia Brasileira de Distribuição

Statements of cash flow
Years ended December 31, 2008, 2007 and 2006
(In thousands of reais)

    Year ended December 31 
 
         2008       2007    2006 
       
            Not 
        Restated    restated 
     
Cash flow from operating activities             
         Net income    260,427    185,655    85,524 
                Adjustment to reconcile net income to             
                        cash from operating activities             
                             Deferred income tax benefit    (33,300)   (36,162)   (90,729)
                             Loss on sale of permanent assets    11,103    10,978    70,223 
                             Net gains from shareholding dilution    -      (58,151)
                             Depreciation and amortization    604,743    546,648    547,943 
                             Unrealized financial expenses and monetary             
                                       and foreign exchange variations    475,197    421,383    489,087 
                             Equity pickup results    (2,922)   28,923    53,197 
                             Provision for contingencies    115,996    71,103    94,010 
                             Provision for property and equipment write-offs             
                                and losses    6,162    2,205    12,685 
                             Provision for goodwill amortization    107,959      268,886 
                             Stock option    19,437    25,169   
                             Minority interest    (655)   (6,708)   (358,972)
         Decrease (increase) in assets             
                 Account receivable    (60,566)   (211,916)   (226,079)
                 Advances to suppliers and employees    -      3,755 
                 Inventories    (36,621)   (215,623)   (116,677)
                 Recoverable taxes    (77,741)   (19,291)   13,065 
                 Related parties    (20,849)   (6,456)   (39,079)
                 Judicial deposits    (20,905)   (24,844)   5,159 
                 Other    (34,627)   (29,686)   (14,794)
         Increase (decrease) in liabilities             
                 Accounts payables to suppliers    70,239    236,904    373,034 
                 Payroll and related charges    51,050    (6,910)   15,371 
                 Taxes payable    (116,656)   5,853    (165,468)
                 Other    (76,517)   (417)   89,133 
       
 
         Net cash provided by operating activities    1,240,954    976,808    1,051,123 
       

See accompanying notes.

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Companhia Brasileira de Distribuição

Statements of cash flow (Continued)
Years ended December 31, 2008, 2007 and 2006
(In thousands of reais)

    Year ended December 31 
 
         2008       2007    2006 
       
            Not 
        Restated    restated 
     
Cash flow from investing activities             
         Net cash in subsidiaries merger    -    20   
         Increase in investments    -    (224,777)   (4,107)
         Property and equipment    (382,200)   (929,028)   (827,665)
         Increase in deferred assets    -      (28,640)
         Increase in intangible assets    (106,118)   (50,883)   (1,322)
         Capital increase in subsidiaries    -    (60,553)   (70,444)
         Proceeds from sale of property and equipment    3,592    85    13,790 
       
 
         Net cash flow used in investing activities    (484,726)   (1,265,136)   (918,388)
       
 
 
Cash flow from financing activities             
         Capital increase    88,196    9,071    7,212 
         Effect on cash and cash equivalents due to             
minority shareholders’ contribution    -    12,000   
         Capital reserve increase        37 
         Financings capital increase from minority interest             
                 Issuances    680,154    2,491,844    199,549 
                 Repayments    (595,013)   (1,923,190)   (593,238)
                 Interest paid    (318,001)   (498,464)   (113,568)
         Dividends paid    (50,084)   (20,312)   (62,053)
       
 
         Net cash (used in) provided by financing activities    (194,748)   70,949    (562,061)
       
 
 
Net increase (decrease) in cash and cash equivalents    561,480    (217,379)   (429,326)
 
Cash and cash equivalents, beginning of year    1,064,132    1,281,511    1,710,837 
       
 
Cash and cash equivalents, end of year    1,625,612    1,064,132    1,281,511 
       
 
Cash paid during the year for             
         Interest (net of amount capitalized)   318,001    498,464    113,568 

See accompanying notes.

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Table of Contents

Companhia Brasileira de Distribuição

Statements of added value
Years ended December 31, 2008, 2007 and 2006
(In thousands of reais)

        Year ended December 31 
     
    Note     2008     %    2007     %    2006     % 
               
 
Revenues                             
   Sales of goods        20,856,769        17,642,563        16,460,296     
   Credit written-off        (23,698)       2,138        (15,622)    
   Other operating revenues        (10,913)       (9,084)       (323,229)    
               
        20,822,158        17,635,617        16,121,445     
Inputs acquired from third parties                             
   Cost of goods sold        (15,163,435)       (12,627,855)       (11,946,357)    
   Materials, electricity, third parties’                             
       services and other        (1,356,238)       (1,354,945)       (1,238,972)    
               
        (16,519,673)       (13,982,800)       (13,185,329)    
               
Gross added value        4,302,485        3,652,817        2,936,116     
               
 
Retentions                             
   Depreciation and amortization        (611,963)       (565,961)       (559,592)    
 
               
Net added value produced by entity        3,690,522        3,086,856        2,376,524     
               
 
Received in transfer                             
   Equity accounting    10    2,922        (28,923)       (53,197)    
   Minority interest        655        6,708        358,972     
   Financial revenues    19    291,509        299,748        382,761     
               
        295,086        277,533        688,536     
               
Total added value to distribute        3,985,608    100.0    3,364,389    100.0    3,065,060    100.0 
               
 
Distribution of added value                             
   Payroll and charges        1,505,745    37.7    1,328,426    39.5    1,259,446    41.1 
       Salaries        1,034,244    25.8    948,600    28.2    906,456    29.6 
       Profit sharing        41,656    1.1    13,437    0.4    22,556    0.7 
       Benefits        338,956    8.5    275,134    8.2    236,002    7.7 
       Charges        90,889    2.3    91,255    2.7    94,432    3.1 
   Taxes, fees and contributions        1,182,819    29.7    967,435    28.8    728,459    23.8 
       Federal        543,677    13.6    312,227    9.4    368,923    12.0 
       State        536,900    13.5    554,061    16.3    286,858    9.4 
       Municipal        102,242    2.6    101,147    3.1    72,678    2.4 
   Third parties capital remuneration        1,036,617    26.0    882,873    26.2    991,631    32.3 
       Interest Rates        593,048    14.9    466,821    13.8    602,128    19.6 
       Rentals        443,569    11.1    416,052    12.4    389,503    12.7 
   Dividends    18    61,851    1.6    50,084    1.5    20,312    0.7 
               
   Profit Retention        198,576    5.0    135,571    4.0    65,212    2.1 
               
 
               
Total added value distributed        3,985,608        3,364,389        3,065,060     
               

See accompanying notes.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

1. The Company

Companhia Brasileira de Distribuição ("Company" or “GPA”) operates primarily as a retailer of food, clothing, home appliances and other products through its chain of hypermarkets, supermarkets, specialized and department stores principally under the trade names "Pão de Açúcar", "Comprebem", "Extra", "Extra Eletro", “Extra Perto”, “Extra Fácil”, “Sendas” and “Assai”.

At December 31, 2008, the Company had 597 stores in operation, as follows:

    Number of stores 
   
Company    2008    2007 
     
Companhia Brasileira de Distribuição    415    400 
Novasoc Comercial Ltda. (“Novasoc”)   6   
Sé Supermercados Ltda. (“Sé”)   50    52 
Sendas Distribuidora S.A. (“Sendas Distribuidora”)   98    102 
Barcelona Com. Var. e Atacadista S.A. (“Barcelona”)   25    15 
Xantocarpa Participações Ltda. ("Xantocarpa")   3   
     
    597    575 
     

a) Sendas Distribuidora

Sendas Distribuidora operations began at February 1, 2004 through the Investment and Partnership Agreement, entered into in December 2003 with Sendas S.A. ("Sendas"). This subsidiary concentrates retailing activities in the entire state of Rio de Janeiro.

b) Partnership with Itaú

On July 27, 2004, a Memorandum of Understanding was signed between Banco Itaú Holding Financeira S.A. ("Itaú") and the Company with the objective of setting up Financeira Itaú CBD S.A. ("FIC"). FIC structures and trades financial products, services and related items to GPA customers on an exclusive basis (see Note 10 (e)). The Company has 50% shareholding of the FIC capital through its subsidiary Miravalles Empreendimentos e Participações S.A. (“Miravalles”).

c) Casino joint venture agreement

On May 3, 2005, the Diniz Group (group of shareholders composed by the members of the Diniz family) and the Casino Group (a retail company headquartered in France) formed Vieri Empreendiments and Participações S.A. (“Vieri”), which became the parent company of CBD, whose control is shared by both group of shareholders. When Vieri acquired the common shares of the Company, a higher price was paid in relation to the book value of the Company, thus generating goodwill.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

1. The Company (Continued)

d) Acquisition of Barcelona - (“Assai”)

On November 1, 2007, GPA, through a company owned by Sé (Sevilha Empreendimentos e Participações Ltda. – “Sevilha”), acquired shares representing 60% of the total and voting capital of Barcelona, a new company that received the assets of Assai Comercial e Importadora Ltda., related to activities previously carried out by Assai in the wholesale market. With this acquisition, GPA now operates in the cash & carry segment (“atacarejo”), thus, reinforcing its multiformat positioning.

e) Set-up of Xantocarpa

On October 16, 2008, GPA started cash & carry operations in the state of Rio de Janeiro through Xantocarpa, a company set-up for this purpose, which assumed the operation of 3 stores of Sendas Distribuidora converted into Assai brand. The company’s purpose is the retail and wholesale trade of manufactured products, semi-manufactured products or “in natura” products, whether domestic or international products of any kind and type, nature or quality.

2. Basis of preparation and presentation of financial statements and first-time adoption of Law 11,638/07 and Provisional Measure (MP) 449/08

a) Financial statements

The authorization for the issuance of these financial statements took place at the Board Executive Officers meeting held on February 26, 2009.

The financial statements were prepared according to the accounting practices adopted in Brazil and rules issued by Brazilian Securities and Exchange Commission (CVM), observing the accounting guidelines enacted by the Brazilian Corporation Law (Law 6,404/76) which include new provisions, amended and revoked by Law 11,638 of December 28, 2007 and by Provisional Measure 449 of December 3, 2008, and pronouncements issued by the Brazilian Committee on Accounting Pronouncements (CPC).

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

2. Basis of preparation and presentation of financial statements and first-time adoption of Law 11,638/07 and Provisional Measure (MP) 449/08 (Continued)

b) Amendment to the Brazilian Corporation Law – Law 11,638/07 and MP 449/08

Pursuant to provisions of CVM Deliberation 565 of December 17, 2008, which approved the technical pronouncement CPC 13 – First-time Adoption of Law 11,638/07 and Provisional Measure 449/08, and in view of requirements stablished by CVM Deliberation 506 of June 19, 2006, the Company defined January 1, 2007 as the transition date for the adoption of the new accounting practices. The transition date is defined as the basis for the adoption of changes in accounting practices adopted in Brazil and represents the reference date as of which the Company prepared its initial balance sheet adjusted in order to comply with these new accounting provisions.

The Company used the option given by CVM Deliberation 565/08 and restated the balances of 2007 in its Comparative Financial Statements as if the new accounting practice had been applied as of January 1, 2007.

These changes to the accounting practices affected the preparation and reporting of financial statements for the years ended on December 31, 2008 and 2007; the effects were measured and recorded by the Company based on the following accounting pronouncements issued by CPC and approved by CVM and Federal Accounting Council:

  • Conceptual Structure for the Preparation and Reporting of Financial Statements, approved by CVM Deliberation 539 of March 14, 2008;
  • CPC 01 Impairment of Assets, approved by CVM Deliberation 527 of November 1, 2007;
  • CPC 03 Statement of Cash Flows, approved by CVM Deliberation 547 of August 13, 2008;
  • CPC 04 Intangible Assets, approved by CVM Deliberation 553 of November 12, 2008;
  • CPC 05 Disclosure on Related Parties, approved by CVM Deliberation 560 of December 11, 2008;
  • CPC 06 Leasing, approved by CVM Deliberation 554 of November 12, 2008;
  • CPC 08 Transactions Costs and Premiums on the Issue of Securities, approved by CVM Deliberation 556 of November 11, 2008;
  • CPC 09 Statement of Added Value, approved by CVM Deliberation 557 of November 12, 2008;

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

2. Basis of preparation and presentation of financial statements and first-time adoption of Law 11,638/07 and Provisional Measure (MP) 449/08 (Continued)

b) Amendment to the Brazilian Corporation Law – Law 11,638/07 and MP 449/08 (Continued)

  • CPC 10 Share-Based Payment, approved by CVM Deliberation 562 of December 17, 2008;
  • CPC 12 Present Value Adjustment, approved by CVM Deliberation 564 of December 17, 2008;
  • CPC 13 First-Time Adoption of Law 11,638/07 and Provisional Measure 449/08, approved by CVM Deliberation 565 of December 17, 2008, and
  • CPC 14 Financial Instruments: Recognition and Measurement, approved by CVM Deliberation 566 of December 17, 2008.

The initial balance sheet as of January 1, 2007 (transition date) was prepared considering the required exceptions and some of the optional exemptions provided by technical pronouncement CPC 13, as listed below:

(i)      Exemption on the classification of financial instruments on the inception date
 
  Despite the fact that CPC 14 determines that the classification of financial instruments must be made on the inception date, for the purposes of first- time adoption CPC 13 authorized these instruments to be classified on the transition date, and the Company chose this option.
 
(ii)      Exemption on the maintenance of balances in deferred charges until their realization
 
  The Company opted for writing-off the balances recognized in deferred charges on the transition date against the retained earnings account.
 
(iii)      Exemption on calculation considerations of present value adjustment
 
  The Company calculated the present value adjustment based on contractual information of each transaction that generated monetary assets or liabilities and it used discount rates based on market assumptions prevailing on the transition date.
 
(iv)      Exemption on the recognition of share-based payment
 
  The Company measured and recognized outstanding share-based payments on the transition date and granted after the transition date, according to the technical pronouncement CPC 10.
 
(v)      Exemption on the reporting of statements of cash flows and added value not including the corresponding amounts related to the previous year
 

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

2. Basis of preparation and presentation of financial statements and first-time adoption of Law 11,638/07 and Provisional Measure (MP) 449/08 (Continued)

b) Amendment to the Brazilian Corporation Law – Law 11,638/07 and MP 449/08 (Continued)

In order to allow comparison, the Company opted for preparing and reporting the statements of cash flows and added value for the year ended December 31, 2007, pursuant to the provisions contained in CPC 03 and CPC 09, respectively. The Company also opted for no longer reporting statements of changes in financial position for the year ended as of December 31, 2008.

(vi) Neutrality for tax purposes related to the first-time adoption of Law 11,638/07 and Provisional Measure 449/08

The Company opted for the Transition Tax Regime (“RTT”) enacted by Provisional Measure 449/08, by means of which the assessments of Corporate Income Tax (“IRPJ”), Social Contribution on Net Income (“CSLL”), Social Contribution Tax on Gross Revenue for Social Integration Program (“PIS”) and Social Contribution Tax on Gross Revenue for Social Security Financing (“COFINS”) for the 2008-2009 period, are still determined on accounting methods and criteria set forth by Law 6,404 of December 15, 1976, effective on December 31, 2007.

Therefore, deferred income and social contribution taxes calculated over adjustments deriving from the adoption of new accounting practices enacted by Law 11,638/07 and MP 449/08 were recorded in the Company’s financial statements, where applicable, pursuant to CVM Ruling 371. The Company will declare its option in the 2009 Corporate Income Tax Return (“DIPJ”).

(vii) Exception to the recognition of financial leasing effective prior to the transition date and capitalization of contractual initial costs directly related to such leases

For the agreements effective on the transition date and showing characteristics of financial leasing, the Company recorded the leased asset by its fair value in a specific account of property and equipment, or if lower, by the present value of lease minimum payments, on the inception date of the agreement, adjusted by accumulated depreciation and payments calculated from the date of agreement until the transition date. The difference was recorded against retained earnings on the transition date.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

2. Basis of preparation and presentation of financial statements and first-time adoption of Law 11,638/07 and Provisional Measure (MP) 449/08 (Continued)

b) Amendment to the Brazilian Corporation Law – Law 11,638/07 and MP 449/08 (Continued)

(viii) Exception to the goodwill amortization based on the future profitability (goodwill)

Goodwill based on future profitability recorded by the Company was amortized until December 31, 2008.

(ix) Exception to the application of first periodic valuation of the economic-useful life of property and equipment

Until December 31, 2009, the Company will revaluate the estimates of economic-useful life of its property and equipment, used when determining their depreciation and amortization rates. Eventual changes in the estimate of economic-useful life of assets, deriving from this revaluation, if significant, will be treated as change in accounting estimates to be recognized on a prospective basis.

c) Effects of Law 11,638/07 and MP 449/08 Adjustments

Pursuant to disclosure requirements related to the first-time adoption of new accounting practices, in the chart below, the Company is reporting for this year and previous year, for comparison purposes, a brief description and the amounts corresponding to the impacts on shareholders’ equity and income of parent company and consolidated, related to the amendments introduced by Law 11,638/07 and Provisional Measure 449/08.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

2. Basis of preparation and presentation of financial statements and first-time adoption of Law 11,638/07 and Provisional Measure (MP) 449/08 (Continued)

c) Effects of Law 11,638/07 and MP 449/08 Adjustments (Continued)

  Net Income    Shareholders' Equity 
     
  2008    2007     2008    2007 
         
Net income and shareholders' equity before amendments               
introduced by Law 11,638/07 and MP 449/08  281,360    210,878    5,471,530    5,011,992 
         
Financial leasing (II) 1,798    (2,944)   (1,488)   (3,286)
Financial instruments and derivatives (III) (12,796)   10,164    (10,255)   2,541 
Share-based payments (I) (19,437)   (25,169)   -   
Present value adjustment of monetary assets and liabilities (IV) (5,378)   (1,396)   (10,799)   (5,421)
Write-off of deferred assets (V) 12,412    (896)   (64,765)   (77,177)
Minority interest Law 11,638/07  985    (2,828)   1,127    142 
Deferred income and social contribution taxes  1,483    (2,154)   22,366    20,886 
         
Net effects resulting from the application of Law 11,638/07 and MP 449/08  (20,933)   (25,223)   (63,814)   (62,315)
         
               
         
Net income and shareholders' equity adjusted by Law 11,638/07 and MP 449/08  260,427    185,655    5,407,716    4,949,677 
         

(I)     
The Technical Pronouncement CPC 10 – Share-Based Payment requires companies to include the effects of share-based payment transactions on their income statement and balance sheet, as well as expenses related to transactions where stock options are granted to employees. As mentioned in Note 18 (g), the Company maintains a Stock Option Plan for its management and main executives.
 
(II)     
The Technical Pronouncement CPC 06 – Leasing requires that transactions which transfer risks and rewards to the lessee must be classified as property and equipment, reflecting the nature of a financed purchase. The effects of change in criterion are outlined in Notes 11 and 21.
 
(III)     
The Technical Pronouncement CPC 14 – Financial Instruments - sets forth that the marketable securities, including derivatives are recorded: (i) at their fair value, when we refer to investments for trading or available for sale; and (ii) at the acquisition cost, whichever is lower. The Company’s instruments are deemed as: (i) fair value hedge to offset risks of exposure to variation in fair value of the hedged item and (ii) derivative financial instrument measured at fair value (Notes 13 and 14).
 
(IV)     
The Technical Pronouncement CPC 12 – Present Value Adjustment establishes that noncurrent monetary assets and liabilities and current assets and liabilities should be adjusted by their present value when significant. The Company calculated the present value adjustment of its assets and liabilities using the weighted average cost of capital (“WACC”) and the terms of payments.
 
(V)     
As provided for in the Provisional Measure – RTT 449/08, the deferred charges line item was removed. The Company’s Management opted to write-off deferred charges on transition date and then recorded expenditures incurred in 2007 and 2008 directly as expenses for those years.
 

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

2. Basis of preparation and presentation of financial statements and first-time adoption of Law 11,638/07 and Provisional Measure (MP) 449/08 (Continued)

c) Effects of Law 11,638/07 and MP 449/08 Adjustments (Continued)

Due to the elimination of presentation of non-operating income line item pursuant to the new accounting rules, as determined by MP 449/08, the Company reclassified in the statement of income for the years ended December 31, 2008 and 2007, the amounts of R$(10,914) and R$(9,084) in financial statements, respectively, to the other operating income (expenses) item. These amounts are basically represented by income on property and equipment write-off.

As set forth by CPC 08, the Company reclassified transaction costs and premiums on the issuance of financial instruments to the liability account, which were previously recorded as prepaid expenses for the years ended December 31, 2008 and 2007, in the amounts of R$8,381 and R$5,096, respectively.

3. Summary of significant accounting practices

Accounting estimates are used to measure and recognize certain assets and liabilities of financial statements of the Company and its subsidiaries in the preparation of financial statements. The determination of these estimates consider experiences of past and current events, assumptions related to future events and other objective and subjective factors. Significant items subject to estimates include: the selection of useful lives of property and equipments and intangible assets; the allowance for doubtful accounts; allowance for inventory losses; allowance for investments losses; the impairment analysis of fixed and intangible assets; deferred income and social contribution taxes; interest rates and terms used when determining the present value adjustment of certain assets and liabilities; the provision for contingencies and actuarial liabilities; the fair value measurement of share-based payments and of financial instruments; the reporting estimates for the sensitivity analysis chart of derivative financial instruments pursuant to CVM Ruling 475/08. The settlement of transactions involving these estimates may result in amounts significantly different from those recorded in the financial statements due to inaccuracies inherent to the process of their determination. The Company reviews its estimates and assumptions, at least, quarterly.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

The accompanying financial statements are a translation and adaptation of those originally issued in Brazil, based on Brazilian GAAP. Certain reclassifications and changes in terminology have been made and the notes have been expanded, in order to conform more closely to prevailing reporting practices pursuant to U.S.GAAP.

Significant accounting practices and consolidation criteria adopted by the Company are shown below:

a) Determination of income

Sales revenues have been stated at their gross amounts; taxes and discounts are stated as deductions of revenues. The result of operations is determined according to the accrual basis of accounting. Revenues from sale of products are recognized when their value can be measured reliably, all risks and rewards inherent to the product are transferred to the buyer, the Company no longer has the control or responsibility over the goods sold and the economic benefits generated to the Company are probable. Revenues are not recognized if their realization is considerably uncertain. Freight costs are included in the cost of goods sold. Interest income and expenses are recognized by the effective interest rate method as financial revenues/expenses.

b) Translation of foreign currency-denominated balances

i) Functional and presentation currency of the financial statements

The Company’s functional currency is the Brazilian Real, same currency of preparation and presentation of these consolidated financial statements.

ii) Foreign currency-denominated transactions

Monetary assets and liabilities denominated in foreign currency are translated into the functional currency (Real) using the exchange rate effective on respective balance sheet dates. Gains and losses resulting from the restatement of these assets and liabilities are recognized as financial revenues or expenses in the statement of income.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

c) Financial instruments

Until December 31, 2006, the Company derivatives financial instruments were accounted under the accrual method, based on spot rates as of the balance sheet date. From December 31, 2006, the financial instruments are only recognized as of the date on which the Company becomes party of the contractual provisions of financial instruments. When recognized, these are firstly recorded at their fair value plus the transaction costs that are directly attributable to their acquisition or issue. Their subsequent measurement occurs every balance sheet date according to the rules established for each type of classification of financial assets and liabilities.

(i) Financial assets

These are classified among categories mentioned below, according to the purpose to which they were acquired or issued:

Financial assets are measured at their fair value at each balance sheet date. Interest rates, monetary restatement, exchange variation and variations deriving from the valuation at fair value are recognized in the statement of income when incurred as financial revenues or expenses. 
 
• 
Investments held to maturity: non-derivative financial assets with fixed or determinable payments with scheduled maturities to which the Company has the intention and the capacity to hold them to maturity. After initial recognition, these are measured by amortized cost through the effective interest rate method. This method uses a discount rate which, when applied to estimated future receipts, along the expected effective term of the financial instrument, results in the net book value of the financial instrument. Interest income, monetary restatement, exchange variation, less impairment losses, where applicable, are recognized in the statement of income when incurred as financial revenues or expenses. The Company had no such investments as of December 31, 2007 and 2008. 
 
• 
Loans granted and receivables: non-derivative financial assets with fixed or determinable payments but not quoted in an active market. After the initial recognition these are measured by amortized cost through the effective interest rate method. Interest income, monetary restatement, exchange variation, less impairment losses, where applicable, are recognized in the statement of income when incurred as financial revenues or expenses. 

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

c) Financial instruments (Continued)

The main financial assets recognized by the Company are: cash and cash equivalents, marketable securities, unrealized gains in derivatives operations and trade accounts receivable.

(ii) Financial liabilities

These are classified among the categories mentioned below according to the nature of financial instruments:

  • Financial liabilities measured at fair value through income: these include financial liabilities that are usually traded before maturity, liabilities designated in the initial recognition at fair value through income and derivatives, except for those designated as hedge instruments. These are measured by their fair value at each balance sheet date. Interest expense, monetary restatement, exchange variation and variations deriving from fair value valuation, where applicable, are recognized in the statement of income when incurred.

  • Financial liabilities not measured at fair value: non-derivative financial liabilities which usually are not traded before maturity. After initial recognition, these are measured by amortized cost through the effective interest rate method. Interest rates, monetary restatement and exchange variation, where applicable, are recognized in statement of income when incurred.

    The main financial liabilities recognized by the Company are: accounts payable to suppliers, unrealized losses in derivatives operations, loans, financing and debentures.

  • Market value: the market value of financial instruments actively traded on organized markets is determined based on the market quotes, on the balance sheet dates, or based on valuation techniques defined by the Company and compatible with usual practices on the market. If there is no active market, then the market value is determined through valuation techniques. These techniques include the use of recent market transactions between independent parties, benchmark to the market value of similar financial instruments, analysis of discounted cash flows or other valuation models.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

c) Financial instruments (Continued)

(ii) Financial liabilities (Continued)

  • Hedge transactions: derivative financial instruments used to hedge risk exposures or to modify the characteristics of financial assets and liabilities, unrecognized firm commitments, highly probable transactions or net investments in operations abroad, and which: (i) are highly correlated concerning changes in their fair value in relation to the fair value of the hedged item, both at the beginning and over the life of agreement (effectiveness between 80% and 125%); (ii) the transaction has been documented, including the risk purpose of the hedge, risk management process and methodology used to measure effectiveness; and (iii) considered effective to reduce the risk associated with the hedged item, are classified and recorded as hedge transactions according to their nature:

  • Fair value hedge – the gain or loss from remeasuring the hedging instrument at fair value (for a derivative hedging instrument) or the foreign currency component of its carrying amount (for a non-derivative hedging instrument) shall be recognised in profit or loss; and the gain or loss on the hedged item attributable to the hedged risk shall adjust the carrying amount of the hedged item and be recognised in profit or loss. This applies if the hedged item is otherwise measured at cost.

d) Cash and cash equivalents

These include cash, balances in checking account, marketable securities redeemable within 90 days of the balance sheets date, as per Company’s policy and with insignificant change in their market value. Marketable securities included in cash and cash equivalents are classified into the “financial assets at fair value through income” category. The detail of these marketable securities by counterparty is stated in Note 4.

e) Accounts receivable

Accounts receivable are stated at estimated realizable values. An allowance for doubtful accounts is provided in an amount considered by Management to be sufficient to meet probable future losses related to uncollectible accounts.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

e) Accounts receivable (Continued)

The provision is mainly based on the historical average losses, in addition to specific accounts receivable deemed as uncollectible. The Company’s installment sales are financed by FIC (Note 10 (e)).

The Company carries out securitization of its accounts receivables with a special purpose entity, the PAFIDC (Pão de Açúcar Fundo de Investimentos Creditórios). (See also Note 5 (b) and Note 8).

Accounts receivable under commercial agreements result from bonus and discounts obtained from suppliers, which are established contractually, and calculated mainly over volume of purchase, marketing actions, freight costs reimbursement, etc.

f) Inventories

Inventories are carried at the lower of cost or market value. The valuation of cost of inventories purchased directly by the stores is based on the last purchase price, which approximates the First In, First Out (“FIFO”) method. The cost of inventories purchased through the warehouse is recorded at average cost, including warehousing and handling costs.

Inventories are also reduced by the allowance for losses and breakage, which is periodically reviewed and evaluated as to their adequacy.

g) Investments

Investments in companies where GPA exercises significant control are accounted for by the equity method, and provision for capital deficiency is recorded, when applicable. Other investments are recorded at acquisition cost.

h) Property and equipment

These assets are shown at acquisition or construction cost, monetarily restated until December 31, 1995, net of the related accumulated depreciation, calculated on a straight-line basis at the rates mentioned in Note 11, which takes into account the economic useful lives of the assets or the leasing term, in case of leasehold improvements, whichever is shorter.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

h) Property and equipment (Continued)

The Company establishes procedures aiming at ensuring that assets are not recorded for an amount higher than that can be recovered by use or sale, pursuant to definitions provided by CPC 01 (impairment of assets).

Interest and financial charges on loans and financing obtained from third parties directly or indirectly attributable to the process of purchase, construction and operating expansion, are capitalized during the construction and refurbishment of the stores in conformity with CVM Deliberation 193. The capitalized interest and financial charges are then recorded in the income statement over the depreciation periods of the corresponding assets.

Expenditures for repairs and maintenance that do not significantly extend the useful lives of related assets are charged to expense as incurred. Expenditures that significantly extend the useful lives of existing facilities and equipment are capitalized.

i) Leasing

Until 2006, all leasing agreements were recorded as operational leases. In 2007 and 2008, financial leasing agreements are recognized as property and equipment and loans and financing, at the lower of the present value of mandatory minimum payments or the fair value of asset, including, where applicable, the initial direct costs incurred on the transaction. Implicit interest on recognized liabilities of loans and financing are recorde as interest expense using the effective interest rate method. The Company recognizes financial leasing when at least one of the four conditions below are met: (i) the lease transfers ownership of the property at the end of the lease term, (ii) lease contains a bargain purchase option, (iii) the lease term represents a substantial portion of the useful life of the property, and (iv) the present value of the minimum lease payments exceeds a substancial part of the fair value of the property.

Capitalized assets are depreciated using the straight line method over:

(i) Useful life, if there is an expressed intention to acquire the asset; or
(ii) If not, the lower of, the term of agreement or the asset’s useful life.

Operating lease agreements are recognized as expense on a systematic basis which represents the period in which the benefits over leased asset are obtained, even if these payments do not occur on this basis.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

j) Intangible assets

Goodwill derives from the acquisition of companies, supported by appraisal reports issued by independent experts, based on the expectation of future profitability and was amortized on a straight-line basis for 5 to 10 years until December 31, 2008. As of January 1, 2009 goodwill will no longer be amortized and will be subject to an annual test for impairment.

Intangible assets with defined useful life are amortized according to their estimated economic useful life. Intangible assets with indeterminate useful life are not amortized, but are subject to annual test for impairment analysis.

k) Provision for impairment

Management reviews and evaluates events or changes in economic, operating or technological circumstances that may indicate deterioration or impairment of assets at least on an annual basis. When this evidence is identified and the net book value exceeds the recoverable value, a provision is recorded by adjusting the net book value to the recoverable value. These losses are classified as other operating expenses. A recoverable value is the highest value between its net sales value and its value in use.

l) Other assets and liabilities

A liability is recognized when the Company has a legal obligation or a liability is established as a result of a past event and it is probable that an economic resource will be required to settle this liability. Provisions are recorded based on the best estimates of the risks involved. Obligations are recognized at its settlement value.

An asset is recognized when it is probable that its future economic benefits will be generated to the benefit of the Company and its cost or value can be reliably measured. Assets and liabilities are classified as current when their realization or settlement is probable to occur over the next 12 months. In other cases, these are stated as noncurrent.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

m) Taxation

Revenues from sales and services are subject to taxation by State Value-Added Tax (“ICMS”), Services Tax (“ISS”), Social Contribution Tax on Gross Revenue for Social Integration Program (“PIS”) and Social Contribution Tax on Gross Revenue for Social Security Financing (“COFINS”) at rates prevailing in each region and are presented as deductions from sales in the statement of income.

The credits derived from non-cumulative PIS and COFINS are deducted from cost of goods sold. The PIS and COFINS debits related to financial income and PIS and COFINS credits derived from financial expenses are also deducted in these line items of the statement of income.

The advances or amounts subject to offsetting are shown in the current and noncurrent assets, in accordance with the estimate for their realization.

The taxation on income comprises the Corporate Income Tax (“IRPJ”) and Social Contribution on Net Income (“CSLL”) is calculated based on taxable income (adjusted income), at rates applicable according to the prevailing laws – 15%, accrued of 10% over the amount exceeding R$240 yearly for IRPJ and 9% for CSLL.

Deferred income and social contribution were related to tax tax losses carryforward, negative basis of social contribution and temporary differences, taking into account the prevailing rates of said taxes, pursuant to the provisions of CVM Deliberation 273, as of August 20, 1998, CVM Ruling 371, as of June 27, 2002 and taking into account the history of profitability and the expectation of generating future taxable income based on a technical feasibility study, annually approved by the Board of Directors. The Company does not have governmental subsidies or assistance.

n) Share-based payments

The main executives and managers of the Company receive share-based payments as part of their compensation. The Company recognizes expense for its share-based compensation based on the fair value of the awards as of the grant date. The fair value of stock options is estimated at the date of grant using the Black-Scholes-Merton option valuation model that have no vesting restrictions and are fully transferable. Until 2006, such expenses were not recorded, but only disclosed in the footnotes.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

o) Present value adjustment of assets and liabilities

Long-term monetary assets and liabilities are adjusted by their present value, and short term, when the effect is considered relevant when compared to the financial statements taken as a whole. The present value adjustment is calculated taking into account contractual cash flows and explicit interest rates, and in certain cases, implicit interest rates of respective assets and liabilities.

Thus, the interest is recorded as financial expenses and revenues in the income statement by the effective interest rate method.

Implicit interest rates were determined based on assumptions and are considered accounting estimates.

p) Provision for contingencies

As per CVM Deliberation 489/05, the Company adopted the concepts established in NPC 22 on Provisions, Liabilities, Gains and Losses on Contingencies for provisions and disclosures on matters regarding litigation and contingencies. The balances of provisions are stated net of the respective judicial deposits, when applicable (Note 16).

Provision for contingencies is recorded based on legal counsel’s opinions in amounts considered sufficient to cover probable losses.

q) Statements of cash flows and added value

The statements of cash flows were prepared and reported pursuant to CVM Deliberation 547 of August 13, 2008 which approved the technical pronouncement CPC 03 – Statements of Cash Flows, issued by the Brazilian Committee on Accounting Pronouncements (CPC). The statements of added value were prepared and are reported pursuant to CVM Deliberation 557 of November 12, 2008 which approved the technical pronouncement CPC 09 – Statement of Added Value, issued by CPC.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

r) Earnings per share

The calculation was made in accordance with the “net income/number of outstanding shares” ratio. Pursuant to the Brazilian Corporation Law, earnings may be: distributed, used for capital increase, or in the composition of the profit reserve for expansion based on the Company’s capital budget.

s) Consolidated financial statements

The consolidated financial statements were prepared in accordance with the consolidation practices prescribed by the Brazilian Corporation Law and CVM Ruling 247, and include the financial statements of the Company and its subsidiaries Novasoc, Sé, Sendas Distribuidora, PAFIDC, PA Publicidade Ltda. (“PA Publicidade”), Barcelona, CBD Panamá Trading Corp. (“CBD Panamá”), CBD Holland B.V. (“CBD Holland”) and Xantocarpa. The direct or indirect subsidiaries, included in the consolidation and the percentage of parent company’s interest comprise:

Interest in Investees - %    At December 31, 2008             
 
Investor            Sendas        PA         CBD     CBD     
companies    Novasoc        Distribuidora    PAFIDC    Publicidade    Barcelona    Holland    Panamá    Xantocarpa 
                   
Direct                                     
 CBD    10.00    93.10    14.86    8.50    99.99    -    100.00    -    - 
 
Indirect                                     
 
 Novasoc    -    6.90    -    0.66    -    -    -    -    - 
     -    -    42.57    0.33    -    60.00    -    -    - 
 Holland    -    -    -    -    -    -    -    100.00    - 
 Sendas    -    -    -    -    -    -    -    -    99.99 
 
Interest in Investees - %    At December 31, 2007             
 
Investor            Sendas        PA         CBD     CBD     
companies    Novasoc        Distribuidora    PAFIDC    Publicidade    Barcelona    Holland    Panamá    Sevilha 
                   
Direct                                     
 
 CBD    10.00    93.05      6.17    99.99      100.00     
 
Indirect                                     
 
 Novasoc      6.95      0.49           
         42.57    0.24      60.00        99.99 
 Holland                  100.00   
                   

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

3. Summary of significant accounting practices (Continued)

Although the Company’s interest in Novasoc represents 10% of its quotas, Novasoc is included in the consolidated financial statements as the Company effectively has control over a 99.98% beneficial interest in Novasoc, pursuant to a shareholders’ agreement. Under the Bylaws of Novasoc, the appropriation of its net income does not need to be proportional to the quotas of interest held in the company.

The subsidiary Sendas Distribuidora was fully consolidated, in accordance with the shareholders’ agreement, which establishes the operating and administrative management by the Company.

The proportional investment of the Parent Company in the income of the subsidiaries, the balances payable and receivable, revenues and expenses and the unrealized profit originated in transactions between the consolidated companies were eliminated in the annual consolidated financial statements.

Pursuant to CVM Ruling 408 as of August 18, 2004, as of the first quarter of 2005, the Company is consolidating PAFIDC’s financial statements, a special purpose entity, organized with exclusive purpose of conducting the securitization of receivables of the Company and its subsidiaries. The consolidation is justified by the fac that most of risks and benefits related to the fund’s profitability are linked to subordinated quotas maintained by the Company.

Since prevailing decisions related to the operational management of FIC lies with Itaú, CVM, through official memorandum CVM/SNC/006/09 authorized FIC to be included in the consolidated financial statements of Itaú. Thus, the Company valued its investment in Miravalles by the equity method. The financial statements of Miravalles for the years ended at December 31, 2008 and 2007 were audited by other independent auditors.

According to the authorization granted by CVM through official memorandum CVM/SNC/013/08, the following subsidiaries were excluded from the Company’s consolidated financial statements: Bellamar Empreendimentos e Participações Ltda., Vancouver Empreendimentos e Participações Ltda., Bruxelas Empreendimentos e Participações S.A. and Dallas Empreendimentos e Participações S.A., whose capital is R$10, each one, at December 31, 2008. The Company did no include these Companies in the consolidation, due to their inactivity and immateriality.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

4. Marketable Securities

The marketable securities at December 31, 2008 and 2007 earn interest mainly at the Interbank Deposit Certificate (“CDI”) rate, classified as described in Note 3(d).

    CDI(*)   2008    2007 
     
 
Current             
Marketable Securities             
ABN AMRO    104.0%    188,077    38,522 
Bradesco    103.5%    287,324    39,547 
Banco do Brasil    103.9%    548,917   
Itaú    104.5%    205,483    193,549 
Unibanco    102.9%    68,796    95,193 
Others    102.3%    63,105    283,308 
       
Total        1,361,702    650,119 
       

* Average rate of CDI

5. Trade accounts receivable

a) Breakdown

    2008    2007 
     
Current         
Resulting from sales through:         
   Credit card companies    416,443    409,731 
   Sales vouchers and others    108,300    88,107 
   Credit sales with post-dated checks    22,266    45,450 
   Allowance for doubtful accounts    (10,520)   (6,421)
Resulting from commercial agreements         
   with suppliers    356,962    453,889 
     
    893,451    990,756 
 
Accounts receivable - PAFIDC    983,477    825,606 
     
    983,477    825,606 
 
     
    1,876,928    1,816,362 
     
 
Non-current         
Accounts Receivable - Paes Mendonça    374,618    371,221 
     
    374,618    371,221 
     

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

5. Trade accounts receivable

a) Breakdown (continued)

Credit card sales are receivable from the credit card companies, except for electronic devices, which are received in installments not exceding 12 months. Credit sales settled with post-dated checks bear interest of up to 6.50% per month (same for 2007) for settlement within 60 days.

b) Accounts receivable - PAFIDC

The Company carries out securitization of its credit rights, represented by credit sales with tickets and credit card company receivables, to PAFIDC. The volume of operations was R$8,057,146 for the year ended December 31, 2008 (R$7,381,416 for 2007), in which the responsibility for services rendered and subordinated interests was retained by the Company. The securitization costs of such receivables amounted to R$135,111 in 2008 (R$125,487 in 2007), as mentioned in Note 19, recognized as financial expenses in the statement of income for 2008 and 2007, respectively. Services rendered, which are not remunerated, include credit analysis and the assistance by the collection department to the fund’s manager.

The outstanding balances of these receivables at December 31, 2008 and 2007 were R$983,477 and R$825,606, respectively, net of allowance.

c) Accounts receivable – Paes Mendonça

The accounts receivable from Paes Mendonça relate to credits deriving from the payment of third party liabilities performed by the subsidiaries Novasoc and Sendas. Pursuant to contractual provisions, these accounts receivable are monetarily restated and guaranteed by commercial rights of certain stores currently operated by the Company, Novasoc and Sendas. Maturity of accounts receivable is linked to lease agreements.

d) Accounts receivable under commercial agreements

Accounts receivable under commercial agreements result from current transactions carried out between the Company and its suppliers, primarily based on the volume of purchases.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

5. Trade accounts receivable (Continued)

e) Allowance for doubtful accounts

The allowance for doubtful accounts is based on average historical losses complemented by Management's estimates of probable future losses:

     2008     2007    2006 
       
 
At beginning of year    (6,421)   (12,597)   (6,028)
   Provision for doubtful accounts    (48,597)   (19,053)   (16,635)
   Recoveries and provision written off    44,498    25,229    10,066 
       
At end of year    (10,520)   (6,421)   (12,597)
       
 
   Credit sales with post-dated checks    (504)   (1,390)   (106)
   Corporate sales    (1,409)   (4,715)   (12,491)
   Other accounts receivable    (8,607)   (316)  
       
    (10,520)   (6,421)   (12,597)
       

6. Inventories

    2008    2007 
     
         
Stores    1,133,953    995,332 
Warehouses    436,910    538,910 
         
     
    1,570,863    1,534,242 
     

Inventories are stated, net of provisions for shrinkage of inventories and obsolescence.

7. Recoverable taxes

The balances of taxes recoverable refer basically to credits from Withholding Income Tax, (“IRRF”), Social Contribution Tax on Gross Revenue for Social Integration Program (“PIS”), Social Contribution Tax on Gross Revenue for Social Security Financing (“COFINS”) and recoverable State Value-Added Tax (“ICMS”):

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

7. Recoverable taxes (Continued)

    2008    2007 
     
Current         
   Taxes on sales    197,515    299,399 
   Income tax and others    125,055    80,581 
   Present value adjustment    (202)   (45)
     
    322,368    379,935 
     
Noncurrent         
   Taxes on sales    214,388    61,589 
   ICMS and others    70,142    80,570 
   Present value adjustment    (669)   (368)
     
    283,861    141,791 
     
Total of recoverable taxes    606,229    521,726 
     

8. Pão de Açúcar Receivables Securitization Fund – PAFIDC

PAFIDC is a receivables securitization fund formed in compliance with CVM Rulings 356 and 393 for the purpose of acquiring the Company and its subsidiaries’ trade receivables, arising from sales of products and services to their customers. Initially, the fund would acquire credit rights derived form credit cards sales, meal tickets, installment system or post-dated checks. In the fourth quarter of 2005, the fund no longer acquired receivables from installments system and in July 2007, receivables from post-dated checks. Senior quotaholders and GPA signed a letter proposal at February 22, 2008 to extend the fund maturity from May 26, 2008 to May 16, 2010.

The capital structure of the fund, at December 31, 2008, is composed of 10,256 senior quotas held by third parties in the amount of R$930,849, which represent 90.51% of the fund’s equity (93.1% in 2007) and 2,864 subordinated quotas, held by the Company and subsidiaries in the amount of R$97,604, which represent 9.49% of the fund’s equity (6.9% in 2007).

The net assets of PAFIDC are summarized as follows:

    2008    2007 
     
Assets         
   Cash and cash         
      equivalents    6,455    64,466 
   Accounts receivable    983,477    825,606 
   Others    40,845   
     
   Total assets    1,030,777    890,072 
     
 
Liabilities         
   Accounts payable    2,324    5,258 
   Shareholders' equity    1,028,453    884,814 
     
   Total liabilities    1,030,777    890,072 
     

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

8. Pão de Açúcar Receivables Securitization Fund – PAFIDC
(Continued)

The subordinated quotas were attributed to the Company and are recorded in the noncurrent assets as participation in the securitization fund, the balance of which at December 31, 2008 was R$87,380 (R$54,621 in 2007). The retained interest in subordinated quotas represents the maximum exposure to loss under the securitization transactions.

The interest rates of senior quotas are shown below:

        2008    2007 
       
Quotaholders    Amount    CDI Rate    Balance    CDI Rate    Balance 
           
 
Senior A    5,826    105%    629,307    105%    556,776 
Senior B    4,300    105%    150,847    101%    133,682 
Senior C    130    105%    150,695    100% + 0.5% p.a    133,344 
           
            930,849        823,802 
           

Subordinated quotas are non-transferable and registered, and were issued in a single series. The Company will redeem the subordinated quotas only after the redemption of senior quotas or at the end of the fund’s term. Once the senior quotas have been remunerated, the subordinated quotas will receive the balance of the fund’s net assets after absorbing any losses on receivables transferred and any losses attributed to the fund. Their redemption value is subject to credit, prepayment, and interest rate risks on the transferred financial assets.

The holders of senior quotas have no recourse against the other assets of the Company in the event customers’ default on the amounts due. As defined in the agreement between the Company and PAFIDC, the transfer of receivables is irrevocable, non-retroactive and the transfer is definitive.

9. Balances and transactions with related parties

The transactions with related parties shown below result mainly from the operations the Company and its subsidiaries maintain among themselves and with other related companies and were substantially carried out at regular market prices, terms and conditions.

a) Sales and purchases of goods

Balances and transactions resulting from the sale and purchase of goods to the supply of stores by the Company's warehouses, made at cost.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

9. Balances and transactions with related parties (Continued)

a) Sales and purchases of goods (Continued)

    2008    2007 
     
Suppliers:         
   Grupo Assai    8,787    1,311 
     
    8,787    1,311 
     
 
Purchases:         
   Grupo Assai    200,132    20,767 
     
    200,132    20,767 
     

b) Other transactions

    2008    2007 
     
 
Assets         
   Casino    4,922    4,171 
   FIC    18,400    16,072 
   Pão de Açucar Ind. e         
      Comércio    1,171    1,171 
   Sendas S.A.    217,824    217,824 
   Other    34,155    18,994 
     
    276,472    258,232 
     
Liabilities         
   Casino    448   
   Fundo Península    10,640    12,891 
   Grupo Assai    1,345    215 
     
    12,433    13,106 
     
 
Income statement         
Casino    (5,512)   (6,255)
Península Fund    (123,578)   (117,072)
Diniz Group    (12,730)   (12,549)
Sendas S.A.    (31,703)   (33,244)
Assai Group    (3,563)   (426)
Galeazzi e Associados    (11,978)  
Other    (15,177)   (6,461)
     
    (204,241)   (176,007)
     

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

9. Balances and transactions with related parties (Continued)

b) Other transactions (Continued)

Casino: Technical Assistance Agreement, signed between the Company and Casino at July 21, 2005, whereby, through the annual payment of US$ 2,727 million, it provides for the transfer of knowledge in the administrative and financial area. This agreement is effective for 7 years, with automatic renewal for an indeterminate term. This agreement was approved at the Extraordinary General Meeting held at August 16, 2005.

Península Fund: 58 real estate leasing agreements to the Company, 1 property to Novasoc, 1 property to Sé and 1 property to Barcelona.

Diniz Family: Leasing of 15 properties for the Company and 2 properties for Sendas Distribuidora.

Sendas S.A.: Leasing of 57 properties for Sendas Distribuidora.

Assai Group: Comprise the purchase transactions with the following companies: Vitalac Ind. de Laticínios Ltda., Laticínios Vale do Pardo Ltda., Dica Deodapolis Ind. e Com. Alimentícios Ltda., Laticínios Corumbiara Ltda., Vencedor Ind. e Com. de Produtos Lácteos Ltda., Centro de Distribuição Hortmix Comércio Imp. Exp. Ltda., Laticínios Flor de Rondônia Ltda., and leasing of five properties of Assai shareholders to Barcelona.

Galeazzi e Associados: Consulting services rendered related to the management of operations in the city of Rio de Janeiro (Sendas Distribuidora).

Other: Expenses paid by the Company to its subsidiaries or other associated companies.

Other related parties not described in this note did not present balances or transactions in the periods.

The expenses related to the compensation of management’s key personnel (Officers appointed pursuant to Bylaws and Board of Directors), which were recorded in the income statement for the years ended at December 31, 2008 and 2007, were as follows:

    2008    2007 
   
Amounts recorded as expenses    R$27,529    R$22,539 

From these totals, 14.9% of the 2008 expenses and the 54.0% of the 2007 refer to the stock option plan.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

10. Investments

a) Information on consolidated investments at December 31, 2008 and 2007

    Total shares/quotas held % 
   
 
    2008    2007 
     
Miravalles    50.00    50.00 

b) Breakdown of investments in equity investees and consolidated subsidiaries

    Nova             
    Saper    Miravalles    Others    Total 
         
 
Balances at December 31, 2005    101    62,003    251    62,355 
 
Additions      70,444      70,444 
Write-off        (45)   (45)
Equity pickup      (53,192)   (5)   (53,197)
Balances at December 31, 2006    101    79,255    201    79,557 
         
 
Additions      60,335    13,576    73,911 
Write-off        (100)   (100)
Merger    (101)     (13,357)   (13,458)
Equity pickup      (28,909)   (14)   (28,923)
         
Balances at December 31, 2007      110,681    306    110,987 
 
Equity pickup      2,914      2,922 
         
Balances at December 31, 2008      113,595    314    113,909 
         

Sé – Sé holds direct interest in Miravalles corresponding to 50% of capital stock, which indirectly represents the investment at FIC.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

10. Investments (Continued)

c) Investment Agreements - Company and Assai

Barcelona – At November 1, 2007, GPA, by means of subsidiary company owned by Sé (Sevilha), acquired shares representing 60% of the total and voting capital of Barcelona, a newly formed company that received the assets of Assai related to the activities previously carried out by Assai in the wholesale market by the amount of R$208,504, generating a goodwill amounted to R$206,068 recorded in the subsidiary Sevilha.

For non-controlling shareholders holding 40% interest in Barcelona, a shareholders’ agreement was signed and that established a put and call option of such interest, under the following conditions:

1) Criteria for calculation of purchase or sale price for remaining interest of 40%:

  • Criterion 1 - The highest amount between 7 times EBITDA and 35.16% of net sales over the past 12 months immediately prior to the Option exercise date, deducting net indebtedness and contingencies with probable unfovarable outcome. Should EBITDA margin be lower than 4.625%, only the 7 times EBITDA criterion will be taken into account; or
  • Criterion 2 - Initial purchase value net of distributed dividend, restated by IPCA + 6.5% p.a.

2) Call Option conditions (to be exercised by GPA)

  • Performance of the chairman of Barcelona lower than specific levels set forth in the shareholders’ agreement – exercise by criterion 1 of sales price;
  • Resignation of chairman of Barcelona or absence for more than 1/3 of Board meetings held during a determined fiscal year - exercise by the lowest value between criterion 1 or 125% of criterion 2 of the sales price;
  • At any moment, up to December 31, 2011 - by the highest value between criterion 1 or 125% of criterion 2 of the sales price;
  • From January 1 to 15 of each calendar year between 2012 and 2014 - by the highest value between criterion 1 and criterion 2 of the sales price;
  • At any time in the event of disability or decease of the chairman of Barcelona, by criterion 1 of the sales price.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

10. Investments (Continued)

c) Investment Agreements - Company and Assai (Continued)

3) Put option conditions (to be exercised by prior owners of Assai)

Prior owners of Assai can exercise its put option on the remaining 40%, at any moment in the events of resignation of chairman or his absence in more than 1/3 of the Board of Directors’, the put option will be exercised by the lesser of criterion 1, or 80% of criterion 2 above.

Between January 1, 2012 to December 31, 2014, the prior owners of Assai, can exercise its put option by criterion 1 above.

The Company did not record this option, since it is classified into the exception provided for in paragraph 2 (g) of CPC 14. Management will monitor the development of CPC 15 and the second phase of financial instruments during 2009. The estimated market value of this option at December 31, 2008 is R$247,470.

The Board of Directors of Barcelona is composed of 7 members, with a 3-year term of office, of which 4 members shall be appointed by GPA and 3 members by former controlling shareholders of Assai, including the Chairman of the Board of Directors. The former controlling shareholders of Assai may also exercise the Put option as of January 1, 2012 as per conditions set forth in criterion 1 abovementioned.

The Board of Directors’ Meeting of Barcelona held at March 31, 2008, approved the downstream merger of Sevilha Empreendimentos e Participações Ltda., former parent company of Barcelona, based on the financial statement as of February 28, 2008. The referred merger was carried out by book value, based on the appraisal report prepared by independent experts. With the merger of Sevilha into Barcelona, Sé now holds 60% direct interest in the total and voting capital of Barcelona. As a result of this transaction, the company transferred R$69,180 from goodwill to deferred income tax asset which represents the tax benefit the Company will realize, pursuant to CVM Ruling 319/99.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

10. Investments (Continued)

d) Investment agreement – Company and Sendas

On October 19, 2006, Sendas notified the Company of its intention to exercise its put option according to the stated in paragraph 6.7 of Shareholders’ agreement of Sendas Distribuidora, which addresses the issue related to transfer of control. The Company responded to the notification informing that the option is not exercisable since the transaction between Diniz group and Casino group did not constitute a transfer of control and therefore it should not constitute a trigger to the put option right. On October 31, 2006, the Company was notified by the Fundação Getúlio Vargas Arbitration Chamber (Câmara de Conciliação e Arbitragem da Fundação Getúlio Vargas – FGV) of the arbitration procedure initiated by Sendas.

On January 5, 2007, Sendas S.A. notified CBD, expressing the exercise of its right to exchange all of its interest in Sendas Distribuidora by preferred shares of CBD’s capital stock, provided for in Clause 6.9.1 of Shareholders’ Agreement of Sendas Distribuidora. The right to exchange the shares will be exercised if the final outcome decision from the arbitration process is favorable to Sendas S.A.

At March 13, 2007, the Company and Sendas entered into a commitment, commencing the arbitration proceeding.

At April 29, 2008, the Arbitration Court rendered an award agreeing with the rules of the Panel of Conciliation and Arbitration of FGV-RJ, with a favorable decision to GPA that the 2005 partnership transaction with Casino did not result in a change in control.

Therefore, the claims of Sendas S.A. were rejected in the arbitration based on the non-existence of change of control, therefore Sendas S.A. will not have the right to exercise the put option triggered by the change in control contractual clause (had Sendas S.A. won the arbitration, it would have been entitled to exercise the put for cash).

With the conclusion of the favorable decision to GPA, the exercise of the is under negotiation notified to the Company on January 5, 2007 by Sendas S.A., showing the exercise of the right to swap all paid-up shares it holds for preferred shares of the Company’s capital stock, set forth in Clause 6.9.1 of the Shareholders’ Agreement of Sendas Distribuidora. As per shareholders’ agreement, the exit of Sendas S.A. will be calculated by the fair value of Sendas Distribuidora, nevertheless, such amount can not be lower than the multiple of 40% of one year sales.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

10. Investments (Continued)

e) Investment agreement – the Company and Itaú

Miravalles, a company constituted in July 2004 and owner of exploitation rights of the Company’s financial activities, received capital subscription from Itaú, which now holds 50% equity interest of such company. Also in 2004, Miravalles constituted Financeira Itaú Companhia S.A. (“FIC”), with capital of R$150,000. FIC is a company which structures and trades financial products and services exclusively to GPA’s customers.

At December 22, 2005, an amendment to the partnership agreement between the Company, Itaú and FIC was signed, and the clauses referring to meeting of performance goals, initially established, were changed. By such amendment, the meeting of goals and the escrow account are not longer tied together, and fines for noncompliance of the referred performance goals were established.

This partnership is effective for 20 years and may be extended for an indeterminate term. The operational management of FIC is under the responsibility of Itaú.

The financial statements of Miravalles for the years ended December 31, 2008 and 2007, were audited by other independent auditors. In the year ended at December 31, 2008, total investments and equity pickup of operations of said investee represent 0.8% and 1.0%, respectively, when compared to Company’s consolidated financial statements (0.9% and 13.7% of total assets and net income in the year ended at December 31, 2007, respectively).

The summarized financial information of Miravalles at December 31, 2008, 2007 and 2006, and for the three years then ended are as follows:

    2008    2007    2006 
       
Operating results:             
Revenues    193,108    145,061    88,716 
Operating income losses    9,799    (84,975)   (158,732)
Non-operating losses    (415)   (316)   (87)
Net income losses    5,950    (57,817)   (105,902)
       
 
Current assets    1,584,598    1,340,027    803,526 
Non-current assets    149,356    127,436    183,903 
       
Total assets    1,733,954    1,467,463    987,429 
       
 
Current liabilities    1,436,979    1,197,165    785,459 
Non-current liabilities    71,076    48,936    43,468 
Shareholders' equity    225,899    221,362    158,502 
       
Total liabilities and shareholders' equity    1,733,954    1,467,463    987,429 
       

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

10. Investments (Continued)

f) Capital subscription made by AIG Group at Sendas Distribuidora

On November 30, 2004 the shareholders of Sendas Distribuidora and investment funds of AIG Group ("AIG"), entered into an agreement by means of which AIG invested in Sendas Distribuidora the amount of R$135,675, by means of subscription and payment of 157,082,802 class B preferred shares issued by Sendas Distribuidora, representing 14.86% of its capital. AIG waived any rights related to receiving dividends until November 30, 2008.

According to the agreement, the Company and AIG mutually granted reciprocal put and call options of shares acquired by AIG in Sendas Distribuidora, which may be exercised within approximately 4 years.

On March 17, 2008, AIG notified the Company about its put option for 157,082,802 preferred shares of Sendas Distribuidora for the amount of R$165,440, amount of which was determined by the formula described in the divestment agreement signed in December 1, 2004. The payment was made R$12,066 in cash and R$153,364 with the issuance of GPA shares.

On May 6, 2008, the parties executed an agreement for purchase and sale of shares, transferring the ownership of Sendas Distribuidora shares to the Company, with a conditional clause, whose validity is subject to the authorization for capital increase and issue of shares by the Company.

The capital increase representing the exercise of put option occurred at June 27, 2008, with the authorization for the issue of preferred shares by the Company’s Board of Directors, carrying out the share swap as per agreement of June 2005.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

11. Property and equipment

    Annual depreciation rates %    2008    2007 
       
        Weighted        Accumulated         
    Nominal    average       Cost    depreciation    Net    Net 
           
 
Lands        850,126    -    850,126    706,916 
Buildings    3.33    3.33    2,407,456    (533,320)   1,874,136    1,816,818 
Improvements    (*)   6.7    2,113,802    (910,493)   1,203,309    1,227,062 
Equipment    10.0 to 33.0    12.59    1,175,941    (740,738)   435,203    495,011 
Installations    10.0 to 25.0    20.0    480,813    (368,943)   111,870    139,054 
Furniture and fixtures    10.0    10.0    500,645    (291,123)   209,522    182,201 
Vehicle    20.0    20.0    22,952    (8,586)   14,366    10,807 
Construction in progress        67,818    -    67,818    163,040 
Other    10.0    10.0    2,764    (493)   2,271    34,658 
             
TOTAL            7,622,317    (2,853,696)   4,768,621    4,775,567 
 
Leasing                         
 
Equipment    10.0    10.0    15,699    (2,374)   13,325    26,422 
Hardware and Software    20.0    20.0    34,612    (1)   34,611    1,564 
Installations    10.0    10.0    5,836    (626)   5,210    4,690 
Furniture and fixtures    10.0    10.0    4,276    (393)   3,883    2,505 
Vehicle    20.0    20.0    2,639    (863)   1,776    2,521 
Buildings    5.0 to 20.0    5.0 to 20.0    43,272    (11,217)   32,055    33,243 
             
Total            106,334    (15,474)   90,860    70,945 
             
 
 
TOTAL            7,728,651    (2,869,170)   4,859,481    4,846,512 
             
 
Average annual depreciation rate - %                5.76    5.64 
           

(*) Leasehold improvements are depreciated based on the estimated useful life of asset or term of rental agreements, whichever is shorter.

a) Additions to property and equipment

    2008    2007 
     
 
Additions    368,143    893,343 
Leasing    14,057    35,685 
Capitalized interest    31,723    44,666 
     
 
Balance at December 31    413,923    973,694 
     

Additions made by the Company relate to purchases of operating assets, acquisition of land and buildings to expand activities, construction of new stores, modernization of existing warehouses, improvements of various stores and investment in equipment and information technology.

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Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

12. Intangible assets

Balance at December 31, 2006    630,945 
   
 
Additions    210,616 
Investment transfer    50,382 
Transfer to property and equipment    (9,551)
Amortization    (162,915)
   
Balance at December 31, 2007    719,477 
 
Additions    241,280 
Transfer to deferred income tax in accordance with     
CVM 319     (69,180)
Amortization    (231,867)
   
Balance at December 31, 2008    659,710 
   

For merged subsidiaries and for consolidation purposes, the goodwill arising from acquisitions are reclassified from investments to intangible assets. The amortization is recorded based on expected future earnings limited to 10 years, until December 31, 2008.

The Company assessed the impairment of goodwill book value based on its value in use, by using the discounted cash flow model of cash generating units, representing a group of tangible and intangible assets used in the Company’s operation. The process to estimate the value in use involves the use of assumptions, judgments and future cash flows estimates, growth and discount rates.

The future cash flow assumptions and growth prospects are based on the Company’s annual budget and long-term business plans, approved by the Board of Directors, as well as comparable market data and they represent Management’s best estimate of the economic conditions that exists during the economic useful life of group of assets that generate cash flows.

Key assumptions used in the impairment analysis are outlined below:

  • Revenues – projected based on the annual budget of the following year and the Company’s business plan comprising the period between 2009 and 2013;

  • Costs and operational expenses – projected based on the Company’s historical performance and its growth was projected in line with sales growth.

  • Capital investments – capital investments were estimated considering the infrastructure required to support the assumed sales growth.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

12. Intangible assets (Continued)

Key assumptions were estimated taking into account the Company’s historical performance and based on reasonable macroeconomic assumptions and compatible with external sources of information grounded on financial market projections, documented and approved by Company’s management bodies.

Consistent with valuation techniques, the valuation of the value in use is carried out during a 5-year period. Revenue growth rates are compatible with long-term macroeconomic expectations which are annually reviewed based on the historical performance and outlook for the sector where the Company operates. The growth rate used for the projections beyond the 4-year period was the nominal rate of 3.9% for 2009 and 2010 and 4.9% for 2011 and 2012.

Estimated future cash flows were discounted at a single discount rate of 11.3% in 2008.

The impairment test of the Company’s intangible assets did not require the recognition of losses, since the estimated usage value exceeds its net book value on the valuation date.

Pursuant to CPC 01 item 107, CPC 02 item 32 and CPC 13 item 49 and 50, as from January 1, 2009, goodwill balances will not be amortized but it will be subject to annual impairment analysis.

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

13. Loans and financing

(i) Breakdown of debt

    Note       2008    2007 
       
 
Debentures             
 Debentures    13d    35,681    27,819 
 Swap contracts (*)   13a    2,024    2,790 
 Financing fees (**)       (844)   (844)
       
        36,861    29,765 
       
Local currency             
 BNDES    13b    93,057    98,032 
 Working capital    13a    -    36,831 
 PAFIDC      -    823,802 
 Financial lease    21    31,308    23,061 
 Financing fees (**)       (3,870)   (366)
       
        120,495    981,360 
       
 
In foreign currency             
 BNDES    13b    10,562    7,926 
 Working capital    13a    182,355    226,370 
 Swap contracts (*)   13a    (12,267)   225,306 
 Financing fees (**)       (565)   (392)
       
        180,085    459,210 
       
 
       
Total current        337,441    1,470,335 
       
 
Debentures             
 Debentures    13d    779,650    779,650 
 Financing fees (**)       (1,782)   (2,626)
       
        777,868    777,024 
       
 
In local currency             
 BNDES    13b    109,750    201,514 
 Working capital    13a    430,189   
 PAFIDC      930,849   
 Financial lease    21    71,647    70,757 
 Financing fees        (513)   (428)
       
        1,541,922    271,843 
       
 
In foreign currency             
 BNDES    13b    877    8,513 
 Working capital    13a    837,804    603,994 
 Swap contracts (*)   13a    (79,561)   86,905 
 Financing fees (**)       (807)   (440)
       
        758,313    698,972 
       
 
       
Total non-current        3,078,103    1,747,839 
       

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

13. Loans and financing (Continued)

(i) Breakdown of debt (Continued)

(*) Fair value of the swap contracts amounting R$89,804 (See Note 14 a) iv)).
(**) Financing fees are mainly related to intermediation commission and IOF “tax on financial operations”, pursuant to CPC 08.

(ii) Noncurrent maturity

Year     
   
 
 
2010    1,753,913 
2011    698,049 
2012    369,359 
2013    259,884 
   
Sub-total    3,081,205 
   
Funding cost    (3,102)
   
Total    3,078,103 
   

a) Working capital financing

Obtained from local banks, with a portion used to fund the Company’s working capital Loans have no collateral. The Company guarantees the loans obtained by Sendas Distribuidora.

        Rate*    2008    2007 
       
Debt                 
Local currency                 
BNDES    TJLP        -    6,443 
Unibanco    CDI        -    30,388 
Brasil    CDI    93.8%    430,189   
         
            430,189    36,831 
         
 
Foreing currency                 
ABN AMRO    YEN    4.4%    480,736    313,154 
Santander    USD    5.0%    539,423    501,361 
Brasil    YEN        -    15,849 
         
            1,020,159    830,364 
         
Swap agreements                 
ABN AMRO    CDI    104.3%    (23,689)   178,996 
Santander    CDI    103.2%    (92,775)   114,271 
Votorantim    CDI    100.0%    17,574    1,303 
Pactual    CDI    100.0%    7,062    16,482 
Brasil            -    1,159 
         
            (91,828)   312,211 
         
 
         
Total            1,358,520    1,179,406 
         

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

13. Loans and financing (Continued)

a) Working capital financing (Continued)

The Company uses swap transactions to exchange U.S. dollar-denominated, yen-denominated obligations and fixed interest rate to Brazilian real pegged to CDI (floating) interest rate. The Company concurrently executed with the same counterparty currency and interest rates swaps transactions.

CDI annual benchmark rate at December 31, 2008 was 12.38% (11.82% in 2007).

b) BNDES credit line

The line of credit agreements denominated in reais, with the Brazilian National Bank for Economic and Social Development (BNDES), are either subject to the indexation based on TJLP rate (long-term rate), plus annual interest rates, or are denominated based on a basket of foreign currencies to reflect the BNDES’ funding portfolio, plus annual interest rates. Financing is paid in monthly installments after a grace period, as mentioned below.

The Company cannot offer any assets as collateral for loans to other parties without the prior authorization of BNDES and is required to comply with certain debt covenants, calculated based on the consolidated balance sheet, in accordance with Brazilian GAAP, including: (i) maintenance of a capitalization ratio (shareholders' equity/total assets) equal to or in excess of 0.40 and (ii) maintenance of a current ratio (current assets/current liabilities) equal to or in excess of 1.05. The Company effectively controls and monitors covenants and it was in full compliance with such covenants as of December 31, 2008.

In the event the TJLP exceeds 6% per annum, the surplus is added to the principal. In the year ended at December 31, 2008 and, R$611 were added to the principal (R$636 in 2007).

        Number of             
    Grace period    monthly             
Annual financial charges    in months    installments    Maturity     2008    2007 
 
Currency basket + 4.125%    14    60    Jan/10    11,439    16,438 
TJLP + 4.125%    12    60    Nov/09    51,730    107,845 
TJLP + 1.0%    12    60    Nov/09    3,124    6,513 
TJLP + 3.2%      60    Nov/12    129,277    161,813 
TJLP + 2.7%      60    Nov/12    18,676    23,376 
         
                214,246    315,985 
         

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Table of Contents

Companhia Brasileira de Distribuição

Notes to the consolidated financial statements (Continued)
December 31, 2008, 2007 and 2006
(expressed in thousands of reais)

13. Loans and financing (Continued)

c) Redeemable PAFIDC quotas

As per Official Memorandum CVM/SNC/SEP 01/2006, the Company reclassified the amounts under the caption “Loans and financing” (Note 8).

d) Debentures

(i) Breakdown of outstanding debentures – 6th issue

            Annual             
        Outstanding    financial    Unit         
             Type    securities    charges    price    2008    2007 
             
 
1st series    No preference    54,000    CDI + 0.5%    10,458    564,713    559,268 
2nd series    No preference    23,965    CDI + 0.5%    10,458    250,618    248,201 
1st and 2nd                         
series    Interest swap      104.96% of CDI      2,024    2,790 
 
Funding cost                    (2,626)   (3,470)
 
Current and Non-current                814,729    806,789 
             
 
Noncurrent liabilities                777,868    777,024 
             
Current liabilities                    36,861    29,765