UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

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)

THE FEDERATIVE REPUBLIC OF BRAZIL
(Jurisdiction of incorporation or organization)

José Antônio de Almeida Filippo, Chief Financial Officer
Phone: +55 11 3886-0421   Fax: +55 11 3884-2677

gpari@grupopaodeacucar.com.br

Avenida Brigadeiro Luiz Antonio, 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.

____________________

*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

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the period covered by the annual report:

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

T  Yes    1 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.

1  Yes    T  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.

T  Yes   1  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

1  Yes    T  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  T                Accelerated Filer  1                 Non-accelerated Filer   1

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow:

Item 17  1   Item 18  1 

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).

1  Yes     T  No

Page

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$” are to Brazilian reais, the official currency of Brazil.  All references to “US$,” “dollars” or “U.S. dollars” are to United States dollars.

We have prepared our consolidated financial statements included in this annual report in conformity with accounting practices adopted by the International Financial Reporting Standards, or IFRS, issued by the International Accounting Standards Board, or  IASB, in reais. We prepare Brazilian GAAP financial information for certain purposes, included for the calculation of dividends and certain segment information.

We have translated some of the real amounts contained in this annual report into U.S. dollars. The rate used to translate the amounts in respect of the year ended December 31, 2009 was R$1.741 to US$1.00, which was the commercial rate for the purchase of U.S. dollars in effect as of December 31, 2009, as reported by the Central Bank of Brazil, or the Central Bank. The U.S. dollar equivalent information presented in this annual report is provided solely for the convenience of investors and should not be construed as implying that the real amounts represent, or could have been or could be converted into, U.S. dollars at such rates or at any other rate. See “Item 3A. Selected Financial Data—Exchange Rates” for more detailed information regarding the translation of reais into U.S. dollars.

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.”

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.

PART I

ITEM 1.       IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

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ITEM 2.       OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.       KEY INFORMATION

3A.          Selected Financial Data

We changed our financial reporting from Brazilian GAAP to IFRS, beginning with the financial statements as of and for the year ended December 31, 2009. Therefore, we present in this section summary financial and operating data derived from our audited financial statements as of and for the years ended December 31, 2009 and 2008, included herein and prepared in accordance with IFRS.

For a reconciliation of net income and shareholders’ equity of our audited financial statements in Brazilian GAAP to our audited financial statements in IFRS at January 1, 2008 and December 31, 2008 and for the year then ended, see note 31 under the caption "Reconciliation between IFRS and BR GAAP" to our financial statements included in this annual report.

The following tables present certain of our summary historical consolidated financial and operating data for each of the periods indicated. Solely for the convenience of the reader, real amounts as of and for the year ended December 31, 2009 have been translated into U.S. dollars at the commercial market rate in effect as of December 31, 2009 as reported by the Brazilian Central Bank of R$1.741 to US$1.00.

We prepare Brazilian GAAP financial information for certain purposes, included for the calculation of dividends and certain segment information.

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______________

(1)   Includes the result of operations of Globex Utilidades S.A., or Globex (Ponto Frio), from July 1, 2009. For further information on the acquisition of Globex (Ponto Frio) see “Item 4A. History and Recent Development of the Company — Acquisition of Globex (Ponto Frio).”

(2)   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.”

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______________

(1)   Includes 52 Extra Fácil convenience stores and 13 Extra Supermercado stores.

(2)   Sendas stores, which are part of Sendas Distribuidora.

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(3)   Includes the result of operations of Globex (Ponto Frio) from July 1, 2009. For further information on the acquisition of Globex (Ponto Frio) see “Item 4A. History and Recent Development of the Company — Acquisition of Globex (Ponto Frio).”

(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.

(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 were calculated based on the Assaí stores in operation under the Assaí banner.

(7)   Includes the result of operations of Globex (Ponto Frio) from July 1, 2009.

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. The Brazilian currency has during the last decades 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 the exchange rate reaching R$1.56 per US$1.00 in August 2008. With the crisis in the global financial markets beginning in mid-2008, the real depreciated 33.3% against the U.S. dollar over the year 2008, reaching R$2.34 per US$1.00 on December 31, 2008. On December 31, 2009 the exchange rate was R$1.74 per US$1.00. The Central Bank has intervened occasionally to control instability in foreign exchange rates.

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

______________

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.

3D.          Risk Factors

An investment in the ADSs or our preferred shares involves a high degree of risk. You should carefully consider the risks described below before making an investment decision. Our business, financial condition and results of operations could be materially and adversely affected by any of these risks. The trading price of the ADSs could decline due to any of these risks or other factors, and you may lose all or part of your investment. The risks described below are those that we currently believe may materially affect us.

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Risks Relating to Brazil

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

The Brazilian government’s economic policies may have important effects on Brazilian companies, including us, and on market conditions and prices of Brazilian securities. Our financial condition and results of operations may be adversely affected by the following factors and the Brazilian government’s response to these factors:

·      interest rates;

·      monetary policy;

·      exchange rate fluctuation;

·      currency fluctuations;

·      inflation;

·      liquidity of the domestic capital and lending markets;

·      tax and regulatory policies;

·      presidential elections will be held in Brazil in October 2010 and speculation about the new government’s economic, monetary and tax policies may create market instability and volatility; 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 has therefore followed monetary policies that have resulted in one of the highest real interest rates in the world. Between 2005 and 2009, the base interest rate (SELIC) in Brazil varied between 19.77% p.a. and 8.64% p.a. Inflation and the Brazilian government’s measures to fight it, principally through the Central Bank, have had and may have significant effects on the Brazilian economy and our business. Tight monetary policies with high interest rates may restrict 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, which could negatively affect our business. We may not be able to adjust the prices we charge our customers to offset the effects of inflation on our cost structure. In addition, Brazilian government measures to combat inflation that result in an increase in interest rates may have an adverse affect on us as our indebtedness is indexed to the CDI rate. 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.

Exchange rate instability may have a material adverse effect on the Brazilian economy and us.

The Brazilian currency fluctuates in relation to the U.S. dollar and other foreign currencies. The Brazilian government has in the past utilized different exchange rate regimes, including sudden devaluations, periodic mini-devaluations (during which the frequency of adjustments has ranged from daily to monthly), exchange controls, dual exchange rate markets and a floating exchange rate system. Since 1999, Brazil has adopted a floating exchange rate system with interventions by the Central Bank in buying or selling foreign currency. From time to time there have been significant fluctuations in the exchange rate between the real and the U.S. dollar and other currencies. For example, the real appreciated 11.8%, 8.7% and 17.2% against the U.S. dollar in 2005, 2006 and 2007, respectively.

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In 2008, as a result of the worsening global economic crisis, the real depreciated 32% against the U.S. dollar, closing at R$2.34 to US$1.00 on December 31, 2008. For the year ended December 31, 2009, the real appreciated 25.5% against the U.S. dollar, closing at R$1.74 to US$1.00 on December 31, 2009. Our imports, which represent approximately 3.5% of our gross sales are indexed to the U.S. dollar.  A depreciation of the real in relation to the U.S. dollar may result in a decrease in our net income as result of the increase in the price of imports. The real may substantially depreciate or appreciate against the U.S. dollar in the future. We cannot assure you that the appreciation trend of the real will persist. Exchange rate instability may have a material adverse effect on us.

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

The global financial crisis which began during the second half of 2008 has had significant consequences, including in Brazil, such as stock and credit market volatility, higher interest rates, a general economic slowdown, volatile exchange rates and inflationary pressure, among others, which may, directly or indirectly, adversely affect us and the market price of Brazilian securities, including the ADSs and our preferred shares. Although the scenario has improved significantly since the second half of 2009, it is still not clear that the global economy has efficiently recovered.

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 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 and Rio de Janeiro city areas, 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.

We are co-controlled by two groups of shareholders who may have different interests than other shareholders.

The group composed of Mr. Abilio dos Santos Diniz and other members of the Diniz family, or Diniz Group, and the Casino Guichard Perrachon Group, or Casino Group, share our control through our holding company, Wilkes Participações S.A., which 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, appoint our executive officers,

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

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·      transfer our control.

Although you are entitled to tag-along rights in connection with a change of control of our Company and you will have specific protections in connection with transactions between our controlling shareholders and related parties, our controlling shareholders may have an interest in pursuing acquisitions, dispositions, financings or similar transactions that could conflict with your interests as a holder of the ADSs or our preferred shares.  In addition, the co-control of our Company could result in deadlocks with respect to certain important issues, which may negatively affect our operations, financing and reputation.  For additional information on shared decision-making, see “Item 7A.  Major Shareholders and Related Party Transactions—Major Shareholders—Shareholders’ Transactions.”

We may not be able to successfully implement our acquisition strategy.

We intend to grow partially through acquisitions. However, we may not be able to successfully identify, negotiate or conclude acquisitions. Additionally, the integration of acquired companies may be more expensive and complicated than expected.

Moreover, we may not be able to successfully integrate the acquired companies or their assets into our business. This may result in loss of resources and time spent by senior management and other employees analyzing and implementing an unsuccessful acquisition. We also may not be able to identify potential liabilities in the acquired companies even through proper diligence. The failure of our acquisition strategy could have an adverse effect on our growth perspectives, financial condition and results.

In addition, any large acquisitions may be subject to approval by Brazilian antitrust authorities and other government agencies, and we may be unable to obtain this approval, or to obtain it on a timely basis.

Change in control of the Holding Company may bring changes to our corporate governance structure.

Mr. Abilio Diniz has been Chairman of both the Holding Company and us since 2003.  According to the terms of the Holding Company Shareholders’ Agreement, the Diniz Group granted a purchase option of one common share of the Holding Company to the Casino Group exercisable after June 22, 2012. If exercised, this purchase option will allow the Casino Group to obtain indirect control of our Company, resulting in the alteration in the control of the Holding Company, which may change our corporate governance structure.

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.

 We may not be able to renew or maintain our stores’ lease agreements.

Most of our stores operate in leased properties. The strategic location of our stores is highly relevant for the development of our commercial strategy and, as a result, we may be adversely affected in case a significant number of our lease agreements is terminated or fail to be renewed.

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Problems with our distribution centers, which are a vital part of our operations, that result in the disruption of our operations may adversely affect our business.

Approximately 85% of our products are distributed through our distribution centers located in the southern, southeastern, mid-western and northeastern regions of Brazil. If operations at one of these centers are affected, and in the event that no other distribution center is able to meet the demands of the region affected, the distribution of products to the stores supplied by the affected distribution center will be impaired, which may adversely affect our Company. Our growth strategy includes the opening of new stores which may require the opening of new or the expansion of our current distribution centers to supply and meet the demands of the additional stores. Our operations may be negatively affected if we are not able to open new distribution centers or expand our existing distribution centers in order to meet the supply needs of these new stores.

We are subject to the risks normally associated with providing financing.

We maintain a financial partnership with Itaú Unibanco Holding S.A., or Itaú Unibanco, through which we have established Financeira Itaú CBD S.A. Crédito, Financiamento e Investimento, or FIC, which exclusively offers private label and co-branded credit cards, personal and consumer credit, extended warranties and insurance at our stores. See “Item 4A.  History and Recent Development of the Company—Restructuring of our Association with Itaú Unibanco.” In addition, FIC raises funds from financial institutions in order to finance credit sales to our clients. We are subject to the risks normally associated with providing this type of financing, including risk of default on the payment of principal and interest and any mismatch of cost and maturity of our funding in relation to cost and maturity of financing to our clients, either of which could adversely affect our cash flow and have a material adverse affect on us.

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.

As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our preferred shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the preferred shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw preferred shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of or distributions relating to the preferred shares, you will not be able to remit abroad non-Brazilian currency unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration. If you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our preferred shares.

If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our preferred shares or the return of your capital in a timely manner. The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes. See “Item 10D.  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. In addition, we may pay for future acquisitions, like the acquisition of Globex  (Ponto Frio) in 2009, through the issuance a substantial number of preferred shares which could negatively affect the market price of the preferred shares and dilute your shareholdings in us, for which preemptive rights may not be extended to holders of ADSs.

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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, 50%, 53% and 58% of all shares traded on the São Paulo Stock Exchange (BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros), or BM&FBOVESPA, in 2007, 2008 and 2009, respectively.

Holders of the ADSs and our preferred shares may not receive any dividends.

According to our by-laws, we must generally pay our shareholders at least 25% of our annual net income as dividends, as determined and adjusted under Brazilian corporate law. This adjusted income may be capitalized, used to absorb losses or otherwise appropriated as allowed under the Brazilian corporation law and may not be available to be paid as dividends. We may not pay dividends to our shareholders in any particular fiscal year if our board of directors determines that such distributions would be inadvisable in view of our financial condition.

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.  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 the city of São Paulo 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.  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 that strategy and to increase our market share, between 1981 and 2002, 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 the State of Rio de Janeiro.  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 FIC with Itaú Unibanco. FIC exclusively offers private label and co-branded credit cards, personal and consumer credit, extended warranties and insurance at our stores. For more information, see “—Restructuring of our Association with Itaú Unibanco.”

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In November 2007, we acquired a 60% ownership interest in the Assaí chain by purchasing 60% of the capital stock of Barcelona Comércio Varejista e Atacadista S.A., or Barcelona, a company holding of all the operating assets of the Assaí chain. This acquisition enabled us to enter the cash and carry segment, a wholesale format in the retail food sector, in the State of São Paulo.

On October 16, 2008, we started cash and carry operations in the State of Rio de Janeiro through Xantocarpa, a company that assumed the operation of three stores of Sendas Distribuidora which were converted into Assaí stores.

On July 7, 2009, we purchased a 70.2% ownership interest in Globex  (Ponto Frio), a company which operates in the non-food durable goods retail sector under the brand name Ponto Frio. In a tender offer triggered by the acquisition, our Company increased its ownership interest in Globex (Ponto Frio) to 98.8%. For more information see “—Acquisition of Globex (Ponto Frio).”

On July 25, 2009, we purchased Barcelona’s remaining stock, equivalent to 40% of its capital stock and accordingly, we currently own 100% of the Assaí chain. The total amount for this acquisition was R$175 million, of which we have already paid R$50 million and we will pay R$125 million on January 15, 2011 in cash. Subject to certain conditions, we will pay to the sellers an additional amount of R$25 million on January 15, 2011.

On December 4, 2009, we entered into a business combination agreement with Casas Bahia Comercial Ltda., or Casas Bahia, a Brazilian durable goods retailer. Pursuant to the agreement, by means of a re-organization we and Casas Bahia will integrate our respective businesses in the durable goods retail sector, and unify the e-commerce durable goods operations currently conducted by our subsidiary, Globex (Ponto Frio). The agreement was approved by our shareholders at our General Shareholders’ Meeting held on January 11, 2010. Our Company and Casas Bahia are in the process of reviewing the agreement in order to reach an understanding on certain terms of the agreement. For the year ended December 31, 2009, this transaction did not generate any impact on our accounting records, with the exception of expenses related to the transaction, or cause any material changes in our ownership structure. Until the conclusion of the re-organization, we cannot determine the effects of this transaction in the results for the year ended December 31, 2010. For more information, see “—Business Combination Agreement with Casas Bahia.”

Acquisition of Globex (Ponto Frio)

On June 7, 2009, we entered into a share purchase agreement with the majority shareholders of Globex (Ponto Frio), a company operating in the Brazilian non-food retail sector under the brand name Ponto Frio for over 60 years, for 70.2% of its total voting shares. We paid a portion of the purchase price, R$373.4 million, in cash on July 7, 2009 and the majority shareholders of Globex (Ponto Frio) had the option of receiving the remaining R$451.1 million either in cash, at the fourth anniversary of the closing, or by subscribing for class B preferred shares issued at R$40.00 per share. In the latter case, the majority shareholders of Globex (Ponto Frio) were to receive the shares in the amount due in cash plus 10%.

We also offered the minority shareholders of Globex (Ponto Frio) the right to sell us their shares under the share purchase agreement for 80% of the purchase price paid to the majority shareholders of Globex (Ponto Frio) under the same conditions. One hundred and twenty (120) minority shareholders of Globex (Ponto Frio) agreed to sell us their shares, corresponding  to approximately 25% of the total voting shares of Globex (Ponto Frio), for R$236.8 million.

Pursuant to the Globex (Ponto Frio) share purchase agreement, we increased our capital stock through the issuance of 16,609,046 class B preferred shares at a price of $40.00 per share. This capital increase triggered the preemptive rights of our shareholders to subscribe for the new class B preferred shares, in accordance with Brazilian law. Our controlling shareholders transferred their rights to subscribe for class B preferred shares to the Globex (Ponto Frio) shareholders. Due to the increase in the trading price of our shares, a larger than expected number of our minority shareholders subscribed for the class B preferred shares. As a result of the unexpected demand for class B preferred shares, the preemptive rights transferred to the Globex (Ponto Frio) shareholders were not sufficient to settle our entire purchase price payment  obligations. The Globex (Ponto Frio) shareholders were only able to subscribe to 4,673,600 class B preferred shares and were paid the remaining outstanding balance of the purchase price for their Globex (Ponto Frio) shares, R$451.8 million, in cash, on October 2, 2009. The total amount paid in cash and class B preferred shares were R$1,155.8 million.

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On December 22, 2009, we launched a tender offer for the remaining approximately 5% interest in Globex (Ponto Frio), in accordance with Brazilian regulation, under the same terms as the offer accepted by the initial 120 Globex (Ponto Frio) minority shareholders. The tender offer was concluded on February 3, 2010 and we acquired  approximately 3.3% of Globex’s (Ponto Frio) capital stock for R$28.4 million and 137,014 class B preferred shares, resulting in us becoming holders of 98.8% of Globex’s (Ponto Frio)  capital stock.

For further information on the acquisition of Globex (Ponto Frio), see note 15 (b) to our financial statements included in this annual report.

Restructuring of our Business Combination with Itaú Unibanco

On October 27, 2004, we entered into a partnership agreement with Banco Itaú Holding Financeira S.A., or Partnership, for the creation of a financial institution named FIC, with the aim of structuring and making available to our clients exclusive financial products and services, such as, private label credit cards to be used exclusively at our stores, widely accepted card brands, direct consumer credit and personal loans, through financial service units installed within our stores.  The Partnership has an initial term of 20 years.  Initially, the Partnership did not result in relevant investments by our Company. When we acquired Globex (Ponto Frio), it had a similar association agreement with Unibanco – União de Bancos Brasileiros S.A., or Unibanco, which resulted in the creation of Banco Investcred Unibanco S.A., or Investcred. On February 18, 2009, the Central Bank approved the merger between Banco Itaú S.A. and Unibanco, which created Itaú Unibanco.

In this context, we restructured the Partnership and the association of Globex (Ponto Frio) with Unibanco on December 30, 2009, extending the partnership for another five years and amending certain other aspects of our Partnership, which resulted in the payment of R$600.0 million by Itaú Unibanco to our Company. See note 14 to our financial statements included in this annual report.

Business Combination Agreement with Casas Bahia

On December 4, 2009, we entered into a business combination agreement with Casas Bahia, a Brazilian durable goods retailer, whereby our Company and Casas Bahia will integrate their respective business in the durable goods retail sector, including their e-commerce activities. The transaction is subject to the approval of Brazilian antitrust authorities.

 As of the date of this annual report, this transaction did not generate any impact on our accounting records, with the exception of expenses related to the transaction, or cause any material changes in our ownership structure.

Capital Expansion and Investment Plan

As part of our capital expansion and investment plan, we have invested approximately R$ 1,631.8 million in our operations for the three years ended December 31, 2009.  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 in the geographic region.  For expansion within urban areas where we already have a presence, our preference has been to open new stores.  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 2007, we have acquired 476 stores.  We have spent an aggregate of R$ 3,414.0 million on acquisitions from 2007 through 2009.

The following table presents information regarding our acquisitions and the regional distribution of the stores we acquired since 2007:

______________

(1)   acquired in July 2009.

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Opening of new stores – We usually seek real estate properties to open 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 77 new stores from 2007 through 2009, including six Pão de Açúcar stores, one CompreBem store, four Extra Hipermercado stores, 35 Extra Fácil convenience stores, six Extra Eletro stores, 11 Ponto Frio stores and 14 Assaí stores.  The total cost of opening these new stores was R$716.8 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 2007 through 2009 was R$857.6 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$387.7 million on information technology from 2007 through 2009.  For more information on our information technology, see “Item 4B.  Business Overview—Technology.”

Expansion of distribution facilities – Since 2007, 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$29.9 million on our distribution facilities from 2007 through 2009.

The following table provides a summary description of our principal capital expenditures disbursed for the three years ended December 31, 2009:

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4B.          Business Overview

The Brazilian Retail Food Industry

The Brazilian retail food industry represented approximately 5.6% of Brazil’s GDP (gross domestic product) in 2009.  According to the Brazilian Supermarket Association (Associação Brasileira de Supermercados), or ABRAS, the food retail industry in Brazil had gross revenues of R$177.0 billion in 2009, representing a 11.7% increase compared with 2008.

The Brazilian retail food industry is highly fragmented.  Despite consolidation within the Brazilian retail food industry, in 2009, the three largest supermarket chains represented only approximately 40.4% of the retail food industry, as compared to 38.1% in 2008.  We believe that future acquisitions will mainly involve smaller sized-stores.  Another trend in the retail food industry is large chains migrating to smaller formats such as neighborhood banners, like Tesco Express and Sainsbury’s Local.  According to ABRAS, our gross sales represented 14.8% of the gross sales of the entire retail food industry in 2009.

The cash and carry segment (atacarejo), a wholesale segment in the retail food industry 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.

According to the Brazilian Institute of Geography and Statistics, or IBGE, the total population of Brazil was approximately 191.4 million in 2009, making Brazil the fifth most populous country in the world, with a population growing at a rate of 2% per year.  Given that more than 83% 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.  The city of São Paulo has a population of approximately 11.1 million and the city of Rio de Janeiro has a population of approximately 6.2 million. These are the two largest cities in Brazil.  The State of São Paulo has a total population in excess of 41.4 million, representing approximately 21.6% of the Brazilian population and is our largest consumer market.  The State of Rio de Janeiro is our second largest consumer market.

The Brazilian retail industry is perceived as essentially growth-oriented, because retail margins are substantially more constrained compared to other industries.  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 (Consumption Potential Index) (Índice de Potencial de Consumo), or IPC Target 2010.

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, 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 increased.

Salary levels in Brazil have generally increased at a slower rate compared to increases in interest and exchange rates and increasing consumer prices.  We expect that increased consumption by the lower income class levels will occur over time as a result of the 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 sales and number of stores. In 2009, we had a market share of approximately 14.8% in the Brazilian food retailing business, according to ABRAS, with gross sales of R$26.2 billion (including Globex - Ponto Frio) and R$23.3 billion (excluding Globex - Ponto Frio).  As of December 31, 2009, we operated 1,080 stores, 79 gas stations and 150 drugstores in 19 States and the Federal District, in addition to a logistics infrastructure supported by 28 distribution centers located in 13 States.  These figures already include Globex (Ponto Frio) stores that we purchased in July 2009, but do not include Casas Bahia’s 508 stores, given that this business combination  is still under negotiation.

To guarantee a diversified market performance and meet the various needs and expectations of our consumers, we maintain a multi-format structure encompassing supermarkets (Pão de Açúcar, Extra Supermercado, CompreBem and Sendas), hypermarkets (Extra), durable goods stores (Ponto Frio and Extra Eletro), convenience stores (Extra Fácil) and cash-and-carry chains (Assaí).  We also operate e-commerce activities in the food (Pão de Açúcar Delivery - http://www.paodeacucar.com.br) and non-food (Extra.com.br - http://www.extra.com.br and PontoFrio.com - http://www.pontofrio.com.br) sectors. We also own gas stations located at the parking lots of or nearby our stores, where we offer quality products at competitive prices, drugstores located in the shopping areas of our supermarkets and hypermarkets.  

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The following table sets forth the number of our stores by region, as of December 31, 2009:

______________

(1)   Consists of stores in 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.

The following table sets forth the total number of stores at the end of the periods indicated per store format and the  activity in our stores:

Our Operating Segments

Our activities are divided into the following segments: 

Retail

Sales of food and non-food items to individual consumers.  Food and non-food products are defined as:

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Food products includes non-perishable food items, beverages in general, fruit, vegetables, meat, bread, cold cuts, dairy products, cleaning products, disposable products, and personal care products. In some cases, these goods are sold in the form of products with our brand.

Non-food products includes clothing items, baby items, shoes and accessories, household articles, books, magazines, CDs and DVDs, stationery, handcraft, toys, sports and camping gear, furniture, mattresses, pet articles and gardening.  Some of the products listed above are also offered in the form of our own brands.  Non-food products also include electronics and durable goods, such as household appliances, personal computers, software, computer accessories, and sound and image systems. The items sold at our drugstores, such as medications and dermocosmetics, are also considered non-food products.  This segment also includes products and services sold at our gas stations.

Services that we provide to our clients includes extended warranties on the sale of electronics and durable goods sold at our stores and bill payment services, in addition to the services directly offered at our stores, such as photo development. 

Cash-and-Carry

Sales of food and some non-food products to intermediate consumers and retail customers through our Assaí banner.

Electronics and Home Appliances (Globex - Ponto Frio)

Sale of durable goods (specifically electronics, home appliances and furniture) through our subsidiary Globex (Ponto Frio).

Segment Revenue and Income Distribution

The table below shows our revenues from our operating segments and their participation in our net revenues. Results of the operating segments are presented in Brazilian GAAP, the measure used by management in evaluating the performance of and strategy for the three segments listed below. Financial data prepared in accordance with IFRS and Brazilian GAAP is not comparable. See note 31 to our financial statements included in this annual report for a description of the key differences between IFRS and Brazilian GAAP.

______________

(1)     Refers to the period from July 2009, when we consolidated Globex (Ponto Frio) into our Company.

The table below shows the profit or loss (as the case may be) from each of the operating segments and their participation in our net income. Results of the operating segments are presented in Brazilian GAAP, the measure used by management in evaluating the performance of and strategy for the three segments listed below. Financial data prepared in accordance with IFRS and Brazilian GAAP is not comparable. See note 31 to our financial statements included in this annual report for a description of the key differences between IFRS and Brazilian GAAP.

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______________

(1)   Refers to the period from July 2009, when we consolidated Globex (Ponto Frio) into our Company.

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 Supermercado and Assaí.  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 deep understanding of the Brazilian consumer allows 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 Supermercado and Extra Fácil banners, we operate in the supermarket and convenience store models, respectively and our Assaí 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 approximately 570,000 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 2009 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 to our distribution centers and suppliers in order to automatically replenish our inventory.

Economies of scale

We benefit from 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.

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Our Strategy

Our strategy is focused on:  (i) efficient use of capital employed through the maximization of existing assets; (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 strong cash position; (ii) the use of low cost methods to gain market share; and (iii) the maintenance of strict control of expenses and cashflow.

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 loyalty.  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, as well as increasing sales in our existing stores through improvements in assortment, pricing, communication and service. We have 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 seeking opportunities to acquire businesses.

Sustained Growth with Profitability

We intend to grow while increasing our profitability through:  (i) improving the control of our expenses; (ii) improving our logistics 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 strengthening our management model.

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, 2009:

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______________

(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 Supermercado and Extra Fácil sales included in Extra Hipermercado.

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 74.9 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.

At December 31, 2009, we had 145 Pão de Açúcar stores.  The Pão de Açúcar stores range in size from 120 to 4,670 square meters and at December 31, 2009, averaged 1,333 square meters of selling space.  Food products represented 94.0% of gross sales revenue attributable to Pão de Açúcar in 2009 and non-food products represented 6.0%.

The Pão de Açúcar banner recorded gross sales of R$4.2 billion in 2009, representing an increase of 8.8% relative to 2008.  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 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 41 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.

At December 31, 2009, we had 157 CompreBem stores.  CompreBem’s stores range in size from 301 to 3,125 square meters and averaged 1,195 square meters of selling space at December 31, 2009.  Food products represented 91.0% of gross sales revenue attributable to CompreBem stores in 2009 and non-food products represented 9.0%.

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Gross sales revenue of the CompreBem banner in 2009 amounted to R$2.8 billion, representing a decrease of 3.5% compared to 2008.  This decrease was a result of the transfer of 14 ABC CompreBem stores to Sendas and the conversion of six stores from the CompreBem banner into the Extra Supermercado format and one store into Assaí.

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 the State of Rio de Janeiro.

Sendas’ gross sales in 2009 totaled R$1.8 billion, equivalent to 7.0% of our total sales, representing an increase of 12.5% compared to 2008.  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 the State of 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 and have an average selling area of 7,099 square meters at December 31, 2009.  The Extra stores target the Brazilian classes B, C, D and E.  At December 31, 2009, we had 103 Extra stores, including stores that opened in 2009 (one store that was converted from Extra Hipermercado to Extra Supermercado).  The sale of food products and non-food products represented 62.0% and 38.0% of Extra’s gross sales in 2009, respectively.

Gross sales of the Extra banner in 2009, including Extra Supermercado and Extra Fácil sales, reached R$11.8 billion, a 11.1% increase compared to 2008.  This increase was a result of the new management model implemented by our former CEO, Claudio Galeazzi, in 2008, which gave greater autonomy to different regions where we operate and contributed to the integrated management of the banners, focusing 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.

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 Supermercado stores.  We opened 21 new stores in 2009, bringing the total of Extra Fácil stores to 52 units at December 31, 2009.  Extra Fácil is characterized by small retail stores with up to four check-outs and offers convenience, proximity and facility.

Extra Supermercado Stores

At December 31, 2009, we operated 13 Extra Supermercado stores (six conversions from CompreBem banners and three from Pão de Açúcar banner).  Our Extra Supermercado banner is characterized by stores with sales area of up to 1,100 square meters and a complete mix of food products and general merchandise.  Our Extra Supermercado stores are complete neighborhood supermarkets with exceptional meat and bakery products, where families can stock up their pantries rapidly and economically and also acquire a wide range of household items, in an easily accessible, pleasant environment with exemplary customer service.

Extra-Eletro Stores

Extra-Eletro stores sell a broad range of home appliances and consumer electronic products.  These stores had an average selling area of 537 square meters at December 31, 2009.  Customers place orders in the stores, and products are shipped from a central warehouse.  At December 31, 2009, we operated 47 Extra-Eletro stores.

In 2009, Extra-Eletro had gross sales of R$442.2 million, an increase of 18.7%, compared to gross sales in 2008.  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.

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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 2009 increased by 52.7%, compared to gross sales in 2008, and corresponded to 2.1% of our gross sales in 2009.  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.

Assaí Stores

The cash and carry segment (atacarejo segment), a wholesale segment in the retail food industry, 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.

Assaí has been operating in the cash and carry segment for 36 years and at December 31, 2009, Assaí had 6,532 employees and 40 stores.  In 2009, we opened 12 new Assaí stores.  Out of the 12 new Assaí stores, seven stores were newly opened and five stores were converted into Assaí format from other banners.  In 2009, the Assaí banner recorded gross sales of R$2.2 billion.

Ponto Frio Stores

Our Ponto Frio stores specialize in durable goods such as consumer electronics and furniture. At December 31, 2009, we were operating 455 Ponto Frio stores as a result of our acquisition of Globex (Ponto Frio) in July of 2009.  In 2009, Ponto Frio stores had gross sales of R$2,888.5 million as from July 7, 2009, when our acquisition of Globex (Ponto Frio) took effect. For more information on the acquisition of Globex (Ponto Frio), see “Item 4A. History and Recent Development of the Company — Acquisition of Globex (Ponto Frio).”

Gas Stations

At December 31, 2009, we were operating 79 gas stations, five of which were opened in 2009.  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 Assaí banners, and increase synergies with drugstores and Extra Fácil stores.

Drugstores

With 150 units in operation, we operate one of the largest drugstore chains in Brazil’s retail food industry. We opened a total of seven new stores in 2009.  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 40% above the average sales revenues in the other months.  We also experience strong seasonality in our results for the month of April as a result of the Easter holiday where we offer specialized products for the occasion as well as in Soccer World Cup years where some of our products experience an increase in sales.

Seasonality relating to the availability of some of our products (such as fruits and vegetables) do not affect our results due to the large and diverse selection of products we offer our customers.

Our Products

Our products are mostly ready-for-sale products that we purchase and resell to our end-user consumers.  Only a portion of our products area produced at our stores, which are, based on formulations prepared by our technical team for development of perishables. In certain circumstances, we have entered into partnerships with suppliers who deliver semi-finished products that are finished at our stores. 

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The products manufactured and/or handled at our stores are: (i) fruits and vegetables, cut or packaged at our stores; (ii) meat (beef, pork, chicken and fish) as well as cold cuts and cheese, which are cut, weighed and packaged at our stores; (iii) ready-to-eat meals sold at our delis; and (iv) bread, cakes and sweets made at the bakeries located within our stores.

We do not manufacture the products sold under our own exclusive brands. These products are manufactured by suppliers who are carefully selected by our Company, after the quality of their service and their capacity to meet our demand has been thoroughly evaluated by us.  The development of products carrying our own exclusive brand is guided by a detailed process aimed at standardizing our products and ensuring the products’ manufacturing and launch within the commercial and strategic targets of our brands and compliance with our quality standards, involving various areas of our Company.

Suppliers

The purchasing of our products for our Pão de Açúcar, CompreBem, Sendas, Extra, Extra Eletro, Extra Supermercado, Extra Fácil, Assaí and Ponto Frio stores is centralized.  We purchase substantially all of our food products on a spot or short-term basis from a large number of unaffiliated suppliers.  As a result, we are not dependent on any single supplier.

Distribution and Logistics

In order to efficiently distribute perishable food products, grocery items and general merchandise, we operate 28 distribution centers (including Ponto Frio) strategically located within the cities of São Paulo, Brasília, Fortaleza, Curitiba, Rio de Janeiro, Salvador and Recife with a total storage capacity of approximately 570,000 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 to 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 our stores; (3) enhancing the inventory management; and (4) reducing costs in our supply chain.

Our logistics and distribution processes are divided in accordance with the products and services sold under our banners, as a result, our distribution processes are guided by the following procedure:

Stores, Supermarkets and Hypermarkets

At December 31, 2009, the logistic process to supply our stores, supermarkets and hypermarkets (excluding Ponto Frio, our e-commerce business, drug stores and gas stations) included 18 distribution centers located in the States of São Paulo, Rio de Janeiro, Ceará, Pernambuco, Bahia, Paraná and the Federal District, corresponding to a 400,000 square meters  area including both our own and outsourced distribution centers.  Our distribution process is performed by an outsourced fleet that, on December 31, 2009, totaled more than 1,100 vehicles exclusively dedicated to this activity, all of which are tracked via GPS. At December 31, 2009, our centralization rate (the percentage of the products supplied at our stores that come directly from our distribution centers) was 85%.

Orders made for our non-centralized products are made directly by the stores and delivered by the suppliers following the supply model known as “Direct Entry.” At December 31, 2009, 15% of our stores sales corresponded to “Direct Entry” products, especially ornamental plants, cigarettes, ice creams, yogurts and magazines.

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Electronic products and durable goods – Ponto Frio stores

Our logistics process associated with our Ponto Frio stores involve an examination of Globex’s (Ponto Frio) commercial sector’s forecast for sales, which we use to submit orders to our suppliers. Once these orders are issued, the delivery of products is managed by Globex’s (Ponto Frio) supply chain area, which analyzes inventory levels, sales estimates by store and other variables and schedules the delivery of the requested products with our suppliers. The products are delivered and distributed among Globex’s (Ponto Frio) distribution centers, which at December 31, 2009 totaled 8 distribution centers located in the States of Rio de Janeiro, São Paulo, Minas Gerais, Paraná, Rio Grande do Sul, Bahia and the Federal District.

PA Delivery

Through the Pão de Açúcar delivery system, or PA Delivery, our clients are able to purchase food products on the Internet. Upon entering the required delivery information, our system directs that information to the closest PA Delivery unit to initiate the order process.  At December 31, 2009, we had seven PA Delivery units in Brazil, two located in the Greater São Paulo area, and the others are located in the cities of Indaiatuba (interior of the State of São Paulo), Rio de Janeiro, Brasília, Curitiba and Fortaleza.  These units are installed at strategically located stores, so as to cover a wider and more profitable delivery area.  These units share their inventory with the respective store in order to take advantage of synergies. 

Extra.com.br, PontoFrio.com and Televendas

Our non-food products e-commerce network offers assistance to our clients through two distribution centers.  These centers are used for storage and handling of goods; from the time they are selected and packed until the invoice is used and the products are shipped.  Upon the placement of the order on our website or through our call center and confirmation of the payment by the financial institution, the products are selected by a specialized team, are  checked and packaged by our quality control department, and the invoice is issued.  

Drugstores

Our drugstores are supplied with medications and similar products, the latter following the same distribution logistic used for our supermarkets and hypermarkets.  Medications are delivered by specialized distributors who intermediate the process between our Company and the respective drug manufacturers.  At December 31, 2009, we maintained agreements with three major distributors as well as with some regional distribution companies.   We do not maintain drug inventories. Medications are requested to distributors through purchase orders that are made according to the needs of our drugstores.

Gas Stations

Our gas stations are supplied by exclusive suppliers. At December 31, 2009, we used five suppliers.   Supply orders are made individually by each station, and fuel is requested through purchase orders or pre-agreed daily supplies, pursuant to the respective services agreement entered into with each gas station.  Fuel transportation is carried out exclusively by our supplier while unloading operations being closely followed by our employees for safety and quality control reasons.  The process for compressed natural gas, or GNV is different.  GNV is supplied by a single supplier directly to the gas stations, through regional dealers and using pipelines connected to the entrance boxes located at the gas stations and holding fuel meters installed and controlled by the dealers themselves.  This equipment regularly measures the GNV volumes supplied.  GNV is sold through dispensers attached to these entrance box, using specific pipelines.

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 2009 and 2008, we spent approximately R$266.4 million and R$180.2 million, respectively, on advertising (approximately 1.0% of total net sales revenues in each year). Also, 26.3% and 28.0% of our total marketing expenditures in 2009 and 2008, respectively, were spent on radio, newspaper and magazine advertising.  Television advertisements accounted for 39.2% and 38.2% of advertising expenses in 2009 and 2008, respectively.  We spent 34.5% in 2009 and 33.8% in 2008 on other promotional activities.

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FIC and Banco Investcred

FIC operates service kiosks in our stores that have exclusive rights to offer private label and co-branded credit cards, personal and consumer credit and insurance.  FIC has been operating for five years and has 6.9 million clients (including Banco Investcred), which represents approximately one third of our customers.  We and Itaú Unibanco each indirectly hold 50% of FIC’s capital stock. Itaú Unibanco holds 50%, our Company holds 36% and Globex (Ponto Frio) holds 14%. Itaú Unibanco is responsible for managing FIC and appoints the majority of its officers.

With a receivables portfolio of R$3.0 billion (including Banco Investcred), FIC’s share of our total gross sales amounted to 15.0% at December 31, 2009.  In 2009, FIC had an equity income of R$15.2 million – a significant improvement compared to the R$2.9 million in 2008.  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 2009 and 2008.

______________

(1)   Including Globex (Ponto Frio).

(2)   Excluding Globex (Ponto Frio).

Credit Sales

In 2009 and 2008, 52.2% (including Banco Investcred) 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 of 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 43.6% and 40.6% of our net sales revenue in 2009 and 2008, respectively.  From this total, sales through private label and co-branded credit cards accounted for 14.5% of our net sales revenue in 2009.  An allowance for doubtful accounts is not required as credit risks are substantially assumed by credit card companies or issuing banks.

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 1.0% and 0.5% of our total net sales revenue in 2009 and 2008, 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 0.7% and 1.0% of our net sales revenue in 2009 and 2008 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 7.5%, and 7.8% of our net sales revenue in 2009 and 2008, respectively.  An allowance for doubtful accounts is not required as credit risks are substantially assumed by the companies that issue the vouchers.

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• SAP – on January 1, 2009, the SAP system started up in the financial back office and real estate management and maintenance areas, ensuring greater quality and speed in regard to the closure of results and reducing costs.

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.

At December 31, 2009, our most important trademarks (Pão de Açúcar, Companhia Brasileira de Distribuição, Barateiro, Extra, Qualitá, CompreBem, Sendas, Taeq, Ponto Frio and Assaí, among others) were duly registered with INPI and we had approximately 2,314 other trademarks registered or in the process of being registered in Brazil.  We did not have any registered patents at December 31, 2009.

We own the following domain names, among others:  www.extra.com.br, www.paodeacucar.com.br, www.comprebem.com.br, www.assaiatacadista.com.br, www.pontofrio.com.br and www.sendas.com.br. Please note that these domain names are for informative purposes only and the information contained in these websites is not incorporated by reference in this annual report.

Competition

Brazil’s leading retail food companies are controlled by companies headquartered abroad.  Foreign presence in the Brazilian retail food industry started with leading French retail food chain, Carrefour.  In the past decade, the U.S. chain Wal-Mart has also entered the Brazilian market, mostly through the acquisition of domestic retail food chains, increasing competition in the industry.  Thus, we believe the Brazilian retail food industry is highly competitive. Nonetheless this, supermarket penetration levels in Brazil, in terms of the number of supermarkets in terms to the country’s population and area, is estimated to be lower than the levels recorded in the United States, several Western European countries and some South American countries.

Recently, leading retail food companies, including our Company, have acquired various chains.  However, we believe that acquisition activities should slow down, since the major chains have already been purchased.  We also believe that future acquisitions will involve smaller stores.  Another recent trend in the retail food industry is the migration of large chains to smaller formats, such as neighborhood banners. We believe that hypermarkets should increase their share in the clothing, general goods, electronic products, furniture and construction materials markets as well as in other categories of non-food products, in order to take advantage of the growth in department stores and stores specializing in this segment in Brazil.

Despite operating in various Brazilian regions, the dimension, wealth and importance of the State of São Paulo drive the concentration of our stores into this market, with the State of Rio de Janeiro being the second largest consumer market for our operations.   

Our competitors vary depending on the regional location of the stores. Our principal competitors in the State of São Paulo are Sonda, Pastorinho, Carrefour, Mambo, Futurama and Walmart. In Brasília, our principal competitors are Carrefour, Super Maia, Super Cei and Big Box. In the State of Rio de Janeiro, our principal competitors are Mundial, Guanabara, Prezunic and Zona Sul supermarkets.  In the States of Paraíba, Pernambuco, Ceará and Piauí, our principal competitors are the local supermarkets, in addition to GBarbosa and Bompreço.

The principal competitor of Extra hypermarket is Carrefour, which operates stores in the southeastern and southern regions of Brazil, and Walmart, which operates through various banners in the southeastern, northeastern and southern regions of Brazil.

Assaí chain competes with Atacadão, a wholesale chain with 34 stores purchased by Carrefour in 2007, Roldão, Tenda, Makro and Maxxi.

In the State of São Paulo, our CompreBem stores face strong competition from various smaller regional chains.  In the State of Rio de Janeiro, the main competitors of ABCCompreBem and Sendas are Guanabara, Prezunic, Zona Sul and Mundial.

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In our other regional markets, we compete not only with the organized food retail sector, but also with various small and medium-sized chains, family companies and food retail businesses. 

In the durable goods market, the principal competitors of our Extra Eletro and Ponto Frio stores are Magazine Luiza, Pernambucanas, Ricardo Eletro and Lojas Insinuante.

In relation to our food products e-commerce, our PA Delivery units are market leaders and do not face competition at the national level, however there are relevant competitors in local markets, such as Zona Sul, which has a higher market share than us in the city of Rio de Janeiro, Mercadorama, which belongs to the Walmart group, in Curitiba, and Sonda, in the city of São Paulo.

In non food products e-commerce our competitors are Brazilian and foreign companies. However, competition from foreign companies is irrelevant for this market. According to a study by Exame magazine in the beginning of March 2010, our electronic stores Extra.com.br and PontoFrio.com, and taking into account our business combination  with CasasBahia.com, now hold the second highest market share in this segment. Our competitors in this segment are B2W, the market leader, which owns Americanas.Com, Submarino and Shoptime, among others, Compra Fácil of the Hermes Group, Magazine Luiza, Walmart, Saraiva, Dell and Fast Shop.

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.

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 common practice in Brazil not to label individual items.  However, a recently enacted federal regulation 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 discussing 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 the State of Rio Grande do Sul 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.

Environmental Matters

In 2008, we initiated a new policy of sustainable operations by structuring our actions in a single manner, aligned with our goals and business, thus strengthening our sustainability practices, which are now measured and improved on a regular basis. We also incorporated sustainability into our operations company-wide, encompassing every sector of the organization. As a result, we created an internal working group and the Sustainable Development Committee, which is linked to our board of directors. The internal committee is organized by the socio-environmental responsibility area comprising representatives of different areas of our Company.

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In 2002, we launched the “Caras do Brasil” (Faces of Brazil) program, which aims at enabling the selling of products made by small organizations and communities that demonstrate socio-environmental responsibility, but which would otherwise find it difficult to access large markets in which to trade their production. The program opens a sales channel for sustainable products and encourages conscientious consumption.

We offer approximately 1,000 sustainable items, including groceries, meat, fruit, greens and vegetables. The result of this type of product in our stores accounted for growth of 30% between 2008 and 2009, encouraging us to enhance these product lines in the years to come.

We have also adapted a program for tracking meat, fruit and vegetables, which enables us to offer products incorporating sustainable practices in their production process so as to ensure the health of our clients, proper treatment of livestock and environmental preservation.

In respect to environmental management, we have enhanced control of our consumption of water and energy resources, in addition to the volume of waste generated and proper disposal thereof. To that end we have installed flow reducers on the taps at most of our stores, so as to permit maximum efficiency in water usage, in addition to implementing daily monitoring of consumption at our stores located in the states of São Paulo, Rio de Janeiro and Brasília (which represent 70% of our total stores), in order to rapidly detect leaks. In the future we intend to adopt this control at our other stores. In regard to energy consumption, 26% of our consumption comes from renewable sources (43.4 10¹³ joules or 120,113,133 KWh), and this energy is acquired on the free electrical power market. This measure strengthens alternative energy production, reduces the environmental impact of electricity consumption and does not overload the national electricity transmission system.

In regard to gas emissions, our refrigeration systems (cold stores, air conditioning, refrigerators and freezers) use R-22 gas, a variation of refrigeration gas which is less damaging to the ozone layer, in substitution of R-12 gas. In our green store in Indaiatuba (the first sustainable concept store in Latin America), we use R-410 gas in the air conditioning system and R-404 gas in the refrigeration system, which have a minimum impact on the ozone layer and represent a new trend in refrigeration and air conditioning installations.

Five years ago we initiated the Top Log program to certify our suppliers who employ the best policies and practices in logistics and supply ascertained during the year. In 2009, as part of the development of this program, we included sustainability-related criteria in the Top Log evaluation, encouraging our suppliers to use less packaging and fuel and to make lower emissions, in addition to encouraging their involvement in actions intended to educate and disseminate responsible management.

In order to further contribute to sustainability we created teams for monitoring possible leaks in our refrigeration systems. Referred to as the Caça Vazamentos (Leak Busters), the program uses precise electronic detection equipment with minimum interference on the premises.

We also aim to rationalize resources, while our operations adopt measures to mitigate their impacts, such as:

Waste generation: On-going study of the waste generated in our stores, with the aim of identifying environmentally correct disposal methods, where the focus is on applying the concept of the 3 Rs – reduce, re-use, recycle. Based on this assumption, we have adopted actions that seek to optimize re-usage of our recyclable and organic garbage, thereby reducing the volume of material discharged in landfills. This study resulted in the application of a system in the Green Store at Indaiatuba, creating a volume of disposable garbage close to zero. The same system can be found in over 50 stores and is being adapted for the others, covering all our banners throughout Brazil.

Use of materials: Replacement of equipment or introduction of more efficient new technologies with lower consumption, especially lighting, compressors and air conditioning systems.

Grease trap: The application of a natural biological product for degrading organic compounds.

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Recycling stations: A pioneering initiative in Brazil, the program first appeared in 2001 at the Pão de Açúcar banner in partnership with Unilever, and was expanded in subsequent years to the Extra banner in partnership with H2OH!, and CompreBem. The program seeks to make our clients aware of the importance of properly disposing of garbage, while also making available deposits for voluntary delivery of recyclable materials at our stores. In addition to reducing the environmental impact through correct disposal of garbage, this initiative benefits 33 garbage collection and recycling cooperatives while generating income for around 550 workers. At December 31, 2009, we had recycling stations at 110 Pão de Açúcar stores, 104 Extra stores and 11 CompreBem stores in 31 cities in the states of São Paulo, Ceará, Rio de Janeiro, Paraíba, Pernambuco, Piauí, Paraná and Goiás, in addition to the Federal District. Since this initiative began more than 40 thousand tons of garbage have been collected. The program also includes cooking oil, with monthly collection of over 10 thousand liters which are converted to biofuel, no longer contaminating rivers and springs.

Caixa Verde (Green Checkout): A program that enables our clients to dispose of packaging at the time of purchase, the first retail pre-consumption recycling program.

Re-usable bags: This encourages our clients to use plastic bags in a conscientious manner by offering re-usable bags in our stores while developing alternative programs, such as offering purchase vouchers (once a certain number of points is achieved) to clients participating in the Programa Mais (a loyalty scheme) and who use re-usable bags. In 2009, 315 thousand re-usable bags were sold at Pão de Açúcar stores, 540 thousand at CompreBem (one of the models being developed in partnership with Associação de Apoio à Criança Deficiente – (the Association for Children with Disabilities) or AACD), 180 thousand at Extra stores (with part of the income raised from sales being donated to Casa Hope, which supports children with cancer) and 190 thousand at CompreBem and Sendas stores in the São Paulo ABC region together. In 2010, clients will be able to choose between using their Programa Mais points as purchase vouchers, or converting them into donations to sustainable investments or in the social and environmental programs we are pursuing. Lastly, yet another initiative we have adopted for reducing the volume of plastic bags used in purchases at our stores involves the use of more resistant bags that take up to 6 kilos.

We currently do not incur any costs with environmental regulations compliance, notwithstanding those costs associated with the  the implementation of the sustainability practices described above (among them the construction of a green store in the Vila Clementino, city of São Paulo), resulting in expenditures of approximately R$30 million for the year ended December 31, 2009.

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4C.          Organizational Structure

Companhia Brasileira de Distribuição conducts our operations.  We invest in subsidiaries 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 of our operations are conducted under the Pão de Açúcar, CompreBem, Sendas, Extra, Extra Eletro, Extra Fácil, Extra Supermercado and Assaí banners. The chart below displays a summary of our organizational structure:

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For further information on our subsidiaries see note 1 to our financial statements included in this annual report.

4D.          Property, Plants and Equipment

We own 118 stores, eight warehouses and a part of our headquarters.  The remaining 962 stores and 20 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 12 leases expiring by the end of 2010.  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.  At December 31, 2009, we leased 17 properties from members of the Diniz family and 61 stores from Fundo de Investimento Imobiliário Península, which is owned by the Diniz Group. 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” and note 19 to our audited consolidated financial statements included in this annual report.

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 at December 31, 2009: