Companhia Brasileira de Distribuição

CNPJ/MF 47.508.411/0001-56

NIRE 35.300.089.901

São Paulo, March 16^th, 2017.

Management Proposals for the Extraordinary and Annual Shareholders’ Meeting to be held on April 26^th, 2017

Contents

Annual Shareholders’ Meeting

Comments from the Managers about the Company’s Financial Standing

Item 10 of the Reference Form, pursuant to CVM Rule No. 480, of December 7^th, 2009 (“ICVM 480”).

10.1 - General Financial and Equity Conditions

Introduction

The following comments should be considered together with our individual and consolidated financial statements for the year ended December 31, 2016, issued on February 23, 2017, including Notes to the financial statements, as well as other financial information contained herein. 

In the financial statements of Companhia Brasileira de Distribuição (“GPA” or “Company”) of December 31, 2016, due to the ongoing divestment of the interest held by GPA in Via Varejo S.A. as announced in Note 35, the operations of Via Varejo are treated as discontinued operations. Accordingly, net sales and other income/expense lines were adjusted retrospectively from January 1, 2015, as defined in CPC31, approved by CVM Resolution 598/09 - Sale of non-current assets and discontinued operations, equivalent to IFRS 5. Consequently, the following comments do not include the performance of Via Varejo.

(a)         general financial and equity conditions

Like the preceding year, 2016 was marked by a challenging period in which the macroeconomic scenario remained recessionary and consumers more selective, following a decade of accelerated expansion in Brazil’s retail sector.

GPA’s response to this transformation in market conditions began with a comprehensive review of the key fundamentals of retailing, such as store assortment, how we manage the product mix and our capacity to improve procurement and offer customers more attractive promotions and conditions.

Going back to basics, while capturing efficiency gains and prioritizing agility and simplicity, was one of our guiding principles. This effort extended to include GPA’s corporate structure. At our businesses, we made progress on analyzing our portfolio from a strategic standpoint, which will ensure more balanced growth, especially in higher-return formats. This led us to prioritize new store openings in models best suited to their environments (Assaí cash & carry, Minuto Pão de Açúcar proximity stores and Pão de Açúcar) and to shut down unprofitable units.

We also began a process to change the banners of existing assets, by converting two Extra Hiper stores into Assaí, whose initial results have surpassed our expectations. For 2017, we will accelerate this timetable by opening about 15 new Assaí store conversions from Extra Hiper units. In addition to the 6 to 8 new Assaí stores to be opened, the conversions will help accelerate the expansion of GPA’s cash-and-carry banner into new cities and states across Brazil.

In 2016:

• Gross sales revenue reached R$44,969 billion and net sales revenue amounted to R$41,454 billion, up 11.7% and 11.4%, respectively, compared to 2015 – an outstanding result given the recessive scenario. The Assaí banner registered 38.6% growth in sales during the year, reflecting the successful expansion of 13 new stores and its positioning that is aligned with the current economic scenario.

• Multivarejo: Net sales totaled R$26.967 billion, with 1.9% growth in same-store sales and nominal growth of 0.8%. During the year we adjusted the commercial actions and operations of the Extra banner to be in tune with the consumption trend among consumers, who are increasingly sensitive to promotions and wishing to maintain their purchasing power. The new actions launched in 2016 have started producing results, with growing sales and consistent gains in market share. In addition, the market share of proximity formats increased, while the market share of Pão de Açúcar remained stable. During the year, we opened 17 stores (14 Minuto Pão de Açúcar, 1 Minimercado Extra and 2 Pão de Açúcar);

• Assaí: growth of 38.6% in sales compared to 2015, reaching R$14.487 billion. The banner increased its share of GPA’s Food portfolio to 35% (vs. 28% in 2015). The acceleration of sales growth translated into an important gain in market share, of about 400 basis points, driven by the maturation of stores opened in recent years, double-digit growth in customer traffic and accelerated expansion.

·         Gross profit totaled R$ 9.520 billion and margin stood at 23.0% (compared to 24.4% in 2015). The current level of gross margin reflects the commercial efforts at Multivarejo and higher share of Assaí in the sales mix.

• Multivarejo: Gross profit reached R$ 7.350 billion, with margin of 27.3%, reflecting the new commercial strategy implemented since 1Q16, mainly at Extra;
• Assaí: gross profit totaled R$2.170 billion, up 41.2% from 2015, mainly due to maturation of new stores;

·         Selling, general and administrative expenses totaled R$ 7.451 billion and corresponded to 18.0% of net sales, the same level as in 2015, despite the inflation during the period and organic expansion, especially at Assaí.

• Multivarejo: the Company continued its strategy focusing on adjusting expenses in both operating and administrative areas. As a result, selling, general and administrative expenses increased by .6.6% in the year, in line with inflation in the period;
• Assaí: selling, general and administrative expenses decreased by 20 basis points on net sales (10.3% in 2016 vs. 10.5% in 2015) despite higher operating expenses related to store expansions and the higher share of individual consumers in the sales mix.

• Adjusted EBITDA, excluding other “Operating Income and Expenses,” totaled R$2.185 billion, with margin of 5.3% compared to R$2.524 billion and margin of 6.8% in 2015. The current adjusted EBITDA level is was mainly due to investments made in Multivarejo to drive margins and to Assaí’s strong expansion. 

• Multivarejo: Adjusted EBITDA reached R$1.520 billion, with margin of 5.6% in the year. The difference in adjusted EBITDA margin in relation to 2015 mainly reflects the initiatives to drive price competitiveness, influenced by the changes in consumer habits on account of the economic scenario.
• Assaí: Adjusted EBITDA increased 54.5% to R$ 681 million, higher than sales growth, reflecting the continuous organic expansion and successful performance of the format in the current economic scenario.

• Net financial expenses amounted to R$903 million, increasing 17.6% from 2015. As a ratio of net sales, net financial result increased by just 10 basis points, from 2.1% in 2015 to 2.2% in 2016, virtually stable compared to the previous year, despite a more challenging macroeconomic scenario. Note that the cost of gross debt improved by 20 bps.

• Adjusted net income from continuing operations totaled R$ 373 million, with Assaí posting a notable 95.3% growth in adjusted net income. The net book loss attributable to controlling and non-controlling shareholders, respectively, from continuing operations and discontinued operations was R$482 million and R$594 million.
• In an unfavorable scenario for consumption, the Company strengthened its financial capacity and reduced its leverage to end 2016 with a net debt / EBITDA ratio of 0.3 times, as against 0.4 times in 2015. Important to underline the cash position of aproximadely 5.112 millions in 2016, besides R$241 million of receivables not sold reached,totaling R$5.4 billion in cash and cash equivalents, R$1.5 billion more than in the previous year.
• Consolidated shareholders’ equity was R$12.597 billion, down R$755 million, mainly due to the loss from the year of R$1.076 million. 

For more information, see item 10.1.h.

(b)         capital structure and eventual redemption of shares

Above is GPA’s capital structure for the periods mentioned, considering as a percentage of equity, the amount resulting from total consolidated shareholders’ equity divided by total liabilities (current and non-current) and shareholders’ equity, and as a percentage of debt capital, the amount resulting from the sum of current and noncurrent liabilities divided by total liabilities (current and non-current) and shareholders' equity:

Debt – Consolidated

6

In 2015, there were also suppliers in the then consolidated Via Varejo that associated with financial institutions, by transferring the costs of lengthening the maturity, although still within acceptable commercial terms. Due to the specific characteristics of the transaction, the balance of R$1.055 billion was reclassified to an account of trade accounts payable – partnership. For the purpose of preparing the consolidated financial statements as at December 31, 2016 and considering the application of CPC 31/IFRS 5, the assets and liabilities of Via Varejo now presented net in the line "assets held for sale" and "liabilities related to assets held for sale”.

In 2016, 2015 and 2014, we had no difficulties in obtaining loans or refinancing its current debt.

(e)         sources of financing for working capital and investments in non-current assets that GPA plans to utilize to cover liquidity deficiencies

In the opinion of the Group’s executive officers, the funding sources used in the fiscal years ended December 31, 2016, 2015 and 2014 are adequate, and will continue to be used by GPA as sources of financing, if necessary.

(f)          debt levels and debt characteristics, as well as if the issuer has complied with these restrictions

i.          Relevant loans and financing agreements

The tables below present the GPA’s debt with financial institutions and the funding transactions performed on capital markets on December 31, 2016, 2015 and 2014.

Debt breakdown (including Loans and Financing, Debentures and payment vouchers – consumer finance – CDCI).

In R$ million

The assets and liabilities of Via Varejo now presented net in the line "assets held for sale" and "liabilities related to assets held for sale”. Maturity schedule of loans and financing recognized as non-current liabilities.

Direct consumer credit – CDCI

Refers to direct consumer credit through an intervening party (CDCI), which can be paid in up to 24 installments. However, the most utilized term is substantially less than 12 months. In 2016, this balance is not presented because the assets and liabilities of Via Varejo are now presented net in the line "assets held for sale" and "liabilities related to assets held for sale”.

Financing of working capital, swap and direct consumer credit - CDCI

Financing of working capital

GPA and its subsidiaries raise loans and financing with major financial institutions to meet cash needs for investments.

GPA is required to maintain certain debt financial covenants. These ratios are calculated based on consolidated financial statements of the Company prepared in accordance with accounting practices adopted in Brazil, in the respective issuing Company as follows: (i) net debt (debt minus cash and cash equivalents and trade accounts receivable) not greater than equity and (ii) consolidated net debt/EBITDA ratio (debt less cash and cash equivalents and accounts receivable) lower than or equal to 3.25. At December 31, 2016, GPA complied with these ratios.

Swap contracts

In terms of foreign currency, GPA contracts swap operations to exchange liabilities denominated in U.S. dollar or other foreign currency and fixed interest rates for Real pegged to CDI floating interest rates. The average annual CDI rate was 14.00% in 2016 (13.23% in 2015 and 10.81% in 2014).

Debentures, promissory note and agribusiness receivables certificates

GPA is required to maintain certain debt financial covenants in connection with the issues made. These ratios are calculated based on consolidated financial statements of the Company prepared in accordance with accounting practices adopted in Brazil, in the respective issuing Company as follows: (i) net debt (debt minus cash and cash equivalents and trade accounts receivable) not greater than equity and (ii) consolidated net debt/EBITDA ratio lower than or equal to 3.25. At December 31, 2016, GPA complied with these ratios.

In R$ million

Finance Lease Obligations

Finance lease agreements, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are allocated between finance charges and reduction of lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the income statement. Leased assets are depreciated over their estimated useful life or lease term, whichever is shorter.

The total amount recorded from lease agreements classified as financial lease are listed below:

ii.          Other long-term relations with financial institutions

Currently, GPA has no relevant long-term relations with financial institutions referring to the fiscal years ended December 31, 2016, 2015 and 2014, in addition to those already described in item 10.1 (f) of this Reference Form.

iii.         Level of subordination in Company’s debt

GPA’s executive officers inform that the level of subordination in GPA’s debt is determined in accordance with the provisions set forth by the legislation in force.

iv.           Possible restrictions imposed on indebtedness limits and new debt contracting, the distribution of dividends, the sale of assets, the issue of new securities and the sale of controlling interest, as well as if the issuer has complied with these restrictions

BNDES

Agreements signed with the BNDES (Finame) are subject to “Provisions Applicable to BNDES Agreements”, which borrowers of the BNDES, through a financial agent: without previous authorization from BNDES, including GPA, may not: (i) give priority to other credits; (ii) amortize shares; (iii) issue debentures above the established limit; (iv) issue profit-sharing bonds; (v) taking on new debt; and (vi) sell or encumber permanent assets, in observance to the reservations expressly mentioned in the “Provisions Applicable to BNDES Agreements.”

Debentures, promissory note and agribusiness receivables certificates

The debentures issued are not convertible into shares and hold no guarantee.

These debentures are amortized according to the issue. The methods of amortization are as follows: (i) annual installments (12^th issue of CBD) as of the 4^th anniversary of the issue; and (ii) semiannual interest payments. For further information on the issues of debentures by GPA, please see item 18 of this Reference Form.

The 12^th issue is entitled to early redemption at any time, in accordance with the terms and conditions envisaged in the indenture.

On December 20, 2016, CBD held the 13^th issue of simple, non-convertible unsecured debentures, in a single series, which were privately placed with Ares Serviços Imobiliários Ltda., which, in turn, assigned and transferred to Ápice Securitizadora S.A., which acquired the debentures and Agribusiness Receivables Certificates (CRA) in order to link them to the 2^nd series of the 1^st issue of agribusiness receivables certificates. The proceeds will be used exclusively to purchase fresh agricultural products, fruits and vegetables, dairy products, poultry and other animal proteins directly from rural producers and/or rural cooperatives.

GPA is required to maintain certain debt financial covenants in connection with the issues made, except in the case of Nova Pontocom. These ratios are calculated based on consolidated interim financial information of GPA prepared in accordance with accounting practices adopted in Brazil, as follows: (i) net debt (debt minus cash and cash equivalents and trade accounts receivable) not greater than equity and (ii) consolidated net debt/EBITDA ratio (debt less cash and cash equivalents and accounts receivable) lower than or equal to 3.25. At December 31, 2016, GPA was in compliance with these ratios.

Other covenants

Some loans agreements and financing instruments entered into by CBD and its subsidiaries envisage early maturity of the debt in the event of transfer of control, including:

·         loan and financing agreements in domestic and foreign currencies;

·         indenture of issue of debentures of CBD;

·         machinery and equipment financing agreements (FINAME);

·         Contract of Adhesion to System of Protection Against Financial Risks – Derivatives (swap, forwards and options).

The provisions applicable to BNDES contracts also forbid any changes in the effective control, whether direct or indirect, without prior express authorization from BNDES.

(g)         limits of the financing already contracted, percentages already used

Though the Company does not have any fixed financing agreement contracted, on December 31, 2016, it had loan agreements amounting to R$ 1.350 billion.

As mentioned in the financial statements disclosed by the Company in 2016, the agreements were entered into as per market practices and are valid till 2017.

(h)         relevant changes in each item of the financial statements

There are no items that significantly altered the financial statements for 2014, 2015 and 2016, except for the effects of applying CPC 31 - Non-current assets held for sale and discontinued operation (IFRS5). The Company believes that the sale of Via Varejo through its efforts is highly probable and hence is presenting in the disclosure of the net income of Via Varejo (and its subsidiary Cnova Brasil) after taxes in a single line in the income statement and the balances of assets and liabilities as held for sale and discontinued operations. The statements of income and value added as of December 31, 2015 also present discontinued operations on a single line. For cash flow there is no effect of applying IFRS 5, and the effect of discontinued operations is presented in this note. The effect of assets and liabilities available for sale on December 31, 2016 was R$ 20.303 billion and R$ 15.632 billion, respectively. The effect of the result from discontinued operations was a loss of R$ 1.005 billion on December 31, 2016, as against a loss of R$ 891 million on December 31, 2015.

Income Statement

Fiscal Years Ended December 31, 2016, 2015 and 2014

Comments on variations between December 31, 2016 and December 31, 2015

Continuing and discontinued operations

According to the application of CPC 31 - Non-current assets held for sale and discontinued operation (IFRS5), the Company believes that the sale of Via Varejo through its efforts is highly probable and hence is presenting in the disclosure of the net income of Via Varejo (and its subsidiary Cnova Brasil) after taxes in a single line in the income statement and the balances of assets and liabilities as held for sale and discontinued operations. The original statements of income and value added as of December 31, 2015 were altered and now present discontinued operations on a single line. For cash flow there is no effect of applying IFRS 5, and the effect of discontinued operations is presented in the note. The effect of assets and liabilities available for sale on December 31, 2016 was R$ 20.303 billion and R$ 15.632 billion, respectively. The effect of the result from discontinued operations was a loss of R$ 1.005 billion on December 31, 2016, as against a loss of R$ 891 million on December 31, 2015.

Also, until October 31, 2016, the Company disclosed the net results of subsidiaries in the e-commerce segment abroad (mainly Cdiscount France) after taxes in a single line in the statement of income (similar to on December 31, 2015) and the assets and liabilities balances also as held for sale and discontinued operations. As of this date, the balances of assets and liabilities were written off against shareholders' equity and the e-commerce operations abroad were booked as equity income due to the significant influence held by the Company.

Net Sales

GPA’s consolidated net sales, including only continuing operations, increased R$ 4.256 billion or 11.4%, from R$37.198 billion in 2015 to R$41.454 billion in 2016.

The Group’s main revenues arise from GPA foods’ operations, comprised by Multivarejo and Assaí, as shown below:

(1) Extra and Pão de Açúcar banners: supermarket stores, hypermarket, proximity, gas stations, drugstores and food e-commerce, in addition to revenue from leasing of commercial centers

The growth in net sales in 2016 was driven by the expansion of higher growth and return formats with the opening of 30 new stores: 13 of the Assaí banner (including 2 conversions from Extra Hiper), 14 Minuto Pão de Açúcar, 2 Pão de Açúcar and 1 Minimercado Extra.

As in 2015, the year 2016 was marked by the worsening economic scenario, which resulted in the migration of customers from the traditional retail format to the cash-and-carry wholesale format. As a result, Assaí’s sales increased R$ 4,034 billion and grew by a significant 38.6%, which translated into an important gain in market share, driven by the maturation of stores opened in recent years, the double-digit growth in customer traffic and accelerated expansion.

In Multivarejo, the sales increased R$ 223 million or 0.8%, from R$ 26.744 billion in 2015 to R$ 26.967 billion in 2016. The sales were impacted by the closure of 61 stores. In “same-store sales” concept, which disregards the impacted of this closures, the growth was 1.9%. Highlighting the new commercial action launched at Extra, which resulted in a progressive improvement in sales during the year and market share gains in volume in the last 9 measurements (April to December 2016). Pão de Açúcar continued to shows its resilience, with same-store sales and market share remaining stable during the course of the year: The Proximity format registered sales growth above inflation and launched the 'Aliados Compre Bem' project, a business model based on neighborhood stores, by which GPA partners with independent retailers in order to expand the format’s reach.

Gross Profit

In 2016, gross profit totaled R$ 9.521 billion, up R$ 446 million or 4.9% compared to 2015 (28.2%). Gross margin reached 23.0%, 140bps lower than in 2015, reflecting the commercial actions launched mainly at Extra and the higher share of Assaí in the sales mix. The highlights by business were:

ü  Multivarejo: Gross margin reached 27.3% in the year, 90bps lower compared to  2015 (28.2%), reflecting the new commercial strategy focused on price competitiveness launched in 1Q16, especially at Extra, which resulted in sales growth during the year and market share gains;

ü  Assaí: Gross margin increased by 30 basis points, from 14.7% to 15.0%, mainly related to the economies of scale in its operations.

Operating Income (Expenses)

In 2016, the Company continued its efforts to optimize expenses and improve efficiency throughout the year across all business segments, which resulted in a nominal increase in selling, general and administrative expenses by R$ 763 million or 11.4%, in line with the growth in net sales. Selling, general and administrative expenses increased from R$6.688 billion in 2015 to R$7.451 billion in 2016.

ü  Multivarejo: Focus on rationalizing expenses in both the operating and administrative areas. As a result, selling, general and administrative expenses increased from R$ 5.588 billion in 2015 to R$ 5,957 billion, increase of R$ 369 millions or 6.6% in the year, in line with the inflation during the period (IPCA of 6.3%); Considering expenses related only to stores, growth was only 1.2%, with electricity and personnel expenses remaining practically stable throughout the year despite the inflation / wage increase during the period, thanks to energy efficiency projects and streamlining of store processes, respectively.

ü  Assaí: Despite the opening of 13 stores during the year (including two Extra Hiper conversions) and the higher share of individual consumers, which resulted in higher operating costs, the ratio of selling, general and administrative expenses to net sales (10.3 % in 2016 vs. 10.5% in 2015) declined 20 bps. The selling, general and administrative expenses reached 22.1% in 2016 compared to 20.9% in 2015.

Other Operating Income and Expenses

In 2016, other operating income and expenses came to an expense of R$567 million, up R$ 361 million or 175.2% from 2015 (R$ 206 million - considering only continuing operations). The increase is mainly due to the R$353 million increase in provision for tax contingencies made in the year for lawsuits related to income tax, ICMS and PIS/Cofins.

Depreciation and Amortization

In 2016, depreciation and amortization totaled R$707 million, up R$ 57 million or 8.8% comparaed to 2015 (R$650 million). This increase was chiefly due to depreciation and amortization of the new investments made in 2016. The lower percentage increase in depreciation in 2016 was due to 18% lower investments than in 2015.

Net Financial Result

In 2016, the net financial result was an expense of R$903 million, up R$ 135 million or 17.6% from 2015 (R$ 768 million). Despite the hike in the interest rate, expenses with sale of receivables and the cost of debt remained stable, and the main effect was due to lower yield from cash due to the lower balance during the year, as well as lower revenue from other changes in equity accounts. As a ratio of net sales, net financial result increased by just 10 basis points, from 2.1% in 2015 to 2.2% in 2016, practically stable compared to the previous year, despite a more challenging macroeconomic scenario.

Net Income (Loss)

In 2016, with the economic crisis worsening, the results of the Company's continuing operations were impacted by lower operating income, higher financial expenses and higher other operating expenses. Note that discontinued operations underwent an effective reorganization on October 31 and did not capture the effects of synergies during the year.

(1) Net Income adjusted by “Other Operating Income and Expenses”, thus eliminating nonrecurring income and expenses

The Company closed 2016 with net income attributable to controlling shareholders of continuing operations, adjusted by Other Operating Income and Expenses, of R$373 million. The highlights by business were:

ü Multivarejo: Lower gross margin due to investments in price competitiveness; the impact of economic deterioration on sales and the increase in financial expenses. Accordingly, adjusted net income totaled R$53 million in 2016.

ü Assaí: adjusted net income of R$336 million, reflecting the success of the format and the disciplined control of expenses, combined with store maturation.  

Comments on variations between December 31, 2015 and December 31, 2014

The international operations of Cnova started being consolidated into GPA in August 2014 and hence the results of 2014 reflect only five months of these operations. For better comparison between 2015 and 2014, comments relating to gross profit and operating expenses do not include the result of Cnova (Cnova Brasil and international operations)

(1)     EBITDA adjusted by the total of “Other Operating Income and Expenses”, thus eliminating nonrecurring income and expenses.

(2)     For better comparison between the periods, figures exclude the result of Cnova for 2014 and 2015, considering that international operations were only consolidated in GPA as of August 2014.

Net Revenue

GPA’s consolidated net sales increased 5.8% in 2015, from R$65.525 billion in 2014 to R$69.220 billion in 2015.

The Group’s main revenues arise from GPA foods’ operations, comprised by Multivarejo and Assaí, sales of electronics and home appliances (bricks-and-mortar stores of Via Varejo) and e-commerce (Cnova). GPA’s net sales are shown in the table below for the years ended December 31, 2015 and 2014:

(1) Excludes revenue from intercompany transactions; (2) Extra and Pão de Açúcar banners. Includes revenue from the lease of commercial centers; (3) Cnova: Cnova Brasil + Cdiscount. Includes only revenue from the commissions in the marketplace, without considering total revenue from goods; (4) Includes revenue from intercompany transactions.

The growth in net sales in 2015 was driven by the expansion of higher-return formats, with the opening of 118 new stores, of which 91 were in the food segment (46 Minimercado Extra, 27 Minuto Pão de Açúcar, 11 Assaí, 5 Pão de Açúcar, 1 Extra Super and 1 fuel station) and 27 were Casas Bahia stores. The year 2015 was marked by the slowdown in household consumption reflecting the worsening economic scenario, which mainly impacted non-food sales.

Gross Profit

In 2015, the Company took action to adapt itself to consumers’ needs by intensifying price competitiveness, strengthening promotions and adjusting the assortment. Gross profit totaled R$ 15.219 billion, with margin of 27.0%, decreasing from 2014, mainly due to lower contribution from Via Varejo. The highlights by business were:

ü Multivarejo: Gross margin stood at 28.1% in the year, slightly below 2014, reflecting the price competitiveness strategy adopted throughout the year, especially at the Extra banner, which was partially offset by an increase in the share of higher margin formats (Pão de Açúcar, Minimercado Extra and Minuto Pão de Açúcar), coupled with the growth in rental revenue from commercial centers;

ü Assaí: Gross margin increased 20 basis points, from 14.5% to 14.7%, mainly due to the banner’s growth (11 new stores) and maturation of new stores;

ü Via Varejo: Gross margin reached 32.2% due to the greater share of services in total sales and operating efficiency gains. This enabled the Company to intensify its pricing policy and strengthen promotions, which helped increase its competitiveness and accelerate market share gains.

Operating Income (Expenses)

The following comments do not include Cnova’s results (Cnova Brasil and international operations) in 2015 and 2014, as mentioned in the introduction to explanations of changes between December 31, 2015 and December 31, 2014 

In 2015, the efforts to optimize expenses and drive efficiency, rolled out throughout the year across all businesses, resulted in selling, general and administrative expenses increasing by just 4.4%, lower than inflation, despite higher electricity costs and the costs associated with the opening of 118 stores in the year. Selling, general and administrative expenses increased from R$11.138 billion in 2014 to R$11.628 billion in 2015.

ü  Multivarejo: In terms of operating efficiency, operating expenses (selling, general and administrative expenses) increased by just 7.4%, significantly lower than inflation in the period. This result reflects the cost-cutting initiatives rolled out since the start of the year, mainly related to the optimization of advertising expenses, renegotiation of rental agreements and operating improvements at stores (revision of processes and logistics efficiencies), all of which enabled us to adjust headcount without affecting service quality at the stores;

ü  Assaí: Despite the opening of 11 stores in the year, selling, general and administrative expenses as a ratio of net sales (10.5% in 2015 vs. 10.4% in 2014) increased slightly by 10 bps due to inflation-adjusted expenses, and especially electricity.

ü  Via Varejo: Via Varejo accelerated initiatives to improve operational efficiency, such as optimization of the logistics network and synergies of the back office with group companies, besides optimizing processes and rationalizing expenses. Notable among the measures are revision of the store portfolio, with the closure of 39 underperforming units, revision of the logistics network and the spaces in distribution centers, adjustment of headcount with the reduction of around 13,000 positions, and renegotiation of rental agreements. These initiatives, which were rolled out throughout the year, helped cut SG&A expenses by 2.6%, despite inflation (IPCA) of 10.67% in the year.

Other Operating Income and Expenses

In 2015, other consolidated operating income (expenses) came to an expense of R$684 million, up 55.1% from 2014. The increase mainly reflects severance expenses with the termination of executives and employees of the Group due to the restructuring and write-off of property and equipment.

Depreciation and Amortization

In 2015, depreciation and amortization totaled R$961 million, up 17.3% from R$819 million reported in 2014.

Net Financial Result

In 2015, net financial result (including Via Varejo) was an expense of R$1.653 billion, increasing 9.8% from 2014, significantly lower than the 26.8% hike in the interest rate during the period. As a ratio of net sales, net financial result increased by just 10 basis points, from 2.3% in 2014 to 2.4% in 2015, virtually stable compared to the previous year, despite a more challenging macroeconomic scenario. This result is due to the Company’s cash management strategy during the year, which resulted in significant optimization of cash. 

Net Income (Loss)

In 2015, due to the challenges posed by the macroeconomic scenario, the Company’s results were mainly affected by the results of Via Varejo and Cnova (Cnova Brasil + Cdiscount). Note that Cnova international operations started being consolidated in GPA in August 2014 and hence were not fully reflected in 2014, impacting the comparison base.

(1) Net Income adjusted by "Other Operating Income and Expenses,” thus eliminating nonrecurring income and expenses

The Company closed 2015 with net income attributable to controlling shareholders and adjusted by Other Operating Income and Expenses of R$609 million, mainly due to the resilience of the Food segment, which posted adjusted net income of R$ 731 million. The highlights by business were:

ü Multivarejo: The decrease compared to 2014 reflects the lower gross margin due to investments in price competitiveness; the impact of the economic deterioration on sales; inflation pressure on expenses and higher electricity expenses. Thus, adjusted net income amounted to R$559 million in 2015.

ü Assaí: adjusted net income of R$172 million reflecting the assertiveness of the format and disciplined control of expenses, combined with store maturation.

ü  Via Varejo: The decrease compared to 2014 is due to lower sales on the adverse macroeconomic scenario for the durable goods industry, coupled with higher inflation on fixed costs, leading to adjusted net income of R$149 million.

Balance Sheet

Fiscal Years Ended December 31, 2016, 2015 and 2014

Balance Sheet – Consolidated Assets

Balance Sheet – Consolidated Liabilities

December 31, 2016 vs. December 31, 2015

Continuing and discontinued operations

According to the application of CPC 31 - Non-current assets held for sale and discontinued operation (IFRS5), the Company believes that the sale of Via Varejo through its efforts is highly probable and hence is presenting in the disclosure of the net income of Via Varejo (and its subsidiary Cnova Brasil) after taxes in a single line in the income statement and the balances of assets and liabilities as held for sale and discontinued operations. The original statements of income and value added as of December 31, 2015 were altered and now present discontinued operations on a single line. For cash flow there is no effect of applying IFRS 5, and the effect of discontinued operations is presented in the note. The effect of assets and liabilities available for sale on December 31, 2016 was R$ 20.303 billion and R$ 15.632 billion, respectively.

Also, until October 31, 2016, the Company disclosed the net results of subsidiaries in the e-commerce segment abroad (mainly Cdiscount France) after taxes in a single line in the statement of income (similar to on December 31, 2015) and the assets and liabilities balances also as held for sale and discontinued operations. As of this date, the balances of assets and liabilities were written off against shareholders' equity and the e-commerce operations abroad were booked as equity income due to the significant influence held by the Company.

Assets

Current Assets

Cash and Cash Equivalents

In 2016, cash and cash equivalents from continuing operations increased by R$ 1.413 billion, from R$ 3.699 billion in 2015 to R$ 5.112 billion, mainly due to the funding at the end of 2016. The remainder of the change in the consolidated balance is due to the reclassification in 2016 of the balances of Via Varejo to "Assets Held for Sale". On December 31, 2016, cash and cash equivalents accounted for 11.3% of total assets, compared to 23.3% on December 31, 2015.

Accounts Receivable

On December 31, 2016, the change in the accounts receivable line is substantially due to the reclassification of Via Varejo to "held for sale", from R$ 3.210 billion in 2015 to R$ 543 million in 2016, a R$2.667 billion reduction. The change occurred mainly due to the deconsolidation of the balance of Via Varejo of CDCI operations (Casas Bahia payment book). On December 31, 2016, this line accounted for 1.2% of total assets, compared to 6.8% on December 31, 2015.

Taxes Recoverable

On December 31, 2016, the balance of short-term recoverable taxes decreased by R$ 406 million, from R$ 1.080 billion in 2015 to R$ 674 million. The change is due to the following: (i) R$ 581 million relating to the balance of Via Varejo in 2016; (ii) R$ (65) million relating to the balance of Cnova (Cdiscount) consolidated in 2015; (iii) and the balance relating to the change in the short-term monetization of the food segment. On December 31, 2016, this line accounted for 1.5% of total assets, compared to 2.3% on December 31, 2015.

Prepaid Expenses and Other Accounts Receivable

On December 31, 2016, prepaid expenses and other accounts receivable decreased 297 million, from R$675 million in 2015 to R$378 million. The bulk of the change (around R$187 million) refers to the reclassified balances of Via Varejo in 2016.

Inventories

In 2016, inventories decreased R$ 4.324 billion, from R$ 8.965 billion in 2015 to R$ 4.641 billion. The key changes are related to the following: (i) R$ 3.054 billion related to the reclassification of Via Varejo; (ii) decrease of about R$ 300 million in inventories at Multivarejo; (iii) about R$ 1 billion related to Cnova (Cdiscount) consolidated in 2015 and which was deconsolidated on October 31, 2016; and (iv) the increase in inventories at Assaí to meet the strong sales growth. On December 31, 2016, inventories corresponded to 10.3% of total assets, as against 19.0% on December 31, 2015. Inventory days at GPA decreased from 61 days in 2015 to 52 days in 2016, mainly due to the reclassification of Via Varejo to “held-for-sale assets.”

Noncurrent Assets

Noncurrent assets, excluding property and equipment, intangible assets and investments, decreased from R$ 4.954 billion in 2015 to R$ 2.137 billion in 2016.  The decrease of R$ 2,817 million is mainly due to the reclassification of Via Varejo in 2016. On December 31, 2016, these accounts represented 4.7% of total assets, versus 10.5% on December 31, 2015.

Investments

Investments decreased R$ 68 million in 2016, from R$407 million in 2015 to R$339 million in 2016. This decline is mainly due to the reclassification of investments in FIC held by Via Varejo, and the recognition of the investment in Cnova. On December 31, 2016, investments represented 0.7% of total assets and 2.3% on December 31, 2015.

Property and Equipment

In 2016, property and equipment decreased R$ 1.195 billion, from R$10.377 billion in 2015 to R$9.182 billion. This decrease is related to the following: (i) R$ 1.550 billion reclassified at Via Varejo; (ii) around R$ 50 million relating to Cnova (Cdiscount); (iii) and the remainder to increases in the Food segment. On December 31, 2016, property and equipment accounted for 20.3% of total assets, versus 22.0% on December 31, 2015.

Intangible Assets

In 2016, intangible assets decreased R$ 4,635 billion, from R$ 6.543 billion in 2015 to R$ 1.908 billion. This decrease is related to the reclassification of Via Varejo amounting to R$ 4.170 billion, of which R$423 million of Cnova (Cdiscount) and the remainder to changes in the food business. On December 31, 2016, intangible assets accounted for 4.2% of total assets, versus 13.9% on December 31, 2015.

Liabilities

Current Liabilities

Suppliers

Liabilities with suppliers decreased from R$15.508 billion in 2015 to R$7.232 billion in 2016.  This variation of R$ 8.276 billion occurred mainly due to the reclassification of Via Varejo (approximately R$6 billion), and the remainder due to the increase in balances, mainly at Assaí due to the increase in business activity. On December 31, 2016, liabilities with suppliers accounted for 16.0% of total liabilities, including shareholders’ equity, versus 32.8% on December 31, 2015.

Loans and Financing – short term

In 2016, short-term loans and financing, excluding debentures, fell R$ 1.387 billion, from R$3.776 billion in 2015 to R$2.389 billion. The decline is due to the reclassification of the liability related to CDCI of Via Varejo and, in the food business, to the reclassification of short-term debt. On December 31, 2016, short-term loans and financing, excluding debentures, accounted for 5.3% of total liabilities, including shareholders’ equity, versus 8.0% on December 31, 2015.

Debentures – short term

Short-term debt represented by debentures issued by us increased R$ 530 million, from R$38 million in 2015 to R$568 million in 2016. The decrease is chiefly due to the issue of a promissory note in 2016. On December 31, 2016, short-term debentures accounted for 1.3% of total liabilities, including shareholders’ equity, versus 0.1% on December 31, 2015.

Social and Labor Obligations

In 2016, liabilities with social and labor obligations decreased R$ 409 million, from R$ 1.023 billion in 2015 to R$ 614 million, the decrease mainly related to Via Varejo. On December 31, 2016, liabilities with social and labor obligations accounted for 1.4% of total liabilities, including shareholders’ equity, versus 2.2% on December 31, 2015.

Taxes and Contributions

In 2016, liabilities with Taxes, Fees and Contributions fell R$ 576 million, from R$830 million in 2015 to R$254 million. The change occurred mainly due to the reclassification of Via Varejo. On December 31, 2016, taxes, fees and contributions accounted for 0.6% of total liabilities, including shareholders’ equity, versus 1.8% on December 31, 2015.

Noncurrent Liabilities

Loans and Financing – long term

In 2016, long-term loans and financing, excluding debentures, decreased R$ 2.259 billion, from R$3.267 billion in 2015 to R$1.008 billion. This decrease is due to loans reclassified to short term and to funding through the issue of debentures.

On December 31, 2016, long-term loans and financing, excluding debentures, accounted for 2.2% of total liabilities, including shareholders’ equity, versus 6.9% on December 31, 2015.

Debentures – long term

In 2016, long-term debt represented by debentures issued by us increased R$ 1.007 billion, from R$ 897 million in 2015 to R$ 1.904 billion.  This increase is due to interest accrued in the year and funding through an Agribusiness Receivables Certificate. On December 31, 2016, long-term debentures accounted for 4.2% of total liabilities, including shareholders’ equity, versus 1.9% on December 31, 2015.

Deferred Income and Social Contribution Taxes

In 2016, deferred income tax and social contribution decreased R$ 867 million, from R$ 1.184 billion in 2015 to R$ 317 million, due to the reclassification of Via Varejo (around R$ 790 million) and goodwill amortization, especially at Assai. On December 31, 2016, deferred income and social contribution taxes corresponded to 0.7% of total liabilities, including shareholders’ equity, versus 2.5% on December 31, 2015.

Taxes Payable in Installments

In 2016, tax installments, including REFIS, decreased R$ 32 million, from R$572 million in 2015 to R$540 million, due to the payment of installments over the year. On December 31, 2016, tax installments accounted for 1.2% of total liabilities, including shareholders’ equity, the same as on December 31, 2015.

Provision for Lawsuits

In 2016, provision for lawsuits decreased R$ 381 million, from R$1.396 billion in 2015 to R$1.177 billion. The main factors were the reclassification of around R$ 650 million at Via Varejo and new provisions, mainly tax, made in the food segment. On December 31, 2016, provision for lawsuits accounted for 2.6% of total liabilities, including shareholders’ equity, versus 3.0% on December 31, 2015.

Shareholders’ Equity

In 2016, shareholders’ equity decreased R$ 755 milhões, from R$13.352 billion in 2015 to R$12.597 billion, mainly due to: (i) additions of R$5 million to capital from the exercise of stock options; (ii) accrual of a reserve for options granted in the amount of R$34 million; (iii) net loss of R$1.076 billion; (iv) transactions with non-controlling shareholders in the amount of R$59 million (mainly related to Cnova (Cdiscount); and (v) comprehensive income or loss in the amount of R$231 million. On December 31, 2016, shareholders’ equity corresponded to 27.9% of total liabilities, including shareholders’ equity, versus 28.3% on December 31, 2015.

Non-controlling Interest

In 2016, non-controlling interest decreased R$ 261 million, from R$2.998 billion in 2015 to R$2.737 billion. This was due to the loss of R$(594) million and other transactions with non-controlling shareholders in the amount of R$333 million. On December 31, 2016, non-controlling Interest accounted for 6.1% of total liabilities, including shareholders’ equity, compared to 6.3% on December 31, 2015.

Other Equity Accounts

Equity accounts not mentioned above did not record relevant variations between the balances of December 31, 2016, December 31, 2015.

December 31, 2015 vs. December 31, 2014

Assets

Current assets

Cash and Cash Equivalents

In 2015, cash and cash equivalents were stable compared to 2014, from R$11.149 billion in 2014 to R$11.015 billion. The main changes were: decrease of R$369 million in cash flow from operations, increase of R$217 million in investment activities and R$2.370 billion in financing activities compared to 2014. On December 31, 2015, cash and cash equivalents accounted for 23.3% of total assets, compared to 24.6% on December 31, 2014.

Accounts Receivable

On December 31, 2015, accounts receivable remained practically stable, from R$3.176 billion in 2014 to R$3.210 billion. The main changes were: (i) increase of R$444 million in credit card receivables, due to the lower frequency of sales of receivables; and (ii) reduction of R$598 million in the balance of CDCI receivables, due to lower sales in non-food categories. On December 31, 2015, this line accounted for 6.8% of total assets, compared to 7.0% on December 31, 2014.

Taxes Recoverable

On December 31, 2015, the balance of short-term recoverable taxes increased 33.8%, from R$807 million in 2014 to R$1.080 billion, mainly due to the merger of Nova Holding into CBD and Via Varejo, which enabled the reclassification of approximately R$280 million from long-term to short-term. On December 31, 2015, this line accounted for 2.3% of total assets, compared to 1.8% on December 31, 2014.

Prepaid Expenses and Other Accounts Receivable

Prepaid expenses and other receivables increased 34.2% from R$503 million in 2014 to R$675 million, mainly due to rentals receivable and other amounts. On December 31, 2015, this line accounted for 1.4% of total assets, compared to 1.1% on December 31, 2014.

Inventories

In 2015, inventories increased by 7.2%, from R$8.364 billion in 2014 to R$8.965 billion, mainly due to strategic purchases and accelerated organic growth in the fourth quarter. On December 31, 2015, inventories accounted for 19.0% of total assets, versus 18.4% on December 31, 2014. Inventory days at GPA decreased from 62 days in 2014 to 61 days in 2015, with the increase in inventory related to inflation in the period.

Noncurrent Assets

In 2015, noncurrent assets, excluding property and equipment, intangible assets and investments, increased from R$4.751 billion in 2014 to R$4.954 billion. The increase of R$203 million is mainly explained by higher recoverable taxes related to the increased generation of ICMS tax credits. On December 31, 2015, these accounts represented 10.5% of total assets, same as on December 31, 2014.

Investments

In 2015, investments decreased 4.5%, from R$426 million in 2014 to R$407 million. The decrease is mainly related to write-offs of investments in Cnova (Cdiscount) operations in the amount of R$(7) million and greater dividends at FIC of R$(8) million. On December 31, 2015, investments accounted for 0.9% of total assets. On December 31, 2015, investments accounted for 0.9% of total assets, same level of December 31, 2014.

Property and Equipment

In 2015, property and equipment increased 7%, from R$9.699 billion in 2014 to R$10.377 billion. The increase is mainly related to: (i) the increase of R$1.613 billion from the opening and conversion of stores; (ii) R$781 million in depreciation in the year; (iii) R$148 million of write-offs; and (iv) R$21 million of provision for property and equipment losses related to Cnova Brasil. On December 31, 2015, property and equipment accounted for 22.0% of total assets, versus 21.4% on December 31, 2014.

Intangible Assets

In 2015, intangible assets increased 1.5%, from R$6.448 billion in 2014 to R$6.543 billion. The increase is related to: (i) R$400 million of additions; (ii) R$295 million of amortization in the year; (iii) R$59 million of write-offs; (iv) R$103 million of write-offs related from restructuring; (v) R$152 million of exchange variation; and (vi) provision for losses from Cnova. On December 31, 2015, intangible assets accounted for 13.9% of total assets, versus 14.2% on December 31, 2014.

Liabilities

Current liabilities

Suppliers

In 2015, liabilities with suppliers (trade accounts payable) increased 15.8%, from R$13.393 billion in 2014 to R$15.508 billion. The change was due to the increase of approximately 10 suppliers days in 2015. On December 31, 2015, liabilities with suppliers accounted for 32.8% of total liabilities, including shareholders’ equity, versus 29.5% on December 31, 2014.

Loans and Financing – short term

In 2015, short-term loans and financing fell 3.7%, from R$3.922 billion in 2014 to R$3.776 billion. The reduction is due to the lower liabilities related to CDCI in the amount of R$645 million, due to lower sales by Via Varejo, and the remaining to working capital variation. On December 31, 2015, short-term loans and financing, excluding debentures, accounted for 8.0% of total liabilities, including shareholders’ equity, versus 8.6% on December 31, 2014.

Debentures – short term

In 2015, short-term debt represented by debentures issued by the company decreased 98.6%, from R$2.672 billion in 2014 to R$38 million. The change is mainly due to the settlement of the following debentures: (i) 10^th and 11^th issues of CBD; (ii) 1^st and 3^rd issues of Via Varejo. On December 31, 2015, short-term debentures accounted for 0.1% of total liabilities, including shareholders’ equity, versus 5.9% on December 31, 2014.

Social and Labor Obligations

In 2015, liabilities with social and labor obligations increased 18.4%, from R$864 million in 2014 to R$1.023 billion, mainly due to collective bargaining agreements in the year and the effects thereof on labor charges and provisions. On December 31, 2015, liabilities with social and labor obligations accounted for 2.2% of total liabilities, including shareholders’ equity, versus 1.9% on December 31, 2014.

Taxes and Contributions

In 2015, liabilities with Taxes, Fees and Contributions fell 4.3%, from R$867 million in 2014 to R$830 million. The variation was due to lower balances of taxes payable, offset on sales taxes. On December 31, 2015, liabilities with taxes, fees and contributions accounted for 1.8% of total liabilities, including shareholders’ equity, versus 1.9% on December 31, 2014.

Noncurrent Liabilities

Loans and Financing – long term

In 2015, long-term loans and financing, excluding debentures, increased 46.0%, from R$2.238 billion in 2014 to R$3.267 billion. The increase is mainly due to working capital loans in foreign currencies with swap for local rates. On December 31, 2015, long-term loans and financing, excluding debentures, accounted for 6.9% of total liabilities, including shareholders’ equity, versus 4.9% on December 31, 2014.

Debentures – long term

In 2015, long-term debt represented by debentures issued by the company remained virtually stable, from R$896 million in 2014 to R$897 million. On December 31, 2015, long-term debentures, accounted for 1.9% of total liabilities, including shareholders’ equity, versus 2.0% on December 31, 2014.

Deferred Income and Social Contribution Taxes

In 2015, deferred income and social contribution taxes increased 4.5%, from R$1.133 billion in 2014 to R$1.184 billion, mainly due to the reduction for payment of the effects of deferred income and social contribution taxes on property and equipment of R$104 million, offset by other effects. On December 31, 2015, deferred income and social contribution taxes corresponded to 2.5% of total liabilities, including shareholders’ equity, same level of December 31, 2014.

Taxes Payable in Installments

In 2015, tax installments, including REFIS, decreased 7.3%, from R$617 million in 2014 to R$572 million, due to the payment of installments over the year. On December 31, 2015, tax installments accounted for 1.2% of total liabilities, including shareholders’ equity, versus 1.4% on December 31, 2014.

Provision for Lawsuits

In 2015, provision for lawsuits increased 3.9%, from R$1.344 billion in 2014 to R$1.396 billion.  The main factors in the increase were the additions of R$768 million, reversals and payments of R$(896) million and restatement and exchange variation of R$180 million. On December 31, 2015, provision for lawsuits accounted for 3.0% of total liabilities, including shareholders’ equity, same as on December 31, 2014.

Shareholders’ Equity

In 2015, shareholders’ equity decreased 5.9%, from R$14.194 billion in 2014 to R$13.352 billion, mainly due to: (i) additions of R$14 million to capital from the exercise of stock options; (ii) accrual of a reserve for options granted in the amount of R$25 million; (iii) net loss of R$276 million; (iv) exchange variation on investments of (R$219) million; (v) dividends of R$115 million; and (vi) R$150 million relating to settlement of equity instrument Morzan. On December 31, 2015, shareholders’ equity corresponded to 28.3% of total liabilities, including shareholders’ equity, versus 31.3% on December 31, 2014.

Non-controlling Interest

In 2015, non-controlling interest decreased 19.3%, from R$3.717 billion in 2014 to R$2.998 billion. The reduction is mainly related to the loss of and exchange variation of R$(133) million, and to other less relevant effects. On December 31, 2015, non-controlling interest corresponded to 6.3% of total liabilities, including shareholders’ equity, versus 8.2% on December 31, 2014.

Other Equity Accounts

Equity accounts not mentioned above did not record relevant variations between the balances of December 31, 2015 and December 31, 2014.

10.2      Operating and financial result

(a)         results from operations, particularly:

(i)       description of any relevant component of our revenue

The Group’s revenues arise from GPA Foods’ operations, composed of Multivarejo and Assaí. Net sales are shown in the table below for the years ended December 31, 2016, 2015 and 2014.

(1)     Extra and Pão de Açúcar banners; supermarket stores, hypermarket, proximity, gas stations, drugstores and food e-commerce, in addition of revenue from the lease of commercial centers.

(2)     Includes Minimercado Extra and Minuto Pão de Açúcar sales.

(3)     Includes Gas Station, Drugstores, Delivery sales and revenues from the leasing of commercial galleries.

(ii)        factors affecting materially our operating results

For information on the factors affecting materially our operating results, see item 10.1 (h) of this Reference Form.

(b)   revenue variations due to changes in prices, exchange rates, inflation, changes in volume and the launching of products and services

For information on revenue variations, see item 10.1 (h) of this Reference Form.

(c)   impact of inflation, variations in the price of our main inputs and products, foreign exchange and interest rates on the Company’s operating and financial results

The inflation in 2016 influenced the prices of the items that we sell as well the expenses. Besides that, consumer’s purchase power was also impacted by higher inflation. For more details about the changes in operational results of the Company, see item 10.1 (h) of this Reference Form.

The hike of interest rates impacted the financial results of the Company. For more details about the changes in financial results of the Company, see item 10.1 (h) of this Reference Form.

We do not suffer any relevant impact related to exchange rate variation, because the Company uses derivated financials instruments to limit exposure to changes not related to the local market such as interest rates swaps and exchange rate variation swaps.

10.3 – Events with material effects, occurred and expected, in the financial statements

(a)         inclusion or disposal of the operational segment

In October, 2016, after the corporate reorganization, GPA no longer holds shareholding majority in Cnova N.V., losing the control over such subsidiary and, also, no longer consolidating the subsidiaries that represent the e-commerce industry abroad. Up until the date hereof, the income of Cnova N.V. (referred to as Cdiscount France) is classified in the discontinued operation in a single item in the income statement, and after the date hereof as equity adjustment, for also holding material interest. Further under the same transaction, Cnova Brasil is no longer a subsidiary of Cnova, now it is a wholly-owned subsidiary of Via Varejo.

As at November 23, 2013 the Board of Directors approved the process of disposal of the Company’s interest in Via Varejo’s capital stock, in line with its long-term strategy to focus on the development of the food industry. As a result, on December 31, 2016, the Company disclosed the net income, after taxes, of Via Varejo (and its subsidiary Cnova Brasil) and the operations of e-commerce abroad in a single item of the income statement.

In millions of R$:

(*) The exclusions are composed by the balances between the companies

(b)         constitution, acquisition or disposal of equity interest

(i)   E-commerce operation – accounting for corporate interests at cost

On June 4, 2014, the Company’s and Via Varejo’s Board of Directors approved the e-commerce business combination project developed by Nova Pontocom, to be combined with the e-commerce business of the controlling shareholder Casino, through Cdiscount S.A. and its affiliates (Cdiscount), as recommended by the respective Special Committees created specifically to evaluate and  negociate the terms and conditions of the opeation.

Thus, on July 24, 2014, the corporate reorganization was concluded through the integration of the e-commerce activities in a new company called Cnova N.V. (“Cnova”), created according to the laws of the Netherlands.

Based on the opinions issued by financial advisors, the exchange ratio proposed for the contribution of the e-commerce business of Nova Pontocom and Cdiscount in Cnova was 53.5% (Company and Via Varejo) and 46.5% (Cdiscount).

The operating entities with important transactions that the Company started to consolidate as a result of such transaction were:

·         Cdiscount S.A.S;

·         Financiere MSR;

·         E-trend;

·         Cdiscount Colombia;

·         Cdiscount Thailand;

·         Cdiscount Afrique;

·         Cdiscount Voyages;

The exchange of interests continued to be recorded based on historical cost, since Management understands that such transaction is not included in the scope of CPC15/IFRS 3 (R) – Business Combination, because it involves entities under common control. The date of the first consolidation of the entities whose control was obtained by the Company is July 31, 2014.

The effects recorded in net equity of the controlling shareholder on July 31, 2014 as a result of the transaction are as follows (in millions of Brazilian reais):

(ii)             Public offer of e-commerce shares

In November and December 2014, Cnova N.V., concluded the initial offer of shares (IPO) and supplementary offer of shares, so that the Company’s interest in Cnova N.V. was directly and indirectly reduced from 38.22% to 35.73%. The proceeds from the sale of interest were accounted for as shareholders’ equity, since it refers to a transaction with noncontrolling shareholders, less the effects of income tax, transaction costs and other effects. The net effect on shareholders’ equity arising from such transaction was R$ 411 million, of which R$ 132 million in the controlling shareholder and R$ 279 million in noncontrolling shareholders, the Company having issued 29,182,894 new shares. Despite the Company holding direct and indirect interest of 35.73% in Cnova N.V., the control over such subsidiary was exercised through subsidiary Nova Pontocom which holds 49.96% interest plus 50% of the voting capital of Cnova N.V.

(iii)            Corporate reorganization and Nova Pontocom debt

Subsidiary Nova Pontocom, a holding that held 100% of the shares of Marneylectro S.A.R.L., an indirect controlling shareholder of Cnova N.V., paid part of its debt against CBD and Via Varejo upon delivery of shares of its investee Marneylectro S.A.R.L. valued at market value. Since this transaction was conducted among entities under common control, all related effects were directly recorded in shareholders’ equity on December 31, 2014, of which R$ 53 million in the controlling shareholder and R$ 14 million in noncontrolling shareholders.

(iv)          Corporate reorganization of C-Asia

On November 17, 2014, Casino transferred 30% of its indirect interest in C-Distribution Asia Pte. Ltd (“C-Asia”), which controls subsidiaries of Cnova operating in Thailand and Vietnam, for R$ 52 million. Such transaction resulted in the fact that Cnova N.V obtained indirect control upon 60% interest in C-Asia.

Since this transaction was conducted among entities under common control, Cnova applied the accounting for equity interest at cost. Therefore, no gain was recognized in relation to the 30% previously held and the difference between the consideration paid and the net accounting assets of the 30% transferred was recorded in shareholders’ equity of the controlling and noncontrolling shareholders, in the amounts of R$ 43 million and R$ 6 million, respectively.

Cash and cash equivalents on the acquisition date totaled R$ 18 million.

(v)           Sale of subsidiary– Casas Bahia Contact Center Ltda.- “CBCC”

On December 30, 2014, subsidiary Via Varejo sold all interest in the share capital of CBCC to Atento Brasil S.A.. After satisfaction of all conditions precedent contained in the purchase and sale agreement, Via Varejo received the amount of R$ 20 million and obtained a gain of R$ 16 million which was recognized in the income statement for the year in line item other operating income and expenses. Therefore, the asset and liability balances of CBCC were eliminated in the preparation of the statement of cash flows.

(vi)          Merger of subsidiary Sé

The Extraordinary Shareholders’ Meeting (“AGE”), held on December 22, 2015, approved the merger of subsidiary Sé Supermercados Ltda. (“Sé”) into the Company, in order to unify the activities and management. This unification will result in the obtaining of administrative, economic and financial benefits.

The effects in the parent’s balance sheet as at December 31, 2015 as a result of the merger of subsidiary Sé are summarized below. As it refers to the merger of a wholly-owned subsidiary, the consolidated financial statements and the income statement of the individual financial statements have not been impacted (in million of reais):

(vii)         Merger of subsidiary Nova Holding

The AGE, held on December 22, 2015, approved the merger of subsidiary Nova Holding into the Company, in order to unify the activities and management. The purpose of Nova Holding was to act as the holding of the Group’s e-commerce business. This unification will result in the obtaining of equity and financial benefits and optimization of the Group’s corporate structure.

The effects in the parent’s balance sheet as at December 31, 2015 as a result of the merger are summarized below. The consolidated financial statements and the income statement of the individual financial statements have not been impacted (in million of reais):

(viii)        Merger of other subsidiaries

The AGE held on December 29, 2014 approved the merger of the wholly-owned subsidiaries Vedra Empreendimento e Participações S.A., ECQD Participações Ltda., APE SPE 06 – Planejamento e Desenvolvimento de Empreendimentos Imobiliários Ltda., GPA 5 Empreendimentos e Participações S.A., GPA 4 Empreendimentos e Participações S.A., Monte Tardeli Empreendimentos e Participações S.A., P.A. Publicidade Ltda., Vancouver Empreendimentos e Participações Ltda. and Duque Conveniências Ltda. into the Company, in order to unify the activities and management. This unification will result in the obtaining of administrative, economic and financial benefits.

The effects in the parent’s balance sheet as at December 31, 2014 as a result of the merger of the abovementioned subsidiaries are summarized below. As it refers to the merger of a wholly-owned subsidiary, the consolidated financial statements and the income statement of the individual financial statements have not been impacted (in million of reais):

(ix)    Corporate Reorganization of Barcelona, Sendas and Xantocarpa

On April 27, 2016, the Ordinady and Extraordinary Meeting of CBD approved the merger of part of the net assets of Sendas Distribuidora. In order to concentrate the operating activities of the wholesale segment for self-services in a single entity and promote better operating and financial efficiency, the following corporate activities were performed:

Redemption of Barcelona shares

On February 22, 2016, the Extraordinary General Meeting approved the redemption of all preferred shares issued by Barcelona, corresponding to 3,722,470 shares held by Novasoc, for the book value of R$160 million. The transaction did not impact the consolidated balances of the Company.

Barcelona’s total merger

At the Ordinary and Extraordinary Meeting of April 27, 2016, the merger of Barcelona by Sendas was approved.

On April 30, 2016, the assets and liabilities of Barcelona were fully transferred to Sendas, and Barcelona was terminated. As a result of the merger, Sendas’ capital stock was increased by R$800 million, the amount of the total difference of Net Worth of Barcelona minus the investment made by Sendas in Barcelona, by issuance of new shares.

Partial Spin off of Sendas

Also at the Ordinary and Extraordinary General Meeting of April 27, 2016, Sendas spin off was approved.  On April 30, 2016, after the total merger and termination of Barcelona, Sendas went through a partial spin off and it was merged by CBD. The spin off net asset amount was R$2 million.

(*) Saldo Cindido

In August 2016 the full merger and consequent termination of Xantocarpa Participações by Sendas Distribuidora.

The result of this reorganization did not affect the consolidated financial statements of the Company, seeing they are fumm subsidiaries of the Company.

(x)     Disposal of Rede Duque

On January 31, 2016, the Company completed the sale of entities Auto Posto Império Ltda., Auto Posto Duque Salim Maluf Ltda., Auto Posto Duque Santo André Ltda., Auto Posto Duque Lapa Ltda., and Auto Posto Ciara Ltda., to Rede Duque, regarding the agreement previously executed on December 1, 2015. The amount in the agreement was R$8.

The Company had no gains or losses in its results with the operation. Equity balances of Rede Duque were deconsolidated from balance sheet on December 31, 2016.

(xi)    Interest change in Cnova N.V.

In order to concentrate the Non-Food business in a single entity, a corporate restructuring with interest of the final controlling shareholder Casino, GPA, Via Varejo, Cnova N.V. and Cnova Brasil was performed and approved in all instances.

As a result of the transaction on October 31, 2016, the capital stock of Cnova Brasil became exclusively held by Via Varejo, which no longer held interest in Cnova N.V.. According to the terms and conditions of the loan agreements between Cnova Brasil and Cnova N.V. (estimated at approximately US$160 million in the end of September 2016), such event resulted in the obligation of advanced payment of such loans, paid to Cnova N.V. by Via Varejo.

Consequently, the GPA no longer held corporate voting majority in Cnova N.V., losing control to such subsidiary and, in addition, failing to consolidate the subsidiaries that represent electronic commerce abroad. As of this date, assets and liabilities balances were written off against the net worth and activities of electronic commerce abroad are recorded as equity adjustment, due to the material influence of the Company.

(xii)   Cnova N.V. shares offer

On December 27, 2016, Casino started an acquisition offer of all outstanding common shares in Nasdaq Global Select Market and Euronext, of our invested Cnova N.V.. The other subsidiaries of CASINO, including GPA, holders of 10.37% of Cnova’s capital shall not participate in the offer.

The offer is of US$5.50 per net share to shareholders, without interest and excluding any applicable withheld taxes. With the offer closing on January 31, 2017, Casino has, directly and indirectly, 98.88% of total shares and 99.41% of voting rights.

(c)   Unusual events or operations

(i)      Investigation Cnova Brasil

On December 18, 2015, an investigation was launched at Cnova Brasil regarding the practices of employees in inventory management, subsequently expanded to the evaluation of other facts.

At the end of the investigation process the total effect of the adjustments calculated was R$557 million, where R$357 million are related to adjustments from the investigation, R$182 million related to the reassessment of recoverability of assets from taxes deferred and R$18 million from other effects. Seeing they are related to the Company’s subsidiaries, consolidated for purposes of presentation of financial statements, such effects resulted in the same adjustments in the financial statements presented again for the year ended December 31, 2015, as well as in periods prior to those such effects were related to, whose presentation took place again on July 27, 2016.

There are no effects from this matter in the financial statements of the year ended December 31, 2016.

(ii) Transaction in progress for sale of the subsidiary Via Varejo

On November 23, 2016, the Board of Directors approved the process of divesting the Company's stake in Via Varejo's capital stock, in line with its long-term strategy to focus on the development of the food sector.

In accordance with CPC 31 - Non-current assets held for sale and discontinued operation (IFRS5), the Company considers that through the efforts made, the sale is highly probable, resulting in the disclosure of the net income of Via Varejo (and its subsidiary Cnova Brazil) after taxes in a single line in the income statement and the balances of assets and liabilities as held for sale and discontinued operations. The statements of income and value added as of December 31, 2015 also show discontinued operations in a single line, there is no effect of the application of IFRS 5 on the cash flow, and the effect of discontinued operations is disclosed in this note. The effect of assets and liabilities available for sale on December 31, 2016 was R $ 20,303 and R$ 15,632, respectively. The effect of the result on discontinued operations was a loss of R $ 1,005 on December 31, 2016 (loss of R $ 891 on December 31, 2015)

The subsidiary Via Varejo S.A. ("Via Varejo"), has shares traded on the BM & FBovespa, under the code "VVAR11" and "VVAR3".

Also according to CPC 31 (IFRS 5), the Via Varejo investment should be recognized considering the lower of the carrying amount of the net assets and the market value less cost of sale.

The Company estimates that the market value less cost of sale of Via Varejo is higher than the book value of net assets, based on the weighting of different valuation methods including: i) multiple of P / E (Price / Earnings) considering local companies Traded on the stock exchange, with operations in the same segment of Via Varejo, ii) discounted cash flow prepared by external advisors, using assumptions of 15.7% discount rate and perpetuity growth of 5.5%, iii) average premiums Paid on the pre-announcement share price in acquisition transactions of listed companies; And iv) target prices of financial analysts for the stock.

For all of the methods described above, the book value is within the reasonable range of valuation, so valuation is not highly sensitive to changes in assumptions in the methods.

Other details of the transaction and net assets of Via Varejo, see note 35 to the financial statements of December 31, 2016.

10.4 – Significant changes in accounting practices – reservations and emphasis of the Auditor´s report

(a)         significant changes in accounting practices

The Company prepared its financial statements according to the pronouncements issued by the Accounting Pronouncements Committee (CPC) and IFRS (International Financial Reporting Standards), and the first financial statements that complied with such rules were those for the year ended December 31, 2010.

There were no significant changes in the accounting practices adopted by the Company in the year ended on December 31, 2016 and 2015. In 2014, the changes in accounting practices are described below.

(b)         significant effects of changes in the accounting practices

In 2014, revenues and costs incurred with rental of commercial galleries, which were previously recorded as recovery of the selling expenses, were reclassified to “net operating revenue” and “cost of products”, respectively, due to the increase of its market share in the retail (Multivarejo) sector, taking into consideration the expected launching of new “Conviva” projects and increase in future operations, which activities are better described in the Company’s financial statements. According to the management’s opinion, the best option is to proceed with current classification for comparison purposes and in order to obtain a final classification of these revenues and costs.

(c)         caveats and emphases present in the auditor's report:

There were no exceptions in the report issued by the Company’s independent auditors with respect to the Company’s financial statements for the years ended December 31, 2016, 2015 and 2014. On December 31, 2015, a paragraph was included emphasizing the republishing of the financial statements previously published.

10.5 – Critical accounting policies

Judgments, estimates and assumptions

The preparation of the Company’s individual and consolidated financial statements requires management to make judgments and estimates and adopt assumptions that would impact the revenues, expenses, assets and liabilities, and the recording of contingent liabilities in the end of the year; however, the uncertainties relating to these assumptions and estimates may generate results that would require significant adjustments to the carrying amount of assets or liabilities in future years. In the process of application of the Company’s accounting policies, management adopted the following judgments, which had more significant effects in the individual and consolidated financial statements:

a)      Impairment

According to the method disclosed in Note 4.9 to the financial statements of fiscal year ended on December 31, 2016, the Company tested the assets for impairment and, in the year ended December 31, 2015, based on the tests performed, no provision was recorded.

The procedure for verification of non-performance comprised the grouping of operating assets and intangible assets (such as goodwill) directly attributable to the UGC (stores). The test steps were as follows:

·         Step 1: the carrying value of the UGCs was compared to the sales multiple (30% to 35%), representing the transactions carried out by the retail companies. In relation to the UGCs with multiple value lower than the carrying amount, a more detailed method is described in Step 3;

·         Step 2: for purposes of selection of the UGCs located in own properties (own stores), the Company requested an appraisal report prepared by independent specialists and, in the event of impairment, the Company would carry out the same procedures adopted for the third-party UGCs, as described in Step 3; and

·         Step 3: preparation of the UGC's discounted cash flow, based on the increase in sales between 6.7% and 10% (6.7% and 8% as at December 31, 2015) for the next five years. The discount rate used was 12.4% ranging to 11.6% for periods of more than 3 years.

For purposes of impairment test, the premium and brands from business combinations and licenses with undetermined duration was allocated to the UGCs, which are also the operating segments that disclose information. The segments are: retail, electronics, wholesale of self-services and electronic commerce.

The recoverable value of the segments is determined by the calculation based on the use according to the cash projections arising from the financial budgets approved by the senior management for the next three years. The discount rate before income taxes levied on the cash flow projections is 12.4% ranging to 11.6% in periods of more than 3 years, and the cash flows exceeding the three-year period are extrapolated using the growth rate of 6.5% for retail and for retail sector (8% as at December 31, 2015). As a result of such analysis, no provision for impairment of these assets has been recorded.

The retail self-service brand refers to “ASSAÍ”, and the electronic brands refer to “PONTO FRIO” and “CASAS BAHIA”. These brands were recorded by virtue of the business combinations carried out with companies owning such brands.

The total net assets of Via Varejo consolidated, including Cnova Brasil, were evaluated as described in Note No. 35.

b)      Income tax

       By virtue of the nature and complexity of the Group’s businesses, the differences between the effective results and the adopted assumptions or future changes in these assumptions could result in future adjustments to tax revenues and expenses already recorded. The Company and its subsidiaries record the provisions based on the reasonable estimates in relation to the taxes payable. The value of these provisions is based on several factors, such as the previous inspections and different interpretations of tax regulation by the taxpayer and proper tax authority. These interpretation differences may refer to several matters, depending on the conditions in effect in the domicile location of the respective entity.

Deferred income tax and social contribution assets on unused tax losses and temporary differences are recognized to the extent that it is probable that the taxable income will be recorded and the tax credits may be offset. The definition of the value of deferred income tax and social contribution assets that may be recorded depends on a significant judgment level by management, based on the estimates of net profit and future taxable income, according to the strategic planning approved by the Board of Directors.

The tax losses of continued operations deferred recorded tax benefits in the amount of R$ 112 million as at December 31, 2016 (R$ 232 million on December 31, 2015). In relation to those cases in which the performance cannot be explained, the potential deferred income tax and social contribution credits are offset or recorded. These losses are not subject to prescription, however the respective use, as set forth in applicable law, is limited to 30% of taxable income for each year for the Brazilian legal entities, and refer to the subsidiaries that offer the tax planning opportunities for using these balances. Note 20 provides further tax information.

c)      Derivatives fair value and other financial instruments

       If not obtained in the active markets, the fair value of financial assets and financial liabilities recorded in the financial statements is obtained based on the hierarchy set forth in technical pronouncement CPC 38 (IAS 39), which established certain evaluation techniques, including the discounted cash flow model. The information about these models is obtained, whenever possible, from observable markets, or according to comparable information, operations and transactions available in the market. The judgments include an evaluation of the information, such as liquidity risk, credit risk and volatility. Eventual changes in the assumptions relating to these factors may impact the fair value of the financial instruments.

The fair value of the financial instruments actively traded in the organized markets is determined based on the market quotations and balance sheet closing.

In relation to the financial instruments not traded actively, the fair value is based on evaluation techniques established by the Company and compatible with usual market practices. These techniques include the use of recent market operations between independent parties, benchmarking of fair value of similar financial instruments, analysis of discounted cash flow and other evaluation models.

d)      Share-based payments

The Company measures the transaction costs of the employees eligible to the share-based compensation based on the fair value of the equity instruments on the Granting Date. The estimated fair value of the share-based payment operations requires the definition of the most adequate evaluation model, according to the terms and conditions of the grant. This estimate also requires a definition of the most adequate information for the evaluation method, including the expected useful life of the stock option, volatility and return of dividends, as well as preparation of corresponding assumptions. The assumptions and models adopted in the estimative of fair value relating to the share-payment payment operations are described in Note 25.5.

e)      Provision for lawsuits

The Company and its subsidiaries are parties to several administrative proceedings and lawsuits (Note 22), and the provisions for lawsuits are recorded for all lawsuits whose likelihood of loss is probable, as reasonably estimated. The likelihood of loss includes the evaluation of the available evidences, hierarchy of laws, available case rulings, most recent decisions issued by the courts, its legal relevance, historical events and amounts involved, and opinion of outside legal counsel.

f)       Estimated losses from allowance for doubtful accounts

Subsidiary Via Varejo has balances receivables from sales through booklets, whose loss is estimated based on the expected percentage, which is obtained according to the portfolio performance over the last months and adjusted at each balance sheet date.

g)      Recoverable Taxes

The Company and its subsidiaries have recoverable taxes mainly related to ICMS, ICMS of Tax Replacement – ST, PIS and COFINS. The performance of these taxes is carried out based on the growth projections, operating issues and debt generation for consumption of these credits by the companies of the Group. See Note 11 for further information about the credits and respective offset.

h)      Inventories

The inventories are stated at the lower of acquisition cost and realization value, stated at weighted average cost. The net realization value is calculated at the average sales price, less: (i) taxes levied on sales; (ii) personnel expenses directly related to sales; (iii) cost of products; and (iv) other necessary costs to put the products in sales condition, except for the e-commerce business, which does not allocate the costs to inventories, whose application is different. The inventories are tested for impairment based on the estimated loss from robbery, theft, slow moving of inventories and estimated loss for products to be sold with negative gross margin, including showcase products.

10.6 - Significant items not evidenced in the financial statements

(a)        the assets and liabilities held by the Company, directly or indirectly, which were not disclosed on its Balance Sheet (off-balance sheet items)

(i)            operating lease, assets and liabilities;

             Operating lease

 (A) Non-cancelable minimum payments

Refers to non-cancelable real estate property lease agreements until their respective expiration dates. The operating lease agreements of Via Varejo’s subsidiary range from 3 to 20 years. There are other operating lease agreements that in the Management’s evaluation are considered as cancelable, whose expense is recorded by the time limit. The annual amount of the expense under the heading "non-contingent payments" with operating lease agreements is shown under item (C).

 (B)   Minimum payments on termination of lease agreements

The Company evaluated and concluded that the real estate property lease agreements are cancelable throughout their effectiveness, and upon cancellation of the agreement, minimum termination payments owed and payable, which can range from 1 to 12 months of the monthly rent or a fixed percentage over the contractual balance.

(*) Via Varejo has lease agreements with minimum payment at termination of R$ 473 million on December 31, 2016 (R$ 441 million on December 31, 2015). Only the amount of 2015 is shown in the table above.

 (C) Contingent payments

The Management considers the payment of additional rents as contingent payments, which range from 0.1% and 4.5% of the sales.

 (*)   Refers mainly to rent agreements to receive from commercial galleries.

Financial lease

The financial lease agreements totaled R$215 on December 31, 2016 (R$264 million on December 31, 2015), according to the table below:

 (ii) written-off receivables portfolio over which the entity maintains risks and responsibilities, indicating respective liabilities

The Company’s Officers explain that there are not any receivables portfolio written-off over which the entity maintains risks and responsibilities that were not disclosed on the balance sheets of the Company of December 31, 2016 or of December 31, 2015.

 (iii) future purchase and sale agreements for products or services

The Company’s Officers Company explain that there are not any contracts for future purchase and sale of goods and services, which have not been disclosed on the balance sheets of the Company of December 31, 2016 or December 31, 2015.

 (iv) uncompleted construction agreement

The Company’s Officers explain that there is not any uncompleted construction that were not disclosed on the balance sheets of the Company of December 31, 2016 or of December 31, 2015.

 (v) future financing agreements.

The Company’s Officers explain that there are no agreements for future receipt from financings that were not disclosed on the balance sheets of the Company of December 31, 2016 or December 31, 2015.

(b)        Other non-disclosed items on the financial statements:

No items have been disclosed on the financial statements, other than those already mentioned in item 10.8(a) above.

10.7 - Comments on items not evidenced in the financial statements

(a)         how such items change or may change the revenues, expenses, operational results, financial expenses or other items of the Company’s financial statements

According to the prevailing accounting rules, the Company discloses in its financial statements all the relevant transactions to which it is a party, or retains any risk because of equity interest or contract. There are not any transactions or operations, which have not been disclosed in the financial statements that could significantly affect the Company.

(b)         nature and the purpose of the transaction

Not applicable

(c)         Nature and amount of the obligations assumed and of the rights generated on behalf of the Company as a result of the transaction

Not applicable

10.8 - Business plan

(a) investments

(i) quantitative and qualitative description of the investments in progress and of the investments planned

The Investment Plan for Multivarejo, GPA Malls and Assaí for the year 2017 totals R $ 1.2 billion, with the scope of (i) conversion of stores, opening of stores and acquisition of land; (Ii) remodeling of stores; And (iii) infrastructure in IT, logistics and other productivity improvement projects. This amount does not include the Investment Plan for Via Varejo and Cnova.

(ii) sources of investment financing

We derive funds for our operations and investments, mainly through our operating cash flow, expansion reserve, capital budget, bank loans, securitization of receivables, financing obtained from the BNDES, as well as raising funds in the capital markets through The issue of debentures.

(iii) relevant divestments in progress and planned divestitures.

On November 23, 2016, the Board of Directors approved the process of divesting the Company's stake in Via Varejo's capital stock, in line with its long-term strategy to focus on the development of the food sector.

(b) if disclosed, indicate the acquisition of plants, equipment, patents or other assets that are expected to materially influence our operational capacity

There are no upcoming events.

(c) new products and services, indicating: (i) description of ongoing research already disclosed; (Ii) total amounts spent on research for the development of new products or services; (Iii) projects already under development; and (iv) total amounts spent on the development of new products or services.

Not applicable.

10.9 - Other factors with significant influence

The company is not aware about other factors that materially affected the operating performance and have not been identified or commented in the other items of this Section 10.

Allotment of the Result of the Fiscal Year ended on December 31, 2016

The Company recorded a net loss of R$ 482,379,568.87 (four hundred eighty-two million, three hundred seventy-two thousand, five hundred sixty-eight reais and seven cents) related to the fiscal year ended on December 31, 2016; such loss is absorbed under the terms of the sole paragraph of article 189 of Law No. 6.404/1976. Seeing this fact, the Company shall not distribute dividends regarding such fiscal year.

The Company shall not present the information in Exhibit 9-1-II of CVM Instruction No. 481, dated December 17, 2009 (“ICVM 481”), due to the calculation of loss for the year.

 Global compensation Proposal for the Managers and the Fiscal Council

The Management submits to offer the Extraordinary and Annual Shareholders’ Meeting a Proposal for Managers’ Global Compensation, for the fiscal year of 2017, in the total amount of R$ 95,061,400.00, distributed as follows:

(a)           Board of Executive Officers: up to R$ 88,465,900.00, observing that such value encompasses the expense arising from the Stock Option Plans agreements entered into with the Officers, which has a non-compensation nature for labor purposes;

(b)           Board of Directors: up to R$ 5,911,500.00;

(c)           Fiscal Council, if setup: up to R$ 684,000.

Furthermore, in compliance with article 12, item II, of ICVM 481/2009, item 13 of the Reference Form is enclosed.

Exhibit to the Global Compensation Proposal for the Managers and the Fiscal Council

Item 13 of the Reference Form, pursuant to ICVM 480/2009

13.1.     Describe the compensation policy or practice of the Board of Directors, statutory and non-statutory Board of Executive Officers, Fiscal Council, Audit, Risk, Financial and Compensation Committees approaching the following aspects:

(a)         purposes of the compensation policy or practice

The purpose of our compensation policies and practice is to remunerate our managers and members of the committees of our Company, according to the market practices, allowing the attraction and retention of skilled professionals and the engagement in our Company.

(b)         Composition of the compensation, indicating:

i.          description of the compensation elements and purposes of each of them

The members of our Board of Directors and committees, including the external members, as well as the members of the Fiscal Council, if installed, receive the monthly fixed compensation, disconnected to the actual attendance in meetings. This method of compensation is in line in relation to the market practice in general and to the Company’s interests. Exceptionally, bonuses were paid to certain members of our Board of Directors and committees for their specific performance in certain extraordinary projects in the year of 2016.

The compensation of our Officers is comprised of the following elements: (i) fixed compensation reflected in a base salary, with the purpose of maintaining the balance in relation to the general market practice; (ii) profit sharing, with the purpose of stimulating our professionals to pursue the success of our Company and share our profits with them; and (iii) stock option plans, which are incentives offered to our executives to assure a long-term sustainable business.

The Officers also receive a package of benefits in line with market practices, contemplating a health care plan, a dental expense reimbursement plan, biennial medical checkup, pension plan, meal vouchers, fuel vouchers and parking in the workplace.

ii.          proportion of each element in the total compensation

The table below presents the proportion of each element in the composition of the total compensation in the previous fiscal years:

For the fiscal year ended on December 31, 2016:

For the fiscal year ended on December 31, 2015:

For the fiscal year ended on December 31, 2014:

iii.         methodology of calculation and adjustment of each element of the compensation

To set the compensation of our managers, we conduct market surveys on a regular basis, in order to evaluate whether the criteria and conditions that we adopt to determine the compensation are satisfactory and allow us to retain our professionals, and analyze the need for proposing adjustments to any component of the compensation that may be not in line. Such surveys are conducted annually, by a specialized and reputable consultation recognized in the market hired by us, and use as parameters of comparison large business groups that operate in the country, including particularly the groups that operate in the retail business.

The calculation of the sharing of our Officers in our results, in its turn, is based on indicators aligned with the strategic plan of our Company, whose definition is based on our business plan an on the results to be accomplished.

For further information on our stock option plans and on compensation based on stock options, see item 13.4 below.

iv.         reasons that justify the composition of the compensation

Our focus on the results is what justifies the composition of our compensation policy, which depends on the ongoing search for skilled, qualified, devoted and valuable professionals for our Company.

v.         the existence of members who are not remunerated by the issuer and the reason for such fact

The Chairman of the Board of Director does not receive any kind of compensation given that he waived his right to receive it.

(c)         main performance indicators that are taken into consideration in determining each element of the compensation

To fix the variable portion of the compensation, we observe performance indicators that we consider strategic, such as gross sale, net profit, total expense, working capital, personnel turnover, in addition to the level of excellence of our managers in the performance of their functions, considering the degree of individual responsibility and attributions. The performance indicators are not taken into consideration for the determination of the fixed portion of the compensation.

(d)         how the compensation is structured to reflect the performance indicators evolution

We structure our compensation by means of programs that monitor the accomplishment of goals previously defined by our Company and the results actually achieved.

(e)         how the compensation policy or practice is aligned to the short, medium and long term interests of the Company

In order to align the Board of Executive Officers with the Company´s goals in short and medium term perspective, we offer our Officers a fixed compensation (base salary) and, additionally a portion of variable compensation to be paid as sharing in the results. Furthermore, we offer our Officers a stock option plan and a compensation plan based on stock option plan that, because they have certain characteristics such as grace period to exercise the options and lock up of the acquired shares, maintain the Board of Executive Officers aligned with the Company´s goals in a long-term perspective. It is relevant to further clarify that the stock option plan, the compensation plan based on stock option plan and on result sharing comprise the variable compensation of the Board of Executive Officers.

The compensation of the members of our Board of Directors, Fiscal Council and committees is readjusted based on the amount usually paid by the market, stimulating such professionals to keep the excellence in the exercise of their functions and the ongoing search for improving our results. In this regard, we understand that our policy and practice of compensation are adequate to our short-, medium- and long-term interests.

(f)          existence of compensation borne by subsidiaries, direct or indirect controlling or controlled companies

The compensation of our managers and members of the committees is supported exclusively by our Company.

(g)         existence of any compensation or benefit related to the occurrence of a specific corporate event, such as the sale of the Company’s controlling interest.

There is no compensation or benefit to our managers or members of our committees related to the occurrence of a specific corporate event to our managers or members of our committees linked to the occurrence of corporate events.

13.2 - Total compensation of the Board of Directors, Statutory Board of Executive Officers and Fiscal Council

Estimated amounts for the year of 2017:

Amounts paid in the year of 2016:

Amounts paid in the year of 2015:

Amounts paid in the year of 2014:

13.3      Variable compensation of the Board of Directors, Statutory Executive Board and Fiscal Council

The members of our Board of Directors and our Fiscal Council do not receive variable compensation in the exercise of their positions, except for the bonus paid, on an exceptional basis, to certain members of the Board of Directors and committees for their specific performance in certain extraordinary projects in the year 2016.

We present below the variable remuneration of the members of our Board of Directors and Board of Executive Officers scheduled for payment in 2017 and paid in relation to 2016, 2015 and 2014.

Estimated amount for the year of 2017:

Amounts related to the year of 2016:

Amounts related to the year of 2015: