LOJAS AMERICANAS S.A. NOTES TO THE FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005 (In thousands of Reais, except for the amounts per number of shares) 1 OPERATIONS Lojas Americanas operates 237 consumer product retail stores (2005 – 193 stores) in the main State capitals and cities throughout Brazil, of which 205 are traditional stores and 32 are express model stores, as well as 3 distribution centers. The Company also operates (i) in electronic commerce, through its direct subsidiary B2W – Companhia Global do Varejo, which offers the Americanas.com, Submarino and Shoptime sites (the latter also offers the option of making purchases through its TV shopping channel and catalogue) and (ii) provides registry information services and negotiates bank financing through its subsidiary Facilita Serviços e Propaganda S.A., to the jointly controlled company FAI - Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento (Americanas Taií). As from May, 2006, the commercialization of financial products and services is the responsibility of the jointly controlled company FAI – Financeira Americanas Itaú S.A. Crédito, Financiamento e Investimento, previously named PLATY PARTICIPAÇÕES S.A. Previously, the credit operations were carried out by Facilita Serviços e Propaganda S.A., and the fundings were carried out by a Banco Itaú S.A. company As indicated in note 9, on December 13, the Extraordinary Stockholders' Meeting of Americanas.com S.A. – Comércio Eletrônico approved the merger with Submarino S.A., with the consequent extinguishment of the two companies and the creation of a new company called B2W– Companhia Global do Varejo, which consolidated the operations of the merged companies. Lojas Americanas S.A became the holder of 53.25% of the voting share capital in the new company, and the controlling stockholder. 2 PRESENTATION OF THE FINANCIAL STATEMENTS The financial statements have been prepared in conformity with accounting practices followed in Brazil and in accordance with the complementary regulations of the Brazilian Securities Commission (CVM). These financial statements incorporate the alterations introduced by the following accounting norms: (i) Accounting Norms and Procedures 27 (NPC 27) – Presentation and Declarations, issued by the Instituto dos Auditores Independentes do Brasil - Ibracon, on October 3, 2005, approved by CVM Decision no. 488, of the same date; and (ii) – Accounting Norms and Procedures 22 (NPC 22) - Provisions, Liabilities, Contingent Liabilities and Contingent Assets, issued by Ibracon, on October 3, 2005, approved by CVM Decision no. 489, of that same date. In the financial statements for the financial year ended December 31, 2005, submitted for purposes of comparison, a number of items were reclassified to comply with said CVM decisions, and to allow the users to make comparisons with the current financial year. The main alterations resulting from the application of these Decisions were as follows: • Presentation of long-term items under assets and liabilities; • Highlight of intangible assets. 6 3 SIGNIFICANT ACCOUNTING POLICIES (a) Accounting estimates When preparing the financial statements it is necessary to use estimates and judgments to account for certain assets, liabilities and other transactions. Accordingly, the financial statements include various estimates of the useful lives of fixed assets, the return on benefits to be achieved with the deferred assets, expectation of realization of deferred income tax and social contribution, reserves for contingent liabilities, provisions related to income tax and other items. Although they represent the best estimates and judgments of management, the actual results could differ from these estimates. (b) Results of operations Income and expenses are recognized on the accrual basis. (c) Foreign currency Assets and liabilities in foreign currency are translated into Brazilian Reais using monetary exchange conversion rates prevailing at the end of the year. The differences arising from this translation are recognized in the statement of income. For subsidiary companies abroad, assets and liabilities were translated into Reais at exchange rates prevailing at year end. (d) Current and long-term assets Temporary cash investments, primarily fixed-income securities, are stated at cost, including accrued income up to the balance sheet dates, not exceeding market value. The provision for possible defaults on payments was set up in an amount considered adequate by management to meet any losses on the realization of these credits. Inventories are stated at average purchase price, not exceeding market value or replacement cost. When applicable, provisions for losses on inventories are recorded based on Management judgment and estimates considering historical information. Other assets are stated at realizable values and include, when applicable, accrued income and monetary variations up to the balance sheet date. Deferred income taxes on tax loss carry-forwards and temporary differences are determined in accordance with CVM Instruction 371 of June 27, 2002. This calculation takes into consideration the profitability record of the Company and expectation of generation of future taxable income, based on technical studies approved annually by the Board of Directors. (e) Investments Investments made in subsidiary, jointly-controlled and associated companies are recorded by the equity method. A provision has been set up for losses on interests in companies with unsecured liabilities, classified under Noncurrent liabilities - Long-term liabilities. Other permanent investments are valued at acquisition cost less provisions for devaluation, when applicable. 7 (f) Property and equipment Property and equipment are carried at acquisition cost. Depreciation is calculated by the straight-line method at the rates mentioned in note 10 and takes into consideration the useful life of these assets. (g) Intangible assets Goodwill arising from future income is amortized over a period of up to 10 years. Intangible assets are carried at acquisition cost. Amortization is calculated on the straight-line basis at the rates mentioned in Note 11. (h) Deferred charges Deferred charges comprise expenses related to information technology projects (mainly implementation of SAP- Retail Program), refurbishment and opening of stores and distribution centers, projects related to the electronic commerce segment and other Company projects that are amortized on the straight-line basis at the rates mentioned in Note 12, based on the opening date of the stores or project termination dates. Amortization of installations and leasehold improvements is based on the respective lease contract terms. (i) Current and long-term liabilities Loans and financing contracted in foreign currency are restated at the exchange rates in force on the balance sheet date and include accrued contractual interest. Loans and financing in Brazilian currency, including debentures, are monetarily restated in accordance with contractual rates. Provisions are recorded in the financial statements when the Company is under a legal obligation, as a result of a past event and when economic resources will probably be required to liquidate an obligation. Provisions are recorded at amounts based on the best estimates of the risk involved. Income tax and social contribution provisions are calculated at the effective tax rates of (i) 15% plus a surtax of 10% of taxable income in excess of R$ 240 for income tax and (ii) 9% of taxable income for social contribution and include, when applicable, income generated abroad by the subsidiary Klanil Services Ltd. and Louise Holdings Ltd. and take into account the use of tax losses carryforwards to a limit to 30% of taxable income. Other accounts are stated at known or estimated amounts including, when applicable, financial charges and monetary or exchange variations accrued up to the balance sheet date. (j) Consolidation criteria The consolidated financial statements have been prepared in accordance with the consolidation principles established by Brazilian Corporate Law and CVM Instruction No. 247/96, and include the financial statements of the parent company, Lojas Americanas S.A., and of the subsidiaries, jointly-controlled subsidiary (consolidated proportionally) and associated companies, as described in Note 9, and the exclusive investment funds described in Note 4, in accordance with CVM Instruction No. 408. Accounting practices were consistently applied to all the consolidated companies and are also consistent with the accounting procedures applied in the previous year. 8 The following are eliminated in consolidation: • asset and liability balances between consolidated companies; • participation in capital, reserves and accumulated profits of controlled companies; • income and expense, as well as unrealized profits, when applicable, of business transactions between the companies; • highlighting of the value of minority interests in the consolidated financial statements, when applicable. With the merger of Americanas.com S.A. – Comércio Eletrônico and Submarino S.A., and the consequent creation of B2W – Companhia Global do Varejo (note 9), the consolidated financial statements took into consideration the financial results of Americanas.com S.A. – Comércio Eletrônico from January 1, 2006 to December 13, 2006 and the results of B2W – Companhia Global do Varejo from December 13 to 31, 2006, as well as the Balance Sheet of B2W – Companhia Global do Varejo as of December