COMPANHIA BRASILEIRA DE DISTRIBUIÇÃO

CNPJ/MF: 47.508.411/0001-56

COMPANY REGISTRY (NIRE): 35.300.089.901

São Paulo, August 11, 2016

MANAGEMENT PROPOSAL FOR THE EXTRAORDINARY SHAREHOLDERS’ MEETING TO

BE HELD ON SEPTEMBER 12, 2016

Contents

CALL NOTICE FOR EXTRAORDINARY SHAREHOLDERS’ MEETING

TO BE HELD ON SEPTEMBER 12, 2016

COMPANHIA BRASILEIRA DE DISTRIBUIÇÃO

PUBLICLY-HELD COMPANY OF AUTHORIZED CAPITAL

CNPJ/MF No. 47.508.411/0001- 56

NIRE No.: 35.300.089.901

CALL NOTICE

EXTRAORDINARY GENERAL MEETING

The shareholders of the COMPANHIA BRASILEIRA DE DISTRIBUIÇÃO, publicly-held company, with head office in the City of São Paulo, State of São Paulo, at Avenida Brigadeiro Luís Antônio, No. 3.142, Jardim Paulista, CEP 01402-901, enrolled with the Corporate Registry under NIRE 35.300.089.901 and CNPJ/MF under nº 47.508.411/0001-56, registered with the Brazilian Securities and Exchange Commission (“CVM”) as public Company, “A” category under code 14826 (“Company”) pursuant to Article 124 of Law nº 6.404/76 and Articles 3 and 5 of CVM Instruction nº 481/09, which will meet at the General Meeting to be held on September 12, 2016, at 2:00 p.m., at the head office of the Company, at Avenida Brigadeiro Luís Antonio, n. 3142, Jardim Paulista, CEP 01402-901, São Paulo - SP, whose agenda is as follows:

(i)            Resolve on the financial statements of the Company for the year ended December 31, 2015, which are restated and republished on July 30, 2016 to reflect the accounting adjustments performed by the subsidiary Cnova N.V., as a result of the of the investigation process conducted at its subsidiary Cnova Comércio Eletrônico S.A., as informed in a material event notice disclosed on July 26, 2016 by the Company;

(ii)           Resolve on the management proposal for the allocation of results of the Company for the fiscal year ended December 31, 2015, based on the financial statements, which are restated and republished on July 30, 2016;

 (c)      resolve on the adjusted capital budget based on the restated financial statements; 

 (d)      resolve on the rectification and ratification of the overall management compensation of the Company for 2015, 2014, 2013 and 2012; and

 (f)       resolve on the inclusion of activity in the corporate purpose of the Company.

General information

The shareholders and their legal representatives shall attend the ESM with identity document and updated document confirming their ownership of the shares issued by the Company, which document shall be issued by a financial institution providing book- entry share services or custody agent within up to 72 (seventy two) hours prior to the ESM holding date. Those shareholders represented through a power of attorney, so as to enable the ESM’s work on fast, organized manner, will be required to send the power of attorney granted by operation of law in original counterpart to the Corporate Legal Department of the Company, at Avenida Brigadeiro Luis Antônio, nº 3.142, Jardim Paulista, CEP 01402-901, 6º andar until 72 (seventy two) hours in advance. The detailed instructions about the documentation required are included in the management proposal.

The shareholders attending the ESM, until the beginning of the work, accompanied by the documents required, can attend the ESM, even if they had not previously delivered the documents, as set forth in article 5, §2 of CVM Instruction 481/09.

The shareholders can consult at the head office of the Company and the websites of the Company (http://www.gpari.com.br/default_pt.asp?idioma=0&conta=28), of the BM&FBOVESPA (http://www.bmfbovespa.com.br) and of the CVM (http://www.cvm.gov.br) at the Internet, the other documents relating to the matters included in the agenda of the ESM.

ESM PARTICIPATION GUIDE FOR SHAREHOLDERS

The ESM may be attended by the shareholders holding the common and preferred shares issued by the Company, themselves or by their legal representatives or attorneys-in-law, provided that such shares are registered in the respective shareholder’s name with the financial institution responsible for the Company’s bookkeeping services, as set forth in Article 126 of the Brazilian Corporate Law.

The shareholders shall attend to the ESM before the time indicated in the ESM Call Notice, accompanied by the updated document of the ownership of the shares issued by the Company, as provided by the financial institution providing the bookkeeping and/or custody agent services, as well as the following documents:

(i)    individuals: identification document with picture;

(ii)   legal entities: registered copy of the last restated bylaws or articles of association and corporate documentation granting the representation powers (minutes of the election of the officers and/or power of attorney), as well as the identification document with picture of the legal representative(s); and

(iii)  investment funds: registered copy of the fund’s last restated regulation and its manager’s bylaws or articles of association, in addition to the corporate documentation granting the representation powers (minutes of the election of the officers and/or power of attorney); as well as the identification document with picture of the legal representative(s).

Those shareholders represented through a power of attorney will be required to send the original counterpart of the power of attorney granted by operation of law to the Corporate Legal Department of the Company, at Avenida Brigadeiro Luis Antônio, nº 3.142, Jardim Paulista, CEP: 01402-901, 6º andar, until September 9, 2016, at 3:00 p.m.

Management Proposal

The management of Companhia Brasileira de Distribuição. (“Company” or “CBD”), as set forth in Law n^o 6.404/76 and CVM Instruction 481/09, hereby submits to your analysis, gathered together at the extraordinary general meeting, to be held on September 12, 2016, at 2:00 p.m., at the head office of the Company, located in the City of São Paulo, at Avenida Brigadeiro Luis Antônio, nº 3.142, Jardim Paulista, CEP.: 01402-901, this proposal (“Proposal”).

This Proposal addresses (i) the resubmission and republication of the Company’s financial statements for the year ended December 31, 2015, including the adjusted figures for 2014 and 2013; (ii) the rectification and ratification of the overall compensation set for the Company for 2015, 2014, 2013 and 2012, to include in such figures the amounts paid to the management based on compensation plans based on stock or stock options of the Company in those years; and (iii) the proposal for amendments to the Company’s bylaws, for inclusion of a new activity in the Company’s corporate purpose.

1.          RESUBMISSION AND REPUBLICATION OF THE FINANCIAL STATEMENTS FOR 2015 AND QUARTERLY INFORMATION FOR THE 1Q 2016

According to the Notice to the Market disclosed by the Company on December 18, 2015, subsequently supplemented by the Notices to the market disclosed on January 12, 2016 and February 24, 2016, its subsidiary Cnova N.V., a company established under the laws of the Netherlands, with head office in the city of Amsterdam, enrolled with the CNPJ/MF under nº 20.536.473/0001-15, with business addressed at Schiphol Boulevard 273 1118 BH Schipol (“Cnova NV”) has conducted, with the support of external legal advisors and consultants, an investigation in its Brazilian subsidiary, Cnova Comércio Eletrônico S.A., a closely-held company, enrolled with the CNPJ/MF under nº 07.170.938/0001-07, with head office in the City of São Paulo, State of São Paulo, at Rua Gomes de Carvalho, 1609, 3 to 7 floor, Vila Olímpia, CEP 04547-006 (“Cnova Brasil”), to identify possible irregularities at the conduct of the Company’s employees in relation to the management of inventories, as well as its possible impacts on the financial statements of Cnova NV.

On July 22, 2016, Cnova NV has informed the completion of the investigation at Cnova Brasil, as well as the performance of some adjustments to its financial statements for the years ended December 31, 2015, 2014 and 2013, necessary to reflect the results of the Investigation, among others. Such notice from Cnova NV was reproduced in full by the Company in the Material Event Notice disclosed on July 26, 2016.

In summary, the adjustments to be made to the financial statements of Cnova NV totaled (a) R$ 357 million relating to the investigation process conducted at Cnova Brasil, primarily related to (i) the over-appreciation of sales revenues and trade receivables; (ii) the inconsistencies in the evaluation of products damaged and/or returned in inventories; (iii) the inappropriate accounting entries in the balances of trade payables; (iv) the inappropriate accounting reconciliations prepared by the accounting staff of Cnova Brasil; (v) the undue treatment in the capitalization of costs in the software development – intangible assets; and (vi) the provisions for freight; (b) R$ 18 million related to the effects due to changes in the accounting practices, in particular those related to warehousing costs recorded in the inventories of Cnova NV; and (c) R$ 182 million related to the revaluation of the recoverability of the deferred tax assets in Cnova NV, Cnova Brasil and Cdiscount.

The Company is the controlling shareholder and consolidates in its financial statements the figures of Cnova NV. Consequently, in view of the adjustments and resubmission of the financial statements of Cnova NV, the Company’s management proposes the performance of certain adjustments retroactively to its financial statements for the fiscal year ended December 31, 2015, to reflect the adjustments described above. The performance of such adjustments would result in an adverse impact on the net profit (loss) of the Company, in the total amount of R$ 557 million and an adverse impact on the Company’s equity in the total amount of R$ 304 million.

The Audit Committee of the company has issued a favorable opinion on the proposed adjustments to the Company’s financial statements and the Board of Directors, in a meeting held on July 27, 2016, has decided to approve the resubmission and republication of the Company’s financial statements for the fiscal year ended December 31, 2015, including the resubmission of the comparative period of December 31, 2014 and 2013 reflecting such adjustments, and the resubmission of the ITR for the first quarter of 2016.

The Company’s adjusted financial statements were published on July 30, 2016, at the Official Gazette of the State of São Paulo and the O Estado de S. Paulo newspaper, and were resubmitted, together with the ITR for the first quarter of 2016, at the website of the Company’s Investor Relations Department (http://www.gpari.com.br/default_pt.asp?idioma=0&conta=28), as well as the website of the Brazilian Securities and Exchange Commission (“CVM”) (www.cvm.gov.br) and of BM&FBOVESPA (http://www.bmfbovespa.com.br). 

In conformity with article 9, III of CVM Instruction 481, Exhibit I to this Proposal contains the management comments on the Company’s financial condition, pursuant to item 10 of the Reference Form.

2.         ALLOCATION OF RESULTS:

The adjustments made to the financial statements for the fiscal year ended 2015, as described above, resulted in an increase by R$13,668,679.92 of the net profit for the fiscal year 2015 of the Company.

Consequently, the Company’s management hereby rectifies the proposed allocation of profit, based on the adjusted figures resubmitted in the financial statements republished by the Company on July 30, 2016.

Such proposal for allocation of profit contains adjustments to the amounts allocated to the legal and expansion reserves, as well as the retained earnings based on the proposal for capital budget of the Company.

We explain that no addition dividends are proposed in relation to the distribution of profit for the fiscal year 2015. The Company’s shareholders have paid the amount of R$ 119,236,551.64, as dividends in relation to the fiscal year 2015. Such amount corresponds to 47,49% of the Company’s adjusted net profit for the fiscal year 2015, based on the adjusted figures contained in the financial statements republished on July 30, 2016.

Accordingly, the Company’s shareholders have already received the amount corresponding to the minimum dividend of the Company’s shares, pursuant to its bylaws, and also
R$ 53,160,101.18  as additional dividends in relation to the fiscal year 2015.

In conformity with the sole paragraph, III of article 9 of CVM Instruction 481, the Exhibit II to this Proposal contains the proposal for allocation of the Company’s net profit.

3.         RATIFICATION OF THE OVERALL MANAGEMENT COMPENSATION

Until the fiscal year 2015, the Company adopted the understanding that the amounts paid to management based on compensation plans based on stock or stock options must not be included in the amount of the overall compensation annually submitted to the general shareholders’ meeting.

However, pursuant to the request submitted by the Superintendence of Corporate Relations of CVM, the Company’s management started to adopt the understanding issued by the Executive Board of the CVM at the meeting held on March 10, 2015 (CVM Case nº RJ2014/6629), and proposes the rectification and ratification of the overall management compensation of the Company set for the fiscal years 2012, 2013, 2014 and 2015, so as to include the amounts paid to the Company’s management based on compensation plans based on stock and stock option of the Company in those years.

In summary, below are the amount of the (i) overall annual compensation for the Company’s management approved at such fiscal years and (ii) the amounts effectively paid, including expenses on stock option-based compensation of the Company, to be ratified:

Finally, it is worth remaining that, as set forth in the minutes of the Extraordinary and Ordinary General Meeting of CBD held on April 27, 2016, the Company’s controlling shareholder, Wilkes Participações S.A, has entered into an irrevocable, irreversible commitment of issuing a vote favorable to such ratification, undertaking to attend and vote favorably to such matter as soon as it is submitted to resolution.

In conformity with article 12, item II, of CVM Instruction 481, the Exhibit III to this Proposal contains item 13 of the Company’s Reference Form, including the rectified amounts proposed herein to be approved and ratified.

4.         INCLUSION OF ACTIVITY IN THE CORPORATE PURPOSE

For purposes of compliance with the regulatory matters related to the sale of seeds and plant seedlings, we propose the inclusion of the activity of sale of seeds and seedlings in the Company’s corporate purpose, Art. 2, §1, of the Company’s bylaws.

In conformity with article 11 of CVM Instruction 481/09, Exhibit IV to this proposal contains the report explaining the origin of the changes in the proposal and their justification, including a comparative table between the effective version and the amended proposal, and Exhibit V contains a copy of the consolidated bylaws with the changes proposed.

Exhibit I

COMMENTS FROM THE MANAGEMENT ABOUT THE COMPANY’S FINANCIAL STANDING

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, 2015, originally disclosed on February 24, 2016 and resubmitted to the Securities and Exchange Commission of Brazil (CVM) on June 28, 2016, including Notes to the financial statements, as well as other financial information contained herein. 

(a)         general financial and equity conditions

The year 2015 was one of formidable challenges for Brazil and a period when focus and discipline were even more crucial to achieving results and overcoming obstacles. That was how GPA, through its multi-format, multi­channel and multi-region approach, rolled out its strategy, which, combined with important adjustments in the process of adapting the Company to the economic scenario, helped it achieve its goals.

In 2015, GPA invested in the integration of businesses and in a solid synergy plan, especially among back office areas so that each business unit could focus on its business objectives, advancing operations and strengthening their competitive advantages.

It was also a year when, despite a challenging scenario, GPA went ahead with its organic growth plan and opened 118 stores, focusing primarily on higher-return models, such as cash & carry, through Assaí, and proximity, mainly through Minuto Pão de Açúcar, as well as improved corporate governance practices in all businesses.

GPA is better prepared for 2016 and will remain fully focused on the customer, while maintaining a strict and disciplined approach to investments, and on actions that will ensure the Company’s sustainable growth while creating value for our shareholders.

The international operations of Cnova started being consolidated into GPA in August 2014 and hence the results of 2014 reflect only 5 months of these operations. For better comparison between the periods, the following comments relating to gross profit, operating expenses and earnings before, interest, taxes, depreciation and amortization (EBITDA) in 2015 and 2014 do not include the result of Cnova (Cnova Brazil and international operations).

In 2015:

• gross sales revenue reached R$77.054 billion and net sales revenue amounted to R$69.220 billion, up 6.0% and 5.8%, respectively, compared to 2014, driven by the expansion of higher-return formats with the opening of 118 new stores, of which 91 in the food segment and 27 Casas Bahia. The year 2015 was marked by the slowdown in household consumption reflecting the weaker economic scenario, which mainly impacted non-food sales. The food category delivered resilient performance throughout the year, despite the changes in the behavior of consumers, who are increasingly seeking more first-price or on-sale products. The Food segment registered growth of 7.1%;

• Multivarejo: net sales grew 1.2%, with the opening of 80 stores in the year (46 Minimercado Extra, 27 Minuto Pão de Açúcar, 5 Pão de Açúcar, 1 Extra Super and 1 fuel station). One of the highlights was the continuous market share gains by Pão de Açúcar as a result of the focus on monitoring and improving service levels, differentiated customer service and assortment, as well as on Proximity stores (Minimercado Extra and Minuto Pão de Açúcar) due to the advances in store "clusterization" and adjustment of assortment. The Extra banner registered an increase in customer traffic compared to 2014, driven by competitive pricing, store renovations and training of employees specializing in perishables.

• Assaí: solid growth of 25.5% in Assaí’s net sales compared to 2014, reaching R$10,453 million. The banner increased its share of GPA’s Food portfolio to 28% (vs. 24% in 2014), consolidating its second place in Brazil’s cash & carry segment;
• Via Varejo: net sales fell 15.1% to R$19,196 million. The year was marked by the slowdown in consumption of furniture and electronics and home appliances from the second quarter. The smartphones category was the top performer in the year, while the 2015 January Clearance Sale and Black Friday were the biggest seasonal successes. We opened 27 new stores and closed 50 stores, of which 11 were to comply with CADE’s decision.

·         gross profit totaled R$15.219 billion with margin of 27.0% (compared to 28.1% in 2014). Gross profit and margin contraction compared to 2014 was mainly due to lower contribution from Via Varejo to the Company’s gross profit;

• Multivarejo: gross profit reached R$7.508 billion, down 0.5% from 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;
• Assaí: gross profit grew 27.2% from 2014, mainly due to the banner’s expansion (11 new stores) and maturation of new stores;
• Via Varejo: gross profit decreased 16.0% mainly due to investments in competitiveness, especially in the fourth quarter. This strategy was possible and partially compensated by increased profitability from financial services and products, and the reduction in logistics expenses, which enabled the company to recover sales.

·         total operating expenses corresponded to 21.2% of net sales, totaling R$11.965 billion, an increase of 4.8% from 2014, which is significantly below inflation in the period. 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% in 2015, 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$11.137 billion in 2014 to R$11.628 billion in 2015;

• Multivarejo: since the start of the year, the Company has been implementing initiatives to adjust expenses in both operating and administrative areas to mitigate the impacts of inflation and higher electricity costs during the year. As a result, selling, general and administrative expenses increased by 7.4% in 2015 compared to 2014, lagging inflation in the period;

o    Assaí: selling, general and administrative expenses increased 27.4% in 2015, due to the pressure on inflation-adjusted expenses and especially electricity, in addition to greater expenses with strong organic expansion;

• Via Varejo: reduction of 2.6% in selling, general and administrative expenses compared to 2014, due to efficiency measures, led by the closing of loss-making stores, streamlining of the logistics network and use of spaces at distribution centers, adjustment of the headcount, renegotiation of rental agreements and renegotiation of other services and expenses.

• Adjusted EBITDA, excluding other “Operating Income and Expenses”, totaled R$3.818 billion, with margin of 6.8% compared to R$5.168 billion and margin of 9.0% in 2014. The lower result in 2015 is mainly due to lower contribution from Via Varejo to the Company’s EBITDA. 

• Multivarejo: Adjusted EBITDA reached R$2.055 billion, with margin of 7.7% in the year, underlining solid margin levels for the segment. The difference in EBITDA margin compared to 2014 mainly reflects the impact of inflation on expenses, higher electricity costs and expenses associated with store expansion (80 new stores in the year).
• Assaí: EBITDA grew 40.2% while adjusted EBITDA reached R$441 million, up 27.5%, and outpacing sales growth. Despite the strong expansion of stores in the year and the pressure on expenses related to inflation and mainly electricity costs, EBITDA margin remained stable at 4.2%, as a result of improved operating efficiency.
• Via Varejo: adjusted EBITDA came to R$ 1.321 billion, with margin of 6.9%. The decrease compared to 2014 mainly reflects the slowdown of sales in the durable goods industry.

• net financial expenses amounted to R$1.653 billion, increasing 9.8%, which is significantly lower than the 26.8% hike in the interest rate 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 was possible due to the cash management strategy adopted by the Company during the year, which resulted in significant optimization of cash. The key impacts on the net financial result were: (i) reduction in the cost of sale of credit card and payment book receivables, mainly due to weaker sales in non-food categories in the quarter; and (ii) the higher debt and other costs, which increased in line with the hike in the interest rate in the period.

• net income attributable to controlling shareholders and adjusted by Other Operating Income and Expenses  amounted to R$609 million in 2015. A highlight in this result was the resilience of the Food segment, which posted adjusted net income of R$731 million. Due to the above-mentioned challenges posed by the macroeconomic scenario, the Company’s results were mainly affected by the results of Via Varejo and Cnova. 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. The highlights by business were:

• Multivarejo: adjusted net income of R$559 million. 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;
• Assaí: adjusted net income of R$172 million reflecting the assertiveness of the format and disciplined control of expenses, combined with store maturation;
• Via Varejo: adjusted net income was R$149 million. The decrease compared to 2014 is due to lower sales on the back of the adverse macroeconomic scenario for the durable goods industry, coupled with high inflation on fixed costs.

Over the last few years, the company has been continuously reducing its leverage to further strengthen its financial position. Even in a year with an unfavorable and challenging macroeconomic environment, the Company reduced its gross debt by R$1.348 billion to close the year with a solid cash balance of nearly R$11.0 billion, resulting in a net cash position of R$5.511 billion, higher than the R$1.214 billion in the previous year. As a result, the net cash/EBITDA ratio increased from 0.90 times on December 31, 2014 to 1.95 times on December 31, 2015. Including the payment book operation of Via Varejo (Consumer financing), net cash balance reached R$3.036 billion on December 31, 2015, up 2.1 times from the previous year. Debt maturity profile, including the payment book operation, was 181 days higher than on December 31, 2014.

• shareholders’ equity was R$13.352 billion, down R$842 million, mainly due to the result of the non-food segment (Via Varejo and Cnova).

For more information, see item 10.1.h.

(b)         capital structure and eventual redemption of shares

Below is GPA’s capital structure for the periods mentioned, considering as a percentage of equity, the amount resulting from total 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:

GPA believes its current capital structure, measured primarily through the Net cash/EBITDA ratio, which was positive in 2015, represented an important decrease in the leverage level compared to 2014 and 2013, with the objective of further strengthening its financial position.  Despite the unfavorable and challenging macroeconomic scenario, the Company closed the year with gross debt of R$1.348 billion and a strong level of cash reserves, at approximately R$11.0 billion.

Including the payment book operation of Via Varejo, net cash balance reached R$3.036 billion on December 31, 2015, up 2.1 times from the previous year. This is chiefly driven by the contribution of Via Varejo to net cash, accounting for approximately 77% of the Company’s net cash at R$2.3 billion. Thus, the Company’s Net cash/EBITDA ratio represented significant deleveraging, increasing 3.9 times from 2014.

The debt maturity profile, including the payment book operation⁽¹⁾, was 181 days higher than on December 31, 2014.

(1)   Payment book operation of Via Varejo – CDCI

Direct consumer financing operations correspond to financing of term sales to customers, through a financial institution. In CDCI operations, the Company assumes the final responsibility for settlement of the financing and the credit risk of the operation.

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

There is no assumption of share redemption.

(c)         ability to pay financial commitments

GPA’s executive officers believe that the cash flow and the funds currently available fully ensure the GPA to pay all its short- and long-term financial commitments.

Note that due to Group’s solid cash position, GPA has shown a trend of reduction in gross and net debt.

These results demonstrate GPA’s capacity to continue meeting its financial commitments in the short and long terms. 

(d)         sources of financing for working capital and investments in non-current assets utilized by GPA

The Company raised funds in 2015, 2014 and 2013 through: (A) financial agreements that represent: (i) Brazilian reais denominated loans with obligation to payment principal and DI (interbank deposit)-pegged interest rates; (ii) foreign currency-denominated loans, which are immediately and fully “swapped,” with Brazilian reais denominated payment obligations with DI-pegged interest rates, through swap operations; and (iii) loans with the Brazilian Economic and Social Development Bank (“BNDES”), denominated in reais plus annual interest payments; (B) funding on capital markets, through the issue of debentures; (C) cash generation through its operations; and (D) anticipation of receivables.

There are also suppliers 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 was reclassified to an account of trade accounts payable – partnership.

In 2015, 2014 and 2013, we had no difficulties in obtaining loans or refinancing its current debt. For more information on agreements entered into by GPA and the BNDES, see “Relevant Loan and Financing Agreements,” item "f,” below.

(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, 2015, 2014 and 2013 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, 2015, 2014 and 2013.

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

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.

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 lower than or equal to 3.25. At December 31, 2015, GPA complied with these ratios.

Swap contracts

In terms of foreign currency, GPA contracts swap operations to exchange liabilities denominated in U.S. dollars and fixed interest rates for Real pegged to CDI floating interest rates. The average annual CDI rate was 13.23% in 2015 (10.81% in 2014 and 8.06% in 2013).

BNDES

GPA’s credit facility with the Brazilian Development Bank (BNDES) is subject to the indexation based on the long-term interest rate - TJLP, plus spread, resulting in the final interest rate or fixed interest rate.

Financing is paid in monthly installments after a grace period, as mentioned below.

GPA cannot offer any assets as collateral for loans to other parties without the BNDES’ prior consent.

Debentures

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, 2015, GPA complied with these ratios.

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, 2015, 2014 and 2013, 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 are subject to “Provisions Applicable to BNDES Agreements”, which borrowers of the BNDES, 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

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: annual installments (12^th issue of CBD) as of the 4^th anniversary of the issue and 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.

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 lower than or equal to 3.25. At December 31, 2015, GPA was in compliance with these ratios.

Other covenants

Some loans and financing agreements 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;

·         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, 2015, it signed loan agreements amounting to R$ 1.350 billion.

As mentioned in the financial statements disclosed by the Company in 2015, the agreements were entered into as per market practices and are valid till 2016 and 2017.

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

There are no items materially affecting the financial statements of 2013, 2014 and 2015.

Income Statement

Fiscal Years Ended December 31, 2015, 2014 and 2013

Cnova Investigation and restatement of the financial statements previously issued

As disclosed to the market on December 18, 2015, by the subsidiary Cnova NV (“Cnova”), an investigation was conducted by law firms has been established on the employee’s practices in inventories of Cnova Comércio Eletrônico S.A. (“Cnova Brasil”), a Cnova NV subsidiary, which is controlled by the Company.

During the investigation other issues have been added to investigation related to accounting matters in the accounts of “trade payables” and “other accounts receivable”, which were analyzed, announced to the market January 12, 2016 in the total amount of R$177. Company considered the facts and circumstances known at the time of preparation of the original financial statements, presented on February 24, 2016 and concluded that new information about investigation would not impact substantially the amount of previously identified adjustments.

Subsequently, the scope of investigation was expanded to include an evaluation over the discrepancies related to accounts payables, accounts receivables/products in transit with freight companies, freight provisions and other expenses and improper capitalization of expenses relating to software development.

As a result, Cnova identified several erros in the financial statements and, consequently, as it is controlled by the Company and consolidated for the presentation of the financial statements, such effects resulted in the same errors in the previously issued financial statements of the Company as of December 31, 2015, 2014 and 2013, which are now restated.

There is no income tax impact over the adjustments, once the Company evaluated and concluded that the deferred income tax would not be recoverable.

The total of the adjustments in Cnova N.V. was R$557 (R$512 in result and R$45 in equity), comprising the adjustments resulting from the investigation, the adjustments related to the changes in accounting practice and the evaluation on the recoverability of deferred income taxes at Cnova N.V., Cnova Brasil and Cdiscount.

Additionally, in the consolidated financial statements of the Company for the year ended on December 31, 2015, disclosed on February 24, 2016, part of these adjustments had already been identified and recorded.

The tables below reconcile the final adjustments and the additional effects that were recorded in these restated financial statements, besides the allocation of the effects by year:

(i)         Adjustments identified by the investigation team and recorded on the financial statements originally disclosed on February 24, 2016, note 1.4;

(ii)        Adjustments identified and recorded on December 31, 2015, in the normal course of the operations, out of the investigation issues;

(iii)       Change of the accounting practice of allocation of warehouse and shipping costs to the inventory , already recorded on December 31, 2015;

(iv)       On December 31, 2015, the Company had already recorded the partial write-off of the deferred income tax of Cnova Brasil, based on the available facts and circumstances available at the time;

Below the breakdown of the investigation adjustments per year:

December 31, 2015:

December 31, 2014:

January 1, 2014: