Ellus do Brasil Confecções e Comércio S.A. and Subsidiariesinbrands.com.br/inbrands/web/arquivos/Inbrands DFP 2010_eng.pdf · Ellus do Brasil Confecções e Comércio S.A. and

Ellus do Brasil Confecções e Comércio S.A. and Subsidiaries

Financial Statements for the Year

Ended December 31, 2010 and

Independent Auditors’ Report

Deloitte Touche Tohmatsu Auditores Independentes

(Convenience Translation into English from

the Original Previously Issued in Portuguese)

ELLUS DO BRASIL CONFECÇÕES E COMÉRCIO S.A. AND SUBSIDIARIES

BALANCE SHEETS AS OF DECEMBER 31, 2010(In thousands of Brazilian reais - R$)

ASSETS Note 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09(Restated) (Restated) (Restated) (Restated)

CURRENT ASSETSCash and cash equivalents 8 104,917 93,893 14,199 123,421 114,500 103,153 Marketable securities 9 19,001 41,965 41,944 20,120 51,659 42,567 Trade accounts receivable 10 25,664 23,469 29,568 35,470 30,740 34,760 Inventories 11 14,365 12,547 10,640 15,176 15,742 14,240 Recoverable taxes 12 1,814 1,275 391 3,964 3,060 924 Dividends receivable 14.a) 4,320 23,752 - - - - Anticipated dividends 13 13 847 13 13 847 Assets held for sale 34 1,309 - - 2,448 - - Other receivables 1,062 1,773 735 1,576 2,428 2,251

Total current assets 172,465 198,687 98,324 202,188 218,142 198,742

NONCURRENT ASSETSLong-term assets:

Deferred income tax and social contribution 13.a) 14,972 20,585 26,200 14,972 20,585 26,200 Judicial deposits 43 - - 165 - - Related parties 14.a) 7,840 1,764 2,540 7,059 792 871

22,855 22,349 28,740 22,196 21,377 27,071 Investments 15 71,617 12,720 122,019 52,030 - - Property, plant and equipment 16 25,239 25,403 21,374 26,864 27,142 23,133 Intangible assets 17 3,748 4,446 2,703 4,207 4,941 3,089

Goodwill 18 30,435 30,435 2,001 30,435 30,435 39,556

Total noncurrent assets 153,894 95,353 176,837 135,732 83,895 92,849

TOTAL ASSETS 326,359 294,040 275,161 337,920 302,037 291,591

The accompanying notes are an integral part of these financial statements.

(BR GAAP) (BR GAAP and IFRS)Company Consolidated

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BALANCE SHEETS AS OF DECEMBER 31, 2010(In thousands of Brazilian reais - R$)

LIABILITIES AND SHAREHOLDERS' EQUITY Note 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09(Restated) (Restated) (Restated) (Restated)

CURRENT LIABILITIESTrade accounts payable 3,152 2,543 3,924 3,638 3,941 5,602 Loans and financing 19 6 31 66 56 1,107 593 Salaries, provision and social contribution 20 4,553 4,094 3,753 5,876 5,160 4,576 Taxes payable 21 4,416 3,904 4,607 5,495 4,748 5,139 Provision for income tax and social contribution 13.d) - - 225 3,786 1,716 1,191 Accounts payable 22 6,421 5,887 2,641 7,666 6,055 3,021 Installment taxes 23 - - - 1,286 1,568 1,387 Advances from customers 47 586 1,166 6,167 3,821 1,543 Dividends payable 14.a) 5,011 - - 5,497 829 - Related parties 14.a) 4 635 18 - - - Liabilities held for sale 34 - - - 1,139 - - Total current liabilities 23,610 17,680 16,400 40,606 28,945 23,052

NONCURRENT LIABILITIES Accounts payable 22 4,315 5,597 1,991 7,675 6,054 8,418 Provision for deficit on investments 15 13,744 6,622 492 - - - Provision for risks 30 414 - - 665 - - Installment taxes 23 - - - 2,232 2,588 4,553 Deferred income tax and social contribution 13.a) 5,523 5,567 5,611 9,317 7,292 5,611 Total noncurrent liabilities 23,996 17,786 8,094 19,889 15,934 18,582

SHAREHOLDERS' EQUITY 24Capital 205,304 205,092 205,092 205,304 205,092 205,092 Special premium reserve 45,157 35,660 35,660 45,157 35,660 35,660 Earnings reserve 15,524 4,969 (977) 15,524 4,969 (977) Valuation adjustments to equity 10,722 10,807 10,892 10,722 10,807 10,892 Proposed additional dividends 2,046 2,046 - 2,046 2,046 -

Equity attributable to owners of the parent company 278,753 258,574 250,667 278,753 258,574 250,667 Non-controlling interest - - - (1,328) (1,416) (710)

Total shareholders' equity 278,753 258,574 250,667 277,425 257,158 249,957

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 326,359 294,040 275,161 337,920 302,037 291,591


(BR GAAP) (BR GAAP and IFRS)Company Consolidated

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INCOME STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2010 (In thousands of Brazilian reais - R$, except for earnings per share)

Note 12/31/10 12/31/09 12/31/10 12/31/09(Restated) (Restated)

CONTINUED OPERATIONS

NET OPERATING REVENUE 25 115,968 105,169 187,524 170,661

COST OF PRODUCTS, GOODS AND SERVICES 26 (44,130) (41,442) (58,110) (54,363)

GROSS PROFIT 71,838 63,727 129,414 116,298

OPERATING (EXPENSES) INCOMESelling expenses 26 (39,891) (36,774) (53,254) (46,951) General and administrative expenses 26 (38,335) (33,655) (55,043) (47,815) Depreciation and amortization 16 and 17 (2,834) (1,944) (3,218) (3,376) Equity in subsidiaries 15 22,730 15,821 (375) - Other operating income (expenses) 27 641 (1,960) 579 (8,493)

(57,689) (58,512) (111,311) (106,635)

OPERATIONS INCOME BEFORE FINANCIAL INCOME (EXPENSES) 14,149 5,215 18,103 9,663

FINANCIAL INCOME (EXPENSES)Financial expenses 28 (1,659) (1,651) (3,844) (3,360) Financial income 28 15,524 16,789 22,912 20,761 Monetary variance, net (391) (53) (391) (53)

13,474 15,085 18,677 17,348

INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 27,623 20,300 36,780 27,011

INCOME TAX AND SOCIAL CONTRIBUTIONCurrent 13.c) - - (7,270) (5,587) Deferred 13.c) (5,570) (5,570) (7,640) (7,295)

INCOME FROM CONTINUING OPERATIONS 22,053 14,730 21,870 14,129

DISCONTINUED OPERATIONSLoss from discontinued operations 15 and 34 (955) (2,733) (955) (2,733)

NET INCOME 21,098 11,997 20,915 11,396

ATTRIBUTABLE TO:Equity owners of the parent company - - 21,098 11,997 Non-controlling interest - - (183) (601)

- - 20,915 11,396

EARNINGS PER SHARE - R$Basic and diluted - total 31 - - 1.10 0.64 Basic and diluted - continuing operations 31 - - 1.15 0.79

The Company does not have comprehensive income amounts to be reported for the current or prior years.


(BR GAAP and IFRS)(BR GAAP)Company Consolidated

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ELLUS DO BRASIL CONFECÇÕES E COMÉRCIO S.A.

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED DECEMBER 31, 2010(In thousands of Brazilian reais - R$)

Equity

attributable to

Special Valuation Proposed owners of Total premium Legal Profit Retained adjustments additional the parent company Non-controlling shareholders' equity

Note Capital reserve reserve reserve earnings to equity dividends (BR GAAP) interest (BR GAAP and IFRS)

BALANCES AS OF DECEMBER 31, 2008 (PUBLISHED) 205,092 35,660 1,014 3,041 - - - 244,807 - 244,807

Prior years' adjustments 5 - - - (3,041) - - - (3,041) - (3,041)

BALANCES AS OF DECEMBER 31, 2008 (RESTATED) 205,092 35,660 1,014 - - - - 241,766 - 241,766

Non-controlling interest 6 - - - - - - - - (710) (710) Adoption of new accounting pronouncements (IFRSs and CPCs) 6 - - - (1,991) - 10,892 - 8,901 - 8,901

BALANCES AS OF JANUARY 1, 2009 205,092 35,660 1,014 (1,991) - 10,892 - 250,667 (710) 249,957

Effects of acquisition of non-controlling interest 24.f) - - - (827) - - - (827) 1,226 399 Realization of deemed cost of property, plant and equipment - - - 85 - (85) - - - - Dividend distributed and to be distributed by subsidiary 24.f) - - - - - - - - (1,331) (1,331) Net income (loss) for the year - - - - 11,997 - - 11,997 (601) 11,396 Proposed allocation of net income:

Legal reserve 24.c) - - 648 - (648) - - - - - Interest on capital attributable to dividend 24.d) - - - - (2,429) - - (2,429) - (2,429) Mandatory minimum dividend 24.d) - - - - (834) - - (834) - (834) Proposed additional dividend 24.d) - - - - (2,046) - 2,046 - - - Transfer to profit reserves 24.e) - - - 6,040 (6,040) - - - - -

BALANCES AS OF DECEMBER 31, 2009 205,092 35,660 1,662 3,307 - 10,807 2,046 258,574 (1,416) 257,158

Capital increase on June 10 24.a) 212 9,497 - - - - - 9,709 - 9,709 Effects of acquisition of non-controlling interest 15 and 24.f) - - - (5,617) - - - (5,617) 1,612 (4,005) Realization of deemed cost of property, plant and equipment - - - 85 - (85) - - - - Dividend distributed and to be distributed by subsidiary - - - - - - - - (1,341) (1,341) Net income (loss) for the year - - - - 21,098 - - 21,098 (183) 20,915 Proposed allocation of net income:

Legal reserve 24.c) - - 1,055 - (1,055) - - - - - Mandatory minimum dividend 24.d) - - - - (5,011) - - (5,011) - (5,011) Transfer to profit reserves 24.e) - - - 15,032 (15,032) - - - - -

BALANCES AS OF DECEMBER 31, 2010 205,304 45,157 2,717 12,807 - 10,722 2,046 278,753 (1,328) 277,425


Earnings reserve

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STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2010 (In thousands of Brazilian reais - R$)

Note 12/31/10 12/31/09 12/31/10 12/31/09

CASH FLOW FROM OPERATING ACTIVITIES Income before income tax and social contribution 27,623 20,300 36,780 27,011 Adjustments to reconcile income tax before income and social contribution

to net cash provided by operating activities: Depreciation and amortization 16 and 17 2,834 1,944 3,218 3,376 Allowance for doubtful accounts 10 2,966 2,162 3,401 3,596 Reserve for slow-moving inventories 11 457 596 726 596 Equity in subsidiaries 15 (22,730) (15,821) 375 - Provision for loss on investment in subsidiaries 15 - - 1,071 - Impairment of goodwill 27 - 1,567 - 7,120 Gain on sale of property, plant and equipment 27 (164) (85) (179) (85) Write-off of intangible assets 17 367 36 363 333 Provision for risks 30 414 - 665 - Accrued interest on accounts payable 490 390 490 390 Reversal of provision relating to adoption of REFIS - Law 11941/09 - - - (1,063) Financial income from marketable securities 9 (2,996) (4,146) (3,005) (4,361) Financial income from intercompany loans 14 - - (3,767) - Interest on installment taxes 23 - - 363 533 Loss from discontinued operations 34 - - (955) (732) Other provisions - 696 515 696

Change in operating assets and liabilities:Trade accounts receivable (4,859) 3,937 (8,903) 424 Inventories (1,969) (2,501) (1,287) (2,097) Recoverable taxes (539) (885) (904) (2,136) Other receivables 1,393 (1,042) 763 (178) Dividends received from subsidiaries 36,393 - - - Judicial deposits (43) - (165) - Related parties (348) 1,263 726 79 Trade accounts payable (430) (1,380) (303) (1,661) Salaries, provision and social contribution 438 341 931 584 Taxes payable 459 (703) 1,267 (391) Accounts payable (174) 1,469 375 1,418 Advances from customers (600) (578) 2,346 2,278 Installment taxes - - (1,001) (1,254)

Cash used in operating activities 38,982 7,560 33,906 34,476 Income tax and social contribution paid - (225) (5,715) (5,062) Net cash provided by operating activities 38,982 7,335 28,191 29,414

CASH FLOW FROM INVESTING ACTIVITIESAdditions to property, plant and equipment 16 (2,245) (5,775) (2,914) (6,762) Additions to intangible assets 17 (325) (2,382) (325) (3,415) Investment in marketable securities (9,200) - (9,200) (9,550) Capital reduction in subsidiaries 15 - 80,000 - - Redemption of marketable securities 35,160 4,125 43,744 4,819 Capital increase in subsidiaries 15 (43,725) (1,635) - - Proceeds from sale of property, plant and equipment 487 490 410 692 Intercompany loans to related parties 14 (6,993) - (46,993) - Cash on discontinuance of joint venture 34 - - (22) - Cash on acquisition of subsidiary 132 - - - Net cash provided by (used in) investing activities (26,709) 74,823 (15,300) (14,216)

CASH FLOW FROM FINANCING ACTIVITIESPayment of loans (25) (35) (1,051) (35) Borrowings - - - 549 Payment for acquisition of subsidiaries (1,224) - (1,235) (1,434) Dividends distributed by subsidiary - - (1,684) (502) Interest on own capital and dividends paid - (2,429) - (2,429) Net cash used in financing activities (1,249) (2,464) (3,970) (3,851)

INCREASE IN CASH AND CASH EQUIVALENTS 11,024 79,694 8,921 11,347

CHANGE IN CASH AND CASH EQUIVALENTSBeginning of year 93,893 14,199 114,500 103,153 End of year 104,917 93,893 123,421 114,500

INCREASE IN CASH AND CASH EQUIVALENTS 11,024 79,694 8,921 11,347


(BR GAAP) (BR GAAP and IFRS)ConsolidatedCompany

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STATEMENTS OF VALUE ADDEDFOR THE YEAR ENDED DECEMBER 31, 2010 (In thousands of Brazilian reais - R$)

Note 12/31/10 12/31/09 12/31/10 12/31/09

VALUE ADDED CREATION Sales of products, goods and services 25 151,381 137,764 230,152 211,054 Allowance for doubtful accounts, net of reversals 10 (2,136) (1,929) (2,163) (3,210) Other operating revenues 487 490 2,680 490

149,732 136,325 230,669 208,334

INPUTS PURCHASED FROM THIRD PARTIES Cost of products, goods and services (56,198) (50,951) (70,459) (60,452) Materials, electric power, outside services and other (19,071) (19,414) (28,544) (27,678) Impairment of assets 27 - (1,567) - (7,120) Advertising and promotion fund inputs and other related to sale (15,897) (14,273) (27,096) (30,196)

GROSS VALUE ADDED 58,566 50,120 104,570 82,888

RETENTIONSDepreciation and amortization 16 and 17 (2,834) (1,944) (3,218) (3,376)

NET VALUE ADDED 55,732 48,176 101,352 79,512

VALUE ADDED RECEIVED IN TRANSFER Equity in subsidiaries 15 22,730 15,821 (375) - Financial income 28 15,524 16,789 22,912 20,761

38,254 32,610 22,537 20,761

TOTAL VALUE ADDED FOR DISTRIBUTION 93,986 80,786 123,889 100,273

VALUE ADDED DISTRIBUTION Employees: Salaries (22,742) (21,723) (30,717) (25,988) Benefits (3,861) (3,329) (4,533) (3,666) FGTS (severance pay fund) (2,119) (2,015) (2,584) (2,328)

Taxes and fees: Federal (20,416) (19,418) (36,117) (30,760) State (14,335) (14,370) (16,431) (14,883) Municipal (624) (526) (902) (1,571)

Third parties: Interest (2,050) (1,704) (4,235) (3,413) Rentals 29 (6,741) (5,704) (7,455) (6,268)

Shareholders - retained earnings/recognition of profit reserves (21,098) (11,997) (21,098) (11,997) Non-controlling interests in retained earnings - - 183 601

(93,986) (80,786) (123,889) (100,273)


(BR GAAP) (BR GAAP)Company Consolidated

8

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(Convenience Translation into English from the Original Previously Issued in Portuguese)


NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2010 (Amounts in thousands of Brazilian reais - R$, unless otherwise stated)

1. OPERATIONS

a) Business

Ellus do Brasil Confecções e Comércio S.A. (“Company”) is a non-public corporation with its head office at Rua Coronel Luis Barroso, 151, in the city of São Paulo, State of São Paulo. Its majority shareholders are Wishful Boys Administração de Bens e Participações Ltda. (“Wishful Boys”), managed by Nelson Alvarenga Filho and Américo Fernando Rodrigues Breia, and Fundo de Investimento em Participações - PCP, managed by Vinci Partners.

The Company was incorporated on June 30, 2007 and started its operations on January 1, 2008. Its core business is the retailing of clothing and accessories, as well as investments in other entities. As of December 31, 2010, the distribution of the Company’s and its subsidiaries’ products is supported by a chain of 47 owned stores (49 as of December 31, 2009), 33 franchised stores (32 as of December 31, 2009) and multi-brand retailers.

The Company holds direct and indirect investments in the following subsidiaries:

• Inbrands Gestora de Marcas S.A. (“Gestora”) - is engaged in holding equity interests in other entities, and may represent local or foreign companies.

• Luminosidade Marketing e Produções S.A. (“Luminosidade”) - is engaged in providing services and its core business is the organization of the fashion events São Paulo Fashion Week - SPFW and Fashion Rio which take place every year in January and June; it has the following subsidiary:

- Lumi 5 Propaganda, Marketing e Eventos Ltda. (“Lumi 5”) - is engaged in activities related to the edition and sale of advertising spaces in the magazine “Mag!” and newspaper “SPFW Journal”, with articles about the fashion industry, and maintenance and sale of advertising spaces on its website spfw.com.br.

• Inbrands Eventos Participações S.A. (“Eventos”) - is engaged in holding equity interests in other entities, and was merged into by Luminosidade on February 28, 2009.

• Inbrands Estilo Participações S.A. (“Estilo”) - is engaged mainly in holding equity interests in other entities, as well as in managing its own assets, and has the following direct and indirect subsidiaries:


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- A.H. Confecções S.A. (“A.H. Confecções”) - is engaged in manufacturing men’s and women’s wear, and in importing and exporting clothing and accessories in general, housewares and stationery, using the brand “Alexandre Herchcovitch”.

- A.H. Consultoria de Moda Ltda. (“A.H. Consultoria”) - provides fashion-consulting services.

• Trezeme Modas Ltda. (“Trezeme”) - is a clothing and accessories retailer using the brand “Ellus”, with operations in the State of Rio Grande do Sul, and was merged into by the Company on March 31, 2010.

• Polaminsk SP Participações S.A. (“Polaminsk”) - is engaged primarily in holding equity interests in other entities, and may represent local or foreign companies, and has the following subsidiaries:

- Ellus Propag Ltda. (“Propag”) - is engaged in licensing owned and third parties’ industrial and commercial brands, promotion of products, development of fashion collections and advertising services, and has the rights of “Ellus” brand.

- Inbrands Royal Licenciamentos Ltda. (“Royal”) - is engaged in licensing owned and third parties’ industrial and commercial brands, promotion of products, development of fashion collections and provision of advertising services, and has the rights of “2nd Floor” brand.

• Inbrands Moda Rio Participações S.A. (“Moda Rio”) - is engaged in holding equity interests in other entities, and owns investments in associate company Companhia de Marcas (“Cia de Marcas”), which is engaged in the manufacturing, marketing and franchise of clothing and accessories, footwear, belts, handbags, wallets and other leather articles, watches, jewelry and other similar products, and may license brands which it owns or for which it is the official licensee, as well as holding direct and indirect investments in the following companies: RF Participações Ltda., Ferreira e Luz Confecções Ltda., SLN Indústria de Roupas Ltda., SLN Licenciamentos Ltda., Rio Ventura Participações e Empreendimentos Ltda., Bintang Licenciamentos Ltda. and Roots House Comércio de Roupas Ltda.

b) Investment held for sale

The Company held a stake in joint venture Isapac Participações S.A. (“Isapac”), which is engaged in holding equity interests in other entities and has subsidiary Ateliê Ibô Comércio e Confecções e Modas Ltda. (“Ateliê Ibô”), an entity engaged in the manufacture, marketing and export of clothing and accessories and licensing of the brand “Isabela Capeto”.

As of December 31, 2010, Management decided to discontinue the operations of that subsidiary by negotiating the sale of the currently held equity interest to the other shareholders.


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2. PRESENTATION OF FINANCIAL STATEMENTS

2.1. Declaration of conformity

The Company’s financial statements comprise:

• The consolidated financial statements prepared in accordance with International Financial Reporting Standards - IFRS, issued by the International Accounting Standards Board - IASB, and Brazilian accounting practices, referred to as Consolidated (BR GAAP and IFRS).

• The individual financial statements under Brazilian accounting practices, referred to as Company (BR GAAP).

The Brazilian accounting practices include those prescribed by Brazilian Corporate Law and pronouncements, guidelines and interpretations issued by the Brazilian Accounting Pronouncements Committee (CPC) and approved by the Securities and Exchange Commission of Brazil (CVM).

The individual financial statements present investments in subsidiaries and associates accounted for using the equity method, in conformity with Brazilian Corporate Law. Accordingly, these individual financial statements are not considered in accordance with IFRS, since IFRS requires that investments in subsidiaries should be measured in the separate financial statements of the parent company either at fair value or at cost.

Since there is no difference between consolidated shareholders’ equity and consolidated net income attributable to the equity owners of the parent company, in the consolidated financial statements under IFRS and BR GAAP, and the Company’s shareholders’ equity and net income in the individual financial statements under BR GAAP, the Company elected to present the accompanying individual and consolidated financial statements in a single set of information, side by side.

2.2. Basis of preparation

The financial statements have been prepared based on the historical cost, except for certain financial instruments measured at their fair value, as described in note 3. The historical cost is generally based on the fair value of the consideration given to acquire the asset.

These are the first consolidated financial statements prepared in compliance with IFRS. In the preparation of the individual financial statements the Company adopted the changes introduced in Brazilian accounting practices by CPCs (Technical Pronouncements) 15 to 40. The effects of the adoption of IFRS and the new pronouncements issued by CPC are stated in note 6.

2.3. Basis of consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. Control is obtained when the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.


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Investments in subsidiaries are accounted for under the equity method in the Company’s individual financial statements. The financial statements of subsidiaries are adjusted to keep in line their accounting practices to those established by the Company.

The consolidated financial statements include the Company and its direct and indirect subsidiaries and joint ventures, with the following ownership percentages:

Ownership percentage - %

12/31/10 12/31/09 01/01/09

Direct Indirect Joint

ventures Direct Indirect Joint

ventures Direct Indirect Joint

ventures

Estilo 100,00 - - 100,00 - - 100,00 - - A.H. Confecções - 99,99 - - 70,00 - - 70,00 - A.H. Consultoria - 100,00 - - 67,89 - - 70,00 -

Isapac - - 50,00 - - 50,00 - - 50,00 Ateliê Ibô - - 50,00 - - 50,00 - - 50,00

Moda Rio 100,00 - - - - - - - - Cia de Marcas (*) - 10,00 - - - - - - -

Polaminsk 100,00 - - 100,00 - - - - - Royal - 100,00 - - 100,00 - - - - Propag - 91,61 - - 93,16 - 96,99 - -

Luminosidade 75,00 - - 75,00 - - 75,00 - - Lumi 5 - 97,00 - - 72,74 - - 75,00 -

Eventos - - - - - - 100,00 - - Gestora 100,00 - - 100,00 - - 100,00 - - Trezeme - - - 100,00 - - 50,00 - - (*) Associate over which the Company has significant influence and accounted for under the equity method, as

described in note 7.

The following procedures were used to prepare the consolidated financial statements:

• Elimination of intercompany accounts (rights and obligations) and transactions (income and expenses).

• Elimination of investment on the parent company against shareholders’ equity of subsidiaries.

• Identification of non-controlling interests in the net income of consolidated subsidiaries and in the consolidated balance sheet within shareholders’ equity, separately from shareholders’ equity of equity owners of the parent company.

3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

The main accounting practices described below were consistently applied to all reporting years of the individual and consolidated financial statements of the Company and its direct and indirect subsidiaries and joint ventures:


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a) General principles

The results of operations are determined on the accrual basis.

Revenue from sales of goods and related costs are recognized when the risks and rewards of ownership of the goods, products and services have been transferred to the buyer. Revenue is measured at the fair value of the consideration received or receivable, less estimates of returns and discounts.

Revenue arising from the rendering of services is recognized on the accrual basis according to the substance of each contract, provided that it is probable that future economic benefits will flow to the Company and the amount of revenue can be measured reliably. Service revenue has derived from:

• Consulting and licensing: amounts related to fashion consulting and brand licensing, which are billed monthly according to signed contracts.

• Event sponsorship: sponsorship amounts are determined by contracts and recognized in income statement as the sponsored event takes place.

• Exclusivity agreement: exclusivity agreement amounts are established based on the amount of sale of products to franchisees and multi-brand retailers and are recognized according to the terms of each agreement.

• “Royalties”: royalty agreements are based on a fixed percentage determined by contract and calculated on the amount sold monthly to each franchisee.

b) Functional and presentation currency

The functional and presentation currency used to measure the items disclosed in the financial statements of the Company and its subsidiaries is the Brazilian real (R$), which is the currency of the primary economic environment in which companies operate.

c) Foreign currency transactions and balances

Foreign currency transactions are translated into the functional currency of the Company using the exchange rates in effect at the dates of the transactions. The balance sheet accounts are translated at the exchange rate prevailing at the balance sheet dates. Exchange gains and losses resulting from the settlement of such transactions and the translation of monetary assets and liabilities denominated in foreign currency are recognized in income statement for the year.

d) Financial assets

The financial assets held by the Company and its subsidiaries are classified, according to the purpose for which they were acquired, into one of the following categories:


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(i) Financial assets at fair value through profit and loss

Financial assets at fair value through profit and loss include financial assets held for trading that were acquired for the purpose of selling in a short period. Derivatives and marketable securities are classified into this category.

(ii) Held-to-maturity financial assets

Include non-derivative financial assets with fixed maturity that the Company intends or is able to hold to maturity. Held-to-maturity investments are measured at acquisition cost plus income earned according to the contractual terms and conditions. The Company has no amounts classified into this category.

(iii) Available-for-sale financial assets

Comprise non-derivative financial assets, such as securities and/or shares that are quoted in an active market or not and whose fair values can be measured reliably. The Company has no amounts classified into this category.

(iv) Loans and receivables

Comprise non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Cash and cash equivalents, trade accounts receivable and other receivables are classified into this category.

The regular acquisitions or sales of financial assets are recognized on trading date.

Financial assets are initially recognized and measured at fair value through profit and loss and transactions costs are charged to the income statement. Loans and receivables are measured at amortized cost.

Financial assets, except for those designated at fair value through profit and loss, are assessed for impairment at the end of each reporting period. Impairment losses are recognized only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, with impact on the estimated future cash flows of the asset.

Gains or losses resulting from changes in fair value are recorded on the accrual basis in the income statement under captions “Financial income” or “Financial expenses”, respectively, when realized or incurred.

A financial asset is derecognized only when the contractual rights to receive the cash flows from the asset expire or the Company transfers the asset and substantially all of the risks and rewards of ownership of the asset to another part. If the Company has neither transferred nor retained substantially all of the risks and rewards of ownership of the asset, however it has retained control of the asset, then the Company recognizes the asset to the extent that it has a continuing involvement in the asset and the related obligation payable. If substantially all of the risks and rewards of the financial asset transferred have been retained, then the Company continues to recognize the asset, in addition to a loan secured by the revenue received.


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e) Financial liabilities

Financial liabilities are classified as:

(i) Financial liabilities at fair value through profit and loss

Include liabilities held for trading that are measured at fair value, with gain or loss recognized directly in profit and loss.

(ii) Other financial liabilities

Other financial liabilities, including loans, are measured using the effective interest method, plus interest incurred over the term of the contract.

The effective interest method is used to calculate the amortized cost of a financial liability and allocate interest expense through the respective period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial liability or, where appropriate, through a shorter period, to the net carrying amount of the financial liability.

A financial liability is derecognized from the balance sheet only when the obligation is either discharged and cancelled or expires. The difference between the liability’s carrying amount and the consideration paid or payable is recognized in the income statement.

f) Derivative financial instruments

The Company uses derivatives to manage its exposure to foreign exchange risks, substantially represented by forward currency contracts. Derivatives are initially recognized at fair value on the date that a derivative contract is entered into and subsequently remeasured at fair value at the end of each reporting period. Gains or losses are recorded immediately in the income statement.

g) Cash and cash equivalents

Consist of cash, bank deposits and cash investments. Cash investments with maturities of 90 days or less and readily convertible to a known amount of cash and subject to an insignificant risk of changes in value are stated at cost plus income earned through the end of each reporting period, not in excess of market or realizable value.

h) Marketable securities

Consist of cash investments in “Fundo de Investimento de Renda Fixa de Crédito Privado Inbrands” and are stated at acquisition cost plus income earned, adjusted to the fair value at the end of each reporting period, with gains and losses recognized in income statement for the year.

i) Trade accounts receivable and allowance for doubtful accounts

Trade accounts receivable are recorded and kept in the balance sheets at their original amounts. Trade accounts receivable from franchised stores and multi-brand retailers are monitored on an individual basis, and the allowance for doubtful accounts is recognized based on the assessment of risk in the collectibility of trade accounts receivable.


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j) Inventories

Inventories are stated at the acquisition or production cost of each collection and, when applicable, deduced by write-down to net realizable value or provision for slow-moving, excess or unrealizable inventory, based upon Management’s periodic reviews.

k) Noncurrent asset held for sale

The noncurrent asset is classified as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. Management should be committed to the sale, which is expected, upon recognition, to be considered a completed sale within one year from the date of classification.

When the Company is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale in the consolidated financial statements. The noncurrent asset that is classified as held for sale is measured at the lower of carrying amount and fair value less costs to sell.

l) Investments

(i) Subsidiaries

The Company has investments in subsidiaries that are accounted for under the equity method. There are no sales of products between consolidated companies.

Subsidiary is an entity over which the Company has control. Control is the right to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

In the consolidated financial statements, the changes in Company’s investments in subsidiaries that do not result in loss of control are recorded as capital transactions. The carrying amounts of the Company’s interests and non-controlling interests are adjusted to reflect changes in their interests in subsidiaries. The difference between the amount based on which non-controlling interests are adjusted and the fair value of the consideration paid or received is recorded directly in shareholders’ equity and attributable to the equity owners of the Company.

(ii) Associates

Associates are entities over which the Company has significant influence and that is neither a subsidiary nor a joint venture. Significant influence is the right to participate in the financial and operating policies of the investee without exercising individual or joint control on these policies.

The income, expenses, assets and liabilities of the associates are included in the financial statements using the equity method. Under the equity method, investments in associates are initially recorded at cost and subsequently adjusted for purposes of recognizing the Company’s interest in the net income and comprehensive income of the associate. When the Company’s interest of the associate’s loss exceeds the company’s investment in the associate, then the Company ceases to recognize its share of additional losses, and recognizes it only if the Company has legal or constructive obligations or has made payments in the name of the associate.


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Any difference between the cost of the acquisition and the Company’s interest of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate at the date of acquisition is recorded as goodwill. The goodwill is added to the carrying amount of the investment.

(iii) Joint venture

Joint venture is a contractual arrangement whereby the Company and other parties undertake an economic activity that is subject to joint control. Joint control exists when only the strategic financial and operating decisions relating to the activity require the unanimous consent of the venturers.

The interest of the jointly-controlled assets and any liabilities incurred are recognized in the financial statements of the respective company and classified according to their nature.

In 2009 the Company recorded its interests in joint ventures in the consolidated financial statements on a proportionate consolidation basis line by line. Interests in joint ventures are recognized under the equity method in the individual financial statements.

Due to the Management’s decision to discontinue the investment in Isapac’s joint venture, this investment was classified as of December 31, 2010 as “held for sale” and recorded for under technical pronouncement CPC 31/IFRS 5 - Noncurrent Assets Held for Sale and Discontinued Operations.

m) Property, plant and equipment

Stated at acquisition or construction cost, less depreciation and, where applicable, impairment loss. Depreciation begins when the store is opened and starts its operation. Land is not depreciated.

Depreciation is recognized using the straight-line method at the rates stated in note 16, based on the estimated useful life of each asset, so as to fully write off cost less residual value after useful life. The estimated useful life, residual values and depreciation methods are reviewed at the end of each reporting period and the effect of any changes in estimates is recorded prospectively.

A write-off of property, plant and equipment occurs from the balance sheet on disposal or when no future economic benefits are expected from their continuing use. The gain or loss on sale or disposal of an item of property, plant and equipment is the difference between the proceeds from sale and the carrying amount of the asset and is recognized in the income statement.

Assets held under finance leases are depreciated over their estimated useful life in the same manner as owned assets or for a shorter period, where applicable, according to the terms of the lease agreement.


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The Company’s Management, based on an outside specialists’ analysis, concluded that the main assets had no significant change in value since the date of construction and/or remodeling, except for land and buildings on which the Head Office and the Distribution Centers are built, and that the depreciation rates allowed represent fairly the estimated economic useful life of the assets.

n) Intangible assets

Intangible assets with defined lives and acquired separately are carried at cost less amortization and, where applicable, impairment loss. Amortization is computed on a straight-line basis over the estimated useful lives of the assets, as stated in note 17.

The rights to use infrastructure are paid by the Company when the rental contracts are signed and are amortized on a straight-line basis over the term of the rental contract.

The estimated useful life and amortization method are reviewed at the end of each reporting period and the effect of any changes in estimates is recorded prospectively.

o) Impairment of tangible and intangible assets, excluding goodwill

The carrying amount of the tangible and intangible assets is reviewed at the end of each reporting period to verify any indication of impairment. If there is any indication of impairment, the recoverable amount of the asset is estimated to determine an impairment loss, if any.

If the recoverable amount of the asset (or cash generating unit) is below the carrying amount of the asset, the carrying amount of the asset (or cash generating unit) is reduced to the recoverable amount and an impairment loss is recognized immediately in the income statement.

p) Business combination and goodwill

Business combinations that occurred until 2008 were recognized by reference to the difference between the amount paid and the shareholders’ equity of the acquiree, based on expected future earnings of the acquiree. Starting January 1, 2009, goodwill is no longer amortized and is tested for impairment annually, regardless of any indication of impairment.

Business combinations that occurred after 2010 are recognized using the acquisition method. The consideration transferred in a business combination to the former owners of the acquiree is measured at fair value, which is the total of the acquisition-date fair values of the assets given and liabilities incurred and equity instruments issued by the acquirer in exchange for the control of the acquiree. Costs that are directly attributable to the acquisition are usually recorded as an expense when incurred. Identifiable assets acquired and liabilities assumed are measured at their fair value at acquisition date.

Goodwill is measured as the difference between the aggregate of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously-held equity interest in the acquiree and the net of the acquisition- -date amounts of the assets acquired and the identifiable liabilities assumed.


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When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at fair value at the acquisition date and included in the consideration transferred in a business combination. The changes in the fair value of the contingent consideration that are classified as measurement period adjustments are adjusted retrospectively, with related adjustments to goodwill.

When a business combination is achieved in stages, the Company’s previously held-equity interest in the acquiree is remeasured at the acquisition-date fair value, i.e., on the date that control is obtained, and the resulting gain or loss, if any, is recognized in income statement.

Individual financial statements

In the individual financial statements the Company applies the requirements of technical interpretation ICPC 09 - Individual Financial Statements, Separate Financial Statements, Consolidated Financial Statements and Application of the Equity Method of Accounting, which requires that any amount that exceeds the acquisition cost over the acquirer’s share in the fair value of the assets, liabilities and contingent liabilities.

Goodwill is added to the carrying amount of the investment. Any Company’s share of the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities that exceeds the cost of the acquisition, after measurement, is recognized immediately in the income statement. The consideration transferred and the net fair value of assets and liabilities are measured using the above-mentioned criteria applicable to the consolidated financial statements.

Downstream merger

In compliance with CVM Consolidated Instruction 319/349, of March 6, 2001, at the time the Company merged its direct parent company Cristalys Participações S.A. (“Cristalys”), the goodwill outstanding balance that was originally recorded in Cristalys was written off through a provision in Cristalys and, pursuant to prevailing tax rules, at the time the provision was recognized, was not deductible for tax purposes. Prevailing tax rules allow a tax deduction after the combining of the companies and in 60 monthly installments.

q) Lease

Lease agreements are classified at the inception of the lease as follows:

• Finance lease: a lease in which the Company and its subsidiaries assume the risks and rewards incident to ownership is classified as a finance lease and is recorded in property, plant and equipment and depreciated over the estimated useful life of the leased asset.

• Operating lease: commercial property rental contracts of the Company and its subsidiaries are classified as operating leases, whose costs are recognized in the income statement for the year as an operating expense.


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r) Loans

Loans payable are recognized initially at fair value upon recognition of proceeds, net of transaction costs. Subsequently, loans are measured at amortized cost, i.e., plus financial charges, interest and monetary restatement incurred through the end of the each reporting period, according to the terms of the agreements.

s) Present value discount

Term sales were discounted to present value at the date of the transactions due to their terms using the average discount rate adopted for advance payments by sales representatives. Credit purchases were discounted to present value at the date of the transactions using the average interest rate that the Company and its subsidiaries bear on their borrowings. The discount of purchases to the present value is recorded under the captions “Trade accounts payable” and “Inventories” and its reversal is made against the financial expenses account upon their maturity for trade accounts payable, and through realization of inventories for amounts recorded in that account. The discount of term sales to the present value is made against the accounts receivable account and its realization is recorded under the caption “Financial income” upon their maturity.

t) Other current and noncurrent assets and liabilities

Assets are stated at the lower of cost or net realizable value and liabilities are stated at known or estimated amounts plus, when applicable, related charges, monetary and exchange variations incurred by the balance sheet dates.

u) Dividends and interest on capital

Management’s proposal for distribution of dividends and interest on capital that is within the amount of the mandatory minimum dividend is recorded in current liabilities under the caption “Dividends and interest on own capital payable” since it is considered a legal obligation under the Company’s Bylaws; however, the amount of dividends above the mandatory minimum dividend declared by Management after the reporting period covered by the financial statements but before the date of authorization for issue of respective financial statements is recorded under the caption “Proposed additional dividends” in shareholders’ equity.

v) Provision for risks

A provision is recognized if a present obligation (legal or constructive) has arisen as a result of a past event, the amount can be estimated reliably and the payment is probable.

The amount recognized as a provision is the best estimate of the expenditure required to settle the obligation at the end of the year, taking into account the risks and uncertainties that surround the underlying events.

The provision for risks is updated until the end of each reporting period for the amount of probable loss, considering their nature of the risks and the opinion of the legal counsel of the Company and its subsidiaries. For the purposes of the financial statements, the bases and the nature for recognition of provision for risks are described in note 30.


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w) Income tax and social contribution

Income tax and social contribution expenses includes current and deferred taxes.

Current taxes

The provision for income tax and social contribution is based on taxable profit for the year. Taxable profit differs from the income reported in the income statement because it excludes taxable or deductible income or expenses for other years and excludes non-taxable or non-deductible items permanently. The provision for income tax and social contribution is calculated individually based on the tax rates prevailing at the end of the year. The Company recorded a provision for income tax at the rate of 15% plus 10% surtax on taxable income exceeding R$240. The provision for social contribution was recorded at the rate of 9% on taxable income.

For direct and indirect subsidiaries Gestora, Lumi 5, A.H. Confecções, A.H. Consultoria, Propag and Royal, the income tax and social contribution bases are determined according to the criteria established by prevailing tax legislation on the deemed income basis.

Deferred taxes

Deferred income tax and social contribution are recognized for temporary differences at the end of the year between the carrying amounts of assets and liabilities recognized on the financial statement and the tax bases used to determine the amount of taxable profit, including tax losses where applicable.

The recoverable amount of deferred tax assets is reviewed at the end of each year and reduced to the extent it is no longer probable that sufficient taxable profit will be available in the future to allow the benefit of part or all of that deferred tax asset to be utilized.

x) Statement of value added

This financial statement shows how much wealth has been created by the Company and how it was allocated in a given period and is presented by the Company, as required by Brazilian Corporate Law, as part of its individual financial statements and as supplementary information to the consolidated financial statements since it is outside the scope of IFRS.

The statement of value added has been prepared based on the financial records that serve as a basis for the preparation of the financial statements and according to the technical pronouncement of CPC 09 -Value Added Statement. The first part of this statement shows the wealth that has been created by the Company, represented by revenues (gross revenue from sales, including taxes on sales, other revenues and allowance for doubtful accounts), inputs acquired from third parties (cost of sales and purchases of materials, electric power, outside services, including taxes levied at the time of the purchase, losses and recoveries of assets, depreciation and amortization) and the value added from third parties (equity in subsidiaries, financial income and other income). The second part of this financial statement shows the allocation of the wealth created among different stakeholders (employees, government, lenders and shareholders.


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y) Earnings per share

Basic and diluted earnings per share are presented according to CPC 41/IAS 33 - Earnings per Share, as stated in note 31.

z) Change in accounting estimate

In 2009, the Company changed its criteria for analysis of allowance for doubtful accounts and began to analyze accounts receivable from franchised stores and multi-brand retailers on an individual basis; in 2008 the calculation was made by applying a rate of 0.5% on sales to those customers. According to technical pronouncement CPC 23 - Accounting Policies, Changes in Accounting Estimates and Correction of Errors, this type of adjustment must be reflected prospectively in the financial statements, affecting the net income for the year in which the change in accounting estimate has occurred. The effect of the adoption of this criteria in the current year was R$1,656, which was recognized in the income statement for 2009.

aa) New and revised standards and interpretations that have already been issued but are not yet effective as of December 31, 2010 and have not been early adopted

The Company did not adopt the following new and revised IFRS that have already been issued but are not yet effective:

Pronouncement Description

Applicable for annual periods beginning on

or after Amendments to IFRS 1 Limited Exemption from Comparative

IFRS 7 Disclosures for First-time Adopters

07/01/2010

Amendments to IFRS 1 Removal of Fixed Dates for First-time Adopters

07/01/2011

Amendments to IFRS 7 Disclosures - Transfers of Financial Assets

07/01/2011

IFRS 9 (revised 2010) Financial Instruments 01/01/2013

Amendments to IAS 12 Deferred Tax-Recovery of Underlying Assets, when the Asset is Measured using the Fair Value Model in IAS 40

01/01/2012

Amendments to IAS 24 Related-party Disclosures 01/01/2011

Amendments to IAS 32 Classification of Rights Issues 02/01/2010

Amendments to IFRIC 14

Prepayments of a Minimum Funding Requirement

01/01/2011

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

07/01/2010


23

Pronouncement Description

Applicable for annual periods beginning on

or after Improvements in IFRS

2010 - 07/01/2010 or

01/01/2011, as appropriate

Management is performing a thorough review so as to estimate reliably the possible effects on the consolidated financial statements.

4. CRITICAL JUDGMENTS AND ESTIMATES

Management shall exercise its judgment in applying the accounting practices described in note 3 and make estimates for the reported amounts of assets and liabilities which cannot be easily obtained from other sources. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be relevant. Actual results may differ from those estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

a) Impairment of assets

Property, plant and equipment and intangible assets that have a defined useful life and show an indication of impairment based on economic and financial factors and the maturity of the investments have their carrying amounts reviewed annually through an analysis for each cash generating unit by calculating the discounted present value of the future cash flows to determine the amount of the impairment loss to be recorded in the period reviewed.

b) Impairment of goodwill

To determine whether goodwill is impaired, it is necessary to estimate the value in use of the cash generating units to which goodwill has been allocated. To calculate value in use Management must estimate the future cash flows expected to be derived from the cash generating units and the adequate discount rate to calculate the present value.

c) Reserve for obsolete and slow-moving inventory

This reserve is made for obsolete inventories, considering non-saleable inventories due to deterioration, or slow-moving inventories, according to the collection to which inventory pertains. For obsolete inventories, i.e. inventories that have not been sold in the last 12 months, a 100% reserve has been made. For other inventories, the respective collection and the 6-9 months and 9-12 months sale turnover are assessed, and a 50% and 75% reserve, respectively, is recorded.


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d) Allowance for doubtful accounts

Trade accounts receivable from franchised stores and multi-brand retailers are monitored on an individual basis, and the allowance for doubtful accounts is made for accounts that have been overdue for more than 180 days and total returned checks, based upon the risk assessment of total trade accounts receivable and their collectibility.

e) Provision for risks

Provisions are made for judicial proceedings that represent probable losses and that can be estimated reliably. The risk of loss is assessed by the Company’s internal and external attorneys.

f) Deferred income tax and social contribution

Deferred income tax and social contribution assets are calculated based on expected future taxable profits discounted to present value, minus all temporary differences, which are reviewed and approved annually by Management. The projections of future profits consider the main performance variables of the Brazilian economy, sales volume and price and tax rates.

5. RESTATEMENT OF THE FINANCIAL STATEMENTS

Based on the Management’s decision and in view of the correction of errors in the individual and consolidated financial statements for the year ended December 31, 2008, the financial statements as of the transition date January 1, 2009 and for the year ended December 31, 2009 are being restated for the purpose of retrospective recognition of the following accounting adjustments, as determined by technical pronouncement CPC 23:

Shareholders’

equity Net

income 12/31/09 01/01/09 12/31/09 Balances as per report published 252,463 244,807 12,965 Prior years’ adjustments:

Reserve for slow-moving inventories (1,516) (1,074) (442) Write-off of goodwill (872) (872) - Amortization of right of use (1,160) (738) (422) Write-off of receivables from related parties (2,050) (1,204) (846) Interim dividends distributed 847 847 - (4,751) (3,041) (1,710)

Adjusted balance 247,712 241,766 11,255


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6. TRANSITION OF ACCOUNTING PRACTICES

6.1. Effects of adoption of IFRS on the consolidated financial statements

The consolidated financial statements for the year ended December 31, 2010 are the Company’s first IFRS financial statements. The Company applied the accounting practices described in notes 2 and 3 to all the periods reported, which includes the balance sheet as of January 1, 2009, the transition date. In measuring the opening balance adjustments and preparing the balance sheet as of the transition date, Management applied the mandatory exceptions and some optional exemptions from retrospective application within IFRS 1 and CPC 37(R1) - First-Time Adoption of International Financial Reporting Standards, as described in item 6.4.

The reconciliation of IFRS and previous accounting practices is as follows:

Effects on the consolidated balance sheet

As of 01/01/09 (date of transition)

As of 12/31/09 (last year reported under previous accounting

practices)

Accounts Item Previous

BR GAAP

Effect of transition to IFRS IFRS

Previous BR GAAP


ASSETS CURRENT ASSETS Cash and cash equivalents 103,153 - 103,153 114,500 - 114,500 Marketable securities 42,567 - 42,567 51,659 - 51,659 Trade accounts receivable 34,760 - 34,760 30,740 - 30,740 Inventories 14,240 - 14,240 15,742 - 15,742 Recoverable taxes 924 - 924 3,060 - 3,060 Deferred income tax and social contribution 6.3.b) (ii) 5,614 (5,614) - 5,614 (5,614) - Anticipated dividends 847 - 847 13 - 13 Other receivables 2,251 - 2,251 2,428 - 2,428 Total current assets 204,356 (5,614) 198,742 223,756 (5,614) 218,142 NONCURRENT ASSETS Long-term assets:

Deferred income tax and social contribution 6.3.b) (ii) 20,586 5,614 26,200 14,971 5,614 20,585 Related parties 871 - 871 792 - 792

21,457 5,614 27,071 15,763 5,614 21,377 Property, plant and equipment 6.3.b) (iv) 6,630 16,503 23,133 10,768 16,374 27,142 Intangible assets 3,089 - 3,089 4,941 - 4,941 Goodwill 39,556 - 39,556 30,435 - 30,435 Total noncurrent assets 70,732 22,117 92,849 61,907 21,988 83,895

TOTAL ASSETS 275,088 16,503 291,591 285,663 16,374 302,037



practices)


BR GAAP


Previous BR GAAP

Effect of transition to

IFRS IFRS LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Trade accounts payable 5,602 - 5,602 3,941 - 3,941 Loans and financing 593 - 593 1,107 - 1,107 Salaries, provision and social contribution 4,576 - 4,576 5,160 - 5,160 Taxes payable 5,139 - 5,139 4,748 - 4,748 Provision for income tax and social contribution 1,191 - 1,191 1,716 - 1,716 Accounts payable 6.3.b) (v) 3,021 - 3,021 5,430 625 6,055 Installment taxes 1,387 - 1,387 1,568 - 1,568 Advances from customers 1,543 - 1,543 3,821 - 3,821 Dividends payable 6.3.b) (iii) - - - 2,875 (2,046) 829 Total current liabilities 23,052 - 23,052 30,366 (1,421) 28,945


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practices)


BR GAAP


Previous BR GAAP

Effect of transition to

IFRS IFRS NONCURRENT LIABILITIES Accounts payable 6.3.b) (v) 6,427 1,991 8,418 4,688 1,366 6,054 Installment taxes 4,553 - 4,553 2,588 - 2,588 Deferred income tax and social contribution 6.3.b) (iv) - 5,611 5,611 1,725 5,567 7,292 Total noncurrent liabilities 10,980 7,602 18,582 9,001 6,933 15,934 SHAREHOLDERS’ EQUITY Capital 205,092 - 205,092 205,092 - 205,092 Special premium reserve 35,660 - 35,660 35,660 - 35,660 Earnings reserve 6.3.b) (v) 1,014 (1,991) (977) 6,960 (1,991) 4,969 Valuation adjustments to equity 6.3.b) (iv) - 10,892 10,892 - 10,807 10,807 Proposed additional dividends - - - - 2,046 2,046 Equity attributable to owners of the parent company 241,766 8,901 250,667 247,712 10,862 258,574 Non-controlling interest 6.3.b) (i) (710) - (710) (1,416) - (1,416) Total shareholders’ equity 241,056 8,901 249,957 246,296 10,862 257,158 TOTAL LIABILITIES AND SHAREHOLDERS’

EQUITY 275,088 16,503 291,591 285,663 16,374 302,037

Reconciliation of the consolidated shareholders’ equity

Shareholders’ equity

12/31/09 01/01/09 Adjusted book balances under accounting practices in effect

before the adoption of new accounting pronouncements 247,712 241,766 Adjustments arising from applying CPC and IFRS:

Difference in deemed cost of property, plant and equipment 16,374 16,503 Price adjustment on acquisition of Luminosidade (1,991) (1,991) Dividend above mandatory minimum dividend 2,046 - Deferred income tax and social contribution (5,567) (5,611)

Subtotal 10,862 8,901 Non-controlling interest (1,416) (710) As per new accounting pronouncements 257,158 249,957 Effects on the consolidated income statement

12/31/09 (comparative year reported under previous accounting practices)

Effect of transition to IFRS


BR GAAP Discontinued

operation Adjustments IFRS

NET OPERATING REVENUE 173,864 (3,203) - 170,661 COST OF PRODUCTS, GOODS AND SERVICES (55,645) 1,282 - (54,363) GROSS PROFIT 118,219 (1,921) - 116,298 OPERATING (EXPENSES) INCOME Selling expenses (47,560) 609 - (46,951) General and administrative expenses 6.3.b) (i) (48,721) 1,926 (1,020) (47,815) Depreciation and amortization 6.3.b) (iv) (3,247) - (129) (3,376) Other operating (expenses) income, net 6.3.b) (i) (11,307) 1,987 827 (8,493) (110,835) 4,522 (322) (106,635) OPERATIONS INCOME BEFORE FINANCIAL INCOME (EXPENSES) 7,384 2,601 (322) 9,663


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12/31/09 (comparative year reported under previous accounting practices)

Effect of transition to IFRS



operation Adjustments IFRS

FINANCIAL INCOME (EXPENSES) Financial income (3,413) 53 - (3,360) Financial expenses 20,803 (42) - 20,761 Exchange variance, net (53) - - (53) 17,337 11 - 17,348 INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 24,721 2,612 (322) 27,011 INCOME TAX AND SOCIAL CONTRIBUTION Current (5,749) 162 - (5,587) Deferred 6.3.b) (iv) (7,339) - 44 (7,295) INCOME FROM CONTINUING OPERATIONS 11,633 2,774 (278) 14,129

NON-CONTROLLING INTEREST 6.3.b) (i) (378) (41) 419 -

DISCONTINUED OPERATIONS Loss from discontinued operations - (2,733) - (2,733)

NET INCOME 11,255 - 141 11,396

Reconciliation of the consolidated net income

Net

income 12/31/09 Adjusted book balances under accounting practices in effect before the

adoption of new accounting pronouncements 11,255 Adjustments arising from applying CPC and IFRS:

Depreciation of deemed cost of property, plant and equipment (129) Loss on investments 827 Deferred income tax and social contribution 44

Subtotal 742 Non-controlling interest adjustment (1,020) Non-controlling interest 419 As per new accounting pronouncements 11,396 Effects on the consolidated statement of cash flows

In view of the adjustments stated in note 5 and the effects of the adoption of IFRS, the aggregate effects on the consolidated statement of cash flows are shown below:

12/31/09 (last year reported under previous accounting practices)

Previous

BR GAAP

Effect of transition to IFRS and adjustments

shown in note 5 IFRS Cash flows from operating activities 25,614 3,800 29,414 Cash flows from investing activities (11,620) (2,596) (14,216) Cash flows from financing activities (2,697) (1,154) (3,851) Increase in cash and cash equivalents 11,297 50 11,347


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6.2. Effects of the adoption of new pronouncements issued by the Brazilian Accounting Pronouncements Committee (CPC) on the individual financial statements

With the enactment of Law 11638/07, which updated the Brazilian Corporate Law to allow the process of convergence of Brazilian accounting practices and IFRS, new technical standards and pronouncements have been issued by CPC.

In the preparation of the individual financial statements, Management adopted all the pronouncements and respective technical interpretations and guidance issued by CPC and approved by CVM, which along with the accounting practices promulgated by the Brazilian Corporate Law are called Brazilian accounting practices (BR GAAP).

The Company applied the accounting practices described in notes 2 and 3 to all the years reported, starting with the financial statements for the year ended December 31, 2010, which includes the opening balance sheet as of January 1, 2009. In measuring the adjustments and preparing the opening balance sheet the Company applied the requirements of technical pronouncement CPC 43(R1) - First-Time Adoption of Technical Pronouncements CPC 15 to 40, adjusting its individual financial statements for them to produce, when consolidated, the same balances of shareholders’ equity attributable to the equity owners of the parent company and net income in relation to the consolidation prepared under IFRS by applying IFRS 1 and CPC 37(R1) - First-Time Adoption of International Financial Reporting Standards.

Effects on the individual balance sheet

As of 01/01/09 (date of transition) As of 12/31/09 (last year reported under

previous accounting practices)


BR GAAP

Effect of transition to CPCs

BR GAAP restated

Previous BR GAAP

Effect of transition to CPCs

BR GAAP restated

ASSETS CURRENT ASSETS Cash and cash equivalents 14,199 - 14,199 93,893 - 93,893 Marketable securities securities 41,944 - 41,944 41,965 - 41,965 Accounts receivable 29,568 - 29,568 23,469 - 23,469 Inventories 10,640 - 10,640 12,547 - 12,547 Recoverable taxes 391 - 391 1,275 - 1,275 Deferred income tax and social

contribution 6.3.b) (ii) 5,614 (5,614) - 5,614 (5,614) - Dividends receivable - - - 23,752 - 23,752 Anticipated dividends 847 - 847 13 - 13 Other receivables 735 - 735 1,773 - 1,773 Total current assets 103,938 (5,614) 98,324 204,301 (5,614) 198,687 NONCURRENT ASSETS Long-term assets:

Deferred income tax and social contribution 6.3.b) (ii) 20,586 5,614 26,200 14,971 5,614 20,585

Related parties 2,540 - 2,540 1,764 - 1,764 23,126 5,614 28,740 16,735 5,614 22,349 Investments 122,019 - 122,019 12,720 - 12,720 Property, plant and equipment 6.3.b) (iv) 4,871 16,503 21,374 9,029 16,374 25,403 Intangible assets 2,703 - 2,703 4,446 - 4,446 Goodwill 2,001 - 2,001 30,435 - 30,435 Total noncurrent assets 154,720 22,117 176,837 73,365 21,988 95,353 TOTAL ASSETS 258,658 16,503 275,161 277,666 16,374 294,040


29


As of 12/31/09 (last year reported under previous accounting practices)

Accounts Item

Previous BR GAA

P

Effect of

transition to

CPCs

BR GAAP

restated

Previous BR GAA

P

Effect of

transition to

CPCs

BR GAAP

restated LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Trade accounts payable 3,924 - 3,924 2,543 - 2,543 Loans and financing 66 - 66 31 - 31 Salaries, provision and social contribution 3,753 - 3,753 4,094 - 4,094 Taxes payable 4,607 - 4,607 3,904 - 3,904 Provision for income tax and social contribution 225 - 225 - - - Accounts payable 6.3.b) (v) 2,641 - 2,641 5,262 625 5,887 Advances from customers 1,166 - 1,166 586 - 586 Dividends payable 6.3.b) (iii)

- - 2,046 (2,046) -

Related parties 18 - 18 635 - 635 Total current liabilities 16,400 - 16,400 19,101 (1,421) 17,680

NONCURRENT LIABILITIES

Accounts payable 6.3.b) (v) - 1,991 1,991 4,231 1,366 5,597 Provision for deficit on investments 492 - 492 6,622 - 6,622 Deferred income tax and social contribution 6.3.b) (iv) - 5,611 5,611 - 5,567 5,567 Total noncurrent liabilities 492 7,602 8,094 10,853 6,933 17,786 SHAREHOLDERS’ EQUITY

Capital 205,092 - 205,092 205,092 - 205,092 Special premium reserve 35,660 - 35,660 35,660 - 35,660 Earnings reserve 6.3.b) (v) 1,014 (1,991) (977) 6,960 (1,991) 4,969 Valuation adjustments to equity 6.3.b) (iv) - 10,892 10,892 - 10,807 10,807 Proposed additional dividends

- - - - 2,046 2,046

Total shareholders’ equity 241,766 8,901 250,667 247,712 10,862 258,574 TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY 258,658 16,503 275,161 277,666 16,374 294,040

Reconciliation of the individual shareholders’ equity

Shareholders’ equity

12/31/09 01/01/09 Adjusted book balances under accounting practices in effect

before the adoption of new accounting pronouncements 247,712 241,766 Adjustments arising from applying CPC and IFRS:

Difference in deemed cost of property, plant and equipment 16,374 16,503 Price adjustment on acquisition of Luminosidade (1,991) (1,991) Dividend above mandatory minimum dividend 2,046 - Deferred income tax and social contribution (5,567) (5,611)

As per new accounting pronouncements 258,574 250,667


30

Effects on the individual income statement

12/31/09 (comparative year reported under previous accounting practices) Effect of transition

to CPCs



operation Adjustments

BR GAAP restated

NET OPERATING REVENUE 105,169 - - 105,169 COST IF PRODUCTS, GOODS

AND SERVICES (41,442) - - (41,442) GROSS PROFIT 63,727 - - 63,727 OPERATING (EXPENSES) INCOME Selling expenses (36,774) - - (36,774) General and administrative expenses

(33,655) - - (33,655)

Depreciation and amortization 6.3.b) (iv) (1,815) - (129) (1,944) Equity in subsidiaries 15,089 732 - 15,821 Other operating (expenses) income, net 6.3.b) (i) (4,788) 2,001 827 (1,960) (61,943) 2,733 698 (58,512) INCOME FROM OPERATIONS BEFORE FINANCIAL INCOME

(EXPENSES) 1,784 2,733 698 5,215 FINANCIAL INCOME (EXPENSES) Financial income (1,651) - - (1,651) Financial expenses 16,789 - - 16,789 Exchange variance, net (53) - - (53) 15,085 - - 15,085 INCOME BEFORE INCOME TAX AND SOCIAL

CONTRIBUTION 16,869 2,733 698 20,300 INCOME TAX AND SOCIAL CONTRIBUTION Current - - - - Deferred 6.3.b) (iv) (5,614) - 44 (5,570) INCOME FROM CONTINUING 11,255 2,733 742 14,730

OPERATIONS

DISCONTINUED OPERATIONS Loss from discontinued operations - (2,733) - (2,733) NET INCOME 11,255 - 742 11,997

Reconciliation of the individual net income

Net

income 12/31/09 Adjusted book balances under accounting practices in effect before the

adoption of new accounting pronouncements 11,255 Adjustments arising from applying CPC and IFRS:

Depreciation of deemed cost of property, plant and equipment (129) Loss on investments 827 Deferred income tax and social contribution 44

As per new accounting pronouncements 11,997


31

Effects on the individual statement of cash flows

Due to of the adjustments stated in note 5 and the effects of the transition of BR GAAP to CPCs, the aggregate effects on the individual statement of cash flows are shown below:

12/31/09 (last year reported under previous accounting practices)

Previous

BR GAAP

Effect of transition to CPCs and adjustments

stated in note 5 BR GAAP

restated Cash flows from operating activities 1,666 5,669 7,335 Cash flows from investing activities 80,209 (5,386) 74,823 Cash flows from financing activities (2,181) (283) (2,464) Increase in cash and cash equivalents 79,694 - 79,694

6.3. Note to reconciliations

The transition to IFRS (consolidated) and the adoption of technical pronouncements CPCs 15 to 43 (individual) resulted in the following changes in accounting practices:

a) Disclosure

(i) CPC 22/IFRS 8 - Operating Segments

CPC 22/IFRS 8 requires the disclosure of information by operating segment, which is defined as a component of an entity: (a) that engages in business activities from which it may earn revenues and incur expenses; (b) whose operating results are reviewed by the chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance; and (c) for which discrete financial information is available. The information about operating segments is disclosed in note 33.

(ii) CPC 40/IFRS 7 - Financial Instruments: Disclosures

CPC 40/IFRS 7 requires certain disclosures to be presented that allow users to evaluate the significance of financial instruments to the entity’s financial position and performance; the nature and extent of risks arising from financial instruments to which the entity is exposed; and how these risks are managed by the entity. Management presented the required additional disclosure in its financial statements according to the financial and business exposure, in addition to the risk and capital management, as described in note 32.

(iii) CPC 41/IAS 33 - Earnings per share (EPS)

CPC 41/IAS 33 requires earnings per share to be calculated and presented as: (a) basic EPS is calculated by dividing profit and loss by the weighted average number of common shares outstanding during the period, excluding treasury shares; and (b) diluted EPS is calculated by adjusting the profit and loss attributable to the equity owners of the parent company and the weighted average number of shares outstanding for the effects of dilutive potential common shares.


32

b) Adjustments and reclassifications

(i) CPC 36/IAS 27 - Consolidated and Separate Financial Statements

Pursuant to CPC 36/IAS 27, non-controlling interest is presented in the balance sheet as a shareholders’ equity component, separately from the parent company’s shareholders’ equity. Non-controlling interest in the income statement is not deducted from net income but only shown separately from the interest of the equity owners of the parent company.

In addition, changes in the parent company’s investment in the subsidiary that do not result in loss of control should be accounted for as an equity transaction and not in profit and loss. The difference between the amount based on which non-controlling interests are adjusted and the fair value of the consideration paid or received should be recorded directly in shareholders’ equity and attributable to the equity owners of the parent company.

(ii) CPC 26/IAS 1- Presentation of Financial Statements

CPC 26/IAS 1 prescribes the basis for presentation of individual and consolidated financial statements, to ensure comparability both with the entity’s financial statements of previous periods and with the financial statements of other entities. The main impact relates to the full allocation of the deferred income tax and social contribution to noncurrent assets.

(iii) CPC 24/IAS 10 - Subsequent Event and ICPC 08 - Accounting for Dividend Payment Proposal

Interest on capital is approved by the Board of Directors and classified as mandatory dividend, net of income tax effect. The amount above the mandatory minimum dividend declared by Management after the fiscal year end and before the authorization for publication of the financial statements is recorded as “proposed additional dividends” in shareholders’ equity, and disclosed in note 24.

(iv) ICPC 10 - First-Time Adoption of CPCs 27, 28, 37 and 43 for Property, Plant and Equipment and Investment Property

The Company’s Management opted to review the historical costs of property, plant and equipment and use the deemed cost, as per the option set forth in paragraphs 20 to 29 of technical interpretation ICPC 10, only for owned land and buildings.

Based on the Management’s analysis for the other significant items recorded in property, plant and equipment, represented substantially by leasehold improvements, machinery and equipment, vehicles and IT equipment, the conclusion reached was that the recognized historical cost approximates the fair value of these assets and, therefore, the deemed cost practice does not apply. Such conclusion is supported by the following: (a) the IT items are updated repeatedly as they become technologically obsolete; and (b) the stores leased by the Company have been recently remodeled to offer the public a modern, adequate and attractive space; of the total balance of leasehold improvements, 55% were added between 2009 and 2010.


33

The amount attributed to land and buildings was adjusted to the opening balances at the transition date of January 1, 2009 at their fair values, which were estimated based on the valuation report issued by experienced specialists engaged for this special purpose.

Land Buildings Total Balances at December 31, 2008 54 285 339 Adjustment due to adoption of deemed cost 11,441 5,062 16,503 Balances at January 1, 2009 11,495 5,347 16,842 Deferred income tax and social contribution 3,890 1,721 5,611

(v) CPC 37 (R1)/IFRS 1

At the date of transition, the Company had off-balance sheet liabilities related to the price adjustment on the acquisition of subsidiary Luminosidade. These adjustments arise from a contractual clause and are calculated based on effective EBITDA of operations for 2009, 2010 and 2011, for payment in the year following that of determination. The last payment shall be made in 2012. The Company analyzed the estimates of EBITDA of operations and recorded the amount of R$1,991 against shareholders’ equity at the transition date.

(vi) CPC 32/IAS 12 - Income Taxes

The difference stated in item 6.3.b)(iv) and shown in the reconciliation of shareholders’ equity and net income between previous BR GAAP and CPC/IFRS was analyzed for purposes of recognition of deferred income tax and social contribution.

6.4. Application of CPC 37(R1)/IFRS 1

The consolidated financial statements for the year ended December 31, 2010 are the Company’s first IFRS financial statements. The Company prepared the opening balance sheet as of January 1, 2009 according to IFRS 1, applying the mandatory exceptions and certain exemptions from full retrospective application of IFRS.

The Company has applied the following optional exemptions from full retrospective application:

a) Exemption for business combinations - Management elected not to apply retrospectively CPC 15/IFRS 3 to past business combinations and thus: (i) maintained the same classification previously adopted in its financial statements under previous accounting practices; and (ii) recognized all assets acquired and liabilities assumed at the transition date of January 1, 2009 by adjusting directly shareholders’ equity.


34

b) Exemption on assets and liabilities of subsidiaries, joint ventures and associates - the Company’s subsidiaries did not have IFRS financial statements at the transition date; for this reason, Management opted to adopt the same date of transition for its subsidiaries.

c) Exemption related to classification of previously recognized financial instruments - the Company opted to classify and measure its financial instruments in accordance with IAS 32 and IAS 39 (equivalent to CPC 38 and CPC 39, respectively) at the transition date; therefore, no retrospective analysis to the original contracting date of the current financial statements has been made at the date of transition to IFRS/CPC. All the financial instruments contracted after the transition date were analyzed and classified according to IFRS/CPC at the contracting date.

d) For the following options, the Company does not have transactions and/or did not apply to its operations at the transition date: (i) share-based payment transactions; (ii) insurance contracts; (iii) determination of the existence of contracts that contain leases; (iv) long-term employee benefits; (v) cumulative translation differences; (vi) no presentation of separate financial statements that would require investments to be carried at cost and/or fair value; (vii) compound financial instruments; (viii) decommissioning liabilities included in the cost of property, plant and equipment; (ix) financial assets and intangible assets recorded according to ICPC 01/IFRIC 12; (x) transfer of customer assets; and (xi) extinguishing financial liabilities with equity instrument.

The Company adopted the following exceptions from retrospective application:

a) Derecognition of financial assets and liabilities - Management concluded that there are no non-derivative financial assets and liabilities that should be removed from accounting records at the date of transition to IFRS.

b) Hedge accounting - the Company did not have any transaction classified as a hedge for purposes of IFRS at the transition date; for this reason, there was no adjustment to be recorded.

c) Non-controlling interest - the Company evaluated the requirements of CPC 35 and CPC 36/IAS 27 - Consolidated and Separate Financial Statements, and concluded that: (i) the Company does not have comprehensive income to be distributed among controlling and non-controlling interests that could result in a negative non-controlling interest (debit balance); (ii) the Company did not have changes in investments in subsidiaries that should be classified in shareholders’ equity since such changes did not result in loss of control; and (iii) the Company does not have any discontinued operations in subsidiary.


35

7. ACQUISITION OF INVESTEES

a) Acquired company

On June 10, 2010, the controlling shareholders of the Company entered into an agreement to acquire 10% of the capital stock of Cia de Marcas, which is a clothing retailer, as described in note 1.a). As a result of this acquisition, the Company is expected to increase its portfolio of brands and stores, including Richards, Richards Selaria, Salinas and Bintang, and reduce its administrative, logistics and production costs by employing economies of scale and concentration of operations.

In addition, the controlling shareholders of the Company have an agreement with Richards Participações S.A. (“Richards”), on an irrevocable and irreversible basis, to acquire all of the remaining shares of the stock of Cia de Marcas, which is dependent on contractual events that should occur by the end of 2011.

The acquired 10% stake in Cia de Marcas entitles the Company to representation on the Board of Directors and certain veto rights, but not control. As of December 31, 2010, Cia de Marcas is classified as investment in associate with significant influence, which is accounted for using the equity method.

b) Cost of acquisition

The acquisition of Cia de Marcas occurred by means of a capital increase by Richards in the amount of R$212, with issue of new shares in the amount equivalent to 4.0% of the Company’s capital stock, which was paid up with 10% of the shares in associate Cia de Marcas.

The consideration transferred in exchange for an equity interest in Cia de Marcas was measured at fair value at the date of the transaction, considering the equity securities issued by the Company, which were valued at fair value at R$9,709, with a premium reserve of R$9,497 recorded in shareholders’ equity, as ratified at the Extraordinary Shareholders’ Meeting held on April 20, 2011.

c) Analysis of acquired assets and liabilities

In compliance with the provisions of CPC 15/IFRS 3 Business Combinations, the Company engaged outside specialists to determine the fair value of the assets acquired and liabilities assumed to the proportion of the acquired stake in Cia de Marcas. Thus, based on the specialists’ valuation report, the consideration mentioned above can be allocated as follows:


36

Description

Fair value on

acquisition Amount allocated based on 10% of the valuation:

Brands - “Richards”, “Salinas” and “Bintang” 5,193 Goodwill 3,483 Contingent liabilities (964) Deferred income tax and social contribution (2,614)

Acquired interest - 10% of book shareholders’ equity of Cia de Marcas 212 Acquired assets 5,310 (-) Amount paid on the acquisition 9,709 Goodwill arising from the acquisition 4,399 The surplus value of the assets acquired and liabilities assumed was measured by Management based on a specialists’ report. The future cash flows of the assets acquired were determined by calculating the future profitability used in acquisition studies and discounted to present value at the Weighted Average Cost of Capital - WACC.

d) Goodwill arising from acquisition

The goodwill arising from the acquisition of 10% interest in Cia de Marcas, in the amount of R$4,399, is due to the inclusion, in the cost of acquisition, of benefits to the Company. Such benefits are represented mainly by synergies in the raw materials and goods purchase, production and distribution processes, sale and market share growth, development of future markets aligned with the strategy of generation of future profits. Such benefits are not recognized separately from the goodwill, since the future economic benefits cannot be estimated reliably.

8. CASH AND CASH EQUIVALENTS

Company (BR GAAP) Consolidated (BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09

Cash 216 263 281 264 288 292 Banks 1,503 4,347 737 6,474 7,312 1,440 Cash investments (*) 103,198 89,283 13,181 116,683 106,900 101,421

104,917 93,893 14,199 123,421 114,500 103,153 (*) Breakdown of cash investments is as follows:


Bank Deposit Certificates - CDBs - - 5,845 10,711 16,715 93,614 CDB-indexed operations 103,198 89,283 7,319 105,606 89,855 7,704 Other fixed-income investment

funds and savings accounts - - 17 366 330 103 103,198 89,283 13,181 116,683 106,900 101,421


37

Investments in CDBs and CDB-indexed operations that have been sold by a bank with a repurchase commitment, and bought by the Company with the commitment to resell them to the bank, have immediate liquidity and a maturity of 90 days or less, with an insignificant risk of change in value and yield between 101% and 107.7% of the CDI (interbank deposit rate) variation (between 101.5% and 104.5% as of December 31, 2009 and between 100% and 104.5% as of January 1, 2009). They are managed by independent financial institutions, mainly Banco Itaú and Votorantim.

9. MARKETABLE SECURITIES

This account is represented by cash investments in “Fundo de Investimento de Renda Fixa de Crédito Privado Inbrands”, managed by UBS Pactual Serviços Financeiros S.A. - DTVM. This is a collective and non-exclusive multimarket fixed-income investment fund, intended exclusively for qualified investors.

As of December 31, 2010, the consolidated position of these securities was 15,089,302 fund shares (42,599,489 fund shares as of December 31, 2009 and 39,352,773 fund shares as of January 1, 2009) at the unit price of R$1.3334 (R$1.21268 as of December 31, 2009 and R$1.0977 as of January 1, 2009), resulting in the amounts shown below:

Interest - % Company (BR GAAP) Consolidated (BR GAAP and IFRS) Investor 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 Company 94.4 81.2 97.1 19,001 41,965 41,944 19,001 41,965 41,944 Isapac - - 2.9 - - - - - 623 Propag 5.6 18.8 - - - - 1,119 9,694 - 100.0 100.0 100.0 19,001 41,965 41,944 20,120 51,659 42,567 Income earned from this investment fund in 2010 totaled R$2,996 (Company) and R$3,005 (consolidated) (R$4,146 and R$4,361, respectively, for year 2009). The fund’s investment portfolio is represented as follows:

CDI 12/31/10 12/31/09 Issuer Assets rate - % Maturity Number Amount Number Amount Banco Bradesco S.A. CDB-DI 103.00 09/28/10 - - 11,848 13,457 Banco Bradesco S.A. CDB-ESC 104.30 10/24/11 13,877 17,198 13,877 15,616 Banco Santander S.A. CDB-DI 103.00 08/30/10 - - 3,663 4,208 Banco Santander S.A. CDB-DI 101.00 06/01/17 8 115 - - Banco Votorantim S.A. CDB-DI 104.00 07/12/10 - - 4,000 4,162 Banco Votorantim S.A. CDB-DI 104.00 07/01/27 91 1,301 - - Cyrela Brazil Realty S.A.

Empreendimento e Participação Debentures - CYRE12 100.00 05/01/18 - - 485 5,067

Vivo Participações S.A. Debentures - TSPP22 104.20 05/05/15 - - 503 5,104 Banco Votorantim S.A. Debentures -BVLS21 100.50 04/20/26 - - 267 4,042 Banco BTG Pactual S.A. LFT REF 0.99 07/03/12 - - 1 3 Banco BTG Pactual S.A. NTNB IPCA 99.80 08/15/40 36 72 - - Public securities LFT REF 98.00 03/07/15 319 1,434 - -

20,120 51,659


38

10. TRADE ACCOUNTS RECEIVABLE


Notes and invoices receivable 15,960 14,419 19,943 26,902 21,935 24,475 Credit cards 12,432 9,957 9,095 12,588 10,742 9,675 Checks receivable 2,518 2,251 1,799 2,645 2,634 1,905 Present value discount (162) (210) (250) (247) (316) (250) 30,748 26,417 30,587 41,888 34,995 35,805 Allowance for doubtful

accounts: Notes and invoices receivable (2,980) (2,287) (618) (4,260) (3,581) (644) Checks not paid by customers (2,104) (661) (401) (2,158) (674) (401)

25,664 23,469 29,568 35,470 30,740 34,760 The average credit period for wholesale operations (“notes and invoices receivable”) is 60 days, and for retail sales (“credit card and checks receivable”) is 67 days. The Company recognizes allowance for doubtful accounts based on risk analysis of the whole customer portfolio, the likelihood of receipt and amounts past due for more than 180 days, based on the default history and analysis of current financial situation of each debtor.

No customer represents more than 1% of the total balance of trade accounts receivable - notes and invoices receivable. The balance of accounts receivable - credit cards is substantially distributed among the following credit card operators: Visa (75%), Redecard (15%) and American Express (8%).

Maximum credit risk exposure at the end of each reporting period is the carrying amount of the notes and invoices receivable at each maturity date, as shown below:


To mature: Above 360 days - 14 12 - 14 12 From 181 to 360 days - 43 34 2 44 34 From 91 to 180 days 330 64 39 338 115 39 From 61 to 90 days 277 341 428 358 494 429 From 31 to 60 days 2,770 2,055 2,658 3,960 3,121 2,668 Up to 30 days 6,815 5,537 9,363 12,361 9,311 13,856

Overdue: Up to 30 days 1,185 1,479 2,157 2,791 2,427 2,165 From 31 to 60 days 802 644 1,548 1,206 1,202 1,553 From 61 to 90 days 308 487 689 520 556 692 From 91 to 180 days 734 1,258 350 1,149 1,456 351 From 181 to 360 days 679 1,250 874 1,050 1,291 878 Above 360 days 2,060 1,247 1,791 3,167 1,904 1,798

15,960 14,419 19,943 26,902 21,935 24,475


39

Changes in the allowance for doubtful accounts are as follows:

Company (BR GAAP)

Consolidated (BR GAAP and IFRS)

2010 2009 2010 2009 Balance at the beginning of the year (2,948) (1,019) (4,255) (1,045) Write-off of irrecoverable credits 830 233 1,238 386 Allowance for the year (2,966) (2,162) (3,401) (3,596) Balance at the end of the year (5,084) (2,948) (6,418) (4,255)

11. INVENTORIES


Finished goods 6,020 4,337 3,890 6,146 4,449 6,737 Goods for resale - owned stores 3,089 3,994 2,954 3,561 6,051 3,700

Goods in process 1,906 258 885 1,906 258 885 Raw material 3,575 3,575 3,880 3,976 4,646 3,887 Packaging and consumption materials 96 87 105 96 87 105

Imports in transit 1,722 1,882 - 1,722 1,837 - Provision for slow-moving and obsolete inventories (2,043) (1,586) (1,074) (2,231) (1,586) (1,074)

14,365 12,547 10,640 15,176 15,742 14,240 Changes in the provision for slow-moving and obsolete inventories are as follows:

Company (BR GAAP)


2010 2009 2010 2009 Balance at the beginning of the year (1,586) (1,074) (1,586) (1,074) Provision for the year (457) (596) (726) (596) Reversal of provision - 84 81 84 Balance at the end of the year (2,043) (1,586) (2,231) (1,586) The cost of inventories recognized as expense in the income for the year, in connection with continuing operations, is R$44,130 - Company, and R$46,388 - consolidated (R$41,442 and R$42,629, respectively, as of December 31, 2009).


40

12. RECOVERABLE TAXES


IRPJ (corporate income tax) 1,636 1,105 258 3,112 2,123 317 CSLL (social contribution) 139 134 109 514 512 255 ICMS (state VAT) 39 26 24 71 341 208 COFINS (social security funding

contribution) - - - 96 40 111 PIS (social integration program) - - - 75 9 24 Other - 10 - 96 35 9

1,814 1,275 391 3,964 3,060 924

13. INCOME TAX AND SOCIAL CONTRIBUTION

a) Deferred income tax and social contribution


Noncurrent assets -

Tax benefit - goodwill (i) 14,972 20,586 26,200 14,971 20,585 26,200 Noncurrent liabilities:

Deemed cost of property, plant and equipment 5,523 5,567 5,611 5,523 5,567 5,611

Amortization of goodwill on acquisition of companies (ii) - - - 3,794 1,725 -

5,523 5,567 5,611 9,317 7,292 5,611 (i) On August 31, 2008, the Company merged the net assets of its parent company Cristalys.

The net assets merged included a tax credit arising from goodwill in the amount of R$82,562, which, after deduction of the provision for write-down of goodwill to the recoverable tax credit, totals R$28,072, as shown below:

Amount Goodwill paid on the acquisition of the Company, recorded in the parent

company Cristalys 82,562 Provision for write-down to recoverable tax credit (54,490) Tax benefit 28,072 Amortization:

Effect of income tax and social contribution - 2008 (1,872) Effect of income tax and social contribution - 2009 (5,614) Effect of income tax and social contribution - 2010 (5,614)

Deferred income tax and social contribution 14,972 The amortization resulting from this transaction will take place in 60 months. The amortization for 2010, in the amount of R$5,614 (R$5,614 for 2009), was debited as deferred income tax and social contribution expense.


41

The estimated realization of deferred tax assets is as follows:

Year Amount 2011 5,614 2012 5,614 2013 3,744

14,972

(ii) Amount corresponding to the income tax and social contribution benefit on goodwill amortization accounted for in the subsidiary Luminosidade.

b) Deferred income tax and social contribution - unrecorded

The Company is in corporate and operational restructuring process, as well as in the process of acquisition and restructuring of new businesses. Accordingly, it did not record deferred income tax and social contribution on temporary differences and tax loss carryforwards and negative taxable bases; these credits will be recognized when the individual business plan of each legal entity of the Company is formalized and approved.

As of December 31, 2011, tax loss carryforwards and negative taxable bases, which have no expiration date and may be utilized up to the limit of 30% of adjusted net income for the year under prevailing legislation, and temporary differences, are composed of the following:

• Tax loss carryforwards and negative taxable bases - R$10,497 (R$5,824 as of December 31, 2009).

• Temporary differences - R$11,035 (R$6,000 as of December 31, 2009 and R$1,023 as of January 1, 2009).

These credits are recorded on the Taxable Income Control Register (LALUR) and amount to R$7,321 (R$4,020 as of December 31, 2009 and R$348 as of January 1, 2009).

c) Reconciliation of effective income tax and social contribution expense

Company

(BR GAAP) Consolidated

(BR GAAP and IFRS) 2010 2009 2010 2009 Income before income tax and social contribution 27,623 20,300 36,780 27,011 Statutory rate 34% 34% 34% 34% Expected income tax and social contribution expense (9,391) (6,902) (12,505) (9,184)

Effect of income tax and social contribution on permanent differences:

Equity in earnings of subsidiaries 7,728 5,379 (219) - Subsidiaries’ income taxed based on deemed income:

Reversal of tax effect - taxable income - - 12,438 11,595 Deemed income taxation, using gross sales revenue as a tax base - - (6,013) (5,297)

Permanent additions, net of exclusions (557) (100) (1,994) (2,043) Effects of adjustments of Law 11638/07 (49) 72 (49) 72 Effects of prior years’ adjustments - 380 - 380 Effect of taxes in installments - Law 11941/09 - - - 361


42

Company


(BR GAAP and IFRS) 2010 2009 2010 2009 Effect of income tax and social contribution on temporary differences

and tax loss carryforwards and negative taxable bases for the quarter for which corresponding deferred taxes have not been recorded: Tax loss carryforwards and negative taxable bases - Company (1,589) (2,707) (1,589) (3,738) Temporary differences - Company (1,712) (1,692) (1,712) (1,692) Tax loss carryforwards and negative taxable bases - subsidiaries - - (3,267) (3,336)

(5,570) (5,570) (14,910) (12,882) Income tax and social contribution:

Current - - (7,270) (5,587) Deferred (5,570) (5,570) (7,640) (7,295)

(5,570) (5,570) (14,910) (12,882) Due to current legislation, accounting and tax records for income tax and social contribution for the last five years are open to review by tax authorities. Other taxes and social contributions are open to review and approval by proper authorities for varying statutory periods.

d) Reconciliation of income tax and social contribution payable

Company (BR GAAP) Consolidated

(BR GAAP and IFRS) 12/31/10 12/31/09 12/31/10 12/31/09

Current income tax and social contribution expense - - 7,270 5,587 Payments made - - (3,717) (3,737) Prepaid income tax and social contribution in the

period - - (282) (134) Unpaid prior year’s balance plus fine and interest - - 515 - Balance payable as of December 31 - - 3,786 1,716

14. RELATED PARTIES

a) Balances and transactions

Related-party transactions refer basically to loans payable to and receivable from subsidiaries, and the main balances and transactions are described below:

Company (BR GAAP) Consolidated (BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 Current assets:

Dividends receivable: Polaminsk 1,287 10,000 - - - - Propag 2,964 12,964 - - - - Royal 69 788 - - - -

4,320 23,752 - - - -


43

Company (BR GAAP) Consolidated (BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 Noncurrent assets

Related parties: Wishful Boys Administração de

Bens e Participações Ltda. - - 849 - - 849 Trezeme - 1,394 1,394 - - - A.H. Confecções 587 305 110 - - - Isapac - 53 53 - - - Propag - - 4 - - - Cia de Marcas 6,993 - - 6,993 - - Estilo 9 - - - - - Gestora de Marcas 251 - 130 - - - Other related parties - 12 - 66 792 22

7,840 1,764 2,540 7,059 792 871

Company (BR GAAP) Consolidated (BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 Current liabilities -

Related parties: Trezeme - 126 - - - - Gestora 3 4 - - - - Propag 1 503 16 - - - Isapac - 2 2 - - - Other related parties - - - - - -

4 635 18 - - -

Dividends payable: Shareholders of the Company 5,011 - - 5,011 - - Minority shareholders of Propag - - - 486 829 -

5,011 - - 5,497 829 -

Company


(BR GAAP and IFRS) 2010 2009 2010 2009 Financial income (expenses):

Revenue from sales of goods: Trezeme - 1,658 - - A.H. Confecções - 182 - -

- 1,840 - -

Financial income: Cia de Marcas 142 - 142 - RF Participações 631 - 631 - 773 - 773 -

Financial expense: Luminosidade 490 392 - - Gestora 5 - - -

495 392 - -


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b) Loans

Under the first phase of the agreement for the acquisition of Cia de Marcas, whose transaction is described in note 7), between March 2 and June 10, 2010 the Company granted loans to Cia de Marcas in the total principal amount of R$40,000, bearing annual interest of 17.73%. On June 10, 2010, the Company assigned its right to receive these loans to the subsidiary Moda Rio through an increase in its capital stock.

This transaction is linked to the second phase of the transaction for the acquisition of Cia de Marcas and will be used to increase the interest of Moda Rio in that company. As per the agreement, this transaction shall be completed by May 15, 2011. Accordingly, this loan was considered pre-payment for the acquisition of Cia de Marcas, and consequently, is classified as part of the investments in such company. Changes in loans in 2010 are shown below:

2010 Loans granted on June 10 40,000 Financial income 3,767 Balances at the end of the year 43,767

c) Other transactions

As described in note 15, on December 23, 2010 the Company purchased the remaining 30% interest in the capital stock of A.H. Confecções formerly held by Alexandre Herchcovitch. On that date, the Company entered into a Service Agreement whereby it undertook to remain in A.H. Confecções, being responsible for the creation, development and style of “Alexandre Herchcovitch” brands and products until December 31, 2015.

d) Management compensation

The compensation of officers and members of the board of directors of the Company is as follows:

Consolidated

(BR GAAP and IFRS) Compensation 2010 2009 Salary of management members 1,017 1,478 Benefits granted 47 - 1,064 1,478 The Company does not provide post-employment or severance benefits. Pursuant to the Brazilian Corporate Law with respect to the changes in accounting practices introduced by Law 11638/07 and the Company’s Bylaws, the shareholders are responsible for setting the global annual compensation for management.


45

15. INVESTMENTS

Company (BR GAAP)

Subsidiary Shareholders’ equity and

shareholders’ deficit Income (loss) for the year Equity interest - % Investment balance

Equity in earnings of subsidiaries

12/31/10 12/31/09 01/01/09 2010 2009 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 2010 2009

Estilo (a) (9,401) (954) 6,974 (2,830) (7,928) 100.00 100.00 100.00 (9,401) (954) 6,974 (2,830) (7,928) Gestora (b) 6,914 6,067 86,747 (2,878) (810) 100.00 100.00 100.00 6,914 6,067 86,747 (2,878) (810) Eventos (c) - - 23,276 - - - - 100.00 - - 23,276 - 246 Isapac (d) - 4,432 5,896 - (1,464) - 50.00 50.00 - 2,216 2,948 (955) (732) Polaminsk (e) 14,078 4,437 - 27,889 13,928 100.00 100.00 - 14,078 4,437 - 27,889 13,928 Propag (f) - - 2,275 - 12,742 - - 96.99 - - 2,074 - 11,949 Luminosidade (c) 4,561 4,890 - (331) (1,871) 75.00 75.00 - (4,343) (4,094) - (249) (1,762) Trezeme (h) - (1,574) (984) (118) (590) - 100.00 50.00 - (1,574) (492) (118) (590) Royal (g) - - - - 788 - 100.00 - - - - - 788 Moda Rio (i) 41,128 - - 916 - 100.00 - - 41,128 - - 916 -

48,376 6,098 121,527 21,775 15,089 Cia de Marcas (i): 9,497 - -

57,873 6,098 121,527

Investments 71,617 12,720 122,019 Provision for deficit on investments (13,744) (6,622) (492)

57,873 6,098 121,527 Equity in earnings of subsidiaries 22,730 15,821 Discontinued operation (955) (732)

21,775 15,089


Associate Shareholders’ equity and

shareholders’ deficit Income (loss) for

the year Equity interest - % Investment balance

Equity in earnings of subsidiaries

12/31/10 12/31/09 01/01/09 2010 2009 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 2010 2009 Cia de Marcas (12,338) - - (11,372) - 10.00 - - 3,864 - - (375) - Goodwill on acquisition of investment - - - - - - - - 4,399 - - - - Prepayment for acquisition of Cia de Marcas - - - - - - - - 43,767 - - - -

52,030 - - (375) -

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Changes in investments are as follows:

Company (BR GAAP)


Estilo Gestora Eventos Isapac Polaminsk Propag Royal Luminosidade Trezeme Cia de Marcas

Moda Rio Total

Cia de Marcas

(a) (b) (c) (d) (e) (f) (g) (c) (h) (i) (i) (i) Balances at the beginning of the year - 01/01/09 6,974 86,747 23,276 2,948 - 2,074 - - (492) - - 121,527 - Assignment of shares to management - - - - - (695) - - - - - (695) - Loss on change in equity interest - - (335) - - - - - (492) - - (827) - Allocation of the amount paid to:

Goodwill - - - - - - - (30,435) - - - (30,435) - Accounts payable to former controlling shareholders - - - - - - - 4,993 - - - 4,993 -

Capital increase without change in equity interest - 130 1,490 - - 126 19 - - - - 1,765 - Capital decrease without change in equity interest - (80,000) - - - - - - - - - (80,000) - Assignment of shares - - - - 509 (490) (19) - - - - - - Loss on investments - - - - - - - (1,567) - - - (1,567) - Equity in subsidiaries (7,928) (810) 246 (732) 13,928 11,949 788 (1,762) (590) - - 15,089 - Incorporation - - (24,677) - - - - 24,677 - - - - - Dividend distribution - - - - (10,000) (12,964) (788) - - - - (23,752) - Balances at the end of the year - 12/31/09 (954) 6,067 - 2,216 4,437 - - (4,094) (1,574) - - 6,098 - Pay-in of capital of subsidiary - - - - - - - - - 212 - 212 212 Allocation of the price paid - - - - - - - - - - - - 5,098 Capital increase with investment in associate - - - - - - - - - (212) 212 - - Capital increase with loans to associate - - - - - - - - - - 40,000 40,000 - Investment held for sale - - - (1,261) - - - - - - - (1,261) - Change in equity interest (5,617) - - - - - - - - - - (5,617) - Incorporation - - - - - - - - 1,692 - - 1,692 - Capital increase without change in equity interest - 3,725 - - - - - - - - - 3,725 - Equity in subsidiaries (2,830) (2,878) - (955) 27,889 - - (249) (118) - 916 21,775 (375) Provision for investment losses - - - - - - - - - - - - (1,071) Dividend distribution - - - - (16,961) - - - - - - (16,961) - Proposed dividends - - - - (1,287) - - - - - - (1,287) - Balances at the end of the year - 12/31/10 (9,401) 6,914 - - 14,078 - - (4,343) - - 41,128 48,376 3,864

48



49

(a) Estilo

On December 23, 2010 Estilo entered into an agreement to purchase the remaining 30.0% equity interest in the capital stock of A.H. Confecções held by the minority shareholder Alexandre Herchcovitch, becoming holder of 100% of the shares issued by that company. The Company will pay R$4,005 for this interest, R$11 of which paid on the date of the agreement and the remaining amount of R$3,994 shall be paid in 60 months (see note 20). In addition, due to the equity interest increase and the fact that A.H. Confecções has shareholders’ deficit, the Company recorded a debit to shareholders’ equity in the amount of R$1,612, relating to the portion of interest purchased, totaling an effect of R$5,617 on the shareholders’ equity of the Company.

(b) Gestora

The Extraordinary Shareholders’ Meeting held on February 11, 2009 approved a capital reduction of R$80,000 in subsidiary Gestora, with cancellation of 80,000,000 registered common shares without par value, since the capital stock was considered excessive for its needs. The amount corresponding to the shares was returned to the Company in immediately available funds.

The Extraordinary Shareholders’ Meeting held on December 30, 2009 approved a capital increase of R$130 in subsidiary Gestora, with issue of 129,654 registered common shares without par value, which were fully subscribed and paid up by the Company, with mandatory minimum dividend not paid for the year ended December 31, 2008.

The Extraordinary Shareholders’ Meeting held on December 22, 2010 approved a capital increase of R$1,475 through the assignment of receivables on loan.

The Extraordinary Shareholders' Meeting held on December 30, 2010 approved a capital increase of R$2,250, R$1,800 of which in cash and R$450 through conversion of loan in favor of the Company.

(c) Eventos and Luminosidade

On February 28, 2009, the then indirect subsidiary Luminosidade took over its direct parent company Eventos. As a result, Luminosidade is now directly controlled by the Company that holds a 75% equity interest.

The Extraordinary Shareholders’ Meeting held on March 2, 2009 approved the downstream merger of Eventos into Luminosidade, with balance sheet as of February 28, 2009, with the objective of combining and centralizing the operations of the two companies, simplifying the legal structure, rationalizing their operations and administrative and operating costs. In this merger a provision was recorded to write down the goodwill paid on the acquisition, based upon future profitability, to the amount of the tax benefit generated by the goodwill, which will be utilized within a maximum of five years, according to article 1 of CVM Instruction 349/01, as follows:

Goodwill paid on acquisition (recorded in Eventos) 30,435 Provision for write-down to the amount of the tax benefit (20,087) Tax benefit 10,348 For the purposes of the individual and consolidated financial statements of the Company, said transaction was reversed as shown above.

(d) Isapac

In December 2010 the Company’s Management decided to sell the entire equity interest of 50.0% held in the capital stock of the joint venture Isapac to the shareholder Isabela Capeto, and therefore, no longer participate in the business involving the “Isabela Capeto” brand. Accordingly, investments as of December 31, 2010, which until then were accounted for under the equity method, were reclassified as “discontinued operations” in the Company’s balance sheet, together with the balances of loans in favor of that company, and assets and liabilities held for sale classified in specific captions of the consolidated balance sheet were maintained (see note 34).

(e) Polaminsk

On June 1, 2009, the Company subscribed 508,798 new registered common shares without par value in subsidiary Polaminsk, with total issue price of R$509, through the transfer of 489,999 shares in subsidiary Propag, in the amount of R$490, and 18,799 shares in Royal, in the amount of R$19, valued at their book value. Thus, on June 1, 2009, Propag and Royal became direct subsidiaries of Polaminsk and indirect subsidiaries of the Company.

(f) Propag

On May 18, 2009, the Company assigned and transferred, to Polaminsk, 24,000 shares it held in subsidiary Propag for the agreed price of R$429. On May 19, 2009, a capital increase in subsidiary Propag was approved in the amount of R$126, with issue of 126,000 new shares with a par value of R$1.00 each, which were fully paid up by the Company.


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(g) Royal

On May 19, 2009, a capital increase in subsidiary Royal was approved in the amount of R$19, with issue of 19,000 new shares with a par value of R$1.00 each. As mentioned in item (e) above, on June 1, 2009, Royal became a direct subsidiary of Polaminsk and an indirect subsidiary of the Company.

(h) Trezeme

On August 28, 2009, there was an assignment of 55,345 shares in Trezeme, equivalent to a shareholders’ deficit of R$492, in favor of the Company that became owner of 100% interest. On April 30, 2010, based on the carrying amount of net assets as of March 31, 2010, subsidiary Trezeme was merged into the Company.

(i) Moda Rio and Cia de Marcas

On January 29, 2010, the subsidiary Moda Rio was set up with the purpose of holding the investments to be made in Cia de Marcas.

On June 10, 2010, Richards made an increase of 4% in the capital stock of the Company through the conveyance of shares representing 10% of the total capital stock of Cia de Marcas. The fair value in the swap of shares was evaluated at R$9,709 and allocated as described in note 7.

Also on June 10, 2010, the capital stock of Moda Rio was increased by R$39,843 through the issuance of 39,842,788 new registered common shares without par value, which were fully subscribed by the Company through: (i) the conveyance of 2,042,695 shares in the capital stock of Cia de Marcas, representing 10% of the capital stock, evaluated at R$212; (ii) transfer of receivables held by the Company from RF Participações Ltda. (subsidiary of Cia de Marcas) in the amount of R$20,191, resulting from a loan agreement entered into on March 2, 2010; and (iii) contribution of R$19,439 in Brazilian currency.

On December 17, 2010, the capital stock of Moda Rio was increased by R$369 with the issuance of 369,531 new registered common shares without par value, subscribed by the Company through receivables from Cia de Marcas.


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16. PROPERTY, PLANT AND EQUIPMENT

Company (BR GAAP)

12/31/10 12/31/09 01/01/09

Annual depreciation

rate - % Cost Accumulated depreciation

Net amount Cost

Accumulated depreciation

Net amount Cost


Net amount

Land - 11,495 - 11,495 11,495 - 11,495 11,495 - 11,495 Leasehold 17.5 7,489 (3,014) 4,475 6,250 (1,677) 4,573 3,417 (1,066) 2,351 Buildings 2.66 5,347 (290) 5,057 5,347 (145) 5,202 5,347 0 5,347 Machinery and equipment 10 762 (526) 236 724 (490) 234 555 (466) 89 Furniture and fixtures 10 2,463 (1,093) 1,370 1,903 (864) 1,039 1,344 (753) 591 Facilities 10 1,639 (928) 711 1,438 (676) 762 1,125 (571) 554 Vehicles 20 1,068 (462) 606 1,092 (438) 654 719 (350) 369 Computer equipment 20 2,547 (1,883) 664 2,241 (1,687) 554 2,015 (1,633) 382 Other equipment 10 258 (70) 188 240 (38) 202 117 (25) 92 Property, plant and equipment in progress - 437 - 437 688 - 688 104 - 104 33,505 (8,266) 25,239 31,418 (6,015) 25,403 26,238 (4,864) 21,374 Consolidated (BR GAAP and IFRS)

12/31/10 12/31/09 01/01/09

Annual depreciation

rate - % Cost Accumulated depreciation

Net amount Cost


Net amount Cost


Net amount

Land - 11,495 - 11,495 11,495 - 11,495 11,495 - 11,495 Leasehold 17.5 8,792 (3,548) 5,244 7,445 (2,127) 5,318 4,162 (1,154) 3,008 Buildings 2.66 5,347 (290) 5,057 5,347 (145) 5,202 5,347 - 5,347 Machinery and equipment 10 1,061 (602) 459 1,039 (570) 469 838 (516) 322 Furniture and fixtures 10 3,034 (1,243) 1,791 2,609 (1,028) 1,581 2,076 (844) 1,232 Facilities 10 1,670 (931) 739 1,593 (801) 792 1,265 (693) 572 Vehicles 20 1,109 (468) 641 1,092 (438) 654 719 (350) 369 Computer equipment 20 3,023 (2,210) 813 2,727 (1,986) 741 2,415 (1,827) 588 Other equipment 10 258 (70) 188 241 (39) 202 122 (26) 96 Property, plant and equipment in progress - 437 - 437 688 - 688 104 - 104 36,226 (9,362) 26,864 34,276 (7,134) 27,142 28,543 (5,410) 23,133

52



53

Changes in property, plant and equipment were as follows:

Company (BR GAAP)

01/01/09 Additions Write-offs Transfers 12/31/09 Acquisition of subsidiary Additions Write-offs Transfers 12/31/10

Cost: Land 11,495 - - - 11,495 - - - - 11,495 Leasehold 3,417 3,148 (343) 28 6,250 45 848 (300) 646 7,489 Buildings 5,347 - - - 5,347 - - - - 5,347 Machinery and equipment 555 169 - - 724 5 33 - - 762 Furniture and fixtures 1,344 567 (8) - 1,903 88 472 - - 2,463

Facilities 1,125 329 (16) - 1,438 136 65 - - 1,639 Vehicles 719 433 (60) - 1,092 - 138 (162) - 1,068 Computer equipment 2,015 280 (110) 56 2,241 30 228 - 48 2,547 Other equipment 117 120 - 3 240 - 18 - - 258 Property, plant and

equipment in progress 104 729 (58) (87) 688 - 443 - (694) 437 Total cost 26,238 5,775 (595) - 31,418 304 2,245 (462) - 33,505 Accumulated depreciation: Leasehold (1,066) (749) 138 - (1,677) - (1,314) (23) - (3,014) Buildings - (145) - - (145) - (145) - - (290) Machinery and equipment (466) (24) - - (490) (4) (32) - - (526) Furniture and fixtures (753) (111) - - (864) (56) (173) - - (1,093)

Facilities (571) (105) - - (676) (124) (128) - - (928) Vehicles (350) (140) 52 - (438) - (186) 162 - (462) Computer equipment (1,633) (54) - - (1,687) (28) (168) - - (1,883) Other equipment (25) (13) - - (38) - (32) - - (70)

Total depreciation (4,864) (1,341) 190 - (6,015) (212) (2,178) 139 - (8,266) Net amount 21,374 4,434 (405) - 25,403 92 67 (323) - 25,239


01/01/09 Additions Write-offs Transfers 12/31/09 Write-off for

discontinuance Additions Write-offs Transfers 12/31/10 Cost: Land 11,495 - - - 11,495 - - - - 11,495 Leasehold 4,162 3,643 (388) 28 7,445 (357) 1,358 (300) 646 8,792 Buildings 5,347 - - - 5,347 - - - - 5,347 Machinery and equipment 838 216 (15) - 1,039 (28) 52 (2) - 1,061 Furniture and fixtures 2,076 774 (241) - 2,609 (71) 496 - - 3,034

Facilities 1,265 480 (152) - 1,593 (4) 81 - - 1,670 Vehicles 719 433 (60) - 1,092 - 179 (162) - 1,109 Computer equipment 2,415 366 (110) 56 2,727 (9) 287 (30) 48 3,023 Other equipment 122 121 (5) 3 241 - 18 (1) - 258 Property, plant and

equipment in progress 104 729 (58) (87) 688 - 443 - (694) 437 Total cost 28,543 6,762 (1,029) - 34,276 (469) 2,914 (495) - 36,226 Accumulated depreciation: Leasehold (1,154) (1,137) 164 - (2,127) 23 (1,485) 41 - (3,548) Buildings - (145) - - (145) - (145) - - (290) Machinery and equipment (516) (61) 7 - (570) 5 (62) 25 - (602) Furniture and fixtures (844) (234) 50 - (1,028) 10 (230) 5 - (1,243)

Facilities (693) (259) 121 - (831) 1 (131) - - (961) Vehicles (350) (140) 52 - (438) - (192) 162 - (468) Computer equipment (1,827) (156) 27 - (1,956) 3 (257) 30 - (2,180) Other equipment (26) (14) 1 - (39) - (32) 1 - (70)

Total depreciation (5,410) (2,146) 422 - (7,134) 42 (2,534) 264 - (9,362) Net amount 23,133 4,616 (607) - 27,142 (427) 380 (231) - 26,864

Impairment

Impairment tests are carried out annually, as described in notes 3 and 4. In 2010 the Company applied tests to identify factors that could lead to the need of reviewing the recoverable amount of the facilities of the Head Office and the Distribution Center of each of its stores. This analysis took into account the current level of profitability of each store, as well as factors specific to the fashion industry. Management, based on this analysis, did not identify events that might show the existence of assets recorded at amounts higher than their respective book values.


54

Assets pledged as guarantee

As of December 31, 2010 the Company has not pledged any asset to guarantee loans and/or lawsuits.

17. INTANGIBLE ASSETS

Company (BR GAAP)

12/31/10 12/31/09 01/01/09

Annual amortization

rate - % Cost Accumulated amortization

Net amount Cost

Accumulated amortization

Net amount Cost


Net amount

Assignment on rights to

use (*) 5,631 (2,215) 3,416 5,732 (1,673) 4,059 3,653 (1,204) 2,449 Software 20 886 (554) 332 827 (440) 387 524 (338) 186 Trademarks and patents - 16 (16) - 16 (16) - 68 - 68 6,533 (2,785) 3,748 6,575 (2,129) 4,446 4,245 (1,542) 2,703 Consolidated (BR GAAP and IFRS)

12/31/10 12/31/09 01/01/09

Annual amortization

rate - % Cost Accumulated amortization

Net amount Cost


Net amount Cost


Net amount

Assignment on rights to

use (*) 5,795 (2,215) 3,580 6,501 (2,272) 4,229 4,258 (1,788) 2,470 Software 20 1,035 (596) 439 982 (458) 524 830 (340) 490 Trademarks and patents - 204 (16) 188 204 (16) 188 129 - 129 7,034 (2,827) 4,207 7,687 (2,746) 4,941 5,217 (2,128) 3,089 (*) The assignment on rights to use is paid to shopping malls for installation of stores, and such amounts are amortized over the term of the

rental contract of such store, in ten years, considering a period of automatic renewal.

Changes in “Intangible asset” were the following:

Company (BR GAAP) 01/01/09 Additions Write-offs 12/31/09 Additions Write-offs 12/31/10

Cost:

Assignment on rights to use 3,653 2,079 - 5,732 266 (367) 5,631 Software 524 303 - 827 59 - 886 Trademarks and patents 68 - (52) 16 - - 16

Total cost 4,245 2,382 (52) 6,575 325 (367) 6,533 Accumulated amortization:

Assignment on rights to use (1,204) (469) - (1,673) (542) - (2,215) Software (338) (118) 16 (440) (114) - (554)

Total amortization - (16) - (16) - - (16) (1,542) (603) 16 (2,129) (656) - (2,785) Net amount 2,703 1,779 (36) 4,446 (331) (367) 3,748


55


01/01/09 Additions Write-offs 12/31/09 Write-off for

discontinuance Additions Write-offs 12/31/10 Cost:

Assignment on rights to use 4,258 2,848 - 7,106 - 266 (972) 6,400 Software 830 423 (271) 982 (17) 59 11 1,035 Trademarks and patents 129 144 (69) 204 - - - 204

Total cost 5,217 3,415 (340) 8,292 (17) 325 (961) 7,639 Accumulated amortization:

Assignment on rights to use (1,788) (1,074) (15) (2,877) - (547) 604 (2,820) Software (340) (140) 22 (458) 5 (137) (6) (596) Trademarks and patents - (16) - (16) - - - (16)

Total amortization (2,128) (1,230) 7 (3,351) 5 (684) 598 (3,432) Net amount 3,089 2,185 (333) 4,941 (12) (359) (363) 4,207

18. GOODWILL

Acquisition

Company (BR GAAP)

date 12/31/10 12/31/09 01/01/09 Goodwill on acquisition of company:

Luminosidade 08/14/08 30,435 30,435 - Isapac 08/31/08 - - 2,001

30,435 30,435 2,001

Date of Consolidated

(BR GAAP and IFRS) acquisition 12/31/10 12/31/09 01/01/09 Goodwill on acquisition of company:

Luminosidade 08/14/08 30,435 30,435 32,002 Isapac 08/31/08 - - 2,001 A.H. Confecções 08/26/08 - - 5,553

30,435 30,435 39,556 Changes recorded in “Goodwill” were the following:

Company - (BR GAAP)

Consolidated - (BR GAAP and IFRS)

2010 2009 2010 2009 Balances at the beginning of the year 30,435 2,001 30,435 39,556 Recomposition of goodwill - 32,002 - - Provision for impairment loss - (3,568) - (9,121) Balances at the end of the year 30,435 30,435 30,435 30,435 Allocation of goodwill to CGUs

Prior to the recognition of the impairment, the carrying amount of goodwill was allocated, for impairment test purposes, to the following Cash Generating Units (CGUs):


56

Company


(BR GAAP and IFRS) 2010 2009 2010 2009 Luminosidade 30,435 32,002 30,435 32,002 Brand “Alexandre Herchcovitch” - - - 5,553 Brand “Isabela Capeto” - 2,001 - 2,001 30,435 34,003 30,435 39,556 Luminosidade event segment

The recoverable amount of this CGU is determined based on the value in use calculated using cash flow projections based on a five-year financial budget approved by Management and a discount rate of 11.4% per year.

The cash flow projections for the budgeted period are based on the amounts to be obtained from public and private sponsorships substantially for the events SPFW and Fashion Rio, in addition to the prospection of new events. Cash flows subsequent to the five-year period were estimated at a constant annual growth rate of 4.5%, which corresponds to an expected inflation rate. Management believes that any reasonable possible change in the key assumptions on which the recoverable amount is based would not cause the aggregate carrying amount to exceed the total recoverable amount of the CGU.

In 2009, with the downstream merger of Eventos and Luminosidade (see note 15), the goodwill was recalculated and the amount of R$1,567 was written off in 2009 to record goodwill at its realizable value.

“Alexandre Herchcovitch” brand

The goodwill associated with the brand “Alexandre Herchcovitch” has arisen when the business was acquired by the Company in 2008, which performed satisfactorily in that year. In 2009, the international financial crisis has deterred the brand from opening new stores and caused the closedown of two stores. Thus, in 2009, in view of the uncertainty and the perspective of poor future results, Management revised the recoverability study for the goodwill arising on this acquisition and concluded that the recorded goodwill was not recoverable and then recognized an impairment loss under the caption “other expenses” in the income statement.

“Isabela Capeto” brand

In 2009, Management revised the recoverability study for the goodwill arising on the acquisition of the brand “Isabela Capeto” and concluded, based on future earnings projections and the current level of operations, that the recorded goodwill was not recoverable and then recognized an impairment loss under the caption “other expenses” in the income statement.

In 2010, Management decided to discontinue this operation, as described in note 34.


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19. LOANS AND FINANCING


(BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09

Overdraft account (a) - - - 50 654 229 Working capital (b) - - - - 422 298 Finance lease 6 31 66 6 31 66

6 31 66 56 1,107 593 (a) Overdraft account contracted with Banco Itaú (Banco Bradesco and Unibanco as of

December 31, 2009), bearing interest rate of 1.8% p.m. (rates varying from 0.44% to 2.46% p.m. as of December 31, 2009).

(b) Working capital finance contracted with Banco Santander Real bearing interest rate of 20.98% per year and settled in March 2010.

These credit lines are secured by promissory notes and endorsement of shareholders.

20. SALARIES, PROVISION AND SOCIAL CONTRIBUTION


(BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 Salaries payable 967 857 780 1,202 1,068 1,103 FGTS (severance pay fund)

payable 219 188 175 270 226 207 INSS (social security tax)

payable 762 649 590 1,096 773 728 Provision for vacations and related taxes 2,547 2,359 2,166 3,246 3,001 2,490

Other 58 41 42 62 92 48 4,553 4,094 3,753 5,876 5,160 4,576

21. TAXES PAYABLE


(BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 ICMS (state VAT) 3,038 2,475 3,212 3,093 2,575 3,422 IRRF (withholding income

tax) 291 290 368 377 353 408 PIS (tax on revenues) 184 195 173 249 260 203 COFINS (tax on revenues) 847 901 797 1,207 1,209 897 Other 56 43 57 569 351 209 4,416 3,904 4,607 5,495 4,748 5,139


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22. ACCOUNTS PAYABLE

Company (BR GAAP) Consolidated (BR GAAP and IFRS)

12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09 Acquisition - Luminosidade (a) 5,274 5,383 - 5,274 5,383 6,427 Price adjustment - Luminosidade (a) 1,366 1,991 1,991 1,366 1,991 1,991

Acquisition - A.H. Confecções (b) - - - 3,994 - -

Sales outlet 690 1,390 - 690 1,390 - Rental of stores 1,359 1,320 1,205 1,452 1,455 1,332 Services payable 351 - 247 499 - 269 Insurance 129 185 137 130 185 137 NDF operations (see note 32) 34 - - 34 - - Commissions 15 23 11 29 23 11 Other accounts payable 1,518 1,192 1,041 1,873 1,682 1,272 10,736 11,484 4,632 15,341 12,109 11,439 Current liabilities 6,421 5,887 2,641 7,666 6,055 3,021 Noncurrent liabilities 4,315 5,597 1,991 7,675 6,054 8,418 10,736 11,484 4,632 15,341 12,109 11,439 (a) On August 31, 2008 Eventos acquired 75% of the capital stock of Luminosidade; of the acquisition

price, R$6,427 were retained and will be paid with monetary restatement based on the CDI rate. With the downstream merger of Eventos into Luminosidade (see note 15), the liability previously owed by Eventos was assumed by the Company. As of December 31, 2010, the amount due was R$5,274 and shall be paid as described in note 32.i)

In addition, Luminosidade acquisition agreement established an inflation adjustment to the Luminosidade’s purchase price, calculated based on actual EBITDA for the operations of years 2009, 2010 and 2011, for payment in the following year that of the calculation. Accordingly, Management calculated the amount due based on the projected and actual results and recorded a liability of R$1,991, of which R$651 was paid in 2010 and R$1,366 will be settled until 2012, as described in note 32.i).

(b) On December 23, 2010 Estilo acquired 30% of the capital stock of A.H. Confecções at the total price of R$3,994, which shall be paid in five years with annual maturities, and the amount shall be adjusted by the Extended Consumer Price Index (IPCA), as described in note 32.i).

23. INSTALLMENT TAXES

Consolidated (BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09

IRPJ (corporate income tax) 2,524 3,042 4,424 CSLL (social contribution) 786 947 1,377 COFINS (social security funding contribution) 49 52 49 PIS (social integration program) 1 1 7 ICMS (state VAT) 158 114 83 3,518 4,156 5,940 Current liabilities 1,286 1,568 1,387 Noncurrent liabilities 2,232 2,588 4,553

3,518 4,156 5,940


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In 2008, the subsidiaries Luminosidade and A.H. Confecções had income tax and social contribution debts to be paid in installments under Law 10522/02, monthly adjusted at the Long-term Interest Rate (TJLP). In November 2009, such subsidiaries opted to the Tax Debt Refinancing Program (REFIS) introduced by Law 11941/09, and to settle these tax debts in up to 46 months.

Based on that Law, the payment option chosen provided a discount of 100% of fine and social charges and 40% of interest, as described below:

Consolidated

(BR GAAP and IFRS) Description 12/31/10 12/31/09 Balance at the beginning of the year 4,156 5,940 Monetary adjustments - TJLP 363 533 Payments made (1,001) (1,254) Discount of fine and interest - (1,063) Balance as the end of the year 3,518 4,156 In addition, the subsidiary A.H. Confecções adhered to the installment payment of the amount of R$154 relating to taxes due to the São Paulo State Government, and of R$36 relating to taxes due to the Federal District Government. The payment of the installments on the due date is an essential condition for the continuance in the installment program.

24. SHAREHOLDERS’ EQUITY

a) Capital

As of December 31, 2010, the Company’s capital amounted to R$205,304 (R$205,092 as of December 31 and January 1, 2009), divided into 19,509,331 shares (18,728,958 as of December 31 and January 1, 2009), all of them are registered common shares without par value and with right to vote on Shareholders' Meetings. The shares are held as follows:

Amount Total shares % Wishful Boys 96,082 9,130,495 46.80 PCP 98,546 9,364,477 48.00 Richards 8,212 780,373 4.00 Nelson Alvarenga 2,094 198,886 1.02 Américo Rodrigues 370 35,098 0.18 Gilberto Sayão da Silva - 1 - Alessandro Monteiro Morgado Horta - 1 - 205,304 19,509,331 100.00 According to the amendment to the articles of organization on June 10, 2010, a capital increase was approved in the amount of R$212, with issue of 780,373 new registered common shares without par value, which were paid up by shareholder Richards through the transfer of 2,042,965 shares representing 10% of the capital stock of Cia de Marcas.


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This capital increase is tied to the process of acquisition of Cia de Marcas, and the fair value of the consideration transferred in exchange for the acquisition of Cia de Marcas was measured at R$9,497, with the allocation of this amount to assets acquired and liabilities assumed, as well as the residual value of the goodwill, as described in note 7. The amount was recorded against the premium reserve, which was approved at the Extraordinary Shareholders’ Meeting on April 20, 2011.

The Company’s Bylaws set out that:

• Each share entitles its holder to one vote at Shareholders’ Meetings.

• Shares, debentures and subscription warrants may be issued, with preemptive right to former shareholders, and such securities shall be placed through any means provided for in article 172 of Law 6404/76.

• The issuance of founders’ shares by the Company is prohibited.

• The Company may: (i) increase the number of any existing class or type of shares or even create new classes of preferred shares, though more favorable than those previously existing, without proportion with the other classes and types; (ii) issue convertible debentures, subscription warrants and/or other securities convertible into shares; and (iii) the granting of stock options shall require prior approval of shareholders representing majority of the shares.

b) Special premium reserve

The amount of R$45,157 recorded as “Special premium reserve” comprises:

• R$7,589 relating to the allocation of the capital increase made using the equity interest held in Propag.

• R$9,497 relating to a premium recorded in the issuance of shares for the acquisition of 10% of equity interest in Cia de Marcas.

• R$28,071 resulting from the acquisition of the direct parent company Cristalys on August 31, 2008, as described in note 13, characterizing special premium reserve under article 1 of CVM Instruction 349/01, representing the tax benefit relating to amortization of premium. The portion of the special premium reserve corresponding to the tax benefit obtained may, at the end of each fiscal year, be capitalized in favor of the controlling shareholder with the issuance of new shares. The respective capital increase shall be subject to the preemptive right of non-controlling shareholders in the proportion of their equity interest per type and class of shares at the issuance date, and the amounts paid on the exercise of this right shall be delivered directly to the controlling shareholder.

c) Legal reserve

Recognized at an amount equivalent to 5% of the net income for the year, up to the limit of 20% of the capital stock. As of December 31, 2010, the Company recognized a legal reserve in the amount of R$1,055 (R$648 as of December 31, 2009), as provided for in article 193 of the Brazilian Corporate Law.


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d) Income distribution policy

Income shall be allocated as provided for in the Bylaws and in the Brazilian Corporate Law, as follows:

• 5% to the legal reserve.

• Distribution of mandatory minimum dividends at a percentage to be defined in Shareholders’ Meeting, however, subject to the rules set forth in current legislation (at least 25% of the net income for the year after the recognition of legal reserve and contingency reserve).

The amount recorded for dividend distribution is as follows:

2010 2009 Net income for the year 21,098 11,997 Financial statements restatement adjustment - 1,710 Adjustment under CPC - (742) Net income previously reported, base for calculation of legal reserve

and dividends 21,098 12,965 Recognition of legal reserve (5%) (1,055) (648) Basis for calculation of dividends 20,043 12,317 Interest on capital (ii) - 2,429 Withholding income tax on interest on capital - (183) Addition to mandatory minimum dividend 5,011 834 Total dividends and interest on capital 5,011 3,080 Percentage of dividends on calculation base 25.00% 25.00%

Dividends per share - R$ 0.2569 0.1645 Proposed additional dividends (i) - 2,046 Proposed additional dividends per share - R$ - 0.1092 (i) The additional dividends proposed by the Company’s Management for the year ended

December 31, 2009 will be submitted to the Annual Shareholders’ Meeting for approval.

(ii) Interest on capital proposed by the Board of Executive Officers and approved by the shareholders at the Extraordinary Shareholders’ Meeting held on February 16, 2009.

e) Earnings reserve

As of December 31, 2010, this reserve was recorded according to article 196 of Law 6404/76, for use in future investments, in the amount of R$15,032 (R$6,040 as of December 31, 2009).


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f) Non-controlling interest

2010 2009 Balances at the beginning of the year (1,416) (710) Interest in the net income for the year (183) (601) Effect of acquisition of non-controlling interest 1,612 1,226 Dividend distribution - indirect subsidiary Propag (1,341) (1,331) Balances at the end of the year (1,328) (1,416)

25. SALES REVENUE

Company


(BR GAAP and IFRS) 2010 2009 2010 2009 Wholesale - domestic market 81,313 79,563 82,055 91,519 Wholesale - foreign market 865 911 1,127 1,634 Retail sale - domestic market 78,506 68,221 82,267 71,775 Revenue from sale of goods 160,684 148,695 165,449 164,928 Consulting and licensing services 1,414 1,421 6,479 5,500 Sponsorship for events - - 29,518 18,391 Exclusivity agreements - - 35,804 34,576 Royalties 324 - 5,776 5,601 Revenue from services 1,738 1,421 77,577 64,068 Returns, cancelations and discounts (11,041) (12,352) (12,874) (17,942) Revenue less sales returns 151,381 137,764 230,152 211,054 Municipal taxes (71) (71) (328) (1,123) State taxes (21,300) (19,561) (23,671) (21,878) Federal taxes (14,042) (12,963) (18,629) (17,392) Deductions (35,413) (32,595) (42,628) (40,393) Net operating revenue 115,968 105,169 187,524 170,661

26. EXPENSES BY NATURE

The Company presented the income statement using a classification of expenses based on their functions. Information on the nature of such expenses recognized in the income statement is shown below:


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Company


(BR GAAP and IFRS) 2010 2009 2010 2009 Cost of inventory (44,130) (41,442) (46,388) (42,629) Personnel and related charges (34,570) (33,293) (45,470) (41,540) Building occupation and maintenance (2,639) (2,499) (4,921) (4,053) Rental (6,741) (5,704) (7,455) (6,268) Advertising and marketing expenses (1,140) (2,860) (6,346) (5,947) Condominium and promotion funds (5,227) (4,271) (5,467) (4,308) Sales commissions (5,041) (5,848) (7,627) (7,247) IT expenses (918) (772) (1,783) (1,287) Logistics and distribution expenses (2,075) (1,184) (2,086) (1,187) Fees, taxes and contributions (933) (785) (1,592) (1,073) Security and cleaning expenses (1,040) (1,004) (1,279) (1,312) Consumables (1,620) (1,480) (3,299) (3,534) Other services (6,564) (4,134) (17,210) (16,267) Losses on allowance for doubtful accounts (2,966) (2,162) (3,401) (3,303) Legal and accounting services (2,167) (1,801) (3,461) (2,785) Travel and transportation (2,145) (1,627) (3,264) (2,733) Other expenses (2,440) (1,005) (5,358) (3,656) (122,356) (111,871) (166,407) (149,129) Classified: Cost of goods and services (44,130) (41,442) (58,110) (54,363) Selling expenses (39,891) (36,774) (53,254) (46,951) General and administrative expenses (38,335) (33,655) (55,043) (47,815)

(122,356) (111,871) (166,407) (149,129)

27. OTHER OPERATING INCOME (EXPENSES)

Company (BR GAAP)


12/31/10 12/31/09 12/31/10 12/31/09 Provision for impairment loss (note 18) - (1,567) - (7,120) Provision for investment losses (note 15) - - (1,071) - Gain on sale of property, plant and equipment 164 85 179 85 Sponsorship - - 288 - Revenue from contractual breach fine - - 900 - Other income (expenses), net 477 (478) 283 (1,458)

641 (1,960) 579 (8,493)


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28. FINANCIAL INCOME (EXPENSES)

Company (BR GAAP)


12/31/10 12/31/09 12/31/10 12/31/09 Financial expenses:

Bank fees and expenses (646) (630) (1,384) (1,102) Interest (48) (620) (475) (701) Monetary adjustment - installment payment - - (307) (497) Interest on loans of related parties (495) (392) - - Monetary adjustment - former shareholders - - (490) (392) Other expenses (470) (9) (1,188) (668)

(1,659) (1,651) (3,844) (3,360) Financial income:

Earnings from investment 11,582 11,633 13,226 13,971 Interest 560 1,012 1,230 1,334 Interest on related parties 773 - 773 - Reversal of present value discount 2,359 3,890 3,420 3,890 Discounts obtained 110 116 280 116 Reversal of provision relating to adhesion to the

installment program of Law 11941/09 - - - 1,063 Interest on loans of related parties (*) - - 3,767 - Other revenues 140 138 216 387

15,524 16,789 22,912 20,761 (*) See note 14.

29. OPERATING LEASE - RENTAL OF STORES

As of December 31, 2010, the Company had 47 contracts with third parties for the rental of its stores, which, based on analysis of Management, are classified as operating lease. Most of the rental contracts provide for a variable rental expense based on sales, or a minimum amount adjusted on an annually basis by several indices that reflect the inflation, with validity terms of five years, subject to renewal. The logistics and administration departments of the Company operate at own places.

The real property rental amount is always the greater of: (a) the equivalent to the average rate of 6.59% of gross monthly sales per store; or (b) a minimum monthly amount adjusted on an annually basis by indices that reflect the inflation, as the case may be. These rental contracts are valid for five years, subject to amicable or judicial renewal (contract renewal lawsuit).

In the year ended December 31, 2010 rental expenses totaled R$6,741 (R$5,704 as of December 31, 2009) - Company and R$7,455 (R$6,268 as of December 31, 2009) - consolidated. As of December 31, 2010 the balance of “Rentals payable” is R$1,359 (R$1,320 as of December 31, 2009 and R$1,205 as of January 1, 2009) - Company, and R$1,452 (R$1,455 as of December 31, 2009 and R$1,332 as of January 1, 2009) - consolidated, as shown in note 22.


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As of December 31, 2011 the amount of future commitments (consolidated) resulting from these contracts amount to a minimum of R$14,029, distributed as follows:

Year Amount 2011 4,119 2012 3,872 2013 3,345 2014 1,906 2015 to 2018 787 14,029

30. PROVISION FOR RISKS

As of December 31, 2010, the Company’s subsidiaries were parties to labor and civil lawsuits, which, based on the opinion of their legal counsel, have possibility of unfavorable outcome, and a reserve was recorded, in the amount of R$414 - Company, and R$665 - consolidated. As of December 31, and January 1, 2009, the Company and its subsidiaries did not have proceedings with possibility of unfavorable outcome.

The Company’s Management believes that it is not necessary to recognize a reserve for the ongoing lawsuits in the approximate amount R$527 (R$439 as of December 31, 2009), whose likelihood of loss was considered “possible” by its legal counsel.

31. EARNINGS PER SHARE

As mentioned in note 24, the Company’s capital stock is composed of registered common shares without par value. In accordance with Technical Pronouncement CPC 41/IAS 33 - Earnings per Share, the table below reconciles the net income for the year to the amounts used to calculate basic and diluted earnings per share globally and for continuing operations.

2010 2009 Basic and diluted numerator:

Net income for the year attributable to the Company’s shareholders, used in the calculation of total basic and diluted earnings per share 21,098 11,997

Loss for the year on discontinued operations 955 2,733 Net income used to calculate basic and diluted earnings per share from

continuing operations 22,053 14,730 Basic and diluted denominator

Shares outstanding 19,509 18,728 Weighted average number of shares outstanding 19,119 18,728

Basic and diluted earnings per share - R$ 1.10 0.64 Basic and diluted earnings per share from continuing operations - R$ 1.15 0.79


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32. FINANCIAL INSTRUMENTS

The estimated realizable values of financial assets and liabilities of the Company and its subsidiaries have been determined using available marketing information and appropriate valuation methodologies. However, considerable judgment by Management was required to interpret market data and obtain the most appropriate estimated realizable value. Accordingly, the estimates below do not necessarily indicate the amounts that could be realized in current swap market. The use of market methodologies may produce different effects on the estimated realizable values.

a) Capital risk management

By managing its capital, the Company aims to ensure the continuance of its operations in order to offer return to its shareholders and maintain a proper capital structure to minimize the associated costs.

The Company’s capital structure consists of cash and cash equivalents (note 8), marketable securities (note 9) and shareholders’ equity (note 24).

Periodically, Management reviews the capital structure and its ability to settle its liabilities, and timely monitors the average term of accounts receivable, trade accounts payable and inventories, taking the necessary actions to keep them at levels considered appropriate for the financial management.

b) Significant accounting practices

Details of significant accounting practices and methods adopted, including the criterion for recognition and bases of measurement for allocation of revenues and expenses for each class of financial assets and liabilities and shareholders’ equity are described in note 3.

c) Categories of financial instruments


(BR GAAP and IFRS)

12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09

Carrying amount

Carrying amount

Carrying amount

Carrying amount

Carrying amount

Carrying amount

Financial assets:

Held for trading- Marketable securities 19,001 41,965 41,944 20,120 51,659 42,567

Loans and receivables: Cash and cash equivalents 104,917 93,893 14,199 123,421 114,500 103,153 Trade accounts receivable 25,664 23,469 29,568 35,470 30,740 34,760 149,582 159,327 85,711 179,011 196,899 180,480


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(BR GAAP and IFRS)

12/31/10 12/31/09 01/01/09 12/31/10 12/31/09 01/01/09

Carrying amount

Carrying amount

Carrying amount

Carrying amount

Carrying amount

Carrying amount

Other financial liabilities:

Loans and financing 6 31 66 56 1,107 593 Trade accounts payable 3,152 2,543 3,924 3,638 3,941 5,602 Accounts payable:

Retention of acquisition price - Luminosidade 5,274 5,383 - 5,274 5,383 6,427

Price adjustment - Luminosidade 1,366 1,991 1,991 1,366 1,991 1,991

Acquisition of equity interest in A.H. Confecções - - - 3,994 - -

Installments taxes - - - 3,518 4,156 5,940 Non-Deliverable Forward (NDF)

operations 34 - - 34 - - 9,832 9,948 5,981 17,880 16,578 20,553 Balances of accounts receivable are discounted to present value at each reporting date, as described in note 10. Accordingly, Management believes that the financial instruments, which are recognized in the individual and consolidated financial statements at their carrying amounts, do not present significant changes in relation to their market values at the end of each reporting period.

The balances of the captions “Loans and financing”, “Accounts payable” and “Taxes in installments” are adjusted for monetary variance based on contractual rates (note 19) and floating and/or contractual interest rates according to market conditions; therefore, the debit balance recorded at the end of each reporting period approximates the market value.

However, given that there is no active market for these instruments, differences could occur if such amounts were settled in advance.

d) Financial risks

The activities of the Company and its subsidiaries are exposed to certain financial risks, such as market risk (interest and foreign exchange), credit risk, liquidity risk and risk limited to the premium paid for the derivative contracted to hedge the exposure to currency price variation.

The Company’s Management manages risks according to policies approved by the Executive Officers. The Company’s Treasury area, in cooperation with the Company’s operating units, identifies, evaluates and hedges against financial risks.

e) Interest rate risk management

The Company and its subsidiaries are exposed to normal market risks associated with changes in interest rates on loans taken. Considering the balances of borrowings in relation to the balances invested at the reporting dates, the Company concluded that the risk of changes in the interest rates on these borrowings is not material.


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f) Foreign exchange risk management

The Company and its subsidiaries receive their revenues in Reais; foreign exchange risk arises from commercial operations generated mainly by the import of goods and services denominated in US dollar. The foreign exchange risk management policy defined by the Company's Management aims to hedge import transactions through Non-Deliverable Forward (NDF) operations used only as an instrument to hedge value and not as a speculative instrument, and such operations may be used for transactions exposed to foreign exchange variation that have financial impact on the Company, however, not designated as hedge.

Once a relevant import is defined, the currency price level that enables the trading of goods in local market within the expected profit margins standards and probable delivery terms are taken as bases; then the exercise price and maturity are defined to guide the contracting of NDF operations.

Starting January 2010, non-deliverable forward contracts were entered into Banco Itaú to buy U.S. dollars, as follows:

Gain Exchange rate - R$ Notional (loss) Type of Date of At the date of value recorded contract contract Maturity contract maturity (US$ thousand) (R$ thousand) Sale 05/21/10 06/01/10 1.8840 1.8167 1,402 94 Sale 05/21/10 06/15/10 1.8868 1.8030 20 2 Subtotal - sale 1.422 96 Purchase 05/21/10 06/01/10 1.8290 1.8167 1,632 (20) Purchase 05/21/10 06/15/10 1.8350 1.8030 340 (11) Purchase 05/21/10 07/15/10 1.9161 1.7657 390 (59) Purchase 05/21/10 07/01/10 1.9072 1.8015 504 (53) Purchase 05/21/10 07/15/10 1.8500 1.7657 40 (3) Purchase 05/21/10 08/02/10 1.9269 1.7572 243 (41) Purchase 05/21/10 08/16/10 1.9361 1.7716 275 (45) Purchase 10/06/10 11/09/10 1.6965 1.6970 227 - Purchase 10/06/10 11/25/10 1.7040 1.7247 516 11 Purchase 10/06/10 12/10/10 1.7710 1.7024 331 (3) Purchase 10/06/10 01/07/11 1.7250 - 120 (7) Purchase 10/06/10 01/24/11 1.7330 - 268 (16) Purchase 10/06/10 02/08/11 1.7405 - 173 (11) Subtotal - purchase 5.059 (258) Total 3.637 (162) The outstanding contracts as of December 31, 2010 are recorded at the fair value of R$34 under the caption “Accounts payable” in current liabilities.

Sensitivity analysis of interest rate

The Company and its subsidiaries are exposed to normal market risks associated with changes in interest rates on loans taken.


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The sensitivity analysis was determined based on the exposure to interest rates of assets and liabilities with floating rates, and was prepared assuming that the value of assets and liabilities outstanding at the end of the reporting period remained outstanding throughout the year. A decrease or increase of 3% is used to internally present interest rate risks to the key Management personnel, and represents Management’s assessment of possible changes in interest rates.

If interest rates were 3% lower/higher and all other variables remained constant, and considering that the Company has a net cash position (cash investments in relation to borrowings), the net income for the year ended December 31, 2010 would decrease/increase by R$3,775 (R$3,470 as of December 31, 2009).

g) Supplementary sensitivity analysis for financial instruments according to CVM Instruction 475/08

The Company presents below the supplementary information on its financial instruments as required by CVM Instruction 475, of December 17, 2008, specifically on the sensitivity analysis that supplements that required by IFRS and Brazilian accounting practices.

In preparing the sensitivity analysis, the Company adopted the following assumptions:

• Identification of market risks that may cause material losses to the Company.

• Definition of a probable scenario of risk behavior (Scenario I).

• Definition of two additional scenarios with a devaluation of at least 25% and 50% in risk variation considered (Scenarios II and III, respectively).

• Presentation of the impact of the scenarios on the fair value of the financial instruments.

Foreign exchange risk

R$ thousand Operation Risk Scenario I Scenario II Scenario III Loss at year-end Fall of U.S. dollar (34) (269) (504) Loss on exchange rates recalculated according to the previously established scenarios.

h) Credit risk management

The operations of the Company and its subsidiaries include retail sales of clothing and accessories. Sales are legally supported by purchase orders, contracts and other legal instruments, as necessary. The Company adopts specific procedures for selection and analysis of the customer portfolio aiming to avoid losses on default payments.

The allowance for doubtful accounts to cover credit risks amounts to R$5,084 and R$6,418 - consolidated (R$2,948 - Company and R$4,255 - consolidated as of December 31, 2009, and R$1,028 - Company and R$1,054 - consolidated as of January 1, 2009).


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i) Liquidity risk management

Management monitors the continuous forecasts of liquidity requirements to ensure that the Company has sufficient cash to meet its operational needs.

Given the dynamics of its business, the Company and its subsidiaries maintain flexibility in raising funds by maintaining credit lines with certain bank institutions. The table below shows in details the maturity of the financial liabilities contracted:


Operation Up to 1 year

From 1 to 2 years

From 2 to 5 years

Above 5 years Total

Trade accounts payable 3,638 - - - 3,638 Accounts payable:

Retention of acquisition price - Luminosidade 1,665 1,887 1,722 - 5,274 Price adjustment - Luminosidade 660 706 - - 1,366 Acquisition of equity interest in A.H. Confecções 634 692 2,668 - 3,994

Taxes in installments 1,286 1,281 951 - 3,518 Bank financing 56 - - - 56 NDF operations 34 - - - 34 7,973 4,566 5,341 - 17,880

j) Lines of credit

Consolidated

(BR GAAP and IFRS) 12/31/10 12/31/09 01/01/09 Overdraft account and bank line of credit:

Used - - - Unused 2,150 2,150 2,150

k) Fair value

Marketable securities were classified as financial assets held for trading and considered under Level 1 for purposes of calculation of fair value, determined based on the trading of similar instruments on active market, and the effects were recorded directly to the income for the year.

Consolidated (BR GAAP and IFRS) 12/31/10 12/31/09

Market value 20,120 51,659 Updated value 20,225 51,554 Market value adjustment (105) 105


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33. INFORMATION BY BUSINESS SEGMENT

The financial and operational management of the Company’s business is segregated by “sales of clothing” and “fashion content”, which are evaluated by the CEO based on management reports and internal controls, with segregated information on revenues and expenses. The reports are reviewed periodically by the Board of Directors for performance evaluation purposes and decision making about the allocation of resources and/or investments.

The report by operating segment is presented in a manner consistent with the internal report provided to the CEO, as follows:

• Sales of clothing - operates with the following brands: “Ellus” and “2nd Floor”, which are intended for young male and female people and middle and upper classes, and the “Ellus” brand is the leader in the Jeanswear industry in Brazil; the brand “Alexandre Herchcovitch” is directed to the manufacturing of male and female personal clothing as well as provision of fashion consulting services in general.

• Fashion content - relating to fashion content strategic brands, whose operations include the holding of “São Paulo Fashion Week” and “Fashion Rio” and other brands, such as the “Rio a Porter” tradeshow, “Mag!” magazine and the website “FFW.com.br”.

The Company’s segments have operations in Brazil, and they do not operate directly in foreign markets.

a) Results of operations

Consolidated (BR GAAP and IFRS) 12/31/10 Sales of

clothing Fashion content Other Consolidated

Net operating revenue 161,521 26,003 - 187,524 Cost of products, goods and services (46,388) (11,722) - (58,110) Gross profit 115,133 14,281 - 129,414 Operating expenses (92,202) (11,868) (7,241) (111,311) Income (loss) from operations before financial income (expenses) 22,931 2,413 (7,241) 18,103 Financial income (expenses) 18,677 Income before income tax and social contribution 36,780

Consolidated (BR GAAP and IFRS) 12/31/09 Sales of

clothing Fashion content Other Consolidated

Net operating revenue 156,376 14,285 - 170,661 Cost of products, goods and services (46,836) (7,527) - (54,363) Gross profit 109,540 6,758 - 116,298 Operating expenses (96,547) (7,288) (2,800) (106,635) Income (loss) from operations before financial income (expenses) 12,993 (530) (2,800) 9,663 Financial income (expenses) 17,348 Income before income tax and social contribution 27,011


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b) Assets and liabilities

Consolidated

(BR GAAP and IFRS) 12/31/10 12/31/09 Assets by segments:

Sales of clothing 354,183 330,140 Fashion content 15,031 18,901 Other 49,735 6,170 Intercompany elimination (81,029) (53,174)

Total consolidated assets 337,920 302,037 Liabilities by segments:

Sales of clothing 69,334 69,491 Fashion content 10,469 14,003 Other 143 103 Intercompany elimination (19,451) (38,718)

Total consolidated liabilities 60,495 44,879

c) Source of revenues by segments


12/31/10 12/31/09 Sales of clothing:

“Ellus” and “2nd Floor” brands: Whole sales 98,509 102,879 Retail sales 56,423 48,480

“Alexandre Herchcovitch” brand: Retail sales 4,935 3,665 Consulting and licensing 1,654 1,352

Subtotal 161,521 156,376 Fashion content:

São Paulo 18,462 8,713 Rio de Janeiro 4,680 2,001 Other events 2,861 3,571

Subtotal 26,003 14,285 Total 187,524 170,661


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d) Other information by segment


Depreciation and amortization

Additions to property, plant and equipment and

intangible assets 12/31/10 12/31/09 12/31/10 12/31/09 Sales of clothing 2,961 3,115 3,210 10,041 Fashion content 257 261 29 136 Total 3,218 3,376 3,239 10,177

34. DISCONTINUED OPERATIONS

In December 2010, Management prepared a plan for sale of the joint venture Isapac, as described in note 1.b), and such transaction was completed on March 4, 2011. Results from discontinued operations included in the income statement are presented below. The comparative income (loss) and cash flows from discontinued operations have been restated to include these operations classified as discontinued operations in the current period.


2010 2009 Loss from discontinued operations Income 3,033 3,203 Expenses (3,988) (3,935) Loss (955) (732) Write-down of goodwill to recoverable amount - (2,001) Loss from discontinued operations (attributable to the equity owners of

the Company) (955) (2,733) These businesses were classified and recorded as of December 31, 2010 as a group of assets held for sale, as shown below:

Balance Business-related assets:

Cash and cash equivalents 22 Trade accounts receivable 772 Inventories 1,127 Property, plant and equipment and intangible assets 439 Other assets 88

2,448


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Balance Liabilities associated with assets held for sale:

Installments taxes 189 Taxes payable 520 Salaries, provision and social contribution 215 Other liabilities 215 1,139

35. INSURANCE COVERAGE

The Company and its subsidiaries have an insurance policy that considers mainly the concentration of risks and their relevance. As of December 31, 2010, the insurance coverage amounts are as follows:

Limit

contracted Loss of profits 18,000 Fire - establishments (stores, Distribution Center and Head Office) 42,202 Vehicles - only civil liability, maximum amount per vehicle 200

36. ADDITIONAL INFORMATION TO THE STATEMENTS OF CASH FLOWS

The Company’s Management considers as “cash and cash equivalents” the amounts intended to meet short-term commitments and not for investment or other purposes. Short-term investments are readily convertible into known amounts of cash and are not subject to a significant risk of change in value.

As of December 31, 2010 the balances that compose this account are described in note 8.

The items that did not affect the cash flows of the Company and its subsidiaries are as follows:

Company


(BR GAAP and IFRS) 12/31/10 12/31/09 12/31/10 12/31/09 Allocation of the goodwill arising from the

acquisition of Eventos by Luminosidade (note 15): Allocation of the goodwill arising from the acquisition of Luminosidade - 30,435 - 30,435 Accounts payable to former controlling shareholders - (4,993) - (4,993)

Subsidiaries’ dividend distribution 1,287 23,752 - - Acquisition of goodwill on credit - 1,390 - 1,390 Capital increase in subsidiary with loan 450 130 - - Capital increase in subsidiary with investment 212 - 212 -


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Company


(BR GAAP and IFRS) 12/31/10 12/31/09 12/31/10 12/31/09 Effect of acquisition of non-controlling interest 5,617 827 5,617 827 Allocation of mandatory minimum dividend 5,354 834 5,354 834 Dividends to be distributed by Propag to non-

controlling interest - - 486 829 Goodwill arising from the acquisition of investment

in associate 9,497 - 9,497 - Assets held for sale - - 2,448 - Liabilities held for sale - - 1,139 - Assets incorporated from subsidiary, except cash 930 - - - Liabilities absorbed from subsidiary 2,754 - - -

37. SUBSEQUENT EVENT

a) Acquisition of business

On February 4, 2011, the Company entered into an irrevocable and irreversible agreement to acquire 100% of the capital stock of VR Holding Participações Ltda. (“VR Holding”), parent company of VR Indústria e Comércio do Vestuário S.A. (“VR Indústria”), which operates the brands “VR”, “VRMenswear” and “VRKids”. On March 31, 2011, the Company, through its subsidiary Inbrands Moda São Paulo Participações S.A., entered into an agreement to buy 100,000 shares in VR Holding.

Pursuant to the Investment Agreement, the Company entered into an association agreement with Mr. Alexandre Brett, with respect to Mandi Holding Participações S.A. (“Mandi Holding”), which owns all of the shares issued by Mandi Indústria e Comércio do Vestuário S.A. (“Mandi Indústria”), which owns the brands Mandi and Mandi&Co. Thus, as of March 31, 2011, the Company acquired five shares in Mandi Holding, and became bound by an agreement that assures participation in the Management of Mandi Holding, right of veto on certain relevant matters and rights concerning the transfer of shares issued by Mandi Holding by its shareholders. The Investment Agreement also sets out the terms for acquisition by the Company until 2013 of shares representing up to 25% of the capital stock of Mandi Holding.

b) Change of company name

At the Extraordinary Shareholders’ Meeting held on February 25, 2011, the shareholders approved the change of the Company’s name to Inbrands S.A.

c) Stock option plan

At the Board of Directors' Meeting held on March 18, 2011, the Company set the Compensation Committee, which is responsible for managing the Company’s Stock Option Plan.


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2010-3523

The Extraordinary Shareholders’ Meeting held on March 18, 2011 approved the Stock Option Plan, whose purpose is to grant options for the purchase of Company common shares to certain members of Management and employees of the Company and its subsidiaries or associates. Each option entitles its holder to the right to purchase one Company share.

The plan is limited to 1,518,564 options, which represent a dilution of up to 7.5% of the total Company shares. The strike price shall be determined by the Compensation Committee upon the creation of each Program, and shall be adjusted according to indices and rates to be set. Every 12 months from the effective date of each Program, the participants will become entitled to exercise 1/3 of their options, which shall be fully exercised within a maximum term of 36 months.

On April 15, 2011 the 1st Stock Option Plan was approved, granting options to purchase 1,133,888 common shares to six members of management and employees, at a pre-set price to be adjusted according to the variation of the Extended Consumer Price Index (IPCA) plus 6% per year.

38. AUTHORIZATION FOR COMPLETION OF THE FINANCIAL STATEMENTS

The Board of Directors’ Meeting held on May 13, 2011 authorized the completion of these financial statements, which include the subsequent events occurred after December 31, 2010, and are approved for publication.

Documents

Ellus do Brasil Confecções e Comércio S.A. and Subsidiariesinbrands.com.br/inbrands/web/arquivos/Inbrands DFP 2010_eng.pdf · Ellus do Brasil Confecções e Comércio S.A. and