behind the mexican supermarket. · ricardo martín bringas ceo in 2009 we focused our efforts to...

BEHIND THE MEXICAN SUPERMARKET.2009 ANNUAL REPORT

CONTENTS

INTRO-DUCTIONBehind each product, of each peso saved, of each sale, of each satisfi ed customer, we can see the effort of thousands of our collaborators working for Mexican families and strengthening the position of our Company in Mexico’s retail sector day after day.

02 Introduction03 Corporate Profi le03 Mission / Vision05 Relevant Numbers 2005-200906 Message from our CEO08 Behind Soriana14 Behind a Strategy18 Behind our Quality22 Behind a Friendly Face26 Behind our Results30 Behind our Commitment to Mexico34 Executive Offi cers35 Board of Directors38 Consolidated Financial Statements

COR-PORATE PROFILEFounded in Torreón, Coahuila, in 1968, Organización Soriana is today one of the most important companies in the retail sector in the country and a proud Mexican company. Its shares went public in the Mexican Stock Exchange since 1987 under the name SORIANA.

Following a multi-format strategy, to date the Company oper-ates 471 retail stores commercializing extensive and complete lines of food, clothing, general merchandise, health products and basic services, striving to satisfy the specific needs of our different groups of clients.

MISSIONTo satisfy the product and service needs of the communities where we operate, while instilling our philosophy and values in each one of us to ensure a permanent and valuable relationship with our clients, employees, suppliers, stockholders, the community and the environ-ment, thereby obtaining an adequate level of profitability and thus guaranteeing our permanence and growth.

VISION To serve from a position of leadership an increasing number of communities, by offering customers the best shopping experience and the best workplace for our employees as a result of ongoing innovation.

FINANCIAL HIGHLIGHTS 2005-2009

2005 2006 2007 2008* 2009*

Total Revenues 52,247 60,554 65,191 91,921 88,637

% of Increase Total Stores 11.3 15.9 7.7 41 -3.6

% of Increase Same Stores (0.3) 4.4 0.6 4.9 (5.5)

Gross Profi t 11,188 12,836 13,394 18,865 18,294

% Gross Margin 21.4 21.2 20.5 20.5 20.6

% of Increase 10.2 14.7 4.3 40.8 (3.0)

SG&A Expenses 6,957 7,989 7,965 12,782 11,726

% SG&A Expenses 13.3 13.2 12.2 13.9 13.2

% of Increase 12.9 14.8 (0.3) 60.5 (8.3)

EBITDA (1) 4,231 4,847 5,429 6,083 6,568

% EBITDA (1) 8.1 8.0 8.3 6.6 7.4

% of Increase 6.1 14.5 12.0 12.0 8.0

Operating Income 3,370 3,869 4,303 4,198 4,584

% Operating Income 6.5 6.4 6.6 4.6 5.2

% of Increase 5.8 14.8 11.2 (2.4) 9.2

Net Earnings 2,299 2,789 3,135 1,723 2,868

% Net Earnings 4.4 4.6 4.8 1.9 3.2

% of Increase (21.4) 21.3 12.4 (45.0) 66.4

Cash Net Profi t 4,077 4,386 4,907 3,390 5,232

% Cash Net Profi t 7.8 7.2 7.5 3.7 5.9

% of Increase 10.1 7.6 11.9 (30.9) 54.4

Total Assets 38,255 43,110 61,154 66,388 65,725

% of Increase 9.9 12.7 41.9 8.6 (1.0)

Total Liabilities 15,685 18,283 33,747 37,257 33,795

% of Increase 10.1 16.6 84.6 10.4 (9.3)

Shareholders’ Equity 22,570 24,827 27,408 29,131 31,931

% of Increase 9.8 10.0 10.4 6.3 9.6

Customers (Millions) 278.8 319.9 345.5 552.3 532.0

% of Increase 8.1 14.7 7.9 59.9 (-3.7)

Employees (Thousands) 53.0 60.3 63.5 93.7 76.8

% of Increase 13.8 13.8 5.2 47.6 (-18)

Number of Stores 197 234 257 465 471

% of Increase 21.6 18.8 9.8 80.9 1.3

Sq. Ft. of Sales Floor (Thousands) 1,530.2 1,749.1 1,880.2 2,799.2 2,824.4

% of Increase 15.6 14.3 7.5 48.9 0.9

(1) EBITDA is defi ned as operating income before depreciation and amortization

* For purposes of comparability, the reader should consider that the results of the years 2008 and 2009 were reclassifi ed under

the norm IFRIC 13 “Customer Loyalty Program” as part of the process that the Company has started to adopt the International

Financial Reporting Standards (IFRS).

SORIANA ‘09 ANNUAL REPORT 5

MESSAGE FROM OUR CEOI remember mentioning in our 2008 Annual Report the great challenges we faced

during the last months of that year. The world economic crisis was strongly impacting

the purchasing power of Mexican families, representing a complex situation for our

Company as we were integrating the stores we had recently acquired that year.

Unfortunately, these last months of 2008 would only be the beginning of the

deepest crisis that our country has seen in many years. Our determination, as a

Company and that of our collaborators, would be put to the test even more in 2009 in

order to transform a huge challenge into an equally large opportunity.

Fortunately, we took the needed measures to face this diffi cult situation by

launching our expense effi ciency plan in February, which included searching and ap-

plying expense-cutting measures and greater effi ciency in all of the Company’s areas

and processes. This resulted in an annual decrease in operating expenses for over

$1 billion pesos compared to the previous year and a 60-bps reduction in expenses

as a percentage of sales.

On other hand and complementing our strict savings policy, we also rigorously

followed our debt reduction plan, and achieved an annual reduction of over $3.914

billion pesos in our cost liabilities. This reduction along with a lower interest rate and

a more favorable currency exchange rate, allowed us to reduce in 61.7% our compre-

hensive fi nancing expense.

The above, plus a more effi cient expense structure and a better administration of

our promotional plans, helped us, even in the midst of this deep economic crisis, to

increase our EBITDA by 8% and achieve a very important 66.4% increase in our net

profi t and 54.4% of net cash profi t.

With a mindset of constantly searching for new effi ciencies to generate greater

savings, we took advantage of this analysis to take a look deep inside the Company

and see how we could enhance our commercial proposal to the customer.

By observing the need of our clients for immediate savings on their purchases due

to their affected purchasing power, we decided to strongly increase our investment of

Our collaborator’s commitment

and their cooperation in

applying savings measures

and greater effi ciencies allowed us

to achieve a satisfactory result

throughout the year, despite the

diffi cult economic environment

and decrease in consumer

spending.

6

resources in directly lowering the price of thousands of products offered in our stores.

This extension to our commercial proposal strengthened and complemented our suc-

cessful loyalty program and placed Soriana as the only retail chain that not only offers

the best prices but also provides additional benefi ts through its loyalty program. We

were thus able to offer Mexican families a more complete value proposal and achieve

a higher benefi t for their money.

This same process of looking for an internal growth also led us to important de-

velopments in other strategic areas for our Company, such as the supply chain and

logistics. On this subject we can specifi cally point out the total automation of our most

important distribution center located in Salinas Victoria, Nuevo León. This center will

be offering great benefi ts to our merchandize distribution process.

Last but certainly not least, I wish to share with you that this year we greatly

progressed in our integration process of the stores acquired in 2008, specially re-

garding human resources. This improvement will allow us in the short term to operate

a business under one work culture, and will at the same time refl ect on a standard-

ized shopping experience for our customers, who will receive a better attention and

service regardless of the fact that the store they are visiting used to belong to another

retail chain.

Summarizing, we are closing a year and beginning a new one having learned

that behind an economic crisis there is an opportunity for improvement and, thanks

to this, today Soriana is stronger than ever before. We are ready to renew our growth

and have the opportunity of serving and satisfying a larger number of Mexican families

each year.

Ricardo Martín Bringas

CEO

In 2009 we focused our efforts to internal improvement, reorganizing our operation, strengthening our value proposal and making our supply processes more effi cient. Our Company’s foundations are now stronger than ever and we are ready to resume our growth with a clear vision toward the future.


BEHIND SORIANA.Behind each store and each product sold we see the effort and dedication of 77,000 collaborators that operate 471 stores, use 14 distribution centers and travel hundreds of kilometers throughout our country every day with a single objective: to exceed our customers’ expectations.

PRESENCE

We currently have locations in 138 cities throughout Mexico’s 32 states. With more than 2,8 million sq meters of sales floor distributed over our 4 store formats. At the end of 2009 we had a total of 471 stores in the following formats: 225 Soriana, 97 Soriana Super, 119 Soriana Mercado and 30 City Club stores.

2.8 138 32MILLION SQ METERS OF SALES FLOOR

CITIES STATES

NUMBER OF STORES PER REGION61 NORTH PACIFIC

51 NORTH

50 NORTHEAST

58 MONTERREY

52 WEST

52 BAJÍO

77 MEXICO CITY METROPOLITAN AREA

30 SOUTH

40 SOUTHEAST

Over the last 5 years our growth in stores has allowed us to expand Soriana’s presence from our region of origin to new areas and at the same time, this has brought us the opportunity of serving more Mexican families each day.


SORIANA

EVERYTHING THE CUSTOMER NEEDS. Soriana stores operate under a hyper-mar-

ket format with an average sales surface

of 8,500 sq m. These stores also provide

a high level of service and personal atten-

tion to the customer, with a wide variety of

clothes, general merchandise, groceries

and perishable goods departments. They

include a strip mall with shops that pro-

vide a diverse selection of products and

services.

SORIANA SÚPER

THE BEST QUALITY NEAR YOU.

Soriana Súper was created with the ob-

jective of satisfying the more frequent

consumer needs of Mexican families.

With an efficient distribution of all its

departments, it has an optimal size of

2,500 sq m of sales fl oor allowing for a

comfortable and swift shopping experi-

ence in daily consumer products such

as groceries, perishable goods and pre-

pared foods.

SORIANA MERCADO

THE BEST PRICE.

Soriana Mercado’s objective is to offer

the client lower prices and the most at-

tractive offers. It has an average sales

fl oor of 5,000 sq m operating under an

austere but comfortable store environ-

ment. Soriana Mercado offers an opti-

mized selection of clothes, general mer-

chandise, groceries, perishable goods

and prepared foods, with the best price

as our guarantee.

FORMATSOur clients are the most impor tant par t of our business. For this reason, our

stores are planned so they can always find the products, services and brands

according to their specific needs, with the most agreeable, original and complete

shopping experience.

12

471TOTAL STORES

SORIANA

SORIANA SÚPER

SORIANA MERCADO

CITY CLUB

30

225

97119

Thanks to the multi-format operation, we can adapt to the specifi c needs of each region where we are present.

CITY CLUB

VOLUME, INNOVATION AND PRICE.City Club is our membership club offering

the highest value to its members. With an

average of 8,000 sq. m. of sales fl oor, our

units offer a variety of products including

groceries, food, automotive, sports and

exercise equipment, entertainment, hard-

ware, home and garden, among others,

in institutional sizes and multi-package

presentations, perfect for businesses

and high-consumer families.

SUPER CITY

QUALITY AND CONVENIENCE

Super City is an innovative Convenience

Store program that not only operates its

own stores but also offers the opportu-

nity to small entrepreneurs to integrate

under a franchise format and have all the

support of Soriana Organization through

City Club. As of the end of 2009, there

are 282 stores in 15 cities offering a dif-

ferent option in convenience stores with

unique personality and features.


BEHIND A STRA-TEGY.We fi nd the design and implementation of commercial proposals focused on providing a better value proposal to Mexican families.

Throughout 2009 more than 10 million clients used the Aprecio Loyalty Card regularly and more than 100,000,000 free products were given to our clients.

PROMOTIONAL AISLEIn our quest to conquer the customers’ preference, throughout 2009 we renovated

a promotional tool used in Soriana: “The Promotional Aisle”. This preferential area in

our stores had a commanding place in our value proposal and became our clients’

preferred space, where they were able to fi nd from frequently needed products, to

innovative electronic appliances with the best prices in the market and showcased

in high-volume exhibits.

BARATISIMO CAMPAIGNOur price strategy and communication methods represent other important changes

implemented this year. As a consequence of the crisis affecting our country and the

whole world, Mexican families suffered a reduction in their purchasing power which

led them to look for better shopping opportunities and therefore focus their attention in

prices displayed on the store shelves. Responding to this trend, Soriana aggressively

launched its “Baratísimo” campaign, and increased its investment aimed at directly

lowering the price of thousands of frequently needed items, and therefore guarantee

housewife’s the lowest prices in the market.

INNOVATIVE PROMOTIONS In addition to the strong investment in resources directed to re-implementing our

promotional aisle and launching our Baratísimo campaign, the Company continued

its promotion caravan and innovative offers program. Some of the most notable pro-

grams because of their importance and great acceptance from our customers are:

the popular points program, the successful 3X2 and 3X2 Improved promotions, all our

Electronic Cash programs and our 7th Millionaire Sweepstakes.

532MILLION CLIENTS SERVED IN 2009


BEHIND OUR QUALITY.We fi nd our strong corporate focus for a continuous improvement applied in all our operation, commercial, logistics and administrative processes, and the continuous search for new technologies that will help us guarantee the highest quality in the products and services we provide our customers.

5,100SUPPLIERS

With the Soriana Guarantee we assure our costumers that the quality of the products exhibited in our shelves will be of their entire satisfaction.

PROPER SELECTION FROM ITS ORIGIN Our suppliers are the fi rst link in our quality policies. For this reason, we work with them

throughout the entire year to raise quality standards in our products from the moment

they are manufactured. Especially important are our efforts in the fresh produce,

meats and fi sh departments, and in our various programs directed to guaranteeing

the highest quality in our thousands of private brand products.

WAREHOUSE AND DISTRIBUTION.A key component in our operation process contributing to guarantee our quality is our

warehouse and distribution. A correct execution of these stages ensures the perma-

nent availability of products in our stores, so customers will always fi nd the products

they are looking for in the highest quality conditions on our shelves.

With this in mind, each year we work to make our logistics network more ef-

ficient. 2009 in particular was a year with great progress. As an example we have

the intensive renovation of our most important Distribution Center (CEDIS) located

in Salinas Victoria with the implementation of the highest technology distribution

systems, transforming this strategic facility into one of the largest and more efficient

completely automated distribution centers in Latin America.

At the same time, we implemented a variety of improvement programs in

our other 13 Distr ibution Centers and our transpor tation network to achieve

customer satisfaction.

EXHIBITION AND SALES.The high quality standards implemented in our supplier selection processes, product

purchase, warehousing and distribution were also required and applied at our sales

points and contact with the customer. This year we continued the training programs for

our store personnel with the objective of guaranteeing the quality, hygiene and image

in product display and sales. These high-quality operation levels have received diverse

recognitions such as the Distintivo H, awarded by top Health Authorities in

the country.

DISTRIBUTIONCENTERS


BEHIND A FRIENDLY FACEAt Soriana we are convinced that a smile and kind manners remain forever in the minds of our clients. So we continuously work year after year to promote among our collaborators the same spirit of service and kindness our founders followed when they created this Company.

With the introduction of specialized personnel in our stores, we are providing our clients with the needed information to make a satisfactory and intelligent buying decision.

SPECIALIZED PERSONNELIn order to guarantee the quality and provide our clients with an added value, in

2009 we began hiring specialized personnel for areas in our stores that require

more service and contact with the customer, and offer them orientation on their

purchase. We introduced specialized salespersons in our Electronics and Variety

departments. With a greater knowledge of the products and strongly committed to

service, they are the best advisor for the clients and help them make an intelligent

purchase completely meeting their needs and expectations.

CONTINUOUS TRAINING Training is a key factor for the fast and sustainable growth of our Company. We are

therefore promoting the technical and academic development of our collaborators

through Universidad Soriana. In 2009 we delivered more than 1,400,000 men

hours of training on diverse topics related with the daily operation: techniques to

provide a better service and more efficient attention at the check-out counters,

to name a few.

We also implemented several continuous education programs giving the op-

portunity to 1,331 collaborators to continue on with their academic studies, and

252 received elementary, high-school and college degrees.

This continuous training programs have helped us standardize the quality in

service our customers receive and operate under one unique working method in

all stores, independently of the geographic localization of our units.

A GOOD PLACE TO WORKWe are convinced that a kind face is the reflection of collaborators who are pleased

and satisfied with their work-place. Based on our Company’s vision, this year we

made a very special effort to offer a better labor environment for our collaborators

and launched a variety of programs, such as: tournaments for dif ferent sports,

reading club, scholarships for formal academic degrees, vaccination campaigns,

social responsibility programs and family integration activities, among others

THOUSAND EMPLOYEES WORK IN SORIANA

77


BEHIND OUR RESULTS.Behind our savings in expenses and profi t increase we have the determination of each Soriana collaborator to do things better, use fewer resources and create more, to break paradigms and transform times of crisis into times of opportunity.

The addition of large and small savings and the enthusiasm of all our collaborator in being more effi cient allowed us to achieve our expected results and increase our profi ts in more than 60%.

8.3%REDUCTION IN OPERATION EXPENSES

COMMERCIAL INTELLIGENCEOne of our main objectives since the acquisition in December, 2007, has been

to gradually and constantly recover our operations’ profitability and gross margin.

In 2009 our commercial area worked hard to design a promotion program that

would allow us to invest our resources in a more efficient way, reducing prices

precisely on those products that are a real necessity for our customers, maximiz-

ing our investment results and client satisfaction. A better management of our

promotional programs, together with the valuable information from our loyalty

program database, allowed us to increase the precision of our prize investment

by directing it to the most sensitive products. This, together with a collaborated

effort with our suppliers, allowed us to increase our gross sales margin by 12-bp

in the midst of the crisis.

EFFICIENCY EXPENSES PLANAs a response to the dif ficult times, starting in February, the Company implement-

ed a savings and efficiency plan in dif ferent concepts from Soriana’s operation

expenses. Even though the efficiencies achieved in the areas of energy savings

and distribution played a fundamental role, it was the small savings in every ex-

pense line that made it possible to reach an annual reduction of 8.3% and savings

for $1.056 billion pesos.

Thanks to this program, today Soriana has an austere but efficient expense

structure, allowing us to increase and set higher operation standards, undoubtedly

a future success factor in the years to come.

DEBT CONTROLThe strict compliance to our debt reduction plan, a conservative risk manage-

ment policy and the additional flow generated by our savings plan, allowed us

to exceed our debt payment objective and achieve a reduction of $3.914 billion

pesos year over year. Thus the Company closed 2009 with a stronger financial

position and greater maneuverability to increase the investment in our stores in

the following years.

BILLION PESOS IN DEBT PAYMENT

1Q 2Q 3Q 4Q

$3,

039

$3,

027

$3,

052

$2,

877

$3,

306

$2,

859

$3,

384

$2,

964

20082009

GENERAL EXPENSES GRAPH(MILLION PESOS)

20082009

DEBT BEHAVIOR GRAPH(MILLION PESOS)

Dic.

$12,

943

1T

$14,

957

2T

$12,

312

3T

$11,

317

4T

$9,

029

$3.914


BEHIND OUR COMMIT-MENT TO MEXICO.Behind our social responsibility actions, there is an institutional commitment to maintaining a solid, long-term relationship with the community, collaborators and suppliers as well as our focus on applying the best business practices in business management and environmental care.

Through a combined effort, we achieved a social investment of $ 87.4 million peso benefi ting 399 associations.

COMMUNITY OUTREACHOur vocation of service to the community rests on the actions we take to enhance its

quality of life. The joint efforts of customers, collaborators, associations, volunteers

and the company rendered a social investment of $ 87.4 million pesos in 2009. These

funds helped 399 institutions located throughout the entire country. One of the highest

contributions was to the 2009 Teletón.

ENVIRONMENTOur environmental care activities invite the community to take part in our various

actions intended to provide future generations with a better planet to live in. Actions

such as incorporating the oxo biodegradable plastic bag, opening recycling collec-

tion centers for batteries, paper, plastic, aluminum, glass and used applianc-

es to be transformed under certified environmentally safe processes,

led to the collection of 84,817 tons of materials, that translated to a

saving of 84,842 barrels of oil, 1,243,584 trees, 1,854 million liters of

water and 276 thousand cubic meters of landfill space.

BUSINESS ETHICSSupporting and promoting small and medium regional

business by selling their products in our stores reflects

our commitment to the development of Mexico. Our

commitment to transparency is backed by the use of the

best corporate management practice and good corporate

governance.

‘06

$54

.7

‘07

$87

.0

‘08

$90

.6

‘09

$87

.4

SOCIAL INVESTMENT(MILLION PESOS)

led to the collection of 84,817 tons of materials, that translated to a

saving of 84,842 barrels of oil, 1,243,584 trees, 1,854 million liters of

water and 276 thousand cubic meters of landfill space.

INSTITUTIONS BENEFITED

399


EXECUTIVE OFFICERS

Ricardo Martín BringasChief Executive Offi cer

Alejandro Córdoba RuizChief Operating Offi cer

José Manuel Sánchez MorenoChief Commercial Offi cer

Aurelio Adán HernándezChief Financial Offi cer

Sergio Martínez San GermánChief Information Technology Offi cer

Luis Girard de la LastraChief Logistics & Distribution Offi cer

Marco Antonio Vázquez CortésDirector, City Club

Yusef Atiyeh NavarroDirector, Real Estate

Kenneth Moskal KeeganDirector, Supply Chain

Joaquín Pérez-Gavilán SalasDirector, Human Resources

Humberto Fayad WolffDirector, Marketing

Javier Basauri GonzálezDirector, Store Operations

34

BOARD OF DIRECTORS

Founding DirectorsFrancisco Martín Borque (†)Armando Martín Borque

ChairmanFrancisco Javier Martín Bringas

Vice-ChairmanRicardo Martín Bringas

Proprietary DirectorsCarlos Eduardo Martín BringasAlberto Martín SoberónGerardo Martín SoberónRoberto Tohmé Valenzuela*Guillermo Torre López*María Rosa Martín SoberónAna María Martín Bringas

Alternate DirectorsPedro Luis Martín BringasArmando Martín SoberónMaría Teresa Martín BringasGerardo Maldonado Rodríguez*Franciso Jiménez Reyes*Juan José Martín BringasErnesto Izcalbalceta Lerma*

Proprietary SecretaryGustavo Armando Robles Luque

Alternate SecretaryMaría Enriqueta García Farfán

*Independent Board Member

AUDIT AND CORPORATE GOVERNANCE COMMITTEE

PresidentRoberto Tohmé Valenzuela*

SecretaryGuillermo Torre López*

MemberErnesto Izcalbalceta Lerma*


ORGANIZACIÓN SORIANA, S.A.B. DE C.V.

AUDIT AND CORPORATE GOVERNANCE COMMITTEES REPORTMarch 22, 2010

Board of Directors

Organización Soriana, S. A. B. de C. V.

As President of the Audit and Corporate Governance Committee, in compliance with

the obligation set forth in Article 43 of Mexico’s Securities Market Law regarding the

annual reporting of the activities carried out by this Committee (The Committee), and

while focusing on achieving the best performance of Organización Soriana, S.A.B.

de C.V. (The Company) for the year ended December 31, 2009, I hereby report the

following:

I. AUDIT COMMITTEE ACTIVITIES

The activities developed by the Committee were carried out with complete a.

independence, in strict adherence to the provisions of the Securities Market

Law in effect, and in keeping with the recommendations of the Code of Best

Corporate Practices.

The status of the internal control system was revised, the reports issued by b.

the Internal Audit Department were thoroughly analyzed based on their work

schedule, and the result of the activities performed by the External Auditor

was also studied. We issued the corresponding report and followed up on the

preventive and corrective measures that were taken, and have concluded that

the Company works under adequate control and audit systems.

We engage the services of the fi rm Galaz, Yamazaki, Ruiz Urquiza, S.C., a c.

member of Deloitte Touche Tohmatsu, to audit the fi nancial statements for the

business year 2009. Said fi rm replaced PriceWaterhouse Coopers, S.C, which

had done a very professional job over the last fi ve years. This recommendation

is based on the Best Corporate Practices Code (Practice 23), which states

that in order to insure objectivity in the fi nancial statements, a rotation on the

fi rm and its team that issues its opinion on the company’s fi nancial statements

should be made every fi ve years.

We assessed the performance of the external auditors, who issue an opinion d.

stating that the fi nancial statement fi gures of the company are reasonable and

are drawn up based on the Financial Reporting Standards in effect in Mexico,

and we believe that the partners of the fi rm meet the requirements of profes-

sional quality and independence needed to issue said opinion.

Several meetings were held to analyze the quarterly and annual financial e.

information simultaneously the Committee, verified in the development of

36

such financial information as well as compliance with new accounting policies

during the fiscal year, the effects of which were not relevant; the observations

that were deemed necessary were submitted.

Several meetings were held to analyze and evaluate the business’ long-term f.

strategy as well as the main investment and fi nancing policies strategy.

We performed a close follow-up of the agreements reached in the Shareholders’ g.

Meeting and Board of Directors’ meetings.

II. CORPORATE GOVERNANCE COMMITTEE ACTIVITIES

We evaluated the performance of the relevant executive offi cers. a.

We prepared the report on operations carried out with related parties, mak-b.

ing sure that they were conducted with transparency and in adherence to the

Company’s regular commercial practices and that they were properly disclosed

in the audited fi nancial statements of de Company.

We revised the compensation packages of the Chief Executive Offi cer and c.

other relevant executive offi cers.

No exemptions were granted by the Board of Directors in terms of the provi-d.

sions of Article 28, section III, paragraph f) of the Securities Market Law.

According to the statement above and supporting the opinion issued by the external

auditors, this Committee considers that Organización Soriana, S.A.B. de C.V. and its

Subsidiaries have performed their functions under adequate corporate governance

and that its fi nancial information is presented in a reasonable manner. Therefore, the

Committee strongly recommends the Board of Directors to submit, for the approval

of the Annual Shareholders’ Meeting, their fi nancial statements for the year ended

December 31, 2009.

Sincerely,

Roberto Tohmé ValenzuelaRoberto Tohmé Valenzuela

PresidentPresident


TABLE OF CONTENTS PAGE

Independent Auditors’ Report 39

Consolidated Balance Sheets 40

Consolidated Statements of Income 41

Consolidated Statements 42

of Changes in Stockholders’ Equity

Consolidated Statements of Cash Flows 44

Notes to Consolidated Financial Statements 45

CONSOLIDATED FINANCIAL STATEMENTS

38

INDEPENDENT AUDITORS’ REPORT to the Board of Directors and Stockholders of Organización Soriana, S.A.B. de C.V.

We have audited the accompanying consolidated balance sheet of Organización Soriana, S.A.B. de C.V. and Subsidiaries (the

“Company”) as of December 31, 2009, and the related consolidated statements of income, changes in stockholders’ equity and

cash fl ows for the year then ended. These consolidated fi nancial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these fi nancial statements based on our audit. The consolidated fi nancial statements

for the year ended December 31, 2008, except for the retroactive effect of the accounting changes mentioned in the third paragraph

of this report were audited by another Public Accountants fi rm, who expressed an unqualifi ed opinion in their report dated March

27, 2009.

We conducted our audit in accordance with auditing standards generally accepted in Mexico. Those standards require that

we plan and perform the audit to obtain reasonable assurance about whether the fi nancial statements are free of material misstate-

ment and that they are prepared in accordance with Mexican Financial Reporting Standards (MFRS). An audit includes examining,

on a test basis, evidence supporting the amounts and disclosures in the fi nancial statements. An audit also includes assessing

the fi nancial reporting standards used and signifi cant estimates made by management, as well as evaluating the overall fi nancial

statement presentation. We believe that our audit provide a reasonable basis for our opinion.

The Company adopted since January 1, 2009 the new MFRS mentioned in Note 3 a) to the consolidated fi nancial statements,

where it adopted retrospectively, based on suppletory guidance in Mexico, IFRIC 13 Customer Loyalty Program, issued by the

International Financial Reporting Standards (IFRS) Interpretations Committee. We have examined the adjustment related to the

retrospective accounting change because of the adoption of IFRIC 13, resulting in a reclassifi cation in the consolidated statements

of income for the year ended December 31, 2008 without affecting the Company’s net income for the year. In our opinion, such

adjustment is appropriate and has been duly applied. IFRC 13 is a comprehensive part of the IFRS mentioned in Note 20 to the

accompanying consolidated fi nancial statements.

In our opinion, such consolidated fi nancial statements present fairly, in all material respects, the fi nancial position of Organización

Soriana, S.A.B. de C.V. and Subsidiaries as of December 31, 2009, and the consolidated results of their operations, changes in their

stockholders’ equity, and their cash fl ows for the year then ended, in conformity with Mexican Financial Reporting Standards.

C.P.C. Gabriel González MartínezC.P.C. Gabriel González Martínez

Garza García, N.L., México Garza García, N.L., México

Galaz, Yamazaki, Ruiz Urquiza, S. C.

Member of Deloitte Touche Tohmatsu

March 12, 2010


ORGANIZACIÓN SORIANA, S. A. B. DE C. V. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS as of December 31, 2009 and 2008 (In thousands of Mexican pesos, see Note 3)

2009 2008

ASSETSCurrent assets:Cash and temporary investments $ 2,139,360 $ 1,745,496Trade accounts receivable 1,436,078 1,013,251Other accounts receivable and prepaid expenses (Note 4) 2,038,416 2,731,988Inventories, net (Note 5) 11,084,234 11,017,310Total current assets 16,698,088 16,508,045

Property, furniture and equipment, net (Note 6) 37,609,629 38,238,664Intangible assets, net (Note 7) 11,188,694 11,375,204Investment in shares 133,903 158,217Other assets 95,082 108,089TOTAL ASSETS $ 65,725,396 $ 66,388,219

LIABILITIES AND STOCKHOLDERS’ EQUITYCurrent liabilities:Trade accounts payable $ 14,283,610 $ 14,077,840Bank loans and debt certifi cates (Note 10) 3,528,653 5,312,672Other accounts payable (Note 11) 1,650,098 1,703,969Total current liabilities 19,462,361 21,094,481

Long-term liabilities:Long-term debt (Note 10) 6,543,496 8,726,564Other liabilities 132,252 161,394Estimated liability for labor benefi ts (Note 12) 124,874 122,762Deferred income tax (Note 16) 7,531,912 7,151,818Total long-term liabilities 14,332,534 16,162,538Total liabilities 33,794,895 37,257,019Commitments and contingencies (Note 17)

Stockholders’ equity (Note 13):Capital stock 2,067,442 2,067,442Additional paid-in capital 1,608,645 1,608,645Reserve for repurchase of shares 550,201 550,201Retained earnings 24,835,939 23,181,450Net income for the year 2,868,274 1,723,462Total stockholders’ equity 31,930,501 29,131,200

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 65,725,396 $ 66,388,219

See accompanying notes to consolidated fi nancial statements.

Aurelio Adán HernándezAurelio Adán Hernández

Chief Financial Offi cer

José Luis Sánchez MonroyJosé Luis Sánchez Monroy

Chief ControllerChief Controller

40


CONSOLIDATED STATEMENTS OF INCOME For the years ended December 31, 2009 and 2008

(In thousands of Mexican pesos, see Note 3)

2009 2008

Net sales $ 88,637,318 $ 91,920,824

Cost of sales (70,343,611) (73,055,401)

Gross profi t 18,293,707 18,865,423

Operating expenses (13,709,662) (14,667,440)

Operating income 4,584,045 4,197,983

Other expenses, net (Note 14) (84,121) (771,576)

Comprehensive fi nancing cost, net (Note 15) (658,076) (1,716,555)

Income before income tax 3,841,848 1,709,852

Income tax provision (Note 16):

Income tax payable (593,480) (698,502)

Deferred income tax (380,094) 219,116

Flat rate tax credit 492,996

(973,574) 13,610

Net income for the year $ 2,868,274 $ 1,723,462

Earnings per share, in pesos (Note 3.q and Note 13) $ 1.59 $ 0.96




CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYFor the Years Ended December 31, 2009 and 2008


Capital StockAdditional Paid

in Capital

Balances at December 31, 2007 $ 2,067,442 $ 1,608,645

Transfer of prior year’s income

Comprehensive income (Note 3.r)

Reclassifi cation of loss from holding

nonmonetary assets (Note 3.c)

Balances at December 31, 2008 2,067,442 1,608,645

Transfer of prior year’s income

Comprehensive income (Note 3.r)

Effect of cancelation of unamortized balance of preoperating costs (Note 3 a)

Balances at December 31, 2009 (Nota 13) $ 2,067,442 $ 1,608,645


42

Reserve to Repurchase

SharesRetained Earnings

Net Income for the Year

Insuffi ciency in Stockholders’

Equity Total Stockholders’

Equity

$ 550,201 $ 26,594,868 $ 3,134,651 ($ 6,548,069) $ 27,407,738

3,134,651 (3,134,651)

1,723,462 1,723,462

(6,548,069) 6,548,069

550,201 23,181,450 1,723,462 - 29,131,200

1,723,462 (1,723,462)

2,868,274 2,868,274

(68,973) (68,973)

$ 550,201 $ 24,835,939 $ 2,868,274 $ - $ 31,930,501



CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2009 and 2008


2009 2008

RESOURCES PROVIDED BY OPERATIONS:Income before income taxes $ 3,841,848 $ 1,709,852

Items related to investing activities:Depreciation and amortization 1,983,744 1,885,275(Gain) loss on sales of fi xed asset (10,433) 43,161Interest income (93,515)Other items (167,770) 217,928Items related to fi nancing activities:Interest expense 884,789 1,409,058

6,532,178 5,171,759OPERATING ACTIVITIES:Trade accounts receivable (422,827) (373,373)Inventories (66,924) (3,170,089)Trade accounts payable 275,720 2,212,703Other accounts receivable 111,959 800,020Other accounts payable 912,560 770,657Income taxes paid (663,148) (564,438)Net cash provided by operating activities 6,679,518 4,847,239

INVESTING ACTIVITIES:Intangible assets (24,378) (24,760)Purchase of property, furniture and equipment (1,171,848) (7,412,127)Interest income 93,515Other investing activities (18,434) 154,387Net cash used in investing activities (1,214,660) (7,188,985)Cash available (to be obtained) from fi nancing activities 5,464,858 (2,341,746)FINANCING ACTIVITIES:Financing obtained 31,535,002 45,344,478Financing repaid (35,456,348) (35,711,694)Interest paid (937,255) (1,337,195)Other fi nancing activities (212,393) (8,779,460)Net cash used in fi nancing activities (5,070,994) (483,871)Increase (decrease) in cash and temporary investments, net 393,864 (2,825,617)Cash and temporary investments at beginning of year 1,745,496 4,571,113Cash and temporary investments at end of year $ 2,139,360 $ 1,745,496

See accompanying notes to consolidated fi nancial statements

44


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2009 and 2008


1. NATURE OF BUSINESS

Organización Soriana, S. A. B. de C. V. (Soriana) is a company operating in the com-

mercial sector in Mexico that was founded in 1968 and is entirely Mexican. It operates

several types of supermarkets where it sells a great variety of food, clothing, general

merchandise and basic services for the house under the retail, half wholesale and

wholesale scheme. In 2006, it began operating the “Super City” convenience stores

through a franchise scheme. The term “the Company,” as used in this report, refers

to Soriana together with its consolidated subsidiaries.

Soriana is also involved in the real estate business, including the leasing of

commercial premises adjacent to each of its stores, as well as the construction of

commercial developments.

Currently, it operates 471 stores through its Hipermercado, Mercado, Super

City and City Club forms that are focused on satisfying specifi c needs of the different

types of consumers through a segmentation strategy and focusing on creating loyalty

in its consumers.

The term “pesos” or “$” refers to Mexican pesos and “US$” or “dollars” refers

to U.S. dollars.

2. SIGNIFICANT EVENTS

a) Acquisition of Gigante supermarket chain store

Soriana through its subsidiary Tiendas Soriana, S.A. de C.V. concluded during 2009

the negotiations with Gigante, S.A. de C.V. (Gigante) whereby as from January 1, 2008

it obtained operating control of 197 stores throughout the Mexican Republic operating

under the followings names: Gigante, Bodega Gigante and Super G, as well as twelve

distribution centers located throughout Mexico.

During the year ended December 31, 2008, the Company had the support of

technical studies to assign the total price paid, which was US$1,362.4 million, to the

carrying amounts. The amounts assigned were US$245.9 million to fi xed assets,

US$7.3 to estimated liability for employee benefi ts, and US$1,123.8 to intangible as-

sets that are comprised mainly of rights acquired over leasing agreements, noncom-

petition rights and the use of brand names, in addition to the technological platform.

The rights to use brand names and the technological platform were amortized in the

year ended December 31, 2008.

Also in 2008, the Company integrated the commercial, logistics, operating and

administrative policies of the stores acquired from Gigante to Soriana’s technological

platform.

b) Agreement with Banco Nacional de México (Banamex)

During 2008, the Company began operating SORIBAN, which is a result of the strate-

gic Alliance entered into with Banamex where several value added fi nancial products

are offered to the customers who visit the stores. SORIBAN’s current product portfolio

includes credit cards, personal loans, automotive loans and insurance policies. For

the future, it foresees introducing services such as mortgages and fi nancing for the


small and medium companies (PYMES). At the date of the consolidated fi nancial

statements, it is in the process of negotiating to open a Multiple Purpose Financial

Institution (SOFOM.ER) that will include these operations, where the Company will

own 50% less one share thereof.

3. SIGNIFICANT ACCOUNTING POLICIES

Explanation for translation into English - The accompanying consolidated fi nan-

cial statements have been translated from Spanish into English for use outside of

Mexico. These consolidated fi nancial statements are presented on the basis of

Mexican Financial Reporting Standards (“MFRS”, individually referred to as Normas

de Información Financiera or “NIFs”). Certain accounting practices applied by the

Company that conform with MFRS may not conform with accounting principles gener-

ally accepted in the country of use.

Following is a summary of the most signifi cant accounting policies followed

by Soriana and its subsidiaries, which comply with the NIFs issued by the Mexican

Board for Research and Development of Financial Information Standards (“CINIF”) that

have been applied consistently when preparing its fi nancial information in the years

presented, unless otherwise indicated.

a. Changes in accounting policies

During 2008, the CINIF issued the following NIFs, which became effective on January

1, 2009. These standards were adopted by the Company.

NIF B-8, “Consolidated or Combined Financial Statements”, establishes that

special purpose entities over which the Company has control should be consolidated.

It also establishes the option of presenting separate fi nancial statements for intermedi-

ate controlling entities, provided certain requirements are met. NIF B-8 also requires

consideration of potential voting rights to analyze whether control exists.

NIF C-7, “Investments in Associated Companies and Other Permanent

Investments”, requires valuation, through the equity method, of investments in special

purpose entities over which the Company has signifi cant infl uence. It also requires

consideration of potential voting rights to analyze whether signifi cant infl uence exists.

NIF C-7 establishes a specifi c procedure and sets a limit for the recognition of losses

in associated companies, and requires that the investment in associated companies

include the related goodwill. The accounting change established in this NIF did not

affect to the Company.

NIF C-8, “Intangible Assets”, sets the rules for the valuation, presentation and

disclosure of the initial and subsequent recognition of the intangible assets that are

acquired individually or through a business acquisition or that arise internally in the

entity’s regular course of business. This NIF supersedes Bulletin C-8, Intangible

Assets, in effect until December 31, 2008 and requires that the unamortized bal-

ance of preoperating costs as of December 31, 2008 be cancelled against retained

earnings. The effect of the change in applying NIF C-8 resulted in the cancellation

of the initial balance of preoperating costs and a reduction to retained earnings as of

December 31, 2008 of $68,973.

In accordance with the provisions in NIF A-8, Suppletory Guidance, the Company

adopted the provisions in International Financial Reporting Interpretations Committee

13 (IFRIC 13, Client Loyalty Programs) issued by the International Financial Reporting

Interpretations Committee, as the accounting treatment for sales promotions related to

the loyalty program granted to its clients is included in the scope of this interpretation.

The adoption of IFRIC 13 resulted in a reclassifi cation of net sales and cost of sales

46

for 2008 by the same amount of $3,698,346. For comparability purposes, the 2008

consolidated statement of income has been amended due to such foregoing effect.

The gross income, operating income, net income and cash fl ows were not affected

by this accounting change application.

b. Basis of presentation and disclosure

The accompanying consolidated fi nancial statements have been prepared in con-

formity with MFRS, which require that management make certain estimates and use

certain assumptions that affect the amounts reported in the fi nancial statements and

their related disclosures. The Company’s management, upon applying professional

judgment, considers that estimates made and assumptions used were adequate

under the circumstances. The signifi cant line items subject to these estimates include

fi xed assets, intangible assets, allowance for doubtful accounts, inventories, deferred

taxes, cost and expense provisions, and assets and liabilities related to employee

benefi ts. However, actual results may differ from such estimates.

The consolidated statements of income were classifi ed according to their func-

tion, which allows the cost of sales to be known and disclosed separately from the

other general costs and expenses and the operating income, allowing the business’s

operating performance to be better understood.

c. Recognition of the effects of infl ation

Since the cumulative infl ation for the three fi scal years prior to those ended December

31, 2009 and 2008, was 15.01% and 11.56%, respectively, the economic environ-

ment may be considered non-infl ationary in both years. Consequently, the effects of

infl ation are not recognized in such consolidated statements according to NIF B-10,

“Recognition of the Effects of Infl ation in the Financial Information”. Infl ation rates for

the years ended 2009 and 2008 were 3.57% and 6.53%, respectively.

Beginning on January 1, 2008, the Company discontinued recognition of the

effects of infl ation in its fi nancial statements. However, assets, liabilities and stockhold-

ers’ equity include the restatement effects recognized through December 31, 2007.

On January 1, 2008, the Company reclassifi ed the entire balance of the insuf-

fi ciency in restated stockholders’ equity to retained earnings and concluded that it

is impractical to identify the gain (loss) from holding non-monetary assets related to

assets not realized as of that date.

d. Basis of consolidation

The consolidated fi nancial statements include the fi nancial statements of Soriana

and those of its subsidiaries which it owns a majority interest and has management

control.

The primary subsidiaries of Soriana are:

• Tiendas Soriana, S. A. de C. V.

• Centros Comerciales Soriana, S. A. de C. V.

• A sector of service companies that group different entities

• A real estate sector that groups different entities.

All intercompany balances and transactions conducted have been eliminated for

consolidation purposes in accordance with NIF B-8, “Consolidated and Combined

Financial Statements”. Consolidation was conducted based on the subsidiaries’ au-

dited fi nancial statements.


e. Cash and temporary investments

Cash and temporary investments consist mainly of bank deposits and highly liquid

investments stated at market value. The differences between the amount at the date

of investment and at the consolidated balance sheet date are recorded in the consoli-

dated statement of income as part of comprehensive fi nancing cost.

f. Inventories and cost of sales

Inventories are recorded at acquisition cost, and are stated at average cost determined

using perpetual inventory controls.

Cost of sales is stated at the average cost at the dates the sales were held.

g. Property, furniture and equipment, net

Property, furniture and equipment are stated at acquisition cost. Balances arising from

the acquisition of property, furniture and equipment from January 1, 1997 to December

31, 2007, and related accumulated depreciation were stated at cost restated by ap-

plying factors derived from the NCPI to the historical cost, except for fi xed assets of

foreign origin, which were stated at cost restated by applying factors derived from the

general consumer price index of the country of origin to the corresponding foreign

currency amounts and translating those amounts to Mexican pesos at the exchange

rate prevailing at the balance sheet date. The amount of property, furniture and equip-

ment acquired until December 31, 1996 was the amount reported at such date using

net replacement values based on independent appraisals and were subsequently

restated through December 31, 2007 using factors derived from the NCPI.

Interest, exchange gains (losses) and other costs associated with fi nancing in-

vested in fi xed assets whose acquisition required a substantial period are capitalized

as part of the acquisition cost or investment in such assets. Consequently, the acqui-

sition cost of certain property, furniture and equipment includes the comprehensive

fi nancing income (loss) in the year attributable to their construction. These assets are

denominated qualifying assets. (See Note 15)

Depreciation is calculated using the straight-line method based on the estimated

useful lives of the assets as determined by the Company. Depreciation charged to

earnings in 2009 and 2008 was calculated based on the probable useful lives of the

items comprising the asset. Depreciation rates vary from 2% to 20%.

h. Business acquisitions and intangible assets

In accordance with Statement B-7 “Business acquisitions”, Soriana has adopted the

following accounting guidelines: (a) all acquisitions are accounted for as purchases;

(b) the purchase price of assets acquired and related liabilities is allocated based on

their fair value at the date of acquisition; (c) intangible assets having indefi nite lives are

not amortized and are subject to periodic testing for impairment; (d) intangible assets

acquired are subject to identifi cation, valuation and recognition.

Transfers of lease agreement rights have been classifi ed as indefi nite live assets.

Intangible assets having defi nite useful lives are amortized in ten years by applying the

straight-line method. They comprise primarily the non-competition agreement.

i. Impairment of long-lived assets in use

The Company reviews the carrying amounts of long-lived assets in use when an im-

pairment indicator suggests that such amounts might not be recoverable, considering

the greater of the present value of future net cash fl ows or the net sales price upon

disposal. Impairment is recorded when the carrying amounts exceed the greater of the

aforementioned amounts, considering each store as a cash generating unit.

48

j. Estimated employee benefi ts

The employee retirement plans (pensions and seniority premiums), both formal and

informal, as well as the benefi ts payable at termination of employment for causes other

than from restructuring, are recognized as a cost of the years in which the services are

rendered in accordance with actuarial studies made by independent actuaries based

on the projected unit credit method using nominal interest rates.

k. Transactions in foreign currency and exchange differences

Monetary assets and liabilities in foreign currencies, mainly U.S. dollars, are stated in

Mexican currency at the exchange rate in effect at the balance sheet date. Exchange

differences arising from changes in exchange rates between the transaction and

settlement dates or the balance sheet date are credited or charged to comprehensive

fi nancing cost.

l. Revenue recognition

Revenues from sales of goods are recognized in income when the ownership is

transferred to the customers, which generally coincides with the delivery of products

to customers on the sales fl oor; and other business income of its own is recognized

when it becomes due.

m. Comprehensive fi nancing cost

This item is determined by grouping in the consolidated statements of income all

fi nancial income and expenses and exchange gains and losses.

n. Derivative fi nancial instruments

The investments in derivative fi nancial instruments are for trading purposes or for

hedging risks related to adverse fl uctuations in exchange rates.

All derivative fi nancial instruments entered into and identifi ed and classifi ed as

held for trading or as market hedge instruments are included in the balance sheet as

assets and/or liabilities at fair value. The fair value is determined based on the prices

in recognized markets; when no quoted market prices are available, it is determined

based on valuation techniques accepted in the fi nancial sector.

The changes in the fair value of derivative financial instruments are recognized

in the comprehensive financing cost. Hedges are stated at fair value and changes

in valuation are recorded in income under the same caption as the hedged item.

In the case of cash flow hedges, the effective portion is temporarily included in

comprehensive income in stockholders’ equity and is reclassified to income when

the hedged item affects income. Any ineffective portion is recognized immediately

in income.

As of December 31, 2009 and 2008, the Company had no derivative financial

instruments.

o. Income taxes

Income taxes (“ISR”) and the Business Flat Tax (“IETU”) are recorded in the results of

the year they are incurred. To recognize deferred income taxes, based on its fi nancial

projections, the Company determines whether it expects to incur ISR or IETU and,

accordingly, recognizes deferred taxes based on the tax it expects to pay. Deferred

taxes are calculated by applying the corresponding tax rate to temporary differences

resulting from comparing the accounting and tax bases of assets and liabilities and

including, if any, future benefi ts from tax loss carryforwards and certain tax credits.

Deferred tax assets are recorded only when there is a high probability of recovery.


According to NIF D-4, “Income Taxes”, the balance of the initial cumulative effect of

deferred income taxes was reclassifi ed to retained earnings as of January 1, 2008.

The tax on assets ( IMPAC) that is expected to be recovered is recorded as a

tax credit and is presented in the balance sheet under deferred taxes.

p. Statutory employee profi t sharing (PTU)

PTU is recorded in the results of the year in which it is incurred. It is calculated us-

ing the tax income pursuant to Section l of Article 10 of the Income Tax Law and

is presented under other income and expenses in the accompanying consolidated

statements of income. Deferred PTU is derived from temporary dif ferences that

result from comparing the accounting and tax bases of assets and liabilities and is

recognized only when it can be reasonably assumed that such difference will gener-

ate a liability or benefit, and there is no indication that circumstances will change in

such a way that the liabilities will not be paid or benefits will not be realized. As of

December 31, 2009 and 2008 there was no need to recognize deferred PTU.

q. Earnings per share

Earnings per share are calculated by dividing consolidated net income by the weighted

average number of shares outstanding during the year. There are no effects arising in

potentially dilutive shares.

r. Comprehensive income

Transactions recorded in the various equity accounts in the year, other than those car-

ried out with stockholders, are included in the statement of changes in stockholders’

equity under comprehensive income.

4. OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

2009 2008

Recoverable taxes $ 1,634,716 $2,284,935

Sundry debtors 365,110 228,632

Payments and expenses to be amortized 38,590 218,421

Total other accounts receivable and prepaid expenses $ 2,038,416 $ 2,731,988

5. INVENTORIES, NET

2009 2008

General merchandise $ 4,793,812 $ 4,916,535

Supermarket 4,472,037 4,224,312

Clothes 1,648,602 1,680,257

Goods in transit 325,544 342,044

11,239,995 11,163,148

Less - Allowance for shrinkage (155,761) (145,838)

Net value of inventories $ 11,084,234 $ 11,017,310

50

6. PROPERTY, FURNITURE AND EQUIPMENT, NET

2009 2008

Buildings and facilities $ 21,631,958 $ 21,023,933

Furniture and equipment 16,859,569 16,220,979

Accumulated depreciation (10,986,667) (9,255,187)

Net depreciable value 27,504,860 27,989,725

Land 9,919,811 9,637,221

Construction in progress 184,958 611,718

Net amount $ 37,609,629 $ 38,238,664

7. INTANGIBLE ASSETS, NET

2009 2008

Transfer of lease agreement rights $ 9,251,654 $ 9,251,654

Non-competition rights 2,108,892 2,108,892

Other 249,598 225,220

11,610,144 11,585,766

Accumulated amortization (421,450) (210,562)

Net amount $ 11,188,694 $ 11,375,204

At December 31, 2009 and 2008, based on the impairment calculations for long-lived

assets, it was determined that there were no adjustments for impairment.

8. TRANSACTIONS AND BALANCES WITH RELATED PARTIES

Compensation and benefi ts received by the Company’s offi cers for the years ended

December 31, 2009 and 2008, amounted to $163,620 and $164,279, respectively,

consisting of the basic salary and benefi ts. There is no agreement or program that

facilitates the acquisition of Soriana’s shares by its employees.

Soriana and its subsidiaries had transactions with related parties in a net amount of

$148,632 and $170,392 as of December 31, 2009 and 2008, respectively, mainly in con-

nection with the purchase of goods for sale and freight services received. At December

31, 2009 and 2008 balances payable with related parties of $22,868 and $18,484,

respectively are included in the balance sheet under trade accounts payable.


9. FOREIGN CURRENCY POSITION

At December 31, 2009 and 2008, the exchange rates were $13.04 and $13.77 nominal

pesos to the U.S. dollar, respectively. At February 26, 2010, date of issuance of these

audited fi nancial statements, the exchange rate was $12.85 nominal pesos to the dollar.

Amounts shown in this note are expressed in millions of U.S. dollars, since this

is the currency in which most of the Company’s foreign currency transactions are

carried out. At December 31, the Company had the following consolidated assets

and liabilities in foreign currency:2009 2008

Current monetary assets US$ 5.3 US$ 3.9

Current liabilities (30.6) (90.5)

Long-term liabilities (80.0) (79.6)

Net foreign currency position (US$ 105.3) (US$ 166.2)

Equivalent in thousands of Mexican pesos ($ 1,373,879) ($ 2,288,574)

The primary foreign currency transactions carried out by the Company were as follows:

2009 2008

Purchases US$ 204.1 US$ 414.5

Equivalent in thousands of Mexican pesos $ 2,760,201 $ 4,546,971

10. BANK LOANS, DEBT CERTIFICATES AND LONG-TERM DEBT

In 2008, Company’s management obtained authorization from the National Banking and

Securities Commission to initiate a revolving short- and long-term Debt Certifi cate Program.

In accordance with this program the term to carry out the issuance is fi ve years and the

amount authorized is fi fteen billion Mexican pesos or its equivalent in units of investment.

As of December 31, 2009 and 2008, Soriana and its subsidiaries’ short and

long-term debt is as follows:

2009Interest

Rates (*) 2008Interest

Rates (*)

Short-term debt:Short-term debt certifi cates $ 1,398,653 5.10% $ 2,442,672 9.73%Current portion of long-term debt certifi cates 2,130,000 5.43% 2,470,000 9.73%Short-term bank loan 400,000 11.72%Total short-term $ 3,528,653 $ 5,312,672Long-term debt:Long-term debt certifi cates maturing in 2010 $ 4,600,000 9.73%Long-term debt certifi cates maturing at the end of 2012 $ 5,500,000 5.40% 5,500,000 9.73%

5,500,000 10,100,000Current portion of long-term debt certifi cates (2,470,000)Long-term debt in Mexican currency 5,500,000 7,630,000Non-interest-bearing liability maturing in ten years 1,043,496(1) 1,096,564(1)

Total long-term debt $ 6,543,496 $ 8,726,564

(*) Nominal weighted average rates effective at December 31, 2009 and 2008, respectively.

(1) Non-interest bearing liability derived from the agreement with Banamex for an original amount of US$80 million. The maturity and total settlement

of this liability is subject to the operating results of SORIBAN in the fi rst ten years of operations.

52

Long-term debt maturities in Mexican pesos as of December 31, 2009 are:

2011 $ 2,282,500

2012 3,217,500

11. OTHER ACCOUNTS PAYABLE

2009 2008

Liabilities resulting from the transaction with Gigante $ - $ 218,585Taxes payable 849,545 740,726Other accounts payable 800,553 744,658Total other accounts payable $ 1,650,098 $ 1,703,969

12. ESTIMATED LIABILITY FOR LABOR BENEFITS

Following is a summary of the primary fi nancial data related to such plans:2009 2008

Severance Payments

Pension plan and Seniority

Premiums Total Total

Vested benefi t obligations $ 33,426 $ 33,426 $ 4,098Non-vested benefi t obligations $ 91,764 104,233 195,997 225,569Defi ned benefi t obligations 91,764 137,659 229,423 229,667Less: Plan assets (46,568) (46,568) (57,763)

91,764 91,091 182,855 171,904Items subject to amortization (17,012) (40,969) (57,981) (49,142)Net liability at end of year $ 74,752 $ 50,122 $ 124,874 $ 122,762

Labor cost $ 22,748 $ 16,632 $ 39,380 $ 43,411Financial cost 6,746 11,036 17,782 15,140Return on plan assets (4,277) (4,277) (5,005)Actuarial loss (gain), net 34,668 (35,618) (950) 15,456Net cost for the period $ 64,162 $ (12,227) $ 51,935 $ 69,002

The past service costs balance as of December 31, 2007 is amortized over a maxi-

mum of fi ve years. In 2008, the Company decided to apply the actuarial gains and

losses directly to results of the year.

Unrecognized items are charged to results based on the average remaining

service lives of employees, which is 20 years.

As of December 31, 2009, the discount rate used to calculate the present value

of the employee benefi ts was 8.68%, which is similar to the rate used in fi scal year

2008. The rate of salary increases was 5.84% (4.80% in 2008) and the rate of the

return on the plan assets was 8.68% (8.68% in 2008).

As of December 31, 2009, the plan assets are invested through a trust mainly

in money markets.


13. STOCKHOLDERS’ EQUITY

Retained earnings include the statutory legal reserve. The General Corporate Law

requires that at least 5% of net income of the year be transferred to the legal reserve

until the reserve equals 20% of capital stock at par value (historical basis). As of

December 31, 2009 and 2008, the legal reserve was $413,488.

At December 31, 2009 and 2008, the Company’s capital stock is comprised of

1,800,000,000 nominative, no-par value, “Series B” shares, fully subscribed and paid

in, representing the minimum fi xed portion with no withdrawal rights.

Stockholders’ equity, except for restated paid-in capital and tax retained earnings

will be subject to ISR payable by the Company at the rate in effect upon distribution.

Any tax paid on such distribution may be credited against annual and estimated ISR of

the year in which the tax on dividends is paid and the following two fi scal years.

14. OTHER EXPENSES, NET

2009 2008

Indirect expenses and expenses related to the purchase of Gigante $ - ($ 719,320)

Other expenses, net (84,121) (52,256)

($ 84,121) ($ 771,576)

15. COMPREHENSIVE FINANCING COST, NET

2009 2008

Interest expense ($ 892,732) ($ 1,315,544)

Interest income 147,501 268,790

Exchange gain (loss), net 79,212 (706,575)

(666,019) (1,753,329)

Portion capitalized in property, furniture and equipment 7,943 36,774

($ 658,076) ($ 1,716,555)

16. INCOME TAXES

Soriana and its subsidiaries are subject to ISR and IETU that they calculate and de-

clare individually.

ISR – The rate is 28% for 2009 and 2008, and will be 30% for 2010 to 2012,

29% for 2013 and 28% for 2014 and thereafter.

IETU - Revenues, as well as deductions and certain tax credits, are determined

based on cash fl ows of each fi scal year. The rate is 17% and 16.5% in 2009 and 2008, re-

spectively; and 17.5% starting in 2010. The Asset Tax Law was repealed upon enactment

of the IETU Law; however, under certain circumstances, IMPAC paid in the ten years prior

to the year in which ISR is paid, may be recovered, according to the terms of the law.

Income tax incurred will be the higher of ISR and IETU.

Based on its fi nancial projections and according to INIF 8, “Effects of the Business

Flat Tax”, the Company determined that it will basically pay ISR. Therefore, it only rec-

ognizes deferred ISR.

54

The reconciliation of the statutory and effective ISR rates for the years ended

December 31, 2009 and 2008 are shown below:2009 2008

Income before income taxes $ 3,841,848 $ 1,709,852

Income tax at statutory rate (28%) $ 1,075,717 $ 478,758

Add (deduct) effect of income tax on:

Permanent differences in comprehensive fi nancing income 225,553 453,329

Non-deductible expenses and non-taxable income, net 2,180 (40,936)

Effect of immediate deduction and tax restatement of fi xed assets (100,191) (462,262)

Other permanent differences, net (197,815) 50,497

1,005,444 479,386

Tax effect due to tax rate changes (31,870)

Total income tax carried to earnings $ 973,574 $ 479,386

Effective rate 25.3% 28.0%

At December 31, the primary temporary differences requiring recognition of deferred

income tax were as follows:2009 2008

Property, furniture and equipment $ 5,584,104 $ 5,350,713

Inventories 1,264,955 1,577,532

Other 682,853 223,573

Deferred income tax provision $ 7,531,912 $ 7,151,818

The deferred income tax recorded at December 31 was credited (charged) to the

following accounts:2009 2008

Initial balance of deferred taxes $ 7,151,818 $ 7,370,934

Provision for the year 380,094 (219,116)

Deferred income tax provision $7,531,912 $ 7,151,818


Tax loss carryforwards and asset tax paid may be recovered upon compliance with cer-

tain requirements. Expiration dates and restated amounts at December 31, 2009 are:

Expiration DatesTax Loss

CarryforwardsRecoverable

Asset Tax

2010 al 2011 $ 503 $ 9,138

2012 116 11,076

2013 848 2,791

2014 1,948 15,483

2015 1,182 11,293

2016 3,391 684

2017 4,325 1,410

2018 2,734 -

2019 35,519 -

Total $ 50,566 $ 51,875

Tax loss carryforwards and recoverable asset tax can be applied to offset taxes only

in the subsidiary that paid them.

In 2008 the Flat Tax Law became effective. As a result of its adoption, the

Company determined deductions in excess to income, mainly due to the investment

it made to acquire the assets of Gigante, which resulted in a tax credit of $1,728,899,

of which it applied $492,996 against income tax payable in 2008. The Company is

crediting the remainder against the IETU for 2009 and the IETU payable in the following

ten years. This procedure is foreseen in Article 11 of the IETU Law.

17. COMMITMENTS AND CONTINGENCIES

a. Commitments:

1. As a result of the acquisition of the Gigante supermarket chain stores, Soriana is

required to invest at least US$200 million in remodeling the properties and equip-

ping the stores owned by the subsidiaries or affiliates of Gigante over a 5-year term

beginning January 1, 2008. At December 31, 2009, the Company had invested

US$130 million for this purpose.

2. There are commitments for real estate leases for stores owned by third parties

with an average term of 15 years that are renewable for a similar period. Some

leases have minimum fixed payments terms and a variable component., which

are determined as a percentage of sales. Total related expenses amounted to

$944,369 and $919,381 in 2009 and 2008, respectively. Total rents in the follow-

ing years will be similar to prior years.

b. Contingencies:

1. Some subsidiaries are currently defendants in agricultural, regarding to acquisition of

land, and commercial lawsuits, which are mainly in the stage of presenting evidence.

These contingencies amount to approximately $345,000 (nominal value). The Company

has not recorded any provision with respect to these contingencies, since its legal advi-

sors believe there are high possibilities of obtaining a favorable sentence.

2. In the year ended December 31, 2009, management followed the policy of con-

tracting insurance policies providing liability coverage for damage to third parties,

transportation of goods and auto and truck fleets. For the properties, the Company

56

contracted an insurance policy with basic coverage against fire for the leased prop-

erties and as in the prior year, it did not enter into any agreement to safeguard the

properties owned by Soriana.

18. FINANCIAL SEGMENT INFORMATION

In the fi scal years ended December 31, 2009 and 2008 the Company only held the

supermarket segment.

19. NEW ACCOUNTING PRINCIPLES

As part of its efforts to converge Mexican standards with international standards, in

2009, the CINIF issued the following new NIFs, Interpretations to Financial Information

Standards (INIFs) and improvements to NIFs applicable to profi table entities.

The NIFs effective beginning on January 1, 2010 are: NIF C-1,” Cash”; NIF B-1

“Accounting Changes and Correction of Errors”; NIF B-2 “Statement of Cash Flows”;

NIF B-7 “Business Acquisitions”; NIF C-7 “Investments in Associated Companies and

Other Permanent Investments”; NIF C-13 “Related Parties”; INIF 14, “Construction

Contracts, Sale of Real Property and Rendering of Related Services” and; INIF 17

“Service Concession Contracts”.

For fi scal years beginning January 1, 2011, the following new NIFs are foreseen:

NIF B-5 “Financial Segment Information” and; NIF B-9 “Interim Financial Information”.

At the date of issuance of these consolidated f inancial statements, the

Company has not fully assessed the effects of adopting these new standards on

its financial information.

20. INTERNATIONAL FINANCIAL ACCOUNTING STANDARDS (IFRS)

In January 2009, the National Banking and Securities Commission required to public

companies to fi le fi nancial statements prepared according to the International Financial

Reporting Standards beginning in 2012, and permits their early adoption.

21. AUTHORIZATION TO ISSUE THE CONSOLIDATED FINANCIAL STATEMENTS

On February 26, 2010, the issuance of the accompanying consolidated fi nancial state-

ments was authorized by Aurelio Adán Hernández, Chief Financial Offi cer, and by José

Luis Sánchez Monroy, Chief Controller. These consolidated fi nancial statements are

subject to the approval at the general ordinary stockholders’ meeting, where they may

be modifi ed, based on provisions set forth in the Mexican General Corporate Law.

Lic. Aurelio Adán HernándezLic. Aurelio Adán Hernández

Chief Financial Offi cer

C.P. José Luis Sánchez MonroyC.P. José Luis Sánchez Monroy

Chief ControllerChief Controller


INFORMATION FOR INVESTORS

INVESTOR RELATIONS

Aurelio Adán H.

[email protected]

Rodrigo Benet C.

[email protected]

Phone: (+52-81) 8329-9000

ext. 3014

Fax: (+52-81) 8329-9122

Arturo Ledesma M.

[email protected]

INDEPENDENT AUDITORS

Galaz, Yamazaki, Ruiz Urquiza, S.C.

Lázaro Cárdenas 2321 Poniente, PB

Col. Residencial San Agustín

San Pedro Garza Garcia, N.L.

México, CP 66260

HEADQUARTERS

Alejandro de Rodas 3102-A

Col. Cumbres 8° Sector

Monterrey, N.L.

México CP 64610

WWW.SORIANA.COM

This 2009 Annual Report of Organización Soriana can contain certain forward-looking information relating to the

performance of the company and its subsidiaries, which should be considered as estimates made in good faith. These

expectations refl ect Management’s opinions, based on current available information. Results are subject to future an

uncertain events, which could have a material impact on the company’s actual performance.

BEHIND THE MEXICAN SUPERMARKET.2009 ANNUAL REPORT

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