##### Table of Contents



United States
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 20-F (Mark One) o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF
1934 OR  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 OR  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
 Commission file number 333-7616 Distribución y Servicio D&S S.A. (Exact name of Registrant as specified in its charter) Distribution and Service D&S Inc. (Translation of the Registrants name in English) The Republic of Chile    
 Avenida Presidente Eduardo Frei Montalva 8301
Quilicura
Santiago, Chile
(56-2) 200-5000
(Address and telephone number of principal executive offices)  
 Securities registered or to be registered pursuant to Section 12(b) of the Act : Title of each class
    
    Name of each exchange on which registeredCommon Stock of Registrant
    
    New York Stock Exchangerepresented by American Depositary Shares, or ADSs
 Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None  
 Indicate the number of outstanding shares of each of the issuers classes of capital or common
stock as of the close of the period covered by the annual report.   
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes       o No Indicate by check mark which financial statement item the registrant has elected to follow. o Item 17       þ Item 18




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TABLE OF CONTENTS PageINTRODUCTION
    
    
    3PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION
    
    
    4PART I
    
    
    5Item 1.
    
    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
    
    
    5Item 2.
    
    OFFER STATISTICS AND EXPECTED TIMETABLE
    
    
    5Item 3.
    
    KEY INFORMATION
    
    
    5Item 4.
    
    INFORMATION ON THE COMPANY
    
    
    20Item 5.
    
    OPERATING AND FINANCIAL REVIEW AND PROSPECTS
    
    
    43Item 6.
    
    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
    
    
    67Item 7.
    
    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
    
    
    74Item 8.
    
    FINANCIAL INFORMATION
    
    
    76Item 9.
    
    THE OFFER AND LISTING
    
    
    76Item 10.
    
    ADDITIONAL INFORMATION
    
    
    79Item 11.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    
    
    98Item 12.
    
    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
    
    
    99PART II
    
    
    99Item 13.
    
    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
    
    
    99Item 14.
    
    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND  USE OF PROCEEDS
    
    
    99Item 15.
    
    CONTROLS AND PROCEDURES
    
    
    99Item 16.
    
    [Reserved]
    
    
    100Item 16A.
    
    AUDIT COMMITTEE FINANCIAL EXPERT
    
    
    100Item 16B.
    
    CODE OF ETHICS
    
    
    100Item 16C.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
    
    
    100Item 16D.
    
    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
    
    
    101Item 16E.
    
    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
    
    
    101PART III
    
    
    101Item 17.
    
    FINANCIAL STATEMENTS
    
    
    101Item 18.
    
    FINANCIAL STATEMENTS
    
    
    101Item 19.
    
    EXHIBITS
    
    
    102INDEX TO EXHIBITS
    
    
    102SIGNATURE
    
    
    103EX-1.1: ENGLISH TRANSLATION OF OUR AMENDED BYLAWSEX-2.1: AMENDMENT TO DEPOSIT AGREEMENTEX-8.1: LIST OF OUR SUBSIDIARIESEX-12.1: CERTIFICATIONEX-12.2: CERTIFICATIONEX-13.1: CERTIFICATIONEX-13.2: CERTIFICATION
  2




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INTRODUCTION Distribución y Servicio D&S S.A is a corporation organized under the laws of Chile. We
completed our initial public offering of common shares in Chile in December 1996. We listed our
common shares on the New York Stock Exchange under the symbol DYS and completed an initial public
offering of ADSs in the United States in October 1997. We conducted a preemptive rights offering
to the holders of our ADSs in the United States in August 2004. We also listed our common shares on
the Madrid Stock Exchange in December 2002. Our principal executive offices are located at Avenida
Presidente Eduardo Frei Montalva 8301, Quilicura, Santiago, Chile. Our telephone number is
011-562-200-5000, and our website is www.dys.cl. Our authorized representative in the United States is Puglisi & Associates, located at 850 Library
Avenue, Suite 204, Newark, Delaware 19715, United States.
Puglisi & Associates phone number is (302) 738-6680. Special Note Regarding Forward-Looking Statements This annual report contains forward-looking statements that involve risks and uncertainties.
These forward-looking statements appear throughout this annual report, including, without
limitation, under Item 3  Key Information  Risk Factors, Item 4  Information on the Company
and Item 5  Operating and Financial Review and Prospects. These forward-looking statements
relate to, among other things:  
    
    our strategy;
    
    the integration of the stores acquired from Carrefour Chile in January 2004;
    
    any new store openings;
    
    our expectations regarding ongoing litigation, and particularly the likelihood of
full recovery on the purchase price owed on our sale ofEkonoArgentina;
    
    our capital expenditure plans;
    
    industry trends; and
    
    other expectations, intentions and plans contained in this annual report that are
not historical fact. When used in this annual report, the words expects, anticipates, intends, plans,
may, believes, seeks, estimates and similar expressions generally identify forward-looking
statements. These statements reflect our current expectations. They are subject to a number of
risks and uncertainties, including, but not limited to, unforeseen competitive pressures, Chilean
economic conditions and changes in the marketplace. In light of the many risks and uncertainties
surrounding our marketplace, you should understand that we cannot assure you that the
forward-looking statements contained in this annual report will be realized. 3




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PRESENTATION OF FINANCIAL AND CERTAIN OTHER INFORMATION Unless otherwise specified, in this annual report:  
    
    U.S. dollars, dollars, $, or US$ refer to United States dollars;
    
    pesos or Ch$ refer to Chilean pesos, the legal currency of Chile;
    
    Argentine pesos or A$ refer to Argentine pesos, the legal currency of Argentina;
    
    UF refers to Unidades de Fomento, an inflation-indexed, peso-denominated monetary
unit. The UF rate is set daily in advance basedon changes in the previous months
inflation rate; and
    
     refers to euros, the legal currency of the European Union. In the presentation of results by format, the contributions to net revenues are included in
the store format to which they were attributable. The term sales, as used in this annual report,
is distinct from net revenues, and is limited to product sales (net of value added tax)
attributed to our retail operations. From north to south, Chile is divided into 13 political subdivisions, each called a Region.
All of the Regions are denominated by Roman numerals (i.e., I-XIII). The thirteenth Region which is
not denominated by a Roman numeral corresponds to the Metropolitan Region which includes the City
of the Santiago. We have computed the information contained in this annual report regarding annual volume, per
capita growth rates and levels, market share, product segment, and population data in the
supermarket industry based upon market statistics. Sales figures for the supermarket industry in
Chile are based upon industry surveys and information reported to the Instituto Nacional de
Estadísticas, or INE. Certain market information contained in this annual report is dated as of
August 31, 2004, the last date of the formal publication of sales and market share by A.C. Nielsen
Company. Additional data was obtained from third parties and from our own research and estimates. Our audited consolidated financial statements and, unless otherwise indicated, the other
financial information presented in this annual report, are presented in Chilean pesos in conformity
with generally accepted accounting principles in Chile, or Chilean GAAP, and the rules of the
Superintendencia de Valores y Seguros, the Chilean Superintendency of Securities and Insurance, or
SVS. Chilean GAAP differs in certain important respects from generally accepted accounting
principles in the United States, or U.S. GAAP. See Note 26 to our audited consolidated financial
statements for the years ended December 31, 2003 and 2004 contained in Item 18 herein for a
description of the principal differences between Chilean GAAP and U.S. GAAP as they relate to us.
Note 26 to our audited consolidated financial statements for the years ended December 31, 2002,
2003 and 2004 also contains a reconciliation to U.S. GAAP of our net income for the years ended
December 31, 2002, 2003 and 2004 and our total shareholders equity at December 31, 2003 and 2004. On April 13, 2005, we announced a restatement of our Chilean GAAP financial statements
for 2003 to correct an error in our determination of our allowance for doubtful accounts related to
our Prestocredit card. In preparing financial statements, certain estimates and assumptions are
made which affect the reported amounts of assets and liabilities. Management has determined that
its predictive model used to determine our allowance for doubtful accounts related to our Presto
credit card had not reflected deteriorations in the collectibility of certain aged installment
payment receivables. See Note 24 to our financial statements. By applying the appropriate
deterioration in collectibility information to our predictive model, the allowance for doubtful
accounts of the Prestocredit card at December 31, 2003
was restated to Ch$14,320 million from
Ch$3,059 million. The restatement is presented net of a deferred tax benefit in income of Ch$1,855
million. Additionally, we have restated our shareholders equity reconciliation to U.S. GAAP as of
December 31, 2003, our opening shareholders equity under U.S. GAAP as of January 1, 2003 and our
net income reconciliation to U.S. GAAP for the years ended December 31, 2002 and 2003 to reflect
deferred tax and minority interest adjustments on U.S. GAAP adjustments, capitalization of volume
rebates associated with unsold inventory, depreciation adjustments for differences in purchase
accounting principles between U.S. GAAP and Chilean GAAP, and mathematical errors in the
calculation of the present value of the Disco account receivable under Accounting Principles Board
Opinion No. 21. See Note 26 to our financial statements. 4




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PART I 
 Item 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS Not applicable. 
 Item 2. OFFER STATISTICS AND EXPECTED TIMETABLE Not applicable. 
 Item 3. KEY INFORMATION General The following table presents our summary consolidated financial data and other financial and
operating information at the dates and for the periods indicated. The summary consolidated
financial data as of December 31, 2003 and 2004 and for the years ended December 31, 2002, 2003 and
2004, was derived from our consolidated financial statements, including the notes thereto, which
were audited by Deloitte and Touche, Sociedad de Auditores y Consultores Ltda., independent
registered public accounting firm. The summary consolidated Chilean GAAP financial information as
of and for the years ended December 31, 2000 and 2001 was derived from our consolidated financial
statements, including the notes thereto, which were audited by Deloitte and Touche, Sociedad de
Auditores y Consultores Ltda. and are not included herein. The consolidated financial data should
be read in conjunction with our consolidated financial statements, including the notes thereto, and
with Managements Discussion and Analysis of Results of Operations and Financial Condition. Our
consolidated financial statements are prepared in accordance with Chilean GAAP, which differs in
certain significant respects from U.S. GAAP. Note 26 to our consolidated financial statements
provides a description of the principal differences between Chilean GAAP and U.S. GAAP as they
relate to us and a reconciliation to U.S. GAAP of net income and shareholders equity for the
periods and as of the dates covered by the financial statements. On April 13, 2005, we announced a restatement of our Chilean GAAP financial statements
for 2003 to correct an error in our determination of our allowance for doubtful accounts related to
our Prestocredit card. In preparing financial statements, certain estimates and assumptions are
made which affect the reported amounts of assets and liabilities. Management has determined that
its predictive model used to determine its allowance for doubtful accounts related to its Presto
credit card had not reflected deteriorations in the collectibility of certain aged installment
payment receivables. See Note 24 to our financial statements. By applying the appropriate
deterioration in collectibility information to our predictive model, the allowance for doubtful
accounts of the Prestocredit card at December 31, 2003
was restated to Ch$14,320 million from
Ch$3,059 million. The restatement is presented net of a deferred tax benefit in income of Ch$1,855
million. Additionally, we have restated our shareholders equity reconciliation to U.S. GAAP as of
December 31, 2003, our opening shareholders equity under U.S. GAAP as of January 1, 2003 and our
net income reconciliation to U.S. GAAP for the years ended December 31, 2002 and 2003 to reflect
deferred tax and minority interest adjustments on U.S. GAAP adjustments, capitalization of volume
rebates associated with unsold inventory, depreciation adjustments for differences in purchase
accounting principles between U.S. GAAP and Chilean GAAP, and mathematical errors in the
calculation of the present value of the Disco account receivable under Accounting Principles Board
Opinion No. 21. See Note 26 to our financial statements. As required by Chilean GAAP, our financial statements are adjusted to reflect changes in
purchasing power of the Chilean peso due to inflation. These changes are based on the consumer
price index, or CPI, measured from December 1 to November 30 of each year. All non-monetary assets
and liabilities and income statement accounts have been restated to reflect the changes in the
Chilean consumer price index from the date such assets and liabilities were acquired or incurred to
the end of the period. For the convenience of the reader, this annual report contains translations of certain Chilean
peso amounts into U.S. dollars at specified rates. Unless otherwise indicated, U.S. dollar
equivalent information for amounts in Chilean pesos is based on the observed exchange rate reported
by the Chilean Central Bank for December 31, 2004, which was Ch$557.40 = US$1.00. The Federal
Reserve Bank of New York does not report a noon buying rate in New York City for Chilean pesos. No
representation is made that the Chilean peso or U.S. dollar amounts presented in this annual report
could have been or could be converted into Chilean pesos or U.S. dollars, as the case may be, at
any particular rate or at all. 5




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Recent Developments Common Stock and Preemptive Rights Offering.In 2004, we carried out a capital increase of
250,000,000 common shares, of which 166,637,636 shares of our common stock were offered in Chile
and the United States. In August 2004, we also conducted a preemptive rights offering to the
holders of our common stock and ADSs, as required by Chilean law, to subscribe 83,362,365 new
shares of common stock in Chile and elsewhere outside Chile, of which 15,117,282 shares were
represented by ADR rights. The subscription price was Ch$620 per new common share and
Ch$9,300 per ADS . After the close of the preemptive rights offering, 248,381,101 shares were
subscribed yielding total proceeds of Ch$155,048,729 million (US$247 million) (historical amounts).
The unsubscribed shares were later offered and sold to the open market in Chile. Stock Split/ADR Ratio Change.Effective December 6, 2004, we conducted a one-to-four stock
split of our common shares in Chile. As a result of the stock split, the number of our outstanding
shares increased from 1,630,000,000 to 6,520,000,000. In order to maintain the same economic and
corporate rights for the ADRs as the underlying common shares, the number of shares representing
each ADS was increased from 15 common shares per ADS to 60 common shares per ADS. Agreement
with DIASA. On December 31, 2004, we entered into a framework agreement
with Distribuidora Internacional de Alimentación S.A. (DIASA), a
Spanish corporation and subsidiary of the Carrefour Group, with the
purpose to establish an appropriate contractual framework to
facilitate the assessment and eventual possibility of entering into
final agreements for the set up and development of a chain of proximity and
convenience stores in the Republic of Chile. 6




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Selected Financial and Operating Data At and for the year ended December 31,2000(18)
    
    

2001(18)
    
    
    2002(16)
    
    
    2003(16)
    
    
    2004
    
    
    2004(1)(Restated
andunaudited)
    
    

(Restated
andunaudited)
    
    
    (As
restated)
    
    
    (As
restated)(amounts in millions of constant Ch$ and millions of US$, and except per share andper ADS information and percentages or as otherwise indicated)INCOME STATEMENT DATA:Chilean GAAP:Net revenue
    
    Ch$
    882,222
    
    
    Ch$
    973,456
    
    
    Ch$
    1,085,187
    
    
    Ch$
    1,192,075
    
    
    Ch$
    1,440,461
    
    
    US$
    2,584.3Cost of sales
    
    
    (690,245
    )
    
    
    (754,316
    )
    
    
    (837,505
    )
    
    
    (923,643
    )
    
    
    (1,107,916
    )
    
    
    (1,987.6
    )Gross profit
    
    
    191,975
    
    
    
    219,140
    
    
    
    247,682
    
    
    
    268,432
    
    
    
    332,545
    
    
    
    596.6Selling and administrative expenses
    
    
    (141,956
    )
    
    
    (161,108
    )
    
    
    (203,951
    )
    
    
    (233,243
    )
    
    
    (303,026
    )
    
    
    (543.6
    )Operating income
    
    
    50,019
    
    
    
    58,031
    
    
    
    43,731
    
    
    
    35,189
    
    
    
    29,519
    
    
    
    52.9Non-operating income
    
    
    2,630
    
    
    
    1,653
    
    
    
    1,353
    
    
    
    1,521
    
    
    
    2,889
    
    
    
    5.2Non-operating expenses
    
    
    (18,138
    )
    
    
    (15,811
    )
    
    
    (21,270
    )
    
    
    (18,992
    )
    
    
    (22,036
    )
    
    
    (39.5
    )Net price-level restatement and foreign
exchange gain (loss)
    
    
    688
    
    
    
    5,904
    
    
    
    5,622
    
    
    
    (893
    )
    
    
    2,113
    
    
    
    3.85Non-operating loss
    
    
    (14,820
    )
    
    
    (8,253
    )
    
    
    (14,295
    )
    
    
    (18,364
    )
    
    
    (17,034
    )
    
    
    (30.6
    )Income (loss) before income taxes
    
    
    35,199
    
    
    
    49,778
    
    
    
    29,436
    
    
    
    16,825
    
    
    
    12,485
    
    
    
    22.4Income taxes
    
    
    (3,636
    )
    
    
    (7,802
    )
    
    
    (4,821
    )
    
    
    (4,764
    )
    
    
    (2,128
    )
    
    
    (3.8
    )Net income (loss)
    
    Ch$
    31,563
    
    
    Ch$
    41,976
    
    
    Ch$
    24,615
    
    
    Ch$
    12,061
    
    
    Ch$
    10,357
    
    
    US$
    18.6Basic and diluted earning per share(2)
    
    Ch$
    5.72
    
    
    Ch$
    7.61
    
    
    Ch$
    4.45
    
    
    Ch$
    2.18
    
    
    Ch$
    1.77
    
    
    US$
    0.0Basic and diluted earning per ADS(3)
    
    
    343.20
    
    
    
    456.60
    
    
    
    267.00
    
    
    
    130.80
    
    
    
    106.41
    
    
    
    0.1Dividends per share(4)
    
    Ch$
    2.5
    
    
    Ch$
    2.5
    
    
    Ch$
    2.5
    
    
    Ch$
    2.5
    
    
    Ch$
    1.88
    
    
    US$
    0.0Dividends per ADS(3)(4)
    
    
    150.0
    
    
    
    150.0
    
    
    
    150.0
    
    
    
    150.0
    
    
    
    112.50
    
    
    
    0.2Weighted average shares outstanding (in
millions)(5) (17)
    
    
    5,520
    
    
    
    5,520
    
    
    
    5,520
    
    
    
    5,520
    
    
    
    6,520
    
    
    
    N/AU.S. GAAP:Net revenue
    
    Ch$
    822,366
    
    
    Ch$
    900,214
    
    
    Ch$
    1,000,264
    
    
    Ch$
    1,095,012
    
    
    Ch$
    1,312,683
    
    
    US$
    2,355.0Operating income
    
    
    49,952
    
    
    
    57,941
    
    
    
    37,518
    
    
    
    34,434
    
    
    
    28,884
    
    
    
    51.8Net income (loss)
    
    
    31,854
    
    
    
    44,247
    
    
    
    29,648
    
    
    
    15,107
    
    
    
    9,578
    
    
    
    17.2Basic and diluted earning per share(2)
    
    Ch$
    5.77
    
    
    Ch$
    8.02
    
    
    Ch$
    5.37
    
    
    Ch$
    2.74
    
    
    Ch$
    1.64
    
    
    US$
    0.0Basic and diluted earning per ADS(3)
    
    
    346.24
    
    
    
    480.95
    
    
    
    322.26
    
    
    
    164.21
    
    
    
    96.4
    
    
    
    0.1Weighted average shares outstanding (in
millions)(5) (17)
    
    
    5,520
    
    
    
    5,520
    
    
    
    5,520
    
    
    
    5,520
    
    
    
    5,840
    
    
    
    N/ABALANCE SHEET DATA:Chilean GAAP:Total current assets
    
    Ch$
    141,500
    
    
    Ch$
    160,345
    
    
    Ch$
    256,238
    
    
    Ch$
    319,639
    
    
    Ch$
    381,566
    
    
    US$
    684.5Property, plant and equipment-net
    
    
    427,522
    
    
    
    470,243
    
    
    
    506,837
    
    
    
    512,137
    
    
    
    595,014
    
    
    
    1,067.5Total assets
    
    
    642,388
    
    
    
    710,888
    
    
    
    781,884
    
    
    
    856,562
    
    
    
    1,036.124
    
    
    
    1,858.9Short-term debt
    
    
    13,434
    
    
    
    46,568
    
    
    
    118,734
    
    
    
    138,423
    
    
    
    101,145
    
    
    
    181.0Long-term debt
    
    
    195,050
    
    
    
    167,765
    
    
    
    142,322
    
    
    
    179,441
    
    
    
    232,224
    
    
    
    416.6Total shareholders equity
    
    
    275,629
    
    
    
    301,204
    
    
    
    311,334
    
    
    
    309,320
    
    
    
    465,913
    
    
    
    817.9Ratio of shareholders equity to
capitalization (6)
    
    
    57.8
    %
    
    
    59.6
    %
    
    
    62.3
    %
    
    
    59.8
    %
    
    
    64.2
    %
    
    
    64.2
    %U.S. GAAP:Total assets
    
    Ch$
    643,847
    
    
    Ch$
    711,868
    
    
    Ch$
    787,505
    
    
    Ch$
    856,758
    
    
    Ch$
    1,038,111
    
    
    US$
    1,862.4Long-term debt
    
    
    199,042
    
    
    
    167,765
    
    
    
    142,322
    
    
    
    183,845
    
    
    
    235,411
    
    
    
    422.3Total shareholders equity
    
    
    260,166
    
    
    
    284,090
    
    
    
    297,022
    
    
    
    298,761
    
    
    
    452,820
    
    
    
    812.4OTHER FINANCIAL INFORMATION
Chilean GAAP:Capital expenditures
    
    Ch$
    51,802
    
    
    Ch$
    73,709
    
    
    Ch$
    70,563
    
    
    Ch$
    45,263
    
    
    Ch$
    151,066
    
    
    US$
    271.0Depreciation and amortization
    
    
    30,855
    
    
    
    32,551
    
    
    
    35,462
    
    
    
    38,949
    
    
    
    49,273
    
    
    
    88.4Net cash provided (used in) from
operating activities
    
    
    66,171
    
    
    
    68,462
    
    
    
    29,095
    
    
    
    34,287
    
    
    
    (13,484
    )
    
    
    (24.2
    )Financial Ratios(7) (Chilean GAAP):Gross margin
    
    
    21.8
    %
    
    
    22.5
    %
    
    
    22.8
    %
    
    
    22.5
    %
    
    
    23.1
    %
    
    
    23.1
    %Operating margin
    
    
    5.7
    
    
    
    6.0
    
    
    
    4.0
    
    
    
    3.0
    
    
    
    2.0
    
    
    
    2.0Net margin
    
    
    3.6
    
    
    
    4.3
    
    
    
    2.3
    
    
    
    1.0
    
    
    
    1.0
    
    
    
    1.0Current ratio
    
    
    84.5
    
    
    
    68.3
    
    
    
    79.5
    
    
    
    88.6
    
    
    
    112.4
    
    
    
    112.4Financial debt/total shareholders equity
    
    
    75.6
    
    
    
    71.2
    
    
    
    83.9
    
    
    
    102.8
    
    
    
    73.12
    
    
    
    73.12
 7




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##### Table of Contents



At and for the year ended December 31,2000(18)
    
    

2001(18)
    
    
    2002(16)
    
    
    2003(16)
    
    
    2004
    
    
    2004(1)(Restated
and
unaudited)
    
    
    (Restated
and
unaudited)
    
    
(As
restated)
        
    
(As
restated)(amounts in millions of constant Ch$ and millions of US$, and except per share andper ADS information and percentages or as otherwise indicated)Operating Information:Number of stores (at end of period):Almac
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    N/AEkono
    
    
    31
    
    
    
    28
    
    
    
    23
    
    
    
    
    
    
    
    
    
    
    
    N/ALider Express(8)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26
    
    
    
    23
    
    
    
    N/ALider
    
    
    14
    
    
    
    16
    
    
    
    21
    
    
    
    23
    
    
    
    31
    
    
    
    N/ALider Vecino(9)
    
    
    3
    
    
    
    5
    
    
    
    13
    
    
    
    19
    
    
    
    24
    
    
    
    N/ALider Mercado(10)
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    
    
    
    
    Total
    
    
    52
    
    
    
    54
    
    
    
    62
    
    
    
    68
    
    
    
    78Total selling space
    
    
    242,007
    
    
    
    263,635
    
    
    
    309,361
    
    
    
    333,344
    
    
    
    404,467
    
    
    
    N/AAverage selling space per store(9)
    
    
    4,566
    
    
    
    4,810
    
    
    
    5,005
    
    
    
    4,902
    
    
    
    5,195
    
    
    
    N/AAverage sales per store
(in millions)(10)(11)
    
    Ch$
    15,043
    
    
    Ch$
    16,583
    
    
    Ch$
    16,601
    
    
    Ch$
    16,511
    
    
    Ch$
    16,633
    
    
    US$
    29.04Increase (decrease) in same store
sales(11)(12)
    
    
    2.4
    %
    
    
    3.0
    %
    
    
    (1.4
    )%
    
    
    0.3
    %
    
    
    1.6
    %
    
    
    N/ASales per square meter (in
millions)(11)(13)
    
    Ch$
    3.3
    
    
    Ch$
    3.5
    
    
    Ch$
    3.3
    
    
    Ch$
    3.3
    
    
    Ch$
    3.2
    
    
    US$
    0.006Total number of employees(14)
    
    
    12,154
    
    
    
    15,988
    
    
    
    17,912
    
    
    
    19,494
    
    
    
    26,333Sales per employee(11)(15)
    
    Ch$
    69.6
    
    
    Ch$
    68.2
    
    
    Ch$
    60.2
    
    
    Ch$
    66.1
    
    
    Ch$
    62.8
    
    
    US$
    0.113
 
 (1)
    
    Chilean peso amounts (except dividends) have been translated into U.S. dollars at the rate
of Ch$557.40 per U.S. dollar, the Observed Exchange Rate at December 31, 2004. Dividends are
translated at the Observed Exchange Rate on the date of payment. Such U.S. dollar transactions
are presented for the convenience of the reader and should not be construed as representations
that the Chilean peso amounts have been or could be converted into U.S. dollars at that rate
or any other rate.(2)
    
    Net income (loss) per share expressed in constant Chilean pesos by dividing net income by
number of shares outstanding at period-end. In U.S. GAAP, earnings per share are calculated on
the basis of the weighed average shares outstanding. The figures for 2004 reflect a capital
increase of 250,000,000 shares of common stock in August 2004 and a stock split of one-to-four
in December 2004.(3)
    
    Earnings per ADS reflect a ratio of 60 common
shares per ADS. This is explained by the one-to-four stock split on
local shares, effective December 6, 2004. In order to maintain the same economic and corporate
rights for the ADRs as the underlying common shares, the number of shares representing each
ADS was increased from 15 common shares per ADS to 60 common shares per ADS.(4)
    
    Figures are in constant Chilean pesos and U.S. dollars. U.S. dollar amounts for dividends are
calculated by applying the Observed Exchange Rate on the dividend payment date to the nominal
peso amount.(5)
    
    Calculated on the basis of the number of shares outstanding and fully paid.(6)
    
    Capitalization is equal to the current portion of long-term debt plus long-term debt plus
minority interest and equity.(7)
    
    These ratios, which are expressed as percentages, were calculated as follows: Gross margin =
Gross profit/Net revenues; Operating margin = Operating income/Net revenues; Net margin = Net
income/Net revenues; Current ratio = Current assets/Current liabilities.(8)
    
    Includes stores formerly operated under the Almacand Ekonobrands.(9)
    
    In square meters. Calculated by adding the average monthly selling space for each month
during the year and dividing the result by 12. Average monthly selling space is defined as
total selling space as of the last day of the month divided by the number of stores open on
the last day of such month. Sales area of FarmaLiderstores not included (marginal). Each
square meter is equivalent to 10,764 square feet.(10)
    
    Sales for the period divided by the average number of stores at the end of each month during
the period. Includes sales from FarmaLiderstores.(11)
    
    Sales set forth net revenues under Chilean GAAP, excluding vendor allowances. As such,
sales are equal to net revenues under U.S. GAAP.(12)
    
    Reflects increase (decrease) in net revenues of all stores open and operated by our company
through out two corresponding financial periods and, consequently, excludes net revenues of
stores opened or closed or which underwent renovation during either of such periods.(13)
    
    Sales for the period divided by the average square meters of selling space at the end of each
month during the period includes sales from FarmaLiderstores, sales area of these stores is
not included.(14)
    
    Number of full-time equivalent employees at period-end (company total).(15)
    
    Sales for the period divided by the average number of employees at the end of each month
during the period (full time shifts in stores) including employees in FarmaLiderstores.(16)
    
    On April 13, 2005, our company announced that it would restate its financial statements for
2003 to correct an error in its determination of its allowance for doubtful accounts related
to its Prestocredit card. These figures correspond to restated figures. The allowance for
doubtful accounts of the Prestocredit card at
December 31, 2003 was restated to Ch$14,320
million from Ch$3,059 million and the deferred tax benefit was restated by Ch$1,855 million.
Additionally, the company has determined that certain adjustments are necessary to
various accounts in its U.S. GAAP financial statements as of and for the years ended December
31, 2002 and 2003. See Note 26 to our financial statements.(17)
    
    In 2004, we made a capital increase at 250,000,000 common shares, which was entirely
subscribed and paid. As a result of this, the number of our outstanding shares increased from
1,380,000,000 to 1,630,000,000 shares. Effective December 6, 2004, we conducted a one-to-four
stock split of our common shares in Chile. As a result of the stock split, the number of our
outstanding shares increased from 1,630,000,000 to 6,520,000,000. In order to maintain the same economic and corporate rights for the ADRs as
the underlying common shares, the number of shares representing each ADS was increased from 15
common shares per ADS to 60 common shares per ADS.(18)
    
    We  have restated our 2000 and 2001 net income in U.S.
GAAP to reflect the effect on our included financial information
on the allocated portions of the restated opening
shareholders equity adjustments as of January 1, 2002 to those
years. These numbers are unaudited. 8




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##### Table of Contents



Exchange Rates Chile has a liberalized exchange system. There is a regulated exchange market known as the
Mercado Cambiario Formal, or the Formal Exchange Market. Transactions taking place outside the
Formal Exchange Market, which are lawful unless specifically prohibited, are deemed to occur in
what is known as the Mercado Cambiario Informal, or the Informal Exchange Market. The Chilean
Central Bank is empowered to determine that certain purchases and sales of foreign currencies must
be carried out in the Formal Exchange Market. Pursuant to Chilean Central Bank regulations which
are currently in effect, all payments, remittances or transfers of foreign currency abroad which
are required to be performed through the Formal Exchange Market may be effected with foreign
currency procured outside the Formal Exchange Market. The Formal Exchange Market is comprised of
the banks and other entities so authorized by the Chilean Central Bank. Current regulations require
that the Chilean Central Bank be informed of certain transactions and that they be effected through
the Formal Exchange Market. The reference exchange rate for the Formal Exchange Market is reset daily by the Chilean
Central Bank, taking internal and external inflation into account, and is adjusted daily to reflect
variations in parities between the peso and each of the U.S. dollar, the euro and the Japanese yen.
The observed exchange rate for a given date is the average exchange rate of the transactions
conducted in the Formal Exchange Market on the immediately preceding banking day, as certified by
the Chilean Central Bank. Prior to September 2, 1999, authorized transactions by banks were generally transacted within
a certain band above or below the reference exchange rate. In order to maintain the average
exchange rate within such limits, the Chilean Central Bank intervened by selling and buying foreign
currencies on the Formal Exchange Market. On September 2, 1999, the Chilean Central Bank eliminated
the exchange rate band as an instrument of exchange rate policy, introducing more flexibility to
the exchange market. The Chilean Central Bank announced that it will intervene in the exchange
market only in special and qualified cases. Purchases and sales of foreign currencies which may be effected outside the Formal Exchange
Market can be carried out in the Informal Exchange Market. The Informal Exchange Market reflects
transactions carried out at informal exchange rates by entities not expressly authorized to operate
in the Formal Exchange Market, such as most foreign exchange houses and travel agencies. There are
no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can
fluctuate above or below the observed exchange rate. At December 31, 2004, the average exchange
rate in the Informal Exchange Market was approximately the same as the published observed exchange
rate for such date, of Ch$ 557.40 per US$1.00. The following table sets forth the high, low, average and year-end observed exchange rates for
U.S. dollars for the periods indicated as expressed in pesos per US$1.00, as reported by the
Chilean Central Bank. No indication is made that the Chilean peso or U.S. dollar amounts referred
to in this annual report actually represent, could have been or could be converted into, U.S.
dollars or Chilean pesos, as the case may be, at the rates indicated, at any particular rate or at
all. The Federal Reserve Bank of New York does not report a daily 12:00 p.m. buying rate for
Chilean pesos: Observed Exchange Rate (4)Period
    
    Low (1)
    
    
    High (1)
    
    
    Average
    
    
    Year End2000 (2)
    
    Ch$
    501.04
    
    
    Ch$
    580.37
    
    
    Ch$
    542.08
    
    
    Ch$
    573.652001 (2)
    
    
    557.13
    
    
    
    716.62
    
    
    
    636.39
    
    
    
    654.792002 (2)
    
    
    641.75
    
    
    
    756.56
    
    
    
    694.46
    
    
    
    718.612003 (2)
    
    
    593.10
    
    
    
    758.21
    
    
    
    691.40
    
    
    
    593.802004 (2)
    
    
    557.40
    
    
    
    649.45
    
    
    
    609.53
    
    
    
    557.40December 2004 (3)
    
    
    557.40
    
    
    
    597.27
    
    
    
    576.17
    
    
    
    N/AJanuary 2005 (3)
    
    
    560.30
    
    
    
    586.18
    
    
    
    574.12
    
    
    
    N/AFebruary 2005 (3)
    
    
    563.22
    
    
    
    583.84
    
    
    
    573.58
    
    
    
    N/A
 9




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##### Table of Contents



Observed Exchange Rate (4)Period
    
    Low (1)
    
    
    High (1)
    
    
    Average
    
    
    Year EndMarch 2005 (3)
    
    
    578.60
    
    
    
    591.69
    
    
    
    586.48
    
    
    
    N/AApril 2005 (3)
    
    
    572.75
    
    
    
    588.95
    
    
    
    580.46
    
    
    
    N/AMay 2005 (3)
    
    
    570.83
    
    
    
    583.59
    
    
    
    578.32
    
    
    
    N/A
 
 (1)
    
    Reflects pesos at historical values rather than constant pesos.(2)
    
    The average of observed exchange rates for pesos on the last day of each full month during
the relevant period.(3)
    
    The average of closing observed exchange rates for pesos for each day of transactions during
the month.(4)
    
    Transactions carried out on the previous bank business day reported by the Central Bank. Source: The Chilean Central Bank 10




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##### Table of Contents



RISK FACTORS An investment in our common shares involves a high degree of risk. Investors in our common
shares should carefully consider the following risk factors and the other information in this
annual report. Risks Relating to Our
Company Our current strategy may erode our profitability. In mid-2003, we strengthened our commitment to our Every Day Low Prices, or EDLP, strategy,
which was designed to create significant price advantage over our competitors. In the short term,
this EDLP strategy reduced our profitability because our volume increases and cost reductions did
not fully offset the price decreases. In the last quarter of 2004, the EDLP strategy evolved into
its next stage, our Exceptional Value strategy, which aims to deliver service and quality at the
lowest possible price by keeping a perceptual price positioning along with incentives for holders
of our Prestocredit card, the development of our Liderbrand name, and high-low pricing in
perishables. The long-term success of our strategy is subject to significant risks, including the
following:  
    
    we may generate less additional sales volume than expected;
    
    we may encounter difficulties obtaining additional vendor allowances from suppliers
in the expected amounts and within thetimeframe we currently anticipate;
    
    our competitors may decide to match or undercut some or all of our reduced prices,
making it difficult to sustain a sufficient pricedifferential to attract the desired
increase in customers;
    
    we may fail to achieve desired reductions in selling expenses; and
    
    even if we are successful in implementing our strategy, it may take longer than
planned to achieve the desired results. Any one of these factors could adversely affect our current strategy and, consequently, our
business, financial condition, results of operations, cash flows and prospects. Increased competition may adversely affect our results of operations. The retail food industry in Chile is characterized by growing competition and increasing
pressure on profit margins. The number and type of competitors and the degree of competition
experienced by individual stores vary by location. Competition occurs on the basis of price,
location, quality of products and services, product variety and store conditions. Through our Lider
store formats (hypermarkets, compact hypermarkets and supermarkets), we compete across the full
spectrum of food retailing in Chile with a number of national hypermarket and supermarket chains,
smaller chains and unaffiliated independent food stores. Additionally, there is a trend towards consolidation in the Chilean supermarket industry. Our
main Chilean competitor, Cencosud S.A., which owns Jumbo, purchased Santa Isabel from Royal Ahold
in 2003, Montecarlo and Las Brisas in 2004. As a result of those acquisitions, Cencosud has
recently become a stronger competitor in the Chilean market. We purchased in January 2004,
Carrefour Chile S.A., also participating in the consolidation of the sector. Similarly, Falabella,
the main department and home improvement store network in Chile, acquired in 2004 the supermarket
chain San Francisco, thus 11




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##### Table of Contents



expanding their operations into the supermarket industry. If other competitors enter into the
supermarket sector and are successful in capturing market share, our results of operations may be
adversely affected. The Chilean retail market may become saturated and prevent us from carrying out our plans for
expansion or from achieving further growth. Historically, our sales growth has resulted primarily from the addition of new stores. As the
number of stores increases, we may not be able to expand our floor space without decreasing sales
of our existing stores. Additionally, during the 1990s, aggressive expansion by supermarket and
hypermarket retailers operating in Chile resulted in an average annual growth in retail floor space
of 11% that continued through 2002. If the Chilean retail industry continues to expand and becomes
saturated relative to the current purchasing power of the Chilean consumer, it may limit our
ability to profitably expand through new store openings. The growth of our credit card operations may expose us to increased credit and financial risk,
which may adversely affect our financial condition and results of operations. Our Prestocredit card business is a growing segment of
our operations. Over the twelve
months from December 31, 2003 to December 31, 2004, we increased our number of accounts in good
standing by 68.9% from 652,541 to 1,180,456 account holders. From 2003 to 2004, our net revenues
derived from credit card financial income increased 30.7% to Ch$28,155 million or 2.0% of our net
revenue (unconsolidated figures). At the same time our delinquency rates have been increasing.
Our amounts past-due have increased 64.2% from Ch$11,612 million at December 31, 2003 to Ch$18,602
million at December 31, 2004 and as a percentage of total accounts receivable have decreased from
13.4% to 13.2%. At December 31, 2004, we had 1,180,456 accounts in good standing with credit
outstanding of Ch$141,201 million (US$253.3 million), and we intend to continue to increase the
number of account holders in the near term. On June 16, 2005, the
Superintendencia de Bancos e Instituciones Financieras, authorized our subsidiary Servicios y Administración de Créditos
Comerciales Presto S.A., to issue and administer credit cards under
the Presto name nationally, in
conformity with the established norms in Chapter III.J.1 of the Compendio de Normas Financierasof
the Central Bank of Chile. Accordingly, the company has determined
that this is a type I subsequent event under Chilean GAAP which
required an increase in our recording of our allowance for doubtful accounts as of December 31, 2004 for the
accounts receivable of Servicios y Administración de Créditos Comerciales Presto S.A. to be in
accordance with the rules of the Suprintendencia de Bancos e
Instituciones Financieras. At December 31, 2004 our allowance for doubtful accounts was Ch$18,270 million (US$32.8
million), representing 14.9% of our total net receivables. We assume sole responsibility for account approval and credit risk by administering Prestoas
a separate operating unit. As a result, we are exposed to increased credit and financial risk,
which may adversely affect our financial condition and results of operation. These risks include:  
    
    Economic Downturns- Our credit card business is affected by general economic
conditions beyond our control, including employment levels, consumer confidence and
interest rates. A downturn in the Chilean economy may lead to a decrease in credit
sales;
    
    Increased Delinquencies and Charge-offs- Subject to our credit standards, we seek
to increase the in-store credit available to our customers, particularly to permit the
purchase of more expensive, higher-margin durable goods. As a result, our credit card
operations accept a significant portion of applicants otherwise rejected by credit card
operations administered by local Chilean banks. These customers generally have higher
rates of charge-offs and delinquencies and are more adversely affected by downturns in
the Chilean economy than customers with better credit profiles; 12




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##### Table of Contents




    
    Inability to Predict Future Charge-offs- The approaches we use to select our
customers may not be as effective at predicting future charge-offs due to changes in
the economy, which may result in higher incidence of delinquencies among our customers;
    
    Changes in Credit Card Use- A variety of social factors may cause changes in credit
card use, including changes in consumer confidence levels, the publics perception of
the use of credit cards, and changing attitudes about incurring debt; and
    
    Increased Regulation- Although our credit card business is currently not subject to
government regulation other than laws and regulations generally applicable to issuers
and operators of credit cards, the Chilean government may impose regulations in the
future. In late 2004 our subsidiaries that concentrate our credit card activities
filed applications before the Central Bank of Chile requesting authorization to
respectively issue and operate the Prestocard, which to date has been an in-store
credit card, as what is known in Chile as an open credit card, that is, a credit card
that may be used for the purchase and financing of purchases from any establishment or
business that has previously affiliated with the credit card system. We were granted
the authorization in January 2005. In addition, on June 16, 2005, the Chilean Superintendencia de Bancos e
Instituciones Financieras(Superintendency of Banks and Financial Institutions), authorized our subsidiary,
Presto, to operate our credit card as an open credit
card, subject to compliance with
certain formal requirements, which are expected to be satisfied before
year-end. The regulations of
the Superintendencia de Bancos e Instituciones Financierasrequire  higher levels of provisions for payment defaults than
required under our previous policy. There regulations could
increase our costs and limit the manner in which we may offer and
extend credit. As a result of receipt of this approval, we have
determined to restate our financial statements for 2004 to reflect
the effect of this change in provisioning policy which amounted at
December 31, 2004 in higher provisions of
Ch$5,099 million (US$9.2 million). The
Chilean government is currently considering new legislation which may require
additional disclosure by retail companies granting credit to
consumers. See Information on the CompanyRegulation. If we are unable to access capital markets in the future, our financial condition and results
of operations may be adversely affected. We cannot assure you that we will be able to generate sufficient cash flows from our
operations or obtain sufficient funds from external sources to fund our capital expenditure
requirements. Our ability to access financial markets in sufficient amounts and at acceptable
costs to finance our operations and fund our future capital expenditures will depend to some degree
on prevailing capital and financial market conditions over which we have no control. Our failure
to generate sufficient cash flows from operations or to obtain such financing could cause us to
delay or abandon some or all of our planned capital expenditures, which, in turn, could adversely
affect our competitive position, financial condition, results of operations, cash flows and
prospects. A change in antitrust law, regulation or regulatory oversight in Chile could require that we
take certain compliance measures including the incurrence of significant incremental expenses which
could adversely impact our ability to expand our business. Chile has antitrust laws that limit the abuse of market share by a company in any particular
industry. On October 5, 2004, the Tribunal de Defensa de la Libre Competencia, a recently instated
authority that replaced the Comisión Resolutiva Centralas the higher special-purpose court for
antitrust 13




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##### Table of Contents



matters, issued a ruling related to a fact finding investigation regarding procurement
practices in the food retailing sector. This ruling ordered that: i) the supermarket chains
operated by our company and Cencosud S.A. should refrain from unilaterally and ex post factoalter
the price and other previously agreed terms of purchases from suppliers; ii) the supermarket chains
operated by our company and Cencosud S.A. should establish unbiased and objective terms and
conditions for purchases to be made from suppliers and duly inform them in advance of such terms
and conditions; and, iii) the supermarket chains operated by our company and Cencosud S.A. and any
and all persons related to them, up to their final controllers, should consult in advance with the
Tribunal de Defensa de la Libre Competenciaany and all negotiations or agreements, of any form and
nature, that directly or indirectly imply an acquisition of or their integration or merger with,
companies in the same business. Upon rendering of the ruling described above both our company and
Cencosud S.A. filed a special appeal before the Supreme Court of Law of Chile challenging the
above-described restriction imposed on such companies to consult with the Tribunal de Defensa de la
Libre Competencia, as both companies believed it exceeded the competence of such authority. On May
26, 2005, the Supreme Court of Law ruled in favor of our company and Cencosud S.A. and annulled the
third part of the decision of the Tribunal de Defensa de la Libre Competenciain which it imposed
the above-described consultation obligation. With regards to the first part of the above-mentioned ruling (item i), our company has made
clear that such practices are not undertaken nor accepted among our commercial policies and
procedures under which we conduct our business relationships with vendors. Price and other
previously agreed upon terms of purchases are not unilaterally changed after negotiations have been
concluded. Therefore, this part of the ruling has no impact on the companys business activities or
results of operations. Although we believe our procurement policies comply with applicable laws and regulations,
Chilean regulatory scrutiny and policies requiring further objective, uniform and
non-discriminatory procurement policies may constrain our ability to achieve optimal pricing based
on our market leading market share, which may adversely affect the success of our business. The default on the payment of the deferred amount of the purchase price for Ekono-Argentina
may adversely affect our financial condition and results of operations. We sold our former Argentine subsidiary, Ekono-Argentina,to Disco S.A. in December of 1999
for US$150 million. However, only US$60 million of the purchase price was paid in May 2000, with
the balance of US$90 million payable in May 2003 and guaranteed by the Netherlands Antilles Company
Disco-Ahold International Holdings N.V., which we refer to as Ahold and is a subsidiary of Royal
Ahold N.V. We were informed in December 2002 that Disco S.A. would not pay us the entire US$150
million amount in dollars, but would instead convert the US$90 million balance owed to us into
Argentine pesos under Argentine foreign currency convertibility regulations. On May 2, 2003, Disco
S.A. made payment of A$126 million. After approval by the Central Bank of Argentina in August
2003, this amount plus accrued interest was remitted to us based on an effective exchange rate of
A$3.00 to US$1.00 and totaled US$42 million. We are involved in various legal challenges to recover the remaining amounts due. In April
2003, we sued Ahold in the Netherlands Antilles for not fulfilling its obligations as guarantor of
the balance to be paid in installments. Such lawsuit is still pending resolution. Additionally,
in April 2005, our company started legal proceedings against Royal Ahold N.V., the parent company
in the Netherlands, seeking damages because of what we believe constitutes tortious interference in
the actions of Ahold and Disco S.A. If we are unable to recover the remaining balance (currently
US$47.5 million), plus interest and costs, owed to us, our financial condition and prospects may be
adversely affected. Moreover, if we are unable to recover, or if we determine it is probable that
we will be unable to recover, the remaining amounts owed, we may be required to write off the
amount in dispute, which would have an adverse 14




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effect on our results of operations for that period. For more information, see Item 4 
Information on the Company  Legal Proceedings. Our controlling shareholders own a substantial majority of our share capital and exercise
significant influence over board decisions. Control of our company is vested in a series of companies beneficially owned or controlled by
our controlling shareholders, Messrs. Felipe Ibáñez Scott and Nicolás Ibáñez Scott. Together,
these companies and our controlling shareholders controlled 63.17% of our outstanding capital stock
at December 31, 2004. Therefore, our controlling shareholders are in a position to direct our
management and to determine the result of substantially all matters to be decided by a
shareholders vote, including:  
    
    the election of a majority of the members of our board of directors;
    
    the determination of the amount of dividends we distribute (subject to the legally
mandated minimum of 30% of net income);
    
    the ability to control persons named to our board of directors and management;
    
    the acquisition or disposition of assets; and
    
    future issuance of shares or other securities and other management policies. In addition, if the depositary does not receive voting instructions from a holder of ADSs on
or before the date set by the depositary, such holder will be deemed to have instructed the
depositary to give a discretionary proxy with full power of substitution to the president of our
board of directors, or to a person designated by the president of our board of directors, to vote
such shares on any such matter described under Item 10  Additional Information  Other
Limitations. For more information on the Depositary Agreement, see Item 10  Additional
Information  The Deposit Agreement. The decision of our controlling shareholders to dispose of a significant number of their
shares could adversely affect the trading price of our shares and ADSs. The disposition by the companies controlled by our controlling shareholders, Messrs. Felipe
Ibáñez Scott and Nicolás Ibáñez Scott, of a significant number of the shares of our company they
hold, or the perception that such a disposition might occur, could adversely affect the trading
price of our shares and ADSs. If a significant disposition were to occur, Messrs. Felipe Ibáñez
Scott and Nicolás Ibáñez Scott may not continue to own a controlling percentage of our capital
stock and an actual or potential reduction in their ownership percentage may have an adverse effect
on our results of operations or financial condition. Risks Relating to Chile Our growth and profitability depend on the level of economic activity in Chile and other
emerging markets. At December 31, 2004, all of our assets and revenues were located or generated in Chile.
Retail food sales show a high degree of correlation with the economic situation prevailing in the
relevant market. Accordingly, our financial condition and results of operations are dependent to a
significant extent upon economic conditions prevailing in Chile. Chilean economic conditions can
be adversely affected by a variety of factors, most of which are beyond our control, including: 15




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
    
    the economic or other policies of the Chilean government, which has a substantial
influence over many aspects of the private sector;
    
    other political or economic developments in or affecting Chile;
    
    regulatory changes or administrative practices of Chilean authorities;
    
    inflation and government policies to combat inflation;
    
    currency exchange movements;
    
    global and regional economic conditions;
    
    copper prices, which influence the profitability of Chiles copper exports; and
    
    other factors. Our financial condition and results of operations to some extent also depend on the level of
economic activity in both Latin American and other countries, especially the United States and
certain nations in Asia. In addition, although economic conditions are different in each country,
investors reactions to developments in one country may affect the securities of issuers in other
countries, including Chile. For example, adverse developments in other developing or emerging
market countries may lead to decreased investor interest in investing in Chile or in the securities
of Chilean companies. Currency fluctuations could adversely affect our financial condition and results of operations
and the value of our shares and ADSs. The Chilean governments economic policies and any future changes in the value of the Chilean
peso against the U.S. dollar could affect the dollar value of our common stock and our ADSs. The
peso has been subject to large devaluations in the past and, more recently, periods of significant
appreciation, and could be subject to significant fluctuations in the future. In the period from
December 31, 2003 to December 31, 2004, the value of the Chilean peso relative to the U.S. dollar
increased by 6.1%. The Observed Exchange Rate on May 31, 2005 was Ch$583.00 = US$1.00. Our
results of operations may be affected by fluctuations in the exchange rates between the peso and
the U.S. dollar. In the event of a devaluation of the Chilean peso, our financial condition and results of
operations, and our ability to meet obligations in foreign currencies, could be adversely affected.
The Chilean governments economic policies and future fluctuations in the value of the Chilean
peso against the U.S. dollar could adversely affect our operating results and the dollar value of
an investors return on an investment in the ADSs. Chilean trading in the shares of our common stock that underlie our ADSs is conducted in
pesos. Cash distributions with respect to shares of our common stock will be received in Chilean
pesos by the depositary and converted by the depositary into U.S. dollars at the then-prevailing
exchange rate for the purpose of making payments in respect of our ADSs. If the value of the
Chilean peso falls relative to the U.S. dollar, the value of our ADSs and any distributions to be
received from the depositary would be adversely affected. In addition, the depositary will incur
customary currency conversion costs (to be borne by the holders of our ADSs) in connection with the
conversion and subsequent distribution of dividends or other payments. 16




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Inflation could adversely affect our financial condition, results of operations and the value
of our shares and ADSs. Although Chilean inflation has moderated in recent years, Chile has experienced high levels of
inflation in the past. High levels of inflation in Chile could adversely affect the Chilean
economy and have a material adverse effect on our financial condition and results of operations.
The annual rates of inflation (as measured by changes in the CPI and as reported by the INE) in
2000, 2001, 2002, 2003 and 2004 were 4.5%, 2.6%, 2.8%, 1.1% and 2.4%, respectively. We cannot
assure you that Chilean inflation will not increase significantly in the future. We generally pass
on our increased costs resulting from inflation to our customers through increases in the prices of
the products we sell. There can be no assurance, however, whether or to what extent we will pass
on increased costs in the future. Further, the performance of the Chilean economy, our operating
results or the value of the ADSs may be adversely affected by continuing or increased levels of
inflation and Chilean inflation may increase significantly from the current level. The Chilean market for our shares may be volatile and illiquid and such volatility and lack of
liquidity may have adverse effects on the market for our ADSs. The Chilean securities markets are substantially smaller, less liquid and more volatile than
major securities markets in the United States. The companies listed on the Santiago Stock
Exchange, which is Chiles principal exchange, had an aggregate equity market capitalization of
approximately Ch$65,058,782 million (US$116,718 million) at December 31, 2004 and an aggregate
average monthly trading volume of approximately US$ 1,095 million for 2004. The ten largest
companies in terms of market capitalization at December 31, 2004, represented approximately 43.8%
of the Santiago Stock Exchanges aggregate market capitalization. Daily share trading volumes on
the Santiago Stock Exchange are on average substantially lower than those on the principal national
securities exchanges in the United States. For 2004, approximately 14.2% of the securities listed
and traded on the Santiago Stock Exchange traded on 90% or more of the trading days. The lack of liquidity owing, in part, to the relatively small size of the Chilean securities
markets may have a significant effect on the trading prices of our shares. Because the market for
our ADSs depends, in part, on investors perception of the value of our underlying shares, this
lack of liquidity for our shares in Chile may have a significant effect on the trading prices of
our ADSs. In addition, the Chilean securities markets may be affected by developments in other emerging
markets, particularly other countries in Latin America. The depth and liquidity of the market for
our shares and the potential impact of developments in other emerging markets may cause the trading
prices of our ADSs to fluctuate significantly. Chile imposes controls on foreign investment and repatriation of investments that may affect
your investment in, and earnings from, our ADSs. Equity investments in Chile by non-Chilean residents generally are subject to various exchange
control regulations that restrict the repatriation of investments and earnings from investments.
The ADS facility, however, is the subject of a Foreign Investment Contract among the depositary, us
and the Chilean Central Bank, which grants the depositary and the holders of ADSs access to Chiles
Mercado Cambiario Formal,or Formal Exchange Market. Pursuant to current Chilean law, the Foreign
Investment Contract may not be amended unilaterally by the Central Bank. Additionally, there are
judicial precedents (although not binding on future judicial decisions) indicating that the Foreign
Investment Contract may not be abrogated by future legislative changes. However, additional
Chilean restrictions applicable to the holders of ADSs, to the disposition of underlying shares of
common stock or to the repatriation of the proceeds from such disposition may be imposed in the
future, and the duration or 17




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implications of any such restrictions that might be imposed are difficult to predict. If, for
any reason, including changes in the Foreign Investment Contract or Chilean law, the depositary
were unable to convert pesos to U.S. dollars, investors might receive dividends or other
distributions in pesos. Transferees of shares withdrawn from the ADS facility will not be entitled
to access the Formal Exchange Market unless the withdrawn shares are redeposited with the
depositary. If transferees are unable to access the Formal Exchange Market, they may be unable to
convert peso amounts to dollars in connection with the sale of these shares. Cash and non-cash dividends paid by us with respect to ADSs held by a foreign (non-Chilean)
holder will be subject to a 35.0% Chilean withholding tax, which is withheld by our company. Stock
dividends are not subject to Chilean taxation. Chile has different corporate disclosure, governance and accounting standards than those you
may be familiar with in the United States. The securities laws of Chile which govern publicly listed companies, such as our company,
impose disclosure requirements that are more limited than those in the United States in certain
important respects. As a foreign private issuer, we are required to comply with most of the
disclosure requirements of the Sarbanes-Oxley Act of 2002, but we are also exempt from many of the
corporate governance standards the New York Stock Exchange applies to issuers that are U.S.
companies. For a description of the chief differences between Chilean corporate governance
practices and the corporate governance standards of the New York Stock Exchange, see Item
10Additional InformationNew York Stock Exchange (NYSE) and Chilean Corporate Governance
Requirements. In addition, although Chilean law imposes restrictions on insider trading and price
manipulation, the Chilean securities markets are not as highly regulated and supervised as the U.S.
securities markets. There are also important differences between Chilean and U.S. accounting and
financial reporting standards. As a result, Chilean financial statements and reported earnings
generally differ from those reported based on U.S. accounting and reporting standards. See Note 26
to our audited financial statements for a description of the principal differences between Chilean
GAAP and U.S. GAAP as they relate to us and a reconciliation to U.S. GAAP of net income for the
years ended December 31, 2002, 2003 and 2004 and shareholders equity as of December 31, 2003 and
2004 reported under Chilean GAAP. Pursuant to the Chilean Securities Market Law, direct or indirect acquisitions of shares
resulting in the taking of control over a Chilean listed corporation must be conducted through a
public tender offer in Chile. Unlike other jurisdictions, tender offers in Chile are not generally
triggered by the acquisition of a fixed threshold of the target companys shares, but because of
the acquisition of the target companys control. A Chilean public tender offer will not be
mandatory if an exemption is applicable. Such exemptions include acquisitions that are made: (i)
through a capital increase of the target company; (ii) through a sale of stock by the controlling
shareholder, provided the price paid is not substantially higher than market price (usually not
more than 10% over the average market price during a period of time determined by the law); or
(iii) through a merger with the target company. In addition, if the control of the target company
is gained by any means other than the acquisition of shares -for example, a proxy campaign or a
shareholders agreement that allows the parties thereof to control a stake larger than the
shareholding of the existing controlling person- the operation needs not be accomplished through a
public tender offer. Therefore, the controlling shareholders of a Chilean open stock corporation
can sell their controlling shares through a public tender offer or pursuant to a legal exemption. Pursuant to Law No. 19,705, which amended the Chilean Companies Law and was enacted in
December 2000, the controlling shareholders of a Chilean open stock corporation can only sell their
controlling shares through a tender offer issued to all shareholders in which the bidder would have
to buy all the offered shares up to the percentage determined by it, when the price paid is
substantially higher than the market price (that is, when the price paid was higher than the
average market price of a period 18




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##### Table of Contents



starting 90 days before the proposed transaction and ending 30 days before such proposed
transaction, plus 10%). Minority shareholders of our company may nevertheless still have fewer and less well-defined
rights under Chilean law and our Bylaws than they might have as minority shareholders of a U.S.
corporation. 19




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##### Table of Contents



Item 4. INFORMATION ON THE COMPANY Overview We are Chiles leading hypermarket and supermarket company in terms of sales, with an
estimated market share in the hypermarket and supermarket industry of 34% for 2004. With over a
century of experience in the distribution and retailing of food in the Chilean market, at December
31, 2004, we operated 78 stores in three store formats under the Liderbrand name. In January
2004, we acquired Carrefour Chile S.A. for 100 million, adding seven hypermarkets of which six
have been converted into Liderstores and one remains closed. We expect to re-open this store
during the second half of 2005. Over the last five years, we have increased our total number of
stores from 51 to 78 (including six stores acquired from Carrefour), of which 47 are located in the
Santiago metropolitan region. Our expansion program currently projects the opening of six new
stores in 2005. We had total net revenues in 2004 of Ch$1,440,462 million (US$2,584.3 million). We have positioned ourselves as Chiles low price leader in the hypermarket and supermarket
industry. In mid-2003, we strengthened our commitment to offering low prices through our strategy
of Every Day Low Prices, or EDLP, and re-branded all of our existing Ekonoand Almacstores under
our Liderbrand. Our EDPL strategy was successful in strengthening the perception of our stores as
being the value leader in the market. In late 2004 and 2005, our strategy evolved to a next stage
of focus on delivering to consumers exceptional value and good quality. We believe our strong
market position, our Liderbrands reputation for value will enhance our ability to successfully
pursue our current strategy, allowing us to cross-sell an expanded selection of quality non-food
products and offer other complementary products and services, such as pharmacies and credit cards
to a large and growing customer base attracted by our traditional supermarket offering and our low
prices. We operate three store formats under the Liderbrand umbrella:  
    
    Our 31 Liderhypermarkets (including six acquired from Carrefour) have an average
selling space of 8,980 square meters (approximately 96,660 square feet), and offer
one-stop shopping for traditional food items and non-food items such as home
appliances, electronics, apparel and toys. In 2004, our hypermarkets generated 59.8%
of our net revenues.
    
    Our 24 Lider Vecinocompact hypermarkets have an average selling space of 3,895
square meters (approximately 41,926 square feet), and seek to combine the proximity and
friendly atmosphere of neighborhood supermarkets with the advantages of low prices and
a broad non-food product assortment that allows one-stop shopping. In 2004, our
compact hypermarkets generated 22.9% of our net revenues.
    
    Our 23 Lider Expresssupermarkets have an average selling space of 1,418 square
meters (approximately 15,263 square feet), and emphasize quality groceries and
perishables at low prices. In 2004, our supermarkets generated 10.7% of our net
revenues. We also operate businesses complementary to our core retail operations, including real estate
development, credit card operations and pharmacies, which together with logistic revenues from our
distribution center represented 6.6% of our net revenues in 2004. Our
principal executive offices are located at Avenida Presidente Eduardo
Frei Montalva 8301, Quilicura, Santiago, Chile. Our telephone number
is (56-2) 200-5000 and our website is www.dys.cl. Our authorized
representative in the United States is Puglisi & Associates,
located at 850 Library Avenue, Suite 204, Newark, Delaware 19715,
United States. Puglisi & Associates phone number is (302)
738-6680. Our Core Strengths We believe our core competitive strengths provide us with a strong platform for successful
deployment of Liders current strategy. 20




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##### Table of Contents



      Chiles value leader.Based on market surveys and our own monitoring of our
competitors pricing, we believe we offer consumers the lowest overall prices of any major
supermarket or hypermarket chain in Chile with the best quality-price ratio.       Chiles leading hypermarket and supermarket company.At August 31, 2004, the last
date for which reliable data are available, we estimate that our market share in the Chilean
hypermarket and supermarket industry was 34.2% (including the Carrefour acquisition),
compared to a market share of 24.8% for our nearest competitor (pro forma for their year-end
acquisitions). We estimate a similar market share at December 31, 2004, given that both D&S
and its main competitors have expanded their sales area in approximately the same proportion
with similar sales performances. We believe our leading market position helps us establish
and maintain strong supplier relationships and gives us access to the largest customer base
of any Chilean hypermarket and supermarket company.       Strong brand with a reputation for best quality-price ratio.We believe that our
stores derive substantial benefit from the widespread recognition of the Liderbrand name in
Chile and its reputation for value. Our Strategy Our goal is to maximize value to our shareholders, while expanding our position as the leading
hypermarket and supermarket company in Chile. We believe we can best achieve this goal by
delivering a broader selection of goods and services to our customers at low prices. We call our
strategy the Exceptional Value strategy. Key elements of our strategy include:       Continuing to expand customer traffic.We have approximately 14.7 million customer
visits to our stores each month, providing us with what we believe is the greatest retail
opportunity in Chile. To further expand our customer base, we are:  o
    
    Offering Exceptional Value.In the last quarter of
2004, the EDLP strategy evolved into its next stage, our Exceptional
Value strategy, which aims to deliver service and quality at a lower price
than our competitors by keeping a perceptual price positioning along with
incentives for holders of our Prestocredit card, the development of our
Liderbrand name, and high-low pricing in perishables. We believe that the
economies of scale arising from our large size and low selling costs,
combined with our brand equity as the low cost leader will enable this
strategy to succeed.o
    
    Expanding Liders presence.We opened six new Lider
stores in 2004 and plan to open six additional Liderstores in 2005
(exclusive of FarmaLiderpharmacies or other non-supermarket stores).
These are in addition to seven hypermarkets we acquired from Carrefour in
January 2004, of which six have been converted into the Liderformat and
one remains closed. As such, assuming no further acquisitions, we project
increased year-over-year selling space of 5% at year-end 2005 and year-end
2006.       Increasing our share of wallet.We estimate that for 2004, our share of Chilean
food sales was 9.5%, while our market share for products in the non-food sectors in which we
compete was 7.0%. We estimate that for 2004, our overall market share for food and non-food
products was approximately 8.0%. We intend to steadily increase our share of the Chilean
wallet by cross- 21




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selling both food and non-food products to our strong and growing base of customers, as well
as by expanding our credit card operations. To do so, we are:  o
    
    Expanding our offerings of non-food products.We
estimate that our customers visit Liderstores an average of six to seven
times per month. To capitalize on this traffic, we intend to sell an
expanding range of quality non-food products to customers attracted by our
traditional supermarket offerings and our quality-price ratio. Key product
categories include greater selections of apparel, housewares and
electronics.o
    
    Building FarmaLider and other new businesses. We are
expanding Lidersoffering of complementary businesses, including
FarmaLiderpharmacies, restaurants and cafes and other new value-added
services mainly within our stores.o
    
    Leveraging our Presto credit card. Our in-house credit
card, Presto, had 1,180,456 accounts in good standing at year-end 2004. We
believe that our market-leading in-store traffic should permit us to
continue to expand the number of Prestoaccount holders and will afford us
cross-marketing opportunities to expand into financial and other services
that we may seek to provide in the future.       Recruiting and developing talent.To implement our strategy, we seek to recruit and
develop talented personnel at all levels of our business. We have strengthened our
management team with executives recruited from leading Chilean companies. This team is
invested in the success of our strategy. We also seek to become a preferred place to work
in Chile, including for our hypermarket and supermarket employees, which, we believe, over
time, will help ensure our continued success. Motivated and happy employees will improve the
quality of our stores and customers service. History We are a corporation organized under the laws of Chile, incorporated in 1985. We completed an
initial public offering of our common shares in Chile in December 1996. We listed our ADSs on the
New York Stock Exchange under the symbol DYS and completed an initial public offering of ADSs in
the United States in October 1997. We also listed our common shares on the Madrid Stock Exchange
(Latibex) in December 2002. Our history began in 1893 as the trading firm of Gratenau y Cía., founded by German immigrants
in Valparaíso, a Chilean port city. Mr. Adolfo Ibáñez Boggiano joined Gratenau y Cía. in 1899. In
the 1930s, Ibáñez y Cía., the successor firm to Gratenau y Cía., opened Depósitos Tres Montes,
small retail warehouses selling coffee, tea and mate in bulk. In 1944, Mr. José Manuel Ibáñez
Ojeda, in keeping with the evolving retail environment, converted the warehouses into self-service
establishments selling an expanded range of products. The firm entered the modern age of food
retailing in 1957 with the opening in Santiago of the first Supermercado Almac. During the 1980s, we entered a new period of expansion. In 1984, we established our first
Ekonosupermarket in Santiago. In 1985, our company was incorporated as a distribution and service
center for our related Almacand Ekonosupermarkets. Over the next decade, we significantly
increased our market presence by expanding our existing store formats. In 1995, we opened our
first hypermarket store under the Lidertradename and began offering non-food products. Since
1995, we have focused our expansion 22




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##### Table of Contents



on the Liderhypermarket format and have opened a total of 39 new stores. We began offering
our customers financial services with the launch of our Prestocredit card in 1996. In 2003, we
rebranded all of our stores under the Liderbrand. During 2004, we made significant progress in matters of organization, strategic positioning,
coverage and financial structure, building a solid platform to benefit from upcoming opportunities.
In order to optimize development, specialization, and efficiency in all our business areas, D&S was
structured as a set of companies comprising the LiderRetail Division including all supermarkets
and hypermarkets  our core business  and the other divisions that complement and enhance the
supermarket area: the Prestofinancial services division, the FarmaLiderpharmacies, the clothing
division BLVD, and Saitec Inmobiliaria, our real estate division. Our company consolidated its presence both in the Santiago metropolitan region and most of
Chiles other regions with stores within reach of most of Chilean homes. In January 2004, we
purchased the Chilean operations of the French retail chain Carrefour,a transaction which added
seven new Liderstores. We also opened six new stores, two Liderhypermarkets and four Lider Vecino
grocery stores. In addition, we made a major contribution to development in the Magallanes Region
in Chiles far south with the grand opening of the Lider Pionerohypermarket in Punta Arenas, the
first of its kind in the region. The Prestofinancial services division underwent significant growth both in terms of its
organizational structure and in the number of customers and loans, closing the year with 1.2
million active accounts and US$253 million in extended credit. The Prestofinancial division
obtained permission from the Chilean Central Bank and the Chilean
Superintendencia de Bancos e Instituciones Financieras to issue and operate its credit card as an open credit card. FarmaLideroperations continued growing in 2004, with the opening of 17 new stores to bring it
to a total of 57. This division accounted for 2.4% of D&Ss total sales and 4.6% of Chiles overall
pharmaceutical market sales at year-end. In order to strengthen our position in the financial markets and to have available the
financial resources and flexibility needed to meet our growth challenges, we carried out a capital
increase in the second half of 2004 for a total of US$250 million. Today, our company, through its subsidiaries, operates 78 retail stores among its
hypermarkets, compact hypermarkets, and supermarkets, 57 FarmaLiderpharmacies and six shopping
centers. Our company is now operating in the metropolitan region and the I, II, IV, V, VI, VII,
VIII, IX, X, and XII Regions. Our principal subsidiaries are Administradora de Concesiones Comerciales de Hipermercados
S.A., Administradora de Concesiones Comerciales de Supermercados S.A., Sociedad Anónima
Inmobiliaria Terrenos y Establecimientos Comerciales S.A. (SAITEC S.A.), Comercializadora de
Vestuario S.A (COMVESA), Magallanes S.A, Presto S.A and Maquinsa S.A. The following
list describes our companys direct and indirect subsidiaries: 23




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##### Table of Contents



List of Subsidiaries Country of
    
    
    OwnershipSubsidiaries
    
    Incorporation
    
    
    Direct
    
    
    Indirect
    
    
    TotalAdministradora de Concesiones Comerciales de
Hipermercados S.A.
    
    Chile
    
    
    99.50000
    %
    
    
    0.00000
    %
    
    
    99.50000
    %Administradora de Concesiones Comerciales de
Supermercados S.A.
    
    Chile
    
    
    99.17000
    %
    
    
    0.00000
    %
    
    
    99.17000
    %Saitec S.A.
    
    Chile
    
    
    99.95000
    %
    
    
    0.00000
    %
    
    
    99.95000
    %Magallanes S.A.
    
    Chile
    
    
    99.99994
    %
    
    
    0.00006
    %
    
    
    100.00000
    %Presto S.A.
    
    Chile
    
    
    99.95000
    %
    
    
    0.05000
    %
    
    
    100.00000
    %Maquinsa S.A.
    
    Chile
    
    
    99.99000
    %
    
    
    0.01000
    %
    
    
    100.00000
    %Comercializadora de Vestuario S.A.
    
    Chile
    
    
    99.99000
    %
    
    
    0.01000
    %
    
    
    100.00000
    %Rentas e Inversiones La Dehesa S.A.
    
    Chile
    
    
    0.05000
    %
    
    
    99.95000
    %
    
    
    100.00000
    %Rentas e Inversiones Antofagasta Limitada
    
    Chile
    
    
    1.00000
    %
    
    
    99.00000
    %
    
    
    100.00000
    %Rentas e Inversiones Puente Alto Limitada
    
    Chile
    
    
    1.00000
    %
    
    
    99.00000
    %
    
    
    100.00000
    %Rentas e Inversiones Viña del Mar Limitada
    
    Chile
    
    
    1.00000
    %
    
    
    99.00000
    %
    
    
    100.00000
    %Rentas e Inversiones Gran Avenida Limitada
    
    Chile
    
    
    1.00000
    %
    
    
    99.00000
    %
    
    
    100.00000
    %Rentas e Inversiones Quillota Limitada
    
    Chile
    
    
    1.00000
    %
    
    
    99.00000
    %
    
    
    100.00000
    %Rentas e Inversiones Maipú S.A.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Sermob S.A.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Almac S.A.
    
    Chile
    
    
    0.00000
    %
    
    
    99.00000
    %
    
    
    99.00000
    %Administradora de Créditos Comerc.Presto Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Buenaventura Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Alameda Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Maipú Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Gran Avenida Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado El Belloto Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado La Serena Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Antofagasta Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Temuco Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Quilicura Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Puerto Montt Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Valdivia Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Los Angeles Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Recreo Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Huechuraba Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Curicó Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Coquimbo Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Quillota Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Comercial División Productos Lider Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Distribuidora y Comercializadora Farmalider S.A.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Viña del Mar Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Puente Alto Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Departamental Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Santa Amalia Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Lonquén Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Bío Bio Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado La Reina Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Puente Nuevo Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Concepción Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Calama Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Rancagua Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Matucana Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Einstein Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Valparaíso Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Plaza Vespuicio Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Punta Arenas Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Talagante Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Grupo de Restaurantes Chile S.A.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Grecia Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Vicuña Mackenna
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Macul Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Estoril Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Gran Avenida Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Vespucio Sur Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Tomás Moro Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Independencia Ltda.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Iquique Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Hipermercado Talca Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Kennedy Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Pajaritos Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado San Bernardo Ltda.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Los Morros Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Arica Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Los Domínicos Ltda.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Osorno Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Pedro de Valdivia Ltda.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Plaza Lyon Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Miraflores Alto Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Comercial Outlet y Pajaritos Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Escuela de capacitación técnica
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Escatec Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %O ́clock S.A.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Tobalaba Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado José María Caro Ltda.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Plaza Egaña Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Colón Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Ñuñoa Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Maipú Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado La Dehesa Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Plaza Italia Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Apoquindo Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado La Frontera Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado La Calera Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Quilpué Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Norte Grande Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Manuel Montt Ltda.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Santa Rosa Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Recoleta Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Vitacura Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Supermercado Marina Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Logistica Transporte y Servicio LTS Ltda.
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %Ventas y Distribución Limitada
    
    Chile
    
    
    0.00000
    %
    
    
    100.00000
    %
    
    
    100.00000
    %
 Market Overview Food Retailing Industry in Chile Although the Chilean food retailing industry has historically been highly fragmented, it has
been undergoing a period of rapid consolidation over the last ten years as national retailers, like
Lider, expand and then as the larger of these acquire smaller competitors. In addition to
supermarkets and larger format stores, Chile continues to support smaller grocery stores,
convenience stores and open-air markets. The level of competition and the identity of competitors
vary from region to region. Supermarket chains in Chile generally compete on the basis of price,
location, quality of products and services, product variety and store conditions. We estimate that in 2004 the six largest supermarket chains in Chile accounted for
approximately 70.8% of total supermarket net sales. In 2004, we accounted for approximately 34.2%
of total net sales of the supermarket industry in Chile, which represents the highest total market
share in Chile (calculation of this percentage includes supermarket/hypermarket sales of non-food
items). In the Santiago metropolitan region, Chiles most densely populated area (with
approximately 40.5% of Chiles population, as per estimates of INE for the year 2005), with the
highest levels of per capita disposable income, and highest level of supermarket penetration, Lider
hypermarkets (Liderand Lider Vecino)have the largest market share in terms of sales (including
both food and non-food items), with approximately 29% of the total market. Increasing acceptance of supermarkets as principal outlets of foodstuffs and other household
items in Chile has resulted in steady increases in supermarket sales. The total net sales by
supermarkets in Chile grew at an average annual rate of 8.6% during the last four years, exceeding
the 3.8% average annual growth rate of GDP in Chile over the four years. The growth of larger
stores (including increased numbers of hypermarkets), both on a free-standing basis and within
shopping centers and other commercial developments such as anchor tenants, and a consolidation of
ownership in fewer, larger supermarket chains, has been a developing trend in the Chilean
supermarket industry during the last several years. Current trends in the industry include
increased differentiation among competitors, with some supermarket chains emphasizing a low-price
and low-service strategy, while others pursue a strategy of moderate or higher prices accompanied
by higher levels of service. Other important trends in the Chilean supermarket industry include
increased funding of marketing costs by suppliers, expansion by leading chains into the regions
outside the Santiago metropolitan region, the growth of private label products and increased demand
for prepared foods. Growth in total net sales by supermarkets and other food stores in Chile is positively
correlated to growth in consumer disposable income and the growth in GDP and inversely correlated
to significant increases in real prices and sales or value added taxes. In Chile, all products
sold by supermarkets are subject to a value added tax of 19%. Soft drinks and alcoholic beverages
are subject to additional taxes. 24




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##### Table of Contents



Our Business Our Store Formats At December 31, 2004, we operated 78 stores which together comprised 404,467 square meters of
total selling space (approximately 4,353,648 square feet). Of the 78 stores we operated, 23 were
Lider Expresssupermarkets, 31 were Liderhypermarkets and 24 were Lider Vecinocompact
hypermarkets. We reorganized our store formats in 2003 by re-branding our Ekonoand Almac
supermarkets as Lider Expresssupermarkets, and by converting our larger Ekonosupermarkets into
Lider Vecinocompact hypermarkets and our Lider Mercadostore into a Liderhypermarket. We believe
that consolidating our store formats will help reduce marketing and advertising expenses and will
allow all of our stores to benefit from the low price reputation that is a distinctive feature of
the Liderbrand. In January 2004, we acquired Carrefour Chile, which had seven hypermarkets in the
Santiago Metropolitan region. We converted six of these stores to Liderhypermarkets and have
maintained closed one of them since June due to an overlap with one of our Liderhypermarkets. The following table sets forth data by store classification at and for the year ended December
31, 2004 after giving effect to the Carrefour acquisition: AverageTotal
    
    
    Average
    
    
    Sales perNumber of
    
    
    Selling
    
    
    Selling Area
    
    
    Square
    
    
    Number of
    
    
    Sales PerStores
    
    
    Area(1)
    
    
    per Store(1)
    
    
    Meter(2)(3)
    
    
    Employees(4)
    
    
    Employee(2)Hypermarket  Lider(5)
    
    
    31
    
    
    
    278,375
    
    
    
    8,980
    
    
    
    2.9
    
    
    
    13,329
    
    
    
    69.2Compact Hypermarket 
Lider Vecino
    
    
    24
    
    
    
    93,485
    
    
    
    3,895
    
    
    
    3.4
    
    
    
    6,658
    
    
    
    54.1Supermarket  Lider Express
    
    
    23
    
    
    
    32,607
    
    
    
    1,418
    
    
    
    4.0
    
    
    
    3,014
    
    
    
    52.2Total
    
    
    78
    
    
    
    404,467
    
    
    
    5,185
    
    
    
    3.1
    
    
    
    23,001
    
    
    
    62.6Other stores(6)
    
    
    57
    
    
    
    5,561
    
    
    
    97.6
    
    
    
    6.9
    
    
    
    463
    
    
    
    77.1
 
 (1)
    
    In square meters. Each square meter is equivalent to 10,764 square feet.(2)
    
    In millions of constant Chilean pesos. Sales sets forth net revenues under Chilean GAAP,
excluding vendor allowances. As such, sales is equal to net revenues under U.S. GAAP.
Considers full-time equivalent employees for the year.(3)
    
    Average square meters.(4)
    
    Full-time equivalent employees at December 31, 2004 working in stores.(5)
    
    Includes Carrefour stores acquired as of January 7, 2004.(6)
    
    Includes FarmaLiderpharmacies. The following table sets forth, for the periods indicated, the net revenues from retail
operations by store format and the respective percentage of our total net revenues each format
represents: Year ended December 31,2002
    
    
    2003
    
    
    2004% of Total Net
    
    
    
    
    
    
    % of Total Net
    
    
    
    
    
    
    % of Total NetNet Revenues
    
    
    Revenues
    
    
    Net Revenues
    
    
    Revenues
    
    
    Net Revenues
    
    
    Revenues(in millions of constant Ch$)Lider
    
    Ch$
    683,844
    
    
    
    63.0
    %
    
    Ch$
    720,855
    
    
    
    60.5
    %
    
    Ch$
    861,714
    
    
    
    59.8
    %Lider Vecino(1)
    
    
    181,714
    
    
    
    16.7
    
    
    
    252,019
    
    
    
    21.1
    
    
    
    330,222
    
    
    
    22.9Lider Express(1)
    
    
    182,846
    
    
    
    16.9
    
    
    
    151,119
    
    
    
    12.7
    
    
    
    153,553
    
    
    
    10.7Other(2)
    
    
    36,783
    
    
    
    3.4
    
    
    
    68,082
    
    
    
    5.7
    
    
    
    94,973
    
    
    
    6.6Total
    
    Ch$
    1,085,187
    
    
    
    100.0
    %
    
    Ch$
    1,192,075
    
    
    
    100.0
    %
    
    Ch$
    1,440,462
    
    
    
    100
    %
 
 (1)
    
    Includes stores formerly operated under the Almacand Ekonobrands.(2)
    
    Other includes logistics services and real estate operations. 25




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##### Table of Contents



Hypermarkets  Lider As of the date of this annual report, we operate 31 Liderhypermarkets (including six acquired
from Carrefour) of which 19 are located in the Santiago metropolitan region. All of our
hypermarkets operate under the Liderbrand name. The Liderhypermarket, which was modeled after
European hypermarkets and was introduced to Chile in 1995, is characterized by floor space of
between 6,000 and 13,243 square meters (respectively and approximately 64,584 and 142,548 square
feet), offering, in addition to traditional foodstuffs, non-food items such as home appliances,
electronics, hardware, sports, toys, apparel and articles for the home. Liderhypermarkets
typically occupy strategic sites at the intersection of major thoroughfares connecting communities,
allowing us to service various communities with one store. The Lidersites have ample parking
space and are generally developed in conjunction with an assortment of complementary stores, such
as video stores, fast food franchises, hardware superstores, cinemas, food courts and pharmacies,
including our 57 FarmaLiderpharmacies. Liderstores have an average of 527 employees (408
full-time equivalent employees), 39 to 79 checkouts, an average store size of 8,980 square meters
(approximately 96,660 square feet), and are generally open from 9:00 a.m. to 10:00 p.m., seven days
a week. Our Liderstores offer one-stop shopping in an easily accessible store layout. In some
of our Liderstores we also have moderately priced cafes and restaurants. Net revenues of our Liderhypermarkets totaled Ch$861,714 million (US$1,546.0 million) in
2004, accounting for 59.8% of our total net revenues in 2004. Compact Hypermarkets  Lider Vecino We currently operate 24 Lider Vecinohypermarkets, 13 of which are located in the Santiago
metropolitan region. We developed our Lider Vecinoformat in 2000 to target smaller neighborhoods
with a compact hypermarket format by converting our larger, existing Ekonosupermarket facilities,
which ranged between 2,400 and 4,720 square meters (respectively and approximately 25,834 and
50,806 square feet), into Lider Vecinocompact hypermarkets. Our Lider Vecinoformat combines the
convenience and pleasant atmosphere that characterizes neighborhood supermarkets with some of the
advantages of Liderhypermarkets. These advantages include a broad assortment of non-food items to
facilitate one-stop shopping and low prices. We believe these factors provide us an advantage over
our primary competitors in these communities, which are generally comprised of traditional
supermarkets. Lider Vecinostores have an average of 370 employees (268 full-time equivalent
employees), 22 to 44 checkout centers, an average store size of 3,895 square meters (approximately
41,926 square feet), and are generally open from 8:30 a.m. to 10:00 p.m., seven days a week Net revenues of our Lider Vecinocompact hypermarkets totaled Ch$330,222 million (US$592.4
million) in 2004, accounting for 22.9% of our total net revenues in 2004. Supermarkets  Lider Express We currently operate 23 supermarkets under the Lider Expressbrand name, 15 of which are
located in the Santiago metropolitan region. Lider Expressstores are traditional neighborhood
supermarkets providing a friendly atmosphere and personalized attention. These stores emphasize
the food products offered, which include a broad assortment of quality perishables and groceries.
Additionally, these supermarkets offer a variety of prepared dishes. Lider Expressstores have an
average of 177 (132 full-time equivalent) employees, eight to 19 checkouts, an average selling area
of 1,418 square meters (approximately 15,263 square feet) and are generally open from 8:30 a.m. to
10:00 p.m., seven days a week. Net revenues of our Lider Expresssupermarkets totaled Ch$153,553 million (US$275.5 million)
in 2004, accounting for 10.7% of our total net revenues in 2004. 26




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##### Table of Contents



Complementary Businesses As part of our strategy to offer consumers a broader range of products beyond our traditional
grocery business and thereby increase our share of the Chilean wallet, we have expanded our product
offerings to include pharmacy and restaurant food sales as well as non-food offerings. We believe
that we will be able to leverage our brand, our established market presence in the Chilean
supermarket industry and our land bank of retail properties to move efficiently into these areas,
thereby increasing our share of total Chilean consumer spending. Pharmacy  FarmaLider. We have used our existing retail infrastructure and real estate to
begin opening our own pharmacies located in small retail spaces in our hypermarkets. Our first
pharmacy opened in July 2001, and at December 31, 2004 we had 57 pharmacies in operation, which in
the aggregate accounted for 2.1% of our total 2004 net revenues or 2.4% of our 2004 total sales.
In Chile, pharmaceuticals are regulated and even non-prescription drugs must be dispensed from
behind the counter. Our FarmaLideroutlets are located in our stores but outside of the selling
space beyond the check-out counters. The average floor space dedicated to FarmaLiderretail
averages 97.6 square meters (approximately 1,000 square feet), with two check-out counters. Our
pharmacies typically employ seven workers. FarmaLidergenerated net revenues of Ch$30,505 million
(US$54.7 million) in 2004. Real Estate Development. We rent small retail spaces to other retailers in the foyers of our
stores and adjacent to our stores. We select tenants that are complementary to our stores, such as
photo shops and laundromats, in order to draw more traffic to our stores. See Real Estate
Development. Our Pricing and Marketing Strategy Pricing. Our strategy is to be the supermarket chain with the best price position and the
best quality-price ratio in Chile. We expect to achieve, over the long term, a lower price
position with respect to the total price of a basket of goods purchased at our stores versus the
same basket of goods purchased at a competitors store with the best quality-price ratio. Although
our promotional offers are generally the same in all our stores, we otherwise manage our pricing
strategy in clusters of stores with reference to the prices of specific local competing stores. A
significant component of this strategy is our offering of private label products under the Lider
brand name and other private brands (Acuentaand Buffet, among others) which permit us to offer
lower prices at moderate gross margins as well as improved bargaining power with suppliers. See
Our ProductsNon-Food ProductsPrivate Label Products. Our strategy also comprises high-low
pricing in perishables and special incentives for the holders of our Prestocredit card. Marketing. Lider, Lider Vecino, and Lider Expresspursue a joint marketing strategy designed
to reinforce Lidersimage of providing exceptional value. We continue, however, to make extensive
use of in-store promotions and signage to offer sales and particularly low priced items. We have also focused our marketing efforts on mass media, especially television and radio. All
of our audiovisual and written advertisements make reference to the slogan En Lider Siempre Se
Puede or At Lider Its Always Possible, which, we believe, reflects and appeals to the
aspirational ideal for development and growth of the Chilean people. We have periodically
distributed printed materials through the press and within our stores such as weekly leaflets or
bi-weekly catalogs and have focused on catalogs for specific seasonal campaigns such as Summer,
Outdoors, Back to School and Christmas. These campaigns are mainly oriented toward non-food
products and special food campaigns for specific holidays such as Independence Day and New
Years Eve. Consolidated advertising expenses represented 1.4% of our net revenues in 2004. In
past years, this percentage has been 1.0% for 2003 and 1.4% of our net revenues in 2002. 27




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Our Products Product Mix.Our product mix varies according to the store format, with our larger formats
offering a greater variety and number of stock keeping units, or SKUs, and a higher proportion of
non-food items. The following table sets forth our product mix by store category: Percentage of Selling Spaceby Product CategoryYear ended December 31, 2004Non-foodGroceries(1)
    
    
    Perishables
    
    
    Products(2)
    
    
    TotalLider
    
    
    45
    %
    
    
    15
    %
    
    
    40
    %
    
    
    100
    %Lider Vecino
    
    
    50
    %
    
    
    15
    %
    
    
    35
    %
    
    
    100
    %Lider Express
    
    
    65
    %
    
    
    23
    %
    
    
    12
    %
    
    
    100
    %FarmaLider
    
    
    20
    %
    
    
    N/A
    
    
    
    80
    %
    
    
    100
    %
 
 (1)
    
    For purposes of FarmaLider, groceries principally includes perfumes.(2)
    
    Non-food products includes apparel, electronics and appliances, housewares and furniture,
pharmaceuticals and general merchandise. In addition to the foregoing, we have also installed family-style cafeterias referred to
as Patios de Comida(foodcourts) and coffee shops at certain locations in order to increase the use
of Liderstores as destinations apart from traditional grocery stores. The following table sets forth, for the periods indicated, each product categorys percentage
contribution to our sales: Percentage Contribution to Sales by Product CategoryYear ended December 31,2002
    
    
    2003
    
    
    2004Groceries
    
    
    48.5
    %
    
    
    47.0
    %
    
    
    47.2
    %Perishables
    
    
    34.9
    
    
    
    34.1
    
    
    
    33.0Apparel
    
    
    5.2
    
    
    
    6.0
    
    
    
    6.1Electronics and appliances
    
    
    2.3
    
    
    
    3.0
    
    
    
    3.3Housewares and furniture
    
    
    2.5
    
    
    
    3.0
    
    
    
    2.5Other non-food products(1)
    
    
    6.6
    
    
    
    6.9
    
    
    
    7.9Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Percentages are of our total product sales from our retail operations and sets forth net
revenues under Chilean GAAP, excluding vendor allowances. As such, sales are equal to net
revenues under U.S. GAAP. Other non-food products includes sporting goods, toys, office
supplies, general merchandise and pharmacy products. Groceries.Grocery sales represented 47.2% of our sales in 2004. Along with our
perishable offerings, grocery products have historically formed the core of our business. Our
grocery product offerings comprise a wide variety of consumer packaged goods such as cereals,
jellies, sauces, canned food items, paper towels and assorted paper products, hygiene and beauty
aids. Our chief long-term goal with respect to our grocery products is to have the best price
positioning in the market with respect to the total price of a basket of goods purchased at our
stores versus the same basket of goods purchased at a competitors store. We believe that by
maintaining consistently better price positioning than our principal competitors with respect to
our grocery products, we can generate a greater amount of customer traffic in our stores. Perishables.Sales of our perishable products represented 33.0% of our sales in 2004. Along
with our grocery products mentioned above, sales of perishables have historically formed the core
of our business. Our perishables include a wide variety of traditional food products, such as
meats, fish, dairy products, fruits and vegetables, frozen foods, bakery goods and prepared foods
and include a wide array 28




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of private label products. Our main strategy for our perishable products is to increase
consumer perception of the quality of our products by expanding the breadth of our product
offerings. We believe that by increasing the product quality and customer service levels in
relation with our perishables we will be able to improve customer loyalty and, thereby, increase
customer traffic and improve net sales of these products. By the end of 2004, we started to
implement the high-low pricing strategy for our perishable products. Non-Food Products Sales of non-food products represented 19.8% of our sales in 2004. In order to increase our
share of the Chilean consumers wallet and to take advantage of our high customer traffic levels,
we have expanded our products beyond groceries to include non-traditional items such as apparel,
housewares, electronics, sporting goods, toys and office supplies. Many of our purchases in these
areas are made abroad through our worldwide network of suppliers. Apparel.Our apparel department seeks to provide customers of all ages with a variety of
types and styles of high-quality clothing at affordable prices. In 2004, sales of our apparel
products accounted for 6.1% of our sales. Our apparel department consists primarily of private
label brands catering to women, men and infants. Our marketing strategies and the layout of our
apparel department aim to create strong brand identification with our BLVDprivate label, as an
affordable brand that is similar in quality to those offered at department stores. In 2004, we
continued our strategy in womens clothing through which we emphasize providing women with high
quality, basic clothing items, such as accessories, skirts, blouses, pants and other basic casual
and business attire items. We implemented this strategy, in part, because women have traditionally
been the primary purchasers of family clothing in Chile. We believe that by expanding the clothing
options for women, we will be able to increase the sales of our clothing generally. Electronics and Appliances. The electronics and appliances we offer in our stores include
products manufactured by well-known manufacturers, as well as a growing number of our own products
marketed under our Grövenand Hausprivate labels. In 2004, sales of electronics and appliances
were 3.3% of our sales. Our chief strategy regarding home electronics and appliances is to offer a
diverse assortment of these products. During 2004, we expanded the amount of home computing
products available in our stores through cross-selling with our Prestocredit card in order to take
advantage of the growth in this sector in Chile. Housewares and Furniture. Our housewares department offers our customers an assortment of
products in the areas of home decorating, including bath and kitchen supplies, and home
improvement, including hardware and furniture. In 2004, sales of housewares generated 2.5% of our
sales. In addition to the products we offer that are manufactured by other manufacturers, we also
market a growing number of products under our Hausprivate label, including general kitchen
products, decorating supplies and furniture. Our chief strategy regarding our housewares involves
further marketing of our Hausprivate label. To increase awareness of our Hausproducts, we offer
seasonal promotions around such holidays as Christmas and Easter. As with our electronics and
appliances, we seek to offer our housewares at a discernible price differential versus our
department store rivals, such as Ripley and Falabella. Other Products. We also offer a variety of other non-food products, including sporting goods,
toys, office supplies, auto parts and pet supplies. In 2004, sales of other non-food products were
equal to 5.5% of our sales. We offer the following private labels in these categories: Paragon
(sporting goods), Toi(toys) and Alquimia(office supplies). Additionally, pharmaceutical products
sold in our FarmaLiderstores account for 2.4% of total sales. 29




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Private Label Products. Sales of our private label products represented 13.6% or Ch$170,166 million of our sales in
2004. In groceries (excluding beauty care), they accounted for 10.1%
or Ch$46,676 million of 2004
net groceries sales, while in perishables our private labels represented 2.5% or Ch$10,260 million
of 2004 net perishables sales. In beauty care products, private label sales represented 5.6% or
Ch$5,163 million of 2004 net beauty care sales. Private labels have become very prominent in the
non-food area. In 2004, private label products accounted for 12.8% of our sales in general
merchandise, 72.4% in home supplies, 10.6% in electronics and appliances, 91.3% in clothing and
48.4% for our non-food area (excluding pharmacy sales) as a whole. We seek to achieve three primary goals through our private labels:  as part of our Exceptional Value strategy, we plan to use our private label products
to generate customer recognition of our image as a low price provider of high quality
products;  we plan to use our private labels to increase the profitability of sales of both
food and non-food products; and  we seek to increase brand loyalty through our private labels, by offering high
quality goods that customers can only find at our stores. We introduced in 2004 a new private label in groceries, Presidents Choiceowned by Loblaws
Canada, and a new private label in health and beauty products, Body Plus. Both consist of premium
quality products similar to our private label Buffetline. In 2004, we increased profitability and
customer loyalty through these new private labels by offering a unique selection of the highest
quality products at affordable prices. Our proprietary private labels include the following: Lider(groceries and perishables)
Buffet(perishables), Acuenta(groceries, perishables and home supplies), BLVD(apparel), Haus
(housewares), Gröven(electronics), Paragon(sporting goods), Toi(toys) and Alquimia(office
supplies), among others. Customer Service and Standardization In order to ensure that we are providing our targeted levels of customer service, we use
several metrics and indicators. Adimark, a Chilean market research company, assists us with annual
market surveys and quarterly customer surveys, which allow us to monitor market and customer
perceptions of the level of service provided in our stores. In addition, we have a customer
service call center and each store has a suggestion/complaint box offering a means for customers to
communicate with management. We also operate laboratories located at our distribution center in order to conduct random
testing of products and approve new products as part of ongoing efforts to ensure the quality of
our products. In order to monitor the quality of our customer interaction and enhance quality
control, we employ a mystery shopper program in all of our stores. A new tool for monitoring customer satisfaction was implemented during 2004 in order to
measure customer service levels quantitatively and take actions required to improve service
standards throughout our company stores. We call this monitoring tool, ISC (Customer Satisfaction
Index), which is built based on interviews to customers right after they have shopped in our
stores, once they are beyond the check-out line. This measurement is applied four times a year. 30




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Seasonality Historically, we have experienced distinct seasonal sales patterns due to heightened consumer
activity throughout the Christmas and New Year holiday season. During this period, we promote the
sale of non-food items, particularly by discounting imported goods, such as toys, throughout the
Christmas holiday season. As a result, the strongest quarter in terms of sales is the fourth
quarter which represented 28% of total sales for the year 2004, while the first, second and third
quarters, each represented 24% of total annual sales. Purchasing and Distribution Purchasing and Supply We carry out our purchasing activities mainly on a centralized basis for all of our stores.
Through the use of our automatic store and warehouse replenishment systems, we have centralized the
purchase of our products from suppliers. We attempt to take advantage of our resulting large
purchasing volume to obtain an advantageous mix of price and payment terms. For 2004, the average
payment term was 52.8 days and inventory was held at our distribution center and warehouses for an
average of 18.8 days. The average days of inventory for our company total (stores and distribution
facilities) were 35.7 days for year 2004. We seek to increase our operating productivity and enhance the efficiency of our business, we
have implemented software and technological changes in our supply chain. These include the
introduction of the computerized inventory replenishment programs, SLIM, or Store Level Inventory
Management, and TRIM, or True Replenishment Inventory Management. In implementing SLIM and TRIM,
we have created a centralized and automated computer network connecting all of our stores and our
central distribution facility. Through the use of SLIM, our store replenishment system
automatically allocates the required quantities to be delivered to our stores. In order to process
and allocate the quantities to match our stores requirements, SLIM automatically calculates, with
respect to each of our stores, information including the amount of a given product on hand, the
amount on order, the required lead time needed to replenish such product, the historic use of the
product at the store, the maximum shelf capacity and projected future use of the product. Much
like SLIM, TRIM uses a similar process to calculate the supply requirements of our central
distribution center. We believe that the use of SLIM and TRIM will enhance the efficiency in
allocating proper quantities of our products to meet our stores demand. We have sought to enhance the efficiency of our supply chain by reducing the number of
suppliers we use and centralizing our negotiations with these suppliers. In 2004, no single
supplier accounted for more than 6.4% of total goods purchased. Our ten largest suppliers
collectively accounted for approximately 30.8% of our purchases in 2004, and the 50 largest
accounted for 59.5%. Certain products such as fish are purchased from affiliated companies. We
purchase nearly all food products on a spot or short-term basis, within the context of long-term
relationships with the suppliers. We conduct our business with our suppliers on terms which we
believe are at least as favorable as those generally available to the industry. Distribution and Inventory Management Distribution. We have centralized distribution from our distribution center through the use
of SLIM as described above. We operate two distribution centers in Santiago, comprised by our
distribution center or LTS with 84,000 square meters and a leased distribution center named Puerto
Santiago with 49,000 square meters of space, in addition to the leased Antofagasta warehouse (1,500
square meters) and 31




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##### Table of Contents



the Temuco warehouse (1,500 square meters). All of these distribution centers and warehouses
fully supply 63.3% of the products sold in our stores (respectively and approximately 904,305;
522,720 and 16,146 square feet each). By the end of 2005, our goal is to increase this percentage
to approximately 67% of all our products. Centralized distribution consists of shipping, from a central warehouse to the stores, mixed
pallets of products selected to satisfy the daily inventory requirements of the particular store.
Our integrated information management system allows pallets to be prepared on the basis of
real-time information on sales and inventory levels in each store. We also use direct deliveries
to our stores from suppliers. Under the direct delivery system, a product can be ordered either
directly by the store or through a central purchasing office. Because direct deliveries generally
result in additional costs and introduce inefficiencies into our distribution process, we have
decreased our reliance on such deliveries. We transport our products with our fleet of tractor-trailers. At December 31, 2004, our fleet
consisted of 33 tractors and 132 trailers. Our trailers are equipped with global positioning
systems permitting us to track their location. Expanding and improving the quality of our fleet of
tractor-trailers complements our strategy of emphasizing centralized distribution by allowing us to
avoid the costs associated with independent or third-party tractor-trailer operators chartered to
deliver products to our stores by our suppliers. Deliveries from the distribution centers and warehouses occur principally at night during
hours of low traffic, thereby allowing a greater number of deliveries per truck and avoiding
stock-outs (i.e., running out of stock) resulting from delays caused by traffic. Our policy is to
charge suppliers for distribution and transportation services to cover effectively the cost of
these activities. Inventory Management. A principal objective of our investments in distribution and
information management technology is inventory control. In 2004, we continue to manage our
inventory with the flow-through system of inventory management. In contrast, flow-through
inventory management involves the receipt and immediate allocation and delivery of products to
local stores. Under our flow-through system, lower product quantities are held in our distribution
center, further increasing our centralization and reducing our average number of days of inventory.
At December 31, 2004, we held approximately 83% of our inventory in traditional staple stock and
used flow-through inventory management for the remaining 17%. We plan to increase the use of
flow-through inventory management to cover approximately 35% of our total products by the end of
2005 and over the long-term achieve flow-through management for up to approximately 40 to 45% of
our total products. In order to support this initiative, we are investing in new technology (Put to Light
system) to further reduce inventory at store level, allowing for an increase in assortment. In addition, we are seeking to reduce our shrinkage, which includes losses in inventory,
losses and damage during transportation, and theft. We expect to reduce our shrinkage by
centralizing our distribution system, improving the efficiency of our supply chain, and improving
our operational processes. We have considerably improved our level of accuracy at the distribution
center during the first quarter of 2005 to 99.39%, from 98.99% at year-end 2004. Shrinkage in all
of our Liderstores was 2.3% of total sales at year-end 2004 as compared to 2% in 2003. Shrinkage
reduction is another goal for our company. In addition, our stores have extensive security systems,
including our own security service, to discourage theft and enhance shopper safety. Credit Card Operations Presto Credit Card.As we have expanded our business to include higher priced durable goods,
including apparel, housewares and electronics, we have recognized the importance of making an
in-store 32




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##### Table of Contents



credit card available as a means of financing consumer purchases of these higher priced items.
Through our Prestocard, we extend revolving credit and installment payment options to our
customers with respect to all their purchases, including both food
and non-food products. The Prestocard aims to become the most convenient payment option for Lidercustomers. In
fact, it is one of the most widely used payment options in Liderstores, second only to cash
purchases. The Prestocard, launched in May 1996, is undergoing strong growth in its operations, the
number of cardholders increasing rapidly over the last few years. The amount of credit issued and
the volume of sales with the Presto card have increased, particularly for non-food purchases.
Presto card use during 2004 represented 16.6% of total Lidersales, and 32.1% of non-food purchases. During 2004, our number of accounts in good standing increased by
80.9% to 1,180,456 accounts in good standing at December 31, 2004. We intend to continue
to increase our number
of accountholders. In 2004, our Prestocredit card operations averaged a monthly charge volume of
Ch$19,952 million (US$35.8 million) and total credit issued under the Prestocard was up 62.4%
over 2003, with Ch$141,201 million (US$253 million) in total outstanding credit at December 31,
2004. Revenues from our Prestocredit card operations and
 related financial services consist of
interest revenues from our credit portfolio and fees from affiliate businesses (merchant discount)
amounted to Ch$28,155 million (US$ 50.5 million) in 2004. These revenues are recorded under other
revenues and represented 2.0% of our consolidated net revenues in
2004. The Prestocard has been
approved by the Superintendencia de Bancos e Instituciones
Financierasas an open credit card,
therefore Prestowill be opened up for use for purchases in businesses unrelated to our company,
accessing a larger market and a greater diversity of businesses. Additionally,
on June 16, 2005, the Superintendencia de Bancos e Instituciones
Financieras authorized our subsidiary Servicios y Administración de Créditos Comerciales Presto S.A., to issue
and administer credit cards under the Presto name nationally, in conformity with the established
norms in Chapter III.J.1 of the Compendio de Normas Financierasof the Central Bank of Chile. Accordingly,
our company has determined that this is a type I subsequent
event under Chilean GAAP which required an increase in the recording
of its allowance for doubtful accounts as of December 31, 2004 for the accounts receivable of
Servicios y Administración de Créditos Comerciales Presto S.A. to be in accordance with the rules
of the Superintendencia de Bancos e Instituciones Financieras. The following tables set forth, for the periods indicated, information concerning our credit
card operations: Year ended December 31,2002
    
    

2003 (As restated)
    
    
    2004(in millions of constant Ch$)Net revenues
    
    
    11,538
    
    
    
    21,580
    
    
    
    28,155Provisions for doubtful accounts
    
    
    3,674
    
    
    
    19,984
    
    
    
    18,557Financial expenses
    
    
    1,535
    
    
    
    2,310
    
    
    
    2,448Other expenses
    
    
    3,593
    
    
    
    5,221
    
    
    
    9,325Selling and administrative expenses
    
    
    8,802
    
    
    
    27,515
    
    
    
    30,330Operating income (loss)
    
    
    2,737
    
    
    
    (5,935
    )
    
    
    (2,175
    )Total accounts receivable, end of period
    
    
    42,236
    
    
    
    86,947
    
    
    
    141,201Allowance for doubtful accounts
    
    
    1,005
    
    
    
    14,320
    
    
    
    18,270Net total accounts receivable, end of period
    
    
    42,231
    
    
    
    72,627
    
    
    
    122,931
 33




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##### Table of Contents



At December 31,2002
    
    

2003 (As restated)
    
    
    2004(in millions of constant Ch$)Allowance for Doubtful Accounts, DetailJanuary 31, balance
    
    
    651
    
    
    
    1,005
    
    
    
    14,320Provisions for doubtful accounts
    
    
    3,674
    
    
    
    19,983
    
    
    
    18,557Write-off, net
    
    
    (3,320
    )
    
    
    (6,668
    )
    
    
    (14,607
    )December 31, balance
    
    
    1,005
    
    
    
    14,320
    
    
    
    18,270Number of accounts in good standing (1)
    
    
    455,403
    
    
    
    652,541
    
    

    
    1,180,456Delinquent accounts (2)
    
    
    
    
    
    
    102,720
    
    
    
    90,359Average balance per account (in thousands of constant Ch$)
    
    
    94
    
    
    
    131
    
    
    
    120Allowance for doubtful accounts/Total net receivables
    
    
    2.4
    %
    
    
    19.7
    %
    
    
    14.9
    %
 
 (1)
    
    Includes all open accounts for which cards have been picked up and that have not been
blocked by reason of delinquency.(2)
    
    Includes all accounts past due for 90 days or more. We began recording delinquent accounts
in 2003. Our
strategy for developing our financial services combines significant growth and expansion
of our credit card operations as well as other financial services
that are expected to include
insurance, utility payment services and cash advances as well as
potentially other products and services. During 2004, our Prestodivision opened 19 branch offices in Liderstores to assist
with card services and develop additional financial products. The division also signed an agreement with
BancoEstado this year to allow Presto customers to use BancoEstado automatic teller machines and
have access to other bank products at preferred rates. Our losses (write-offs net of recovery) resulting from
payment defaults totaled 14.9% of
our outstanding credit net of provisions during 2004. Our goal is to reduce these losses to 8.5%
by the end of 2005 and, over the longer term, to a range of 5.0% to 7.0% of our net receivables. We
cannot assure, however, that we will be successful in reducing our losses, particularly as we
expand the number of account holders. Our credit analysis is based on each applicants current
income and credit behavior as registered in credit history data bases. In Chile, detailed
information relating to the individual account balances of an applicant with other commercial
creditors is not made publicly available by entities handling credit history data bases and is,
therefore, unavailable. However, since our Prestosubsidiary
has registered with the
Superintendencia de Bancos e Instituciones Financierasas a credit card issuer and operator,
it will be given access to credit history information handled by
banks, financial institutions and the referred authority. Our loss recovery process involves
gathering information relating to the type and amount of unpaid balances, as well as communicating
with our customers to try to secure recovery of these balances. We evaluate the results of our
process and then decide to write off certain debts based on our analysis of the reasons for
non-payment and our estimation of the likelihood of eventual payment of these balances. Real Estate Development We have actively assembled a land bank of developed and undeveloped strategic properties for
use as potential future store locations. We believe that owning these properties insulates us from
the volatility of real estate leases and provides investors with an underlying asset of
considerable value. Our real estate development division, to the extent appropriate and
complementary to the strategic requirements of the core retail business, develops some properties
as shopping malls where our store 34




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##### Table of Contents



formats serve as the anchor tenant. Our real estate division also manages all rental spaces
associated with our supermarkets and hypermarkets which are not located in shopping malls. At December 31, 2004, we operated six shopping malls that house a total of 262 stores and have
a total of 137,712 square meters of sales area (approximately 1,481,040 square feet), 47% of which
is rented to third-party merchants, with the remainder rented to our stores (72,500 square meters,
approximately 784,080 square feet). The real estate division also manages leases corresponding to
approximately 602 retail locations (82,342 square meters in total, approximately 871,200 square
feet) in our supermarkets and hypermarkets (small shops usually located in the front part of the
store, past the check-out counters and sales area). In total, at December 31, 2004, our real
estate operations generated rental income from 147,554 square meters of rental space (approximately
1,568,160 square feet), corresponding to 864 retail locations in total, including stores in
shopping malls and supermarkets. In 2004, our real estate operations generated consolidated net
revenues in the amount of Ch$16,856 million (US$30.2 million) in annual rental income from our
properties representing approximately 1.2% of our net revenues, after deducting Ch$36,820 million
(US$66.1 million) in rental income received from our supermarkets. In 2004, we expanded our properties by opening six new Liderstores, of which four are Lider
Vecinosand two are Liderhypermarkets in addition to our seven recently acquired Carrefour stores
of which, six are operating as Liderhypermarkets and one was closed. We expect to reopen this
store during the second half of 2005. In 2005, we plan to expand our properties by opening six new
Liderstores (mainly with the Lider Vecinoand Lider Expressformat). We also plan to purchase new
properties in targeted cities where we are not yet present or where we want to expand our presence
by increasing our number of stores. Description of Property In the last five years we invested approximately US$534.3 million in real estate and opened 24
stores (excluding the acquisition of Carrefour stores). An important component of our development is the early acquisition of strategically located
properties, by which we accumulate a stock of valuable, undeveloped properties that gives us
control of our expansion plans. We increasingly develop our projects as commercial centers in
which one of our stores is combined with other non-competing stores, such as hardware stores, fast
food franchises and video stores, to create a complete shopping destination for consumers. This
strategy has also allowed us to partially offset our real estate costs by developing the commercial
potential of the properties. At December 31, 2004, we owned 63 (of which five were subject to financial leases) of our 78
store locations in Chile with total retail space of 404,467 square meters; 1,258,484 square meters
(approximately 13,503,600 square feet) fully developed and 1,077,990 square meters (approximately
11,586,960 square feet) of land available for new projects. In addition, we own the La Dehesa,
Maipú, Puente Alto and Gran Avenida shopping centers in Santiago, and the Viña del Mar and
Antofagasta shopping centers in the cities of the same name. In addition, at December 31, 2004, we
owned our headquarters and service school and the adjacent distribution center at Quilicura, in the
outskirts of Santiago, and 14 additional sites for new projects. A significant portion of these
sites are strategically located at major intersections or other desirable store locations. The following table presents a breakdown of our real estate holdings in Chile as of December
31, 2004: 35




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##### Table of Contents



Undeveloped Sites(1)
    
    Stores(2)RegionV, SMR
    
    
    9
    
    
    
    55VI, VIII, IX, X, XII
    
    
    3
    
    
    
    15I, II, III, IV
    
    
    2
    
    
    
    8Total
    
    
    14
    
    
    
    78
 
 (1)
    
    Including Carrefour stores acquired in June 2005.(2)
    
    Not including one site which is currently under construction for a store to be opened in June
2005. Although our general policy is to purchase our properties in order to secure strategic
locations against competitors, this is not feasible in certain cases, particularly for store sites
within shopping centers. In such instances, we lease the desired locations, if strategically
justified. Our leased stores have initial terms ranging from one to five years. We generally pay
a variable rent based upon the stores revenues. We regularly remodel our stores and invest on an ongoing basis in new decorations and
fixtures, updated signage and technology. To the extent that we centralize distribution of
inventory, it is anticipated to result in a reduction of the required stocking area and permit an
expansion of selling space in certain of our existing stores. Currently, some of our properties
are held in wholly-owned subsidiaries while others are held directly by us. Information Technology We seek to implement state-of-the-art information technology in our industry in Chile. Over
the last three years, we have invested an average of US$7.3 million per year (approximately 0.3% of
our net sales and over 5% of our capital expenditures) in computers and information technology. As
our back office, distribution and check-out operations were already automated, these investments
were directed towards renewing and upgrading our information technology and enhancing the
integration of our systems. These investments have contributed to reduced labor costs and
increased efficiencies in customer check-outs, purchasing, distribution, inventory management and
the provision of information in a timely manner. Additionally, during 2004, the focus had been on
the development of back-up systems to cover for contingencies preventing the eventual impact on
operations of any type of system disruption. Store Systems. All of our stores are equipped with point-of-sale scanners. Transactions
recorded by laser scanners located at the check-out aisle permit the reporting of real time
information regarding product sales. Each laser scanner reads bar codes imprinted on the labels of
all of our products, enabling us to accurately record all transactions. The computers in our
stores nationwide are connected to the central mainframe at our headquarters, permitting both
senior managers and store managers to receive near real time information by store, SKU or product
category, including both sales volume and margins, thus enhancing inventory management, cost
controls and sales tracking. We also use radio frequency inventory devices for our stores, which
allows inventories to be taken in a faster and more accurate manner. Furthermore, our stores are
interconnected with the Transbank credit approval system in connection with both our Prestocredit
card and other bank credit cards, as well as with entities such as RedBanc which allow us to offer
in-store ATM machines for our customers. The store systems are supplemented by point of sale
technology at our distribution center and at the receiving points for supplies at store locations,
thereby permitting strict control over incoming as well as outgoing merchandise. Management Information Systems. We have consistently invested in modern computer hardware and
software in order to improve the efficiency of our accounting, control systems and financial
management operations and employ 50 computer professionals. Although some of our software was
developed in-house, we principally rely on outside vendors to purchase software platforms which we
then modify to respond to our unique specifications. These platforms include: 36




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 in connection with distribution, TRIM and SLIM (both as described above) and
Worldwide Chain Store System (a warehouse management system);  in our stores, the IBM Supermarket Application platform (POS software); and  in our headquarters, the SAP platform (back-office solutions) and a platform
developed in-house for core business management, commercial tools, price and promotion
management inventory service levels). We use the electronic data interchange (EDI) system to integrate our suppliers within our
systems, thereby reducing the paperwork and delays in communications with our suppliers. We are
currently implementing greater integration with our suppliers, including electronic invoicing, and
developing a business continuity plan and enhanced system redundancy. During 2004, the emphasis had
been on the integration of in-house systems, the connectivity with external systems and the quality
and efficiency of system development by adopting a rational methodology. Employees and Human Resources At December 31, 2004, we had a total of 26,333 full-time equivalent employees. Of those
employees, 23,464 were employed in stores (including the 463 full-time equivalent employees
employed in our FarmaLiderpharmacies), 973 were employed in our distribution facilities and 1,896
were employed in our headquarters and other business units. At December 31, 2004, approximately 3.2% of our employees were represented by 14 independent
unions. Other store employees negotiate collective contracts at each store, which generally have a
term of three years. Employees receive benefits established by the collective bargaining
agreements, benefits provided for by law (including disability insurance) and certain additional
benefits provided for by us, including scholarships for children of employees and assistance in
financing the purchase of homes. We also operate a merit-based, quarterly bonus program for our
employees. The bonus is determined in accordance with clearly-defined criteria, including our
overall performance, the performance of the employees store, his or her performance relative to
specific targets established at the beginning of the year and other more subjective standards. We recognize that any service industry depends fundamentally on the training and motivation of
its employees. As a result, we attempt to develop a distinctive corporate culture that explicitly
affirms the value of the individual employee and encourages the development of the individuals
skills. Employees are regularly briefed on the performance of their store and our company as a
whole and are expected to attend ongoing training programs. In 2004, 41,801 associates were
trained in 4,509 courses, totaling 332,685 hours of training. Competition Our retail competitors include hypermarkets, supermarkets, self-service stores, department
stores, home supply stores and pharmacies. In recent years, each of these store categories has
expanded its product offerings to compete for an increasing share of consumer spending in
overlapping markets. Although competition is already intense in many locations, we expect it to
increase as existing competitors expand the number of their stores and improve the quality of their
operations and as new competitors enter the market. Our principal competitive strategy is to be
the low-price leader in Chile. We operate the largest chain of hypermarkets and supermarkets in Chile in terms of net sales.
Our largest competitors are Cencosud (the owner of the Jumbo, Santa Isabel, Montecarlo and Las
Brisas chains), San Francisco (currently owned by Falabella), Unimarc, Rendic and Montserrat.
Cencosuds 37




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Jumbo, a hypermarket operator, focuses on the middle and high-income sectors of the population
emphasizing a broad range of high quality goods and services. Santa Isabel, a supermarket
operator, is especially strong in the regions outside the capital city. The combined market share
of Jumbo, Santa Isabel, Montecarlo and Las Brisas in 2004 was approximately 24.4%. San Francisco,
our second largest competitor,is a traditional supermarket chain operating in the southwest area
of Santiago. It was recently acquired by Falabella, a multi-retail operator (department stores,
home improvement, credit, bank and a stake in pharmacy) with a presence in Chile, Perú, Argentina
and Colombia. Its market share in 2004 was approximately 3.2%. These figures are based on the
last official market share report as of August 2004 and we assume December figures to be similar to
those in August. The following table sets forth estimates of the percentage of annual supermarket net sales
attributable to each of the eight largest supermarket companies in Chile in terms of 2004 net sales
and the estimated number of stores owned by such company at December 31, 2004. Percentage
    
    
    Numberof Sales (3)
    
    
    of Stores at Year EndD&S(1)
    
    
    34.2
    %
    
    
    78Cencosud(2)
    
    
    24.4
    
    
    
    117San Francisco
    
    
    3.2
    
    
    
    9Unimarc
    
    
    3.1
    
    
    
    39Rendic
    
    
    3.1
    
    
    
    20Montserrat
    
    
    2.8
    
    
    
    14Others
    
    
    29.2
    
    
    
    405Total
    
    
    100.0
    %
    
    
    682
 
 (1)
    
    Includes Lider, Lider Vecino, and Lider Express,and Carrefour stores acquired on January 7,
2004.(2)
    
    Includes Jumbo hypermarkets, Santa Isabel, Montecarlo and Las Brisas supermarkets.(3)
    
    Based on the last official figures as of August 2004.  As a result of our efforts to increase our share of Chilean family spending by
emphasizing the areas of our business which are considered non-traditional for the supermarket
industry (housewares and furniture, electronics and appliances, apparel, pharmaceuticals and
cafeterias), we compete in a market that is larger than the supermarket industry. With respect to
our non-food product offerings, our principal competitors at December 31, 2004 among the
traditional supermarkets are department stores that operate in Chile. This market provides
numerous opportunities to expand the scope of our business but also exposes us to new competitors
with greater expertise and experience in the non-food areas. Trademarks, Tradenames and Service Marks We own certain trademarks, tradenames and service marks used in our business, including Lider,
Lider Vecinoand Lider Expressand their respective logos, covering the Chilean market. We also
own trademarks of our superseded store formats, including Almacand Ekono. We also own, or hold
licenses to use, our private label brands including Lider, Buffet, Acuentaand BLVD. We believe
that our trademarks, tradenames and service marks are valuable assets, which differentiate us from
our competitors. Our brands are duly registered under applicable law. We are not dependent on
patents and licenses or industrial, commercial or financial contracts as material factors to our
business and profitability. 38




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Insurance We maintain insurance policies covering, among other things, fires, earthquakes, floods and
general business and third party liability. Our management believes that our insurance coverage is
adequate for our business. Regulation We are subject to a full range of governmental regulation and supervision, including labor
laws, social security laws, public health laws, consumer protection laws, environmental laws,
securities laws and antitrust laws in Chile. These include regulations to ensure sanitary and safe
conditions in sale and distribution facilities of foodstuffs and requirements to obtain
construction permits for our new facilities. We believe that we are in compliance in all material
respects with all applicable statutory and administrative regulations. Except for government licenses required for the sale of alcoholic beverages, baked goods,
pharmaceuticals, seafood and vegetables and customary local taxes required by local governmental
authorities to conduct business within their jurisdiction, there are no special governmental
licenses or permits required for the sale and distribution of foodstuffs or other products in
Chile. Our supermarkets are subject to inspection by the Servicio Nacional de Salud(National
Health Service), which inspects supermarkets on a regular basis and takes samples for analysis. We
periodically retain a private inspection company to undertake private inspections of our facilities
to ensure that they meet or surpass all Chilean health standards. Our supermarkets are also
subject to inspection by the Servicio Agrícola y Ganadero(Agricultural and Livestock Service) and
the Servicio Nacional del Consumidor(National Consumer Service). Concessionaires that operate
pharmacies within some of our supermarkets are also subject to licensing and inspection by the
Servicio Nacional de la Salud. In addition, the Fiscal Nacional Económico(National Economic Prosecutor) has broad
investigating powers and the Tribunal de Defensa de la Libre Competencia(Antitrust Court) has
broad regulatory powers for the protection of free competition, including the power to intervene
and prevent or unwind acquisitions tending to decrease the levels of competition in the marketplace
or anticompetitive behavior in general. On October 5, 2004 the Tribunal de Defensa de la Libre
Competencia, a recently instated authority that replaced the Comisión Resolutiva Centralas the
higher special-purpose Court for antitrust matters, issued a ruling related to a fact finding
investigation regarding procurement practices in the food retailing sector. This ruling ordered
that: i) the supermarket chains operated by our company and Cencosud S.A. should refrain from
unilaterally and ex post factoalter the price and other previously agreed terms of purchases from
suppliers; ii) the supermarket chains operated by our company and Cencosud S.A. should establish
unbiased and objective terms and conditions for purchases to be made from suppliers and duly inform
them in advance of such terms and conditions; and, iii) the supermarket chains operated by our
company and Cencosud S.A. and any and all persons related to them, up to their final controllers,
should consult in advance with the Tribunal de Defensa de la Libre Competenciaany and all
negotiations or agreements, of any form and nature, that directly or indirectly imply an
acquisition of or their integration or merger with, companies in the same business. Upon rendering
of the ruling described above both our company and Cencosud S.A. filed a special appeal before the
Supreme Court of Law of Chile challenging the above-described restriction imposed on such companies
to consult with the Tribunal de Defensa de la Libre Competencia, as both companies believed it
exceeded the competence of such authority. On May 26, 2005, the Supreme Court of Law ruled in favor
of our company and Cencosud S.A. and annulled the third part of the decision of the Tribunal de
Defensa de la Libre Competenciain which it imposed the above-described consultation obligation. We
believe our procurement policies comply with applicable laws and regulations. Moreover, we plan to
implement internal best-practices policies relating to the foregoing. 39




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With respect to our credit card business, in late 2004 our subsidiaries that concentrate our
credit card activities filed applications before the Central Bank of Chile requesting authorization
to respectively issue and operate the Presto credit card, which until then had been an in-store
credit card, as what is known in Chile as an open credit card, that is, a credit card that
may be used for the purchase and financing of purchases from any establishment or business that has
previously affiliated with the credit card system. We were granted the authorization in January
2005. We then pursued the registration of the issuer and the operator of the credit card with the
Chilean Superintendencia de Bancos e Instituciones Financieras(Superintendency of Banks and
Financial Institutions), which is also required for the open credit card. Such registration is
subject to the compliance of technical and other operational standards reviewed by the
Superintendencia de Bancos e Instituciones Financieras. This process was finally completed and
the registration was granted on June 16, 2005; therefore, our credit card operation will be subject
to the supervision of the Chilean Superintendencia de Bancos e Instituciones Financieras. At
present, there are no regulations in Chile affecting in-store credit cards other than provisions of
the Chilean Consumer Rights Law that require retail companies granting direct credit to customers
to inform customers about certain terms and conditions of the credit, including interest rates,
costs and extrajudicial collection fees. In addition to the above, a bill currently pending
discussion and voting in Congress, would amend the Chilean laws governing capital markets to allow
the Chilean Superintendencia de Bancos e Instituciones
Financieras to oversee companies issuing credit
cards or allowing customers to use other similar means of credit. This amendment would require
such companies to disclose to the  Superintendencia de Bancos e Instituciones
Financieras information
regarding interest rates and the total amount of credit granted. We cannot determine at this time
the likelihood that this bill will be passed or the specific nature of the new regulations that may
be enacted. Capital Expenditures The supermarket business is capital intensive. Over the past five years, we have invested
approximately US$672 million in capital expenditures, primarily to develop and expand our store
formats. In 2005 and 2006, we expect to invest a total of Ch$111,480 million or US$200 million in
capital expenditures primarily to open 12 new stores in Chile. We expect that the majority of
these stores will be built on properties owned by us. We have opened one store in the first six
months of 2005 and we expect to open five additional stores before the end of 2005. The following table sets forth our actual capital expenditures for 2002, 2003 and 2004 and
projected capital expenditures for 2005 and 2006. Our actual capital expenditures may vary
substantially from the projected numbers set forth below as a result of competition and the cost
and availability of the necessary funds. 40




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##### Table of Contents



Actual for year endedDecember 31,
    
    
    Projected
    
    
    Total Projected2002
    
    
    2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2005-2006Number of stores at beginning of period
    
    
    54
    
    
    
    62
    
    
    
    68
    
    
    
    78
    
    
    
    84
    
    
    
    78New stores opened or acquired
    
    
    8
    
    
    
    6
    
    
    
    13
    
    
    
    6
    
    
    
    6
    
    
    
    12Stores sold or closed
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    Existing stores remodeled or expanded
    
    
    2
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Existing stores transformed into
another format
    
    
    6
    
    
    
    3
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Number of supermarkets at end of period
    
    
    62
    
    
    
    68
    
    
    
    78
    
    
    
    84
    
    
    
    90
    
    
    
    90Format of stores at end of year:Almac/Lider Express
    
    
    4
    
    
    
    4
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Ekono/Lider Express
    
    
    23
    
    
    
    22
    
    
    
    23
    
    
    
    26
    
    
    
    29
    
    
    
    29Lider-Lider Mercado
    
    
    22
    
    
    
    23
    
    
    
    31
    
    
    
    31
    
    
    
    31
    
    
    
    31Lider Vecino
    
    
    13
    
    
    
    19
    
    
    
    24
    
    
    
    27
    
    
    
    30
    
    
    
    30Capital expenditures(1)
    
    Ch$70,563
    
    
    Ch$45,262
    
    
    Ch$151,074
    
    
    Ch$55,740
    
    
    Ch$55,740
    
    
    Ch$111,480(US$126.6
    )
    
    (US$81.2
    )
    
    (US$271.0
    )
    
    (US$100
    )
    
    (US$100
    )
    
    (US$200
    )
 
 (1)
    
    In millions of constant Chilean pesos and U.S.
dollars. For 2004, includes the 100
million (Ch$76,676 million) used to acquire Carrefour Chile S.A. Exchange rate: US$1.00 =
Ch$557.40 as of December 31, 2004. Legal Proceedings We are party to legal proceedings arising from the normal course of our business which we
believe are routine in nature and incidental to our operations. We do not believe that the outcome
of the proceedings to which we currently are a party, other than as noted below, are likely to have
a material adverse effect on our operations, financial condition, results of operations, cash flows
or prospects. Disco-Ahold Litigation We are currently litigating a series of disputes stemming from the sale of our former
Argentine subsidiary, Ekono-Argentina,to Disco S.A. in December 1999. Under the terms of the
sale, in May 2000 Disco S.A. paid us US$60 million of the US$150 million purchase price, with the
balance of US$90 million coming due in May 2003. Of this US$90 million, US$80 million was
evidenced by ten promissory notes of US$8 million each, and US$10 million was held by Disco S.A. as
collateral for certain liabilities of Ekono-Argentinato be borne by our company. The deferred
payment amount was guaranteed by Disco S.A.s parent company, Disco-Ahold International Holdings
N.V., a Netherlands Antilles Company and a subsidiary of Royal Ahold N.V., a Netherlands company.
We were informed in December 2002 that Disco S.A. did not intend to pay us the entire US$90 million
amount in dollars, but would instead convert the US$90 million balance owed to us into Argentine
pesos under then-prevailing Argentine dollar convertibility regulations. On May 2, 2003, Disco
S.A. made payment of A$126 million. After approval by the Central Bank of Argentina in August of
2003, this amount plus accrued interest was remitted to us based on an effective exchange rate of
A$3.0 to 1 U.S. dollar which was equivalent to US$42 million. We have steadfastly rejected the applicability of the Argentine currency convertibility regime
to Disco S.A. and to Disco-Ahold International Holdings N.V., the guarantor, a non-Argentine
entity, as to this obligation (which was explicitly undertaken to be a U.S. dollar obligation). We
have retained counsel in Chile, Argentina and the Netherlands and are pursuing legal actions in
order to collect the amounts due to us. In April 2003, we initiated an action against the guarantor, Disco-Ahold International
Holdings N.V., in the Court of Curaçao in the Netherlands Antilles. Our claim is for US$47.5
million plus interest and expenses. We currently expect final first-instance resolution of our
claim by the end of 2005. In January 2004, we initiated arbitration proceedings with Disco S.A. before the Chairman of
the Buenos Aires Bar in Argentina. Our claim is for US$1.5 million, the amount we believe was
wrongfully 41




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In April 2005, the Company initiated legal proceedings in the Netherlands against Royal Ahold N.V.,
seeking damages the claim is for US$47.5 million, plus interest and expenses to
the extent not recovered from Disco-Ahold. 42




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Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS Basis of Presentation The following discussion should be read in conjunction with our audited consolidated financial
statements including the notes thereto included elsewhere in this annual report. We prepare our
financial statements in accordance with Chilean GAAP, which differs in certain important respects
from U.S. GAAP. Note 26 to our audited consolidated financial statements provides a description of
the principal differences between Chilean GAAP and U.S. GAAP as they relate to us and a
reconciliation to U.S. GAAP of net income and total shareholders equity. Chilean GAAP requires that financial statements recognize the effects of inflation. We are
therefore required to adjust our financial statements to reflect the effect of variations in the
purchasing power of the Chilean peso during each year. See Impact of Inflation, Price-level
Restatement and Foreign Exchange and Note 2 to our consolidated financial statements. Unless otherwise specified, our financial data is presented in this annual report in constant
Chilean pesos of December 31, 2004 purchasing power. Certain of our liabilities are denominated in Unidades de Fomento(UFs). A UF is a daily,
inflation-indexed, Chilean peso-denominated monetary unit which is set in advance based on changes
in the Chilean CPI of the immediately preceding month. The adjustments to the closing value of
UF-denominated assets and liabilities are included in the price-level restatement account in our
consolidated statements of income. Overview Key Factors Affecting Net Revenues and Results of Operations Key Factors Affecting Our Net Revenues Our Supermarket and Hypermarket Revenues.We generate our supermarket and hypermarket revenues
primarily from sales of groceries, perishables and non-food products in our stores and
contractually agreed upon participation fees paid by suppliers to us for advertising and
distribution services, special promotions, and opening new stores. Product revenues are generally
driven by volume and average selling prices. Contractual vendor allowances are generally a function
of volume. Key factors influencing our hypermarket and supermarket revenues include:  
    Pricing policies.  o
    
    Pricing strategy.In mid-2003, we strengthened our
commitment to our Every Day Low Prices, or EDLP, strategy. In the last
quarter of 2004, the EDLP strategy evolved into its next stage, our
Exceptional Value strategy, which aims to deliver service and quality at
the lowest possible price by keeping a perceptual price positioning, along
with incentives for holders of our Prestocredit card, the development of
our Liderbrand name, and high-low pricing in perishables.o
    
    Product mix.The mix of products we sell has a
significant impact on our net revenues. In particular, because non-food
products generally have higher average margins than our food products, our
operating results are positively affected as the proportion of non-food
products in our product mix increases. Sales of our 43




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non-food products increased by 17.0% in 2004 compared to 2003. Sales of
non-food products represented 17.2% of our net sales for 2004 compared to
17.5% for 2003. The slight reduction in the share on non-food in total
sales was attributable to the integration of the Carrefour stores acquired
in January 2004, which had lower sales of non-food.  Expansion of sales area.Opening and acquiring new stores, and expanding existing
stores, has been one of the principal drivers of sales volume in recent years, fueling much
of our hypermarket and supermarket revenue growth. In 2004, new or remodeled stores
accounted for 17.5% of our net sales. We added thirteen new stores in 2004 (including six
acquired from Carrefour), and we plan to add six new stores in 2005 of which one has already
been opened.  Chilean economic conditions.Our net revenues are strongly influenced by changes in
Chilean economic conditions that affect the purchasing power and habits of our customers.
Chile recorded GDP growth of 2.1% for 2002, 3.4% for 2003 and 6.1% for 2004. During the
same period, unemployment, measured on the last moving quarter October-December declined
from 7.8% for 2002 to 7.4% for 2003 and rose again to 7.8% for 2004. Average unemployment
rates for the full years 2002, 2003 and 2004 were 9.0%, 8.5% and 8.8% respectively. As of April
30, 2005, (i.e., the moving quarter February-April), unemployment was 8.2%, representing an
increase as compared to 7.9% for the previous moving quarter January-March. Nevertheless,
this figure is lower than 8.7% in the February-April quarter of last year at April 30, 2004.  Vendor Allowances.Vendor allowances, which are generally recorded at an agreed-upon
percentage of sales to customers, have increased steadily as a percentage of our hypermarket
and supermarket net revenues over the last three years, primarily as a result of our
increased purchase volumes with our suppliers and continued improvement in our negotiations
with vendors. We expect this trend to continue to the extent we continue to increase our
purchase volumes with our suppliers. The following table sets forth, for the periods indicated, changes in net revenues and same
store sales together with certain macroeconomic indicators. Same store sales means net revenues
earned during the period for all stores which were open and operated by us during the corresponding
period in the previous year, excluding stores which underwent renovation during the prior twelve
months: Year ended December 31,2002
    
    
    2003
    
    
    2004Increase in net revenues
    
    
    11.5
    %
    
    
    9.8
    %
    
    
    20.8Increase in sales of groceries, perishables and non-food items
    
    
    10.0
    
    
    
    9.0
    
    
    
    19.0Increase (decrease) in same store sales
    
    
    (1.4
    )
    
    
    0.3
    
    
    
    1.6Increase (decrease) in suppliers fees
    
    
    20.7
    
    
    
    9.8
    
    
    
    29.8Increase in selling space (1)
    
    
    45.7
    
    
    
    25.7
    
    
    
    23.1Increase (decrease) in sales per square meter
    
    
    (4.7
    )
    
    
    1.2
    
    
    
    (4.2
    )Increase in Chilean GDP(2)
    
    
    2.1
    
    
    
    3.4
    
    
    
    6.1Increase in Chilean consumption
    
    
    1.4
    
    
    
    2.6
    (2)
    
    
    5.9
    (2)
 
 (1)
    
    In square meters. Each square meter is equivalent to 10,764 square feet.(2)
    
    Preliminary estimates. Credit Card Revenues.We generate our credit card revenues primarily from finance charges
on outstanding balances and late fees charged to our credit card customers. Our credit card
revenues depend primarily on the total number of active Prestoaccounts, the average outstanding
balances on those accounts, and the average interest rates we charge on those balances. We include,
as part of our total trade receivables amounting to
Ch$122,931 million (US$220.5 million) and also
as part of our long term 44




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debtors amounting to Ch$14,655 million (US$26.3 million), Ch$141,201 million (US$253.3
million) of trade accounts receivable of our Prestosubsidiary, to be received from Prestocard
users. Key factors influencing our credit card revenues include:  Finance charges.Since we currently use our Prestocard to help increase our total
sales volume, our goal is to offer interest rates that are competitive with those offered by
the in-store credit cards of our principal competitors in order to complement our low prices
on our products.  Average account balances.Average account balances are generally a function of the
credit limits we allocate to each account, and the frequency with which the cards are used
as well as the average purchase volume. We set credit limits by analyzing an applicants
current income and credit record as obtained from Chilean credit agencies.  Other financial revenues. This refers to credit card commissions
 and fees. As Presto
cards are used, a monthly statement is issued containing an invoicing fee. Also, when
past-due accounts are collected, a collection fee is charged to the customer. Additionally, as
our card starts operating as an open card, accepted by businesses unaffiliated to  Liderstores, its use will generate a fee charged
to these businesses referred to as the
merchant discount. Finally, from January 2005, a monthly maintenance fee to
the cardholder has been charged to offset the
significant discounts that Prestocardholders are entitled to when shopping in our Lider
stores. These Impactos Presto have contributed to the growth
in the number of new  accounts opened and active accounts. As our Presto division further diversifies its services, including insurance
brokerage among others, we expect to derive commissions from
such sales. Other financial revenues including merchant discounts, fees to cardholders
and commissions are expected to grow resulting in a reduction on the
reliance of our Presto division on revenues
from credit, along with an increase of revenues from transactions or use
of the card regardless of the use of credit.  Mix of sales- Food and Non-Food.In 2004, our Prestocard was used in approximately
13.6% of our sales with respect to food products as compared to 9.7% for 2003. Sales of food
products represented 80.2 % of our sales for 2004 as compared to 81.1% for 2003 resulting
from our decision to grow both in volume and assortment of non-food items offered in our
stores, making inroads in an increasing number of non-food product lines, in addition to
pharmaceuticals through our FarmaLiderstores. The expansion of our retail business to
include higher priced durable goods, such as household appliances and electronics, has
contributed to the growth of our credit card business. Our customers often require credit to
purchase these higher-priced items. For 2004, our Prestocard was used in approximately
32.1% of our sales in non-food areas as compared to 29.8% in 2003. Sales of non-food
products (including pharmaceuticals in our FarmaLiderstores) represented 19.8% of our sales
for 2004 as compared to 18.9% in 2003. We believe our strategy of expanding our non-food
offerings will continue to play a major role in the net revenues generated by our credit
card business. Other revenues.Our other revenues include revenues from our real estate operations, which
primarily comprise revenues from lease payments from merchants that lease space in our stores and
malls. Except for 2003, when increased lease payments derived from other revenues resulted in an
appreciable increase (See  Results of Operations  2003 Compared to 2002  Net Revenues  Other
Revenues below), our other revenues have remained relatively constant, owing principally to the
fact that we have not opened new shopping centers in recent years and that we do not own the
property on which many of our newer stores operate. 45




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Key Factors Affecting Our Cost Structure Cost of Sales and Gross Profit.Our operating
 margins declined in 2004 to 1.6% from 3.9% in
2003 due to a reduction in our selling prices primarily as a result of our EDLP strategy. Our cost of sales
includes our purchasing costs associated with our products, plus the shrinkage from our store
operations, plus reductions in the prices of our products related to promotions that are not offset
by corresponding decreases in the cost of such products to us. Shrinkage includes losses in
inventory, losses and damage of our products during transportation and losses caused by theft. As
part of our EDLP strategy, we significantly reduced the prices our customers pay for our products.
We always seek to reduce the purchasing cost of our products in part by increasing the volume of
our purchases and, thereby, improving the terms of payment to our suppliers. As we have increased
our sales of higher-priced non-food products, shrinkage has become an increasingly important factor
in our cost structure. Other costs such as inbound freight charges,
purchasing and receiving costs, inspection costs, warehousing costs,
internal transfer costs, and other costs of our distribution network
are not accounted for in the cost of sales line item. Therefore, our
cost of sales, gross profit and gross margin may not be comparable to
those of other retailers. Selling and Administrative Expenses.Our selling and administrative expenses primarily include
the following costs: labor and personnel, advertising, maintenance, provisions for doubtful
accounts related to our credit card business, utilities, credit card commissions paid to third
parties and insurance.  Labor and personnel expenses:Our labor and personnel expenses are the main
component of the total operating expenses and they represented 35.0% during the year 2004,
34.9% in 2003 and 37.5% in 2002. As a percentage of net revenues, labor and personnel
expenses represented 7.4% in 2004, 6.8% in 2003 and 7.1% in 2002. During 2004, our labor
expenses increased 30.6% compared to 2003, explained by the 20.8% growth in our companys
net revenues.  Advertising expenses:Our advertising expenses represented 6.3% of our total
operating expenses in 2004, 5.6% in 2003 and 7.2% in 2002. As a percentage of net revenues,
advertising expenses represented 1.4% in 2004, 1.0% in 2003 and 1.4% in 2002. Advertising
expenses decreased during 2003 as a result of the adoption of the EDLP strategy that
involved merging of the different store brands under the Liderbrand and suppressing some
marketing activities and promotional campaigns and catalogs, shifting from the printed media
to emphasis on mass-media, such as TV and radio. During 2004, advertising expenses increased
due to the evolution towards the Exceptional Value strategy which aims to deliver superior
service and quality at the lowest possible price.  Provisions for doubtful accounts.In connection
 with our credit card operations, we
record an allowance for doubtful accounts, which corresponded to 14.9% of
net credit card  receivables for
2004, which is used to offset write-offs and maintain an allowance deemed appropriate to the
amount of total receivables. Our allowances for doubtful accounts have risen in recent years
and are primarily a function of the total number of credit card
accounts and higher delinquency
rates. Moreover, as a result of electing to open our Presto
card to unaffiliated merchants, we have become subject to the
regulations of the Chilean Superintendencia de Bancos e
Instituciones Financieras and have, in accordance with its
provisioning policies increased our allowances for doubtful accounts.  We record provisions of a set percentage of outstanding balances for each past
due credit card loan and evaluate these provisions based on the number of days past due and
the historical behavior of our customers. As we continue to expand our credit card business,
we expect our aggregate allowance for doubtful accounts to increase. Other Factors Affecting Our Net Income Price-level Restatement and Foreign Exchange Gain (Loss).As required by Chilean GAAP, our
financial statements have been price-level restated to reflect the effect of changes in the
purchasing power of the Chilean peso during each period. See Note 2 to our consolidated financial
statements. Exchange rate differences arising on the settlement of monetary items at rates
different from those at which they were originally recorded are recognized in our consolidated
statements of income for the period. 46




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Our company has no significant debt in foreign currency. As of December 31, 2004, it held U.S.
dollar-denominated letters of credit for US$44.8 million, which are exposed to exchange risks. At
the same time, our company holds notes receivable in U.S. dollar currency for US$49.3 million
mainly related to the divestment of Supermercados Ekono S.A. (Argentina). Our companys net
exposure to exchange rate is US$4.5 million, therefore, price-level restatement and foreign
exchange gain (loss) have no significant effect on our net income. Income tax expense.We account for income taxes using
 the asset and liability method.
Accordingly, deferred taxes are recorded for the differences between the tax and book basis of
assets and liabilities that will reverse in future periods. Changes in the tax versus the book
basis of certain of our assets may, from time to time, increase our deferred tax assets in a given
period. In 2004, we recorded a deferred tax asset for tax loss
carryforwards originating in
the Magallanes S.A. subsidiary (formerly Carrefour Chile). Our Exceptional Value Business Model In mid-2003, we strengthened our commitment to our Every
 Day Low Prices, or EDLP, strategy.
As expected, our EDLP strategy initially reduced our profitability as our volume increases and cost
reductions did not fully offset the price decreases. In the last
quarter of 2004, we carried our EDLP strategy
 into its next stage, which we refer to as our Exceptional Value strategy, which aims to deliver service and
quality at the lowest possible price by keeping a perceptual price positioning, along with
incentives for holders of our Prestocredit card, the development of our Liderbrand name, and
high-low pricing in perishables. For 2004, as a result of the implementation of our Exceptional Value strategy, in the fourth
quarter of 2004, our gross profit increased to 23.1 % compared to 22.5 % for 2003. This strategy,
along with the acquisition of Carrefour stores and six new stores opening and the growth of our
Presto credit card had a positive impact on our net revenues in 2004 which increased 20.8 % to
Ch$1,440,462 million (US$2,584.3 million) for 2004 from Ch$1,192,075 million
for 2003. Our Exceptional Value strategy is premised on several assumptions:  Low prices drive higher volume.According to market surveys, price is one of the key
factors Chilean consumers consider when deciding where to shop. By maintaining a
discernible price difference compared to our competitors, we expect to attract more
customers to our stores.  Preferred price to quality ratio.With our actual, and even more prominent,
perceptual price advantage and reputation for low prices, we have strengthened our
commitment to quality to appeal to the aspirational qualities of the Chilean consumers.  High traffic provides opportunities for cross-selling.We intend to take advantage
of the higher volume of customer traffic we expect to generate through our current strategy
by cross-selling an expanding range of quality non-food products and complementary services
to our customers, delivering service and quality at the lowest possible price by keeping a
perceptual price positioning, offering incentives to holders of our Prestocredit card,
developing our Liderbrand name, and offering high-low pricing in perishables. By capturing
a greater share of the consumers wallet, we expect to increase our revenues. To date, our
strategy has helped increase our customer traffic levels, improve our net revenues and
reverse a negative trend in our same store sales. Our same store sales increased in 2004 by
1.6% compared to 0.3% in 2003. 47




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Critical Accounting Policies and Estimates We prepare our consolidated financial statements in accordance with Chilean GAAP with a
reconciliation to U.S. GAAP. The preparation of our consolidated financial statements requires the
use of estimates and assumptions that affect the reported amounts of assets and liabilities,
including the disclosure of contingent assets and contingent liabilities and the reported amounts
of revenue and expenses during the reporting period. Our critical accounting policies are those
that are most important to our financial condition and results of operations and those that require
the most difficult, subjective or complex judgments by our management. On an ongoing basis,
management evaluates its estimates and assumptions. Management bases its estimates and assumptions
on historical experience and various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Because of the uncertainty
of factors surrounding the estimates or judgments used in the preparation of our consolidated
financial statements, actual results may vary from these estimates. We believe that the following
policies are our critical accounting policies. Vendor Allowances and Distribution Network Revenue We receive various types of previously agreed upon vendor allowances in the form of cash or
credits that add to our revenues. Such payments are presented for Chilean GAAP purposes
as net revenues in the income statement. For U.S. GAAP purposes, these payments are recorded as
deductions from the cost of sales. In addition, we receive previously agreed upon payments from
suppliers for use of our distribution system which are recorded as revenue and, in U.S. GAAP, as
deductions from cost of sales. The types of allowances offered are as follows: (1) volume allowances, which are off-invoice based on the quantity of products purchased from
a vendor. Rebates received relating to volume allowances are recognized on a systematic basis as an
additional revenue as the products are delivered to the stores. These volume allowances are
dependent on volume purchased, that is, they represent certain percentages of the purchases which
are agreed annually with each vendor, neither contingent to achieving a minimum volume nor capped
by a maximum. Therefore, any increase or decrease in sales has an impact on the amount of these
allowances. Historically, our company has recorded growing sales volume. (2) promotional allowances, which generally relate to reductions in sales prices to customers
for limited time periods which are reimbursed by the supplier to us. Promotional allowances are
recognized as the sales to the customers, which are the requirement for earning the promotional
allowance, are made. (3) allowances for store opening or re-opening correspond to the contribution from vendors in
case a new store is opened or re-opened after major remodeling. Such investments by our company
provide them with additional meters and improved locations to sell their products and increase
sales volume. (4) allowances for distribution correspond to the amounts charged to vendors whose merchandise
is centralized at our distribution center and shipped by our own fleet of trucks to stores
throughout the country. Distribution services involve costs which are charged to vendors as their
products are delivered in our distribution facilities, hence recognized as the service is provided. Allowance for Doubtful Accounts and Delinquent Credit Card Balance Policy We maintain an allowance for doubtful accounts for
 estimated losses, which result from our credit card
customers not making required payments. We perform ongoing credit evaluations of our customers and 48




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adjust credit limits based upon payment history and the customers current creditworthiness,
as determined by our review of their current credit information. We base our allowance on the likelihood of loss in our credit card loan
portfolio based on past experience and by reviewing current collection trends that are expected to
continue. In addition, we discontinued accruing interest on credit card loans that are more than 90
days past due and write off credit card loans that are more than 360 days past due. In fact,
considering the past performance of the credit card accounts receivable portfolio and write-off
recovery as of December 31, 2003, we maintained allowances for 75% of the delinquent portfolio aged
180 days or more. The amount provisioned according to this criterion proved insufficient since
there was a deterioration in the aging portfolio; therefore, we had to change the criterion to
estimate provision amounts.  On June 16, 2005, the Superintendencia
de Bancos e Instituciones Financieras  authorized our subsidiary Servicios y Administración de Créditos Comerciales Presto S.A. to issue and
administer credit cards under the Presto name nationally, in conformity with the established norms
in Chapter III.J.1 of the Compendio de Normas Financierasof the Central Bank of Chile.
Accordingly, the company has determined that this is a type I
subsequent event under Chilean GAAP which required the recording of
an increase in its allowance for doubtful accounts as of December 31, 2004 for the accounts receivable of
Servicios y Administración de Créditos Comerciales Presto S.A. to be in accordance with the rules
of the Superintendencia de Bancos e
Instituciones Financieras. Thus, at December
31, 2004, the allowance for doubtful accounts amounted to Ch$18,270 million (US$32.8 million) and,
at December 31, 2003, this allowance was restated to Ch$14,320 million. These
amounts represented 14.9% and 19.7% of our net receivables in 2004 and 2003, respectively. As
a result of the subsequent event approval by the Superintendency of
Banks of Prestos credit card operations under its
administration, the company recorded a change to bad debt of
Ch$4,233, net of tax, increasing the Presto allowance for doubtful
accounts to Ch$18,270 million from Ch$13,171. Changes in the levels of provisions we record are recognized in the results for each period
during which these changes are introduced. We believe that our policy for recording our provisions
for doubtful accounts and credit card loan loss reserve is a critical accounting estimate because
of the uncertainty related to the collectibility of these receivables. In addition, any assumption
we make about when to discontinue accrual of interest income on delinquent accounts may differ from
our actual experience of interest income default. If actual experience differs from our estimate,
we would be required to adjust our provisions and allowances for doubtful accounts. The detail of allowance for doubtful accounts for the years ended December 31, 2002, 2003 and
2004, and the potential impact of changes in uncollectibility rates are shown in the following
table: 2002
    
    
    2003
    
    
    2004(As restated)Ch$ millionNet receivables
    
    
    42,231
    
    
    
    72,627
    
    
    
    122,931Allowance for doubtful accounts
    
    
    1,005
    
    
    
    14,320
    
    
    
    18,270Allowance for doubtful accounts/total net receivables
    
    
    2.4
    %
    
    
    19.7
    %
    
    
    14.9
    %Hypothetical uncollectibility rose by 25%
    
    
    3.0
    %
    
    
    24.6
    %
    
    
    18.6
    %Impact on income statement (increase in expenses)
    
    
    262
    
    
    
    3,546
    
    
    
    4,595
 Receivable from Disco S.A. We believe that our receivable from Disco S.A. for the sale of Ekono-Argentinawill ultimately
be collected. The lack of a valuation allowance for this receivable is a critical accounting policy
as 49




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management must make decisions regarding the viability of legal recourse where the outcome is
uncertain. Moreover, if we are unable to recover, or if we determine that it is probable that we
would be unable to recover any remaining amount and that the amount of such loss is estimable, we
would be required to create a valuation allowance for such amount. As of December 31, 2004, the
receivable from Disco S.A. amounted to Ch$26,602 million (US$47.7 million) recorded in the account
sundry debtors within notes and in accounts receivable in current assets. Inventories Inventories are valued at price-level restated purchase cost, on a weighted-average-cost
basis, which does not exceed their net realizable sale value. Products that are obsolete or out of
season are sold during the year through different promotional campaigns at discounted prices,
therefore, we do not constitute allowances for product obsolescence. The company records shrinkage
as indicated by its periodical physical inventory counts directly against cost of sales. This
estimate is trued up periodically to our actual experience. We consider the valuation of
inventories to be a critical accounting policy due to the uncertainty inherent in such assumptions. The detail of provisions for shrinkage for the years 2002, 2003 and 2004 is the following: 2002
    
    2003
    
    2004Ch$ million
    
    Ch$ million
    
    Ch$ millionShrinkage
    
    20,218
    
    21,347
    
    29,290%/sales
    
    2.1
    %
    2.0
    %
    2.3%Hypothetical increase by 25%
    
    2.6
    %
    2.5
    %
    2.9%Impact on cost of sales (increase)
    
    4,814
    
    4,884
    
    6,925
 We are indeed seeking to reduce our shrinkage by centralizing our distribution system,
improving the efficiency of our supply-chain, improving our operational processes, strengthening
our extensive security systems and continuously training all our associates to implement the best
practices of the industry, discourage theft and enhance shopper safety. Purchase Accounting and Goodwill Goodwill includes the cost of acquired subsidiaries in excess of the carrying value of the net
assets recorded in connection with acquisitions. Accounting for goodwill requires managements
estimate regarding (1) the amortization period and (2) the recoverability of the carrying value of
goodwill. The principal amounts recorded of goodwill for the years 2002, 2003 and 2004 are as follows: 2002
    
    
    2003
    
    
    2004Ch$
    
    
    US$
    
    
    Ch$
    
    
    US$
    
    
    Ch$
    
    
    US$million
    
    
    million
    
    
    million
    
    
    million
    
    
    million
    
    
    millionMaquinsa (ex Fullmarket S.A.)
    
    
    10,650
    
    
    
    19.1
    
    
    
    9,880
    
    
    
    17.7
    
    
    
    9,110
    
    
    
    16.3Magallanes S.A. (Carrefour Chile)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,265
    
    
    
    39.9Total
    
    
    10,650
    
    
    
    19.1
    
    
    
    9,880
    
    
    
    17.7
    
    
    
    31,375
    
    
    
    56.3
 Factors that are considered in estimating the useful life of goodwill include:  
    
    the foreseeable life of the business or industry;
    
    the effects of product obsolescence, changes in demand and other economic factors;
    
    the service life expectancies of key individuals or groups of employees; 50




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
    
    expected actions by competitors or potential competitors; and
    
    legal, regulatory or contractual provisions affecting the useful life. We have considered goodwill as an asset with an indefinite life and have therefore always used
the maximum amortization period allowed under Chilean GAAP for goodwill which is 20 years. Under Chilean GAAP and U.S. GAAP, goodwill is tested for impairment when events or changes in
circumstances so require (as well as annually under U.S. GAAP). Such changes in circumstances have
not occurred nor have we, under U.S. GAAP, determined that our carrying value is less than our
estimated fair value. Our goodwill as of December 31, 2004 primarily originated from the acquisition of Carrefour
Chile (currently known as Magallanes S.A.) operations and from the purchase of Fullmarket S.A.
(currently known as Maquinsa S.A.) in 1996. In January 2004, we acquired Carrefour Chile. On January 1, 2004, Technical Bulletin 72 became
effective for business combinations in Chile. This bulletin requires that goodwill be calculated in
a manner similar to U.S. GAAP. However, unlike U.S. GAAP, goodwill will continue to be amortized
over a maximum 20 year life as well as tested annually for impairment. Therefore, the goodwill
related to our acquisition of Carrefour Chile has been determined under this new pronouncement and
the factors listed above considered in determination of the useful life of the goodwill will
continue to be used by us. In our annual calculations of the implied fair value of goodwill for
determination of impairment, certain assumptions regarding the projected sales growth, operating
income, and projected amount for capital expenditures will be used. Because a change in these
assumptions could result in a significant change in the recorded amount of goodwill, we believe
that the accounting for goodwill is one of our critical accounting policies. Severance Indemnities We sponsor a severance indemnity plan for employees which is treated, for accounting purposes,
as a defined benefit plan. The defined benefit pension plans pay benefits to employees at retirement using formulas based
on participants years of service and compensation. We fund these plans as claims are incurred. Recorded severance indemnities reflect our best estimate of the future cost of honoring our
obligations under these benefit plans. We believe the accounting estimate relating to costs for
pensions is a critical accounting estimate because changes in it can materially affect the
projected benefit obligations and net periodic pension costs. In accounting for defined benefit
plans, we make actuarial calculations. These calculations contain key assumptions, which include:
discount rates, employee service lives, employee turnover rates and annual average salaries. The
assumptions for the calculations are uncertain and require judgment. Should these assumptions
change, our pension benefit obligation would require increase or decrease in the balance sheet and
the recording of the offsetting effect in the income statement. The following table shows the accrual for voluntary severance indemnities, which has been
accrued at the discounted present value of the vested benefit using 7% discount rate and
considering future service until retirement (age 60 for women, age 65 for men). Additionally, it
shows how this amount would increase or decrease in our balance sheet in case of a 9% or a 5%
discount rate: 51




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Severance Indemnities
    
    Ch$ million
    
    
    US$ millionShort-term and long-term with 7% discount rate
    
    
    4,958
    
    
    
    8.9With 5% discount rate
    
    
    6,355
    
    
    
    11.4Impact on
income statement (expense increase)
    
    
    1,397
    
    
    
    2.5With 9% discount rate
    
    
    3,955
    
    
    
    7.1Impact on
income statement (expense decrease)
    
    
    1,003
    
    
    
    1.8
 Property, Plant and Equipment Property, plant and equipment are stated at price-level restated purchase cost. Depreciation
is computed using the straight-line method over the estimated useful lives of the assets. Buildings and infrastructure
    
    20 to 60 yearsMachinery and equipment
    
    4 to 7 yearsLeased assets
    
    5 to 7 yearsFixtures
    
    10 yearsOther fixed assets
    
    4 years
 The preparation of consolidated financial statements in conformity with Chilean GAAP requires
us to make estimates and assumptions, relating to the useful lives of such assets which affects the
reported amounts of such assets and disclosure at the date of the publication of the financial
statements as well as reported amounts of expenses during the reporting periods. The factors which
we use to determine the useful lives include:  
    
    the estimated service life of the asset; and
    
    the estimated technological life of the asset. The detail of depreciation charges for the years 2002, 2003 and 2004 is the following: 2002
    
    
    2003
    
    
    2004Ch$ millionDepreciation
    
    
    35,009
    
    
    
    38,496
    
    
    
    47,65010% increase or decrease
    
    
    3,500
    
    
    
    3,850
    
    
    
    4,765
 However, the periods used by our company for useful lives are the shortest allowed by tax
law (20 years for buildings and infrastructure), therefore, the only possible change would be to
extend these final periods. In such case, there would be a positive impact on results since
depreciation charges would be lower than those currently recorded by our company. Impairment of Long-Lived assets We review long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be impaired, the
impairment recognized is measured by the amount by which the carrying amount of the assets exceeds
the fair value of the assets, derived from the present value of expected cash flows. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less costs to sell. 52




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Results of Operations The following table sets forth, for the periods indicated, certain items in our income
statement and their respective percentages of net revenues: Year ended December 31,2002
    
    
    2003
    
    
    2004Net revenues
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Cost of sales
    
    
    (77.2
    )
    
    
    (77.5
    )
    
    
    (76.9
    )Gross profit
    
    
    22.8
    
    
    
    22.5
    
    
    
    23.1Selling and administrative expenses
    
    
    (18.8
    )
    
    
    (19.6
    )
    
    
    (21.0
    )Operating income
    
    
    4.0
    
    
    
    3.0
    
    
    
    2.0Non-operating income
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.2Non-operating expenses
    
    
    (2.0
    )
    
    
    (1.6
    )
    
    
    (1.5
    )Price-level restatement and foreign exchange gain (loss)
    
    
    0.5
    
    
    
    (0.1
    )
    
    
    0.1Taxes
    
    
    (0.4
    )
    
    
    (0.4
    )
    
    
    (0.2
    )Net income
    
    
    2.3
    %
    
    
    1.0
    %
    
    
    0.7
    %
 2004 Compared to 2003 For 2004, our net revenues increased 20.8% to Ch$1,440,462 million (US$2,584.3 million)
compared to Ch$1,192,075 million for 2003. This increase resulted primarily
from the integration of six stores acquired from Carrefour, the remodeling of two stores (Arica and
La Calera) and the opening of new stores during the year (six new stores: four Lider Vecinoand two
Liderstores). Our EDLP strategy, which began in mid-2003, evolved in the last quarter of 2004 into
our Exceptional Value strategy. Gross profit increased 23.9% to Ch$332,545 million (US$596.6
million) compared to Ch$268,432 million in 2003 and gross margin increased 60 base points to 23.1%
of revenues from 22.5% in 2003. This increase in gross margin occurred
as a result of  the evolution of our
business strategy which included more aggressive introduction of private labels in the
assortment, and increased revenues from our Prestodivision. Net Revenues.Our net revenues for 2004 were Ch$1,440,462 million (US$2,584.3 million),
which represented an increase of 20.8% compared to Ch$1,192,075 million for 2003. The following
table shows the composition of net revenues for the periods indicated and the percentage change
between periods: The 20.8 % increase in our net revenues for the period 2004 resulted primarily from: Year ended December 31,2003
    
    
    2004
    
    
    % change(in millions of constant Ch$)Hypermarkets and Supermarkets(including FarmaLider)
    
    Ch$1,140,064
    
    Ch$1,375,994
    
    
    20.7
    %Credit cards
    
    
    19,563
    
    
    25,560
    
    
    30.7Other
    
    
    32,448
    
    
    38,908
    
    
    19.9Total
    
    Ch$1,192,075
    
    Ch$1,440,462
    
    
    20.8
    %
 53




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
    
    Retail Formats(Liderand FarmaLider). A 20.7% increase in net revenues derived
from our hypermarkets, supermarkets and pharmacies, totaling Ch$1,375,994 million
(US$2,468.6 million) for 2004 compared to Ch$1,140,064 million for 2003. This increase
resulted principally from an addition of 71,123 square meters of sales area, from
333,344 at December 31, 2003 to 404,467 at the same date in 2004 (opening of four Lider
Vecinocompact hypermarkets and two Liderhypermarkets, in addition to stores acquired
from Carrefour, the transformation of Lider ExpressArica into Lider Vecino, the
enlargement of Lider ExpressLa Calera), an increase of 21.3% over the total sales area
at December 31, 2003. These new stores accounted for 17.5% of our hypermarket and
supermarket sales for 2004. Another factor which contributed to the increase in
revenues from retail formats was the evolution of our business strategy, which helped
to increase customer traffic levels (20.5% increase in total transactions and 2.7%
increase in same store transactions for 2004 compared to 2003).
    
    Credit Card. A 30.7% increase in net revenues derived from Prestocredit card
operations compared to 2003, reflecting an increase in our net financial revenues
including primarily interest and commissions, to Ch$25,560 million (US$45.9 million)
for 2004 compared to Ch$19,563 million for 2003. This increase was attributable to an
80.9% increase in accounts in good standing at period-end, from 652,541 accounts at
December 31, 2003 to 1,180,456 accounts in 2004, and to the promotion of sales of food
and non-food products through our Presto card (16.6% of overall penetration of the
credit card in total sales for 2004 compared to 14.2% for 2003). At December 31, 2004,
the total outstanding of the Prestocard totaled Ch$141,201 million compared to
Ch$86,947 million at the same date of 2003, representing a 62.4% increase.
    
    Other Revenues. A 19.9% increase in other revenues derived from real estate and
logistic operations to Ch$38,908 million (US$69.8 million) for 2004 compared to
Ch$32,448 in 2003. This increase resulted primarily from increased lease payments
accounted for in the real estate division and higher logistic revenues due to higher
sales (19.0% increase in 2004 over 2003) and increased centralization of merchandise in
our distribution center (58.5% of centralization for 2003 compared to 63.2% for 2004). Cost of Sales and Gross Profit.Our gross profit for 2004 increased 23.9%, to Ch$332,545
million (US$596.6 million), from Ch$268,432 million for 2003. As a percentage of net revenues, cost of sales for 2004 was 76.9% compared to 77.5% for 2003.
The increase in gross margin was principally attributable to the further implementation of our EDLP
strategy with a higher share of private labels in the product assortment (27.1% increase of private
label sales in groceries and 40% increase of private label sales products on beauty care) and
improved negotiations with suppliers. Additionally, the sustained increase of Prestorevenues made
a significant contribution to the increase in gross margin. Selling and Administrative Expenses.Selling and administrative expenses (including
depreciation) for 2004 were Ch$303,026 million (US$543.6 million), representing a 29.9% increase as
compared to Ch$233,243 million for year 2003. As a percentage of net revenues, selling and administrative expenses rose to 21.0% for the
year 2004 from 19.6% in 2003, principally due to increased operating costs from the integration of
Carrefour stores and new stores opened in 2004 (additional expenses from Carrefour and new stores
account for 22.5% of the expenses increase mentioned above); and increased operating expenses
(excluding 54




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allowances for doubtful accounts) from the Presto financial services division from Ch$5,221
million in 2003 to Ch$9,325 million (US$16.7 million) in 2004. Selling and administrative expenses related to our credit card operations increased by 10.6%
to Ch$27,882 million (US$50.0 million) in 2004 compared to Ch$25,205 million for 2003. This
increase was principally attributable to operating expenses excluding allowances for doubtful
accounts which increased by 78.6% from Ch$5,221 million in 2003 to Ch$9,325 million (US$16.7
million) in 2004, as necessary to administer a 62.4% increase in outstanding credit from Ch$86,947
million at December 31, 2003 to Ch$141,201 million (US$253.3 million) at December 31, 2004, and the
80.9% increase in accounts in good standing. Costs related to the credit card operations are accounted for in selling and administrative
expenses in the consolidated income statement. Operating Income. Operating income for 2004 was Ch$29,520 million (US$53.0 million),
representing a decrease of 16.1% as compared to Ch$35,189 million for 2003, reflecting the 29.9%
increase in operating costs described above, which is partially offset by the 23.9% increase in
gross profit. As a percentage of net revenues, operating income for 2004 was 2.0%, representing a
decrease of 100 base points as compared to operating income equivalent to 3.0% of net revenues for
2003. Non-operating Income.The following table sets forth, for the periods indicated, information
concerning non-operating income on a consolidated basis: As of December 31,2003
    
    
    2004(in millions of constant Ch$)Financial income
    
    
    552
    
    
    
    1,303Other non-operating income(1)
    
    
    607
    
    
    
    1,107Amortization of negative goodwill
    
    
    362
    
    
    
    356Minority Interest
    
    
    
    
    
    
    123Total non-operating income
    
    Ch$1,521
    
    
    Ch$2,889
 
 (1)
    
    Other includes principally equity in earnings of related companies. Non-operating Expense.The following table sets forth, for the periods indicated, the
components of our non-operating expenses on a consolidated basis: As of December 31,2003
    
    
    2004(in millions of constant Ch$)Financial expense
    
    Ch$16,818
    
    
    Ch$18,695Minority interest
    
    
    40
    
    
    
    Other non-operating expense(1)
    
    
    1,319
    
    
    
    1,363Amortization of goodwill
    
    
    815
    
    
    
    1,978Total non-operating expense
    
    Ch$18,992
    
    
    Ch$22,036
 
 (1)
    
    Other includes equity in losses of related companies and charitable contributions. Non-operating expense for 2004 was Ch$22,036 million (US$39.5 million), representing an
increase of 15.9% compared to non-operating expense of Ch$18,992 million for 2003. This increase
resulted primarily from higher financial expenses by 11.2%, which totaled Ch$18,695 million
(US$33.5 million) for 2004 compared to Ch$16,818 million for 2003 explained by the higher
indebtedness of our company and by a 142.8% increase in charges of amortization of goodwill:
Ch$1,978 million (US$3.5 million) for the year 2004 as compared to Ch$815 million for 2003,
originated in goodwill from Carrefour. 55




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Price-level Restatement and Foreign Exchange Gain (Loss).Net price-level restatement and
foreign exchange gain (loss) amounted to a net gain of Ch$2,113 million (US$3.8 million) for 2004,
as compared to a net loss of Ch$893 million for 2003, representing an increase of 336.5%. The net
gain in 2004 compared to 2003 is primarily attributable to foreign exchange insurance contracts
entered into to hedge these exchange variations on foreign currency assets during the period. Income Taxes.Income taxes for 2004, including current and deferred taxes, amounted to
Ch$2,128 million (US$3.8 million), representing a 55.3% reduction as compared to a charge of
Ch$4,764 million for 2003, consistent with the decrease in income before income taxes recorded
during 2004 compared to the amount recorded in 2003. Such reduction
is mainly due to the increase of deferred tax assets in connection with
tax losses from subsidiaries. The effective tax rate during the year 2004
was 17.0%. Net Income.Net income for 2004 was Ch$10,357 million (US$18.6 million) representing a
decrease of 14.1% as compared to net profit of Ch$12,061 million in 2003. As a percentage of net
revenues, net income margin recorded in 2004 was 0.7%, a reduction of 30 base points compared to
1.0% in 2003. 2003 Compared to 2002 For 2003, our net revenues increased 9.8% to Ch$1,192,075 million compared to 2002. Our
operating income decreased to Ch$35,189 million for 2003, a decrease of 19.5% compared to Ch$43,731
million for 2002. The improvement in our net revenues resulted primarily from the opening of new
stores, the improved performance of the Chilean economy and the implementation of our EDLP
strategy. Despite the increase in our net revenues, our operating income decreased by 19.5% to
Ch$35,189 million (US$63.1 million) in 2003 mainly due to the 14.4% increase in selling and
administrative expenses, which in turn are primarily explained by the 443.9% higher allowance for
doubtful accounts at the Prestocredit division. Our net income for 2003 decreased by 51.0% to Ch$12,061 million (US$21.6 million) as compared
to 2002. This decline in our net income resulted primarily from the decrease in operating income as
explained above, and the deterioration in our non-operating results. The loss increase at this
level is explained by a net price-level restatement and foreign exchange loss amounting to Ch$893
million for 2003 compared to a gain of Ch$5,622 million for 2002 and by 21.3% higher financial
expenses resulting from greater indebtedness of the company, which more than offset the decline in
other non-operating expenses in 2003 as compared to 2002, when restructuring charges were recorded
in connection with severance payments to former top management officers and employees. Net Revenues.Our net revenues for 2003 were Ch$1,192,075 million, which represented an
increase of 9.8% compared to Ch$1,085,187 million for 2002. The following table sets forth the
composition of our net revenues for the periods indicated and the percentage change between
periods. Year ended December 31,2002
    
    
    2003
    
    
    % change(in millions of constant Ch$)Hypermarket and Supermarket
    
    Ch$1,048,404
    
    Ch$1,140,063
    
    
    8.7
    %Credit cards
    
    
    11,538
    
    
    19,563
    
    
    69.6Other
    
    
    25,245
    
    
    32,449
    
    
    28.5Total
    
    Ch$1,085,187
    
    Ch$1,192,075
    
    
    9.8
    %
 The 9.8% increase in our net revenues for 2003 resulted primarily from:  
    
    Hypermarkets and Supermarkets. A 8.7% increase in net revenues derived from our
hypermarket and supermarket business, to Ch$1,140,063 million for
2003 from Ch$1,048,404 million for 2002. This increase resulted
from 56




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an addition of 23,983 square meters (approximately 261,360 square feet) of sales area
(one new Lider hypermarket, three new Lider Vecino compact hypermarkets and two new
Lider Express supermarkets), an increase of approximately 8% over the total sales area
at December 31, 2002. These new stores accounted for 9.3% of our hypermarket and
supermarket sales for 2003. Another factor which contributed to the increase in
hypermarket and supermarket business was a 0.3% increase in same-store sales compared to
2002, compared to a decline of 1.4% in same-store sales in 2002, which we believe
resulted from the implementation of our EDLP strategy, which helped to increase our
customer traffic levels and, consequently, our net revenues, as well as the improved
performance of the Chilean economy.
    
    Credit Card. A 69.6% increase in net revenues derived from our credit card
operations compared to 2002 reflecting an increase in our net financial revenues,
including primarily interest and commissions, to Ch$19,563 million
for 2003 from Ch$11,538 million for 2002, which increase was
attributable to a 43% increase in the number of active accounts, an increase in average
monthly account balances per individual account to Ch$128,000 for 2003 from
Ch$92,000 for 2002, and our promotion of sales of non-food products through
our Presto card, leading to increased use of our Presto credit card to purchase higher
priced non-food products.
    
    Other Revenues. A 28.5% increase in net revenues derived from other revenues to
Ch$32,447 million for 2003 from Ch$25,245 for 2002.
This increase resulted primarily from increased lease payments received from merchants
leasing space in our stores and in our shopping centers. These increases were due to a
revision by our company of the amounts charged as communal expenses to lessees of
commercial locations and stands in our shopping malls. Cost of Sales and Gross Profit. Our gross profit for 2003 was Ch$268,432 million, representing an increase of 8.4%, compared to Ch$247,683 million for
2002. As a percentage of net revenues, our cost of sales for 2003 was 77.5% compared to 77.2% for
2002. Shrinkage for 2003 remained constant at 2.0% of total sales, as compared to 2.0% of total
sales for 2002. The increase in cost of sales as a percentage of net revenues was principally
attributable to the implementation of our EDLP strategy in the second half of 2003 by which we
reduced our prices by a greater amount than we were able to reduce our costs of sales. As a result of our increase in cost of sales as a percentage of net revenues, our gross margin
in 2003 declined to 22.5% from 22.8% for 2002. We expect to experience continued pressure on our
gross margin in connection with our EDLP strategy. Selling and Administrative Expenses.Selling and administrative expenses for 2003 were
Ch$233,243 million, representing a 14.4% increase as compared to Ch$203,951
million for 2002. As a percentage of net revenues, selling and administrative
expenses rose to 19.6% for 2003 from 18.8% for 2002 principally due to the 443.9% increase in the
allowance for doubtful accounts at the Prestodivision, from Ch$3,674 million to
Ch$19,983 million in 2003. Our selling and administrative expenses related to our credit card operations increased 246.8%
to Ch$25,205 million for 2003 from Ch$7,267 million for 2002.
This increase was principally attributable to our allowance for doubtful accounts which increased
443.9% for 2003 compared to 2002. The allowance for doubtful accounts for year 2003 has been
restated in 57




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accordance with the announcement made by our company on April 13, 2005, of a restatement of
its financial statements for 2003 to correct an error in its determination of such allowance
related to its Prestocredit card. These figures correspond to restated numbers. The allowance for
doubtful accounts of the Prestocredit card at
December 31, 2003 was restated to Ch$14,319 million
from Ch$3,153 million. This increase is also explained by other expenses which increased 45.3% from
Ch$3,593 million in 2002 to Ch$5,221 million in 2003. The
increase in the allowance for doubtful accounts is consistent with the 105.9% increase in total
outstanding credit from Ch$42,236 million  by year end 2002 to Ch$86,947 million
 at December 31, 2003. Likewise, the 87.0% increase in Prestorevenues and the
105.9% increase in total Prestoreceivables has involved 212.6% higher total operating expenses in
connection with the organizational growth at the Prestofinancial services division. Operating
Income.Our operating income for 2003 was Ch$35,189 million,
representing a decrease of 19.5% as compared to Ch$43,731 million for 2002
reflecting the revenue and cost trends described above. As a percentage of net revenues, operating
income for 2003 was 3.0%, representing a decrease of 100 base points as compared to operating
income of 4.0% of net revenues for 2002. Non-operating Income.The following table sets forth, for the periods indicated, information
concerning our non-operating income on a consolidated basis: Year ended December 31,2002
    
    
    2003(in millions of constant Ch$)Interest income
    
    Ch$   470
    
    
    Ch$   552Other non-operating income(1)
    
    
    528
    
    
    
    607Amortization of negative goodwill
    
    
    355
    
    
    
    362Total non-operating income
    
    Ch$1,353
    
    
    Ch$1,521
 
 (1)
    
    Other includes principally equity in earnings of related companies. Non-operating Expense.The following table sets forth, for the periods indicated, the
components of our non-operating expenses on a consolidated basis: Year ended December 31,2002
    
    
    2003(in millions of constant Ch$)Financial expense
    
    Ch$13,860
    
    
    Ch$16,818Minority interest
    
    
    64
    
    
    
    40Other non-operating expense(1)
    
    
    6,531
    
    
    
    1,319Amortization of goodwill
    
    
    815
    
    
    
    815Total non-operating expense
    
    Ch$21,270
    
    
    Ch$18,992
 
 (1)
    
    Other includes equity in losses of related companies, charitable contributions and, in
2002, severance payments to former management and employees including our former chief
executive officer, current director and controlling shareholder, Mr. Nicolás Ibáñez Scott. Non-operating expense for 2003 was Ch$18,992 million, representing a
decrease of 10.7% compared to non-operating expense of Ch$21,270 million for
2002. This decrease for 2003 resulted primarily from 79.8% lower other non-operating expenses for
2003 of Ch$1,319 million, as compared to Ch$6,531 million for
2002. Other non-operating expense was higher for 2002 because of restructuring expenses incurred
in connection with severance payments made to former management and employees totaling Ch$5,122
million 58




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This decrease is partially offset by the 19.9% increase in financial expenses in
2003 as compared to 2002 explained by the greater indebtedness of the company. Price-level Restatement and Foreign Exchange Gain (Loss).Our net price-level restatement and
foreign exchange gain (loss) amounted to a net loss of Ch$893 million for 2003, as compared to a
net gain of Ch$5,622 million for 2002. The net loss for 2003 is primarily attributable to a
Ch$3,072 million foreign exchange loss for 2003, compared to a Ch$5,129 million foreign exchange
gain for 2002, reflecting the impact of exchange rate variations on our foreign currency
denominated assets. Income Taxes.Income taxes for 2003, including current and deferred taxes, amounted to
Ch$4,764 million, representing a decrease of 1.2% as compared to Ch$4,821 million for 2002.
Deferred tax benefit of Ch$1,845 million in 2002 fluctuated, in 2003, to a deferred tax expense of
Ch$384 million mainly due to increases in capital expenditures in late 2001 and early 2002 which
resulted in increased deferred tax expense associated with the increased tax over book
depreciation. An increased deferred tax benefit offsetting this fluctuation of approximately
Ch$1,948 million related to the increased allowance for doubtful accounts for Prestowas also
recorded in 2003. Our effective tax rate remained relatively constant between 2002 and 2003. In 2003, a
permanent non-deductible item, the foreign exchange loss generated on a note due in Argentina, was
offset by the deferred tax benefit generated by the increase in the Prestoallowance for doubtful
accounts. Net Income.Net income for 2003 was Ch$12,061 million, representing a decrease of 51.0%
as compared to net income of Ch$24,616 million for 2002. As a percentage of net revenues, net
income was 1.0% in 2003, as compared to 2.3% in 2002. Impact of Inflation, Price-level Restatement and Foreign Exchange Chilean GAAP requires that financial statements recognize the effects of inflation. We are
therefore required to adjust our financial statements to reflect the effect of variations in the
purchasing power of the Chilean peso during each year. These adjustments are based on the
variation of the official Chilean CPI (consumer price index) from December 1 to November 30 of each
year, with the exception of assets and liabilities denominated in foreign currency which are
adjusted to closing exchange rates at period-end. For practical reasons, the CPI adjustment used
to compute the price-level restatement is delayed one month. See Note 2 to our consolidated
financial statements for a description of these price-level adjustments. Because of Chiles past history of relatively high inflation, the financial markets have
developed a system of borrowing or lending in UFs. The debt associated with our long-term assets,
including our property, plant and equipment and the bulk of our other current assets and
liabilities is denominated in pesos and any adjustment necessary for price-level restatement is
reflected in the price-level adjustment account. The use of UF-denominated transactions offsets
the effect of inflation in the preparation of price-level adjusted financial statements. For
example, a company with UF-denominated obligations will record both a financing cost (from the
adjustment to the value of the UF due to the effects of inflation) and a price-level gain (from
holding a liability during a period of inflation) of comparable amounts, excluding the difference
between actual inflation and the inflation rate used for purposes of the UF index. In the case of
UF-denominated assets, the price-level adjustment (a loss) and the UF valuation (a gain) also
offset each other, with the exception of the difference in the UF index referred to above. The required price-level restatement of our non-monetary assets and liabilities, equity and
income-expense accounts in 2004, together with foreign exchange gains, resulted in a net gain of
Ch$ 2,113 million (US$ 3.8 million), compared to a net loss of Ch$893 million (US$1.6 million) in
2003. This was principally due to lower rates of inflation applicable to our non-monetary assets,
the 59




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appreciation of the Chilean peso (affecting our dollar-denominated assets) and the fact that a
greater proportion of our liabilities are denominated in Chilean pesos and not in UFs. We finance a portion of our current and fixed assets with short-term and long-term liabilities
denominated in foreign currency. Because assets are generally restated using the Chilean CPI and
liabilities in foreign currency are restated to closing exchange rates, the price-level restatement
line in our consolidated statements of cash flows is affected by the relationship between local
inflation and the exchange rate of the Chilean peso against the applicable foreign currency. Lower
rates of Chilean inflation have increased the relative importance of the foreign currency exchange
rate conversion as a component of the price-level restatement credit or charge in our consolidated
statements of income. Liquidity and Capital Resources Overview Our principal uses of funds are for capital expenditures, dividend payments and the repayment
of short-term and long-term liabilities, in addition to funding the increase in outstanding credit
of the Prestofinancial business. We have historically met these requirements by using cash
generated from our operations, as well as through short-term and long-term debt. Our US$250
million capital increase in 2004 has further strengthened our capital resources. We believe that
these sources of funds, together with our cash and cash equivalents on hand, will be sufficient to
enable us to meet our currently contemplated capital and debt service requirements. If we decide to
increase our capital expenditure or succeed in increasing the use of the Prestocredit card,
granting additional new loans beyond our estimates, we would be able to increase our debt without
having a negative impact on our net income, since higher revenues would offset higher financial
expenses. Due to the nature of our retail business, we benefit from significant cash flows and
access to vendor financing for purchases in the ordinary course of our business activities, which
we estimate will continue in the same terms. The growth of our credit card business, as expected,
will continue to increase our working capital requirements. As a result of our US$250 million
capital increase in 2004 and the additional operating cash flows generated during 2005, we believe
we are well positioned to finance our capital requirements. In 2002, our company decreased its cash and cash equivalent in the amount of Ch$9,690 million,
primarily due to significant purchases of property, plant and equipment totaling Ch$70,563 million.
In 2003, we increased our cash in the amount of Ch$9,258 million since net cash provided by
operating and financing activities exceeded the amount used in investing activities. In 2004, due
to the capital increase, we increased our cash and cash equivalent in the amount of Ch$48,874
million, despite the fact that our net cash from our operating activities was negative in the
amount of Ch$13,484 million, largely due to the implementation of our EDLP strategy, in addition to
the increase in accounts receivable of our Prestofinancial business. In 2005, we expect our major cash needs to include:  repayment or refinancing of short-term contractual obligations in the amount of
Ch$101,358 million (US$181.8 million);  budgeted capital expenditures of Ch$55,740 million (US$100 million);  budgeted cash dividends of approximately Ch$13,400 million (US$24.0 million); and  increased working capital needs, primarily in connection with our planned expansion
of our credit card operations in the amount of Ch$39,018 million (US$70.0 million). 60




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We expect to meet these cash requirements in 2005 through a combination of:  existing cash resources and cash flow to be generated from our operations in 2005;  additional short-term and long-term debt that we will incur as necessary; and  proceeds remaining from our US$250 million equity offerings in 2004. Sources and Uses of Funds Cash and Working Capital.At December 31, 2004, we had net working capital in the amount of
Ch$42,672 million (US$76.6 million), compared with net negative working capital of Ch$41,223
million (negative US$73.9 million) at December 31, 2003. We typically used to have a negative
working capital position because of our extensive use of supplier financings. A negative working
capital position does not affect our ability to obtain financing.However, the expansion of our
Prestocredit card has resulted in significant increases in our working capital requirements, as
shown in 2004. Net Cash Provided by (Used in) Operations.Net cash used in operations in 2004 was Ch$13,483
million (US$ 24.2 million), representing a decrease as compared to Ch$34,288 million provided by
operations in 2003. Funds used in operations consist principally of funds used in funding the
credit operation and payment of income taxes. This resulted principally from the increase of our
credit card accounts receivables to Ch$141,201 (US$253.3 million) at December 31, 2004 from
Ch$86,947 million (US$156.0 million) at year-end 2003. Net Cash Used in Investing Activities.Net cash used in investing activities was Ch$95,855
million (US$172.0 million) for 2004, a 37.2% increase compared to 2003. The principal uses for
investing activities in 2004 were Ch$76,668 million (US$137.5 million) for the purchase of
Carrefour Chile and Ch$74,398 million (US$133.5 million) for the purchases of property, plant and
equipment (new stores and land). Net Cash from Financing Activities.In 2004, our financing activities resulted in net cash of
Ch$158,213 million (US$283.8 million) which included Ch$156,459 million (US$280.7 million) from
equity offerings and Ch$152,123 million (US$272.9 million) from the issuance of long-term debt.
These amounts were partially offset by Ch$185,723 million (US$333.2 million) in repaid debt. Our
net proceeds from our equity offering were used as follows:  
    Ch$74,398 million (US$133.5 million) in construction of new stores and land
purchases; and
    Ch$59,307 million (US$106.4 million) were used in funding the increase in Presto
accounts receivable.
    We still maintain cash and cash equivalents in the amount of Ch$81,520 million
(US$146.3 million). Contractual Cash Obligations.The following table summarizes our contractual cash obligations
and commercial commitments as of December 31, 2004 and the breakdown of such obligations in
specified future periods. 61




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##### Table of Contents



Payment due by period(in millions of constant Ch$ as of December 31, 2004)Less than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Contractual Obligations
    
    Total (1)
    
    
    year (2)
    
    
    1-3 years (2)
    
    
    3-5 years (2)
    
    
    years (2)Long-term bank debt,
including current portion
    
    Ch$104,253
    
    
    Ch$9,332
    
    
    Ch$67,565
    
    
    Ch$24,385
    
    
    Ch$2,971Short-term bank debt
    
    
    22,200
    
    
    
    22,200
    
    
    
    
    
    
    
    
    
    
    
    Capital lease obligations
    
    
    11,848
    
    
    
    6,019
    
    
    
    5,616
    
    
    
    213
    
    
    
    Purchase obligations
    
    
    221
    
    
    
    22
    
    
    
    45
    
    
    
    45
    
    
    
    109Bonds and commercial paper
    
    
    195,045
    
    
    
    63,571
    
    
    
    73,124
    
    
    
    21,009
    
    
    
    37,341Total contractual
obligations (principal
plus interest)
    
    Ch$333,567
    
    
    Ch$101,144
    
    
    Ch$146,350
    
    
    Ch$45,652
    
    
    Ch$40,421Principal
    
    Ch$330,016
    
    
    Ch$97,593
    
    
    Ch$146,350
    
    
    Ch$45,652
    
    
    Ch$40,421Interest
    
    
    3,551
    
    
    
    13,446
    
    
    
    18,004
    
    
    
    7,208
    
    
    
    21,069
 
 (1)
    
    Interest recognized as of December 31, 2004.(2)
    
    Interest amounts for each of the periods shown in
table and included with their respective obligations  have been estimated considering the
interest rate of December 31, 2004, whether variable or fixed. We have incurred our long-term debt obligations primarily to replace certain short-term
debt obligations and to enable us to pursue strategic acquisitions. Dividends. In 2004, dividends paid totaled Ch$24,771 million (US$44.4 million), as compared
with Ch$14,145 million (US$25.4 million) in 2003. Chilean law generally requires us to distribute
a minimum of 30% of our net income to our shareholders in the form of dividends. In addition to
this requirement, we have a general policy of declaring an annual dividend of at least Ch$10 per
share or Ch$2.5 per share adjusted after one-to-four stock split (US$0.27 per ADS). For more
information on our dividend policy, see Item 10  Additional Information  Dividend Policy and
Dividends. Capital Expenditures.Our capital expenditures in 2004 totaled Ch$151,066 million (US$271.0
million). These capital expenditures were invested in the opening of six new stores, including
four Lider Vecinocompact hypermarkets, and two Liderhypermarkets, in the purchase of land, the
expansion of our principal distribution center (cold supply chain) and the acquisition of seven
Carrefour stores. Our capital expenditures in 2003 were Ch$45,263 million (US$81.2 million). We
currently plan to make capital expenditures totaling Ch$55,740 million (US$100.0 million) in 2005.
We plan to make capital expenditures in 2005 primarily to construct and develop new stores and to
purchase additional properties. Working Capital.In addition to the capital expenditures listed above, we also plan to
allocate Ch$39,018 million (US$70.0 million) of cash to our credit card business in 2005 to cover
additional working capital requirements in connection with the issuance of additional credit by
Presto. This amount represents our estimated cash requirements based on our current projected
levels of growth in credit card charge volume. Our expected growth in the use of our Prestocredit
card may not materialize. Debt Debt Status.In addition to cash flow from our operations, we also rely on external
borrowings in the local Chilean capital markets, as well as other borrowings from financial
institutions. The costs associated with using external sources of financing will depend in large
part on our credit ratings. Currently, our local credit ratings from Fitch and Feller-Rate are
First Class  Level 2 for our shares and AA- for our bonds and commercial papers, with a stable
outlook. Since all our debt is issued locally and these are the ratings applicable to our debt, a
significant downgrade by Fitch or Feller-Rate may increase the cost of our future borrowings or
make it more difficult to access the public debt markets. Such change is unlikely in view of the
stable outlook of these ratings. Regarding international ratings, at the date hereof, our senior
unsecured local and foreign currency-denominated debt had a credit rating of BBB+ with Fitch. Such
rating was confirmed by Fitch on June 13, 2005, with a negative outlook. In addition to 62




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our own performance, such credit agencies may give consideration to the general macroeconomic
and political trends affecting Chile and Latin America generally. At December 31, 2004, our aggregate outstanding debt and lease obligations were Ch$333,567
million (US$598.4 million), consisting of:  long-term debt including lease obligations of Ch$232,224 million (US$416.6 million),
which includes financial debt of Ch$226,395 million (US$406.2 million) and lease obligations
in the amount of Ch$5,829 million (US$10.5 million), and  short-term debt including the current portion of long-term debt of Ch$101,145
million (US$181.4 million), including short-term financial debt of Ch$80,221 million
(US$143.9 million) and the current portion of long-term debt in the amount of Ch$20,924
million (US$37.5 million). In addition to our aggregate outstanding debt, we have short-term obligations incurred with
our suppliers of Ch$201,699 million (US$361.9 million). We are also party to various capital lease and lease-back operations, of which, the total
long-term portion amounted to Ch$5,829 million (US$10.5 million) at December 31, 2004, as compared
to Ch$9,524 million (US$17.1 million) at December 31, 2003. At December 31, 2004, our foreign
currency liabilities totaled Ch$24,968 million (US$44.8 million). At December 31, 2003, we had
liabilities of Ch$25,840 million denominated in U.S. dollars. Our major categories of indebtedness are as follows:  Bonds and commercial paper placed in the local capital markets in an aggregate
principal amount of Ch$195,045 million (US$349.9 million) at December 31, 2004. We have
issued four series of bonds in Chile which bear interest at a rate of 7.0%, 6.5%, 4.5% and
5.5% and commercial paper bearing interest at a rate of 4.2%, 3.96%, 3.24% and 3.0%.  Local bank debt in aggregate principal amount at December 31, 2004 of Ch$107,492
million (US$192.8 million). We have a Series of Chilean peso, UF- and U.S.
dollar-denominated loans, the bulk of which are payable in UF and bear market interest rates
according to the terms of the debt agreements.  In 2004, we incurred a total of Ch$53,000 million (US$95.1 million) with local banks
in connection with our acquisition of Carrefour Chile S.A. For further information regarding our debt, see Note 12 to our consolidated financial
statements. Debt Restrictions Some of our long-term debt instruments contain standard financial covenants. Our principal
covenants require us to maintain certain minimum ratios, such as debt-to-equity and interest
coverage. We were in full compliance with our key financial covenants as of December 31, 2004.
Moreover, we believe that our existing covenants will not significantly restrict our ability to
borrow additional funds as needed to meet our capital expenditure requirements for 2005 and 2006.
We believe that we will be able to operate within the terms of our financial covenants for the
foreseeable future. If we fail to operate within our covenanted restrictions or to obtain waivers
of these covenants, it would result in defaults under our debt agreements and potentially, in the
acceleration of amounts due. 63




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The material covenants of our long-term debt agreements at December 31, 2004 are described in
the table below: Our Principal Loan Covenants Banco Santander-
Santiago
    
    
    1.
    
    
    Minimum coverage of interest expenses of 3.5 (operating income
plus depreciation divided by interest expense) for June and
December.2.
    
    
    Not to sell or use as collateral the Ekono, Almacand Lider
brands.3.
    
    
    Financial leverage less than 1.2 (interest-bearing liabilities
divided by equity) for March, June, September and December.4.
    
    
    Not to grant new guarantees.Bonds
Series A, B, C, D
    
    
    1.
    
    
    Maintain an indebtedness relationship lower than 1.2 times,
defined as the ratio between liabilities that accrue interest and
equity.2.
    
    
    Minimum coverage of interest expenses of 3.5 times (operating
results plus depreciation expenses/interest expenses).3.
    
    
    Keeping assets free from liens in a total amount equal to at
least 1.3 times the outstanding balance of the total bonds issued
for the issuer, which are in force, calculated and measured each
quarter over the consolidated balance sheet.4.
    
    
    Keeping consolidated total equity of an amount equal at least to
UF13,000,000, calculated and measured each quarter.Commercial Paper
    
    
    1.
    
    
    Minimum Coverage of interest expenses of 3.5 (operating income
plus depreciation divided by interest expenses) for March, June,
September and December.2.
    
    
    Leverage less than 1.2 (interest-bearing liabilities divided by
equity) for March, June, September and December.
 U.S. GAAP Reconciliation and Accounting Pronouncements Reconciliation Our financial statements have been prepared in accordance with Chilean GAAP. The following table sets forth net income and shareholders equity for the years ended and at
December 31, 2002, 2003 and 2004 under Chilean GAAP and U.S. GAAP. Year ended December 31,2002
    
    
    2003
    
    
    2004(in millions of constant Ch$ and millions of US$)Net income (Chilean GAAP)
    
    Ch$  24,615
    
    
    Ch$  12,061
    
    
    Ch$  10,357
    
    
    US$
    18.6Net income (U.S. GAAP)
    
    
    29,648
    
    
    
    15,107
    
    
    
    9,578
    
    
    
    17.2Shareholders equity (Chilean GAAP)
    
    Ch$311,334
    
    
    Ch$309,320
    
    
    Ch$455,913
    
    
    US$
    817.9Shareholders equity (U.S. GAAP)
    
    
    297,022
    
    
    
    298,761
    
    
    
    452,820
    
    
    
    812.4
 For further information as to these differences between Chilean GAAP and U.S. GAAP, see
Note 26 to our consolidated financial statements. 64




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The principal differences between Chilean GAAP and U.S. GAAP as they affected our results and
shareholders equity in the three years ended December 31, 2002, 2003 and 2004 were:  our
company has traditionally entered into forward exchange contracts
designated as cash flow hedges under Chilean GAAP.
Unrealized gains on these contracts are deferred on the balance sheet
but recorded in income under U.S. GAAP. Any unrealized losses on
these contracts are recorded in income in both Chilean and U.S. GAAP.
Chilean and U.S. GAAP also differ in the documentation requirements
related to the designation of these contracts as hedges
and the types of transactions which may be hedged. With the exception
of the forward exchange contract which our company entered into to
hedge the 100 million purchase of Carrefour S.A. on
January 7, 2004, during the periods presented, there have been no
significant adjustments recorded between Chilean GAAP and U.S. GAAP
for these forward exchange contracts. However, as more fully
explained in Note 26 to our financial statements, Chilean GAAP
included the loss on the hedge of the purchase of
Carrefour S.A. as part of the purchase price, while U.S. GAAP
recognized the loss in income due to restrictions on the types of
transactions which may be designated as hedges under U.S.
GAAP;  the reversal under U.S. GAAP of the technical revaluation of certain property, plant
and equipment under Chilean GAAP, along with the associated accumulated depreciation,
depreciation expense and any necessary recalculation of gain/loss on disposal of such
property, plant, and equipment;  the reversal under U.S. GAAP of severance indemnities for prior service costs that
arose when we began to record a severance indemnity liability, which were charged to income
under Chilean GAAP and deferred and amortized under U.S. GAAP;  the tax effects for any deferred tax effects related to other differences between
Chilean GAAP and U.S. GAAP described herein;  the
reversal of the amortization of complementary accounts created upon
adoption of Technical Bulletin No. 60 under Chilean GAAP. See Note 26
to the financial statements.  the reclassification under U.S. GAAP of the restructuring costs to operating
expenses;  the recording of accounts receivable from Disco S.A. at the net present value under
U.S. GAAP;  purchase accounting differences between U.S. GAAP and Chilean GAAP and the related
differences in goodwill, negative goodwill, amortization expense, accumulated amortization,
depreciation, and accumulated depreciation;  the reclassification of revenues obtained from suppliers to cost of goods sold under
U.S. GAAP; and  the timing difference related to the accrual of mandatory dividends under Chilean
law. Pursuant to Chilean GAAP, our consolidated financial statements also recognize the effects of
inflation. The effect of inflation has not been reversed in the reconciliation to U.S. GAAP as
permitted by the rules and regulations of the U.S. Securities and Exchange Commission. Under U.S. GAAP, the financial statements reflect, among others, differences from Chilean GAAP
as follows:  
    
    Differences in purchase accounting for business combinations. Chilean GAAP, through
December 31, 2003, carried over the historic cost of assets acquired and liabilities
assumed. Under U.S. GAAP, purchase accounting for business combinations, the fair value of
assets acquired and liabilities assumed are recorded and the excess of the purchase price
over such fair value is recorded as goodwill. These divergences cause subsequent year
differences in net income and shareholders equity for depreciation expense and accumulated
depreciation, respectively, as well as the associated monetary correction.
    
    U.S. GAAP reflects notes and accounts receivable with stated maturity dates at their
present value if there is no associated contractual interest rate in the instrument and
accretes interest through maturity so that the face value of the amounts is reflected in
the balance sheet at the maturity date. Chile GAAP presents the amount at its face value
from recording date (contract date) through maturity date.
    
    Volume rebates associated with unsold inventory are capitalized under U.S. GAAP.
    
    Marketable securities are designated as trading, available-for-sale, and
held-to-maturity under U.S. GAAP. The company holds certain available-for-sale securities
whose unrecognized gains, under Statement of Financial Accounting Standards No. 115,
require treatment as adjustments to other comprehensive income.
    
    Deferred tax and minority interest adjustments, as applicable, are recorded under U.S.
GAAP for the items listed above. Subsequent to the issuance of our December 31, 2003 consolidated financial statements, our
management determined that the above adjustments had not been appropriately quantified or were
omitted from our reconciliations of net income for the years ended December 31, 2002 and 2003 and
our reconciliation of shareholders equity as of December 31, 2003. These adjustments also affected
our opening shareholders equity at January 1, 2003. The above-mentioned reconciliations and opening shareholders equity at January 1, 2003 have
been restated to give effect to these adjustments. On April 13, 2005, we announced a restatement of our Chilean GAAP financial statements
for 2003 to correct an error in our determination of our allowance for doubtful accounts related to
our Prestocredit card. In preparing financial statements, certain estimates and assumptions are
made which affect the reported amounts of assets and liabilities.
Management has determined that its predictive model used to determine its allowance for doubtful
accounts related to its Prestocredit card had not reflected deteriorations in the collectibility
of certain aged installment payment receivables. See Note 24 to our financial statements. By
applying the appropriate deterioration in collectibility information to our predictive model, the
allowance for doubtful accounts of the Prestocredit card at December 31, 2003 was restated to
Ch$14,320 million from Ch$3,059 million. The restatement is presented net of a deferred tax benefit
in income of Ch$1,855 million. Recent U.S. GAAP Accounting Pronouncements In December 2004, the FASB deferred the issuance of their final standard on earnings per share
SFAS No. 128R, Earnings per Share, an amendment to FAS 128. The final standard is expected to be
effective in 2005 and will require retrospective application for all prior periods presented. The
significant proposed changes to the EPS computation are changes to the treasury stock method and
contingent share guidance for computing year-to-date diluted EPS, removal of the ability to
overcome the presumption of 65




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share settlement when computing diluted EPS when there is a choice of share or cash settlement
and inclusion of mandatorily convertible securities in basic EPS. The
company does not believe that this pronouncement will have an effect
on its financial condition, statements of operations or cash flows. In December 2004, the FASB issued SFAS No. 153, Exchanges of Nonmonetary Assets, an amendment
of APB Opinion No. 29. APB Opinion No. 29, Accounting for
Nonmonetary Transactions, provided
an exception to its basic measurement principle (fair value) for exchanges of similar productive
assets. Under APB Opinion No. 29, an exchange of a productive asset for a similar productive asset
was based on the recorded amount of the asset relinquished. SFAS No. 153 eliminates this exception
and replaces it with an exception for exchanges of nonmonetary assets that do not have commercial
substance. SFAS No. 153 is effective prospectively for nonmonetary asset exchanges occurring in
fiscal years beginning January 1, 2006 for the company. In
December 2004, the FASB issued SFAS No. 123R, Share-Based Payment
(SFAS No. 123R), that requires all share-based payment, including
grants of employee stock options, to be recognized in the income
statement bases on their fair value. Pro forma disclosure is no
longer an alternative. SFAS No. 123R is effective for the company on
January 1, 2006. Retroactive application of the requirements of SFAS
No. 123R to the beginning of the fiscal year that includes the
effective date would be permitted. The company does not believe that
this pronouncement will have an effect on its financial condition,
statements of operation, or cash flows. In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4 (SFAS No. 151), to clarify the accounting for abnormal amounts of idle facility expense,
freight, handling costs and wasted material (spoilage) relating to inventory pricing. SFAS No. 151
requires that such items be recognized as current-period charges regardless of whether they meet
the criterion of so abnormal and requires that the allocation of fixed production overheads to
inventory be based on the normal capacity of the production facilities. The guidance is effective
for inventory costs incurred during fiscal years beginning after
June 15, 2005. The company is
currently evaluating the provisions of this pronouncement to determine the effects on its financial
condition, statements of operations and cash flows. 66




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Off-Balance Sheet Arrangements We have no off-balance sheet arrangements. 
 Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES Directors Pursuant to the Chilean Companies Law, as amended by Law No. 19,705 enacted in December 2000,
Chilean publicly traded companies with a net worth exceeding the equivalent of UF1,500,000
(approximately US$46,600,000 as of December 31, 2004) must have no less than seven directors and an
audit committee composed of no less than three board members. We are now managed by a board of
directors that consists of nine directors who are elected at the annual shareholders meeting as
mandated by our bylaws and have an audit committee composed of three board members. The entire
board of directors is elected every three years. If a vacancy occurs, our board of directors may
elect a temporary director to fill the vacancy until the next annual shareholders meeting, at
which time the entire board of directors will be renewed, without prejudice to the re-election of
any members. There are regularly scheduled monthly meetings of our board of directors. Extraordinary
meetings are convened when called by the president of the board, when requested by any other
director with the assent of the president or when requested by an absolute majority of the
directors. Our board of directors is responsible, among other things, for the overall supervision
and administration of our business activities, for the appointment and removal of the executive
officers, for reviewing our financial statements, for approving our budget and for approving any
purchase or sale of real estate. The current board of directors was elected on April 26, 2005 and their three-year tenure will
end upon the election of the new members at the annual shareholders meeting to be held at the end
of April 2008. The following are the current members of the board of directors and their
respective positions: 67




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Name
    
    Position
    
    AgeFelipe Ibáñez Scott(1)
    
    President
    
    
    51Hans Eben Oyanedel
    
    Vice President
    
    
    63Nicolás Ibáñez Scott (1)(2)
    
    Director
    
    
    49Jonny Kulka Fraenkel
    
    Director
    
    
    60Gonzalo Eguiguren Correa(3)
    
    Director
    
    
    46Fernando Larraín Cruzat(4)
    
    Director
    
    
    46Enrique Ostalé Cambiaso(5)
    
    Director
    
    
    45Verónica Edwards Guzmán(6)
    
    Director
    
    
    47René Cortázar Sanz(7)
    
    Director
    
    
    53
 
 (1)
    
    Mr. Felipe Ibáñez Scott and Mr. Nicolás Ibáñez Scott are sons of Mr. Manuel Ibáñez.(2)
    
    Between 1994 and 2002, Mr. Nicolás Ibáñez Scott served as our companys CEO.(3)
    
    Between 1985 and 1995, Mr. Eguiguren served our company in our commercial operations
department and as a director of corporate finance. Mr. Eguiguren is the brother-in-law of Mr.
Cristóbal Lira Ibáñez, our former CEO.(4)
    
    Mr. Larraín is the managing director of Larraín Vial S.A., a stock broker, investment bank,
underwriter and financial services company with which we have regularly worked in the past and
that presently renders services to our company.(5)
    
    Mr. Enrique Ostalé was appointed member of our board of directors on January 26, 2005. He
replaced Mr. Rodrigo Cruz who resigned from our board of directors and the audit committee to
serve as our corporate CEO on September 2, 2004, after Mr. Cristóbal Liras resignation as
CEO. Mr. Cruz had been elected director in April 2003, and appointed to the audit committee in
June 2003 subsequent to Mr. Hans Ebens resignation from the audit committee.(6)
    
    Mrs. Verónica Edwards Guzmán was elected to our board of directors at the annual
shareholders meeting held on April 26, 2005.(7)
    
    Mr. René Cortázar Sanz is an independent director according to the Chilean legal standard,
elected to our board of directors during the annual shareholders meeting held on April 26,
2005, with the votes of the Chilean pension funds who are minority shareholders in D&S. Audit Committee Our audit committee is composed of the following board members: Name
    
    Position
    
    AgeGonzalo Eguiguren Correa (1)
    
    President
    
    
    46René Cortázar Sanz (2).
    
    Director
    
    
    53Fernando Larraín Cruzat(3).
    
    Director
    
    
    46
 
 (1)
    
    Between 1985 and 1995, Mr. Eguiguren served our company in our commercial operations
department and as a director of corporate finance. Mr. Eguiguren is the brother-in-law of Mr.
Cristóbal Lira Ibáñez, our companys CEO from January 2003 to September 2004.(2)
    
    Mr. René Cortázar Sanz is an independent director, elected to our board of directors at the
annual shareholders meeting held on April 26, 2005, with the votes of the Chilean pension
funds who are minority shareholders in D&S.(3)
    
    Mr. Larraín is a managing director of Larrain Vial S.A., a stock broker, investment bank,
underwriter and financial services company with which we have regularly worked in the past and
that presently renders services to our company. Our audit committee has the following responsibilities: 
    
    Examine the reports of external auditors, our companys annual report and other
financial statements presented by the management of our company to its shareholders, and
issue an opinion in connection with the same prior to such presentation.
    
    Propose to our board of directors the external auditors and risk rating agencies
which names shall be taken up to the shareholders meeting for appointment as external
auditors and risk rating agencies of our company.
    
    Examine all related-party transactions and issue a report to our board of directors
on each of such transactions.
    
    Examine the compensation packages and plans of managers and key executives. 68




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
    
    The audit committee is required to
suggest to the board the names of the auditors and risk rating agencies of the company that
will be suggested to the shareholders at the annual shareholders meeting for approval.
    
    All other responsibilities assigned to it by the by-laws of our company or an
agreement passed by the shareholders at a shareholders meeting or our board of directors. Executive Officers Our key executive officers are the following: Years withName
    
    Position
    
    Age
    
    our companyRodrigo Cruz Matta(1)
    
    Chief Executive Officer
    
    
    52
    
    
    
    32Miguel Núñez Sfeir
    
    Chief Financial Officer
    
    
    39
    
    
    
    16Juan Pablo Vega Walker
    
    Development Manager
    
    
    37
    
    
    
    2Gonzalo Smith Ferrer(2)
    
    General Counsel
    
    
    34
    
    
    
    1
 
 (1)
    
    Mr. Rodrigo Cruz Matta succeeded Mr. Cristóbal Lira in September 2004.(2)
    
    Mr. Smith joined our company in October 2004. Division Managers Our key division managers are the following: Years with ourName
    
    Position
    
    Age
    
    companyMarcelo Gálvez Saldías(1)
    
    General Manager of the LiderDivision
    
    
    41
    
    
    
    17José Pedro Varela Alfonso(2)
    
    General Manager of Comvesa
    
    
    45
    
    
    
    20Elias Ayub(3)
    
    General Manager of Presto
    
    
    52
    
    
    
    1Rodrigo Cañas Gajardo (4)
    
    General Manager of FarmaLider
    
    
    53
    
    
    
    23Sebastian Rozas(5)
    
    General Manager of the Real Estate
Division
    
    
    34
    
    
    
    4
 
 (1)
    
    Mr. Gálvez took office in September 2004.(2)
    
    Mr. Varela took office in August 2004.(3)
    
    Mr. Ayub joined our company and took office in January 2004.(4)
    
    Mr. Cañas took office in July 2001.(5)
    
    Mr. Rozas took office in January 2004. Biographical Information The following is a selected biographical description of each of the members of our board of
directors and our executive officers: Directors Felipe Ibáñez Scotthas been the president of our board of directors since 1986. His
previous positions with us include operations manager, manager of accounting and finance,
commercial manager of Almac, general director of Ekono, executive vice president of Ekono, as well
as director of Almac, Ekonoand other subsidiaries. Mr. Ibáñez graduated from the University of
Edinburgh summa cum laudewith a degree in business administration. He is the
son of Mr. Manuel Ibáñez, former director of D&S, 69




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the brother of Mr. Nicolás Ibañez Scott and the first cousin of Mr. Cristóbal Lira
Ibañez, our CEO until September 2004. Hans Eben Oyanedelhas been a director of our company since 1998. Mr. Eben is president of the
board of directors of Gillette Chile, where he has held the positions of financial analyst and
marketing coordinator for the United States, Europe and Latin America. Mr. Eben has served on the
board of several other local and multinational companies such as Grupo Santander Santiago,
Ultramar, Sitrans, Senexco, and Carter Holt Harvey. Mr. Eben holds an MBA degree from the
Universidad de Chile. Nicolás Ibáñez Scotthas been a director of our company since 2003 and served as our companys
chief executive officer from 1994 to 2002. Mr. Ibáñez previously held positions in our company in
our accounting department, as commercial manager for Almac and as a buyer. Mr. Ibáñez, who received
his primary education in England, holds a degree in business administration from the Universidad
Adolfo Ibáñez. He serves as a member of the board of directors of Universidad Adolfo Ibáñez. He is
the son of Mr. Manuel Ibáñez, the brother of Mr. Felipe Ibáñez Scott and the first cousin of Mr.
Cristóbal Lira Ibañez. Jonny Kulka Fraenkelhas been a director of our company since 1994. Prior to this position,
Mr. Kulka served as chief executive officer of El Mercurio, Chiles leading daily newspaper,
operations manager with Compañía Cervecerías Unidas, and director of administration and finance for
Compañías Chilenas CIC S.A. In 2001, Mr. Kulka returned to El Mercurio to resume his post as chief
executive officer. Mr. Kulka Fraenkel holds a degree in business administration from Universidad
Adolfo Ibáñez. Gonzalo Eguiguren Correahas been a director of our company since April of 2001. On the same
date he was appointed member of D&S audit committee, of which he is currently the President. Mr.
Eguiguren is the executive director of Kimberly Clark Chile. Between 1985 and 1995, Mr. Eguiguren
held positions in our commercial operations department and served as our director of corporate
finance. Mr. Eguiguren holds a degree in business administration from Universidad de Santiago. He
is the brother-in-law of Mr. Cristóbal Lira Ibañez. Fernando Larraín Cruzathas been a director of our company and a member of our audit committee
since April of 2001. Mr. Larraín is the managing director of Larraín Vial S.A., a Chilean stock
broker, investment bank, underwriting and financial services company. In addition to serving on our
companys board of directors, Mr. Larraín also serves on the board of Industrias Tricolor S.A.,
Empresas Santa Carolina S.A., CIC S.A., Infraestructura 2000 S.A., Ski La Parva S.A. and Grey-Chile
S.A. Mr. Larraín is also a professor at Universidad de Los Andes as well as a director for Casa de
Acogida La Esperanza. Mr. Larraín holds a degree in economics from Pontificia Universidad Católica
de Chile and an MBA degree from Harvard University. Enrique Ostalé Cambiasofirst joined our company in 1989, serving as manager in our companys
finance division, as commercial director, as manager of the Lider division and as Chief Financial
Officer from 1997 to 2000. Prior to returning as a board member in January 2005, Mr. Ostalé was CEO
of El Mercurio Online (2000 and 2001) and Dean of the Business School of the Adolfo Ibáñez
University from 2002 to date. Mr. Ostalé holds a degree in Business Administration from the Adolfo
Ibáñez School of Business and a Master of Science from the London School of Economics and Political
Science. Verónica Edwards Guzmánwas elected to the board of directors at the annual shareholders
meeting held on April 26, 2005. She currently serves as executive director and partner of Adimark
Ltda., one of the largest and most prestigious market research firms in Chile, where she
contributes with 22 years of experience in research and analysis of consumer behavior. She is also
director of País Digital 70




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Foundation and Advisor to the Woman Communityorganization. She holds a degree in business
administration from the Pontificia Universidad Católica de Chile. René Cortázar Sanzwas elected to our companys board of directors at the annual shareholders
meeting held on April 26, 2005 with the votes of Chilean pension funds. Mr. Cortázar also serves as
director in other companies such as Entel, Corpbanca, Aes-Gener, A.D. Chile, Moneda S.A. He holds
the position of Vice President of ICARE and director of the Centro de Estudios Laborales Alberto
Hurtado (CELAH). Mr. Cortázar was Secretary of Labor during the government of former President Mr.
Patricio Aylwin (1990-1994) and executive director of Televisión Nacional de Chile TVN, the
state-owned broadcasting network, between 1995 and 2000. Mr. Cortázar holds a degree in business
administration from the Pontificia Universidad Católica de Chile and a PhD in Economics from the
MIT. He currently serves as Professor of the Institute of Economics of Universidad de Chile and
visiting professor to the Pontificia Universidad Católica of Río de Janeiro (Brasil) and to
University of Notre Dame (USA). Corporate Executives Rodrigo Cruz Mattahas been our companys CEO since September 2004, after resigning from the
board of directors and audit committee where he had served since April 2003 and June 2003
respectively. He has also been our corporate controller since 1992. Previously, Mr. Cruz held the
positions of accounting assistant, buyer of meat products and internal auditor. He also serves as
Chief Executive Officer and director in several of our companys subsidiaries. Miguel Núñez Sfeirhas been our chief financial officer since 2000. Over the past 16 years he
has served as manager for our in-store credit card Prestoand sub-manager of Finance. Mr. Núñez
holds a degree in business administration from the Universidad Adolfo Ibáñez. Juan Pablo Vega Walkerjoined our company in July 2002 and currently serves as our development
manager. Before joining our company, Mr. Vega spent three years at McKinsey & Company where he
served several retail clients in both Chile and Brazil. Mr. Vega holds an MBA degree from the
Kellogg School of Management at Northwestern University and a degree in engineering from the
Pontificia Universidad Católica de Chile. Gonzalo Smith Ferrerjoined our company in October 2004 as general counsel. Before joining our
company, Mr. Smith was a senior associate at Carey y Cía Abogados, Chiles largest law firm, where
he practiced corporate, finance, and securities law for nearly 10 years. Between 2000 and 2001, Mr.
Smith worked as a foreign associate at Davis, Polk &Wardwells office in New York. Between 2002 and
2003, Mr. Smith worked at Cuatrecasas in Madrid, Spain. Mr. Smith obtained his first law degree
from the Pontificia Universidad Católica de Chile. In 1999, he was awarded a Fulbright Scholarship
and in 2000 he obtained the degree of Master of Laws (LL.M.) from Harvard Law School. Mr. Smith is
currently a professor of commercial law at the Faculty of Law of the Pontificia Universidad
Católica de Chile. Divisional Executive Officers Marcelo Gálvez Saldíashas been general manager of the LiderRetail Division since September
2004. Mr. Gálvez was our companys chief operations officer from 2002 to 2004. Over the past 17
years he has served as chief financial officer, store manager, a buyer of groceries, dairy, and
meat products and Ekono-Almacdivision manager. Mr. Gálvez holds a degree in business
administration from Universidad Adolfo Ibáñez and an MBA degree from the University of Bath,
England. 71




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Elías Ayub Uauyjoined our company in January 2004, taking the office of General Manager of
the Prestofinancial services division. Previously, he worked for 8 years at Banco Hipotecario de
Chile Holding where he served as operations manager and finance and administration manager for the
pension fund, insurance division, credit division and credit card branch. After that, he joined
Citibank N.A. where he served as general manager, director and vice president of the board for the
different credit and financial divisions. In 1990, he founded BST Consulting Group, a consulting
firm specialized in banking services and credit cards, providing services to the main banks and
credit divisions of department stores in Chile. Mr. Ayub holds a degree in business administration
from Universidad Adolfo Ibáñez. José Pedro Varela Alfonsohas been general manager of the Apparel Division COMVESA since
August 2004. Previously, he served as our companys chief commercial officer from 2002 to 2004.
Over the past 20 years he has served as buyer of groceries and manager of our apparel business
area. Mr. Varela holds a degree in statistics from the Pontificia Universidad Católica de Chile and
a post-graduate degree in administration from Universidad Adolfo Ibáñez. Rodrigo Cañas Gajardohas been general manager of the FarmaLiderpharmacy division since
July 2001. Mr. Cañas joined our company in 1981 and has been store manager, buyer, manager of the
EkonoSupermarket Division in 1994, manager of the Almacdivision in 1997 and manager of the
groceries business area in 2000. Mr. Cañas has studies in Food Technology, and has excelled in his
career at D&S for his natural leadership and entrepreneurial drive. Sebastián Rozas Heusser, has been the general manager of the Real Estate Division SAITEC
since January 2004. He has been with our company for four years and during that time he has held
positions as Market Research Manager, E-Business Manager and Project Manager. Previous to joining
our company, he worked as Head of Sales and Marketing for a real estate company. Since August 2001,
he has been a professor of Market Research and Finance at Universidad Diego Portales. Mr. Rozas
holds a degree in business administration from Universidad Diego Portales and an MBA degree from
Clark University, USA Director and Executive Officer Compensation Directors are paid a fee for serving as members of the board of directors, as approved by the
annual shareholders meeting. The total compensation paid to each director of our company during
2004 was as follows: Board of DirectorsAttendance Fees
    
    
    RemunerationCh$(1)Felipe Ibáñez Scott
    
    Ch$  96,000,000
    
    Ch$ 28,460,000Nicolas Ibáñez Scott (2)
    
    
    24,000,000
    
    
    Manuel Ibáñez Ojeda
    
    
    24,000,000
    
    
    24,413,000Jonny Kulka Fraenkel
    
    
    48,000,000
    
    
    Enrique Barros Bourie
    
    
    48,000,000
    
    
    Hans Eben Oyanedel
    
    
    60,000,000
    
    
    Gonzalo Eguiguren Correa
    
    
    24,000,000
    
    
    Fernando Larraín Cruzat
    
    
    24,000,000
    
    
    Rodrigo Cruz Matta (3)
    
    
    16,000,000
    
    
    30,000,000Total
    
    Ch$364,000,000
    
    Ch$82,873,000
 
 (1)
    
    The amounts paid to each director for serving as member of the board of directors varies in
accordance with the position held and the time period during which such position was held. 72




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(2)
    
    Director since April 2003.(3)
    
    Director since April 2003, resigned from the board of directors in September 2004 when he
became our companys CEO. Members of the audit committee are also paid fees for serving at the same, in addition to
those paid to them as members of the board of directors. The fees paid to the members of the audit
committee during 2004 were as follows: Audit CommitteeAttendance FeesCh$Gonzalo Eguiguren Correa
    
    Ch$12,000,000Fernando Larraín Cruzat
    
    
    6,000,000Rodrigo Cruz Matta
    
    
    4,000,000Total
    
    Ch$22,000,000
 In 2004, the audit committee incurred expenses totaling Ch$9,613,453 (US$17,247). For the year ended December 31, 2004, the aggregate amount of compensation we paid to all
directors and executive and key officers was Ch$1,185,827,265 (US$2,127,426) of which
Ch$716,954,265 (US$1,286,247) was paid to our executive and key officers as remunerations. We do
not disclose to our shareholders or otherwise make available to the public, information as to the
compensation of our individual executive officers. At the extraordinary shareholders meeting of
October 26, 2004, our company was authorized to repurchase its own shares as part of a stock
purchase program in order to use the repurchased shares in a stock option plan to be offered to its
and its subsidiaries employees. The specifics of the stock option plan will be established by our
board of directors. Employees At December 31, 2004, we had a total of 26,333 full-time equivalent employees. Of these
full-time equivalent employees, 23,464 were employed in the stores (including the 463 full-time
equivalent employees employed in our FarmaLiderpharmacies), 973 were employed in the distribution
facilities (the distribution center, warehouses and transportation) and 1,896 were employed in the
headquarters and other business units. Store
employees are typically subject to collective contracts at each store, which generally have a
term of three years. Our employees receive benefits established by the collective bargaining
agreements, salaries in accordance with our corporate policy, benefits provided for by law
(including disability insurance) and certain additional benefits we provide. Among these, we
provide educational training for our employees and opportunities for their families (including
scholarships for children of employees) and assistance in financing the purchase of homes. We operate a merit based bonus program for our managers, both at the headquarters/service
school and store level, as well as for department heads at each store. The bonus fluctuates
between one and four months salary and is determined in accordance with clearly defined criteria,
including our overall performance, the performance of the employees store, his or her performance
as compared to specific targets established at the beginning of the year and more subjective
standards such as fostering an open, constructive working environment. 73




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##### Table of Contents



Share Ownership Certain of our directors and executive officers own shares of our company. Set forth below
are the number of shares and the ownership percentages for the directors and executive officers
(excluding indirectly held shares). At December 31, 2004Number ofDirectors
    
    Shares owned (1)
    
    
    Ownership %Felipe Ibáñez Scott
    
    
    
    
    
    
    Hans Eben Oyanedel
    
    
    
    
    
    
    Nicolás Ibáñez Scott
    
    
    2,010,476
    
    
    
    0.031Jonny Kulka Fraenkel
    
    
    343,736
    
    
    
    0.005Gonzalo Eguiguren Correa
    
    
    680,848
    
    
    
    0.010Fernando Larraín Cruzat
    
    
    
    
    
    
    Enrique Ostale Cambiaso
    
    
    
    
    
    
    Verónica Edwards Guzmán
    
    
    
    
    
    
    René Cortázar Sanz
    
    
    
    
    
    
    Executive OfficersRodrigo Cruz Matta
    
    
    1,104,868
    
    
    
    0.017Miguel Núñez Sfeir
    
    
    595,744
    
    
    
    0.009Juan Pablo Vega Walker
    
    
    
    
    
    
    Division ManagersMarcelo Gálvez SaldíasJosé Pedro Varela Alfonso
    
    
    230,308
    
    
    
    0.004Elias Ayub
Uauy
    
    
    118,804
    
    
    
    0.002Rodrigo
Cañas Gajardo
    
    
    62,400
    
    
    
    0.001Sebastián
Rosas Heusser
    
    
    
    
    
    
    Directors and executive officers as a group
    
    
    5,147,184
    
    
    
    0.079Directors and executive officers as a group, excluding controlling
shareholders (Nicolás Ibáñez Scotts shares)
    
    
    3,136,708
    
    
    
    0.048
 
 (1)
    
    Amount refers to directly held shares only. A series of companies beneficially owned or controlled by Messrs. Felipe Ibáñez Scott,
president of our board of directors and Nicolás Ibáñez Scott, a director and our former chief
executive officer hold 63.17 % of the shares issued by our company. The remainder of our directors
and officers hold 3,136,708 shares of our company, representing a 0.048% ownership. 
 Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS Principal Shareholders Control of our company is vested in a series of companies beneficially owned or controlled by
Messrs. Felipe Ibáñez Scott and Nicolás Ibáñez Scott. Together, these companies and related
parties controlled 63.61% of our outstanding capital stock at December 31, 2004. At December 31,
2004 (and at the date hereof), we had 6,520,000,000 shares outstanding. Our only outstanding
voting securities are the shares. The following table sets forth certain information concerning
ownership of our shares at December 31, 2004 with respect to each shareholder that we know to own
5% or more of the outstanding shares, all shareholders related to the controlling shareholders and
all directors and executive officers as a group: 74




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##### Table of Contents



At December 31, 2004Number ofShareholders
    
    Shares Owned
    
    
    Ownership%Servicios Profesionales y de Comercialización S.A.(1)
    
    
    2,305,831,496
    
    
    
    35.37Empresas Almac S.A.(1)
    
    
    599,758,172
    
    
    
    9.20Future Investments S.A.(2)
    
    
    525,414,236
    
    
    
    8.06Servicios e Inversiones Trucha S.A.(3)
    
    
    480,195,104
    
    
    
    7.36International Supermarket Holdings S.A. (1)
    
    
    188,656,700
    
    
    
    2.89Inversiones Miramar Tres Limitada(1)
    
    
    19,007,676
    
    
    
    0.29Controlling
group(4)
    
    
    4,118,863,384
    
    
    
    63.17TOTAL
    
    
    6,520,000,000
    
    
    
    100.00
    %Related parties(6)
    
    
    28,790,088
    
    
    
    0.44
    %Directors and executive officers as a group, excluding
controlling shareholders(5)
    
    
    3,136,708
    
    
    
    0.05
    %
 
 (1)
    
    Servicios Profesionales y de Comercialización S.A., Empresas Almac S.A., International
Supermarket Holdings S.A. and Inversiones Miramar Tres Limitada are companies beneficially
owned or controlled by Messrs. Nicolás Ibáñez Scott and Felipe Ibáñez Scott.(2)
    
    Future Investments S.A. is a company beneficially owned or controlled by Mr. Nicolás Ibáñez
Scott.(3)
    
    Servicios e Inversiones Trucha S.A. is a company beneficially owned or controlled by Mr.
Felipe Ibáñez Scott.(4)
    
    This number includes shares held by the companies
described above, which are beneficially owned or controlled by
Messrs. Nicolás Ibáñez
Scott and/or Felipe Ibáñez
Scott.(5)
    
    Sets forth the number of shares owned by directors and officers as a group, excluding the
controlling shareholders.(6)
    
    Ibáñez family members related to
controlling group. Includes shares held directly by Mr.
Nicolás Ibáñez Scott and his father Mr. Manuel Ibáñez Ojeda (former director of the board). Purchase
of Shares by Controlling Shareholders During
January and February of 2003, Future Investments S.A., a company
beneficially owned or controlled by Mr. Nicolás Ibáñez Scott,
purchased a total of 9,651,432 of our shares, equivalent to
38,605,728 shares after the stock split of 2004, with an average
price per share of Ch$474.3 equivalent to Ch$118.6 after the stock
split of 2004. As of December 31, 2004. Future Investments owns
525,414,236 shares, an amount equal to 8.06% of our total shares.
Additionally, as of December 31, 2004. International Supermarket
Holdings S.A., a company beneficially owned or controlled by Messrs.
Nicolás Ibáñez Scott and Felipe Ibáñez Scott, owned a total of
188,656,700 of our shares, all of which were purchased during 2004
with a price per share of Ch$161.67. During
March and April 2005, International Supermarket Holdings S.A.
purchased 25,278,287 shares with an average price per share of
Ch$179.8. At May 31, 2005, International Supermarket Holdings S.A.
owned a total of 213,934,987 shares representing a 3.28% of ownership. Related Party Transactions In the ordinary course of our business, we engage in a variety of arms length related-party
and intragroup transactions. These transactions are primarily for the purchase of goods and
services which may also be provided by other suppliers. According to Chilean corporate law,
related-party transactions and transactions between entities pertaining to a same group may only be
entered into if they are communicated to and approved by the board of directors, and provided their
terms are fair in a manner similar to contractual terms prevailing in the market. Prior to their
approval by the board related-party and intragroup transactions have to be reviewed and reported by
the audit committee to the board of directors. The report issued by the audit committee must be
read to the board of directors during the meeting in which the relevant related-party transaction
is to be approved. Additionally, related-party transactions must be reported each year to the
annual shareholders meeting. Under Chilean law related-party transactions include, but are not
limited to, those in which a director, key officer or executive, has an interest, either directly
or as the representative of another person or entity. Directors may be held liable for damages to a
company and its shareholders for not fulfilling their obligations for the approval of related-party
and intragroup transactions. We have complied with the requirements of the above-described legal
provisions in all related-party and intragroup transactions and affirm that we will continue to
comply with such requirements. See Note 19 of our consolidated financial statements for a more
detailed accounting of transactions with related parties. 75




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##### Table of Contents



Donations to Universidad Adolfo Ibáñez Universidad Adolfo Ibáñez is a highly reputed private university in Chile, which was founded
by the family of our controlling shareholders and is named after the grandfather of Messrs. Nicolás
Ibáñez Scott and Felipe Ibáñez Scott, our controlling shareholders. We made charitable
contributions to the Universidad Adolfo Ibáñez of
Ch$250.6 million (US$450,000) in 2004, Ch$252.0 million in
2003 and Ch$267.4 million in 2002. Loans from Servicios Profesionales y de Comercialización S.A. We have historically received loans from Servicios Profesionales y de Comercialización S.A.,
or SERPROCOM, one of our controlling shareholders and a company beneficially owned or controlled by
Messrs. Nicolás Ibáñez Scott and Felipe Ibáñez Scott. The amounts of these loans are equal to the
amounts payable to SERPROCOM based on its pro rata ownership interest in our company. As of the
date of this annual report, SERPROCOM holds approximately 35.4% of our shares. We make interest
payments on these loans at market values. The loans we have received from SERPROCOM amounted to
Ch$13,349 million at December 31, 2004, Ch$7,982 million at December 31, 2003 and Ch$7,887 million
at December 31, 2002. Relationship with Larraín Vial S.A. Fernando Larraín Cruzat, a member of our board of directors and audit committee, is a managing
director of Larraín Vial S.A., a prominent Chilean stock broker, underwriter, investment bank and
financial services company. From time to time, Larraín Vial S.A. has provided and continues to
provide investment banking and other financial services to us. We have also engaged Larraín Vial
S.A. as an underwriter in connection with the offering in Chile of our shares relating to the
capital increase which took place in 2004. Loans to Related Parties Currently, there are no outstanding loans to executive officers or our controlling shareholders. 
 Item 8. FINANCIAL INFORMATION See Item 18  Financial Statements for our consolidated financial statements filed as part
of this annual report. 
 Item 9. THE OFFER AND LISTING Our shares are listed in the Bolsa de Comercio de Santiago(the Santiago Stock Exchange), the
Bolsa Electrónica de Chile(the Electronic Stock Exchange), the Bolsa de Valoresand the Bolsa de
Corredores/Bolsa de Valores de Valparaíso, collectively referred to as the Chilean Stock
Exchanges. The Santiago Stock Exchange, established in 1893, is a private company whose equity
consists of 48 shares held by 47 shareholders. At December 31, 2004, the shares of 239 companies
were listed in the Santiago Stock Exchange. The Santiago Stock Exchange is Chiles principal
exchange and accounted for approximately 81.87% of the equity trading volume in Chile during 2004. Since October 1997, our ADSs, each representing 60 shares of common stock, have been listed in
the New York Stock Exchange under the symbol DYS. The Depositary for the ADSs is JPMorgan 76




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Chase Bank, N.A. (formerly Morgan Guaranty Trust Company of New York). Since December 2002,
we have listed our common shares in the Madrid Stock Exchange (Latibex). On August 6, 2004, in connection with a capital increase of 250,000,000 common shares, we
conducted an offering of 166,637,636 shares of our common stock in Chile and in the United States,
none of which were registered with the U.S. Securities and Exchange Commission. We also conducted a
preemptive rights offering to the holders of our common stock and ADSs, as required by Chilean law,
to subscribe 83,362,365 new shares of common stock in Chile and elsewhere outside Chile, of which
15,117,282 shares were represented by ADRs. The subscription price was Ch$620 per new
common share and ADS. After the close of the preemptive rights offering, 248,381,101 shares were
subscribed yielding total proceeds of Ch$153,996,282,620. The unsubscribed shares were later
offered and sold to the open market in Chile; therefore the full 250,000,000 shares were subscribed
and paid, totaling 1,630,000,000 outstanding shares on completion of the process. Effective December 6, 2004, we conducted a one-to-four stock split of our common shares in
Chile. As a result of the stock split, the number of our outstanding shares increased from
1,630,000,000 to 6,520,000,000. In order to maintain the same economic and corporate rights for the
ADRs as the underlying common shares, the number of shares representing each ADS was increased from
15 common shares per ADS to 60 common shares per ADS. On October 26, 2004, our shareholders approved a share repurchase program intended to
implement a stock option compensation plan for our employees and our affiliates employees. Our
board of directors may determine, without further approval by our shareholders, the timing and the
terms and conditions of any such share repurchase program. The table below shows the high and low daily closing prices of the shares in Chilean pesos and
the trading volume of the shares on the Santiago Stock Exchange for the last five years. It also
shows the high and low daily closing prices of the ADSs on the New York Stock Exchange and the
quarterly trading volume of the ADSs for 2000 through May of 2005. 77




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Quarterly Share Prices on theSantiago Stock Exchange
    
    
    Quarterly ADS Prices on the NYSEShare Volume(2)
    
    
    Ch$ per Share (1)(2)
    
    
    ADS Volume
    
    
    US$ per ADS(In thousands)
    
    
    High
    
    
    Low
    
    
    (In thousands)
    
    
    (High)
    
    
    Low20001st Quarter
    
    
    80,000
    
    
    
    200
    
    
    
    146,25
    
    
    
    6,373
    
    
    
    23.7
    
    
    
    17.32nd Quarter
    
    
    79,388
    
    
    
    172.5
    
    
    
    135,00
    
    
    
    2,302
    
    
    
    20.2
    
    
    
    16.03rd Quarter
    
    
    69,708
    
    
    
    172.5
    
    
    
    150,00
    

    
    
    2,650
    
    
    
    18.7
    
    
    
    15.94th Quarter
    
    
    80,080
    
    
    
    171.25
    
    
    
    142,50
    
    
    
    2,273
    
    
    
    18.4
    
    
    
    14.920011st Quarter
    
    
    148,312
    
    
    
    166.25
    
    
    
    132,50
    
    
    
    3,654
    
    
    
    17.3
    
    
    
    13.12nd Quarter
    
    
    111,816
    
    
    
    162.5
    
    
    
    120,50
    
    
    
    2,975
    
    
    
    16.0
    
    
    
    11.93rd Quarter
    
    
    220,424
    
    
    
    170
    
    
    
    121,75
    
    
    
    3,826
    
    
    
    15.1
    
    
    
    10.54th Quarter
    
    
    244,632
    
    
    
    150
    
    
    
    119,00
    
    
    
    4,987
    
    
    
    13.3
    
    
    
    10.120021st Quarter
    
    
    158,416
    
    
    
    162.5
    
    
    
    129,75
    
    
    
    3,783
    
    
    
    14.8
    
    
    
    11.52nd Quarter
    
    
    274,392
    
    
    
    165.75
    
    
    
    135,00
    
    
    
    6,006
    
    
    
    15.4
    
    
    
    11.83rd Quarter
    
    
    224,884
    
    
    
    140.25
    
    
    
    110,00
    
    
    
    3,613
    
    
    
    12.0
    
    
    
    8.74th Quarter
    
    
    283,424
    
    
    
    124.25
    
    
    
    96,25
    
    
    
    3,345
    
    
    
    10.7
    
    
    
    7.520031st Quarter
    
    
    348,204
    
    
    
    120.25
    
    
    
    101,00
    
    
    
    6,439
    
    
    
    10.20
    
    
    
    8.32nd Quarter
    
    
    287,856
    
    
    
    150
    
    
    
    99,50
    
    
    
    6,961
    
    
    
    12.80
    
    
    
    8.23rd Quarter
    
    
    187,680
    
    
    
    189.75
    
    
    
    145,00
    
    
    
    4,029
    
    
    
    16.98
    
    
    
    12.44th Quarter
    
    
    139,276
    
    
    
    222.5
    
    
    
    172,50
    
    
    
    4,029
    
    
    
    20.75
    
    
    
    16.5December 2003
    
    
    109,948
    
    
    
    207.5
    
    
    
    185,00
    
    
    
    1,281
    
    
    
    20.66
    
    
    
    18.220041st Quarter
    
    
    392,562
    
    
    
    163.79
    
    
    
    159.78
    
    
    
    5,925
    
    
    
    18.74
    
    
    
    18.272nd Quarter
    
    
    316,385
    
    
    
    162.40
    
    
    
    157.53
    
    
    
    3,282
    
    
    
    15.35
    
    
    
    15.273rd Quarter
    
    
    1,277,117
    
    
    
    163.69
    
    
    
    159.47
    
    
    
    7,383
    
    
    
    15.56
    
    
    
    15.564th Quarter
    
    
    1,084,946
    
    
    
    160.23
    
    
    
    156.47
    
    
    
    5,454
    
    
    
    16.17
    
    
    
    16.17December 2004
    
    
    336,024
    
    
    
    165.56
    
    
    
    162.76
    
    
    
    1,587
    
    
    
    17.22
    
    
    
    17.2220051st Quarter
    
    
    991,633
    
    
    
    171.00
    
    
    
    168.30
    
    
    

    3,124
    
    
    
    17.74
    
    
    
    17.42January 2005
    
    
    332,861
    
    
    
    165.80
    
    
    
    162.30
    
    
    
    1,143
    
    
    
    17.14
    
    
    
    16.85February 2005
    
    
    198,445
    
    
    
    169.40
    
    
    
    167.60
    
    
    
    513
    
    
    
    17.86
    
    
    
    17.54March 2005
    
    
    460,327
    
    
    
    177.00
    
    
    
    174.30
    
    
    
    1,469
    
    
    
    18.19
    
    
    
    17.84April 2005
    
    
    310,651
    
    
    
    184.10
    
    
    
    181.00
    
    
    
    1,038
    
    
    
    19.04
    
    
    
    18.72May 2005
    
    
    185,327
    
    
    
    185.80
    
    
    
    183.60
    
    
    
    471
    
    
    
    19.32
    
    
    
    19.16
 
 (1)
    
    Chilean pesos per share reflect nominal price at trade date per share of common stock; the
price has not been restated in constant Chilean pesos.(2)
    
    Stock splitSource: Santiago Stock Exchange Official Quotations Bulletin, New York Stock Exchange. The Chilean stock exchanges are substantially smaller, less liquid and more volatile than
major securities markets in the United States. The Santiago Stock Exchange had a market
capitalization of approximately US$116.7 billion (Ch$65,059 billion) as of December 31, 2004 and an
average monthly trading volume of US$1,095 million during 2004. Trading activity on the Santiago
Stock Exchange is on average substantially less than that on the principal national securities
exchanges in the United States. For the year ended December 31, 2004, the percentage of securities
listed on the Santiago Stock Exchange that traded on an average of 90% or more of the trading days
was approximately 14.2%. We estimate that for the year ended December 31, 2004, our shares were
traded on the Santiago Stock Exchange on an average of approximately 100% of such trading days. On December 31, 2004, the closing sales price for our shares was Ch$166.5 per share on the
Santiago Stock Exchange, US$18.10 per ADS on the New York Stock
Exchange and 13.20 per bundle
of 60 shares on the Latibex. At December 31, 2004, there were 3,354,366 ADSs (equivalent to 78




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201,261,960 shares). Such ADSs represented at such date 3.09% of the total number of issued
and outstanding shares. At December 31, 2004 the equivalent of 1,480,804 shares, traded on the
Latibex in bundles of 60, representing 0.0002% of the total number of our issued and outstanding
shares. 
 Item 10. ADDITIONAL INFORMATION Bylaws General.Our authorized capital consists of 6,520,000,000 common shares, each without par
value. Our stated objective is to:  
    
    maintain and improve our leadership position in our core business area, as well as
to be the best, most efficient and most profitable retailer in the region;
    
    capture and develop new business opportunities that will allow for sustained growth
in the future;
    
    run a profitable business that will create value for our shareholders and contribute
to economic development in our country; and
    
    implement clear corporate governance rules and accountability to maintain
shareholders confidence and attract new investors for the continued growth and long-term
endurance of our company. Shareholders Meetings. Our annual shareholders meeting is held within four months of the
end of our fiscal year, generally in April, but, in any case, following the preparation of our
financial statements for the previous fiscal year. Extraordinary shareholders meetings can be
called by the board when, in its judgment, a meeting of the shareholders is warranted.
Shareholders representing 10% of our total share capital may request that the board call an
extraordinary shareholders meeting. Only shareholders of record as of five days prior to a
meeting of shareholders will be allowed to vote on matters presented at that meeting. Resolutions may be adopted at the annual meeting of shareholders by an absolute majority of
the shares present at that meeting. Resolutions that relate to the following matters may only be
adopted in extraordinary shareholders meetings by the vote of at least two-thirds of all
outstanding shares:  
    
    changing the corporate form, splitting or spinning-off our company or merging it
with another legal entity;
    
    changing the duration term of our company, if any;
    
    the early dissolution of our company;
    
    changing the corporate domicile;
    
    reducing the capital of our company;
    
    approving and appraising of non-monetary equity contributions to the capital of our
company;
    
    amending the matters that are the competence of shareholders meetings and the
limitations of the competence of our board of directors; 79




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
    
    decreasing the number of members of the board of directors;
    
    transferring 50% or more of our companys assets, whether or not together with its
liabilities, as well as any business plan or amendment to a business plan that imply
the transfer of 50% or more of our companys assets;
    
    changing the manner in which profits are paid-out;
    
    granting of collateral or sureties relating third-party obligations, with the
exception of subsidiaries for which the approval of the board of directors shall
suffice;
    
    acquiring shares issued by our company; and
    
    curing of formal problems affecting the incorporation or amendment to the bylaws of
our company that would otherwise cause it to be null and void. Share Capital Common Shares At December 31, 2004, we had 6,520,000,000 shares outstanding. Those shares constitute our
only outstanding voting securities. In 2004, we carried out a capital increase of 250,000,000
common shares, of which 166,637,636 shares of our common stock were offered in Chile and the United
States. In August 2004, we also conducted a preemptive rights offering to the holders of our common
stock and ADSs, as required by Chilean law, to subscribe 83,362,365 new shares of common stock in
Chile and elsewhere outside Chile, of which 15,117,282 shares were represented by ADR rights.
The subscription price was Ch$620 per new common share and Ch$9,300 per ADS. After the close
of the preemptive rights offering, 248,381,101 shares were subscribed yielding total proceeds of
Ch$153,996,282,620 (US$247 million). The unsubscribed shares were later offered and sold to the
open market in Chile. Effective December 6, 2004, we conducted a one-to-four stock split of our common shares in
Chile. As a result of the stock split, the number of our outstanding shares increased from
1,630,000,000 to 6,520,000,000. In order to maintain the same economic and corporate rights for the
ADRs as the underlying common shares, the number of shares representing each ADS was increased from
15 common shares per ADS to 60 common shares per ADS. On October 26, 2004, our shareholders approved a share repurchase program intended to
implement a stock option compensation plan for our employees and our affiliates employees. Our
board of directors may determine, without further approval by our shareholders, the timing and the
terms and conditions of any such share repurchase program. Voting Holders
of common stock are entitled to one vote for each share of record on
all matters
submitted to a vote of our shareholders. American Depositary Shares At December 31, 2004, we had 3,354,366 ADSs issued and outstanding, equivalent to 201,261,960
shares, which represented a 3.09% of the total shares of our company. Each ADS represents 60
shares of common stock. 80




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Material Contracts The Deposit Agreement American Depositary Receipts (ADRs) evidencing American Depositary Shares (ADSs) are issuable
by JPMorgan Chase Bank, N. A. (formerly, Morgan Guaranty Trust Company of New York), as depositary,
pursuant to the terms of the Deposit Agreement dated as of October 7, 1997 among our company, the
Morgan Guaranty Trust Company of New York and the registered holders from time to time of the ADRs
issued thereunder. The Deposit Agreement was amended by Amendment No. 1, dated December 3, 2004,
among our company, JPMorgan Chase Bank, N.A. and all holders from time to time of ADRs issued
thereunder. Pursuant to the Amendment No. 1 to Deposit Agreement, the number of the underlying
shares of each ADS was increased from fifteen (15) shares to sixty (60) shares, deposited under the
Deposit Agreement with Banco Santander-Santiago. On March 31, 2005, our companys shares
were transferred from Banco Santander-Santiago to a new custodian, Banco de Chile, which principal
offices are located at Agustinas No. 975, Suite 314, Santiago, Chile. An ADR may evidence any
number of ADSs. Only persons in whose names ADRs are registered on the books of the Depositary
will be treated by the Depositary and us as holders of ADRs. Copies of the Deposit Agreement and
the Amendment No. 1 to Deposit Agreement are available for inspection at the principal office of
the Depositary in New York, which is presently located at Four New York Plaza, New York, New York
10004. During 2004, the company did
not enter into any additional material contracts or further modification
to existing contracts previously disclosed. Exchange Controls The Central Bank of Chile is responsible for, among other things, monetary policy and exchange
controls in Chile. Appropriate registration of a foreign investment in Chile allows investors to
access the exchange market known as the Mercado Cambiario Formal(the Formal Exchange Market), a
regulated market. Foreign investments can be registered with the Foreign Investment Committee
under Decree Law 600 of 1974, or can be registered with the Central Bank of Chile under Chapter XIV
of the Compendium of Foreign Exchange Regulations of the Central Bank and the Central Bank Act.
The Central Bank of Chile Act is a special type of law that, according to the Chilean Constitution,
requires a special majority vote of 4/7 of the Chilean Congress to be modified. Equity investments in Chile by persons who are not Chilean residents are generally subject to
various exchange-control regulations which restrict the repatriation and earnings of the
investment. The securities, however, are the subject of a contract (the Foreign Investment
Contract) among Morgan Guaranty Trust Company of New York (in its capacity as the depositary for
shares represented by the ADSs, the Depositary), our company and the Central Bank of Chile.
Pursuant to Article 47 of the Central Bank of Chile Act and Chapter XXVI of the Compendium of
Foreign Exchange Regulations of the Central Bank of Chile (Chapter XXVI), the Foreign Investment
Contract is intended to grant the Depositary and the holders of ADSs access to the Formal Exchange
Market. Absent the Foreign Investment Contract, under applicable Chilean exchange controls, investors
would not be granted access to the Formal Exchange Market for the purpose of converting from
Chilean pesos to U.S. dollars and repatriating from Chile amounts received with respect to
deposited shares or shares withdrawn from deposit on surrender of ADSs (including amounts received
as cash dividends and proceeds from the sale in Chile of the underlying shares and any rights with
respect thereto). The following is a summary of certain material provisions that are contained in
the Foreign Investment Contract, a copy of which was filed as an exhibit to a Registration
Statements on Form F-1 (file number 333-07616). This summary does not purport to be complete and
is qualified by reference to Chapter XXVI and the Foreign Investment Contract. 81




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Under Chapter XXVI and the Foreign Investment Contract, the Central Bank of Chile has agreed
to grant to the Depositary, on behalf of ADR holders, and to any non-Chilean resident investor who
withdraws shares upon delivery of ADSs (Withdrawn Shares) access to the Formal Exchange Market to
convert pesos to dollars (and to remit such dollars outside of Chile) in respect of shares
represented by ADSs or Withdrawn Shares, including amounts received as:   cash dividends; proceeds from the sale in Chile of Withdrawn Shares, or from shares distributed
because of our liquidation, merger or consolidation, subject to receipt by the Central Bank
of Chile of a certificate from the holder of the Withdrawn Shares (or from an institution
authorized by the Central Bank of Chile) that such holders residence and domicile are
outside Chile and a certificate from a Chilean stock exchange (or from a brokerage or
securities firm established in Chile) that such Withdrawn Shares were sold on a Chilean
exchange; proceeds from the sale in Chile of preemptive rights to subscribe for additional shares; proceeds from our liquidation, merger or consolidation; and other distributions, that result from holding shares represented by ADSs or
Withdrawn Shares, including without limitation, those resulting from any recapitalization. Transferees of Withdrawn Shares are not entitled to any of the foregoing rights under Chapter
XXVI, unless the Withdrawn Shares are redeposited with the Depositary. Investors receiving
Withdrawn Shares in exchange for ADSs have the right to redeposit such shares in exchange for ADSs,
provided that the conditions to redeposit are satisfied. Chapter XXVI provides that access to the Formal Exchange Market in connection with dividend
payments will be conditioned upon our certification to the Central Bank of Chile that a dividend
payment has been made and that any applicable tax has been withheld. Chapter XXVI also provides
that access to the Formal Exchange Market in connection with the sale of Withdrawn Shares or
distributions thereon, will require that the Central Bank of Chile receives a certificate issued by
the Depositary that such shares have been withdrawn in exchange for the pertinent ADSs and receipt
of a waiver of the benefit of the Foreign Investment Contract with respect thereto until such
Withdrawn Shares are redeposited. Chapter XXVI and the Foreign Investment Contract provide that a person who brings foreign
currency into Chile to purchase shares with the benefit of the Foreign Investment Contract must
convert such currency into pesos on the date of entry and has five business days from such date to
invest in shares in order to receive the benefits of the Foreign Investment Contract. If such
person decides not to acquire shares within such period, he or she may access the Formal Exchange
Market to reacquire dollars, provided that the applicable request is presented to the Central Bank
of Chile within seven days of the initial conversion into pesos. Shares acquired as described
above may be deposited for ADSs and receive the benefits of the Foreign Investment Contract,
subject to:   receipt by the Central Bank of Chile of a certificate from the Depositary that such
deposit has been effected and that the related ADSs have been issued; and receipt by the Custodian of a declaration from the person making such deposit
waiving the benefits of the Foreign Investment Contract with respect to the deposited
Shares. 82




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Access to the Formal Exchange Market under any of the circumstances described above is not
automatic. Pursuant to Chapter XXVI, such access requires approval of the Central Bank of Chile
based on a request for such approval presented through a banking institution established in Chile.
The Foreign Investment Contract provides that if the Central Bank of Chile has not acted on such
request within seven banking days, the request will be deemed approved. Pursuant to current Chilean law, the Foreign Investment Contract cannot be amended
unilaterally by the Central Bank of Chile. Additionally, there are judicial precedents (which are
not binding with respect to future judicial decisions) indicating that the Foreign Investment
Contract may not be abrogated by future legislative changes. There can be no assurance, however,
that additional Chilean restrictions applicable to the holders of ADSs, to the disposition of
underlying shares or to the repatriation of the proceeds from such disposition will not be imposed
in the future, nor can there be any assessment of the duration or impact of such restrictions if
imposed. If for any reason, including changes in the Foreign Investment Contract or Chilean Law,
the Depositary were unable to convert pesos to dollars, investors would receive dividends or other
distributions in pesos. Other Limitations Dividends Policy In accordance with Chilean law, we must distribute cash dividends equal to at least 30% of our
annual net income calculated in accordance with Chilean GAAP, unless otherwise decided by a
unanimous vote of all shares issued, and unless, and except to the extent, that we have
accumulated losses. For a more detailed discussion of our policy on dividends, see Dividend
Policy and Dividends. Exchange Rates All payments and distributions with respect to ADSs must be transacted in the Formal Exchange
Market. Share Capital Under Article 12 of the Securities Market Law and Circular 585 of the Chilean Superintendencia
de Valores y Seguros(the SVS), certain information regarding transactions in shares of publicly
held companies must be reported to the SVS and the Chilean stock exchanges. Since the ADSs are
deemed to represent the underlying shares, transactions in ADSs will be subject to these reporting
requirements. Shareholders of a publicly held corporation are required to report the following to
the SVS and the Chilean stock exchanges:   any direct or indirect acquisition or sale of shares or options to buy or sell shares, in any amount, if made by a holder of 10% or more of the publicly-held corporations capital; any direct or indirect acquisition or sale of shares or options to buy or sell shares, in any amount, if made by a director, receiver, senior officer, C.E.O. or manager of such corporation; and any direct or indirect acquisition of shares resulting in a person acquiring,
directly or indirectly, 10% or more of a publicly held corporations share capital. A beneficial owner of ADSs representing 10% or more of our share capital will be subject to
these reporting requirements under Chilean law. 83




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Under Article 54 of the Securities Market Law, persons or entities aiming to acquire direct or
indirect control of an open stock corporation are also required to:   send a written communication to the target corporation, the entities controlled by
such corporation or the entities that control such corporation, as well as to the SVS and
the Chilean stock exchanges, and inform the general public, in advance, through notice published in two Chilean
newspapers of national distribution. This written communication and notice must be published at least ten business days in advance of
the date of the execution of the documents that will entitle the person to acquire control of the
open stock corporation, and, in all cases, concurrently with the commencement of negotiations that
include delivery of information and documentation about the corporation. The content of the notice
and written communication are determined by SVS regulations and include, among other information,
the identification of persons or entities purchasing or selling, the price as well as the other
essential conditions of negotiation. Title XV of the Securities Market Law sets forth the basis for determining what constitutes
control, a direct holding and a related party, while Title XXV establishes a special procedure for
acquiring control of an open stock corporation. The Chilean Companies Act requires Chilean companies to offer existing shareholders the right
to purchase a sufficient number of shares to maintain their existing ownership percentage of such
company whenever such company issues new shares. United States holders of ADSs are not entitled to
exercise preemptive rights unless a registration statement under the Securities Act is effective
with respect to such rights or an exemption from the registration requirement for such rights is
available. At the time of any preemptive rights offering, we intend to evaluate the costs and
potential liabilities associated with any such registration statement, as well as the indirect
benefits to it from enabling the exercise by the holders of ADSs of such preemptive rights and any
other factors we consider appropriate at the time, and then to make a decision as to whether to
file such a registration statement. No assurance can be given that any registration statement
would be filed. If no registration statement is filed and no exemption from the registration
requirements of the Securities Act is available, the Depositary will sell such holders preemptive
rights and distribute the proceeds from the sale of such rights in a secondary market, if a market
for such rights exists and a premium can be recognized over the cost of such sale. Should the
Depositary not be permitted or otherwise be unable to sell such preemptive rights, the rights may
be allowed to lapse with no consideration received. Dissenting Shareholders The Chilean Companies Act provides that, upon the adoption at an extraordinary meeting of
shareholders of any of the resolutions enumerated below, dissenting shareholders are entitled to
withdraw from a Chilean issuer and to compel that issuer to repurchase their shares, subject to the
fulfillment of certain terms and conditions described below. In order to exercise such rights,
holders of ADSs must first withdraw the shares represented by their ADSs pursuant to the terms of
the Depositary Agreement. Dissenting shareholders are defined as those who voted against a
resolution that entitles the exercise of withdrawal rights, or if absent at such a meeting, those
who stated their opposition to such resolution in writing within 30 days of its adoption.
Dissenting shareholders must exercise their withdrawal rights by tendering their stock to the
issuer within 30 days after adoption of the resolution. The resolutions that result in a shareholders right to withdraw are the following: 84




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 the transformation of the issuer into an entity which is not a stock corporation
governed by the Chilean Companies Act; the merger of the issuer with and/or into another company; the sale of 50% or more the assets of the issuer; whether or not its liabilities are
included, or the formulation of a business plan contemplating a sale on those terms; creation of personal securities or asset-backed securities for the purpose of
guaranteeing third-party obligations in excess of 50% of the companys assets; the creation of preferential rights for a class of shares or an amendment to those
already existing, in which case the right to withdraw only accrues to the dissenting
shareholders of the class or classes of shares adversely affected; the creation of preferential rights for a class of shares or an amendment to
preferential rights already existing, in which case the right to withdraw only accrues to
the dissenting shareholders of the class or classes of shares adversely affected; and such other resolutions as may be established by an issuers bylaws (no such
additional resolutions currently are specified in the bylaws of our company). Under Article 69 BIS of the Chilean Companies Act, the right to withdraw is also granted to
shareholders, other than the Administradoras de Fondos de Pensiones (AFPs), subject to certain
terms and conditions, if we become controlled by the Chilean government, directly or through any of
its agencies, and if two independent rating agencies downgrade the rating of our stock from first
class due to certain actions specified in Article 69 BIS and actions undertaken by us or the
Chilean Government that negatively and substantially affect our earnings. Shareholders must
exercise their withdrawal rights by tendering their stock to us within 30 days of the date of the
publication or of the new rating by two independent rating agencies. If the withdrawal right is
exercised by a shareholder invoking Article 69 BIS, the price paid to the dissenting shareholder
shall be the weighted average of the shares sales price as reported on the stock exchanges on
which our shares are quoted for the six-month period preceding the publication of the new rating by
two independent rating agencies. If the SVS determines that the shares are not actively traded,
the price shall be book value calculated as described above. Voting Shares of Common Stock The Depositary will mail a notice to all holders containing the information (or a summary
thereof) included in any notice of a shareholders meeting received by the Depositary, a statement
that each holder of ADSs at the close of business on a specified record date will be entitled,
subject to Chilean law or the regulations and provisions governing deposited shares, to instruct
the Depositary as to the exercise of the voting rights, if any, pertaining to the deposited
securities represented by the ADSs evidenced by such holders ADSs and a brief statement as to the
manner in which each such holder may instruct the Depositary to exercise voting rights in respect
of shares represented by ADSs held by the holders. Holders on the record date set by the
Depositary are entitled to instruct the Depositary in writing, subject to the terms of Chilean law,
the Bylaws and the Deposit Agreement, as to the exercise of voting rights attached to the deposited
shares, and upon receipt of such instructions, the Depositary will endeavor, insofar as
practicable, to vote or cause to be voted the shares underlying such holders ADSs in accordance
with such written instructions. 85




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The Depositary has agreed not to, and shall instruct the Custodian and each of its nominees,
if any, not to vote the shares evidenced by an ADS other than in accordance with such written
instructions from the holder. The Depositary may not itself exercise any voting discretion over
any shares. If no instructions are received by the Depositary from any holder with respect to any
of the deposited securities represented by the ADSs evidenced by such holders ADSs on or before
the date established by the Depositary for such purpose, the Depositary shall deem such holder to
have instructed the Depositary to give a discretionary proxy to a person designated by us to vote
the underlying shares. Disclosure Holders of ADSs are subject to certain provisions of the rules and regulations promulgated
under the Exchange Act relating to the disclosure of interests in the shares. Any holder of ADSs
who is or becomes directly or indirectly interested in 5% (or such other percentage as may be
prescribed by law or regulation) or more of the outstanding shares must notify us, any U.S.
securities exchange on which the ADSs or shares are traded and the Securities and Exchange
Commission (as required by such rules and regulations) within ten days after becoming so interested
and thereafter upon certain changes in such interests. In addition, holders of ADSs are subject to
the reporting requirements contained in Articles 12 and 54 and Title XV of the Securities Market
Law, which provisions may apply when a holder beneficially owns 10% or more of the shares or has
the intention of taking control of us. Chilean Tax Considerations The following discussion is based on the opinion of Carey y Cía with respect to certain
Chilean income tax laws presently in force, and summarizes the material Chilean income tax
consequences of an investment in our common stock or ADSs by an individual who is not domiciled or
resident in Chile or a legal entity that is not organized under the laws of Chile and does not have
a permanent establishment located in Chile (a Foreign Holder). This discussion is based upon
Chilean income tax laws presently in force, including Ruling No. 324 of January 29, 1990 of the
Chilean Internal Revenue Service and other applicable regulations and rulings. The discussion is
not intended as tax advice to any particular investor, which can be rendered only in light of that
investors particular tax situation. PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS
ABOUT THE CHILEAN TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR SHARES.
Under Chilean law, tax rates applicable to foreign investors, the computation of taxable income for
Chilean purposes and the manner in which Chilean taxes are imposed and collected may only be
established or amended by another statute. In addition, the Chilean tax authorities enact rulings
and regulations of both general and specific application and interpret the provisions of Chilean
tax law. Chilean tax may not be assessed retroactively against taxpayers who rely in good faith on
such rulings, regulations and interpretations, but Chilean tax authorities may change such rulings,
regulations and interpretations. There is no income tax treaty in force between Chile and the
United States. Cash Dividends and Other Distributions Cash dividends paid by our company with respect to the ADSs or shares held by a Foreign Holder
will be subject to a 35% Chilean withholding tax, which is withheld and paid to the Chilean tax
authorities by us (the Withholding Tax). A credit against the Withholding Tax is available based
on the level of corporate income tax actually paid by us on the income to be distributed (the
First Category Tax). However, since the amount of First-Category Tax we pay is added to the
taxable base in calculating the Withholding Tax, the overall tax burden to the holder will be 35%,
regardless of whether we register a tax profit, with the corresponding credit for First-Category
Tax paid, or a tax loss. Full applicability of the First Category-Tax Credit at the 17% rate
results in an effective dividend withholding tax rate of 21.68%. Consequently, the effective
withholding tax rate with respect to dividends fluctuates 86




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between 21.68% and 35%, depending on whether or not the dividends are attributable to taxable
profits that were subject to First-Category Tax at the corporate level. Under Chilean income tax law, dividends generally are assumed to have been paid out of our
oldest retained profits for the purpose of determining the level of First-Category Tax that we
paid. For information as to our retained earnings for tax purposes and the tax credit available on
the distribution of such retained earnings, see Note 14 to the audited consolidated financial
statements. For dividends attributable to our profits during years when the First-Category Tax was 10%
(before 1991), the effective dividend Withholding Tax rate will be 27.8%. However, whether the
First-Category Tax is 10% or 17%, the effective overall tax burden imposed on our distributed
profits will be 35%. When the First-Category Tax credit is available, it does not reduce the Withholding Tax on a
one-for-one basis because it also increases the base on which the Withholding Tax is imposed. In
addition, if we distribute less than all of our distributable taxable income, the credit for First
Category Tax is used proportionately. Presently, the First-Category Tax rate is 17%. The example
below illustrates the effective Chilean Withholding Tax burden on a cash dividend received by a
foreign holder, assuming a Withholding Tax rate of 35%, an effective First-Category Tax rate of 17%
and a distribution of 30% of our consolidated net income distributable after payment of the
First-Category Tax. D&S taxable income
    
    
    100First Category Tax (16.5% of Ch$100)
    
    
    -17.0Net distributable income
    
    
    83.0Dividend distributed (30% of net distributable income)
    
    
    24.9Withholding Tax (35% of the sum of Ch$25.2 dividend
plus Ch$4.8 First Category Tax paid)
    
    
    -10.5Credit for 16.5% of First Category Tax paid
    
    
    5.1Net additional tax withheld
    
    
    5.4Net dividend received
    
    
    19.5Effective dividend withholding rate
    
    
    22.7
    %
 In general, the effective dividend Withholding Tax rate, after giving effect to the
credit for the First-Category Tax, can be calculated using the following formula: Effective dividend
Withholding Tax Rate=
    
    (Withholding Tax Rate)  (First Category Tax Rate)1  (First Category Tax Rate)
 Dividend distributions made in property would be subject to the same Chilean tax rules as
cash dividends. Stock dividends are not subject to Chilean taxation. Capital Gains Gain from the sale or exchange of ADSs (or ADRs evidencing ADSs) outside of Chile, including
those traded on the Santiago Stock Exchange Offshore Market, will not be subject to Chilean
taxation. The deposit and withdrawal of common shares in exchange for ADRs will not be subject to
any Chilean taxes. Gain recognized on a sale or exchange of shares (as distinguished from sales or exchanges of
ADSs representing such shares) will be subject to both the First-Category Tax and the Withholding
Tax (the former being creditable against the latter) if either: 87




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 the foreign holder has held the shares for less than one year since exchanging the
ADSs for the common shares; the foreign holder acquired and disposed of the shares in the ordinary course of its
business or as a habitual trader of shares; the foreign holder and the purchaser of the shares are related parties. For these purposes, a related party is an entity in which the foreign holder is:   a partner; a shareholder if the entity is a closed stock corporation; or a shareholder with more than 10% of the shares if the entity is an open stock corporation. In all other cases, gain on the disposition of shares will be subject to a flat 16.5%
First-Category Tax, and no Withholding Tax will apply. The tax basis of our common shares received in exchange for ADRs generally will be the
acquisition value of those shares on the date of the exchange, adjusted according to the Chilean
consumer price index (domestic inflation) variation between the month preceding the exchange and
the month preceding the sale. The valuation procedure set forth in the deposit agreement, which
values common shares that are being exchanged at the highest price at which they trade on the
Santiago Stock Exchange on the date of the exchange, will determine the acquisition value for this
purpose. Consequently, the conversion of ADRs into common shares and the immediate sale of those
common shares for no more than the value established under the deposit agreement will not generate
a gain subject to Chilean taxation. Notwithstanding the foregoing, in accordance with a Chilean Internal Revenue Service ruling
(Oficio No.3708/99), if a foreign holder sells the common shares received in exchange for ADRs on a
Chilean Stock Exchange, within two business days prior to the date on which the share transfer with
respect to the exchange for ADRs is registered in Santiagos registry, the acquisition value is
permitted to be the price at which the shares were sold, as evidenced by the invoice issued by the
stockbroker with respect to the sale. Consequently, such a sale would not generate a gain subject
to taxation in Chile. The exercise of preemptive rights relating to our common shares will not be subject to Chilean
taxation. Any gain on the sale or assignment of preemptive rights relating to the common shares
will be subject to both the First-Category Tax and the Withholding Tax (the former being creditable
against the latter). Other Chilean Taxes There are no Chilean inheritance, gift or succession taxes applicable to the ownership,
transfer or disposition of ADRs by a foreign holder, but such taxes generally will apply to the
transfer at death or by gift of the shares by a foreign holder. There are no Chilean stamp, issue,
registration or similar taxes or duties payable by holders of ADRs or shares. Withholding Tax Certificates Upon request, we will provide to foreign holders appropriate documentation evidencing the
payment of Chilean withholding taxes. 88




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United States Tax Considerations The following summary describes certain United States federal income tax consequences of the
ownership of our shares and ADSs by U.S. Holders (as defined below) as of the date hereof. Except
where noted, it deals only with shares and ADSs held as capital assets and does not deal with
special situations, such as those of dealers in securities or currencies, financial institutions,
regulated investment companies, real estate investment trusts, tax-exempt entities, insurance
companies, traders in securities that elect to use the mark-to-market method of accounting for
their securities, persons holding shares or ADSs as part of a hedging, integrated, conversion or
constructive sale transaction or a straddle, persons owning 10% or more of our voting stock,
persons liable for alternative minimum tax, investors in pass-through entities or persons whose
functional currency is not the United States dollar. Furthermore, the discussion below is based
upon the provisions of the Internal Revenue Code of 1986, as amended (the Code), and regulations,
rulings and judicial decisions thereunder as of the date hereof, and such authorities may be
repealed, revoked or modified so as to result in United States federal income tax consequences
different from those discussed below. In addition, this summary is based, in part, upon
representations made by the depositary to us and assumes that the Deposit Agreement, and all other
related agreements, will be performed in accordance with their terms. PERSONS SHOULD CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF OWNERSHIP OR
DISPOSITION OF SHARES OR ADSs. IN LIGHT OF THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES
ARISING UNDER THE LAWS OF ANY OTHER TAXING JURISDICTION. As used herein, the term U.S. Holder means a beneficial holder of a share or ADS that is:   an individual citizen or resident of the United States, a corporation (or other entity treated as a corporation for United States federal
income tax purposes) created or organized in or under the laws of the United States, any
state thereof or the District of Columbia, an estate the income of which is subject to United States federal income taxation
regardless of its source, or a trust:   that is subject to the supervision of a court within the United States and
the control of one or more United States persons as described in section 7701(a)(30)
of the Code, or that has a valid election in effect under applicable U.S. Treasury
regulations to be treated as a United States person. If a partnership holds shares or ADSs, the tax treatment of a partner will generally depend
upon the status of the partner and the activities of the partnership. U.S. Holders that are
partners of a partnership holding shares or ADSs should consult their own tax advisors. The U.S.
Treasury has expressed concerns that parties to whom ADSs are released may be taking actions that
are inconsistent with the claming of foreign tax credits for U.S. holders of ADSs. Such actions
would also be inconsistent with the claiming of the reduced rate of tax described below, applicable
to dividends received by certain non-corporate U.S. holders. 89




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Accordingly, the analysis of the creditability of Chilean taxes and the availability of the
reduced tax rate for dividends received by certain non-corporate U.S. holders, each described
below, could be affected by actions taken by parties to whom the ADSs are released. ADSs In general, for United States federal income tax purposes, U.S. Holders of ADSs will be
treated as the owners of the underlying shares that are represented by such ADSs. Accordingly,
deposits or withdrawals of shares by U.S. Holders for ADSs will not be subject to United States
federal income tax. Taxation of Dividends The gross amount of distributions made to U.S. Holders of ADSs or shares (including the amount
of any Chilean taxes withheld) will be taxable as dividend income to such U.S. Holders, to the
extent paid out of current or accumulated earnings and profits, as determined under United States
federal income tax principles. Such income (including withheld taxes) will be includable in the
gross income of a U.S. Holder as ordinary income on the day received by the depositary, in the case
of ADSs, or by the U.S. Holder, in the case of shares. Such dividends will not be eligible for the
dividends received deduction allowed to corporations under the Code. With respect to non-corporate
U.S. holders, certain dividends received before January 1, 2009 from a qualified foreign
corporation may be subject to reduced rates of taxation. A foreign corporation is treated as a
qualified foreign corporation with respect to dividends received from that corporation on shares
(or ADSs backed by such shares) that are readily tradable on an established securities market in
the United States. United States Treasury Department guidance indicates that our ADSs (which are
listed on the New York Stock Exchange), but not our shares, are readily tradable on an established
securities market in the United States. Thus, we do not believe that dividends that we pay on our
shares, that are not backed by ADSs, currently meet the conditions required for these reduced tax
rates. There can be no assurance that our ADSs will be considered readily tradable on an
established securities market in later years. Non-corporate holders that do not meet a minimum
holding period requirement during which they are not protected from the risk of loss or that elect
to treat the dividend income as investment income pursuant to section 163(d)(4) of the Code will
not be eligible for the reduced rates of taxation regardless of our status as a qualified foreign
corporation. In addition, the rate reduction will not apply to dividends if the recipient of a
dividend is obligated to make related payments with respect to positions in substantially similar
or related property. This disallowance applies even if the minimum holding period has been met.
Non-corporate U.S. holders should consult their own tax advisors regarding the application of these
rules given their particular circumstances. The amount of any dividend paid in pesos will equal the United States dollar value of the
pesos received calculated by reference to the exchange rate in effect on the date the dividend is
received by the depositary, in the case of ADSs, or by the U.S. Holder, in the case of shares,
regardless of whether the pesos are converted into United States dollars. If the pesos received as
a dividend are not converted into United States dollars on the date of receipt, a U.S. Holder will
have a basis in the pesos equal to their United States dollar value on the date of receipt. Any
gain or loss realized on a subsequent conversion or other disposition of the pesos will be treated
as United States source ordinary income or loss. Subject to certain conditions and limitations, Chilean withholding taxes (after taking into
account the credit for the First Category Tax) may be treated as foreign taxes eligible for credit
against a U.S. Holders United States federal income tax liability. The overall limitation on
foreign taxes eligible for credit is calculated separately with respect to specific classes or
baskets of income. For purposes of calculating the foreign tax credit, dividends paid on the
ADSs or shares will be treated as income from sources outside the United States and will generally
constitute passive income. Foreign tax credits allowable with respect to each income basket
cannot exceed the U.S. federal income tax otherwise payable with respect to such income. Special
rules apply to certain individuals whose foreign source 90




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income during the taxable year consists entirely of qualified passive income and whose
creditable foreign taxes paid or accrued during the taxable year do not exceed $300 ($600 in the
case of a joint return). Further, in certain circumstances, if a U.S. Holder:   has held ADSs or shares for less than a specified minimum period during which such
U.S. Holder was not protected from risk of loss, or is obligated to make payments related to the dividends, the U.S. Holder will not be allowed a foreign tax credit for foreign taxes imposed on dividends
paid on ADSs or shares. The rules governing the foreign tax credit are complex. U.S. Holders are
urged to consult their tax advisors regarding the availability of the foreign tax credit under
their particular circumstances. To the extent that the amount of any distribution exceeds our current and accumulated earnings
and profits for a taxable year, as determined under United States Federal income tax principals,
the distribution will first be treated as a tax-free return of capital, causing a reduction in the
adjusted basis of the ADSs or shares (thereby increasing the amount of gain, or decreasing the
amount of loss, to be recognized by the investor on a subsequent disposition of the ADSs or
shares), and the balance in excess of adjusted basis will be taxed as capital gain recognized on a
sale or exchange. Consequently, such distributions in excess of our current and accumulated
earnings and profits would generally not give rise to foreign source income and a U.S. Holder would
generally not be able to use the foreign tax credit arising from any Chilean withholding tax
imposed on such distribution unless such credit can be applied (subject to applicable limitations)
against United States Federal income tax due on other foreign source income in the appropriate
category for foreign tax credit purposes. Distributions of ADSs, shares or preemptive rights to subscribe for shares that are received
as part of a pro rata distribution to all of our shareholders generally will not be subject to
United States federal income tax. The basis of the new ADSs or shares so received will be
determined by allocating your basis in the old ADSs or shares between the old ADSs or shares and
the new ADSs or shares received, based on their relative fair market values on the date of
distribution. Passive Foreign Investment Companies We believe, based on our current operations and assets, that we should not be classified a
passive foreign investment company (a PFIC) for United States federal income tax purposes and we
to expect to operate in such a manner so as not to become a PFIC. This conclusion is a factual
determination based on, among other things, a valuation of our assets, which is subject to change
from time to time. The determination of whether we are a PFIC is made annually. Accordingly, it is
possible that we may become a PFIC in the current or any future taxable year due to changes in our
asset or income composition or changes in governing law. If we are or become a PFIC, a U.S. Holder
could be subject to additional United States federal income taxes on gain recognized with respect
to the ADSs or shares and on certain distributions, plus an interest charge on certain taxes
treated as having been deferred under the PFIC rules. Non-corporate U.S. Holders will not be eligible for reduced rates of taxation on any dividends
received from us prior to January 1, 2009, if we are a PFIC in the taxable year in which such
dividends are paid or in the preceding taxable year. 91




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Capital Gains For United States federal income tax purposes, a U.S. Holder will recognize taxable gain or
loss upon the sale or other disposition of ADSs or shares in an amount equal to the difference
between the amount realized for the ADSs or shares and the U.S. Holders basis in the ADSs or
shares. Such gain or loss will generally be capital gain or loss. Capital gains of individuals
derived with respect to capital assets held for more than one year are eligible for reduced rates
of taxation. The deductibility of capital losses is subject to limitations. Any gain or loss
recognized by a U.S. Holder generally will be treated as United States source gain or loss.
Consequently, in the case of a disposition of shares (which, unlike a disposition of ADSs, may be
taxable in Chile), the U.S. Holder may not be able to use the foreign tax credit for Chilean tax
imposed on the gain unless it can apply the credit (subject to applicable limitations) against tax
due on other income from foreign sources. Estate and Gift Taxation As discussed above under Chilean Tax ConsiderationsOther Chilean Taxes, there are no
Chilean inheritance, gift or succession taxes applicable to the ownership, transfer or disposition
of ADSs by a foreign holder, but such taxes generally will apply to the transfer at death or by
gift of shares by a foreign holder. The amount of any inheritance tax paid to Chile may be
eligible for credit against the amount of United States federal estate tax imposed on the estate or
heirs of a U.S. Holder. U.S. Holders should consult their personal tax advisors to determine
whether and to what extent they may be entitled to such credit. Chile also imposes a gift tax on
the donation of any shares by a foreign holder. The Chilean gift tax generally will not be treated
as a creditable foreign tax for United States tax purposes. Information Reporting and Backup Withholding In general, information reporting requirements will apply to dividends paid in respect of ADSs
or shares or the proceeds received on the sale, exchange or redemption of ADSs or shares within the
United States (and in certain cases, outside the United States) by U.S. Holders other than certain
exempt recipients (such as corporations). A backup withholding tax may apply to such payments if
the U.S. Holder fails to provide an accurate taxpayer identification number or certification of
other exempt status or fails to report in full dividend and interest income. Any amounts withheld under the backup withholding rules will be allowed as a refund or a
credit against the U.S. Holders United States federal income tax liability provided the required
information is furnished to the Internal Revenue Service. INVESTORS SHOULD CONSULT THEIR TAX ADVISORS ABOUT THE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE OWNERSHIP AND DISPOSITION OF ADSs OR SHARES. Dividend Policy and Dividends Our companys dividend policy is decided upon from time to time by the shareholders at the
annual shareholders meetings, with the recommendations of the board of director. However, the
board of directors must submit at the annual shareholders meeting for shareholder approval each
year a proposal for the declaration of the final dividend or dividends to be paid for the preceding
year, consistent with the then-established dividend policy. Our current dividend policy is to pay
a minimum annual dividend as required by law. As required by the Chilean Companies Act, unless
otherwise decided by unanimous vote of the issued and subscribed shares, we must distribute a cash
dividend in an amount equal to at least 30% of our net income for a given year, unless and except
to the extent we have a deficit in retained earnings. There can be no assurance that future
dividends will be paid in an amount exceeding the 30% 92




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level required by law. Our board has the authority to decide to pay such dividends in the
form of interim dividend. If interim dividends are paid during the fiscal year, a final dividend is declared at the
annual shareholders meeting in an amount that, together with the interim dividends previously
paid, is sufficient to satisfy the statutory requirement that at least 30% of net income for the
year be paid out in dividends. Such final dividend is paid on a date fixed by the board of
directors. The amount and timing for payment of dividends is subject to revision from time to time,
depending upon our current level of sales, costs, cash flow and capital requirements, as well as
market conditions. Any change in dividend policy would ordinarily be effective for dividends
declared in the year following adoption of the change, and a notice as to any such change of policy
would be required to be filed with Chilean regulatory authorities and would be publicly available
information. Notice of such a change of policy would not, however, be sent to each shareholder or
ADS holder. There can be no assurance as to the amount or timing of the declaration or payment of
dividends in the future. Dividends are paid to shareholders of record on the fifth business day preceding the date set
for payment of the dividend. The holders of ADSs on the applicable record dates for the ADSs will
be entitled to all dividends paid on the ADSs. Direct shareholders who are not residents of Chile must register as foreign investors under
one of the foreign investment regimes contemplated by Chilean law to have dividends, sale proceeds
or other amounts with respect to their shares remitted outside of Chile through the formal exchange
market. Under our foreign investment contract, the depositary, on behalf of ADR holders, will be
granted access to the formal exchange market to convert cash dividends from pesos to U.S. dollars
and to pay such U.S. dollars to ADR holders outside of Chile. See Exchange Controls. Dividends
received in respect of shares of common stock by holders, including holders of ADRs who are not
Chilean residents, are subject to Chilean withholding tax. See  Additional Information  Chilean
Tax Considerations. The following table sets forth our dividend paid ratio and the amounts of total dividends paid
on each fully paid share and ADS in respect of the year indicated. Amounts in Chilean pesos are
presented in historical Chilean pesos as of the respective payment dates. Dividend
    
    
    Dividend per
    
    
    Dividend perYear Declared
    
    Paid Ratio
    
    
    Share (Ch$/share) (1)
    
    
    ADS (Ch $/ADS) (1)2000
    
    
    48.1
    
    
    
    2.5
    
    
    
    1502001
    
    
    35.1
    
    
    
    2.5
    
    
    
    1502002
    
    
    58.0
    
    
    
    2.5
    
    
    
    1502003
    
    
    66.3
    
    
    
    2.5
    
    
    
    1502004
    
    
    194.9
    
    
    
    1.875
    
    
    
    112.5
 
 (1)
    
    Adjusted to the to the one-to-four stock split of December 6, 2004 on local shares. In
order to maintain the same economic and corporate rights for the ADSs as the underlying common
shares, the number of shares representing each ADS was increased from 15 common shares per ADS
to 60 common shares per ADS . Exchange Rates All payments and distributions with respect to the ADSs must be transacted in the Formal
Exchange Market. See Item 3. Key InformationRisk Factors. New York Stock Exchange and Chilean Corporate Governance Requirements In accordance with Section 303A.11 of the New York Stock Exchanges Listed Company Manual, the
following table sets forth significant differences between Chilean corporate governance 93




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requirements and comparable corporate governance requirements applicable to U.S. corporations
listed on the New York Stock Exchange. ITEM
    
    NYSE REQUIREMENTS
    
    CHILEAN LAW REQUIREMENTSCode of Business Conduct
    
    A company must adopt
a code of business
conduct for its
directors, officers
and employees. Such
company must
disclose any waiver
of its code of
conduct that is
granted to an
officer or director.
    
    There is no legal
obligation to adopt
a code of business
conduct. Chilean
law requires that a
company have a set
of internal
regulations which
regulates employee
conduct. Such
regulations may
contain, among other
things, regulations
related to ethics
and good behavior.
Notwithstanding the
above, a company may
create internal
codes of conduct,
provided that they
do not require or
prohibit behavior or
impose sanctions
that contravene
Chilean law.Internal Audit Function
    
    A company must have
in place an internal
audit function to
provide management
and its audit
committee with
ongoing assessments
of such companys
risk management
processes and system
of internal control.
A company may
choose to outsource
this function to a
firm other than its
independent
auditors.
    
    There is no similar
obligation under
Chilean law.
However, Chilean law
requires that
companies must have
both external
auditors and an
audit department.Meetings of
Non-Management Directors
    
    Non-management
directors must meet
regularly without
management of the
company.
    
    No similar legal

obligation exists
under Chilean law.
Under Chilean law,
the position of
director of a
corporation is
incompatible with
the position of
manager, auditor,
accountant or
president of the
company. Directors
must meet in a
properly convened
meeting in order to
agree on the matters
under their
competence.
 94




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ITEM
    
    NYSE REQUIREMENTS
    
    CHILEAN LAW REQUIREMENTSAudit Committee
    
    A company must have
an audit committee
with a minimum of
three members. All
the members must be
independent
directors. At least
one member of the
audit committee must
have accounting or
related financial
management expertise
as a companys board
interprets such
qualification in its
business judgment.
While the NYSE does
not require that a
listed companys
audit committee have
an audit committee
financial expert as
defined by the U.S.
securities laws, a
companys board may
presume that such a
person has
accounting or
related financial
management expertise
sufficient to
satisfy the NYSE
requirement.
    
    In accordance with
the Chilean
Companies Law
18,046, listed
companies that have
a net worth of more
than 1.5 million UFs
(approximately US
$46,600,000 as of
December 31, 2004)
must have a
committee of
directors, formed by
three board members.
All directors deemed
to be independent
from the controller
have the right to be
members of the
directors
committee. Under
Chilean law a
director id deemed
to be independent
from the controller
if after subtracting
the votes of the
controllers, such
director would still
be elected as
director of the
company. The
committees
compensation is set
by the annual
shareholders
meeting, and it
performs the
following functions: (1) examine the
reports of external
auditors, our
companys annual
report and other
financial statements
presented by the
management of our
company to its
shareholders, and
issue an opinion in
connection with the
same prior to such
presentation, (2)
propose to our board
of directors the
external auditors
and risk rating
agencies which names
shall be taken up to
the shareholders
meeting for
appointment as
external auditors
and risk rating
agencies of our
company, (3) examine
all related-party
transactions and
issue a report to
our board of
directors on each of
such transactions,
(4) examine the
compensation package
and plans of
managers and key
executives and (5)
any other matters
that the bylaws, the
shareholders meeting
or the board of
directors decide.
 95




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ITEM
    
    NYSE REQUIREMENTS
    
    CHILEAN LAW REQUIREMENTSCEO Certifications
    
    A companys CEO must
certify annually
that he or she is
not aware of any
violations by such
company of the
NYSEs corporate
governance standards
(this certification
is in addition to
the certification
required by Section
302 of the U.S.
Sarbanes-Oxley Act
of 2002).
    
    No similar
obligation exists
under Chilean law.
However, in
accordance with
Chilean law, the
directors of a
company must
annually submit for
approval such
companys annual
report and financial
statements to its
shareholders at such
companys annual
shareholders
meeting. Similarly,
public companies
must, from time to
time, provide all
relevant company
information by means
of the publications
and notifications
established by law,
both to the public
and to the SVS.Notification by the CEO
to the NYSE of
Non-compliance with
Corporate Gov. standards
    
    A companys CEO must
promptly notify the
NYSE in writing
after any executive
officer of the
company becomes
aware of any
material
non-compliance with
any applicable NYSE
corporate governance
standard.
    
    No similar
obligation exists
under Chilean law.Disclosure of
Significant Differences
with Respect to
Corporate Governance
Practices
    
    A company must
provide a summary
description of
significant
differences between
its home country
corporate governance
practices and the
corporate governance
requirements
established by the
NYSE and applicable
to U.S. domestic
listed companies.
    
    No similar
obligation exists
under Chilean law.
 96




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ITEM
    
    NYSE REQUIREMENTS
    
    CHILEAN LAW REQUIREMENTSShareholder Approval of
Equity Compensation
Plans
    
    Shareholders must be
given the
opportunity to vote
on all equity
compensation plans
and material
revisions to the
terms of such plans
with certain limited
exceptions. An
equity-compensation
plan is a plan or
other arrangement
that provides for
the delivery of
equity securities
(either newly issued
or treasury shares)
of the listed
company to any
employee, director
or other service
provider as
compensation for
services.
    
    Under Chilean law,
10% of any capital
increase may be set
aside by
shareholders for use
in equity
compensation plans.
Additionally,
shareholders may
also set aside the
companys other
unsubscribed shares
with respect to
which preemptive
rights were waived
or not exercised for
use in equity
compensation plans.
Chilean corporations
may also approve
share repurchase
programs for
purposes of
implementing stock
options compensation
plans for their
employees and those
of its subsidiaries.
If the company
offers shares in
connection with
shareholder approved
equity compensation
plans, such
offerings are not
subject to Chilean
preemptive rights
requirements
applicable to other
offerings.Adoption and Disclosure
of Corporate Governance
Guidelines
    
    Listed companies
must adopt and
disclose corporate
governance
guidelines,
encompassing such
areas as director
qualification
standards, director
responsibilities,
director access to
management, director
compensation,
director
orientation/continuing education,
management
succession, and
annual performance
evaluations of the
companys board.
Each listed
companys website
must include its
corporate governance
guidelines and the
charters of its most
important
committees.
    
    No similar
obligation exists
under Chilean law.
 Documents on Display We have filed with the Securities and Exchange Commission this annual report on Form 20-F,
including exhibits, under the Securities Exchange Act of 1934 with respect to the common shares. You may read and copy all or any portion of the annual report or other information in our
files in the Securities and Exchange Commissions public reference room at 100 F Street, N.E.,
Washington, D.C. 20549. You can also access these documents through the Securities and Exchange
Commissions website at http://www.sec.gov. You can request copies of these documents upon payment
of a duplicating fee, by writing to the Securities and Exchange Commission. Please call the
Securities and Exchange Commission at 1-800-SEC-0330 for further information on the operation of
the public reference rooms. 97




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Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to impacts from interest rate changes, foreign currency fluctuations and
changes in the market values of our investments. Generally, we monitor our positions so as to seek
lower costs of funds while maintaining our market risk within acceptable parameters. Our principal
exposures relate to our investments in Chile, and short-term liabilities denominated in U.S.
dollars. Policies and Procedures In the normal course of our business, we actively manage our exposure to changes in interest
rates, foreign currencies and the fair market value of certain of our investments using a variety
of financial instruments. It is our policy to enter into foreign currency and interest rate
transactions and other financial instruments only to the extent considered necessary to meet our
objectives as stated above. We do not enter into these transactions for speculative purposes. The following discussion about our risk management includes forward-looking statements that
involve risks and uncertainties. Actual results could differ from those projected in the
forward-looking statements. See Special Note Regarding Forward Looking Statements. In addition
to the inherent risks related to the operations in each of our segments in which we do business, we
face material market risk exposures in two categories: foreign currency exchange rate risk and
interest rate risk. The following discussion provides additional information regarding our
exposure to each of these risks as of December 31, 2004. Foreign Currency Exchange Rate Risk Our company has no significant debt in foreign currency. As of December 31, 2004, it held
US$-denominated letters of credit for US$31.0 million, which are exposed to exchange risks. At the
same time, our company holds notes receivable in U.S. dollar currency for US$48 million related to
the divestment of Supermercados Ekono S.A. (Argentina). Thus, our companys net exposure to
exchange rate is US$17 million. Given that the Chilean peso has undergone appreciation during the
year 2004 and the observed exchange rate reached its lowest historical rate for the last 3 years on
December 31, 2004 at US$1= Ch$557.40, a rise in the exchange rise is deemed likely. In such case,
there would be a positive impact on our companys net currency exposure of US$17 million. If the
U.S. dollar to Chilean peso exchange rate increased by 10% from the exchange rate registered on
December 31, 2004, there would be a net gain of Ch$850 million (US$1.5 million). Conversely, if the
U.S. dollar to Chilean peso exchange rate decreased by 10% from the exchange rate registered on
December 31, 2004, there would be a net loss of Ch$850 million (US$1.5 million) Interest Rate Risk At December 31, 2004, 24.9% of our companys financial debt is at TAB rate + spread, another
41% corresponds to bonds issued by our company, at fixed rates ranging from UF (Chilean indexed
currency) + 4.5% to UF + 7%. Another 17.4% represents the issue of commercial papers at fixed rates
varying from 3.00% to 5.04% and a 6.50% at a fixed UF + 4.49% rate. Exposure to interest rate risk
reflects our exposure to floating interest rate, therefore 24.9% of our debt was represented by
floating rate debt, and our net exposure to interest rate risk as of December 31, 2004 was
Ch$83,162 million (US$149.2 million). TAB stands for tasa bancariaand it is a referenced rate in
the Chilean market corresponding to the weighted average rate for fund investments of 30, 90, 180
and 360 days. The TAB rate is issued by the Chilean Association of Banks and Financial Institutions
on a daily basis. Interest rates showed a decreasing trend during most of the year 2004 since the Chilean
Central Bank gradually lowered the referential interest rate due to depressed consumption levels.
In August 2003, 98




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the referential interest rate was 2.75% versus a 1.75% in August 2004. By the fourth quarter
2004, the Chilean Central Bank started to gradually increase the referential interest rate, which
closed the year 2004 at 2.25%, still lower than the 2.45% for December 2003. In order to deal with
pressure towards inflation, the Central Bank has continued to gradually increase the referential
rate during 2005 to 3.14% in May. Assuming a 100 basis points increase in the TAB floating rate
with respect to 2004 year-end balances, the result would be an increase in our annual interest
expenses of approximately Ch$1,800 million (US$3.2 million). However, historical TAB floating rates
have been in the range of 0.2% to 0.4% monthly. According to the Monetary Policy Report issued by
the Central Bank in May 2005, inflation should remain controlled around 3.0% and interest rates
would not suffer dramatic changes. In addition, a significant amount of our debt is indexed to Chilean inflation (UF indexed
debt), and as such, an increase in Chilean inflation would affect the total interest that we pay on
such debt. UF refers to Unidades de Fomento, an inflation-indexed, peso-denominated monetary unit.
The UF rate is set daily in advance based on changes in the previous months inflation rate (CPI). Debt in UFAs of
    
    
    Effect inCapital
    
    
    
    
    
    
    
    
    
    

December 31, 2004
    
    
    income statementAmount
    
    
    CPI 1%
    
    
    CPI 4%
    
    
    CPI 1%
    
    
    CPI 4%UF
    
    
    In Million $
    
    
    In Million $
    
    
    In Million $
    
    
    In Million $
    
    
    In Million $Positive
    
    
    NegativeBonus D&SSeries A
    
    
    3,500,000
    
    
    
    60,610
    
    
    
    61,216
    
    
    
    63,034
    
    
    
    606
    
    
    
    2,424Series B
    
    
    1,200,000
    
    
    
    20,780
    
    
    
    20,988
    
    
    
    21,612
    
    
    
    208
    
    
    
    831Series C
    
    
    2,000,000
    
    
    
    34,634
    
    
    
    34,980
    
    
    
    36,019
    
    
    
    346
    
    
    
    1,385Series D
    
    
    1,000,000
    
    
    
    17,317
    
    
    
    17,490
    
    
    
    18,010
    
    
    
    173
    
    
    
    693Total bonus D&S
    
    
    7,700,000
    
    
    
    133,341
    
    
    
    134,675
    
    
    
    138,675
    
    
    
    1,333
    
    
    
    5,334Debt Banco Estado
    
    
    1,200,000
    
    
    
    20,780
    
    
    
    20,988
    
    
    
    21,612
    
    
    
    208
    
    
    
    831Lease obligations
and accounts
payable
    
    
    330,957
    
    
    
    5,731
    
    
    
    5,789
    
    
    
    5,960
    
    
    
    57
    
    
    
    229Total debt UF
    
    
    9,230,957
    
    
    
    159,853
    
    
    
    161,451
    
    
    
    166,247
    
    
    
    1,599
    
    
    
    6,394
 All interest rate sensitive instruments issued or held by our company are non-trading
instruments. 
 Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES Not applicable. 
 PART II 
 Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES Not applicable. 
 Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
USE OF PROCEEDS Not applicable. 
 Item 15. CONTROLS AND PROCEDURES The
companys management under the supervision of
the chief executive officer and the chief financial officer, performed an evaluation of
the effectiveness of the companys disclosure controls and procedures as of December 31, 2004.
The companys disclosure controls and procedures are designed to ensure that material information
relating to the company required to be disclosed in the reports that it files or submits under the
Securities and Exchange Act of 1934  is recorded, processed, summarized, and reported within the time
frame periods specified in the Securities and Exchange Commissions rules and forms, and that such
information is gathered and communicated to the companys management, including the chief executive officer
and the chief financial officer. Based on this evaluation, the companys chief executive officer and chief
financial officer concluded that the companys disclosure controls and procedures are effective as of the
date of such evaluation in ensuring that all material information we are required to disclose in the reports
we file under the Securities and Exchange Act of 1934 is gathered and communicated to our management, including
the chief executive officer and the chief financial officer, in a timely fashion, and that information required
to be disclosed in this annual report or our other reports to be filed under the Exchange Act is timely recorded,
processed, summarized and reported. There have been no significant changes in our internal controls over financial
reporting that occurred during the year ended December 31, 2004 that have materially affected, or are
reasonably likely to materially affect, the companys internal control over financial reporting. 99




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Item 16. [Reserved] 
 Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT Our board of directors has determined that Mr. Fernando Larraín Cruzat will serve as our
audit committee financial expert as defined in Item 16A of Form 20-F. Our board of directors has
not determined that Mr. Larraín Cruzat is an independent director as defined in Section 303A.02
of the NYSEs Listed Company Manual. However, we expect that our audit committee will be solely
composed of independent directors, as defined under the above-referred Section of the NYSEs Listed
Company Manual, by July 31, 2005. 
 Item 16B. CODE OF ETHICS We have adopted a code of ethics that applies to our chief executive officer and all senior
financial officers of our company, including the chief financial officer, chief accounting officer
or controller, or persons performing similar functions. Our code of ethics is filed as Exhibit
11.1. 
 Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES Under Chilean law, prior to the annual ordinary shareholders meeting taking place during the
first four months of each calendar year, the audit committee is required to propose to the board of
directors the names of the auditors and risk rating agencies of our company that will be proposed
to the shareholders at the annual shareholders meeting for approval. The audit committee of our
board of directors has been delegated the supervision of all audit and non-audit services provided
by our companys external accountants and risk rating agencies. Our audit committee pre-approved
100% of all fees for audit services provided by its external accountants in 2004, all of which were
then confirmed by the companys board of directors. Additionally, 100% of all fees for non-audit
services provided by our companys external accountants were approved by our audit committee, from
time to time and as required, during its regular monthly meetings. Audit Fees. The aggregate fees paid to Deloitte and Touche Sociedad de Auditores y
Consultores Ltda. in connection with the annual audit of our financial statements and for services
normally provided by Deloitte and Touche, Sociedad de Auditores y Consultores Ltda. in connection
with our statutory and regulatory filings for the fiscal years ended December 31, 2003 and December
31, 2004 were Ch$74,952,870 and Ch$267,533,484 respectively, including out of pocket expenses. 100%
of the audit services rendered by Deloitte and Touche, Sociedad de Auditores y Consultores Ltda.
were approved by our audit committee. Audit-Related Fees. No fees were paid in connection with assurance and related services
related to the annual audit of our company and for review of our financial statements, other than
the Audit Fees described above, for the fiscal years ended December 31, 2003 and December 31, 2004 Tax Fees. The aggregate fees paid for domestic and international tax-related services,
including tax compliance, tax advice and tax planning, rendered by Deloitte and Touche, Sociedad de
Auditores y Consultores Ltda. to our company for the fiscal years ended December 31, 2003 and
December 31, 2004 were Ch$88,781,968 and Ch$56,105,104, respectively. 100% of the tax-related
services rendered by Deloitte and Touche, Sociedad de Auditores y Consultores Ltda. were approved
by our audit committee All Other Fees. The aggregate fees billed for all other non-audit services rendered by
Deloitte and Touche, Sociedad de Auditores y Consultores Ltda. to our company for the fiscal years
ended December 31, 2003 and December 31, 2004 were
Ch$24,331,797 and Ch$284,100,370 respectively.
100% of all other non-audit services rendered by Deloitte and Touche, Sociedad de Auditores y
Consultores Ltda. were approved by our audit committee. Some of the other fees paid in 2004
correspond 100




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##### Table of Contents



Ch$206,743,302 for services
undertaken to assess the effectiveness of the internal controls of the
inventory cycle. 
 Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES Not applicable. 
 Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
PURCHASERS During 2004 no issuer or affiliated parties made purchases pursuant to publicly announced
plans or programs or not pursuant to such plans. 
 PART III 
 Item 17. FINANCIAL STATEMENTS Reference is made to Item 18 for a list of all financial statements filed as a part of this
annual report. 
 Item 18. FINANCIAL STATEMENTS The following consolidated financial statements of our company and its subsidiaries are
included at the end of this annual report: Index to Audited Consolidated Financial Statements
    
    F-1Report of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2003 and 2004
    
    F-4Consolidated Statements of Income for the years endedDecember 31, 2002, 2003 and 2004
    
    F-5Consolidated Statements of Cash Flows for the years endedDecember 31, 2002, 2003 and 2004
    
    F-6Notes to the Consolidated Financial Statements for the years endedDecember 31, 2002, 2003 and 2004
    
    F-7
 101




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Item 19. EXHIBITS The exhibits filed with or incorporated by reference in this annual report are listed in the
index of exhibits below. 
 INDEX TO EXHIBITS Exhibit Number
    
    Description1.1
    
    English translation of our Amended Bylaws (filed herewith).2.1
    
    Amendment No. 1, dated as of December 3, 2004, to Deposit Agreement, dated as of October 7,
1997, between us and JPMorgan Chase Bank N.A. (formerly, Morgan Guaranty Trust Company of New
York), as Depository and the registered holders from time to time of American Depository
Receipts (filed herewith).8.1
    
    List of our subsidiaries (filed herewith).11.1
    
    Code of Ethics of the company, dated June 29, 2004 (as filed in our annual report on Form
20-F, dated as of June 30, 2004, and incorporated herein by reference).12.1
    
    Certification of Mr. Rodrigo Cruz Matta pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith).12.2
    
    Certification of Mr. Miguel Núñez pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).13.1
    
    Certification of Mr. Rodrigo Cruz Matta pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes  Oxley Act of 2002 (filed herewith).13.2
    
    Certification of Mr. Miguel Núñez pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes  Oxley Act of 2002 (filed herewith).
 102




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SIGNATURE Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the
Registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly
caused this Annual Report on Form 20-F to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Santiago, Chile on
July 15, 2005. DISTRIBUCION Y SERVICIO D&S S.A./s/ Miguel Núñez SfeirMiguel Núñez SfeirChief Financial Officer
 103




---



DISTRIBUCION Y SERVICIO D&S S.A. INDEX TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS Audited Consolidated Financial Statements
    
    PageReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets as of December 31, 2003 and 2004
    
    F-4Consolidated Statements of Income for the years ended
December 31, 2002, 2003 and 2004
    
    F-5Consolidated Statements of Cash Flows for the years ended
December 31, 2002, 2003 and 2004
    
    F-6Notes to the Consolidated Financial Statements for the years
ended December 31, 2002, 2003 and 2004
    
    F-7




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of  We have audited the consolidated balance sheets of Distribución y Servicio D&S S.A. and
subsidiaries (the Company) as of December 31, 2003 and 2004 and the related consolidated
statements of income and of cash flows for each of the three years in the period ended December 31,
2004, all expressed in thousands of constant Chilean pesos. These consolidated financial
statements are the responsibility of the Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight
Board (United States of America). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Companys internal control over financial reporting. Accordingly, we express no such opinion. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Companys management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements, as restated, present fairly, in all material respects,
the financial position of Distribución y Servicio D&S S.A. and its subsidiaries as of December 31,
2003 and 2004 and the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2004 in conformity with accounting principles generally accepted
in Chile. The statements of cash flows for the years ended December 31, 2002 and 2003
have been restated for various classification errors primarily between non-cash reconciling items
included in net income and operating activity line items (See Note 24). Additionally, the
statement of income for the year ended December 31, 2003 and the balance sheet as of December 31,
2003 have been restated for a change in methodology in calculating the bad debt expense and
allowance for doubtful accounts of Servicios Administración de Créditos Comerciales Presto S.A.
The change in methodology resulted from a deterioration in certain factors used in the Companys
predictive model of collectibility. F-2




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##### Table of Contents



As specified in Note 3 to the financial statements, the Company adopted Technical Bulletin No. 72
as of January 1, 2004 which required fair value accounting for assets acquired and liabilities
assumed in a business combination and, among other things, changed the definition of significant
influence for equity method investees to 20% to 50% from 10% to 50%. Any investments between 10%
and 20% adopted as their cost basis their accounted-for value at December 31, 2003. Accounting principles generally accepted in Chile vary in certain significant respects from U.S.
GAAP. The application of the latter would have affected the determination of net income (loss) for
each of the three years in the period ended December 31, 2004, and the determination of
shareholders equity as of December 31, 2003 and 2004, to the extent summarized in Note 26 to the
consolidated financial statements. As discussed in Note 26, the Company has restated its
reconciliation of shareholders equity to U.S. GAAP as of December 31, 2003, its opening
shareholders equity under U.S. GAAP as of January 1, 2003 and its reconciliations of net income to
U.S. GAAP for the years ended December 31, 2002 and 2003 for certain errors related primarily to
the lack of inclusion of deferred taxes and minority interest effects on U.S. GAAP adjustments,
adjustments to depreciation related to the fair valuing of assets acquired and liabilities assumed
in business combinations, adjustments to appropriately record unrealized gains on available for
sale securities, and mechanical errors in the present value calculation of the Disco accounts receivable under
Accounting Principles Board Opinion No. 21. Certain notes incorporating these adjustments and operating income for U.S. GAAP
have also been restated. Our audits also comprehended the translation of constant Chilean pesos amounts into U.S. dollar
amounts and, in our opinion, such translation has been made in conformity with the basis stated in
Note 2.u. Such U.S. dollar amounts are presented solely for the convenience of readers in the
United States of America. /s/ DeloitteSantiago, Chile
July 11, 2005 F-3




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. AND SUBSIDIARIES 
 CONSOLIDATED BALANCE SHEETS
(Restated for general price-level changes and expressed in thousands of constant Chilean pesos (ThCh$) as of
December 31, 2004 and thousands of US dollars)  At December 31,Notes
    
    
    2003
    
    
    2004
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThUS$(As restated -
    
    
    
    
    
    
    (note 2u)see Note 24b)ASSETSCURRENT ASSETS:Cash
    
    
    
    
    
    
    32,180,597
    
    
    
    22,783,602
    
    
    
    40,875Marketable securities
    
    
    4
    
    
    
    3,788,027
    
    
    
    35,612,272
    
    
    
    63,890Notes and accounts receivable (net of allowance for doubtful accounts of
ThCh$18,721,181 (as restated) and ThCh$21,803,242 at December 31, 2003
and 2004, respectively)
    
    
    5
    
    
    
    123,961,841
    
    
    
    156,606,100
    
    
    
    280,958Due from related companies
    
    
    19
    
    
    
    1,484,432
    
    
    
    1,492,067
    
    
    
    2,677Inventories
    
    
    6
    
    
    
    91,749,044
    
    
    
    118,642,988
    
    
    
    212,851Refundable taxes
    
    
    14
    
    
    
    5,287,275
    
    
    
    10,400,600
    
    
    
    18,659Prepaid expenses
    
    
    
    
    
    
    3,027,020
    
    
    
    3,116,337
    
    
    
    5,591Other current assets
    
    
    7
    
    
    
    58,161,268
    
    
    
    32,912,258
    
    
    
    59,046TOTAL CURRENT ASSETS
    
    
    
    
    
    
    319,639,504
    
    
    
    381,566,224
    
    
    
    684,547PROPERTY, PLANT AND EQUIPMENT - NET
    
    
    8
    
    
    
    512,137,052
    
    
    
    595,013,964
    
    
    
    1,067,481OTHER ASSETS - NET
    
    
    9
    
    
    
    24,785,084
    
    
    
    59,543,643
    
    
    
    106,824TOTAL ASSETS
    
    
    
    
    
    
    856,561,640
    
    
    
    1,036,123,831
    
    
    
    1,858,852LIABILITIES AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Banks and financial institutions
    
    
    12
    
    
    
    50,686,032
    
    
    
    22,199,806
    
    
    
    39,827Current portion of long-term liabilities
    
    
    12
    
    
    
    28,304,087
    
    
    
    20,924,262
    
    
    
    37,539Commercial paper
    
    
    12
    
    
    
    59,433,153
    
    
    
    58,020,819
    
    
    
    104,092Dividend payable
    
    
    
    
    
    
    7,072,500
    
    
    
    
    
    
    
    Accounts payable
    
    
    10
    
    
    
    184,807,233
    
    
    
    201,699,328
    
    
    
    361,857Sundry creditors
    
    
    12
    
    
    
    7,253,020
    
    
    
    7,442,790
    
    
    
    13,353Due to related companies
    
    
    19
    
    
    
    7,997,414
    
    
    
    13,364,208
    
    
    
    23,976Accruals and withholdings
    
    
    11
    
    
    
    14,912,151
    
    
    
    19,309,173
    
    
    
    34,642Other current liabilities
    
    
    
    
    
    
    396,328
    
    
    
    166,070
    
    
    
    298Total current liabilities
    
    
    
    
    
    
    360,861,918
    
    
    
    343,126,456
    
    
    
    615,584LONG-TERM LIABILITIES:Banks and financial institutions
    
    
    12
    
    
    
    34,294,475
    
    
    
    94,920,810
    
    
    
    170,292Bonds
    
    
    12
    
    
    
    135,622,261
    
    
    
    131,474,419
    
    
    
    235,871Lease obligations
    
    
    12
    
    
    
    9,524,677
    
    
    
    5,828,993
    
    
    
    10,457Sundry creditors
    
    
    12
    
    
    
    222,892
    
    
    
    198,246
    
    
    
    356Accruals
    
    
    20
    
    
    
    3,581,619
    
    
    
    4,350,391
    
    
    
    7,805Other long-term liabilities
    
    
    
    
    
    
    3,005,838
    
    
    
    307,722
    
    
    
    552Total long-term liabilities
    
    
    
    
    
    
    186,251,762
    
    
    
    237,080,581
    
    
    
    425,333MINORITY INTEREST
    
    
    
    
    
    
    127,606
    
    
    
    3,885
    
    
    
    7SHAREHOLDERS EQUITY:Paid-in capital (Common stock, no par value; authorized,
issued and outstanding 6,520,000,000 (as adjusted for stock split)
at December 31, 2003 and 2004, respectively)
    
    
    
    
    
    
    222,355,769
    
    
    
    378,815,151
    
    
    
    679,611Technical revaluation reserve and other reserves
    
    
    
    
    
    
    1,346,647
    
    
    
    (1,178,875
    )
    
    
    (2,115
    )Retained earnings
    
    
    
    
    
    
    85,617,938
    
    
    
    78,276,633
    
    
    
    140,432Total shareholders equity
    
    
    13
    
    
    
    309,320,354
    
    
    
    455,912,909
    
    
    
    817,928TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    
    
    
    
    856,561,640
    
    
    
    1,036,123,831
    
    
    

    1,858,852
 The accompanying notes are an integral part of these consolidated
financial statements F-4




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF INCOME
(Restated for general price-level changes and expressed in thousands of constant Chilean pesos (ThCh$) as of
December 31, 2004 and thousands of US dollars)  For the year ended December 31,Notes
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThUS$(As restated -
    
    
    
    
    
    
    (note 2u)see Note 24a)OPERATING RESULTNet revenue
    
    
    
    
    
    
    1,085,187,324
    
    
    
    1,192,074,792
    
    
    
    1,440,461,642
    
    
    
    2,584,251Cost of sales
    
    
    
    
    
    
    (837,504,663
    )
    
    
    (923,643,133
    )
    
    
    (1,107,916,500
    )
    
    
    (1,987,651
    )Gross profit
    
    
    
    
    
    
    247,682,661
    
    
    
    268,431,659
    
    
    
    332,545,142
    
    
    
    596,601Selling and administrative expenses
    
    
    
    
    
    
    (203,951,242
    )
    
    
    (233,242,625
    )
    
    
    (303,025,587
    )
    
    
    (543,641
    )Operating income
    
    
    
    
    
    
    43,731,419
    
    
    
    35,189,034
    
    
    
    29,519,555
    
    
    
    52,960NON-OPERATING RESULTSNon-operating income
    
    
    18
    
    
    
    1,352,622
    
    
    
    1,520,751
    
    
    
    2,888,697
    
    
    
    5,182Non-operating expenses
    
    
    18
    
    
    
    (21,270,058
    )
    
    
    (18,991,716
    )
    
    
    (22,036,440
    )
    
    
    (39,534
    )Foreign exchange gain (loss)
    
    
    16
    
    
    
    5,129,541
    
    
    
    (3,071,728
    )
    
    
    179,501
    
    
    
    322Price-level restatement
    
    
    16
    
    
    
    493,076
    
    
    
    2,178,320
    
    
    
    1,933,651
    
    
    
    3,469Non-operating loss
    
    
    
    
    
    
    (14,294,819
    )
    
    
    (18,364,373
    )
    
    
    (17,034,591
    )
    
    
    (30,561
    )INCOME BEFORE INCOME TAXES
    
    
    
    
    
    
    29,436,600
    
    
    
    16,824,661
    
    
    
    12,484,964
    
    
    
    22,399INCOME TAXES
    
    
    14
    
    
    
    (4,820,961
    )
    
    
    (4,763,985
    )
    
    
    (2,127,769
    )
    
    
    (3,818
    )NET INCOME
    
    
    
    
    
    
    24,615,638
    
    
    
    12,060,676
    
    
    
    10,357,195
    
    
    
    18,581
 The accompanying notes are an integral part of these consolidated financial statements F-5




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. AND SUBSIDIARIES 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
(Restated for general price-level changes and expressed in thousands of constant Chilean pesos (ThCh$) as of
December 31, 2004 and thousands of US dollars)  For the year ended December 31,Notes
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThUS$(as restated -
    
    
    (as restated -
    
    
    
    
    
    
    (note 2u)see Note 24c)
    
    
    see Note 24c)CASH FLOWS FROM OPERATING ACTIVITIESNet income
    
    
    
    
    
    
    24,615,638
    
    
    
    12,060,676
    
    
    
    10,357,195
    
    
    
    18,581Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization expense
    
    
    
    
    
    
    35,461,769
    
    
    
    38,948,515
    
    
    
    49,273,364
    
    
    
    88,399Write offs and accruals
    
    
    
    
    
    
    3,523,350
    
    
    
    17,943,504
    
    
    
    18,622,499
    
    
    
    33,410Equity in earnings of equity - method investees (gain - net)
    
    
    
    
    
    
    (324,580
    )
    
    
    (464,104
    )
    
    
    (610,457
    )
    
    
    (1,095
    )Loss (gain) on sales of property, plant and equipment, net
    
    
    
    
    
    
    130,057
    
    
    
    (9,362
    )
    
    
    137,113
    
    
    
    246Minority interest
    
    
    18
    
    
    
    64,098
    
    
    
    40,445
    
    
    
    (123,720
    )
    
    
    (222
    )Price-level restatement
    
    
    16
    
    
    
    (493,076
    )
    
    
    (2,178,320
    )
    
    
    (1,933,651
    )
    
    
    (3,469
    )Foreign exchange
    
    
    16
    
    
    
    (5,129,541
    )
    
    
    3,071,728
    
    
    
    (179,501
    )
    
    
    (322
    )Others charges
    
    
    
    
    
    
    858,319
    
    
    
    2,106,056
    
    
    
    1,845,424
    
    
    
    3,311Others credits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (400,716
    )
    
    
    (719
    )Changes in assets and liabilities:Increase in accounts receivable
    
    
    
    
    
    
    (18,853,786
    )
    
    
    (53,571,524
    )
    
    
    (59,306,829
    )
    
    
    (106,399
    )(Increase) decrease in inventory
    
    
    
    
    
    
    (19,001,422
    )
    
    
    654,497
    
    
    
    (19,800,734
    )
    
    
    (35,523
    )Decrease (increase) in other assets
    
    
    
    
    
    
    909,597
    
    
    
    (3,415,281
    )
    
    
    442,793
    
    
    
    794Increase (decrease) in accounts payable
    
    
    
    
    
    
    4,799,639
    
    
    
    20,704,267
    
    
    
    (9,128,769
    )
    
    
    (16,377
    )(Decrease) increase in income tax payable
    
    
    
    
    
    
    (4,658,983
    )
    
    
    (3,598,474
    )
    
    
    (10,342,759
    )
    
    
    (18,555
    )Increase (decrease) in other accounts payable
    
    
    
    
    
    
    8,983,519
    
    
    
    (3,954,707
    )
    
    
    1,906,422
    
    
    
    3,420(Decrease) increase in interest payable
    
    
    
    
    
    
    (240,898
    )
    
    
    781,621
    
    
    
    371,745
    
    
    
    667(Decrease) increase in accruals and withholdings
    
    
    
    
    
    
    (1,548,687
    )
    
    
    5,168,111
    
    
    
    5,386,785
    
    
    
    9,664Net cash provided by (used in) operating activities
    
    
    
    
    
    
    29,095,016
    
    
    
    34,287,648
    
    
    
    (13,483,796
    )
    
    
    (24,189
    )CASH FLOWS FROM INVESTING ACTIVITIESPurchases of property, plant and equipment
    
    
    
    
    
    
    (70,562,558
    )
    
    
    (45,262,844
    )
    
    
    (74,397,987
    )
    
    
    (133,473
    )Proceeds from sale of property, plant and equipment
    
    
    
    
    
    
    74,817
    
    
    
    317,515
    
    
    
    730,077
    
    
    
    1,310Proceeds from sale of Disco S.A. and others
    
    
    
    
    
    
    
    
    
    
    30,215,971
    
    
    
    
    
    
    
    Purchase of Carrefour
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,668,240
    )
    
    
    (137,546
    )Increase in loans to related companies
    
    
    
    
    
    
    (416,452
    )
    
    
    
    
    
    
    
    
    
    
    Collection of loans to related companies
    
    
    
    
    
    
    
    
    
    
    20,021
    
    
    
    
    
    
    
    Payment of capitalized interest
    
    
    
    
    
    
    (1,078,889
    )
    
    
    (410,477
    )
    
    
    (1,190,644
    )
    
    
    (2,136
    )Standby deposit for letter of credit related to purchase of
Carrefour and others
    
    
    
    
    
    
    
    
    
    
    (53,737,316
    )
    
    
    52,275,000
    
    
    
    93,784Other Investment income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,440,578
    
    
    
    7,967Other charges (credits)
    
    
    
    
    
    
    386,348
    
    
    
    (1,013,649
    )
    
    
    (1,043,749
    )
    
    
    (1,873
    )Net cash used in investing activities
    
    
    
    
    
    
    (71,596,735
    )
    
    
    (69,870,778
    )
    
    
    (95,854,965
    )
    
    
    (171,967
    )CASH FLOWS FROM FINANCING ACTIVITIESShares issues
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,459,382
    
    
    
    280,695Proceeds
from debt issuance
    
    
    
    
    
    
    80,511,405
    
    
    
    139,104,693
    
    
    
    152,122,761
    
    
    
    272,915Paid
miscellaneous loans to related companies
    
    
    
    
    
    
    
    
    
    
    (288,960
    )
    
    
    
    
    
    
    Repayment of debt
    
    
    
    
    
    
    (72,265,331
    )
    
    
    (150,272,174
    )
    
    
    (128,349,172
    )
    
    
    (230,264
    )Bonds
and commercial paper repayments
    
    
    
    
    
    
    (213,512
    )
    
    
    (24,834,790
    )
    
    
    (57,373,825
    )
    
    
    (102,931
    )Dividends paid
    
    
    13
    
    
    
    (14,700,757
    )
    
    
    (14,145,000
    )
    
    
    (24,771,000
    )
    
    
    (44,440
    )Proceeds from issuance of bonds
    
    
    
    
    
    
    37,492,398
    
    
    
    96,362,396
    
    
    
    57,340,570
    
    
    
    102,871Proceeds from loans from related companies
    
    
    
    
    
    
    1,987,440
    
    
    
    
    
    
    
    5,366,794
    
    
    
    9,628Payment of charges for issuance of shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,525,522
    )
    
    
    (4,531
    )Payment of charges for issuance of bonds and commercial paper
    
    
    
    
    
    
    
    
    
    
    (1,084,851
    )
    
    
    (57,357
    )
    
    
    (103
    )Net cash provided by financing activities
    
    
    
    
    
    
    32,811,643
    
    
    
    44,841,315
    
    
    
    158,212,631
    
    
    
    283,840NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    
    
    
    
    (9,690,077
    )
    
    
    9,258,185
    
    
    
    48,873,870
    
    
    
    87,683EFFECT OF CHANGES IN THE PURCHASING POWER OF THE
CHILEAN PESO ON CASH AND CASH EQUIVALENTS
    
    
    
    
    
    
    1,257,550
    
    
    
    3,166,448
    
    
    
    (1,584,184
    )
    
    
    (2,842
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
    
    
    
    
    
    
    30,238,639
    
    
    
    21,806,112
    
    
    
    34,230,746
    
    
    
    61,411CASH AND CASH EQUIVALENTS AT END OF THE YEAR
    
    
    
    
    
    
    21,806,112
    
    
    
    34,230,746
    
    
    
    81,520,432
    
    
    
    146,252
 The accompanying notes are an integral part of these consolidated financial statements F-6




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. 
 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Restated for general price-level changes)  1.
    
    THE COMPANY Distribución y Servicio D&S S.A. (D&S) is a corporation organized under the laws of the
Republic of Chile. Its common shares are listed on the Chilean Stock Exchange and its American
Depositary Receipts are listed on the New York Stock Exchange. D&S is regulated by the Chilean
Superintendency of Securities and Insurance (SVS) with whom they file their annual audited
financial statements, and also by the United States Securities and Exchange Commission (SEC). D&S and its subsidiaries (the Company) are engaged principally in the operation of
supermarkets in Chile. As of December 31, 2004, the Company operated 78 supermarkets in Chile.  2.
    
    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Basis of Presentation- The accompanying consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in Chile (Chilean GAAP). b. Reporting Entity- Until December 1996, the Ibáñez Scott family owned 100% of the
outstanding shares of the Company. In prior years, the Ibáñez Scott family owned, through
separate companies, substantially all of the shares of Sociedad Anónima Inmobiliaria Terrenos y
Establecimientos Comerciales S.A. (SAITEC S.A.), Almac Internacional S.A. and Constructora e
Inmobiliaria El Rodeo S.A. (El Rodeo S.A.). These three companies were operated as an integral
part of the Companys operations, as they principally owned land and buildings used by the
supermarkets and held related investments. In December 1995, D&S acquired all of the shares in the three businesses previously held by the
Ibáñez Scott family through an exchange of equity shares, effectively consolidating into the
Company all of the Ibáñez Scott familys supermarket holdings. The consolidated balances sheets of the Company as of December 31, 2003 and 2004, and the
consolidated statements of income, and cash flows for each of the three years in the period
ended December 31, 2004 reflect the restructuring of the legal ownership of the companies
controlled by the Ibáñez Scott family as a business combination between entities under common
control. The change in reporting entity is reported under Chilean GAAP as a purchase using the
book value of the underlying net assets acquired, which differs from a pooling of interests accounting principles generally accepted in the United States of America (U.S.
GAAP). However, the book value of the net assets of the companies acquired in the combination
is greater than the value of the consideration given in exchange. The difference between these
amounts is recorded in the financial statements as negative goodwill. F-7




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) On June 30, 1997, through purchases from the minority shareholders, D&S acquired 100% of the
shares of Almac Internacional S.A. and El Rodeo S.A., as a result of which D&S absorbed the
assets and liabilities of these companies and became the legal successor of such companies. c. Basis
of Consolidation- Intercompany transactions and balances have been
eliminated in consolidation and the minority interests in subsidiaries have been recognized. The consolidated group comprises D&S and all majority-owned subsidiaries. The principal
subsidiaries are the following: Total ownership percentage2002
    
    
    2003
    
    
    2004%
    
    
    %
    
    
    %Sociedad Anónima Inmobiliaria Terrenos y Establecimientos Comerciales
    
    
    99.9600
    
    
    
    99.9600
    
    
    
    99.9600Administradora de Concesiones Comerciales de Supermercados S.A.
    
    
    99.1693
    
    
    
    99.1693
    
    
    
    99.1693Administradora de Concesiones Comerciales de Hipermercados S.A.
    
    
    99.5000
    
    
    
    99.5000
    
    
    
    99.5000Maquinsa S.A.
    
    
    99.9999
    
    
    
    99.9999
    
    
    
    99.9999Magallanes S.A. (1)
    
    
    
    
    
    
    
    
    
    
    100.0000Comercializadora de Vestuario S.A. (2)
    
    
    
    
    
    
    
    
    
    
    100.0000Servicios y Administración de Créditos Comerciales Presto S.A. (3)
    
    
    
    
    
    
    
    
    
    
    100.0000
 
 (1)
    
    On January 7, 2004 the purchase agreement entered into on December 19, 2003 was
consummated by virtue of which Carrefour Nederland B.V. sold to
D&S 1,701,403 shares of Carrefour Chile S.A. corresponding to 99.9999% of the shares
of the latter company, at a price of ThCh$72,135,204 (EUR 99,999,940). On the same date,
and based on the same document, Intercross Roads B.V. (a company related to
Carrefour Nederland B.V.) sold to Administradora de Concesiones Comerciales de
Hipermercados S.A. (a subsidiary of D&S) one share of Carrefour Chile S.A.
corresponding to 0.0001% of the shares of the latter for a price of ThCh$43 (EUR 60).
With these purchases, the Company acquired the entirety of the issued shares of Carrefour
Chile S.A.On the same date, Carrefour Chile S.A. changed its corporate name to Magallanes S.A.The assets and liabilities of the subsidiary Magallanes S.A. were recorded in the
financial statements at their respective fair values on or about the date of purchase, in
accordance with the provisions included in Circular No.1,697 of the Superintendency of
Securities and Insurance (SVS) and Technical Bulletin No.72 of the Chilean Association
of Accountants.(2)
    
    This Company was incorporated on September 15, 2004 by issuance of l,000,000 no-par
value common stock shares of the same series, of which D&S
subscribed and paid 999,999 shares. Certain other consolidated
entities of the Company hold indirect interests. F-8




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes)  (3)
    
    On October 21, 2004 the Company became the
100% owner company of
Servicios y Administración de Créditos Comerciales Presto S.A. The purchase was made
through the payment of 100% of the capital increase of ThCh$19,900,000 of that entity, as
agreed to by the previous owner partners and subsidiaries
consolidated with the Company, Administradora de Concesiones Comerciales de
Hipermercados S.A. and Administradora de Concesiones Comerciales de Supermercados S.A., at
the aforementioned date. d. Price-Level Restatement- The cumulative inflation rate in Chile as measured by the Chilean
Consumer Price Index (CPI) for the three-year ended December 31, 2004 was approximately
6.52%. Chilean GAAP requires that the financial statements be restated to reflect the effect of
changes in the purchasing power of the Chilean currency during each period. All non-monetary
assets and liabilities and income statement accounts have been restated to reflect the changes
in the Chilean Consumer Price Index (CPI) from the date they were acquired or incurred to the
end of the period. The purchasing power gains and losses have been included in net income
within the account price-level restatement (See Note 16). The restatements were calculated using the official Consumer Price Index of the Chilean
National Institute of Statistics and based on the prior month rule, in which inflation
adjustments are based on the consumer price index at the close of the month preceding the close
of the respective period or transaction. This index is considered by the business community,
the accounting profession and the Chilean government to be the measure which most closely
complies with the technical requirement to reflect the variation in the general level of price
in the country and, consequently, it is widely used for financial reporting purposes in Chile. The values of the Chilean consumer price index are as follows: Change over previousIndex
    
    
    December 31,Year ended December 31, 2002
    
    
    112.86
    
    
    
    2.8
    %Year ended December 31, 2003
    
    
    114.07
    
    
    
    1.1
    %Year ended December 31, 2004
    
    
    116.84
    
    
    
    2.4
    %
 The values of the Chilean consumer price index used for financial accounting price-level
restatement purposes are as follows: Change over previousIndex
    
    
    November 30,November 30, 2002
    
    
    113.36
    
    
    
    3.0
    %November 30, 2003
    
    
    114.44
    
    
    
    1.0
    %November 30, 2004
    
    
    117.28
    
    
    
    2.5
    %
 F-9




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) The above-mentioned price-level restatements do not purport to represent appraisal or
replacement values. They are only intended to restate all non-monetary financial statement
components in terms of local currency of a single purchasing power and to include in the net
result for each period the gain or loss in purchasing power arising from the holding of
monetary assets and liabilities exposed to the effects of inflation. Assets and liabilities that are denominated in index-linked units of account are stated at the
period-end values of their respective units of account. The principal index-linked unit used
in Chile is the Unidad de Fomento (UF), which changes daily to reflect the changes in Chiles
Consumer Price Index. Many of the Companys financial investments are denominated in UFs. As
the Companys indexed liabilities exceed its indexed assets, the increase in the index results
in a net loss on indexation. Comparative financial statements: For comparative purposes, the consolidated balance sheets of the Company as of December 31,
2003 and 2004 and the consolidated financial statements of income, and cash flows for each of
the three years in the period ended December 31, 2004, and the amounts disclosed in the related
notes, have been restated into constant Chilean pesos as of December 31, 2004. This updated
presentation does not change the previously issued financial statements or note information in
any way except to present the comparative amounts in Chilean pesos of similar purchasing power. e. Assets and Liabilities Denominated in Index-Linked Units of Account and in Foreign
Currencies- Assets and liabilities denominated in foreign currencies and UF are presented in
Chilean pesos at the following year-end rates (stated in Chilean pesos per foreign currency): At December 31,2002
    
    
    2003
    
    
    2004Ch$
    
    
    Ch$
    
    
    Ch$U.S. dollar
    
    
    718.61
    
    
    
    593.80
    
    
    
    557.40UF
    
    
    16,744.12
    
    
    
    16,920.00
    
    
    
    17,317.05
 f. Cash and Cash equivalents- Cash and cash equivalents includes balances of cash in bank or
brokerage accounts, investments in closed - end mutual fund units and investments in repurchase
agreements with original maturity three months or less at the date of acquisition by the Company. F-10




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) g. Marketable Securities- Marketable securities consist of investments in equity shares,
mutual funds units, and funds delivered for administration, which are recorded as follows:  
    
    Sharesare stated at the lower of price-level restated purchase cost or
year-end market value.
    
    Mutual Fundsare stated at year-end market value.
    
    Fixed income securitiesare stated at the year-end value of the units, which is considered market value. These investments accrue interest at a fixed designated rate on the amount invested. The amount invested plus accrued interest, if applicable, is the year-end unit value. h. Inventories -Inventories are stated at price-level restated cost which is not in excess of
the net realizable value. The Company periodically evaluates and physically counts its inventory on hand to determine its
losses on shrinkage, and slow-moving or obsolete inventory. Shrinkage losses are recorded
directly in the income statement based on the results of the physical counts. Based upon the
aging and marketability of slow-moving or potentially obsolete inventory, the Company makes
adjustments to the goods carrying value in accordance with their estimated realizable value. i. Allowance for doubtful accounts- The allowance for doubtful accounts for Servicios y
Administración de Créditos Comerciales Presto S.A., (Presto) which represents the majority of
the amount, is recorded based on a predictive model of the collectibility of Presto  ́s accounts
receivable taking into consideration primarily historical collectibility and subsequent
recovery. All accounts over 180 days are 100% reserved and each bucket under 180 days has
certain reserved % ́s on a sliding scale. Management considers that the allowances for doubtful accounts are sufficient and that the net
balances are recoverable. j. Property, Plant and Equipment, and Depreciation -Property, plant and equipment is stated at
price-level restated purchase cost. The interest cost on debt directly obtained in the
construction projects is capitalized during the period of construction. The valuation of
property, plant and equipment resulting from an independent technical appraisal is recorded in
the balance of property, plant, and equipment, with a corresponding increase in shareholders
equity. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets. The cost of financing the works under construction, namely interest and other finance changes
is included in the recorded cost of fixed assets. The amount capitalized is determined
considering the weighted average interest rate on the related debt. F-11




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) Assets acquired under capital leases are accounted for in the same manner as purchases of
property, plant and equipment, with an offsetting liability recorded for the present value of
the minimum lease payments. The Company records the sale and leaseback of assets as a lessee
under capital lease, maintaining the same value of the assets prior to the transaction. These
assets are not legally owned by the Company until it exercises its purchase option. k. Investment in Affiliated Companies- Investments made prior to January 1, 2004 in the equity
securities of entities over which the Company exerts significant influence are accounted for
under the equity method. This method consists of allocating the respective proportion of the
equity of the issuer to each Companys investments and recognizing any variation in such equity
on a proportional basis, as stipulated in Circular 368 of the Superintendency of Securities and
Insurance and Technical Bulletin No.42 of the Chilean Association of Accountants. Investments made after January 1, 2004 in the equity securities of entities over which the
Company exerts significant influence are valued at their fair value
on acquisition, revaluing the assets and
liabilities of the investee, as stipulated in circular No.1697 of the Superintendency of
Securities and Insurance (SVS) and Technical Bulletin No.72 of the Chilean Association of
Accountants. l. Goodwill and Negative Goodwill- According to Chilean SVS Rule No. 1,358 issued in December
1997, the excess cost of an acquired enterprise over the net book value of the assets acquired
and liabilities assumed (goodwill) or the excess in the net book value over the cost of the
acquired enterprise (negative goodwill) are to be amortized over 20 years. The balances of goodwill and negative goodwill, determined as explained above, were generated
prior to the issue of Official Circular 1,697 by the SVS and the Technical Bulletin No. 72 by
the Chilean Association of Accountants, effective as of January 1, 2004, which states that the
determination will be calculated based on the difference between the acquisition cost and the
fair value of the assets acquired and the liabilities assumed. The Company has evaluated the recovery of its goodwill for impairment under the requirements of
the regulation established in the Technical Bulletin No. 56 of Colegio de Contadores de Chile
A.G. (Chilean Association of Accountants). As a result of this evaluation, no impairment has
been recorded. m. Bonds payable -Bonds payable are presented on the balance sheet at their par value. The
difference between the proceeds received and the par value of the bonds at the time of
issuance, the discount or premium, is deferred and amortized on a straight-line basis over
their term. The discount or premium is presented separately on the balance sheet. The
straight-line method of amortization for the discount or premium on the bonds approximates the
effective interest rate method of amortization. F-12




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) n.
Commercial paper- These investments are valued at the acquisition cost
plus accrued interest and inflation adjustment at year end. o. Income taxes and deferred taxes- The Company determines and records its income taxes on an
accrual basis based on the net taxable income in conformity with current Chilean tax
regulations. Deferred income taxes are recorded in accordance with Technical Bulletin N°60 and the
complementary technical bulletins Nos68, 69, 71 and 73 issued by the Chilean
Association of Accountants, and with Circular N°1466 issued on January 27, 2000 by the SVS.
Deferred taxes are recorded based on the total amount of temporary differences between the book
and tax basis of assets and liabilities using the enacted tax rates in effect at the estimated
time of reversal. The tax benefits generated by the absorption of tax losses against current year taxable income
create deferred taxes in the associated year. p. Vacation Expense- The cost of employee vacations and benefits is recorded on the accrual
basis. q. Research and Development Expenses- Research and development expenses are charged to the
income statement in the period incurred. Over the last five years, no significant research and
development expenses have been incurred. r. Severance Indemnities- The liability for amounts payable to employees for voluntary
severance indemnities is accrued at the present value of the vested benefits using a 7%
discount rate. The liability considers future service until retirement (age 60 for women; age
65 for men), adjusted for estimated employee turnover. s. Revenue Recognition- Revenue from product sales is recognized when the merchandise is
delivered to the customer, which represents the point at which the significant benefits and
risks of ownership transfer to the buyer. At such point, all requirements for completing the
earnings process have been complied with under Chilean GAAP. Revenue obtained from suppliers for reaching volume targets is recorded in net revenue. Such
volume rebates are recognized on a pro rata basis as purchases are made. Other vendor
allowances, such as promotional allowances for store openings, and remodelings and allowances
for distribution, are also included in net revenue. t. Use of Estimates- The preparation of consolidated financial statements in conformity with
Chilean GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and liabilities at
the date of the consolidated financial statements, as well as the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. F-13




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) u. Translation to U.S. Dollars- The Company maintains its accounting records and prepares its
financial statements in Chilean pesos. The U.S. dollar amounts disclosed in the accompanying
consolidated financial statements are presented solely for the convenience of the readers.
Such translated amounts have been calculated based on the December 31, 2004 observed exchange
rate of Ch$557.40 per U.S.$1.00 reported by the Chilean Central Bank. This translation should
not be construed as a representation that the Chilean peso amounts actually represent or have
been, could have been or could in the future be converted into U.S. dollars at that or any
other rate. v. Forward
contracts -The Company has entered into foreign exchange forward
contracts designated as cash flow hedges of existing transactions that have been
designated as hedge instruments against variations in the foreign exchange rate of specific
items, and are recorded in accordance with Technical Bulletin N°57 issued by the Chilean
Institute of Accountants. In accordance
with the Technical Bulletin 57, the unrealized gains on these
contracts are deferred while the unrealized losses are charged to
income. w. Long-lived assets -The Company reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the carrying amount
of an asset to the undiscounted future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of the assets. In
cases where a readily determinable market value is not available, the fair value is estimated
using the present value of expected future cash flows. Assets to be disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. x. Cost of sales and Administrative and selling expenses- The cost of sales line item
includes: Cost of goods sold (excluding certain costs related to delivery and distribution as
defined below as administrative and selling expenses). The administrative and selling expense
line item includes: general and administrative, materials and office supplies, overhead
salaries, bad debt expense, inbound freight charges, purchasing and receiving costs, inspection
costs, warehousing costs, and other distribution network costs. y. Sales - lease back transactions -The Company has entered into certain qualifying
sales-leaseback transactions. Under Technical Bulletin No. 49, these transactions qualify as such as the risks and rewards
of ownership have been substantially transferred to the lessor who has then entered into a
contract to lease back the assets to the Company. z. Intangible- The Company has internally developed its trademarks and trade names. The
associated costs were charged to expense when incurred. aa.
Software- The Company has acquired software packages. The cost
paid to acquire software packages is included in Other fixed
Assets and depreciated over 48 months. F-14




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes)  3.
    
    CHANGES IN ACCOUNTING PRINCIPLES As of January 1, 2004, the Superintendency of Securities and Insurance, through Circular Letter
1697, has made effective the adoption of Technical Bulletin 72 on Business Combinations issued
by the Chilean Association of Accountants. These regulations have been applied by the Company
and pertain to the nature of permanent investments and financial statement consolidation and
business combination. The acquisition of Carrefour S.A. was accounted for in accordance with
this bulletin.  4.
    
    MARKETABLE SECURITIES The detail of marketable securities is as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Shares
    
    
    218,980
    
    
    
    393,852Mutual funds (fixed income securities) (1)
    
    
    2,050,149
    
    
    
    33,718,712Mutual funds (2)
    
    
    1,518,898
    
    
    
    1,499,708Total
    
    
    3,788,027
    
    
    
    35,612,272
 (1)
    
    The detail is as follows: Interest rateInstitutions
    
    Principal amount
    
    
    (month)
    
    
    Interest
    
    
    Total2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    %
    
    
    %
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Fondos Mutuos Security
    
    
    
    
    
    
    4,000,000
    
    
    
    
    
    
    
    0.238
    
    
    
    
    
    
    
    3,173
    
    
    
    
    
    
    
    4,003,173Fondos Mutuos Scotiabank
    
    
    
    
    
    
    11,500,000
    
    
    
    
    
    
    
    0.250
    
    
    
    
    
    
    
    6,369
    
    
    
    
    
    
    
    11,506,369Fondos Mutuos Bank
Boston
    
    
    1,500,000
    
    
    
    4,500,000
    
    
    
    0.280
    
    
    
    0.235
    
    
    
    37,644
    
    
    
    3,368
    
    
    
    1,537,644
    
    
    
    4,503,368Fondos Mutuos Banco
Estado
    
    
    
    
    
    
    4,000,000
    
    
    
    
    
    
    
    0.240
    
    
    
    
    
    
    
    2,880
    
    
    
    
    
    
    
    4,002,880Bandesarrollo Fondos
Mutuos
    
    
    
    
    
    
    2,500,000
    
    
    
    
    
    
    
    0.250
    
    
    
    
    
    
    
    1,667
    
    
    
    
    
    
    
    2,501,667Fondos Mutuos BBVA
    
    
    
    
    
    
    5,000,000
    
    
    
    
    
    
    
    0.263
    
    
    
    
    
    
    
    1,050
    
    
    
    
    
    
    
    5,001,050Fondos Mutuos Corp Banca
    
    
    500,000
    
    
    
    2,200,000
    
    
    
    0.280
    
    
    
    0.280
    
    
    
    12,505
    
    
    
    205
    
    
    
    512,505
    
    
    
    2,200,205Total
    
    
    2,000,000
    
    
    
    33,700,000
    
    
    
    
    
    
    
    
    
    
    
    50,149
    
    
    
    18,712
    
    
    
    2,050,149
    
    
    
    33,718,712
 (2)
    
    This amount represents an investment in a combined portfolio of fixed and variable
rate instruments.  5.
    
    NOTES AND ACCOUNTS RECEIVABLE The detail of notes and accounts receivable is as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$(As restatedsee Note 24b)Trade accounts receivable (a)
    
    
    103,820,142
    
    
    
    142,490,872Notes receivable
    
    
    2,136,528
    
    
    
    2,334,382Sundry debtors (b)
    
    
    36,726,352
    
    
    
    33,584,088Allowance for doubtful accounts
    
    
    (18,721,181
    )
    
    
    (21,803,242
    )Total
    
    
    123,961,841
    
    
    
    156,606,100
 F-15




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) 
 (a)
    
    In 2004, this amount includes ThCh$126,536,512 (ThCh$81,336,872 in 2003) of trade
accounts receivable of Servicios y Administración de Créditos Comerciales Presto S.A. the
finance subsidiary of the Company.(b)
    
    This principally corresponds, at December 31, 2003, to the unpaid portion of the
receivable from Disco S.A.. The receivable relates to the 1999 sale of the shares of
Supermercados Ekono S.A. (Argentina). Its maturity date was May 12, 2003. Disco S.A. paid
the above-mentioned amount on the basis of the Argentine law which stipulates that the
obligations expressed and payable in dollars should be converted to Argentine pesos.
Such pesoified payment amount left an outstanding receivable of ThCh$29,047,394 as of
December 31, 2003 and ThCh$26,601,742 as of December 31, 2004.Management believes that the Company has contractual and legal recourse to recover the
remaining balance, in the form originally agreed to and, as a result, no provision is
necessary for the receivable due from Disco S.A., which is guaranteed by Disco Ahold
International Holding N.V. (Note 22d.).  6.
    
    INVENTORIES The detail of inventories is as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Merchandise for sale
    
    
    87,303,962
    
    
    
    113,445,931Imports in transit
    
    
    3,848,044
    
    
    
    4,493,249Supplies
    
    
    597,038
    
    
    
    703,808Total
    
    
    91,749,044
    
    
    
    118,642,988
 In 2003 and 2004, the Company has not recorded allowances for slow turnover as it has
implemented strategies to identify and discount the retail price of items held in stock for
longer than average periods of time (see Note 2.i.). F-16




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes)  7.
    
    OTHER CURRENT ASSETS The detail of other current assets is as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$(As restated
see Note 24b.)Deferred taxes (Note 14.b)
    
    
    3,342,964
    
    
    
    5,148,758Stand-by letter of credit (1)
    
    
    52,275,000
    
    
    
    Repurchase agreements
    
    
    
    
    
    
    25,018,118Other
    
    
    2,543,304
    
    
    
    2,745,382Totals
    
    
    58,161,268
    
    
    
    32,912,258
 
 (1)
    
    Corresponds to a short-term deposit endorsed to Citibank N.A., in order to guarantee
the payment of the Agreement for Standby Letter of Credit, corresponding to the payment
that the Company was required to make to Carrefour Nederland B.V. for the purchase of the
shares of Carrefour Chile S.A. F-17




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes)  8.
    
    PROPERTY, PLANT AND EQUIPMENT - NET The detail of property, plant and equipment is as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Land
    
    
    139,960,913
    
    
    
    165,631,207Buildings and infrastructure:Buildings
    
    
    361,271,893
    
    
    
    423,036,561Construction in progress
    
    
    12,657,638
    
    
    
    36,339,567Machinery and equipment
    
    
    143,280,514
    
    
    
    163,585,029Other:Leased assets (1)
    
    
    40,147,074
    
    
    
    42,274,228Fixtures
    
    
    25,259,520
    
    
    
    30,143,192Subtotal
    
    
    722,577,552
    
    
    
    861,009,784Technical revaluation (2):Land
    

    
    3,609,149
    
    
    
    3,609,149Buildings
    
    
    558,506
    
    
    
    558,506Subtotal
    
    
    4,167,655
    
    
    
    4,167,655Total gross property, plant and equipment
    
    
    726,745,207
    
    
    
    865,177,439Accumulated depreciation
    
    
    (214,608,155
    )
    
    
    (270,163,475
    )Total net property, plant and equipment
    
    
    512,137,052
    
    
    
    595,013,964
 
 (1)
    
    Corresponds to land, buildings and equipment leased under finance type leases for
store premises. The Company is a lessee in these transactions.(2)
    
    The technical revaluation was determined based on a study by independent consultants,
in accordance with Circular No1529 of the SVS. The depreciation is determined using the straight-line method. Depreciation amounted to
ThCh$35,009,170 in 2002, ThCh$38,495,916 in 2003 and ThCh$47,649,926 in 2004 and includes
ThCh$29,681 in each year for the depreciation of the technical revaluation. The depreciation
expense for the three years in the period ended December 31, 2004 has been included in
Selling and Administrative Expense. These amounts include the
amortization expense associated with leased assets ThCh$1,557,063,
ThCh$3,830,758 and ThCh$4,980,593 in 2002, 2003 and 2004 respectively. F-18




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) Useful lives assigned to property, plant and equipment: The detail of the useful life assigned to property, plant and equipment is as follows: 
    
    Buildings and infrastructure
    
    
    20 to 60
    
    
    years
    
    Machinery and equipment
    
    
    4 to 7
    
    
    years
    
    Leased assets
    
    
    5 to 7
    
    
    years
    
    Fixtures
    
    
    10
    
    
    years
    
    Other fixed assets
    
    
    4
    
    
    years
  9.
    
    OTHER ASSETS - NET Other assets are summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Goodwill (net) (Note 9a)
    
    
    9,601,161
    
    
    
    31,406,459Other long-term assets (Note 9b)
    
    
    15,183,924
    
    
    
    28,137,184Total
    
    
    24,785,084
    
    
    
    59,543,643
 a. Goodwill and negative goodwill Goodwill and (negative goodwill) net of accumulated amortization are detailed as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$SAITEC S.A.
    
    
    (283,318
    )
    
    
    (141,659
    )El Rodeo S.A.
    
    
    (425,914
    )
    
    
    (212,957
    )Maquinsa S.A.
    
    
    9,880,037
    
    
    
    9,110,164Magallanes S.A.
    
    
    
    
    
    
    22,265,298Supermercados la Frontera S.A.
    
    
    214,427
    
    
    
    199,466Alimentos y Servicios Ltda.
    
    
    215,929
    
    
    
    186,147Total
    
    
    9,601,161
    
    
    
    31,406,459
 F-19




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) The accumulated amortization for goodwill was ThCh$6,780,681 and ThCh$8,758,735 at December 31,
2003 and December 31, 2004, respectively, and the accumulated amortization for negative
goodwill was ThCh$2,259,451 and ThCh$2,614,067 at December 31, 2003 and December 31, 2004,
respectively. The amortization for goodwill is included in non operating expense and the
amortization for negative goodwill is included in non operating income (see Note 18). Incorporation of Saitec S.A., El Rodeo S.A. and Almac Internacional S.A. On December 28, 1995, the Company received 99.96%, 99.99% and 99.99% interests in SAITEC S.A.,
El Rodeo S.A., and Almac Internacional S.A., respectively, as payment for the capital increase
approved at the Extraordinary Shareholders Meeting held on that date. These investments were
contributed by the shareholders Empresas Almac S.A. and Estudios y Proyectos Comerciales e
Inmobiliarios S.A. The acquisitions were accounted for as described in Note 2b. The excess of the carrying value
of the underlying net assets over the stated increase in the Companys capital (negative
goodwill) was recognized and is being amortized over ten years. Acquisition of Maquinsa S.A. (formerly Fullmarket S.A.) On October 31, 1996, the Company acquired from unrelated third parties a 100% interest in
Maquinsa S.A. for ThCh$12,983,218, that was paid during 1997. During 1999 the Company
increased the goodwill balance by ThCh$1,069,337 paid as the result of an arbitration
proceeding that settled a dispute with Fullmarkets former owners. The acquisition was
accounted for as a purchase. Excess of cost over assets acquired and liabilities assumed was
designated as goodwill, which is being amortized over twenty years. Acquisition of Magallanes S.A. (formerly Carrefour S.A.) On January 7, 2004, the purchase agreement entered into on December 19, 2003 was consummated
whereby Carrefour Nederland B.V. sold to the Company 1,701,403 shares of Carrefour Chile S.A.,
corresponding to 99.9999% of the shares of the latter, for a price of ThCh$72,135,247. At that
same date, and based on the same agreement, Intercross Roads B.V. (a company related to
Carrefour Nederland B.V.) sold to Administradora de Concesiones Comerciales de Hipermercados
S.A. (a subsidiary of the Company) one share of Carrefour Chile S.A., corresponding to 0.0001%
of the shares of the latter, for a price of ThCh$43. With these purchases, the Company acquired
the entirety of the issued shares of Carrefour Chile S.A. The Company
made the acquisition to increase its market share. The goodwill resulting from the purchase of shares of Carrefour S.A., currently Magallanes
S.A., has been calculated considering the acquired companys equity at fair value and is being
amortized over the term established by Circular No.1367 of the Superintendency of Securities
and Insurance. The Company
consolidated Magallanes S.A. in its operations as of January 1,
2004. F-20




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) The detail of fair values of assets and liabilities acquired in the purchase of Magallanes S.A.
is the following: ThCh$CURRENT ASSETS
    
    
    5,994,925PROPERTY, PLANT AND EQUIPMENT
    
    
    53,364,959OTHER ASSETS
    
    
    6,813,292TOTAL ASSETS ACQUIRED
    
    
    66,173,176CURRENT LIABILITIES
    
    
    16,780,677LONG-TERM DEBT
    
    
    211,132TOTAL LIABILITIES ASSUMED
    
    
    16,991,809NET ASSETS ACQUIRED
    
    
    49,181,367
 For the calculation of fair values related to fixed assets, the independent appraiser Mr.
Enrique Mc Manus was requested to appraise the assets of Carrefour Chile S.A., based on the
financial statements as of December 31, 2003. At December 31, 2004 the process for calculating
the fair value was completed, adjusting the differences against the goodwill initially
calculated. b. Other long-term assets Other long-term assets are detailed as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Electric utility refundable advances
    
    
    194,484
    
    
    
    224,791Deferred discount on bond issuance
    
    
    3,039,824
    
    
    
    2,658,835Deferred expenses of bond placement and
issuance costs
    
    
    1,900,732
    
    
    
    1,411,565Investment in related companies (2)
    
    
    1,577,166
    
    
    
    1,907,745Long term receivables (1)
    
    
    7,286,179
    
    
    
    14,664,572Deferred tax (Note 14.b)
    
    
    
    
    
    
    5,476,978Other
    
    
    1,185,539
    
    
    
    1,792,698Total
    
    
    15,183,924
    
    
    
    28,137,184
 
 (1)
    
    Long-term trade debtors correspond to receivables with maturities over a year. F-21




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes)  (2)
    
    Investment in related companies detail (all Chilean) is as follows: Ownershippercentage
    
    
    Book value of
    
    
    Equity in income(as of all year-
    
    
    investment
    
    
    (losses) of investeeends presented)
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004%
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Alimentos y Servicios Ltda.
    
    
    50.00
    
    
    
    683,635
    
    
    
    969,275
    
    
    
    235,416
    
    
    
    157,021
    
    
    
    298,651Inversiones Solpacific S.A.
    
    
    50.00
    
    
    
    99,201
    
    
    
    41,904
    
    
    
    62,466
    
    
    
    62,731
    
    
    
    (14,836
    )Inmobiliaria Mall Calama S.A.
    
    
    25.00
    
    
    
    794,330
    
    
    
    896,566
    
    
    
    26,698
    
    
    
    244,352
    
    
    
    326,642Totals
    
    
    
    
    
    
    1,577,166
    
    
    
    1,907,745
    
    
    
    324,580
    
    
    
    464,104
    
    
    
    610,457
  10.
    
    ACCOUNTS PAYABLE Accounts payable are summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Domestic suppliers
    
    
    183,217,057
    
    
    
    200,128,479Foreign suppliers
    
    
    1,590,176
    
    
    
    1,570,849Total
    
    
    184,807,233
    
    
    
    201,699,328
 F-22




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes)  11.
    
    ACCRUALS AND WITHHOLDINGS Accruals and withholdings are summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Accruals:Vacations
    
    
    2,854,085
    
    
    
    3,977,607Bonuses payable
    
    
    2,029,426
    
    
    
    2,105,607Accrued expenses (1)
    
    
    5,048,723
    
    
    
    8,548,526Subtotal
    
    
    9,932,234
    
    
    
    14,631,740Withholdings:VAT
    
    
    1,834,585
    
    
    
    Other
    
    
    3,145,332
    
    
    
    4,677,433Total
    
    
    14,912,151
    
    
    
    19,309,173
 
 (1)
    
    In 2004, this amount includes ThCh$607,192 (ThCh$733,601 in 2003) of severance
indemnities (See Note 20).  12.
    
    BANK DEBT, SUNDRY CREDITORS AND OTHER LIABILITIES a. Short-term bank debt Short-term bank debt is summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Payable in:United States dollars
    
    
    17,822,171
    
    
    
    17,260,508Chilean pesos (not indexed)
    
    
    32,318,750
    
    
    
    4,319,591Inflation-linked units (UFs)
    
    
    545,111
    
    
    
    619,707Total
    
    
    50,686,032
    
    
    
    22,199,806Weighted average interest rates are as follows:Loans in U.S. Dollars
    
    
    5.60
    %
    
    
    3.66
    %Loans in Chilean pesos (not indexed)
    
    
    4.16
    %
    
    
    3.04
    %Loans in inflation-linked units (UFs)
    
    
    4.80
    %
    
    
    4.80
    %
 F-23




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes)  Balance
    
    
    
    
    BalanceBank/Financial Institution
    
    December 31,
    
    
    
    
    December 31,
    
    
    Stated2003
    
    
    Currency
    
    2004
    
    
    Interest RateThCh$
    
    
    
    
    ThCh$Santander - Santiago
    
    
    2,530,078
    
    
    US$
    
    
    5,227,244
    
    
    LIBOR + 0.5545,111
    
    
    UF
    
    
    619,707
    
    
    4.80%4,104,786
    
    
    Ch$
    
    
    4,005,700
    
    
    4.16%Bice
    
    
    2,564,800
    
    
    US$
    
    
    1,156,578
    
    
    LIBOR + 0.5Chile
    
    
    10,760,602
    
    
    US$
    
    
    3,340,312
    
    
    LIBOR + 0.55,125,000
    
    
    Ch$
    
    
    Scotiabank
    
    
    1,216,126
    
    
    US$
    
    
    1,570,003
    
    
    LIBOR + 0.53,282,235
    
    
    Ch$
    
    
    299,146
    
    
    4.16%Citibank
    
    
    174
    
    
    Ch$
    
    
    14,745
    
    
    4.16%Bhif
    
    
    4,627,087
    
    
    Ch$
    
    
    Estado
    
    
    252,711
    
    
    US$
    
    
    1,388,911
    
    
    LIBOR + 0.5BCI
    
    
    119,759
    
    
    US$
    
    
    4,575,262
    
    
    7.16%8,191,185
    
    
    Ch$
    
    
    BankBoston
    
    
    378,095
    
    
    US$
    
    
    2,198
    
    
    LIBOR + 0.53,093,064
    
    
    Ch$
    
    
    Security
    
    
    3,895,219
    
    
    Ch$
    
    
    Total
    
    
    50,686,032
    
    
    
    
    
    22,199,806
 b. Long-term bank debt Long-term bank debt is summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Payable in:Inflation-linked units (UFs)
    
    
    55,191,943
    
    
    
    30,112,870Chilean pesos
    
    
    
    
    
    
    74,140,350Total
    
    
    55,191,943
    
    
    
    104,253,220Less: Current portion (see Note 12.g)
    
    
    20,897,468
    
    
    
    9,332,410Long-term portion
    
    
    34,294,475
    
    
    
    94,920,810
 F-24




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (Restated for general price-level changes) Balance
    
    
    
    
    
    
    BalanceBank/Financial Institution
    
    
    
    
    
    December 31,
    
    
    
    
    
    
    December 31,
    
    
    Stated
    
    
    MaturityCurrency
    
    
    2003
    
    
    Currency
    
    
    2004
    
    
    Interest rate
    
    
    dateSantander - Santiago
    
    UF
    
    
    13,482,875
    
    
    Ch$
    
    
    26,740,350
    
    
    TAB+0.85%
    
    
    04-06-2009Estado
    
    UF
    
    
    20,811,600
    
    
    UF
    
    
    20,780,460
    
    
    
    4.49
    %
    
    
    02-09-2007Citibank
    
    
    
    
    
    
    
    
    
    Ch$
    
    
    22,400,000
    
    
    TAB+0.80%
    
    
    02-09-2007BBVA
    
    
    
    
    
    
    
    
    
    Ch$
    
    
    25,000,000
    
    
    TAB+0.80%
    
    
    20-12-200934,294,475
    
    
    
    
    
    
    
    94,920,810
 TAB is a referenced rate in the Chilean Market, and corresponds to the average rate for fund
investments of 90, 180 and 360 days. Long-term bank debt is payable as follows: Date of MaturityBank/Financial Institution
    
    Currency
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    TotalThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Santander - Santiago
    
    Ch$
    
    
    5,942,300
    
    
    
    5,942,300
    
    
    
    
    
    
    
    14,855,750
    
    
    
    26,740,350Estado
    
    UF
    
    
    
    
    
    
    20,780,460
    
    
    
    
    
    
    
    
    
    
    
    20,780,460Citibank
    
    Ch$
    
    
    11,200,000
    
    
    
    11,200,000
    
    
    
    
    
    
    
    
    
    
    
    22,400,000BBVA
    
    Ch$
    
    
    6,250,000
    
    
    
    6,250,000
    
    
    
    12,500,000
    
    
    
    
    
    
    
    25,000,000Total
    
    
    
    
    
    
    23,392,300
    
    
    
    44,172,760
    
    
    
    12,500,000
    
    
    
    14,855,750
    
    
    
    94,920,810
 The material covenants of our long-term debt agreements at December 31, 2004 are described in
the table below: Principal Loan Covenants Banco Santander
Santiago
    
    
    1.
    
    
    Minimum coverage of interest expenses of 3.75 (operating income
plus depreciation divided by interest expense) for June and
December2.
    
    
    Not to sell or use as collateral the Ekono, Almac and Lider brands.3.
    
    
    No leverage more than 1.2 times (interest - bearing liabilities
divided by equity plus accumulated amortization of goodwill and
negative goodwill).4.
    
    
    Not to grant new guarantees.
 At December 31, 2004, the Company complies with these covenants. F-25




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  c.
    
    Capital lease and leaseback obligations Capital lease and leaseback obligations are summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Lease obligations
    
    
    8,148,496
    
    
    
    7,086,008Less: Current portion
    
    
    3,393,369
    
    
    
    3,603,554Long-term portion
    
    
    4,755,127
    
    
    
    3,482,454Leaseback obligations
    
    
    6,931,369
    
    
    
    4,762,414Less: Current portion
    
    
    2,161,819
    
    
    
    2,415,875Long-term portion
    
    
    4,769,550
    
    
    
    2,346,539Total long-term lease and leaseback obligations
    
    
    9,524,677
    
    
    
    5,828,993
 Future minimum lease payments
    
    2005

    
    2006
    
    
    2007
    
    
    2008
    
    
    TotalThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Totals
    
    
    6,019,439
    
    
    
    3,880,326
    
    
    
    1,732,448
    
    
    
    216,219
 Lease and leaseback obligations are denominated in US$ and U.F.s and accrue interest at rates
that range from 7.00% to 13.56%. 2003
    
    
    2004Currency
    
    
    ThCh$
    
    
    ThCh$Short - term lease and leaseback obligations
    
    US$
    
    
    2,374,593
    
    
    
    3,014,514UF
    
    
    3,180,595
    
    
    
    3,004,915Total short - term lease and leaseback
obligations (See Note 12g.)
    
    
    
    
    
    
    5,555,188
    
    
    
    6,019,429Long - term lease and leaseback obligations
    
    US$
    
    
    4,095,764
    
    
    
    3,413,118UF
    
    
    5,428,913
    
    
    
    2,415,875Total long -
term lease and leaseback obligations (See Note 12g.)
    
    
    
    
    
    
    9,524,677
    
    
    
    5,828,993Total lease and leaseback obligations
    
    
    
    
    
    
    15,079,865
    
    
    
    11,848,422
 F-26




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) Leaseback agreements Sales
    
    
    ContractualPrice to
    
    
    Installment
    
    
    N° of
    
    
    Interest
    
    
    
    
    
    
    Income (loss)Creditor
    
    Asset
    
    
    buyer-lessor
    
    
    Payments
    
    
    installments
    
    
    rate
    
    
    Term of contract
    
    
    from transactionsUF
    
    
    UF
    
    
    
    
    
    
    %
    
    
    
    
    
    
    ThCh$Bansa Santander S.A.
    
    Land and buildings Alameda
    
    
    380,518
    
    
    
    570,504
    
    
    
    121
    
    
    
    8.57
    
    
    
    18.12.1996 to 20.01.2007
    
    
    
    Bansa Santander S.A.
    
    Land and buildings Maipú
    
    
    519,499
    
    
    
    763,499
    
    
    
    121
    
    
    
    8.28
    
    
    
    30.08.1996 to 02.10.2006
    
    
    
    (317,177
    )Bansa Santander S.A.
    
    Land San Bernardo
    
    
    109,893
    
    
    
    111,711
    
    
    
    121
    
    
    
    8.20
    
    
    
    14.03.1997 to 14.03.2007
    
    
    
    (51,867
    )Bansa Santander S.A.
    
    Land San Bernardo
    
    
    21,026
    
    
    
    30,904
    
    
    
    123
    
    
    
    8.65
    
    
    
    04.12.1997 to 14.03.2007
    
    
    
    
 The
difference between the leaseback portion of the real estate and its carrying value is
depreciated straight-line over its useful life. Under paragraph 5 of Technical Bulletin 49,
the Company determined the fair value and the carrying value of the assets leased back at the
initiation of the contract and, as no differences between the two were noted, no further
accounting adjustments were recorded.  d.
    
    Short-term sundry creditors Short-term sundry creditors are summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Provision for merchandise rebate obligation (1)
    
    
    2,201,363
    
    
    
    1,627,313Other (in Chilean pesos) (2)
    
    
    5,051,657
    
    
    
    5,815,477Total
    
    
    7,253,020
    
    
    
    7,442,790
 
 (1)
    
    The provision relates to deferred revenue the Company has relating to gift
certificates that is sells to customers at face value. The Company debits cash and
credits deferred revenue when the vouchers are sold at 100% of their
redemption value, recognizing revenue (with a corresponding decrease to deferred revenue) as
the vouchers are redeemed by the customers.(2)
    
    Consist of obligations with less than one year in maturity classified as
non-operational.  e.
    
    Commercial paper At December 31,Short term
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$Payable in:Chilean pesos
    
    
    59,433,153
    
    
    
    58,020,819
 F-27




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) The detail of maturities as of December 31, 2003 and 2004 is as follows: Series
    
    Stated interest rate
    
    
    Principal amount
    
    
    Maturity Date2003
    
    
    2004ThCh$
    
    
    ThCh$003-3
    
    
    5.04
    %
    
    
    12,009,000
    
    
    
    
    
    
    
    16-03-2004003-4
    
    
    4.80
    %
    
    
    12,000,000
    
    
    
    
    
    
    
    04-11-2004003-5
    
    
    4.32
    %
    
    
    12,000,000
    
    
    
    
    
    
    
    01-12-2004011-1
    
    
    4.32
    %
    
    
    10,580,000
    
    
    
    
    
    
    
    11-05-2004011-2
    
    
    4.32
    %
    
    
    10,570,000
    
    
    
    
    
    
    
    10-06-2004003-6
    
    
    3.24
    %
    
    
    
    
    
    
    12,025,000
    
    
    
    09-03-2005003-7
    
    
    4.20
    %
    
    
    
    
    
    
    12,000,000
    
    
    
    19-10-2005003-8
    
    
    3.96
    %
    
    
    
    
    
    
    12,000,000
    
    
    
    17-11-2005011-3
    
    
    3.00
    %
    
    
    
    
    
    
    10,580,000
    
    
    
    04-05-2005011-4
    
    
    3.00
    %
    
    
    
    
    
    
    10,570,000
    
    
    
    21-04-2005
 Bonds: Long-term bonds are summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Payable in:Inflation-linked units (UFs)
    
    
    137,451,216
    
    
    
    137,024,366Less:
current portion (see note 12.g.)
    
    
    1,828,955
    
    
    
    5,549,947Total
    
    
    135,622,261
    
    
    
    131,474,419
 D&S and its subsidiary SAITEC S.A. have issued bonds to the Chilean public in UFs. The issues
are summarized as follows: D&Shas issued four series of bonds in 2001 and 2003. The detail is as follows: Bond
    
    Date of
    
    
    
    Amount
    
    
    
    
    
    
    
    Maturity
    
    Nominal
    
    Amortization
    
    InterestIssued
    
    Issuance
    
    Indexation
    
    issued
    
    Series
    
    date
    
    interest rate
    
    Terms
    
    PaymentSERIES A
    
    
    15.11.2001
    
    
    U.F.
    
    
    3,500,000
    
    
    A1 U.F.
A2 U.F.
    
    
    300,000
3,200,000
    
    
    
    2006
2006
    
    
    7.0% compounded
semiannually
    
    1 installment due on
April  , 2006
    
    Semiannually, due on April 1,
and October 1, each year,
as from April 1, 2001SERIES B
    
    
    15.11.2001
    
    
    U.F.
    
    
    1,200,000
    
    
    B1 U.F.
B2 U.F.
    
    
    200,000
1,000,000
    
    
    
    2022
2022
    
    
    6.5% compounded
semiannually
    
    32 semiannual equal
installments as from
October, 2022
    
    Semiannually, due on April 1,
and October 1, each year,
as from April 1, 2001SERIES C
    
    
    01.12.2003
    
    
    U.F.
    
    
    2,000,000
    
    
    C1 U.F.
    
    
    2,000,000
    
    
    
    2009
    
    
    4.5% compounded
semiannually
    
    10 semiannual
Installments as from
December, 2009
    
    Semiannually, due on April 1,
and December 1, each year
As from June 1SERIES D
    
    
    01.12.2003
    
    
    U.F.
    
    
    1,000,000
    
    
    D1 U.F.
    
    
    1,000,000
    
    
    
    2025
    
    
    5.5% compounded
semiannually
    
    38 semiannual
Installments as from
December, 2009
    
    Semiannually, due on April 1,
and December 1, each year
As from June 1
 F-28




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) SAITEC S.A.has issued to UF350,000 of 22 year bonds issued in 1992. Principal is paid down
semiannually from October 1, 1995, after a three-year grace period. Interest is payable
semiannually at 6.5%. These bonds are not secured. Interest accrued on the D&S and SAITEC bonds, at December 31, 2002, 2003 and 2004 was
ThCh$1,609,886, ThCh$1,609,867 and ThCh$1,605,033 respectively and is included in accordance
with Chilean GAAP with the bond principal in Bonds in the balance sheet. The difference
between par value and the proceeds is being deferred and amortized by the straight line method
which approximates the effective interest method. The discount at December 31, 2004, was
ThCh$3,061,182 (ThCh$3,442,204 in 2003) of which the current portion
is included in other current assets for ThCh$402,347
(ThCh$402,380 in 2003) and the long-term portion is included in other
assets-net for ThCh$2,658,835 (ThCh$3,039,824 in 2003). Commercial paper: On November 15, 2002, the Company registered an issue of bearer promissory notes amounting to
UF2,150,000, with the SVS, under number 003. On October 14, 2003, the Company also registered with the SVS, under the number 011, an
issuance of bearer promissory notes for UF1,250,000. The principal characteristics of this commercial paper are:  a)
    
    Accrued interest on the promissory notes at year end is shown with the current
portion of long-term liabilities together with the current portion of the liability.b)
    
    Long-term principal is shown under commercial paper and bonds on the consolidated
balance sheets.c)
    
    The promissory notes are not secured.d)
    
    At December 31, 2004, the premium from the placement of the promissory notes amounted
to ThCh$85,694 (ThCh$315,536 in 2003). At December 31, 2003, these amounts are shown in
other short  term liabilities.e)
    
    The expenses incurred in the issue and placement of these promissory notes were
capitalized and are being amortized over the issue term of the securities. At December
31, 2004, ThCh$461,099 have been amortized and included in the financial expenses for 2004
(ThCh$746,929 in 2003 and ThCh$37,919 in 2002). ThCh$30,416 is included in other current
assets. (ThCh$445,012 in 2003).f)
    
    The duration term for these issuances is ten years and the commercial paper is repaid
and renewed every year. F-29




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) Bonds and Commercial Paper Covenants Bonds
Series A, B, C, D
    
    
    1.
    
    
    Maintain an indebtedness relationship lower
than 1.2 times, defined as the ratio between
current liabilities that accrue interest and
equity.2.
    
    
    Minimum coverage of interest expense of 3.5
times (operating results plus depreciation plus
amortization of intangibles divided by interest
expenses).3.
    
    
    Keeping assets free from liens in a total
amount equal to at least 1.3 times the
outstanding balance of the total bonds issued
for the Issuer, which are in force, calculated
and measured each quarter over the consolidated
balance sheet.4.
    
    
    Keeping consolidated total equity of an amount
equal at least to UF13,000,000, calculated and
measured each quarter.Commercial paper
    
    
    1.
    
    
    Minimum Coverage of financial expenses of 3.5
(operating income plus depreciation divided by
interest expenses) for March, June, September
and December.2.
    
    
    Leverage less than 1.2 (current liabilities
divided by equity) for March, June, September
and December.
 At December 31, 2004, the Company complies with these covenants.  f.
    
    Long-term sundry creditors The detail of long  term portion sundry creditors is as follows. At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Due to Compañía de Petróleos de Chile S.A.
and accruing interest at 8.59% a year (1)
    
    
    245,369
    
    
    
    220,722Less: Current portion
    
    
    22,476
    
    
    
    22,476Total
    
    
    222,892
    
    
    
    198,246
 
 (1)
    
    This amount corresponds to an obligation for the purchase of land. Its final
maturity is in 2014. F-30




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  g.
    
    Analysis of current debt and other obligations included in the current portion of
long-term liabilities for each period presented As of December 31, 2003 Amount of principalpayable withinone year and
    
    
    Amount ofBank or Other
    
    
    
    
    
    Interest
    
    
    Date
    
    
    accrued interest as of
    
    
    Principal payableInstitution Name
    
    Principal
    
    
    rate
    
    
    of maturity
    
    
    December 31, 2003
    
    
    in more than one yearThCh$
    
    
    ThCh$Estado
    
    ThCh$20,304,000
    
    
    4.49
    %
    
    
    2007
    
    
    
    311,480
    
    
    
    20,811,600Santander
    
    ThCh$32,732,012
    
    TAB +1.25%
    
    
    2009
    
    
    
    20,585,988
    
    
    
    13,482,875Subtotal-Banks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,897,468
    
    
    
    34,294,475BondsSERIE A
    
    UF3,500,000
    
    UF +7%
    
    
    2006
    
    
    
    1,038,584
    
    
    
    60,700,500SERIE B
    
    UF1,200,000
    
    UF + 6.5%
    
    
    2022
    
    
    
    331,042
    
    
    
    20,811,600SERIE C
    
    UF2,000,000
    
    UF + 4.5%
    
    
    2009
    
    
    
    126,530
    
    
    
    34,686,000SERIE D
    
    UF1,000,000
    
    UF + 5.5%
    
    
    2025
    
    
    
    77,139
    
    
    
    17,343,000SERIEA-162
    
    UF120,000
    
    UF + 6.5%
    
    
    2014
    
    
    
    255,659
    
    
    
    2,081,161Subtotal Bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,828,955
    
    
    
    135,622,261Lease Obligations
    
    ThCh$13,374,604
    
    
    7% - 13.56
    %
    
    
    2007
    
    
    
    5,555,188
    
    
    
    9,524,677Other
    
    ThCh$190,000
    
    
    8.59
    %
    
    
    2013
    
    
    
    22,476
    
    
    
    222,892Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,304,087
    
    
    
    179,664,305
 As of December 31, 2004 Amount of principalpayable withinone year and
    
    
    Amount ofBank or Other
    
    
    
    
    
    Interest
    
    
    Date
    
    
    accrued interest as of
    
    
    Principal payableInstitution Name
    
    Principal
    
    
    rate
    
    
    of maturity
    
    
    December 31, 2004
    
    
    in more than one yearThCh$
    
    
    ThCh$Estado
    
    ThCh$20,304,000
    
    
    4.49
    %
    
    
    2007
    
    
    
    311,014
    
    
    
    20,780,460Santander
    
    ThCh$32,732,012
    
    TAB +0.85%
    
    
    2009
    
    
    
    3,275,916
    
    
    
    26,740,350Citibank
    
    ThCh$28,000,000
    
    TAB +0.80%
    
    
    2007
    
    
    
    5,716,480
    
    
    
    22,400,000BBVA
    
    ThCh$32,732,012
    
    TAB +0.80%
    
    
    2009
    
    
    
    29,000
    
    
    
    25,000,000Subtotal-Banks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,332,410
    
    
    
    94,920,810BondsSERIE A
    
    UF3,500,000
    
    UF +7%
    
    
    2006
    
    
    
    1,037,031
    
    
    
    60,609,675SERIE B
    
    UF1,200,000
    
    UF + 6.5%
    
    
    2022
    
    
    
    330,546
    
    
    
    20,780,460SERIE C
    
    UF2,000,000
    
    UF + 4.5%
    
    
    2009
    
    
    
    3,853,209
    
    
    
    30,907,928SERIE D
    
    UF1,000,000
    
    UF + 5.5%
    
    
    2025
    
    
    
    77,447
    
    
    
    17,317,050SERIEA-162
    
    UF120,000
    
    UF + 6.5%
    
    
    2014
    
    
    
    251,714
    
    
    
    1,859,306Subtotal Bonds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,549,947
    
    
    
    131,474,419Lease Obligations
    
    ThCh$10,485,329
    
    
    7% - 13.56
    %
    
    
    2007
    
    
    
    6,019,429
    
    
    
    5,828,993Other
    
    ThCh$190,000
    
    
    0.0859
    
    
    
    2013
    
    
    
    22,476
    
    
    
    198,246Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,924,262
    
    
    
    232,422,468
 Our debt with Santander Bank was entered into on a four year maturity schedule for the purpose
of financing the expansion of our business. This resulted in large principal payments during
2003 and 2004 on a total principal amount of ThCh$73,097,853 originating in 2001. In 2003, we
paid off a portion of this debt with the proceeds of certain bond issuance, specifically the
series C issuance. Interest expense is classified as non-operating expense (see Note 18). F-31




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)
(Restated for general price-level changes) 13. SHAREHOLDERS EQUITY The changes in shareholders equity accounts are as follows: Retained earningsNet incomeTechnical
    
    
    
    
    
    
    Retained
    
    
    for the yearPaid-in
    
    
    revaluation
    
    
    Other
    
    
    earnings
    
    
    (as restated -
    
    
    Interimcapital
    
    
    reserve
    
    
    reserves
    
    
    (as restated)
    
    
    see Note 24a)
    
    
    dividends
    
    
    TotalThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Balances, January 1, 2002
    
    
    208,528,749
    
    
    
    1,230,463
    
    
    
    32,444
    
    
    
    40,217,660
    
    
    
    39,365,276
    
    
    
    (6,900,000
    )
    
    
    282,474,592Transfers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    39,365,276
    
    
    
    (39,365,276
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,800,000
    )
    
    
    
    
    
    
    6,900,000
    
    
    
    (6,900,000
    )Price level restatement
    
    
    6,255,863
    
    
    
    36,914
    
    
    
    973
    
    
    
    1,987,288
    
    
    
    
    
    
    
    
    
    
    
    8,281,038Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,777,482
    
    
    
    (6,900,000
    )
    
    
    16,877,482Balances, December 31, 2002
    
    
    214,784,612
    
    
    
    1,267,377
    
    
    
    33,417
    
    
    
    67,770,224
    
    
    
    23,777,482
    
    
    
    (6,900,000
    )
    
    
    300,733,112Balances as of December
31, 2002 (1)
    
    
    222,355,769
    
    
    
    1,312,052
    
    
    
    34,595
    
    
    
    70,159,124
    
    
    
    24,615,638
    
    
    
    (7,143,225
    )
    
    
    303,740,443Balances, January 1, 2003
    
    
    214,784,612
    
    
    
    1,267,377
    
    
    
    33,417
    
    
    
    67,770,224
    
    
    
    23,777,482
    
    
    
    (6,900,000
    )
    
    
    300,733,112Transfers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,777,482
    
    
    
    (23,777,482
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,800,000
    )
    
    
    
    
    
    
    6,900,000
    
    
    
    (6,900,000
    )Price level restatement
    
    
    2,147,846
    
    
    
    12,674
    
    
    
    334
    
    
    
    894,777
    
    
    
    
    
    
    
    20,700
    
    
    
    3,076,331Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,766,514
    
    
    
    (6,900,000
    )
    
    
    4,866,514Balances, December 31, 2003
    
    
    216,932,458
    
    
    
    1,280,051
    
    
    
    33,751
    
    
    
    78,642,483
    
    
    
    11,766,514
    
    
    
    (6,879,300
    )
    
    
    301,775,957Balances as of December
31, 2002 (1)
    
    
    222,355,769
    
    
    
    1,312,052
    
    
    
    34,595
    
    
    
    80,608,545
    
    
    
    12,060,676
    
    
    
    (7,051,283
    )
    
    
    309,320,354Balances, January 1, 2004
    
    
    216,932,458
    
    
    
    1,280,051
    
    
    
    33,751
    
    
    
    78,642,483
    
    
    
    11,766,514
    
    
    
    (6,879,300
    )
    
    
    301,775,957Transfers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,766,514
    
    
    
    (11,766,514
    )
    
    
    
    
    
    
    Capital increase with increase
in new shares
    
    
    155,048,729
    
    
    
    
    
    
    
    (2,510,459
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,538,270Dividends paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,779,300
    )
    
    
    
    
    
    
    6,879,300
    
    
    
    (6,900,000
    )Price level restatement
    
    
    6,833,964
    
    
    
    32,001
    
    
    
    (14,219
    )
    
    
    1,908,841
    
    
    
    
    
    
    
    (269,100
    )
    
    
    8,491,487Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,357,195
    
    
    
    (10,350,000
    )
    
    
    7,195Balances, December 31, 2004
    
    
    378,815,151
    
    
    
    1,312,052
    
    
    
    (2,490,927
    )
    
    
    78,538,538
    
    
    
    10,357,195
    
    
    
    (10,619,100
    )
    
    
    455,912,909
 
 (1)
    
    Restated in thousands of constant Chilean pesos at of December 31, 2004.  a.
    
    Paid-in capital In accordance with article 10 of Law No18,046, the amount corresponding to monetary correction
of capital has been included in paid-in capital. The Companys paid-in capital is divided
into 6,520,000,000 no-par-value shares. Effective December 6, 2004, we conducted a four-for-one stock split of our common shares in
Chile. As a result of the stock split, the number of our outstanding shares increased from
1,630,000,000 to 6,520,000,000. In order to maintain the same economic and corporate rights
for the ADRs as the underlying common shares, the number of shares representing each ADS was
increased from 15 common shares per ADS to 60 common shares per ADS. F-32




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  b.
    
    Capital increases The Eleventh Extraordinary Shareholders Meeting held on May 23, 2002 approved a capital increase
of ThCh$163,622,500 through the issue of 250 million new no-par value registered shares of the
same series, which must be issued, subscribed and paid within 3 years from this date. The Twelfth Extraordinary Shareholders Meeting held on April 12, 2004 agreed to annul the
aforementioned corporate capital increase. The same Extraordinary Shareholders Meeting replaced
it, approving a capital increase of ThCh$170,000,000 through the issue of 250 million new no-par
value registered shares of the same series, which are issued, subscribed and paid at December
31, 2004. The Fourteenth Extraordinary Shareholders Meeting held on October 26, 2004 agreed to
redenominate the number of shares in which the Companys capital is divided by replacing each
existing share of the Company by four shares. The Companys capital of ThCh$378,815,151 will
therefore be divided into 6,520 million new no-par value registered shares of the same series.  c.
    
    Income distribution policy In compliance with current Chilean law, the Company must distribute at least 30% of its net
income as a cash dividend, unless the General Shareholders Meeting decides otherwise by a
unanimous vote of the issued shares. Interim dividends are recorded in the interim dividends column of the stockholders equity
note when they are provisionally declared by the Board of Directors during any given fiscal
year. They are recorded as a debit in the interim dividend column of the stockholders equity
note in the line item Net income for the year. The offsetting credit is against dividends
payable as a liability. These provisional interim dividends are approved formally by the
annual Shareholders Meeting in April of the subsequent year. The final dividends, of which
the interim dividends are a portion, may differ from the provisionally declared interim
dividends. Once the final dividend is approved and paid to shareholders, a credit is recorded
for the amount of interim dividends preliminarily approved in the prior year in the interim
dividends column of the stockholders equity note and the final declared dividend is shown as
a reduction in the retained earnings column. This treatment is mandated by Circular 1501 of
the Chilean Superintendency of Securities and Insurance.  d.
    
    Reserve for technical revaluation of property, plant and equipment This reserve corresponds to technical revaluations made by subsidiaries in prior
years.  e.
    
    Dividend paid During the
years ended December 31, 2002, 2003 and 2004 the Company paid dividends per share for Ch$2.5, Ch$2.5 and Ch$1.9, respectively. F-33




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  e.
    
    Other reserves The breakdown of the balance is the following: 2003
    
    
    2004ThCh$
    
    
    ThCh$Capital Increase Expenses Reserve (1)
    
    
    
    
    
    
    (2,525,522
    )Other Reserves
    
    
    34,595
    
    
    
    34,595Totals
    
    
    34,595
    
    
    
    (2,490,927
    )
 
 (1)
    
    Corresponds to expenses incurred in the placement of shares issued in accordance with
the capital increase approved by the Fourteenth Extraordinary Shareholders Meeting, which
is recorded in accordance with Circular No.1736 of the Superintendency of Securities and
Insurance (SVS). 14. INCOME TAXES  a.
    
    The detail of accrued income taxes is as follows: 2003
    
    
    2004ThCh$
    
    
    ThCh$First category income taxes
    
    
    (6,093,672
    )
    
    
    (7,361,409
    )Less:Monthly payments
    
    
    7,985,495
    
    
    
    7,668,010Personnel training credit and
real estate tax credit
    
    
    2,864,973
    
    
    
    4,335,871Recovery of first category income tax
by applying tax losses:For the year
    
    
    
    
    
    
    1,124,624Benefit from carryback of tax losses
    
    
    521,337
    
    
    
    525,590Arica Law tax credit
    
    
    9,142
    
    
    
    9,135Net income taxes refundable
    
    
    5,287,275
    
    
    
    6,301,821
 At December 31, 2004 Refundable taxes on the balance sheet is shown together with other Value
Added Taxes (VAT) receivable of ThCh$4,098,779 within current assets. At
December 31, 2004, D&S had no retained taxable income and its subsidiaries
have retained taxable income of approximately ThCh$130,283,283 (ThCh$122,802,049 in 2003).
The latter are entitled to a credit for first category tax when dividends are distributed to
the shareholders. Certain subsidiaries have tax losses for tax purposes totaling
ThCh$69,512,076 as of December 31, 2004 (ThCh$21,549,853 in 2003). F-34




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  b.
    
    Deferred taxes- The detail of accumulated consolidated balances of deferred taxes is
as follows: Balance, December 31, 2003 (as restated see Note 24b)
    
    
    Balance, December 31, 2004Deferred assets
    
    
    Deferred Liabilities
    
    
    Deferred assets
    
    
    Deferred LiabilitiesShort -
    
    
    Long-
    
    
    Short -
    
    
    Long-
    
    
    Short -
    
    
    Long-
    
    
    Short -
    
    
    Long-term
    
    
    term
    
    
    term
    
    
    term
    
    
    term
    
    
    term
    
    
    term
    
    
    termTemporary difference
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Allowance for uncollectible accounts
    
    
    2,981,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,524,200Vacations accrual
    
    
    485,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    676,216Leased assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    780,952
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    719,834Depreciation of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,756,783
    
    
    
    
    
    
    
    1,284,058
    
    
    
    
    
    
    
    5,425,174Severance indemnity
    
    
    124,712
    
    
    
    608,876
    
    
    
    
    
    
    
    
    
    
    
    103,223
    
    
    
    739,566Other events
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    482,015Sundry provisions
    
    
    55,321
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    114,322Allowance for uncollectible sundry debtors
    
    
    201,261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    182,352Capitalized financial cost
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,534,764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,629,224Deferred charges
    
    
    
    
    
    
    
    
    
    
    372,991
    
    
    
    1,283,947
    
    
    
    
    
    
    
    
    
    
    
    592,717
    
    
    
    1,060,578Tax loss
    
    
    
    
    
    
    3,663,475
    
    
    
    
    
    
    
    
    
    
    
    664,474
    
    
    
    11,152,579Total deferred taxes
    
    
    3,847,828
    
    
    
    4,272,351
    
    
    
    372,991
    
    
    
    8,356,446
    
    
    
    5,746,802
    
    
    
    13,176,203
    
    
    
    592,717
    
    
    
    8,834,810Complementary accounts balance
    
    
    (131,873
    )
    
    
    (500,496
    )
    
    
    
    
    
    
    (1,897,453
    )
    
    
    (5,327
    )
    
    
    (481,598
    )
    
    
    
    
    
    
    (1,617,183
    )Net balances per balance sheet
    
    
    3,715,955
    
    
    
    3,771,855
    
    
    
    372,991
    
    
    
    6,458,993
    
    
    
    5,741,475
    
    
    
    12,694,605
    
    
    
    592,717
    
    
    
    7,217,627
 Long-term deferred tax assets are presented net of long-term deferred tax liabilities and
are included in Other long-term assets (See Note 9b) as of December 31, 2004. In 2003, long
term deferred taxes liabilities are presented net of long term deferred tax assets and are
included in Other Long Term Liabilities. Short-term deferred tax assets are presented net of short-term deferred tax liabilities and is
included in Other current assets (See Note 7). The complementary accounts are amortized over the estimated period the differences will
reverse.  c.
    
    The charge to income for income taxes is as follows: 2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$(as restatedsee Note 24b)Current tax expenseFor the year
    
    
    (6,038,094
    )
    
    
    (6,093,672
    )
    
    
    (7,361,409
    )Prior year adjustment
    
    
    33,735
    
    
    
    (44,365
    )
    
    
    (18,522
    )Benefit from tax loss carry forwards
    
    
    
    
    
    
    521,337
    
    
    
    1,124,625Deferred taxesChange in deferred taxes
    
    
    1,863,216
    
    
    
    1,516,354
    
    
    
    4,117,941Effect of amortization of complementary accounts of
deferred tax assets and liabilities
    
    
    (679,819
    )
    
    
    (663,639
    )
    
    
    (134,826
    )Effect on assets and liabilities of deferred tax
from changes in valuation allowance
    
    
    
    
    
    
    
    
    
    
    144,422Total charge to results
    
    
    (4,820,961
    )
    
    
    (4,763,985
    )
    
    
    (2,127,769
    )
 F-35




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) 15. FOREIGN CURRENCIES Balances in foreign currencies, all of which are denominated in United States dollars, are
summarized as follows: At December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$ASSETSCurrent assets
    
    
    43,544,779
    
    
    
    27,474,352LIABILITIESCurrent liabilities
    
    
    21,772,247
    
    
    
    21,722,170Long-term liabilities
    
    
    4,067,283
    
    
    
    3,246,647Total liabilities
    
    
    25,839,530
    
    
    
    24,968,817Net asset position
    
    
    17,705,248
    
    
    
    2,505,535
 16. PRICE-LEVEL RESTATEMENT AND FOREIGN EXCHANGE Price-level restatement (monetary correction) and foreign exchange, described in Note 2d and
2e, credited (charged) to income is as follows: For the year ended December 31,2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$Property, plant and equipment  net
    
    
    15,039,810
    
    
    
    5,017,380
    
    
    
    14,463,010Non-monetary liabilities  net of other
long-term
non-monetary assets
    
    
    1,670,145
    
    
    
    781,863
    
    
    
    2,606,300Shareholders equity
    
    
    (8,572,944
    )
    
    
    (3,153,239
    )
    
    
    (8,491,487
    )Liabilities (UFs)
    
    
    (6,189,029
    )
    
    
    (418,129
    )
    
    
    (5,267,847
    )Income statement amounts
    
    
    (1,454,906
    )
    
    
    (49,555
    )
    
    
    (1,376,325
    )Price-level restatements  net
    
    
    493,076
    
    
    
    2,178,320
    
    
    
    1,933,651Foreign exchange gain (loss) (1)
    
    
    5,129,541
    
    
    
    (3,071,728
    )
    
    
    179,501Gain (loss) from changes in the purchasing
power of the Chilean peso
    
    
    5,622,617
    
    
    
    (893,408
    )
    
    
    2,113,152
 F-36




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  (1)
    
    The detail of foreign exchange gain (loss) is as follows: At December 31,Currency
    
    
    2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$Current assetsMarketable securities
    
    
    US$
    
    
    
    
    
    
    2,360,165
    
    
    
    (455,420
    )Sundry debtors
    
    
    US$
    
    
    
    5,946,269
    
    
    
    (10,234,155
    )
    
    
    (1,737,722
    )Total gain (loss)
    
    
    
    
    
    
    5,946,269
    
    
    
    (7,873,990
    )
    
    
    (2,193,142
    )Current liabilitiesDebt due to banks and
financial institution
    
    
    US$
    
    
    

    (816,728
    )
    
    
    4,802,262
    
    
    
    2,137,327Accruals
    
    
    US$
    
    
    
    
    
    
    
    
    
    
    235,316Total gain (loss)
    
    
    
    
    
    
    (816,728
    )
    
    
    4,802,262
    
    
    
    2,372,643Foreign exchange gain (loss)
    
    
    
    
    
    
    5,129,541
    
    
    
    (3,071,728
    )
    
    
    179,501
 17. DIRECTORS REMUNERATION The
remuneration paid to the Directors of the Company for performing their duties
is summarized as follows: For the year ended December2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$Attendance fees
    
    
    322,071
    
    
    
    373,408
    
    
    
    364,000
 The following amounts were also paid to the Directors for activities not related to their
positions as Directors: For the year ended December2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$Per  diem
    
    
    54,586
    
    
    
    54,046
    
    
    
    51,000
 All of these
fees are included in Selling and administrative expenses. F-37




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) 18. NON-OPERATING INCOME AND EXPENSES  a.
    
    Non-operating income for each year is summarized as follows: For the year ended December 31,2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$Interest income
    
    
    470,079
    
    
    
    552,037
    
    
    
    1,303,487Amortization of negative goodwill
    
    
    354,616
    
    
    
    362,018
    
    
    
    354,616Equity in income of investee
    
    
    324,580
    
    
    
    464,104
    
    
    
    625,293Other
    
    
    203,346
    
    
    
    142,592
    
    
    
    481,581Minority interest
    
    
    
    
    
    
    
    
    
    
    123,720Total
    
    
    1,352,622
    
    
    
    1,520,751
    
    
    
    2,888,697
  b.
    
    Non-operating expense for each year is summarized as follows: For the year ended December 31,2002
    
    
    2003
    
    
    2004(As restated, seeNote 24a)ThCh$
    
    
    ThCh$
    
    
    ThCh$Interest expense
    
    
    13,859,715
    
    
    
    16,818,061
    
    
    
    18,694,781Amortization of goodwill
    
    
    814,617
    
    
    
    814,617
    
    
    
    1,978,054Minority interest
    
    
    64,098
    
    
    
    40,445
    
    
    
    Restructuring expenses (1)
    
    
    5,122,417
    
    
    
    
    
    
    
    Equity in losses of investee
    
    
    
    
    
    
    
    
    
    
    14,836Donations
    
    
    599,021
    
    
    
    476,625
    
    
    
    305,510Loss from sale of fixed assets
    
    
    184,609
    
    
    
    60,256
    
    
    
    314,517Other
    
    
    625,581
    
    
    
    781,712
    
    
    
    728,742Totals
    
    
    21,270,058
    
    
    
    18,991,716
    
    
    
    22,036,440
 
 (1)
    
    In December 2002, the Company announced significant changes to its senior management
team, including the appointment of a new chief executive officer, as well as the of four
senior executives and another 70 employees. As part of this restructuring, the Company
incurred an aggregate of ThCh$5,122,417 in payments to former management and other
employees. F-38




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) 19. TRANSACTIONS WITH RELATED PARTIES  a.
    
    Related companies- The Company has transactions with its equity  method investees
and other related parties. Balances due from and due to these companies are shown on the
consolidated balance sheets. The detail of accounts receivable and payable is the
following: Receivable

    
    PayableAt December 31,2003
    
    
    2004
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Short-term:Servicios Profesionales y de
Comercialización S.A. (1)
    
    
    
    
    
    
    
    
    
    
    7,981,722
    
    
    
    13,348,516Intersuper Argentina S.A.
    
    
    
    
    
    
    
    
    
    
    15,692
    
    
    
    15,692Aquapuro S.A.
    
    
    214,069
    
    
    
    208,847
    
    
    
    
    
    
    
    Inversiones Solpacific S.A.
    
    
    109,700
    
    
    
    107,025
    
    
    
    
    
    
    
    Inmobiliaria Mall Calama S.A.
    
    
    1,160,663
    
    
    
    1,176,195
    
    
    
    
    
    
    
    Totals
    
    
    1,484,432
    
    
    
    1,492,067
    
    
    
    7,997,414
    
    
    
    13,364,208
 
 (1)
    
    The balance payable is owed to a shareholder and bears interest at 3.8% a year
on UF denominated principal. The accounts receivable and payable, other than that mentioned in (1), are not subject to
interest or indexation.  b.
    
    Transactions with related companies- The principal transactions with related
companies are summarized as follows: Cash
value of the transaction
    
    

Charged
to income for the yearRelationship to
    
    
Description
of services or
    
    

For the year ended December 31,
    
    

ended December 31,Company
    

Company
    
    

goods received/disbursed
    
    

    2002
    
    
    2003
    
    
    2004
    
    
    2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Servicios Profesionales y de
Comercialización S.A.
    
    Parent company
    
    Interest on checking account
    
    
    713,041
    
    
    
    429,121
    
    
    
    632,576
    
    
    
    (713,041
    )
    
    
    (429,121
    )
    
    
    (632,576
    )Readjustment
on current account
    
    
    1,003
    
    
    
    45,665
    
    
    
    465,944
    
    
    
    (1,003
    )
    
    
    (45,665
    )
    
    
    (465,944
    )Aquapuro S.A.
    
    Member of controling group
    
    Purchase of merchandise
    
    
    8,263,163
    
    
    
    7,084,131
    
    
    
    6,438,726
    
    
    
    
    
    
    
    
    
    
    
    Alimentos y Servicios Ltda.
    
    Member of controling group
    
    Purchase of merchandise
    
    
    2,401,501
    
    
    
    3,490,745
    
    
    
    3,663,171
    
    
    
    
    
    
    
    
    
    
    
    Larrain Vial S.A. Corredora de Bolsa
    
    Member of controling group
    
    Professional services
    
    
    
    
    
    
    405,211
    
    
    
    1,964,612
    
    
    
    
    
    
    
    
    
    
    
    (1,964,612
    )Kimberly Clarke Chile S.A.
    
    Common management
    
    Purchase of merchandise
    
    
    
    
    
    
    5,211,155
    
    
    
    7,226,464
    
    
    
    
    
    
    
    BST Consulting Group S.A.
    
    Common management
    
    Services
    
    
    
    
    
    
    108,761
    
    
    
    131,475
    
    
    
    
    
    
    
    (108,761
    )
    
    
    (131,475
    )BST Bancheque
    
    Common management
    
    Control of checks
    
    
    
    
    
    
    15,402
    
    
    
    485,066
    
    
    
    
    
    
    
    (12,943
    )
    
    
    (407,618
    )BST Procesadora Automatic
    
    Common management
    

Advisory
services in personnel search and recruitment
    
    
    
    
    
    
    
    
    
    
    2,787
    
    
    
    
    
    
    
    
    
    
    
    (2,787
    )BST Retail Services
    
    Common management
    
    Collection services
    
    
    
    
    
    
    2,106,757
    
    
    
    1,262,076
    
    
    
    
    
    
    
    (2,106,757
    )
    
    
    (1,262,076
    )BST Seguros Ltda.
    
    Common management
    
    Insurance brokers
    
    
    
    
    
    
    
    
    
    
    46,068
    
    
    
    
    
    
    
    
    
    
    
    (38,713
    )Promociones Financieras Ltda.
    
    Common management
    
    Deposits
    
    
    
    
    
    
    115,169
    
    
    
    1,313,875
    
    
    
    
    
    
    
    (96,781
    )
    
    
    (1,104,097
    )Soc Agrícola Panquehue Ltda.
    
    Member of controling group
    
    Purchase of merchandise
    
    
    
    
    
    
    4,504,768
    
    
    
    3,882,805
    
    
    
    
    
    
    
    
    
    
    
    Agrícola y Forestal Arcoiris S.A.
    
    Member of controling group
    
    Purchase of merchandise
    
    
    
    
    
    
    694,766
    
    
    
    893,740
    
    
    
    
    
    
    
    
    
    
    
    
 F-39




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) 20. SEVERANCE INDEMNITIES The Company records an accrual for voluntary severance indemnities, which has been accrued at
the discounted present value of the vested benefit using 7% discount rate and considering
future service until retirement (age 60 for women, age 65 for men). Long term accruals include employee severance indemnities, calculated in accordance with the
policy described in Note 2.r. An analysis of the changes in the accruals in each year is as
follows: As of December 31,2003
    
    
    2004ThCh$
    
    
    ThCh$Opening balance as of January 1,
    
    
    4,054,645
    
    
    
    4,315,220Increase in accruals
    
    
    2,949,866
    
    
    
    4,093,966Payments during the period
    
    
    (2,689,291
    )
    
    
    (3,451,603
    )Total
    
    
    4,315,220
    
    
    
    4,957,583
 The accrual amounts to ThCh$3,581,619 in 2003 and ThCh$4,350,391 in 2004, and is included as
accruals under long-term liabilities. The short-term accrual in 2003 and 2004, respectively,
amounts to ThCh$733,601 and ThCh$607,192 (Note 11). F-40




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) 21. FINANCIAL DERIVATIVES As of December 31, 2004 the Company and its subsidiaries do not have financial derivative
contracts with financial institutions. As of December 31, 2003 the Company and its subsidiaries held the following financial
derivative contracts with financial institutions with the object of decreasing exposure to
foreign currency risk, as follows: As of December 31, 2003Carrying value
    
    Fair
    
    UnrealizedNominal
    
    
    
    Date of
    
    
    
    Sales/
    
    Hedged
    
    of contract of
    
    market
    
    gain inType
    
    Amount
    
    Currency
    
    Maturity
    
    Item
    
    Purchase
    
    Item
    
    initiation
    
    value
    
    incomeThCh$
    
    ThCh$
    
    ThCh$FR(1)
    
    
    
    25,137,600
    
    
    Ch$
    
    
    
    
    1 quarter 2004
    
    
    
    Exchange note
    
    
    
    P
    
    
    
    Accounts receivable
    
    
    
    25,766,040
    

    
    
    24,345,800
    

    
    
    1,420,240FR
    
    
    
    100,000,000
    
    
    EUR
    
    
    
    
    1 quarter 2004
    
    
    
    Exchange note
    
    
    
    P
    
    
    
    Accounts receivable
    
    
    
    76,444,500
    

    
    
    76,444,500
    

    
    

1,420,240FR: Forward contract   (1) This corresponds to four contract hedge derivatives
(Ch$/US$), the detail is as follows: Transaction date
    
    Closing date
    
    Nominal AmountThCh$
    
    US$12/19/2003
    
    
    
    1/2/2004
    
    
    
    6,288,500
    
    
    
    10,000,00011/13/2003
    
    
    
    1/5/2004
    
    
    
    6,271,100
    
    
    
    10,000,00012/19/2003
    
    
    
    1/6/2004
    
    
    
    5,031,2300
    
    
    
    8,000,00012/19/2003
    
    
    
    1/8/2004
    
    
    
    7,546,800
    
    
    
    12,000,000Total
    
    
    
    
    
    
    
    25,137,600
    
    
    
    40,000,000 22. CONTINGENCIES AND COMMITMENTS Parent Company  a.
    
    Direct commitments1.
    
    The Company obtained loans from Banco Santander-Santiago for
the purchase of land located in the Commune of Huechuraba with a book
value of ThCh$63,906,989. The loans are collateralized by the land
purchased.2.
    
    The Company has obtained bank letters of credit to cover
purchase commitments for inventories and fixed assets amounting to ThCh$3,659,144. Those commitments mature during the year 2005. F-41




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  b.
    
    Indirect commitments1.
    
    The subsidiary Sociedad Anónima Inmobiliaria Terrenos y Establecimientos Comerciales
has committed to Banco Santander  Santiago to not transfer or pledge, without its
authorization, the shares of the subsidiary Rentas e Inversiones Maipú S.A.2.
    
    The Company has committed to Citibank N.A., to maintain its ownership percentage in
Aquapuro S.A.c.
    
    Management restrictions and financial covenants:  In accordance with the long-term credit agreements signed with Banco Santander Santiago, Banco
Estado and Citibank, the Company must comply with certain covenants. At December 31, 2004, the
Company complies with these covenants.  If the Company fails to operate within our covenants or to obtain waivers of these covenants,
it would result in defaults under our debt agreements and potentially, in the acceleration of
amounts due.  d.
    
    Lawsuits  At December 31, 2004 the Company and its subsidiaries have pending litigations against them due
to claims related to the regular business purpose of their operations, which do not
have risks of significant loss, in the opinion of management and
internal counsel.  The Company is currently litigating a series of disputes
stemming from the sale of our former Argentine subsidiary,
Ekono-Argentina, to Disco S.A. in December 1999. Under the
terms of the sale, in May 2000 Disco S.A. paid US$60 million of
the US$150 million purchase price, with the balance of
US$90 million coming due in May 2003. Of this
US$90 million, US$80 million was evidenced by ten
promissory notes of US$8 million each, and US$10 million
was held by Disco S.A. as collateral for certain liabilities of
Ekono-Argentina to be borne by the Company. The deferred
payment amount was guaranteed by Disco S.A.s parent company,
Disco-Ahold International Holdings N.V., a Netherlands Antilles
Company and a subsidiary of Royal Ahold N.V., a Netherlands company.
The Company was informed in December 2002 that Disco S.A. did not
intend to pay us the entire US$90 million amount in dollars, but
would instead convert the US$90 million balance owed to us into
Argentine pesos(A$) under then-prevailing Argentine dollar convertibility
regulations. On May 2, 2003, Disco S.A. made payment of
A$126 million. After approval by the Central Bank of Argentina
in August of 2003, this amount plus accrued interest was remitted to
us
based on an effective exchange rate of A$3.0 to 1 U.S. dollar which
was equivalent to US$42 million.  The Company has rejected the applicability of the Argentine
currency convertibility regime to this obligation as it was explicitly undertaken to be a U.S.
dollar obligation and to the guarantee by Disco-Ahold International
Holdings N.V.  In April 2003, the Company initiated an action against the
guarantor, Disco-Ahold International Holdings N.V., in the Court of
Curaçao in the Netherland Antilles. Our claim is for
US$47.5 million plus interest and expenses.  In managements opinion, the Company
has contractual and legal tools that will allow obtaining the payment of the debt, under the
contract as stipulated; and therefore it is not necessary to establish provisions with respect
to the accounts receivable guaranteed by Disco Ahold International N.V.  In April 2005, the Company initiated legal proceedings in the
Netherlands against Royal Ahold N.V., seeking damages. The claim is
for US$47.5 million plus interest and expenses to the extent not
recovered from Disco-Ahold. F-42




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    23.
    
    SUPPLEMENTARY CASH FLOW INFORMATION For the year ended December 31,2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$Interest collected
    
    
    131,665
    
    
    
    83,251
    
    
    
    931,175Interest paid
    
    
    12,038,582
    
    
    
    15,132,060
    
    
    
    15,633,213Income taxes paid
    
    
    900,333
    
    
    
    657,687
    
    
    
    228,537Property, plant and equipment acquired by
assuming directly related debt
    
    
    5,966,083
    
    
    
    5,858,183
    
    
    
    4,551,128
  The detail in Other charges included in operating activities, is as follows: 2002
    
    
    2003
    
    
    2004Description
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Amortization of debt issuance costs
    
    
    165,566
    
    
    
    969,244
    
    
    
    755,019Amortization of premium/discount associated
with bond issuance
    
    
    300,243
    
    
    
    157,334
    
    
    
    380,836Miscellaneous adjustments to other investments
    
    
    22,095
    
    
    
    255,982
    
    
    
    56,234Other accruals
    
    
    112,742
    
    
    
    431,548
    
    
    
    653,335Others
    
    
    257,673
    
    
    
    291,948
    
    
    
    Total
    
    
    858,319
    
    
    
    2,106,056
    
    
    
    1,845,424
  The detail in Other investment disbursements included in investing activities, is as
follows: 2002

    
    
    2003
    
    
    2004Description
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Lease prepayment
    
    
    
    
    
    
    (893,252
    )
    
    
    Others costs  investment in Carrefour S.A.
    
    
    
    
    
    
    
    
    
    
    (1,036,114
    )Other
    
    
    386,348
    
    
    
    (120,398
    )
    
    
    Total
    
    
    386,348
    
    
    
    (1,013,649
    )
    
    
    (1,036,114
    )
 F-43




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  24.
    
    RESTATEMENT FOR CORRECTIONS OF ERRORS  After the issuance of its financial statements for fiscal
2003, Management determined that its 2003 financial statements should
be restated for the following inadvertent errors:  Allowance for doubtful accounts

Management determined that a modification should have been made to our predictive model
methodology used for the determination of the allowance for doubtful
accounts, as described in Note 2.i. to reflect the effect of a deterioration of our aged
Presto portfolio as of December 31, 2003 and, therefore, the Company has concluded that
our allowance for doubtful accounts as of December 31, 2003 should be restated. The allowance for
doubtful accounts at December 31, 2003 was restated in accordance with our new methodology by
ThCh$11,183,775 which reduced net income by ThCh$9,279,255 consisting of a charge to SG&A
of ThCh$11,183,775 partly offset by a deferred tax benefit of
ThCh$1,901,243 and minority interest effect of
ThCh$3,278.  a.
    
    Income statement effect, for the year ended December 31, 2003 As originallyreported
    
    
    Adjustments
    
    
    As restatedDescription
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Minority interest
    
    
    130,884
    
    
    
    3,278
    
    
    
    127,606Income taxes
    
    
    (6,665,228
    )
    
    
    1,901,243
    
    
    
    (4,763,985
    )Selling and administrative expenses (Bad debt expense)
    
    
    (2,131,414
    )
    
    
    (11,183,775
    )
    
    
    (13,315,189
    )Net income
    
    
    21,339,930
    
    
    
    (9,279,254
    )
    
    
    12,060,676
  b.
    
    Balance sheet effect at December 31, 2003 As originallyDescription
    
    reported
    
    
    Adjustments
    
    
    As restatedThCh$
    
    
    ThCh$
    
    
    ThCh$Minority interest
    
    
    130,884
    
    
    
    3,278
    
    
    
    127,606Short-term deferred tax assets
    
    
    1,441,722
    
    
    
    1,901,243
    
    
    
    3,342,965Allowance
for doubtful accounts (in Accounts Receivable)
    
    
    (3,135,079
    )
    
    
    (11,183,775
    )
    
    
    (14,318,854
    )Total
shareholders' equity, December 31, 2003
    
    
    318,599,608
    
    
    
    (9,279,254
    )
    
    
    309,320,354
 F-44




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  c.
    
    Reclassification in the consolidated statement of cash flows  Management determined that certain reclassifications to its cash flows for the years ended
December 31, 2002 and 2003 are necessary in order to reflect the classification requirements of
Circular 1501 as explained below. Additionally, for operating activities, a further breakdown
of the other category into other credits and others debits is provided as required under
the same circular. As originally
    
    
    Reclassificationsreported
    
    
    and adjustments
    
    
    As restatedDescription
    
    2002
    
    
    2003
    
    
    2002
    
    
    2003
    
    
    2002
    
    
    2003ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Net revenue
    
    
    24,615,638
    
    
    
    21,339,930
    
    
    
    
    
    
    
    (9,279,254
    )
    
    
    24,615,638
    
    
    
    12,060,676Writte-offs and accruals
    
    
    3,319,774
    
    
    
    6,668,210
    
    
    
    203,576
    
    
    
    11,275,294
    
    
    
    3,523,350
    
    
    
    17,943,504Other
    
    
    2,086,895
    
    
    
    2,197,575
    
    
    
    (2,086,895
    )
    
    
    (2,197,575
    )
    
    
    
    
    
    
    Other credits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other charges
    
    
    
    
    
    
    
    
    
    
    858,319
    
    
    
    2,106,056
    
    
    
    858,319
    
    
    
    2,106,056Minority interest
    
    
    64,098
    
    
    
    43,723
    
    
    
    
    
    
    
    (3,278
    )
    
    
    64,098
    
    
    
    40,445(Decrease) increase in
accruals and witholdings
    
    
    (4,090,203
    )
    
    
    2,422,352
    
    
    
    2,541,516
    
    
    
    2,745,759
    
    
    
    (1,548,687
    )
    
    
    5,168,111(Decrease) increase in
income tax payable
    
    
    (2,117,467
    )
    
    
    1,048,528
    
    
    
    (2,541,516
    )
    
    
    (4,647,002
    )
    
    
    (4,658,983
    )
    
    
    (3,598,474
    )Net cash provided by (used in)
operating activities
    
    
    30,120,016
    
    
    
    34,287,648
    
    
    
    (1,025,000
    )
    
    
    
    
    
    
    29,095,016
    
    
    
    34,287,648
  In 2002, a typing error was made in the 20-F filing of ThCh$1,025,000 (monetarily corrected
from ThCh$1,000,000).  For the years ended December 31, 2002 and 2003, the reclassifications between Other and
Write-offs and accruals correspond to write-offs of
accounts receivable recorded by other
subsidiaries of the Company, which were recorded erroneously in
Others. The remainder of the reclassifications in 2003 between write-offs and accruals and
net income relate to the corrections of errors detailed
described above.  The reclassifications between Increase (decrease) in accruals and withholdings and Increase
(decrease) in income tax payable were caused by mistakenly including withholdings in income
tax payable.  25.
    
    SUBSEQUENT EVENTS  On June 16, 2005, the Superintendency of Banks and Financial Institutions, authorized the
subsidiary Servicios y Administración de Créditos Comerciales Presto S.A., to issue and
administer credit cards with the name Presto nationally, in conformity with the established
norms in chapter III.J.1 of the Compendio de Normas Financieras of the Central Bank of Chile. F-45




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    Accordingly, the Company has determined that this subsequent event would require the recording
of its allowance for doubtful accounts as of December 31, 2004 for the accounts receivable of
Servicios y Administración de Créditos Comerciales Presto S.A. to be in accordance with the
rules of the Superintendency of Banks and Financial Institutions, and has therefore recorded a
charge to income (bad debt expense) in the amount of ThCh$5,099,432.  In the period between January 1, 2005 and the date of presentation of these financial
statements, no other significant events that might affect their presentation have occurred.  26.
    
    DIFFERENCES BETWEEN CHILEAN AND UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES  The Companys consolidated financial statements have been prepared in accordance with Chilean
GAAP, which varies in certain respects from U.S. GAAP. Such differences involve methods for
measuring the amounts shown in the consolidated financial statements as well as additional
disclosures required by U.S. GAAP. The principal differences between Chilean GAAP and U.S.
GAAP for the Company are quantified and described below.  Under Chilean GAAP, financial statements are restated to reflect the full effects of the gain
(loss) in the purchasing power of the Chilean peso on the financial position and results of
operations of reporting entities. The method is based on a model that enables calculation of
net inflation gains or losses caused by monetary assets and liabilities exposed to changes in
the purchasing power of Chilean peso, by restating all non-monetary accounts in the financial
statements. The model prescribes that the historical cost of such accounts be restated for
general price-level changes between the date of origin of each item and the year-end. The
price-level restatement adjustments under Chilean GAAP are not reversed in the U.S. GAAP
reconciliation as allowed under Securities and Exchange Commission rules.  The Company received a Securities and Exchange Commission (the SEC) comment letter on October
26, 2004. This review and subsequent analysis by the Company resulted in a reevaluation of
accounting for certain transactions under U.S. GAAP so as to respond to the SEC comments. As a
result of this re-evaluation, the Company has determined that it must restate its opening
retained earnings at January 1, 2002 under U.S. GAAP, its
reconciliation of shareholders equity
under U.S. GAAP as of December 31, 2003 and its reconciliation of net income for the years
ended December 31, 2002 and 2003. The effect of these restatements is summarized in Note 26.b
(i), with additional detail on individual line items provided in the notes that follow. These
comments also resulted in various restatements to Chilean GAAP as
described in Note 24.  a.1. Deferred income Taxes- Since January 1, 2000, under Technical Bulletin No. 60 of the
Chilean Institute of Accountants, the Company records income taxes using the liability method
where deferred tax effects of temporary differences between the financial statement and tax
values of assets and liabilities are booked. Upon adoption, contra assets or liabilities
(complementary accounts) were recorded offsetting the effects of the deferred tax assets and
liabilities not recorded prior to January 1, 2000. The complementary accounts are amortized to
income over the estimated average reversal periods corresponding to the underlying temporary
differences to which the deferred tax asset or liability relates.  Under U.S. GAAP, companies must account for deferred taxes in
accordance with SFAS No. 109 Accounting for Income
Taxes, which requires an asset and liability approach for financial accounting and reporting of income
taxes, under the following basic principles: F-46




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    i.
    
    A deferred tax liability or asset is recognized for the estimated future tax effects
attributable to temporary differences and tax loss carryforwards.ii.
    
    The measurement of deferred tax liabilities and assets is based on the provisions of
the enacted tax law. The effects of future changes in tax laws or rates are not
anticipated.iii.
    
    The measurement of deferred tax assets are reduced by a valuation allowance, if,
based on the weight of available evidence, it is more likely than not that some portion of
the deferred tax assets will not be realized.  Temporary differences are defined as any difference between the financial reporting basis and
the tax basis of an asset and liability that at some future date will reverse, thereby
resulting in taxable income or expense. Temporary differences ordinarily become taxable or
deductible when the related asset is recovered or the related liability is settled. A deferred
tax liability or asset represents the amount of taxes payable or refundable in future years as
a result of temporary differences at the end of the current year.  The principal difference between U.S. GAAP and Chile GAAP relates to the reversal of the
complementary assets and liabilities recorded as a transitional provision for unrecorded
deferred taxes as of January 1, 2000 and their corresponding amortization into income.
Additionally, under U.S. GAAP, temporary differences arising in connection with fair value
adjustments on business combinations result in deferred taxes and a corresponding adjustment to
goodwill. An adjustment is required in the reconciliation to U.S. GAAP to record goodwill
arising from deferred tax liabilities related to past business combinations. When required,
the income tax effects of U.S. GAAP adjustments are recorded in our reconciliations to U.S.
GAAP. The effect of these differences on the net income and shareholders equity of the
Company is included in the reconciliation below.  a.2. Mandatory dividends- As required by Law No. 18,046, unless the shareholders unanimously
agree otherwise, the Company must distribute a minimum cash dividend equivalent to 30% of net
income. Since the payment of these dividends is a legal requirement in Chile, an accrual for
U.S. GAAP purposes is made to recognize the corresponding decrease in equity at each balance
sheet date whilst under Chilean GAAP, dividends are not recognized until approved by the
shareholders. The effect on equity is included in the reconciliation below.  a.3. Marketable equity securities- Under U.S. GAAP, marketable equity securities (mutual
funds) investments other than those accounted for under the equity method are required to be
accounted for under SFAS 115 Accounting for Certain Investments in Debt and Equity
Securities. This standard requires investments to be accounted for as follows: (1)
held-to-maturity securities, which are defined as debt securities that a company has a positive
intent and ability to hold to maturity, are reported at amortized cost, (2) trading securities,
which are defined as those that are bought and held principally for the purpose of selling them
in the near term, are reported at fair value with unrealized gains and losses included in
earnings, and (3) available for sale securities, which include securities not classified in
either of the other two categories, are reported at fair value with unrealized gains and losses
excluded from earnings and included as a separate component of shareholders equity. F-47




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    Under Chilean GAAP, the Company presents marketable equity (see Note 4 for detail) securities
at the lower of cost plus price-level restatement or market. Under U.S. GAAP, all investments
in marketable equity securities which the Company holds would be classified as
available-for-sale and be presented at fair value with unrealized gains and losses included as
a separate component of shareholders  ́ equity. The effect of this difference is included in the
reconciliation below.  The Company has not recorded any other than temporary impairment under U.S. GAAP related to
these securities.  a.4. Property plant and equipment- Under Chilean GAAP, certain property, plant and equipment
is reported in the financial statements at amounts determined in accordance with a technical
appraisal. The difference between the carrying value and the revalued amount is included in
shareholders equity in Other reserves. Such revaluation is not permitted under U.S. GAAP.
The effects of this revaluation, as well as of the reversal of the related accumulated
depreciation, depreciation expense, and monetary correction for the year, are included in the
reconciliations below.  a.5. Purchase accounting and impairment of goodwill-
In accordance with Chilean GAAP, through December 31, 2003, business
combinations are accounted for at the book value of the
underlying net assets with the excess of cost over net book value recorded as goodwill to be
amortized to income over a period not exceeding 20 years. Any
book value in excess of acquisition cost resulted in the recording of
negative goodwill. With the effectiveness of Technical
Bulletin 72 on January 1, 2004, Chile GAAP adopted fair
value accounting for business combinations. Under US GAAP, prior to
SFAS No. 141,
business combinations were accounted for in accordance with APB
Opinion No. 16 which provided for the use of
either the purchase method or pooling of interest method. SFAS
No. 141 eliminated the pooling of
interests method thus allowing only the purchase method to be used.
SFAS No. 141 applies to all
business combinations initiated after June 30, 2001. It also applies to all business
combinations accounted for using the purchase method for which the date of acquisition is July
1, 2001, or later.  Under SFAS No. 141, the excess of the cost of an acquired entity over the net of the amounts assigned to assets
acquired and liabilities assumed is recognized as goodwill. If the sum of the amounts
assigned to assets acquired and liabilities assumed exceeds the cost of the acquired entity
(negative goodwill), that excess is allocated as a pro rata reduction of the amounts that
are otherwise assigned to all of the acquired assets except (a) financial assets
other than investments accounted for by the equity method, (b) assets to be disposed of by
sale, (c) deferred tax assets, (d) prepaid assets relating to pension or other postretirement
benefit plans, and (e) any other current assets. If any excess remains after reducing to zero
the amounts that otherwise would have been assigned to those assets, that remaining excess
shall be recognized as an extraordinary gain.  Under U.S. GAAP, in accordance with the adoption of SFAS
No. 142 on January 1, 2002, goodwill is no longer
amortized, but an impairment test is performed on the reporting unit
level annually or whenever indicators of impairment arise. None of
the annual test have resulted in U.S. GAAP impairment adjustment.  Under Chilean GAAP, at the merger date with Saitec S.A., El Rodeo S.A. and Almac Internacional
S.A., the Company recorded negative goodwill due to the excess of the carrying value of the
investment over the stated increase in the Companys capital. Under U.S. GAAP, such negative
goodwill is accounted for as described above and the subsequent
amortization recorded under Chilean GAAP is eliminated. F-48




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    Under Chilean GAAP, the acquisition of Maquinsa, an unrelated company, in 1997, was recorded at
cost with the assets acquired and liabilities assumed stated at their book carryover basis,
with any excess up to the purchase price being recorded as goodwill. Under U.S. GAAP, the assets acquired and liabilities assumed
would be recorded at their respective fair value with any excess up to the purchase price being recorded
as goodwill. In 1999, the Company settled an amount of
ThCh$1,069,337 with the former owner of Maquinsa S.A. in arbitration. Under Chilean GAAP, this amount was recorded as goodwill.
Under U.S. GAAP, this amount would have been expensed. The effects of
such differences are
recorded in the reconciliation below and include differences in the
carrying values for assets, liabilities and goodwill and the
resulting depreciation and amortization.  On January 7, 2004, a purchase agreement entered into on December 19, 2003 was consummated
whereby Carrefour Nederland B.V. sold to the Company 1,701,403 shares of Carrefour Chile S.A.,
corresponding to 99.9999% of the shares of the latter, for a price of ThCh$72,135,247. At that
same date, and based on the same agreement, Intercross Roads B.V. (a company related to
Carrefour Nederland B.V.) sold to Administradora de Concesiones Comerciales de Hipermercados
S.A. (a subsidiary of the Company) one share of Carrefour Chile S.A., corresponding to 0.0001%
of the shares of the latter, for a price of ThCh$43. With these purchases, the Company acquired
the entirety of the issued shares of Carrefour Chile S.A.  Under Chilean GAAP, the goodwill resulting from the purchase of shares of Carrefour S.A., currently doing business
as Magallanes S.A., has been calculated in accordance with Technical
Bulletin No. 72.

In connection with this acquisition, with the exception of
the difference mentioned in paragraph a.8 therefore purchase
accounting entries for this entity did not differ. Subsequent to the
acquisition, goodwill has been amortized under Chilean GAAP, but not
under U.S. GAAP, as previously described.  a.6. Severance indemnities- The Company has committed to provide a lump sum payment to each
employee with more than six months of service at the end of his or her employment. Under
Chilean GAAP, the Company records the present value of the liability, calculated based on total
expected service, current salary levels of all employees with more than six months of service,
and a discount rate of 7%. Under U.S. GAAP, this arrangement is considered to be a benefit
plan, in accordance with SFAS87, Employers Accounting for Pensions and the F-49




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  liability should
be measured by projecting future expected severance payments using an
assumed average salary
progression rate, workforce rotation, workforce mortality, average
service life  and discounting the resulting amounts to their present value. In practice,
the Company believes that the salary progression rate will not differ significantly from the
general inflation rate.
Prior service costs are recorded as deferred assets and charged to income using the
straight-line method over the estimated average remaining service period of the employees. For
Chilean GAAP, prior service costs which arose when the Company started recording severance
indemnity liabilities in 1995, were expensed immediately. The difference related to the
treatment for prior service costs is recorded as an adjustment in the reconciliation to U.S.
GAAP.  The Company recognizes actuarial gains or losses immediately for severance indemnity plans for
both Chilean GAAP and US GAAP.  The severance indemnity plan is unfunded.  a.7. Present value adjustment on accounts receivable- Under Chilean GAAP, the account
receivable from Disco S.A. for the sale of Ekono Argentina in 1999
was recorded at its cash value. Under U.S.
GAAP, in accordance with Accounting Principle Board Opinion No. 21, such receivable would be
recorded at its net present value. The effects of conforming with U.S. GAAP are shown in the
reconciliation below.  At its stated value a 7% discount rate was used and the interest income was accreted through
maturity of the account receivable.  a.8. Derivative instruments -Under U.S. GAAP, SFAS No. 133 Accounting for Derivative
Instruments and Hedging Activities, was adopted by the Company as of January 1, 2001. SFAS
No. 133 establishes accounting and reporting standards for derivative instruments, including
embedded derivatives, and for hedging activities. SFAS No. 133 requires that all derivatives
be recognized as either assets or liabilities in the consolidated balance sheet and measured at
fair value. Depending on the documented designation of a derivative instrument, any change in
fair value is recognized in either income or shareholders  ́ equity (as a component of
accumulated other comprehensive income). As the Company did not meet documentation standards
for its forward exchange contracts, the unrealized gains which are deferred for Chilean GAAP
purposes associated with its forward exchange contracts would be recognized through the income
statement for U.S. GAAP purposes.  Unrealized losses are charged to income under both U.S. GAAP
and Chile GAAP for these forward exchange contracts.  The Company entered into an additional forward exchange contract (designated as a cash flow
hedge of a forecasted transaction under Chilean GAAP ) to cover the fluctuation in the Chilean
peso versus the Euro for its anticipated  100,000,000 purchase of Carrefour Chile S.A. on
December 19, 2003, which purchase was completed on January 7, 2004. At December 31, 2003, the
fair value of the financial instrument did not differ significantly from its recorded value.
On January 7, 2004, upon settlement of this financial instrument, the Company realized a loss
of ThCh$2,444,710. F-50




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    The adjustments required to conform reported net income under Chilean GAAP to U.S. GAAP is as
follows: Forward exchange contract(Assignment
Agreement signed on December 19, 2003)
    
    
    
    
    
    
    
    
    Total ofpayment
    
    
    
    
    
    ThCh$Euro adopted on the agreement
    
    
    100,000,000
    
    
    
    745.80
    
    
    
    74,580,000Euro day of payment on January 7, 2004
    
    
    100,000,000
    
    
    
    721.35
    
    
    
    72,135,290The Company realized a loss of
    
    
    
    
    
    
    
    
    
    
    2,444,710
  Under Chilean GAAP, the realized loss on this contract was considered part of the purchase
price of Carrefour Chile S.A. Under U.S. GAAP, SFAS No. 133 does not permit the designation of
a forecast transaction related to a business combination as a hedge, therefore the loss was be
recognized in income in 2004. The effects of this operation are included in the reconciliation
below.  a.9. Effects of minority interest on the U.S. GAAP adjustments- The net income and
shareholders equity under Chilean GAAP is adjusted in the U.S. GAAP footnote for the impact of
the U.S. GAAP reconciling items on the allocation of income and loss to minority interests.
The sum of this adjustment and the minority interest reflected in our consolidated income
statement and balance sheet for each period presented under Chilean GAAP represents the
allocation of our results and shareholders equity to our minority shareholders under U.S.
GAAP.  The effect of this adjustment is included in net income and shareholders equity reconciliation
to US GAAP under paragraph below.  a.10. Effects of Capitalization of rebate associated with unsold inventory on the U.S. GAAP
adjustments- The Company receives certain volume rebates from
its suppliers but did not allocate a portion of these rebates to
unsold inventory. Rebates associated with unsold inventory should
have been capitalized in inventory at each year-end under
U.S. GAAP. F-51




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    The effect of this adjustment is included in net income and shareholders equity reconciliation
to US GAAP under paragraph below.  a.11. Leaseback transactions  Certain of the transactions which the Company has entered into qualify for characterization as
sales-leasebacks of real estate in Chilean GAAP and are described as such in our Chilean GAAP
footnotes. Those transactions do not qualify for similar treatment as sales-leaseback
contracts under U.S. GAAP due to the continuing involvement of the Company as defined under
paragraph 26 of SFAS 66, Accounting for Sales of Real Estate. As there was no difference
between the carrying value of the real estate and its fair value on the dates the contracts to
finance the assets values were entered into, no gain or loss
was recorded under Chilean GAAP. Although the
transaction would be accounted for as a capital lease under Chilean GAAP and a note payable
under U.S. GAAP, the interest rates under both U.S. GAAP and Chilean GAAP are defined
equivalently. Therefore, no difference is generated over time for the accreted interest
expense. As a result, no adjustment appears in our reconciliation to U.S. GAAP.  a.12. Effect of Conforming to U.S. GAAP- The adjustments required to conform reported net
income under Chilean GAAP to U.S. GAAP are as follows (amounts are expressed in thousands
of constant Chilean pesos of December 31, 2004 purchasing power and thousands of U.S. dollars). Year ended December 31,2002
    
    
    2003
    
    
    2004
    
    
    2004Paragraph
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThUS$(As restated
    
    
    (As restatedsee Note 26b)
    
    
    see Note 26b)Net income, in accordance with Chilean GAAP
    
    
    
    
    24,615,638
    
    
    
    12,060,676
    
    
    
    10,357,195
    
    
    
    18,581Reversal of depreciation of the technical
revaluation of property, plant and equipment
    
    a.4
    
    
    29,681
    
    
    
    29,681
    
    
    
    29,681
    
    
    
    53Adjustment for deferred taxes
    
    a.1
    
    
    679,819
    
    
    
    663,639
    
    
    
    134,826
    
    
    
    242Amortization of severance indemnity prior service cost
    
    a.6
    
    
    (23,386
    )
    
    
    (23,386
    )
    
    
    (23,386
    )
    
    
    (42
    )Reversal of amortization of negative goodwill
    
    a.5
    
    
    (354,616
    )
    
    
    (362,018
    )
    
    
    (354,616
    )
    
    
    (636
    )Reversal of amortization of goodwill
    
    a.5
    
    
    814,617
    
    
    
    814,617
    
    
    
    1,978,054
    
    
    
    3,549Present value adjustment on accounts receivable
from Disco S.A.
    
    a.7
    
    
    3,882,234
    
    
    
    1,861,316
    
    
    
    
    
    
    
    Depreciation of fair value Maquinsa S.A.
    
    a.5
    
    
    (15,092
    )
    
    
    (12,314
    )
    
    
    
    
    
    
    Monetary correction
of fair value Maquinsa S.A.
    
    a.5
    
    
    8,199
    
    
    
    1,005
    
    
    
    
    
    
    
    Loss on forward exchange contract associated with
purchase of Carrefour S.A.
    
    a.8
    
    
    
    
    
    
    
    
    
    
    (2,444,710
    )
    
    
    (4,386
    )Deferred tax from adjustments to U.S.GAAP
    
    a.1
    
    
    127,721
    
    
    
    127,166
    
    
    
    24,007
    
    
    
    43Capitalization of volume rebate on unsold inventory
    
    a.10
    
    
    (116,787
    )
    
    
    (55,234
    )
    
    
    (119,916
    )
    
    
    (215
    )Minority interest
    
    a.9
    
    
    (495
    )
    
    
    2,311
    
    
    
    (3,153
    )
    
    
    (6
    )Net income in accordance with US GAAP
    
    
    
    
    29,647,532
    
    
    
    15,107,459
    
    
    
    9,577,982
    
    
    
    17,183Other comprehensive incomeUnrealized gain on marketable securities (net of tax)
    
    a.3
    
    
    22,759
    
    
    
    36,184
    
    
    
    147,912
    
    
    
    265Comprehensive income in accordance with U.S.GAAP
    
    
    
    
    29,670,291
    
    
    
    15,143,643
    
    
    
    9,725,894
    
    
    
    17,448
 F-52




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  The adjustments to reported net equity required to conform to U.S. GAAP are as follows
(amounts are expressed in thousands of constant Chilean pesos of December 31, 2004
purchasing power and thousands of U.S. dollars): December 31,2003
    
    
    2004
    
    
    2004Paragraph
    
    ThCh$
    
    
    ThCh$
    
    
    ThUS$(As restatedsee Note 26b)Shareholders equity, in accordance with Chilean GAAP
    
    
    
    
    309,320,354
    
    
    
    455,912,909
    
    
    
    817,928Reversal of the technical revaluation
of property, plant and equipment
    
    a.4
    
    
    (1,920,251
    )
    
    
    (1,920,251
    )
    
    
    (3,445
    )Reversal of the accumulated depreciation
of the technical revaluation of property,
plant and equipment
    
    a.4
    
    
    693,963
    
    
    
    723,644
    
    
    
    1,298Deferred tax from adjustments to U.S. GAAP
    
    a.1
    
    
    235,986
    
    
    
    229,698
    
    
    
    412Adjustments for deferred tax
    
    a.1
    
    
    (1,997,547
    )
    
    
    (1,862,721
    )
    
    
    (3,342
    )Reversal of severance indemnity prior service cost
    
    a.6
    
    
    701,607
    
    
    
    701,607
    
    
    
    1,259Amortization of severance
indemnity prior service cost
    
    a.6
    
    
    (210,481
    )
    
    
    (233,867
    )
    
    
    (420
    )Mandatory dividend required by law (30% of net
income less interim dividends paid less prior year accrual)
    
    a.2
    
    
    (8,097,300
    )
    
    
    
    
    
    
    Reversal of negative goodwill
    
    a.5
    
    
    3,546,162
    
    
    
    3,546,162
    
    
    
    6,362Reversal of amortization of negative goodwill
    
    a.5
    
    
    (2,870,242
    )
    
    
    (3,224,858
    )
    
    
    (5,786
    )Reversal of amortization of goodwill
    
    a.5
    
    
    3,449,122
    
    
    
    5,427,176
    
    
    
    9,737Dividend paid in connection with the purchase
of Supermercados Ekono S.A. (Argentina)
from controlling shareholder
    
    a.5
    
    
    (1,384,498
    )
    
    
    (1,384,498
    )
    
    
    (2,484
    )Adjustment to net loss on sale of
Supermercados Ekono S.A. (Argentina)
    
    a.5
    
    
    (1,309,149
    )
    
    
    (1,309,149
    )
    
    
    (2,349
    )Loss on forward exchange contract
associated with purchase of Carrefour Chile S.A.
    
    a.8
    
    
    
    
    
    
    (2,444,710
    )
    
    
    (4,386
    )Adjustment for difference for arbitration settlement
for Maquinsa S.A.
    
    a.5
    
    
    (1,069,337
    )
    
    
    (1,069,337
    )
    
    
    (1,918
    )Capitalization of volume rebate on unsold inventory
    
    a.10
    
    
    (405,386
    )
    
    
    (525,302
    )
    
    
    (942
    )Unrealized gain on marketable securities
    
    a.3
    
    
    76,633
    
    
    
    254,840
    
    
    
    457Minority interest
    
    a.9
    
    
    1,816
    
    
    
    (1,337
    )
    
    
    (2
    )Shareholders equity, in accordance with U.S. GAAP
    
    
    
    
    298,761,452
    
    
    
    452,820,006
    
    
    
    812,379
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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  The changes in shareholders equity accounts determined under U.S. GAAP are summarized as
follows (all amounts are expressed in thousands of constant Chilean pesos of December 31, 2004
purchasing power): ThCh$(As restated)Balance at January 1, 2002
    
    
    282,078,189Dividends declared
    
    
    (14,491,124
    )Mandatory dividend required by law
    
    
    (235,780
    )Comprehensive income for the year
    
    
    29,670,291Balance at January 1, 2003
    
    
    297,021,576Dividends declared
    
    
    (14,074,276
    )Mandatory dividend required by law
    
    
    670,509Comprehensive income for the year
    
    
    15,143,643Balance at December 31, 2003
    
    
    298,761,452Dividends declared
    
    
    (9,601,173
    )Capital increase
    
    
    155,048,729Expenses for share issuance
    
    
    (2,510,459
    )Price-level restatement related to capital increase
    
    
    1,395,563Comprehensive income for the year
    
    
    9,725,894Balance at December 31, 2004
    
    
    452,820,006
 b. Restatement of reconciliation to USGAAP  After the issuance of its 2003 financial statements, the
Company has discovered and determined that certain restatements were
required to correct a number of errors in various accounts in its
U.S. GAAP reconciliation as of and for the two years in the period
ended December 31, 2003. The following are the details of the
restatements that affected the U.S. GAAP reconciliation, followed
by a description of the restatements: F-54




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    i
    Restatement of equity reconciliation and net income reconciliation a) Net income restatement For the year endedDecember 31,2002
    
    2003ThCh$
    
    ThCh$Net income, as previously reported under U.S. GAAP and
    monetarily corrected
    
    
    30,141,965
    
    
    
    24,259,070Depreciation expense on assets acquired at fair value versus
    book value under Chile GAAP  Maquinsa (c)
    
    
    (15,092
    )
    
    
    (12,314
    )Monetary correction on the Maquinsa fair value
    acquisitions (c)
    
    
    8,199
    
    
    
    1,005Capitalization of volume rebate on unsold inventory (b)
    
    
    (116,787
    )
    
    
    (55,234
    )Mechanical calculation error of present value of Disco
    note (d)
    
    
    (497,979
    )
    
    
    64,709Deferred tax adjustments on the above adjustments (a)
    
    
    127,721
    
    
    
    127,166Minority interest adjustments on the above (e)
    
    
    (495
    )
    
    
    2,311Chilean GAAP adjustments  See Note 24 (g)
    
    
    
    
    
    
    (9,279,254
    )Net income as restated under US GAAP
    
    
    29,647,532
    
    
    
    15,107,459 b) Earning per share restatement These changes result in earnings per share restatements as follows: For the year endedDecember 31,2002
    
    2003Ch$
    
    Ch$Earnings per share, as previously reported and monetarily
    corrected (as adjusted retroactively for stock split)
    
    
    5.46
    
    
    
    4.40Depreciation expense (c)
    
    
    
    
    
    
    Monetary correction on the above (c)
    
    
    
    
    
    
    Capitalization of volume rebate on unsold inventory (b)
    
    
    (0.02
    )
    
    
    (0.01
    )Mechanical calculation error of present value of Disco
    Note (d)
    
    
    (0.09
    )
    
    
    0.01Deferred tax adjustments on above (a)
    
    
    0.02
    
    
    
    0.02Minority interest adjustments on the above (e)
    
    
    
    
    
    
    Chilean GAAP adjustments  See Note 24 (g)
    
    
    
    
    
    
    (1.68
    )Earnings per share as restated
    
    
    5.37
    
    
    
    2.74 c) Opening
Shareholders equity  restated Opening shareholders equity would be restated as follows: As of January 1, 2003ThCh$Opening Shareholders equity  restated as previously
    reported and monetarily corrected
    
    
    300,451,037Cumulative adjustments to correctly reflect depreciation expense
    through December 31, 2002 (c)
    
    
    11,310Capitalization of volume rebate on unsold inventory (b)
    
    
    (350,152
    )Mechanical calculation error of present value of Disco
    note (d)
    
    
    (3,239,394
    )Deferred tax adjustments on above (a)
    
    
    121,849Minority interest adjustments on above (e)
    
    
    (495
    )Accumulated other comprehensive income  marketable
    securities net of tax (f)
    
    
    27,421Opening shareholders equity as restated
    
    
    297,021,576 d) Shareholders equity as of December 31,
2003 is restated as follows: At December 31, 2003ThCh$Shareholders equity as previously reported and monetarily
    corrected
    
    
    311,306,342Adjustments made to opening shareholders equity (see
    c)
    
    
    (3,429,461
    )Depreciation expense on assets acquired at fair value versus
    acquisition at book value under Chile GAAP 
    Maquinsa (c)
    
    
    (12,314
    )Monetary correction on the above  Maquinsa (c)
    
    
    1,005Capitalization of volume rebate on unsold inventory (b)
    
    
    (55,234
    )Mechanical calculation error of present value of Disco note
    under APB 21 (d)
    
    
    64,709Deferred tax adjustments on the above (a)
    
    
    127,166Minority interest adjustments on the above (e)
    
    
    2,311Chilean GAAP adjustments posted in Note 24 (g)
    
    
    (9,279,254
    )Other comprehensive income  marketable
    securities (f)
    
    
    36,184Shareholders equity as restated under US GAAP
    
    
    298,761,452 e) Other comprehensive income restated For the year endedDecember 31,2002
    
    2003ThCh$
    
    ThCh$Other comprehensive income would be restated as follows:Other comprehensive income as previously reported
    
    
    
    
    
    
    Adjustments for unrealized gains on marketable
    securities (f)
    
    
    22,759
    
    
    
    36,184Other comprehensive income as restated
    
    
    22,759
    
    
    
    36,184 
 (a)
    
    The Company previously had not recorded the tax
effects on its U.S. GAAP adjustments.
As certain of the adjustments in the reconciliation to U.S. GAAP create or reverse
deferred tax effects present in Chile GAAP, the Company has calculated the effect and
included it in its restatement.(b)
    
    The Company receives certain volume rebates from its suppliers but did not allocate a portion of these rebates to unsold inventory. Rebates associated
with unsold inventory should have been capitalized in inventory at
each year-end under U.S. GAAP. The U.S. GAAP reconciliation has been restated accordingly.(c)
    
    Certain fixed assets acquired in the acquisition of Maquinsa, as explained in Note
26.a.5, were recorded at their fair value on the purchase date under U.S. GAAP. In subsequent periods to
the acquisition, depreciation expense and accumulated depreciation should therefore have
differed from Chile GAAP during the assets useful lives as
Chilean GAAP purchase accounting at that date would have recorded
those assets at their carrying value. The Company has determined that
these depreciation adjustments were not previously recorded and has restated the U.S. GAAP reconciliation to correct this error.(d)
    
    The Company discounted its receivable from Disco to its present value in accordance with Accounting
Principles Board Opinion N°21 at the consummation of the sale of its Ekono stores in Argentina.
The U.S. GAAP reconciliation was restated to correct certain
mathematical errors made in the calculation, at the present value.(e)
    
    The Company had previously not recorded minority
interest effect for some for the U.S. GAAP adjustments. As certain adjustments to U.S. GAAP
generate minority interest effects,
the Company restated the U.S. GAAP to include this effect. F-55




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) (f)
    
    The Company had certain securities which were recorded
appropriately under Chilean GAAP at lower of cost or market. These
equity securities are classified as available for sale under U.S.
GAAP requiring the recording of unrealized gains/losses in other
comprehensive income. The Company had unrealized
gains on these securities which should have been recorded in other comprehensive income
for U.S. GAAP purposes. The adjustments to other comprehensive income are reflected in the tables above.(g)
    
    See note 24 of the Chilean GAAP financial statements.  ii.
    
    Restatement of additional disclosure Operating Income 2002
    
    
    2003ThCh$
    
    
    ThCh$(As restated)
    
    
    (As restated)Operating Income under U.S. GAAP, reported
    
    
    33,026,585
    
    
    
    45,920,209Adjustment for bad debt expense  see Note 24
    
    
    
    
    
    
    (11,183,775
    )Restructuring charge (a)
    
    
    5,122,417
    
    
    
    Others (b)
    
    
    (630,989
    )
    
    
    (302,744
    )Operating Income under U.S. GAAP, restated
    
    
    37,518,013
    
    
    
    34,433,690
 
 (a)
    
    In 2002, the restructuring charge of ThCh$5,122,417 was erroneously deducted twice
from the operating income calculation under US GAAP.(b)
    
    Consists of miscellaneous items reclassified to operating under U.S. GAAP which are
classified as non-operating expenses or income under Chile GAAP.  iii.
    
    Restatement of cash flow (See c.4) c. Additional Disclosure Requirements c.1. Basic and diluted earnings per share: For the year ended December 31,2002
    
    
    2003
    
    
    2004Ch$
    
    
    Ch$
    
    
    Ch$(As restated)
    
    
    (As restated)Chilean GAAP earnings per share
    
    
    4.45
    
    
    
    2.18
    
    
    
    1.77U.S.GAAP earnings per share
    
    
    5.37
    
    
    
    2.74
    
    
    
    1.64Weighted average number of common
shares outstanding (a)
    
    
    5,520,000,000
    
    
    
    5,520,000,000
    
    
    
    5,840,000,000
 
 (a)
    
    For comparative purposes the weighted average number of common shares outstanding in
2002 and 2003, have been adjusted for the December 2004 stock split (see Note 24.a.). F-56




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  c.2. Reporting Comprehensive Income  U.S. GAAP requires that comprehensive income be displayed within the consolidated financial
statements. Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. December 31, 2002Accumulated OtherUnrealized gain (loss)
    
    
    
    
    
    
    comprehensiveon marketable securities
    
    
    Effect of Tax
    
    
    Income (loss)ThCh$
    
    
    ThCh$
    
    
    ThCh$Beginning Balance
    
    
    
    
    
    
    
    
    
    
    Credit (Charge) of the period
    
    
    27,421
    
    
    
    (4,662
    )
    
    
    22,759Ending balance
    
    
    27,421
    
    
    
    (4,662
    )
    
    
    22,759
 December 31, 2003Accumulated OtherUnrealized gain (loss)
    
    
    
    
    
    
    comprehensiveon marketable securities
    
    
    Effect of Tax
    
    
    Income (loss)ThCh$
    
    
    ThCh$
    
    
    ThCh$Beginning Balance
    
    
    27,421
    
    
    
    (4,662
    )
    
    
    22,759Credit (Charge) of the period
    
    
    49,212
    
    
    
    (13,028
    )
    
    
    36,184Ending balance
    
    
    76,633
    
    
    
    (17,689
    )
    
    
    58,943
 December 31, 2004Accumulated OtherUnrealized gain (loss)
    
    
    
    
    
    
    comprehensiveon marketable securities
    
    
    Effect of Tax
    
    
    Income (loss)ThCh$
    
    
    ThCh$
    
    
    ThCh$Beginning Balance
    
    
    76,633
    
    
    
    (17,689
    )
    
    
    58,943Credit (Charge) of the period
    
    
    178,207
    
    
    
    (30,295
    )
    
    
    147,912Ending balance
    
    
    254,840
    
    
    
    (47,985
    )
    
    
    206,855
 c.3. Income Taxes- The consolidated provision for income taxes charged to income is as
follows: 2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$(Restated)
    
    
    (Restated)Income tax provision under Chilean GAAP:Current income taxes under Chilean GAAP
    
    
    (6,004,359
    )
    
    
    (5,616,700
    )
    
    
    (6,255,306
    )Deferred income taxes under Chilean GAAP
    
    
    1,183,397
    
    
    
    852,715
    
    
    
    4,127,537Total income provision under Chilean GAAP
    
    
    (4,820,962
    )
    
    
    (4,763,985
    )
    
    
    (2,127,769
    )U.S.GAAP Adjustments:Deferred tax effect of applying SFAS No.109
    
    
    679,819
    
    
    
    663,639
    
    
    
    134,826Deferred tax effect of adjustments to U.S.GAAP
    
    
    127,721
    
    
    
    127,166
    
    
    
    24,007Total US GAAP adjustments
    
    
    807,540
    
    
    
    790,805
    
    
    
    158,833Total income tax provision under US GAAP
    
    
    (4,013,422
    )
    
    
    (3,973,180
    )
    
    
    (1,968,936
    )
 F-57




---



##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  The consolidated U.S. GAAP deferred tax assets (liabilities) are summarized as follows: 2003
    
    
    2004SFAS N°109
    
    
    
    
    
    
    
    
    
    
    SFAS N°109Applied to
    
    
    SFAS N°109
    
    
    Total
    
    
    Applied to
    
    
    SFAS N°109
    
    
    TotalChilean
    
    
    applied to
    
    
    Deferred
    
    
    Chilean
    
    
    applied to
    
    
    DeferredGAAP
    
    
    U.S. GAAP
    
    
    Taxes under
    
    
    GAAP
    
    
    U.S. GAAP
    
    
    Taxes underBalances
    
    
    Adjustments
    
    
    SFAS N°109
    
    
    Balances
    
    
    Adjustments
    
    
    SFAS N°109ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$(As restated)
    
    
    (As restated)
    
    
    (As restated)Deferred income tax assets:Property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,284,058
    
    
    
    
    
    
    
    1,284,058Severance indemnity
    
    
    733,588
    
    
    
    86,604
    
    
    
    820,192
    
    
    
    842,789
    
    
    
    137,286
    
    
    
    980,075Allowance for doubtful accounts
    
    
    2,981,340
    
    
    
    
    
    
    
    2,981,340
    
    
    
    3,524,200
    
    
    
    
    
    
    
    3,524,200Allowance for uncollectible sundry debtors
    
    
    256,582
    
    
    
    
    
    
    
    256,582
    
    
    
    296,674
    
    
    
    
    
    
    
    296,674Vacation accrual
    
    
    485,194
    
    
    
    
    
    
    
    485,194
    
    
    
    676,216
    
    
    
    
    
    
    
    676,216Others events
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    482,015
    
    
    
    
    
    
    
    482,015Tax loss carryforwards (1)
    
    
    3,663,475
    
    
    
    
    
    
    
    3,663,475
    
    
    
    11,817,053
    
    
    
    
    
    
    
    11,817,053Total deferred income tax assets
    
    
    8,120,179
    
    
    
    86,604
    
    
    
    8,206,783
    
    
    
    18,923,005
    
    
    
    137,286
    
    
    
    19,060,291Deferred income tax liabilities:Property, plant and equipment
    
    
    4,756,783
    
    
    
    496,477
    
    
    
    5,253,260
    
    
    
    5,425,174
    
    
    
    502,765
    
    
    
    5,927,939Deferred charges
    
    
    1,656,938
    
    
    
    
    
    
    
    1,656,938
    
    
    
    1,653,295
    
    
    
    
    
    
    
    1,653,295Leased assets
    
    
    780,952
    
    
    
    
    
    
    
    780,952
    
    
    
    719,834
    
    
    
    
    
    
    
    719,834Marketable securities
    
    
    
    
    
    
    17,689
    
    
    
    17,689
    
    
    
    
    
    
    
    47,985
    
    
    
    47,985Inventory
    
    
    
    
    
    
    68,915
    
    
    
    68,915
    
    
    
    
    
    
    
    89,301
    
    
    
    89,301Capitalized interest
    
    
    1,534,764
    
    
    
    
    
    
    
    1,534,764
    
    
    
    1,629,224
    
    
    
    
    
    
    
    1,629,224Total deferred income tax liabilities
    
    
    8,729,437
    
    
    
    583,081
    
    
    
    9,312,518
    
    
    
    9,427,527
    
    
    
    640,051
    
    
    
    10,067,578Net deferred assets (liabilities)
    
    
    (609,258
    )
    
    
    (496,477
    )
    
    
    (1,105,735
    )
    
    
    9,495,478
    
    
    
    (502,765
    )
    
    
    8,992,713Complementary Account
    
    
    1,265,084
    
    
    
    (1,265,084
    )
    
    
    
    
    
    
    1,130,258
    
    
    
    (1,130,258
    )
    
    
    Net deferred assets (liabilities)
    
    
    655,826
    
    
    
    (1,761,561
    )
    
    
    (1,105,735
    )
    
    
    10,625,736
    
    
    
    (1,633,023
    )
    
    
    8,992,713
 
 (1)
    
    In Chile tax loss carryforwards may be utilized indefinitely. F-58




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  The consolidated U.S. GAAP provision for income taxes differs from the amount of income tax
determined by applying the applicable tax rate of 16% in 2002, 16.5% in 2003 and 17% in 2004
(Chilean statutory income tax rate) to U.S. GAAP pre-tax income as a result of the following: Year ended December 31,2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$(As restated)
    
    
    (As restated)Statutory tax rate
    
    
    16.00
    %
    
    
    16.50
    %
    
    
    17.00
    %Pretax U.S.GAAP income
    
    
    34,253,975
    
    
    
    19,080,639
    
    
    
    11,546,918Pretax income multiplied by the
applicable tax rate
    
    
    (5,480,636
    )
    
    
    (3,148,305
    )
    
    
    (1,962,976
    )Differences in price-level restatement
    
    
    382,618
    
    
    
    100,731
    
    
    
    (589,723
    )Non-deductible items
    
    
    (3,039,643
    )
    
    
    (1,401,479
    )
    
    
    (3,007,652
    )Deductible items
    
    
    4,251,691
    
    
    
    773,815
    
    
    
    3,703,833Other
    
    
    (127,453
    )
    
    
    (297,942
    )
    
    
    (112,418
    )Tax expense
    
    
    (4,013,422
    )
    
    
    (3,973,180
    )
    
    
    (1,968,936
    )
 c.4. Cash flow information  i.
    
    Management has determined its cash and cash equivalents under Chilean GAAP are equal
to those as defined under SFAS No.95, for the years ended December 31, 2002 and 2003. The
Companys condensed cash flow as discloses below was restated accordingly: Year ended December 31,2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$(as restated)
    
    
    (as restated)Cash provided by operating activities under Chilean GAAP and U.S.GAAP
    
    
    29,095,016
    
    
    
    34,287,648
    
    
    
    (13,483,796
    )Cash provided by (used in) financing activities under Chilean GAAP and U.S.GAAP
    
    
    32,811,643
    
    
    
    44,841,315
    
    
    
    158,212,631Cash used in investing activities under Chilean GAAP and U.S.GAAP
    
    
    (71,596,735
    )
    
    
    (69,870,778
    )
    
    
    (95,854,965
    )
 F-59




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  ii.
    
    Cash equivalents includes all highly liquid debt instruments purchased with an
original maturity of three months or less: Year ended December 31,2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$(as restated)
    
    
    (as restated)Cash
    
    
    20,460,167
    
    
    
    32,180,597
    
    
    
    22,783,602Money market funds
    
    
    1,345,945
    
    
    
    2,050,149
    
    
    
    33,718,712Other current assets (1)
    
    
    
    
    
    
    
    
    
    
    25,018,118Total cash and cash equivalents under
Chilean GAAP and U.S.GAAP
    
    
    21,806,112
    
    
    
    34,230,746
    
    
    
    81,520,432
 
 (1)
    
    Correspond to repurchase agreements (see Note 7),
the detail is as follows: Institution's
    
    Principal amount
    
    Interest rate(month)
    
    Interest
    
    Total2003


2004


2003


2004


2003


2004


2003


2004ThCh$


ThCh$


%


%


ThCh$


ThCh$


ThCh$


ThCh$BANCHILE S.A.






17,000,000







0.255







13,052







17,013,052CORP CORREDORES
DE BOLSA S.A.






8,000,000







0.250







5,067







8,005,067Total






25,000,000















18,118







25,018,118
  c.5. Estimated Fair Value of Financial Instruments- U.S. GAAP requires disclosure of the fair
value of financial instruments owned by the Company, other than
investments in related companies that are accounted for under the equity method of accounting.
The estimated fair values are based on the following methods and assumptions:  
    
    Cash- The fair value of the Companys cash is equal to its carrying value.
    
    Marketable securities- The fair value of the investments was determined based on
market value.
    
    Notes and accounts receivable and payable- The carrying amount of trade notes and
accounts receivable and payable approximate fair value because of the short maturity of
these instruments. The fair value of the note receivable from Disco approximates its
carrying value.
    
    Long-term debt and bonds- The fair value of the Companys long-term debt is
estimated based on the current interest rates offered to the Company for loans of the same
remaining maturities. F-60




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  
    
    Short-term debt- Certain short-term debt has interest rates that vary with market conditions
and accordingly, the carrying amount approximates fair value. Of our
short-term debt, the portion with fixed interest rates is
insignificant.
    
    Derivatives- Estimates of fair values of derivative instruments for which no quoted
prices or secondary market exists have been made using valuation techniques such as
forward pricing models, present value of estimated future cash flows, and other modeling
techniques. These estimates of fair value include assumptions made by the Company about
market variables that may change in the future. Changes in assumptions could have a
significant impact on the estimate of fair values disclosed. As a result, such fair value
amounts are subject to significant volatility and are highly dependent on the quality of
the assumptions used.  The estimated fair values of the Companys financial instruments are as follows: As of December 31,2003
    
    
    2004Carrying
    
    
    Fair
    
    
    Carrying
    
    
    Fairamount
    
    
    value
    
    
    amount
    
    
    valueThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$(As restated)
    
    
    (As restated)Cash
    
    
    32,180,597
    
    
    
    32,180,597
    
    
    
    22,783,602
    
    
    
    22,783,602Marketable securities
    
    
    3,788,027
    
    
    
    3,892,081
    
    
    
    35,612,272
    
    
    
    35,867,112Notes and accounts receivable, net
    
    
    123,961,841
    
    
    
    123,961,841
    
    
    
    156,606,100
    
    
    
    156,606,100Due from related companies
    
    
    1,484,432
    
    
    
    1,484,432
    
    
    
    1,492,067
    
    
    
    1,492,067Accounts payable
    
    
    184,807,233
    
    
    
    184,807,233
    
    
    
    201,699,328
    
    
    
    201,699,328Bonds
    
    
    135,622,261
    
    
    
    140,891,135
    
    
    
    131,474,419
    
    
    
    136,391,138Commercial
Paper
    
    
    59,433,153
    
    
    
    59,433,153
    
    
    
    58,020,819
    
    
    
    58,820,819Due to related companies
    
    
    7,997,414
    
    
    
    7,997,414
    
    
    
    13,364,208
    
    
    
    13,364,208Bank and financial institutions
    
    
    84,980,507
    
    
    
    84,980,507
    
    
    
    117,120,616
    
    
    
    117,946,387Derivative instruments (1)
    
    
    1,420,240
    
    
    
    1,420,240
    
    
    
    
    
    
    
    
  (1)
    
    The Company enters into foreign currency forward contracts in order to hedge its
exposure to non  Chilean peso foreign currency fluctuations related to non-Chilean peso
denominated transactions. The Companys accounting policy for such contracts is described
in Note 2v.The Company is exposed to credit-related losses in the event of non-performance by
counterparties to these financial instruments, but does not expect any counterparties to
fail to meet their obligations given their high credit ratings. The credit exposure of
foreign exchange contracts is represented by the fair value of contracts with a positive
fair value at the reporting date.The notional amounts, carrying amounts and fair values of these contracts are as follows: At December 31, 2003
    
    At December 31, 2004Notional
    
    Carrying
    
    Fair
    
    Notional
    
    Carrying
    
    Fairamount
    
    Amount
    
    value
    
    amount
    
    amount
    
    ValueThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Foreign currency
forward contracts
    
    102,209,515
    
    (115,664)
    
    (115,664)
    
    
    
    
    
    
 F-61




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  The amounts of credit risk to which the Company is exposed in the event of the
nonperformance by counterparties under these agreements is shown by the fair values of the
gross amounts receivable by the Company in the above table.  c.6. U.S. GAAP Condensed Balance SheetCertain reclassifications and adjustments would be made to the Chilean GAAP balance sheet in
order to present Chilean GAAP amounts in accordance with presentation requirements under U.S.
GAAP. Debt discounts are included in other assets in Chilean GAAP while the discounts would be
offset against the debt under U.S.GAAP. In Chilean GAAP, income tax payable is included in
current assets netting refundable income tax; in U.S.GAAP, income tax payable is recorded in
other current liabilities within taxes payable. The detail of the nature of adjustment to U.S.
GAAP is disclosed in Note 26a.The effect of the following reclassifications and adjustments in the respective columns
discloses amounts as they would be presented in a US GAAP condensed balance sheet: 2003AdjustmentChilean GAAP
    
    
    U.S. GAAP
    
    
    Reclassification
    
    
    U.S. GAAPThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Current assets
    
    
    319,639,504
    
    
    
    (169,399
    )
    
    
    5,066,535
    
    
    
    324,536,641Property, plant and equipment, net
    
    
    512,137,052
    
    
    
    (1,226,287
    )
    
    
    
    
    
    
    510,910,765Other assets
    
    
    24,785,084
    
    
    
    1,134,788
    
    
    
    (4,609,137
    )
    
    
    21,310,736Total assets
    
    
    856,561,640
    
    
    
    (260,898
    )
    
    
    457,398
    
    
    
    856,758,141Current liabilities
    
    
    360,861,918
    
    
    
    8,097,300
    
    
    
    5,066,535
    
    
    
    374,025,753Long-term liabilities
    
    
    186,251,762
    
    
    
    2,202,520
    
    
    
    (4,609,137
    )
    
    
    183,845,145Minority interest
    
    
    127,606
    
    
    
    (1,816
    )
    
    
    
    
    
    
    125,790Shareholders equity
    
    
    309,320,354
    
    
    
    (10,558,902
    )
    
    
    
    
    
    
    298,761,452Total liabilities and shareholders equity
    
    
    856,561,640
    
    
    
    (260,898
    )
    
    
    457,398
    
    
    
    856,758,140
 2004AdjustmentChilean GAAP
    
    
    U.S. GAAP
    
    
    Reclassification
    
    
    U.S. GAAPThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Current assets
    
    
    381,566,224
    
    
    
    (295,603
    )
    
    
    6,753,282
    
    
    
    388,023,903Property, plant and equipment, net
    
    
    595,013,964
    
    
    
    (1,196,606
    )
    
    
    
    
    
    
    593,817,358Other assets
    
    
    59,543,643
    
    
    
    626,550
    
    
    
    (3,895,951
    )
    
    
    56,274,242Total assets
    
    
    1,036,123,831
    
    
    
    (865,659
    )
    
    
    2,857,331
    
    
    
    1,038,115,503Current liabilities
    
    
    343,126,456
    
    
    
    
    
    
    
    6,753,282
    
    
    
    349,879,738Long-term liabilities
    
    
    237,080,581
    
    
    
    2,225,907
    
    
    
    (3,895,951
    )
    
    
    235,410,537Minority interest
    
    
    3,885
    
    
    
    1,337
    
    
    
    
    
    
    
    5,222Shareholders equity
    
    
    455,912,909
    
    
    
    (3,092,903
    )
    
    
    
    
    
    
    452,820,006Total liabilities and shareholders equity
    
    
    1,036,123,831
    
    
    
    (865,659
    )
    
    
    2,857,331
    
    
    
    1,038,115,503
 F-62




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) ii. Income statement (certain line items presentation)  Certain reclassifications would be made to the Chilean GAAP income statement in order to
present these line items inconformity with U.S. GAAP. Restructuring expenses (in 2002) and
certain other non-operating income and expense would be included in operating income.The detail of the nature of adjustments to U.S. GAAP is disclosed in Note 26a. 2002Chilean
    
    
    AdjustmentsGAAP
    
    
    U.S.GAAP
    
    
    Reclassification
    
    
    U.S. GAAPThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Operating income
    
    
    43,731,419
    
    
    
    (117,387
    )
    
    
    (6,096,019
    )
    
    
    37,518,013Non-operating expense, net
    
    
    (14,294,819
    )
    
    
    4,341,742
    
    
    
    6,096,019
    
    
    
    (3,857,058
    )Income taxes
    
    
    (4,820,961
    )
    
    
    807,539
    
    
    
    
    
    
    
    (4,013,422
    )Net income
    
    
    24,615,638
    
    
    
    5,031,894
    
    
    
    
    
    
    
    29,647,532
 2003Chilean
    
    
    AdjustmentsGAAP
    
    
    U.S.GAAP
    
    
    Reclassification
    
    
    U.S. GAAPThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Operating income
    
    
    35,189,034
    
    
    
    (60,249
    )
    
    
    (695,095
    )
    
    
    34,433,690Non-operating expense, net
    
    
    (18,364,373
    )
    
    
    2,316,228
    
    
    
    695,095
    
    
    
    (15,353,050
    )Income taxes
    
    
    (4,763,985
    )
    
    
    790,805
    
    
    
    
    
    
    
    (3,973,180
    )Net income
    
    
    12,060,676
    
    
    
    3,046,785
    
    
    
    
    
    
    
    15,107,460
 2004Chilean
    
    
    AdjustmentsGAAP
    
    
    U.S.GAAP
    
    
    Reclassification
    
    
    U.S. GAAPThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Operating income
    
    
    29,519,555
    
    
    
    (113,621
    )
    
    
    (522,046
    )
    
    
    28,883,888Non-operating expense, net
    
    
    (17,034,591
    )
    
    
    (824,425
    )
    
    
    522,046
    
    
    
    (17,336,970
    )Income taxes
    
    
    (2,127,769
    )
    
    
    158,833
    
    
    
    
    
    
    
    (1,968,936
    )Net income
    
    
    10,357,195
    
    
    
    (779,213
    )
    
    
    
    
    
    
    9,577,982
 F-63




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  c.7. Lease Commitments  The Company and its subsidiaries lease eight of their retail outlets and five of their
warehouses under rental agreements for remaining terms of two to twelve years, substantially
all of which have options for renewal. For the most part, rentals are determined as a
percentage of sales ranging from 1% to 3% with minimum rentals. Minimum future rentals, in
accordance with FASB 13 par. 5 are as follows: ThCh$2005
    
    
    4,157,6902006
    
    
    4,059,4272007
    
    
    4,015,5792008
    
    
    3,964,4482009
    
    
    3,670,080Thereafter
    
    
    27,398,720Total future minimum lease payments interest
    
    
    (1,018,818
    )Present value net minimum lease payments
    
    
    46,247,127
  Consolidated rental expense was ThCh$3,130,989, ThCh$4,210,022 and ThCh$6,359,700 for the years
ended December 31, 2002, 2003 and 2004, respectively.  c.8. Segment Information  The Companys operations are organized under two established store formats, allowing it to
segment the market and target growth areas with the preferred format for the local market
conditions. The formats provide the flexibility to match each store site with the format best
suited to the surrounding area.  The Companys store formats are one reporting segment (supermarket format/hypermarket formats) as defined under Statement of Financial Accounting Standards No. 131. The Company has also identified its credit card
operations as a segment. These operations consist of the financing of customer accounts
receivable on a long-term basis. The accounting policies of the segments are the same as those
described in the summary of accounting policies included in the Chilean GAAP financial
statements. The Company has reflected this method of segmentation in all years presented.  The Company operates only in Chile. F-64




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    Summarized financial information concerning the segments of the Company and its subsidiaries is
shown in the following table. Management uses operating income as its measure of performance
for segments. Hypermarketand Supermarket
    
    
    Creditformat
    
    
    card
    
    
    Other
    
    
    TotalThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$2002Revenues
    
    
    1,048,404,377
    
    
    
    11,538,179
    
    
    
    25,244,768
    
    
    
    1,085,187,324Segment gross profit
    
    
    212,077,936
    
    
    
    11,538,179
    
    
    
    24,066,546
    
    
    
    247,682,661Identifiable assets
    
    
    490,467,240
    
    
    
    80,878,424
    
    
    
    188,057,227
    
    
    
    759,402,891Goodwill (2)
    
    

    11,804,828
    
    
    
    
    
    
    
    
    
    
    
    11,804,828Operating income
    
    
    31,415,256
    
    
    
    2,736,306
    (1)
    
    
    9,579,857
    
    
    
    43,731,419Depreciation and amortization
    
    
    30,609,009
    
    
    
    
    
    
    
    4,852,760
    
    
    
    35,461,769Restructuring costs
    
    
    4,732,393
    
    
    
    
    
    
    
    390,024
    
    
    
    5,122,417Capital expenditures
    
    
    67,034,430
    
    
    
    
    
    
    
    3,528,128
    
    
    
    70,562,5582003Revenues
    
    
    1,140,064,145
    
    
    
    19,563,448
    
    
    
    32,447,199
    
    
    
    1,192,074,792Segment gross profit
    
    
    228,467,346
    
    
    
    19,563,448
    
    
    
    20,400,865
    
    
    
    268,431,659Identifiable assets
    
    
    584,648,751
    
    
    
    86,654,897
    
    
    
    166,423,888
    
    
    
    837,727,536Goodwill (2)
    
    
    10,310,393
    
    
    
    
    
    
    
    
    
    
    
    10,310,393Operating income
    
    
    29,875,589
    
    
    
    (6,742,142
    ) (1)
    
    
    12,055,587
    
    
    
    35,189,034Depreciation and amortization
    
    
    33,618,612
    
    
    
    
    
    
    
    5,329,903
    
    
    
    38,948,515Restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditures
    
    
    41,641,816
    
    
    
    
    
    
    
    3,621,028
    
    
    
    45,262,8442004Revenues
    
    
    1,375,994,053
    
    
    
    25,560,063
    
    
    
    38,907,526
    
    
    
    1,440,461,642Segment gross profit
    
    
    269,751,481
    
    
    
    25,560,063
    
    
    
    37,233,598
    
    
    
    332,545,142Identifiable assets
    
    
    668,421,581
    
    
    
    131,644,884
    
    
    
    220,009,561
    
    
    
    1,020,076,026Goodwill (2)
    
    
    31,761,075
    
    
    
    
    
    
    
    
    
    
    
    31,761,075Operating income
    
    
    16,987,481
    
    
    
    2,478,295
    (1)
    
    
    10,053,779
    
    
    
    29,519,555Depreciation and amortization
    
    
    43,475,638
    
    
    
    
    
    
    
    5,797,726
    
    
    
    49,273,364Restructuring costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Capital expenditures
    
    
    142,138,469
    
    
    
    
    
    
    
    8,927,758
    
    
    
    151,066,227
 F-65




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes) 
 (1)
    
    This amount does not include ThCh$1,535,734 for 2002; ThCh$2,308,558 for 2003; and
ThCh$2,447,783 for 2004, corresponding to financial expenses which are included in non
operating expenses in the consolidated income statements.(2)
    
    The only change in goodwill is related to the amortization under Chilean GAAP.
Information in this footnote is presented under Chilean GAAP as it represents the basis
upon which the operational personnel evaluate the business.Reconciliation of identifiable assets to total assets: 2003
    
    
    2004ThCh$
    
    
    ThCh$Identifiable assets
    
    
    837,727,536
    
    
    
    1,020,076,026Corporate headquarters
    
    
    18,834,104
    
    
    
    16,047,805Total assets
    
    
    856,561,640
    
    
    
    1,036,123,831
  Supermarkets/HypermarketsSupermarkets are characterized by traditional neighborhood supermarkets (average selling area
of 2,000 m2) providing a pleasant, friendly atmosphere and personalized attention,
with an emphasis on food. These stores offer a broad assortment of quality perishables and
groceries. Additionally, a variety of prepared dishes is available in those stores located in
higher income areas. The hypermarket, which was modeled on the European model, is
characterized by selling spaces of between 6,000 and 13,000 square meters offering, in addition
to traditional food items, non  food items such as home appliances, electronics, hardware,
sports, toys, textiles and articles for the home.  Credit card operations  The following information is disclosed related to credit card operations.  Servicios Administración de Créditos Comerciales Presto S.A. is a subsidiary of the Company.
Its corporate purpose is the placement of long-term financing on personal consumer debt taking
advantage of all synergies of the supermarket segment. This segments income consists of the
interest income associated with its credit cards. The financing of its operations is generated
by 100% by the Company, for which Presto pays interest to the parent, D&S, for funding its
operations. During 2004, Prestos operation increased significantly. This is primarily
related to the increased usage of financing by customers. F-66




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    Allowance for credit risk associated to accounts receivable- The allowance for credit risk
associated to accounts receivable is established taking into account the experience of
delinquency and write-offs. Accounts and notes receivable are stated net of such allowance.  Interest- The amount recorded in the balance sheet for loans includes accrued interest.  The Company discontinues the accrual of interest on high  risk or past  due loans (90 days).  The allowance for doubtful credit card accounts receivable was ThCh$1,004,464 at December 31,
2002, ThCh$14,319,653 in December 31, 2003 and ThCh$18,270,060 at December 31, 2004. See
provisions and write-offs in note 26.b.10.  The short - term and long - term components of the credit
card loan receivables, net of allowance provision, are included in
trade accounts receivable (see Note 5) and the detail is as follows : 2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$Short - term
    
    
    40,227,737
    
    
    
    67,017,019
    
    
    
    108,266,048Long - term
    
    
    2,890,980
    
    
    
    7,286,179
    
    
    
    14,664,572Total
    
    
    43,118,717
    
    
    
    74,303,198
    
    
    
    122,930,620
  Amount of past due (90 days) credit card loans at each year end were as follows: ThCh$2002
    
    
    1,796,7302003
    
    
    11,704,3702004
    
    
    18,602,000
  The past due credit card loans increased at December 31, 2004 due to an increase in the loan
portfolio undertaken in conjunction with the Companys strategy to expand this business
segment.  The clients policy for writing off account receivable is that a receivable is automatically
written off upon attaining an overdue age 365 days once any installment payment has recovered
over due for such period. F-67




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    The following summarizes the activity in the allowance for doubtful account for the periods
indicated: 2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$(As restated)January 1, balance
    
    
    650,448
    
    
    
    1,004,464
    
    
    
    14,319,653Additional provisions
    
    
    3,673,791
    
    
    
    19,983,399
    
    
    
    18,557,643Write-offs, net
    
    
    (3,319,774
    )
    
    
    (6,668,210
    )
    
    
    (14,607,236
    )December 31, balance
    
    
    1,004,464
    
    
    
    14,319,653
    
    
    
    18,270,060
  The average interest rates and the range of interest rates charged to customers for the years
presented, is as follows: Description
    
    2002
    
    2003
    
    2004Average interest rate annual (%)
    
    33.36
    
    33.00
    
    37.20Income interest (ThCh$)
    
    11,538,179
    
    19,563,448
    
    26,036,051Range of interest rates monthly (%)
    
    2.7  2.9
    
    2.7  2.8
    
    3.1  3.3
  Other  This amount is mainly composed of rental revenue, for kiosks, etc., within the supermarkets and
hypermarkets.  The Company operates in only one geographic segment, Chile.  c.9. Concentration of risk  The Company does not believe it is exposed to any unusual credit risk from any single customer.  No single customers accounted for more than 10% of revenues for the years ending December 31,
2002, 2003 and 2004. F-68




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    c.10. Schedule of long-term debt and bond maturity:  Following is a schedule of debt maturity in each of the next five years and thereafter: ThCh$2005
    
    
    101,444,8872006
    
    
    92,032,1452007
    
    
    54,272,1602008
    
    
    21,694,6662009
    
    
    23,912,638Thereafter
    
    
    40,312,609Balance at December 31, 2004
    
    
    333,669,105
  c.11. Disclosure regarding interest capitalization: Year ended December 31,2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$Interest expense incurred
    
    
    13,859,715
    
    
    
    16,818,061
    
    
    
    18,694,781Interest capitalized under Chilean GAAP
    
    
    1,078,889
    
    
    
    410,477
    
    
    
    1,190,644Interest capitalized under U.S. GAAP
    
    
    1,078,889
    
    
    
    410,477
    
    
    
    1,190,644
  c.12. Advertising Costs  The Company expenses advertising costs as incurred. Consolidated advertising costs for the
years ended December 31, 2002, 2003 and 2004 were ThCh$14,725,960, ThCh$12,355,299 and
ThCh$19,580,555, respectively. F-69




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)    c.13. Vendor allowances  Net revenue includes revenue obtained from suppliers for reaching selling goals and purchasing
a certain volume of goods, which is recorded on an accrual basis and included in net revenue on
the statements of income. The amounts recorded have been reclassified from revenue to
deductions from the cost of sales line for U.S. GAAP purposes as follows: 2002
    
    
    2003
    
    
    2004ThCh$
    
    
    ThCh$
    
    
    ThCh$Dr (Cr)
    
    
    Dr (Cr)
    
    
    Dr (Cr)OPERATING RESULTSNet revenue
    
    
    84,922,805
    
    
    
    97,063,334
    
    
    
    127,777,630Cost of sales
    
    
    (84,922,805
    )
    
    
    (97,063,334
    )
    
    
    (127,777,630
    )
  The detail of the reclassification of net revenue to reduction of costs of sales in U.S. GAAP
consists of the following: 2002
    
    
    2003
    
    
    2004Description
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$Volume rebates
    
    
    63,546,894
    
    
    
    76,749,399
    
    
    
    97,755,358Slotting fees
    
    
    5,902,223
    
    
    
    5,466,149
    
    
    
    7,661,951Allowances for store opening and remodeling
    
    
    4,632,479
    
    
    
    2,456,721
    
    
    
    3,614,905Reinbursements for use of distribution
network
    
    
    10,841,209
    
    
    
    12,391,065
    
    
    
    18,745,416Total
    
    
    84,922,805
    
    
    
    97,063,334
    
    
    
    127,777,630
  c.14. Valuation and Qualifying Accounts AdditionsBalance at
    
    
    charged to
    
    
    
    
    
    
    
    
    
    
    Balancebeginning
    
    
    costs and
    
    
    
    
    
    
    
    
    
    
    at end ofof period
    
    
    expenses
    
    
    Deductions
    
    
    Other
    
    
    periodThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$
    
    
    ThCh$December 31, 2002Allowance for doubtful accounts
    
    
    3,118,657
    
    
    
    5,199,873
    
    
    
    (3,523,350
    ) (a)
    
    
    
    
    
    
    4,795,180Allowance for inventory realization
    
    
    
    
    
    
    1,183,625
    
    
    
    
    
    
    
    
    
    
    
    1,183,625Allowance for restructuring
    
    
    
    
    
    
    5,122,417
    
    
    
    
    
    
    
    
    
    
    
    5,122,417December 31, 2003
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allowance for doubtful accounts
(As restated)
    
    
    4,795,180
    
    
    
    20,685,731
    
    
    
    (6,759,730
    ) (a)
    
    
    
    
    
    
    18,721,181Allowance for inventory realization
    
    
    1,183,625
    
    
    
    
    
    
    
    (1,183,625
    ) (b)
    
    
    
    
    
    
    Allowance for restructuring
    
    
    5,122,417
    
    
    
    
    
    
    
    (5,122,417
    ) (c)
    
    
    
    
    
    
    December 31, 2004Allowance for doubtful accounts
    
    
    18,721,181
    (d)
    
    
    18,622,499
    
    
    
    (15,540,438
    ) (a)
    
    
    
    
    
    
    21,803,242Allowance for inventory realization
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Allowance for restructuring
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 F-70




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DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  (a)
    
    Relates to write-offs of accounts receivable.(b)
    
    Relates to lower of cost or market adjustment taken on inventory.(c)
    
    Relates to payment of restructuring expenses.(d)
    
    As restated. See Note 24.  c.15. Recent Accounting PronouncementsIn December 2004, the FASB deferred the issuance of their final standard on earnings per share
SFAS No. 128R, Earnings per Share, an amendment to FAS 128. The final standard is expected to
be effective in 2005 and will require retrospective application for all prior periods
presented. The significant proposed changes to the EPS computation are changes to the treasury
stock method and contingent share guidance for computing year-to-date diluted EPS, removal of
the ability to overcome the presumption of share settlement when computing diluted EPS when
there is a choice of share or cash settlement and inclusion of mandatorily convertible
securities in basic EPS. The Company does not believe that this pronouncement will have an
effect on its financial condition, statements of operations or cash flows.In December 2004, the FASB issued SFAS No.153, Exchanges of Nonmonetary Assets, an amendment of
APB Opinion No.29. APB Opinion No.29, Accounting for Nonmonetary Transactions, provided an
exception to its basic measurement principle (fair value) for exchanges of similar productive
assets. Under APB Opinion No.29, an exchange of a productive asset for a similar productive
asset was based on the recorded amount of the asset relinquished. SFAS No. 153 eliminates this
exception and replaces it with an exception for exchanges of nonmonetary assets that do not
have commercial substance. SFAS No. 153 is effective prospectively for nonmonetary asset
exchanges occurring in fiscal years beginning January 1, 2006 for the Company.In December 2004, the FASB issued SFAS No. 123R, Share-Based Payment (SFAS No. 123R), that
requires all share-based payment, including grants of employee stock options, to be recognized
in the income statement bases on their fair value. Pro forma disclosure is no longer an
alternative. SFAS No. 123R is effective for the Company on January 1, 2006. Retroactive
application of the requirements of SFAS No. 123R to the beginning of the fiscal year that
includes the effective date would be permitted. The Company does not believe that this
pronouncement will have an effect on its financial condition, statements of operation, or cash
flows. F-71




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##### Table of Contents



DISTRIBUCION Y SERVICIO D&S S.A. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) (Restated for general price-level changes)  In November 2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4 (SFAS No. 151), to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs and wasted material (spoilage) relating to inventory pricing.
SFAS No. 151 requires that such items be recognized as current-period charges regardless of
whether they meet the criterion of so abnormal and requires that the allocation of fixed
production overheads to inventory be based on the normal capacity of the production facilities.
The guidance is effective for inventory costs incurred during fiscal years beginning after June
15, 2005. The Company is currently evaluating the provisions of this pronouncement to
determine the effects on its financial condition, statements of operations, and cash flows.In March 2005, the FASB issued FASB Interpretation (FIN) No. 47, Accounting for Conditional
Asset Retirement Obligations, which clarifies the term conditional asset retirement obligation
as used in SFAS No. 143, Accounting for Asset Retirement Obligations, as a legal obligation
to perform an asset retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the Company. FIN No.
47 is effective no later than the end of fiscal years ending after December 15, 2005. The
Company is currently evaluating the impact of adopting this interpretation.In May 2005, the Financial Accounting Standards Board (FASB) has issued Statement N°154,
Accounting Changes and Error Corrections, a replacement of APB Opinion N°20 and FASB Statement
N°3. The Statement applies to all voluntary changes in accounting principle, and changes the
requirements for accounting for and reporting of a change in accounting principle.Statement N°154 requires retrospective applications to prior periods financial statements of a
voluntary change in accounting principle unless it is impracticable. Opinion 20 previously
required that most voluntary change in accounting principle be recognized by including in net
income of the period of the change the cumulative effect of changing to the new accounting
principle. Statement N°154 improves financial reporting because its requirements enhance the
consistency of financial information between periods. The Company is analyzing the effect
which this pronouncement will have on its financial condition, statement of operations, and
cash flows. This statement will be effective for the Company on January 1, 2006. * * * * * * F-72




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INDEX TO EXHIBITS

Exhibit Number
    
    Description1.1
    
    English translation of our Amended Bylaws (filed herewith).2.1
    
    Amendment No. 1, dated as of December 3, 2004, to Deposit Agreement, dated as of October 7,
1997, between us and JPMorgan Chase Bank N.A. (formerly, Morgan Guaranty Trust Company of New
York), as Depository and the registered holders from time to time of American Depository
Receipts (filed herewith).8.1
    
    List of our subsidiaries (filed herewith).11.1
    
    Code of Ethics of the company, dated June 29, 2004 (as filed in our annual report on Form
20-F, dated as of June 30, 2004, and incorporated herein by reference).12.1
    
    Certification of Mr. Rodrigo Cruz Matta pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (filed herewith).12.2
    
    Certification of Mr. Miguel Núñez pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(filed herewith).13.1
    
    Certification of Mr. Rodrigo Cruz Matta pursuant to 18 U.S.C. 1350, as adopted pursuant to
Section 906 of the Sarbanes  Oxley Act of 2002 (filed herewith).13.2
    
    Certification of Mr. Miguel Núñez pursuant to 18 U.S.C. 1350, as adopted pursuant to Section
906 of the Sarbanes  Oxley Act of 2002 (filed herewith).