The year 2001 was marked by significant advances for Saraiva. Editora Saraiva reached a record value in sales of textbooks to the Government under the National Textbook Program for the school year of 2002 ("PNDL/2002"). Sales of textbooks to the private sector and of law books both presented excellent results, with two-digit increases in revenues.

The net sales of Livraria Saraiva's physical stores presented 8% growth on a same-store basis, a very significant achievement when the unstable economic scenario that prevailed in 2001 is taken into account. Livraria Saraiva also made progress in the search for strategic locations to continue the store chain expansion program. The on-line retail operation presented considerable growth, and its indicators show that the target of attaining a positive cash-flow by the end of 2002 will be met.

For the ninth consecutive year, consolidated sales attained a two-digit growth rate (16%), reaching a gross turnover of R$ 407.9 million. The consolidated EBITDA hit a new record, reaching R$ 51.4 million. The net profit for the year was R$13.0 million. Even with the increase in financial expenses due to the currency depreciation in 2001, the profit for the period was slightly higher than the result of the year 2000.

2. SCENARIO AND MARKET

The national economic environment in 2001 was marked by great challenges. There was the electric power crisis, and the effects of the problems in Argentina and of the international terrorist attacks. In spite of the unstable scenario, the Brazilian economy demonstrated a good assimilation capacity. The successful results of the public accounts and the recovery in the trade balance helped to improve the perception of the "Brazil risk" at the end of the year and led to favorable prospects for a recovery in economic growth.

For robust and sustainable economic growth, in addition to the fiscal equilibrium in the public accounts, it is essential for the nation to promote the continuous development of the level of education. In this respect, it is worth highlighting the considerable advances observed between 1994 and 2001, which represent an important turnaround in the structural characteristics of the Brazilian educational system.

Number of Enrollments (thousand) Year Kinder- garten Primary Schools Secondary Schools (1) Universities Universities (Post Graduate Courses) 1994 4,003 32,008 5,276 1,661 57 2001 4,815 35,370 9,418 2,693(2) 97(2) Growth 94/01 20% 11% 79% 62% 68%

Source: MEC/INEP/SEEC/CAPES
(1) Includes post-school completion courses
(2) data rel. to 2000

It is important to emphasize that the advances achieved are not limited to the quantitative aspect. Quality has also been the object of coordinated action: there are now educational evaluation processes at all levels.

3. INVESTMENTS

R$ 8.9 million were invested during the past year. The year 2001 was more focused on prospecting than on effecting new investments, both in searching for new acquisition opportunities for Editora Saraiva and in defining the best locations for Livraria Saraiva's next Mega Stores.

The main investments at Editora Saraiva were the following:

•

the acquisition of a "business intelligence" tool and other investments in information technology, mainly intended to complement the implementation of the integrated corporate management software.

•

the broadening of the range of products and services offered in our portal for law professionals (www.saraivajur.com.br), in addition to the already well respected legislation and jurisprudence products:

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21 products were launched for on-line sale;

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several channels were created with differentiated and extremely useful services for law professionals in their daily work ("Lawsuit Terms", "Spotlight on Today's Subjects", "Economic Indicators" and "Communities");

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a direct link to our electronic retail site, www.saraiva.com.br, was created. In 9 months of operation, about 30,000 users activated the link, and the conversion rate was close to 5%.

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in an unprecedented association with Microsoft, a tool was developed for the "Word" text processor, by means of which, when certain expressions are typed, the software suggests alternatives related to the subject and opens a link to the "saraivajur" site;

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several associations were developed in 2001 and will be implemented in 2002. These alliances are part of a more aggressive commercial strategy, after the consolidation of the technological infrastructure for client servicing.

•

the new version of the publishing site for the economics and administration books area was launched, with several innovations, including the unprecedented "test bench", an additional tool for teachers to use in preparing examinations;

•

the acquisition of a small volume of publishing rights from Solução Editora of São Paulo strengthened our position in the textbook publishing market.

In 2002, we continue seeking opportunities for acquisition or association with companies in the sector, which are in harmony with our long-term strategic vision. The aim of our strategy is to achieve leadership in the markets in which we operate. By reaching this objective, we will increase the creation of value for our shareholders and the well-being of our employees, of our clients and of the communities with which we operate.

At Livraria Saraiva, during the year 2001, we carried out several studies with the objective of defining the locations of future stores, under the store chain expansion program.

The decision regarding the location is of fundamental importance so that future investments add significant value to the company. Our studies are based on the following assumptions:

•

geographic focus. The next stores will be installed in cities with large consumption potentials and where a lack of adequate servicing in the local bookstore market is observed;

•

decreasing initial investments. After 6 years of experience and with 12 Mega Stores in operation, we have acquired enough know-how to achieve a considerable reduction in the investment per square meter for the next stores. The latest stores have been opened with an average reduction of 30% in relation to the first ones.

•

decreasing operating costs. Due to the success of our first Mega Stores, Saraiva presently holds the status of an anchor or semi-anchor store, which gives us favorable conditions to negotiate with shopping mall administrators;

•

better management of working capital. Thanks to the experience acquired in operations, the development of associations with suppliers based on our track-record and the scale attained, and investments in information technology, distribution and inventory rationalization, our working capital requirements have decreased slightly at each new store that was opened.

At present, there is one store for which contracts have already been signed, and which will be opened in April, 2002:

•

"Shopping Tijuca Mega Store", in Rio de Janeiro.

The other highlights that occurred in 2001 in the physical store chain were the following:

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a revision of the strategy regarding the two Mega Stores located in the Eldorado Shopping Mall, in São Paulo. Activity at the "Music Hall Mega Store" (the chain's only store with a mix concentrated in audio and video products) was gradually reduced (it was closed in Jan/02). We found that this store model did not deliver the desired return. At the same time, the other store located in this shopping mall was enlarged, with the objective of improving the mix of products offered, benefiting from the synergies that exist between the books area and the audio and video products area;

•

the store located inside the São Judas University, in São Paulo, was closed, due to the fact that it not reach the desired return rate;

•

increased efficiency in the management of working capital, resulting from the investments in information technology and progress in the management of purchases. On a same-store basis, inventories of the physical stores fell 5% in the last 12 months, even with an 8% increase in sales. In 2001, the turnover of inventories was improved by 21 days, in comparison with the year 2000.

In our e-commerce operations, the main highlights were:

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the launching of a new version of the site www.saraiva.com.br, with a more modern visual presentation. This new version has resources that enable even faster and more agile navigation, in addition to efficient product search and on-line order follow-up services;

•

investments made in technology, aiming at the continued improvement of services and logistics. Saraiva was chosen as the best on-line retailer in relation to exchange and return services, according to Revista do Consumidor (Consumers' Magazine), published by Idec;

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investments made in the security of electronic transactions. We were the first e-commerce company in Brazil to receive Pricewaterhouse-Coopers' security and privacy seal;

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Saraiva was chosen as the highlight of the year 2001, in the bookstore segment of the B2C (Business to Consumer) category, in a poll carried out by IDG Computer World do Brasil, in association with IDC Brasil – International Data Corporation.

All the investments were made with the aim of achieving profitability, by taking maximum advantage of the synergies with the physical stores. We took firm steps towards the target of reaching a positive cash flow before the end of 2002.

In the following table, we demonstrate the significant advance of saraiva.com's performance indicators.

Indicator 2001 2000 Clients (thousands) 480 230 Page views/month (millions) 14 6 Unique visitors/mont (thous) 1,250 850 Percentage of Livraria Saraiva's total net sales 7.9 5.0 Average ticket (R$) 55 36

4. HUMAN RESOURCES

The consolidated headcount closed the year at 2,446 employees, with a reduction of 173 workers in relation to the previous year. If we exclude the effect of those working at our on-line retail business – an operation that is in a rapid growth phase – we arrive at a cut of 195. This reduction was driven by rationalization measures and productivity gains achieved by the automation of processes.

The productivity rate, measured by the turnover-per-employee ratio, showed a considerable rise – from R$ 134,700 in 2000 to R$ 166,800 in 2001 – with a 24% growth rate.

The training of our professionals is one of the company's priorities. In this respect, 2001 was a year of important achievements:

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at Editora Saraiva, several courses in technical development were made available;

•

at Livraria Saraiva, there were several motivational activities and pioneering initiatives to improve training:

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the creation of the company's "mission", in an event that involved the participation of all the workers in drafting the text that defines the true "mission of Livraria Saraiva": "Our commitment is to innovate, always seeking to contribute to the culture, entertainment and leisure of our clients, offering a variety of products, quality services and excellence in the attention given to customers";

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courses, talks and meetings with authors and editors were held, with a total of 5,547 people participating and 27,000 hours of training.

5. RESULTS

EDITORA SARAIVA

The table below summarizes the main data related to the economic and financial performance:

2001 2000 (R$ million) Description Amount Vertical Analysis (%) Amount Vertical Analysis (%) Horizontal Analysis (%) Net sales 194.3 100.0 171.8 100.0 13 Gross margin 126.4 65.0 107.7 62.7 17 Operating expenses 87.9 45.2 76.6 44.6 15 EBITDA 45.5 23.4 38 22.1 20 Net financial result (23.0) (11.8) (17.4) (10.1) 33 Net profit before earnings form subsidiaries 17.0 8.7 16.8 9.8 1

Net sales grew by 13%, rising from R$ 171.8 million to R$ 194.3 million in 2001. This performance indicates that we gained market share. According to estimates made by the National Union of Book Publishers, the Brazilian publishing market grew by 5% in 2001.

All the main lines of books recorded growth, especially the textbook and law book areas. There was a 25% increase in sales of textbooks to the private sector; and in supplies to the government the amount sold was a record for the second year running. In the law book area, growth in sales was equivalent to 10%. The most recent publishing areas, auxiliary textbooks and economics and management books, also had an excellent performance, with growth of 43% and 23%, respectively.

The other highlights in the period were the following:

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an improvement in the gross margin, rising from 62.7% in 2000 to 65.0% in 2001, mainly due to the price adjustment effected at the end of 2000, restoring the margin that had been affected during that year by the increase in the price of paper as a raw material;

•

the growth in operating expenses was slightly above that of sales, 15% vis-à-vis 13%. The rise in expenses above the ideal proportion gave rise to the creation, in September 2001, of an action plan focused on cash management. The scope of this action plan covers measures on several fronts leading to gains in Saraiva's cash management, by reducing expenses, lengthening suppliers' payment terms and reducing the terms for receipt of payment for sales. Several measures were adopted at the end of 2001, including the rationalization of the work force. The annual savings expected as from 2002 amounts to R$ 3.6 million;

•

20% growth in the operating cash-flow, as measured by the EBITDA. The EBITDA / net sales margin rose from 22.1% in 2000 to 23.4% in 2001;

•

the financial result was worse. In 2001, the net financial result was a negative figure of R$ 23.0 million, vis-à-vis R$ 17.4 million in 2000. This rise in financial expenses occurred mainly because of the currency depreciation, whose result was fully booked in the period. It should be recalled that the liability currently exposed to exchange-rate variation corresponds to US$ 9.2 million, resulting from the long-term financing (ending in 2006) obtained from the IFC;

•

the net profit before earnings from the subsidiary (Livraria Saraiva) recorded a 1% increase, rising from R$ 16.8 million in 2000 to R$ 17.0 million in 2001.

LIVRARIA SARAIVA

In order to enable more precise analysis, we present below Livraria Saraiva's main financial data, separating the results of the physical stores from those of the on-line retail business, carried on through the saraiva.com.br site. Livraria Saraiva's aggregate data (physical stores + on-line retail) are informed in the note on investments.

Physical Stores

Economic and financial performance:

2001 2000 (R$ million) Description Amount Vertical Analysis (%) Amount Vertical Analysis (%) Horizontal Analysis (%) Net sales 177.3 100.0 155.8 100.0 14 Gross margin 66.9 37.7 58.3 37.4 15 Operating expenses 61.8 34.9 54.5 35 13 EBITDA 13.6 7.7 12.0 7.7 14 Net results 1.8 1.0 0.9 0.6 108

The main highlights of the physical stores' performance in 2001 were the following:

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14% growth in net sales due to:

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4 Mega Stores inaugurated during 2000, fully participating in the year 2001 sales;

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an 8% increase in same-store sales. Taking into consideration the uncertainties prevailing in the economic environment in 2001, this performance proves the success of the retail model adopted by Saraiva.

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the gross margin showed an improvement for the 3rd consecutive year, rising from 37.4% in 2000 to 37.7% in 2001. This result reflects the actions focused on increasing operating efficiency, through:

•

investments in information technology, distribution and inventory rationalization;

•

improvement in supply conditions, resulting from associations with suppliers;

•

a greater percentage of sales of literature books, which are products with a higher gross margin;

•

lower shrinkage rates.

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a slight improvement in the operating expenses / sales ratio, which fell from 35.0% in 2000 to 34.9% in 2001. We expect more significant efficiency gains from 2002 on, with the dilution of fixed expenses, as a consequence of the greater scale to be attained and also the savings to be generated as a result of the measures already adopted under the cash management action plan. The annual savings expected for Livraria Saraiva (including physical stores and the .com), as from 2002, amounts to R$ 1.2 million.

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EBITDA grew by 14%, rising from R$ 12.0 million in 2000 to R$ 13.6 million in 2001. The EBITDA margin remained stable, at 7.7%.

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The net result for 2001 was a profit of R$ 1.8 million, vis-à-vis a R$ 0.9 million profit in 2000.

The table below presents a comparison between the results achieved by Saraiva and the best international retail standards.

Sales/sq.m.in (US$) EBITDA margin Net margin Saraiva - Physical stores 4,249 7.7% 1.0% Average - Latin America (1) 4,161 6.9% 1.5% Average - USA (1) 4,296 7.0% 2.4% Average - Europe (1) 5,487 6.2% 1.9%

(1) Data on the international market were extracted from the JP Morgan report "Latin American Retailing Weekly" published on Jan. 16, 2002.

Saraiva.com.br

2001 2000   Description Amount Vertical Analysis (%) Amount Vertical Analysis (%) Horizontal Analysis (%) Net sales 15.3 100.0 8.3 100.0 85 Gross margin 5.9 38.5 2.1 26.0 174 Operating expenses 14.2 93.0 8.2 99.2 74 EBITDA (7.7) -50.1 (5.8) -70.1 32 Net results (5.8) -38.1 (4.8) -57.9 22

The highlights to be observed in the numbers above are the following:

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85% growth in net sales;

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a significant improvement in the gross margin, which rose from 26.0% in 2000 to 38.5% in 2001. This improvement was achieved due to a less aggressive discount policy and lower rate of freight subsidies;

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operating expenses rose by 74%. It should be stressed that, in the 1st quarter of 2000, R$ 2.2 million in pre-operating expenses, related to the introduction of the brand-name and operational structuring efforts, were deferred, thus reducing the comparison base. In view of the present stage of operations, the greater part of the amortization of these expenses was booked in the year 2001. The table below shows these effects.

2001 2000 % Change Operating expenses 14.2 8.2 74% (+) Deferred expenses in the period - 2.2 - (-) Amortization of deferred expenses in the period 2.2 0.6 - (=) Adjusted Total 12.0 9.8 23%

•

The net result for 2001 was a loss of R$ 5.8 million, vis-à-vis a loss of R$ 4.8 million in 2000.

•

It should be emphasized that 2001 was a year of considerable adjustments in our electronic retail operations. We carried out a rationalization program in relation to personnel, adjusted advertising expenses to levels compatible with our profitability projections, and took greater advantage of synergies with the physical stores. We are confident that profitability targets will be met as from the end of 2002.

CONSOLIDATED FIGURES

Consolidated net sales grew by 16% in relation to the previous year, rising from R$ 328.6 million in 2000 to R$ 380.2 million in 2001.

The year's net profit amounted to R$ 13.0 million in 2001, vis-à-vis R$ 12.9 million in 2000, indicating a 1% increase and representing a 16% return on the initial net equity.

Two important factors that affected the net profit in 2001 and that prevented a more significant rise should be pinpointed:

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the loss resulting from e-commerce operations amounted to R$ 5.8 million in 2001, vis-à-vis R$ 4.8 million in 2000. For this reason, Livraria Saraiva's bottom line, and consequently the consolidated net profit, suffered an additional negative impact of R$ 1.0 million in relation to 2000. We should again stress that this result is in accordance with the company's strategic planning, and the year 2002 will present a clear reversal in this trend.

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the negative impact of the currency depreciation on financial expenses. The effect of expenses with exchange-rate variation and hedge operations in 2001 was R$ 3.2 million greater than the year 2000 figure. It is important to stress that the financial expense related to exchange-rate variation was fully booked in the period's results, even though the debt is long-term.

The operating cash-flow measured by EBITDA presented a further increase and reached the record amount of R$ 51.4 million in 2001, as against R$ 44.2 million in the previous year.

6. CAPITAL STRUCTURE

Debt

The consolidated net debt showed a significant reduction, dropping from R$ 64.0 million in 2000 to R$ 37.3 million in 2001. The net debt / EBITDA ratio fell from 1.4 in 2000 to 0.7 in 2001.

Hedge

Financial liabilities exposed to exchange-rate variation were equivalent to US$ 9.2 million on Dec. 31, 2001, and resulted exclusively from the financing obtained from the IFC.

Due to the great volatility observed in the financial market and the characteristics of the financing (long term, with semi-annual amortizations), the strategy adopted for protection against the exchange-rate risk has been to take out a hedge only for the short-term maturities, so as to minimize the impact of exchange-rate variations on the cash-flow. Following this policy, we have a hedge operation to eliminate the exchange-rate risk for the next maturity (June, 2002).  The operation was structured in such a way that we took on a liability in the CDI rate and an asset indexed to exchange-rate variation.

7. CAPITAL MARKET

In accordance with the decision of the Extraordinary General Shareholders' Meeting of Nov. 19, 2001, procedures were defined for the conversion of class A preferred shares into class B, intended for preferred shareholders who had not yet made the conversion. The objective of this measure was to ensure that all those holding the company's preferred shares will have the right to the tag-along mechanism, being protected against the risk of a possible loss on their investments in the event of sale of control.

The table below presents a summary of  Saraiva's stock movement in the last three years:

Description 1999 2000 2001 Number of trades 445 1,570 1,078 Quantities traded – thousands 3,652 2,405 2,825 Volume traded – R$ thousands 18,031 30,646 32,119 Share price – R$ at the end of the period 9.05 11.00 (*) 10,85(*) Total shares outstanding at the end of the period - thousand 25,824 23,442 23,269

(*) Price of the PNB share
Source: BOVESPA

8. SHAREHOLDERS' REMUNERATION

The Management will propose the payment of R$ 7.9 million (R$ 0.33797014 per share) for shareholder remuneration, in the form of interest on equity, the compulsory minimum dividend being included in this value. This amount represents 61% of the year's results.

9. SOCIAL ACTIVITY

In the social sphere, Saraiva received two awards in recognition of its activities in favor of the community:

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for the 3rd consecutive year, Saraiva received the title "A Company that Educates", awarded by SENAC (National Trade Apprenticeship Service) to companies that support the "Professional Qualification Program", whose purpose is to prepare young people for the labor market;

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Livraria Saraiva received the award "Conscientious Company – Partner to the Disabled", granted by the OAT – Oficina Abrigada de Trabalho (Sheltered Labor Workshop), for its fundamental collaboration towards the training of disabled people.

10. PROSPECTS

The Brazilian economy showed its maturity in overcoming the great challenges that arose in the scenario, in the course of 2001. There are favorable conditions for a recovery in the economy as from 2002.

Education has been undergoing far-reaching changes in Brazil. There are forceful indications that the recent advances achieved in quantity and quality constitute a foundation for sustained development and for Brazil to participate competitively in the world scenario. A great many challenges still need to be overcome, but education has been an important priority in the national agenda, which should lead to new conquests.

With a view to participating actively in the enhancement of our country's educational and cultural standards, Saraiva has been investing significantly with the objective of developing competitive advantages that will support the growth and continuity of the company in the long term.

At Editora Saraiva, we remain ready to study opportunities for new acquisitions or associations, besides making investments that will ensure a growing market share for our publishing lines. In the law portal, the maturing of the investments made will add significant value in the medium to long term.

At Livraria Saraiva, the expansion of the physical store chain will enable us to intensify scale gains, which will result in better profit rates. In the on-line retail area, we will persist in seeking to exploit the synergies with the physical stores. The ambitious business plan has been strictly fulfilled and we are rapidly moving towards achieving our profitability targets.

In respect of cash management, several measures have been implemented and will result in expected annual consolidated savings of R$ 4.8 million. More important still, action has been focused on encouraging a generalized cash-management culture, so as to provide continuous efficiency gains.

11. THANKS

At the close of yet another year, we wish to thank our employees, authors, suppliers, clients and shareholders for their collaboration.

São Paulo, March 1, 2002.

THE MANAGEMENT