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Financial Statements

Estácio Participações S.A.
December 31, 2008 and 2007
With Report of Independent Auditors
ESTÁCIO PARTICIPAÇÕES S.A.

                                             FINANCIAL STATEMENTS

                           ...
Report of Independent Auditors

To the Shareholders, Directors and Executives of
Estácio Participações S.A.
Rio de Janeiro...
4. As mentioned in Note 7, on June 4, 2008, the Company entered into a services agreement
   with an entity owned by share...
Estácio Participações S.A.

Balance sheets as of December 31
In thousands of reais


                                     ...
Estácio Participações S.A.

Statements of income as of December 31
In thousands of reais


                               ...
Estácio Participações S.A.

Statement of changes in shareholders’ equity as of December 31
In thousands of reais


       ...
Estácio Participações S.A.

Statement of cash flows for the years ended December 31
In thousands of reais

               ...
Estácio Participações S.A.

Statement of added value for the year ended December 31, 2008
In thousands of reais


        ...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

          Notes to financial statements as of December 31
          In thousands of reais, unl...
Estácio Participações S.A.

      Notes to financial statements as of December 31
      In thousands of reais, unless othe...
Estácio Participações S.A.

      Notes to financial statements as of December 31
      In thousands of reais, unless othe...
Estácio Participações S.A.

      Notes to financial statements as of December 31
      In thousands of reais, unless othe...
Estácio Participações S.A.

      Notes to financial statements as of December 31
      In thousands of reais, unless othe...
Estácio Participações S.A.

      Notes to financial statements as of December 31
      In thousands of reais, unless othe...
Estácio Participações S.A.

      Notes to financial statements as of December 31
      In thousands of reais, unless othe...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

    Notes to financial statements as of December 31
    In thousands of reais, unless otherwis...
Estácio Participações S.A.

      Notes to financial statements as of December 31
      In thousands of reais, unless othe...
Estácio Participações S.A.

      Notes to financial statements as of December 31
      In thousands of reais, unless othe...
Estácio Participações S.A.

        Notes to financial statements as of December 31
        In thousands of reais, unless ...
Estácio Participações S.A.

         Notes to financial statements as of December 31
         In thousands of reais, unles...
Estácio Participações S.A.

        Notes to financial statements as of December 31
        In thousands of reais, unless ...
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Eng Version Notes

  1. 1. Financial Statements Estácio Participações S.A. December 31, 2008 and 2007 With Report of Independent Auditors
  2. 2. ESTÁCIO PARTICIPAÇÕES S.A. FINANCIAL STATEMENTS December 31, 2008 and 2007 Contents Report of Independent Auditors .......................................................................................... 1 Audited Financial Statements Balance Sheets .................................................................................................................. 3 Statements of Income ......................................................................................................... 4 Statement of Changes in Shareholders’ Equity................................................................... 5 Statement of Cash Flows .................................................................................................... 6 Statement of Added Value .................................................................................................. 7 Notes to Financial Statements ........................................................................................... 8
  3. 3. Report of Independent Auditors To the Shareholders, Directors and Executives of Estácio Participações S.A. Rio de Janeiro - RJ 1. We have audited the accompanying balance sheet of Estácio Participações S.A. and the consolidated balance sheet of Estácio Participações S.A. and its subsidiaries as of December 31, 2008, and the related statements of income, changes in shareholders’ equity, cash flows and added value for the year then ended. These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial statements. 2. Our audits were conducted in accordance with auditing standards in Brazil and comprised: (a) planning of the work, taking into consideration the significance of the balances, the volume of transactions, and the accounting and internal control systems of the Company and its subsidiaries; (b) checking, on a test basis, of the evidence and records supporting the amounts and accounting information disclosed; and (c) assessment of the accounting practices used and significant estimates made by the Management of the Company and its subsidiaries, as well as an evaluation of the overall financial statement presentation. 3. In our opinion, the financial statements referred to in paragraph 1 present fairly, in all material respects, the financial position of Estácio Participações S.A. and the consolidated financial position of Estácio Participações S.A. and its subsidiaries as of December 31, 2008, and the results of their operations, the changes in their shareholders’ equity, their cash flows and the value added in operations for the year then ended, in conformity with the Brazilian accounting practices. 1
  4. 4. 4. As mentioned in Note 7, on June 4, 2008, the Company entered into a services agreement with an entity owned by shareholders in the total amount of R$ 14 million, with a four-year duration, to be executed as detailed in the related note to financial statements. In view of the nature of said document, it is a single and exclusive agreement. 5. We had previously audited the individual and consolidated financial statements of Estácio Participações S.A. for the year ended December 31, 2007, comprising the balance sheets, statements of income, changes in shareholders’ equity and changes in financial position for the year then ended, and supplemental information comprising the statement of cash flows, on which we issued an unqualified report, dated March 10, 2008. As mentioned in Note 2, the accounting practices adopted in Brazil were changed as from January 1, 2008. The financial statements for the year ended December 31, 2007, except for the statement of sources and applications of funds, presented together with the 2008 financial statements, have been prepared in accordance with the Brazilian accounting practices in effect until December 31, 2007 and, as permitted by Technical Pronouncement CPC 13 – Initial Adoption of Law no. 11,638/07 and Provisional Measure no. 449/08, are not being resubmitted with adjustments for purposes of comparison between years. Rio de Janeiro, March 18, 2009 ERNST & YOUNG Auditores Independentes S.S. CRC - 2SP 015.199/O - 6 - F - RJ Fernando Alberto S. de Magalhães Accountant CRC - 1SP 133.169/O-0 - S - RJ 2
  5. 5. Estácio Participações S.A. Balance sheets as of December 31 In thousands of reais Controladora Consolidado Controladora Consolidado 2008 2007 2008 2007 2008 2007 2008 2007 Ativo Passivo e patrimônio líquido Circulante Circulante Caixa e equivalentes de caixa 186 2.974 38.130 22.853 Empréstimos e financiamentos 6.735 175 Títulos e valores mobiliários 117.046 198.001 164.077 206.365 Fornecedores 637 1.115 24.396 17.212 Contas a receber 100.371 89.487 Salários e encargos sociais 162 40 56.205 58.510 Contas a compensar - Sistema FIES 2.253 3.705 Obrigações tributárias 2.129 52 16.806 12.810 Adiantamentos a funcionários / terceiros 9.094 6.423 Mensalidades recebidas antecipadamente 29.147 30.967 Partes relacionadas 29.287 93 13.905 Parcelamento de tributos 1.484 502 Despesas antecipadas 700 2.913 583 Partes relacionadas 3 Outros 5.005 1.161 15.989 5.821 Dividendos a pagar 17.866 13.658 17.866 13.658 Compromissos a pagar 1.500 5.702 Outros 3.782 2.835 152.224 202.136 332.920 349.142 20.794 14.868 157.921 142.371 Não circulante Realizável a longo prazo Não circulante Despesas antecipadas 1.692 2.983 946 Exigível a longo prazo Depósitos judiciais 748 283 Empréstimos e financiamentos 4.838 2 Provisão para contingências 20.166 13.703 1.692 3.731 1.229 Adiantamento de convênio 16.500 26.460 11.395 Parcelamento de tributos 4.025 223 Total do passivo não circulante 16.500 55.489 25.323 Investimentos Em controladas 242.011 164.726 Outros 233 233 242.011 164.726 233 233 Patrimônio líquido Imobilizado 190.738 160.393 Capital social 295.237 295.237 295.237 295.237 Intangível 62.442 53.382 106.863 62.073 Reservas de capital 96.482 96.482 96.482 96.482 Reservas de lucros 28.959 13.657 28.959 13.657 304.453 218.108 297.834 222.699 Ajustes de avaliação patrimonial 397 397 421.075 405.376 421.075 405.376 Total do ativo não circulante 306.145 218.108 301.565 223.928 Total do ativo 458.369 420.244 634.485 573.070 Total do passivo e patrimônio líquido 458.369 420.244 634.485 573.070 The accompanying notes are an integral part of these financial statements. 3
  6. 6. Estácio Participações S.A. Statements of income as of December 31 In thousands of reais Controladora Consolidado 2008 2007 2008 2007 Receita bruta das atividades Graduação 1.187.657 803.761 Politécnico 186.715 105.632 Especialização 35.079 26.323 Outras 22.815 13.868 1.432.266 949.584 Deduções da receita bruta Gratuidades - bolsas de estudo (361.067) (253.800) Devolução de mensalidades e taxas (3.240) (2.165) Descontos concedidos (45.459) (29.953) Impostos (42.534) (28.164) (452.300) (314.082) Receita líquida das atividades 979.966 635.502 Custos diretos dos serviços prestados (630.791) (409.537) Lucro bruto 349.175 225.965 (Despesas) receitas das operacionais Despesas Comerciais (83.802) (40.786) Gerais e administrativas (13.840) (3.632) (241.466) (157.358) Resultado da equivalência patrimonial, líquida 38.738 42.762 Amortização de ágio de investimentos (7.742) (2.321) (10.405) (2.321) Receitas financeiras 21.076 9.174 39.441 20.323 Despesas financeiras (58) (1.198) (13.099) (8.133) Outras receitas operacionais 1.506 8.396 5.739 Resultado das atividades não continuadas (17.470) (1.913) (14.004) 39.680 27.315 (302.848) (196.540) Lucro operacional 39.680 27.315 46.327 29.424 Lucro antes da contribuição social e do imposto de renda 39.680 27.315 46.327 29.424 Contribuição social (550) (2.314) (554) Imposto de renda (1.495) (6.378) (1.555) Lucro líquido do exercício 37.635 27.315 37.635 27.315 The accompanying notes are an integral part of these financial statements. 4
  7. 7. Estácio Participações S.A. Statement of changes in shareholders’ equity as of December 31 In thousands of reais Reserva de capital Ágio na Reservas de lucros Capital subscrição Ajustes de avalição Retenção Lucros social de ações patrimonial Legal Lucros acumulados Total Constituição da Companhia em 31 de março de 2007 1 1 Aumento de capital em 31 de março de 2007 27.072 27.072 Constituição de reserva 96.482 96.482 Aumento de capital em 01 de agosto de 2007 268.164 268.164 Lucro líquido do período 27.315 27.315 Destinação do lucro líquido: Constituição de reservas 1.365 12.292 (13.657) Dividendos propostos (13.658) (13.658) Em 31 de dezembro de 2007 295.237 96.482 1.365 12.292 405.376 Ajustes pela adoção da Lei 11.638/07 397 (4.467) (4.070) Lucro líquido do exercício 37.635 37.635 Destinação do lucro líquido: Constituição de reservas 1.658 13.644 (15.302) Dividendos propostos (17.866) (17.866) Em 31 de dezembro de 2008 295.237 96.482 397 3.023 25.936 421.075 The accompanying notes are an integral part of these financial statements. 5
  8. 8. Estácio Participações S.A. Statement of cash flows for the years ended December 31 In thousands of reais Controladora Consolidado 2008 2007 2008 2007 Fluxo de caixa das atividades operacionais Lucro líquido do exercício 37.635 27.315 37.635 27.315 Ajustes para conciliar o resultado às disponibilidades geradas pelas atividades operacionais: Depreciação e amortização 34.367 19.005 Valor residual baixado do imobilizado 5.143 1.372 Amortização de ágio 7.742 2.321 10.405 2.321 Provisão para devedores duvidosos 58.925 27.587 Provisão para contingências 7.423 864 Juros sobre empréstimos a sociedades controladas (457) Equivalência patrimonial (38.738) (42.762) 6.182 (13.126) 153.898 78.464 Variações nos ativos e passivos: (Aumento) em contas a receber (69.809) (41.635) (Aumento) em outros ativos (6.236) (1.161) (16.219) (8.987) Aumento (redução) em fornecedores (478) 1.115 7.184 2.205 Aumento (redução) em obrigações tributárias 2.077 52 3.996 1.496 Aumento em salários e encargos sociais 122 40 (2.305) (22.663) Aumento em mensalidades recebidas antecipadamente (1.820) 2.058 Aumento (redução) na provisão para contingências (960) (1.238) Aumento (redução) em outros passivos 1.531 6.416 Aumento (redução) adiantamento de convênios 16.500 15.065 (2.386) Variações nas operações com partes relacionadas: (Aumento) de contas a receber (28.830) 13.812 (5.309) Aumento (redução) de contas a pagar (3) 3 Disponibilidades líquidas geradas (aplicadas) pelas atividades operacionais (10.666) (13.077) 104.372 8.421 Fluxo de caixa das atividades de investimentos: Aplicações financeiras 80.955 (198.001) 42.288 (159.515) Investimentos em empresas controladas (56.711) 1.590 (4.070) Dividendos recebidos de controladas 14.094 Ágio na aquisição de participações acionárias (16.802) (55.703) (48.210) (55.703) Outros investimentos (6) Imobilizado e intangível (65.555) (34.573) Disponibilidades líquidas aplicadas nas atividades de investimento 21.536 (252.114) (75.547) (249.797) Fluxo de caixa das atividades de financiamentos: Aumento de capital 268.165 268.165 Dividendos distribuidos (13.658) (13.658) Aquisição de empréstimo 2.069 Pagamento de empréstimos e financiamentos (1.959) (3.936) Disponibilidades líquidas geradas nas atividades de financiamentos (13.658) 268.165 (13.548) 264.229 Aumento nas disponibilidades (2.789) 2.974 15.277 22.853 No início do exercício 2.974 22.853 No final do exercício 186 2.974 38.130 22.853 Variação no saldo de disponibilidades (2.788) 2.974 15.277 22.853 The accompanying notes are an integral part of these financial statements. 6
  9. 9. Estácio Participações S.A. Statement of added value for the year ended December 31, 2008 In thousands of reais Controladora Consolidado 2008 % 2008 % 1 – RECEITAS 963.575 100 2 - INSUMOS ADQUIRIDOS DE TERCEIROS 12.379 191.127 20% Materiais, energia, serviços de terceiros e outros 12.379 184.299 19% Outras 6.828 1% 3 - VALOR ADICIONADO BRUTO (1-2) (12.379) 772.448 80% 4 - DEPRECIAÇÃO, AMORTIZAÇÃO E EXAUSTÃO 34.367 4% 5 - VALOR ADICIONADO LÍQUIDO PRODUZIDO PELA ENTIDADE (3-4) (12.379) 738.081 77% 6 - VALOR ADICIONADO RECEBIDO EM TRANSFERÊNCIA 53.580 37.904 4% Resultado de equivalência patrimonial 38.738 Receitas financeiras 21.076 39.914 4% Outras (6.235) (2.010) 0% 7 - VALOR ADICIONADO TOTAL A DISTRIBUIR (5+6) 41.200 100 775.985 81% 8 - DISTRIBUIÇÃO DO VALOR ADICIONADO Colaboradores 896 2% 501.861 52% Governo 2.611 6% 123.665 13% Financiadores 58 0% 112.824 12% Acionistas 17.866 43% 17.866 2% Reinvestimento 19.769 48% 19.769 2% The accompanying notes are an integral part of these financial statements. 7
  10. 10. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 1 Operations Estácio Participações S.A. (“Estácio” or “Company”), incorporated by private investors that subscribed to shares on March 31, 2007, is a business corporation based in the city and state of Rio de Janeiro, primarily engaged in developing and/or managing activities and institutions in the post-secondary and professional education areas, as well as in other education-related areas, managing own assets and businesses, and holding equity interest in other non-business or business companies, either as member or shareholder, in Brazil or abroad. On the same date of its incorporation, the shareholders approved a capital increase through issue of 299,999,000 common shares and 100,000,000 preferred shares, all of them registered, book-entry shares with no par value, which were fully subscribed and paid up with the transfer of the investment held by each shareholder of Estácio Participações S.A. in units of interest of the following entities: Sociedade de Ensino Superior Estácio de Sá Ltda. (“SESES”) and the Controlling Institutions Sociedade de Ensino Superior do Pará Ltda. (“SESPA”), Sociedade de Ensino Superior do Ceará Ltda. (“SESCE”), Sociedade de Ensino Superior de Pernambuco Ltda. (“SESPE”) and Sociedade Tecnopolitana da Bahia Ltda. (“STB”), based on the appraisal reports prepared by a specialist firm, in the amount of R$ 27,072. On June 21, 2007, the reverse split of shares representing the Company’s capital was approved in the proportion of 2 (two) shares to 1 (one) share of the same type and class, in accordance with the provisions of Article 12 of the Brazilian Corporate Law. On July 26, 2007, the Company obtained registration with the Brazilian Securities Commission (CVM) to trade its shares on the São Paulo Stock Exchange (“Bovespa”). On July 27, 2007, the Company communicated the beginning of the Public Offering of Primary Distribution of Share Deposit Certificates (Units) of its issue. There was an issue of 11,918,400 Units, each representing 1 (one) common share and 2 (two) preferred shares of the Company, which were all acquired by new shareholders. The Units offered were traded for R$ 22.50 (twenty-two reais and fifty cents) per share. The primary shares offered were sold for R$ 268,164, which resulted in the Company’s cash inflow of R$ 255,083. 8
  11. 11. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 1 Operations--Continued On September 3, 2007, upon the financial settlement of the transaction, the Company acquired all the units of interest representing 100% of the capital of Irep Sociedade de Ensino Superior, Médio e Fundamental Ltda. (“IREP”) and Faculdade Radial de Curitiba Sociedade Ltda. (“Curitiba”), companies that comprise the Radial University Center. The total cost of acquisition amounted to R$ 54,113, and the units of interest purchase and sale agreement was entered into on August 20, 2007. In addition, the Company acknowledged the Sellers’ credit right before IREP in the amount of R$ 5,152 as dividends receivable, settled on January 30, 2008, and in the amount of R$ 550, disclosed in the consolidated financial statements in “commitments payable”. On February 29, 2008, through subsidiary IREP, the Company concluded the acquisition of all the units of interest of (i) Sociedade Interlagos de Educação e Cultura S/S Ltda., controlling institution of Faculdade Interlagos (“Fintec”) for R$ 6,295; (ii) Sociedade Abaeté de Educação e Cultura Ltda., controlling company of Instituto Euro-Latino-Americano de Cultura e Tecnologia Ltda. (“Europan”), for R$ 8,352; and (iii) Faculdade Brasília de São Paulo Ltda. (“Faculdade Brasília”), for R$ 2,235. On said date, these acquisitions were financially settled, in part through debt assumption (which totaled R$ 3,818). On June 3, 2008, through subsidiary IREP, the Company acquired all the units of interest of União Cultural e Educacional Magister Ltda. (“Unicem”) for R$ 4,244. On August 14, 2008, the Company acquired from the controlling shareholder all the units of interest of Sociedad de Enseñanza. Superior S.A. (“SESSA”), for R$ 2,337, corresponding to SESSA’s book value on June 30, 2008. On October 10, 2008, the Company acquired from the controlling shareholder interests in the following controlling companies of post-secondary education institutions: (i) Sociedade de Ensino Superior de Sergipe Ltda. (“SESSE”); (ii) Sociedade de Ensino Superior de Alagoas Ltda. (“SESAL”); (iii) União Nacional de Educação e Cultura Ltda. (“UNEC”); and (iv) Sociedade de Ensino Superior do Amapá Ltda. (“SESAP”), by means of subscription of a capital increase at said companies, as follows: - amounting to R$ 6,436 at SESSE, upon the issue of 6,436,000 new shares, arising from loans receivable of this entity corresponding to R$ 5,623, and the remaining balance in Brazilian currency. Immediately thereafter, 4,999 shares were acquired for R$ 5, which were indirectly held by the controlling shareholders; 9
  12. 12. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 1 Operations--Continued - amounting to R$ 3,980 at SESAL, upon the issue of 3,980,000 new shares, arising from loans receivable of this entity. Immediately thereafter, 4,999 shares were acquired for R$ 5, which were indirectly held by the controlling shareholders; - amounting to R$ 4,031 at UNEC, upon the issue of 4,031,000 new shares, arising from loans receivable of this entity corresponding to R$ 3,430, and the remaining balance in Brazilian currency. Immediately thereafter, 4,999 shares were acquired for R$ 5, which were indirectly held by the controlling shareholders; and - amounting to R$ 1,019 at SESAP, upon the issue of 1,019,000 new shares, arising from loans receivable of this entity. Immediately thereafter, 4,999 shares were acquired for R$ 5, which were indirectly held by the controlling shareholders. After said transactions, the Company concluded the acquisition of 99.99% of the capital of such companies. The aforementioned acquisitions were carried out pursuant to the terms and conditions set forth in a Memorandum of Understanding executed between the Company and the controlling shareholders of said entities, on April 07, 2007, as disclosed at the time of the Company’s IPO. On November 07, 2008, the Company, through subsidiary IREP, acquired all the units of interest of Maria Montessori de Educação e Cultura Ltda. (“Montessori”), Cultura e Educação de Cotia Ltda. (“Cotia”) and Unidade de Ensino Superior Montessori de Ibiúna S/C Ltda. (“Unissori”), with main offices and campuses located in the cities of São Paulo, Cotia and Ibiúna, respectively. The total investment amounted to R$ 10,299, from which debts reaching nearly R$ 2,300 were discounted. 10
  13. 13. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 2 Basis of preparation and presentation of financial statements and initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08 2a. Financial statements The individual and consolidated financial statements are under the responsibility of the Company’s Management and have been prepared in accordance with the accounting practices adopted in Brazil and the rules issued by the Brazilian Securities Commission (CVM), with the observance of the accounting guidelines established by the Brazilian Corporate Law (Law no. 6,404/76), which include the new provisions introduced, amended and revoked by Law no. 11,638, of December 28, 2007, and Provisional Measure no. 449 (“MP no. 449/08”), of December 03, 2008. The authorization to conclude the preparation of these financial statements was granted at the Board of Directors’ meeting held on March 18, 2009. Since the Company was incorporated on March 31, 2007, the 2007 individual and consolidated statements of income comprise the result of operations from April 01 to December 31, 2007. 2b. Initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08 As permitted by CVM Resolution no. 565, of December 17, 2008, which approved Technical Pronouncement CPC no. 13 – Initial Adoption of Law no. 11,638/07 and Provisional Measure no. 449/08 (“MP no. 449/08”), the Company chose December 31, 2007 as the transition date to adopt the new accounting rules. The transition date is the starting point to implement the changes in Brazilian accounting rules and represents the base date for the Company’s initial balance sheet adjusted to the 2008 new accounting provisions. CPC 13 exempted companies from implementing the provisions set forth in NPC 12 and CVM Resolution no. 506/06 – Accounting Practices, Changes in Accounting Estimates and Error Correction, upon the initial adoption of Law no. 11,638/07 and MP no. 449/08. Such Resolution determines that, besides listing the effects of the new accounting rules in the retained earnings or losses account, companies are required to show the opening balance sheet for each account or group of accounts related to the oldest period for comparison purposes, together with the remaining comparative amounts, as if the new accounting rules had always been in use. 11
  14. 14. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 2 Basis of preparation and presentation of financial statements and initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued 2b. Initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued As allowed by said pronouncement, the Company chose to book the adjustments arising from the changes in accounting rules in the retained earnings account on January 1, 2008. The financial statements for the year ended December 31, 2007, jointly presented with the financial statements for 2008, were prepared in accordance with the Brazilian accounting practices in force up to December 31, 2007. As permitted by Technical Pronouncement CPC 13 – Initial Adoption of Law no. 11,638/07 and MP no. 449/08, such financial statements are not being resubmitted for comparison purposes between years. The following technical pronouncements issued by the Accounting Standards Committee (CPC) and approved by the Brazilian Securities Commission and the Federal Accounting Council were observed and assessed by the Company regarding their impact on its opening balance sheet as of January 1, 2008 and on the preparation of its financial statements for the year ended 2008: • Conceptual Framework for the Preparation and Presentation of Financial Statements, approved by CVM Resolution no. 539, of March 14, 2008; • CPC 01 Asset Impairment, approved by CVM Resolution no. 527, of November 01, 2007; • CPC 02 Effects of Changes in Exchange Rates and Translation of Financial Statements, approved by CVM Resolution no. 534, of January 29, 2008; • CPC 03 Statement of Cash Flows, approved by CVM Resolution no. 547, of August 13, 2008; • CPC 04 Intangible Assets, approved by CVM Resolution no. 553, of November 12, 2008; • CPC 05 Related-party Disclosures, approved by CVM Resolution no. 560, of December 11, 2008; • CPC 06 Commercial Leasing, approved by CVM Resolution no. 554, of November 12, 2008; 12
  15. 15. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 2 Basis of preparation and presentation of financial statements and initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued 2b. Initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued • CPC 07 Governmental Subsidies and Assistances, approved by CVM Resolution no. 555, of November 12, 2008; • CPC 09 Statement of Added Value, approved by CVM Resolution no. 557, of November 12, 2008; • CPC 10 Stock-based Compensation, approved by CVM Resolution no. 562, of December 17, 2008; • CPC 12 Adjustment to Present Value, approved by CVM Resolution no. 564, of December 17, 2008; • CPC 13 First-time Adoption of Law no. 11,638/07 and Provisional Measure no. 449/08, approved by CVM Resolution no. 565, of December 17, 2008; • CPC 14 Financial Instruments: Recognition, Measurement and Evidencing, approved by CVM Resolution no. 566, of December 17, 2008; • OCPC-02 Disclosures about the 2008 Financial Statements. The initial balance sheet as of December 31, 2007 (transition date) was prepared considering the required exceptions and some optional exemptions allowed by Technical Pronouncement CPC 13, as follows: a) Exemption about presentation of comparative financial statements: The financial statements for 2007 were prepared based on the accounting rules prevailing in 2007. The option granted by CPC 13 to not adjust the 2007 financial statements to the 2008 accounting standards was exercised by the Company, as mentioned above. 13
  16. 16. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 2 Basis of preparation and presentation of financial statements and initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued 2b. Initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued b) Exemption about maintenance of balances in deferred assets until their realization: Law no. 11,638/07 limited the registration of expenses in deferred assets, and MP no. 449/08 discontinued this group of accounts. Accordingly, the Company reclassified part of the balances recognized in the deferred assets group to intangible assets, in the amount of R$ 5,517 (R$ 3,586 in 2007), as they related to software and user licenses. In addition, the amounts under the pre-operating expenses group that could not be reclassified to other groups of the balance sheet were written off directly to the retained earnings account on the transition date. c) Exemption about determination of present value adjustments: The Company measured the present value adjustment by performing a global calculation on outstanding balances for each monetary assets and liabilities account group, and also applied discount rates based on market assumptions prevailing on the transition date. The present value adjustment was not recorded given its immaterial effects. d) Exemption about recognition of stock-based compensation: Stock-based payments related to the compensation of the Company’s executives and employees were granted only in 2008. For such reason, there were no effects coming from such amounts on the transition date. e) Exemption about added value statement without indicating the corresponding amounts in the preceding year: The Company chose to present the added value statement solely for the year ended December 31, 2008. 14
  17. 17. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 2 Basis of preparation and presentation of financial statements and initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued 2b. Initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued f) Exemption about cash flow statements without indicating the corresponding amounts in the preceding year: The Company chose to present the cash flow statement for the year ended December 31, 2008, including the corresponding amounts for the preceding year, and chose to no longer present the statement of changes in financial position as of December 31, 2007. g) Neutrality for tax purposes of the initial application of Law no. 11,638/07 and Provisional Measure no. 449/08: The Company decided to follow the Transition Tax Regime (RTT) implemented by Provisional Measure no. 449/08, whereby Corporate Income Tax (IRPJ), Social Contribution on Net Profits (CSLL), Social Integration Program (PIS) contribution and Social Security Financing Contribution (COFINS), for the years 2008-2009, continue to be determined based on the accounting methods and criteria set forth by Law no. 6,404, of December 15, 1976, prevailing on December 31, 2007. Deferred income tax and social contribution, calculated on the adjustments arising from the adoption of the new accounting rules pursuant to Law no. 11,638/08 and MP 449/08, were not booked in the Company’s financial statements, for the same reasons mentioned in Note 19. The Company will record such option in the Statement of Corporate Economic and Tax Information (DIPJ) in 2009. h) Exception regarding goodwill amortization: The goodwill amounts recorded by the Company were amortized on a straight-line basis up to December 31, 2008. i) Exception regarding the first regular review of the useful life of fixed assets: Up to December 31, 2009, the Company’s subsidiaries will review the useful life estimates for their fixed assets, which are used to calculate their depreciation rates. Should any material changes in such estimates arise from this review, they will be addressed as a change in accounting estimates and will be recognized on a prospective basis. 15
  18. 18. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 2 Basis of preparation and presentation of financial statements and initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued 2b. Initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued j) Exception regarding the treatment for investment subsidies: Up to December 31, 2007, the amounts corresponding to the University for All Program (“PROUNI”) incentive were directly credited to the capital reserve account in the shareholders’ equity of subsidiaries. The Company followed the accounting procedures prevailing on the date they were originated, including the bookkeeping of the related balances in the capital reserve account of subsidiaries. Pursuant to CVM Resolution no. 555/08, which approved CPC 07, the amount corresponding to the PROUNI incentive determined as from the effectiveness of Law no. 11,638/07, that is, as from January 01, 2008, was accounted for in the P&L for the year to reduce expenses with income tax and social contribution on net profits, and was then transferred to the earnings reserve account. k) Exception regarding financial leasing: Leased assets were incorporated to fixed assets, on the transition date, at their fair value or, if lower, at the present value of the minimum payments of the lease, on the initial date of the contract, adjusted by accumulated depreciation up to the transition date. The net difference was recorded in the retained earnings account on the transition date. 16
  19. 19. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 2 Basis of preparation and presentation of financial statements and initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued 2c. Effects from adjustments to Law no. 11,638/07 and Provisional Measure no. 449/08 To comply with the disclosure requirements about the initial adoption of the new accounting rules, the Company provides below, for fiscal year 2008, a brief description and the amounts corresponding to the impact on shareholders’ equity and P&L, for both the company and consolidated results, related to the changes enforced by Law no. 11,638/07 and MP no. 449/08. Controladora Consolidado Lucro Patrimônio Lucro Patrimônio líquido líquido líquido líquido Saldos conforme demonstrações financeiras em 31 de dezembro de 2008: 37.635 421.075 37.635 421.075 Efeitos da Lei nº 11.638/07 e MP nº 449/08 : Ajuste acumulado de conversão (1) 397 (397) 397 (397) Opções outorgadas reconhecidas (2) 969 Resultado de equivalência patrimonial 757 Ativo diferido (3) 1.520 1.520 Ajuste de arrendamento mercantil (4) 2.947 (212) 2.947 Saldos anteriores à aplicação da Lei 11.638/07 e Medida Provisória nº 449/08 38.789 425.145 38.789 425.145 1. In compliance with CVM Resolution no. 534/08, which approved CPC 02, the effects arising from exchange rate variations of the offshore investment, made on August 14, 2008, represented by SESSA, started to be recorded in the “Equity Valuation Adjustment” account, in Shareholders’ Equity (Note 8). 2. Recognition of stock-based compensation expenses, pursuant to CVM Resolution no. 562/08, which approved CPC 10 (Note 23b). 3. Deferred assets write-off related to amounts that are neither qualified as pre-operating expenses nor allowed to reclassification to other groups in the balance sheet, as set forth by CVM Resolution no. 527/08, which approved CPC 13. 4. Leased assets (financial leasing) were incorporated to fixed assets, adjusted by accumulated depreciation up to the transition date. 17
  20. 20. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 2 Basis of preparation and presentation of financial statements and initial adoption of Law no. 11,638/07 and Provisional Measure no. 449/08--Continued 2c. Effects from adjustments to Law no. 11,638/07 and Provisional Measure no. 449/08-- Continued In addition, in compliance with MP no. 449/08, the Company performed the following reclassifications in the financial statements for the years ended December 31, 2008 and 2007: (i) non-operating income was reclassified to income from discontinued operations, (ii) deferred income (subsidies advance) was reclassified to the Long-term Liabilities group. Controladora Consolidado 2008 2007 2008 2007 Resultado não operacional 17.470 1,913 14,004 Resultado de exercício futuro 16.500 26,460 11,395 3 Summary of the main accounting practices The main accounting practices adopted by the Company are summarized as follows: (a) Cash and cash equivalents They comprise cash, bank deposits and short-term investments with immediate liquidity and low risk of changes in market value, which are kept to meet the Company’s short-term commitments. Such investments are valued at cost, plus interest accrued up to the balance sheet date, and are marked to market, with the related profit or loss booked in the P&L for the year. 18
  21. 21. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 3 Summary of the main accounting practices--Continued (b) Marketable securities The Company’s financial investments are classified as trading securities, considering the purpose for which they were acquired. The financial investments classified as trading securities are measured based on their fair value. Interest, monetary variation and exchange rate changes, when applicable, are recorded in the P&L for the year when incurred. (c) Accounts receivable and prepaid monthly tuition fees Accounts receivable are derived from the rendering of educational activity services and do not include any amounts of services rendered after the balance sheet dates. Services billed but not yet rendered at the balance sheet dates are accounted for as prepaid monthly tuition fees and are recognized in the respective net income (loss) for the year under the accrual basis of accounting Accounts receivable – FIES System are represented by educational loans, contracted by students with Caixa Econômica Federal (CEF), whereby the financed funds are transferred monthly by CEF into a specific bank checking account. This amount has been used exclusively to pay the social security taxes withheld (INSS) on the salaries of the Company’s employees. (d) Allowance for doubtful debts This allowance, recorded as a reduction of accounts receivable, is set up in an amount considered sufficient by the Company’s Management to cover any losses on the collection of amounts related to monthly tuition fees and checks receivable, considering the risks involved. (e) Investments in subsidiaries Investments in subsidiaries are carried under the equity method, and eliminated on consolidation. 19
  22. 22. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 3 Summary of the main accounting practices--Continued (e) Investments in subsidiaries--Continued For the subsidiary located abroad (SESSA), the Company’s Management concluded that, in view of SESSA’s administrative, financial and operational independence, its assets and liabilities are translated into reais based on the exchange rates at the balance sheet closing dates, and its related income (loss) for the year is determined based on the average monthly fees for the periods. The income (loss) for the period, proportionally to the Company’s investment stake, was recorded as equity adjustment. The investment account updates arising from exchange rate variations are booked at Equity Valuation Adjustments, in the Company’s shareholders’ equity. For consolidation purposes, the financial statements of such subsidiary are included in the consolidated financial statements, and the adjustments arising from exchange rate variations in assets and liabilities denominated in foreign currency are booked at Equity Valuation Adjustments, in the consolidated balance sheet. (f) Fixed assets Stated at acquisition or construction cost, less accumulated depreciation. Depreciation is calculated by the straight-line method over the useful life of the assets at the rates mentioned in Note 9. (g) Intangible assets Stated at acquisition cost, less accumulated amortization and losses from reduction in amounts recoverable, when applicable. Intangible assets comprise: (i) goodwill recorded upon interest acquisition that has been amortized over the period and duration of the projections of future results on which it was based; (ii) software and user licenses, which are amortized based on an estimated useful life of five years. As from January 1, 2009, goodwill amounts upon interest acquisition are no longer amortized and will continue to be submitted to impairment tests on an yearly basis. (h) Provision for asset recovery Management annually revises the net book value of assets in order to check events or changes in economic and/or operating circumstances that might indicate deterioration or loss in their recoverable amount. To date, no evidence signaling that the net book value exceeds the recoverable value has been found. As a result, setting up a provision for deterioration was not deemed necessary. 20
  23. 23. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 3 Summary of the main accounting practices--Continued (i) Financial leasing In 2008, financial leasing agreements were recognized in fixed assets and in liabilities under loans and financing at the lowest of (i) the present value of the required minimum installments of the agreement or (ii) the fair value of the asset. The amounts recorded in fixed assets are depreciated based on the estimated useful life of the assets and the estimated duration of the leasing agreement, whichever is shortest. Interest in liabilities related to loans and financing is recognized in the statement of income based on contract duration at the effective interest rate method. Operational leasing agreements are recognized as expense on a systematic basis that represents the period over which the benefit arising from the leased asset is obtained, even if such payments are not made under this basis. In 2007, leasing agreements were booked in the results for the year, regardless of the classification between financial or operational leasing, upon the payment of installments on a monthly basis, and are registered under the operating expenses caption. (j) Provision for contingencies Set up based on an estimate made by the Company’s Management, supported by the opinion of its internal and external legal advisors, in amounts considered sufficient to cover any probable losses related to the legal proceedings. (k) Other current and non-current liabilities Stated at known or estimated values, increased by charges and monetary restatement, as applicable. A provision is recognized in the balance sheet when the Company has a legal or constructive obligation arising from past events, the settlement of which is expected to result in an outflow of economic benefits. Certain liabilities due to uncertainty with respect to the timing and amount of the outflow of economic benefits required for their settlement are estimated as incurred and recorded as a provision. Provisions are recorded reflecting the best estimates of the risk involved. 21
  24. 24. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 3 Summary of the main accounting practices--Continued (l) Taxation On September 30, 2005, the controlling entities SESPA, SESCE, SESPE and STB had their form of business organization modified from non-profit entities to business entities, thus being subject to the tax burden levied on the latter. SESES was considered a non-profit philanthropic entity until February 9, 2007, when its form of organization was modified and it became a business company. Therefore, to that date, SESES had benefited from tax immunity and exemption, pursuant to the terms of Articles 150 - item VI, C - and 195 - paragraph 7 - of the Federal Constitution, and Articles 12 and 15 of Law no. 9,532/97, ruling on tax immunity and exemption, and was recognized as an entity of public interest within federal and state laws by Decree no. 86,072 of June 4, 1981 and Law no. 2,536 of January 3, 1975, respectively. IREP and Curitiba, as well as the other companies acquired in 2008, detailed in Note 1, have already been set up as commercial companies. However, as SESES, the controlling entities, IREP, Curitiba and the other companies acquired in 2008 had already enrolled under the University for All Program (PROUNI), in accordance with Law no. 11,096/2005, regulated by Decree no. 5,493/2005 and Normative Ordinance of the Brazilian Internal Revenue Agency no. 456, dated October 5, 2004, pursuant to the terms of Article 5 of Provisional Measure no. 213, dated September 10, 2004, they benefit from exemption, during the program enrollment effective term, from the following federal taxes: • Corporate Income Tax (IRPJ) and Social Contribution on Net Profits (CSLL), introduced by Law no. 7,689 of December 15, 1988; • Social Security Financing Contribution (COFINS), introduced by Complementary Law no. 70, of December 30, 1991; and • Social Integration Program Contribution (PIS), introduced by Complementary Law no. 7, of September 7, 1970. The above exemptions are applicable to the amount of revenues earned from post-secondary education activities, derived from undergraduate and occupationally specific sequential courses. Also as a result of such change in the form of organization to business companies, the controlling entities and SESES became subject to the following events as from October 2005 and February 2007, respectively: (i) loss of Service Tax (ISS) immunity; and (ii) loss of 100% exemption regarding the employer contribution to the National Institute for Social Security (INSS), which is required to be paid through a system of staggered payments as provided for under PROUNI legislation (20% in the 1st year, 40% in the 2nd th year up to 100% in the 5 year). 22
  25. 25. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 3 Summary of the main accounting practices--Continued (l) Taxation--Continued IRPJ and CSLL Current income tax and social contribution were determined following the criteria established by the Normative Ordinance of the Brazilian Internal Revenue Agency, specifically to PROUNI, whereby the taxpayer is allowed not to pay such taxes on profit from regular undergraduate and technological educational activities that benefit from favorable tax treatment and to convert them into capital reserve. PIS and COFINS The PROUNI rules provide that revenues from traditional undergraduate and technological courses are exempt from PIS and COFINS contributions. Revenues from other educational activities are subject to PIS and COFINS at the rate of 0.65% and 3.00%, respectively, whereas revenues from activities not related to education are subject to PIS at the rate of 1.65% and COFINS, at 7.6%. (m) Stock-based payment The Company granted its managers and employees participating in the program stock options, which shall only be exercised after specific grace periods. Such options are calculated during their related grace periods, the value of which is determined based on the Black-Scholes valuation method on the dates when the compensation program is granted. The options are booked in the operating result, under the “recognized granted options” caption, in the general and administrative expenses group, in accordance with the allowed periods to exercise the options as defined in the programs and described in Note 23.b. 23
  26. 26. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 3 Summary of the main accounting practices--Continued (n) Use of estimates Estimates are used to measure and recognize certain assets and liabilities in the financial statements of the Company and its subsidiaries. The calculation of such estimates considered the experience of past and current events, assumptions related to future events, as well as other elements of objective and subjective nature. Significant items subject to estimates include: the selection of useful lives of fixed assets and intangible assets; the provision for doubtful debts; the provision for inventory losses; the analysis of recoverability of fixed and intangible assets; the provision for contingencies; the calculation of the fair value of stock-based compensation and financial instruments (only in 2008). The settlement of transactions involving such estimates may result in significantly different amounts from those recorded in the financial statements because of the imprecision inherent to their calculation process. The Company revises its estimates and assumptions at minimum on a quarterly basis. (o) Statements of Cash Flows and Added Value The statement of cash flows was prepared and is presented in accordance with CVM Instruction no. 547, of August 13, 2008, which approved Technical Pronouncement CPC 03 – Statement of Cash Flows, issued by the Accounting Standards Committee (CPC). The statement of added value was prepared and is presented in conformity with CVM Instruction no. 557, of November 12, 2008, which approved Technical Pronouncement CPC 09 – Statement of Added Value, issued by CPC. (p) Net income per thousand shares The net income per thousand shares was determined based on the number of shares outstanding on the dates of the financial statements. 24
  27. 27. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 4 Consolidation principles The consolidated financial statements comprise the operations of the Company and its following subsidiaries, whose ownership interest on the balance sheet date is summarized as follows: Participação no capital 2008 2007 Direta Indireta Direta Indireta SESES 100% 100% SESPA 100% 100% SESCE 100% 100% SESPE 100% 100% STB 100% 100% IREP 100% 100% Curitiba 100% Fintec 100% Europan 100% Faculdade de Brasília 100% Unicem 100% SESSA 100% SESSE 100% SESAL 100% UNEC 100% SESAP 100% Montessori 100% Cotia 100% Unissori 100% 25
  28. 28. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 4 Consolidation principles--Continued The reporting period in the financial statements of consolidated subsidiaries is the same as that of the Company, and accounting practices have been uniformly applied by consolidated companies and are consistent with those used in prior period. The operations of subsidiaries were consolidated as from their acquisition; therefore, subsidiaries Fintec, Europan, Faculdade de Brasília and Unicem were consolidated as from March 2008 and subsidiaries SESSA, SESSE, SESAL, UNEC, SESAP, Montessori, Cotia and Unissori, as from October 2008 (3 months). The main consolidation procedures are: • Elimination of balances of current accounts and others, components of assets and/or liabilities, between consolidated companies; • Elimination of the effects arising from significant intercompany transactions; • Elimination of interest in capital, reserves and retained earnings of the consolidated companies; and • Elimination of revenues and expenses balances arising from business transactions between consolidated companies. 26
  29. 29. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 5 Cash and cash equivalents and marketable securities Controladora Consolidado 31/12/2008 31/12/2007 31/12/2008 31/12/2007 Caixa e equivalentes de caixa: Caixa e bancos 186 2.766 35.686 21.923 Aplicações financeiras 0 208 2.444 930 186 2.974 38.130 22.853 Titulos e valores mobiliários: Títulos Públicos Federais - LFT 44.747 98.387 62.731 102.543 Certificados de Depósitos Bancários - CDB 49.452 20.754 69.320 21.630 Debêntures de Instituições Financeiras 22.847 78.860 32.026 82.192 117.046 198.001 164.077 206.365 Total 117.232 200.975 202.207 229.218 Exclusive investment funds offer daily liquidity and are mainly composed of Brazilian government bonds and bank deposit certificates. These exclusive investment fund quotas are managed by third parties that follow the investment policies defined by the Company. Said fund comprises Federal Securities (38.23%), Bank Deposit Certificates - CDB (42.25%) and Debentures of Financial Institutions (19.52%), remunerated at rates varying from 100.70% and 101.40% of the Interbank Deposit Certificate (CDI). The investment fund allows prompt redemption with no grace period. On December 31, 2008, the CDI rate stood at 13.62% p.a. Based on the financial statements of exclusive funds, prepared in accordance with the rules set forth by the Brazilian Securities Commission – CVM, such investments are classified as fund quotas backed by marketable securities, based on their market value, the yields of which are reflected in financial revenues. 27
  30. 30. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 6 Accounts receivable Consolidado 31/12/2008 31/12/2007 Mensalidades de alunos 199.914 195.644 Cheques a receber 13.002 17.340 Créditos a identificar (9.424) (3.353) Provisão para devedores duvidosos (103.121) (120.144) 100.371 89.487 Breakdown of accounts receivable by aging is as follows: Consolidado 31/12/2008 % 31/12/2007 % A vencer 19.000 9% 15.424 7% Vencidas até 30 dias 30.231 14% 19.238 9% Vencidas de 31 a 60 dias 22.076 10% 16.191 8% Vencidas de 61 a 90 dias 20.368 10% 15.136 7% Vencidas de 91 a 179 dias 37.486 18% 26.851 13% Vencidas há mais de 180 dias 83.755 39% 120.144 56% 212.916 100% 212.984 100% Changes in the consolidated allowance for doubtful debts were as follows: Saldo em 31 de março de 2007 (data de constituição) 91.788 Constituição de provisão para devedores duvidosos 27.587 (1) Adição (empresas adquiridas) 2.185 Baixa da provisão (1.416) Saldo em 31 de dezembro de 2007 120.144 Constituição de provisão para devedores duvidosos 58.925 (1) Adição (empresas adquiridas) 9.183 (2) Baixa da provisão (85.131) Saldo em 31 de dezembro de 2008 103.121 28
  31. 31. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 6 Accounts receivable--Continued (1) Relates to the balance of the acquisitions made in 2007 and 2008, as detailed in Note 1. (2) Reversals against accounts receivable after resorting to all collection procedures (amounts overdue until December 31, 2006). In 2008, Management revised the criterion used to set up the provision for doubtful debts, and decided to increase the provision for receivables from students with monthly tuition fees in arrears arising from renegotiation. The prepaid monthly tuition fees, amounting to R$ 29,147 on December 31, 2008 (R$ 30,967 on December 31, 2007), will be recognized in the results for the year under the accrual method. 7 Balances and transactions with related parties Transactions with related parties were carried out under the terms agreed by the parties and are described as follows: 29
  32. 32. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 7 Balances and transactions with related parties--Continued Controladora Consolidado Natureza da transação 31/12/2008 31/12/2007 31/12/2008 31/12/2007 Indexação Ativo circulante Sociedades ligadas (1) SESSE 5.028 CDI + 3,66% a.a. SESAL 3.618 CDI + 3,66% a.a. UNEC 3.073 CDI + 3,66% a.a. SESAP 2.186 CDI + 3,66% a.a. 13.905 Sociedades controladas SESES 27.154 110% CDI IREP 1.206 93 110% CDI SESSE 392 110% CDI UNEC e SESAP 251 110% CDI BRASÍLIA e INTERLARGOS 201 110% CDI 29.204 93 Pessoas ligadas Administrador (3d) 83 Despesas antecipadas (3c) Curto prazo 700 700 Longo prazo 1.692 1.692 2.392 2.392 Passivo circulante Sociedades controladas SESES 3 3 Aluguéis a pagar a acionistas (2) 11 Fornecedores 1 1 Resultado Receitas financeiras Mútuo com acionistas e sociedades ligadas 329 104 1.636 2.181 Despesas gerais e administrativas Aluguéis (2) 52 255 Serviço de consultoria (3c) 1.631 1.631 Serviços diversos (3b) 1.579 1.258 1.631 3.262 1.513 30
  33. 33. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 7 Balances and transactions with related parties--Continued (1) The balances with controlling companies of post-secondary education institutions: (i) SESSE, controlling entity of Faculdade de Sergipe; (ii) SESAL, controlling entity of Faculdade de Alagoas; (iii) UNEC, controlling entity of Faculdade Câmara Cascudo, in the state of Rio Grande de Norte; and (iv) SESAP, amounting to R$ 13,905 on December 31, 2007, were used by the Company for capital increase purposes in such entities upon their acquisition from the controlling shareholder in November 2008 (refer to comments in Note 1). (2) Annual rent contracts were entered into for 12 properties owned by shareholder João Uchôa Cavalcanti Netto, of which 8 were commercial rooms used by Management, 3 were stores used by SESES and 1 apartment was used by an employee transferred to Rio de Janeiro. In November 2007, the rent contracts of 3 commercial rooms were rescinded. The rent contracts of the other commercial rooms were rescinded in July 2008. (3) Other transactions with related parties: (a) Editora Rio’s main business purpose is to publish books and periodicals, as well as receive commissions on advertising and promotion of Universidade Estácio de Sá, according to the contract entered into by the parties, rescinded on May 29, 2007. For publicity intermediation services, 20% fees were charged, as determined by the Executive Council for Standard Rules (CENP), which regulates this type of activity. The shareholding structure of Editora Rio is: (i) 98% of units of interest are held by SVJ Participações Ltda. (in 2007, owned by 2 employees of SESES and José Roberto Vasconcelos, Academic Director); (ii) 1% of units of interest is held by Dílson Gomes Navarro, Managing Vice-President of SESES); and (iii) 1% of units of interest is held by Sylvio Augusto do Rego Barros Reis (SESES former employee). The amounts paid to Editora Rio until May 29, 2007 and disclosed in the December 31, 2007 consolidated financial statements aggregated R$ 948. No amounts paid to Editora Rio were booked in 2008. (b) On January 7, 2008, SESES entered into a contract to sponsor Estácio de Sá Futebol Clube Ltda., valid for 12 months. This sponsoring totals R$ 1,430. The contract was terminated in 2008 and no renewal was made. 31
  34. 34. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 7 Balances and transactions with related parties--Continued (3) Other transactions with related parties:--Continued (c) On June 04, 2008, the Company entered into a Consulting Agreement (“Agreement”) with Marone Consultoria e Participações Ltda. (“Marone”), a company controlled by André Cleófas Uchôa Cavalcanti and Marcel Cleófas Uchôa Cavalcanti, holders of nearly 1.74% of common shares issued by the Company and members of the Shareholders’ Agreement, executed on June 04, 2008, the purpose of which is to render services connected with academic and post-secondary educational activities, as well as strategic planning and development of new businesses, besides setting forth the non-compete obligation on the part of Marone. Said Agreement shall have a duration of 48 (forty-eight) months as from its signature date. As compensation for the commitment to not perform activities in the education line of business in the competition and to not, by any means, compete with the Company and its subsidiaries, as well as for the monthly services to be rendered, it is hereby agreed that a total remuneration of R$ 14,000 shall be paid, as follows: R$ 2,800, upon signature of this Agreement, as an advance that will be diluted throughout the effectiveness thereof, for which there is no provision for monetary restatement or financial charges, and 48 monthly installments, equal and consecutive, amounting to R$ 233, the first of which having expired on June 06, 2008. It is also agreed that the amount of such installments shall be restated, in the shortest period as allowed by the legislation, based on IGP-M/FGV or, in the absence thereof, based on an equivalent index, since the signing date of the Agreement until the effective payment date of each installment. The non-compete obligation assumed by Marone, its partners and any companies in which they might hold a controlling interest is valid in Brazil as a whole. Nevertheless, the following controlling institutions are excluded from such obligation: SESSE, SESAL, SESAP, UNEC, SESSA, the share control of which was transferred to the Company, as mentioned in Note 1, and Asociación de Enseñanza Superior de Las Américas (“AESA”), whose share control might be transferred to the Company, under the terms and provisions set forth in the Memorandum of Understanding entered into, on April 07, 2007, with the controlling shareholders of such Institutions, including André Cleófas Uchôa Cavalcanti and Marcel Cleófas Uchôa Cavalcanti. 32
  35. 35. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 7 Balances and transactions with related parties--Continued (3) Other transactions with related parties:--Continued The Agreement may be terminated by either Party, upon a prior 60 (sixty) day notice to the other Party. In such case, all the implications set forth in the Agreement shall be observed, including the obligation to pay a lump-sum compensation to Marone, duly restated by IGP-M/FGV, amounting to the sum of installments due until contract termination, should the Company decide to rescind said Agreement. In case Marone decides to terminate the Agreement with the proper previous notice, no indemnification to the Company shall be paid. The Board of Directors, in a meeting held on July 23, 2008, approved the execution of said Consulting Agreement. (d) On December 22, 2008, a loan contract was signed with Administrator, amounting to R$ 83, the expiration date of which is June 22, 2010. 33
  36. 36. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 8 Investments in subsidiaries (a) Changes in investments Ajuste Saldos em Dividendos de avaliação Ajustes Equivalência Saldos em 31/12/2007 Adições recebidos patrimonial Lei nº 11.638/07 patrimonial 31/12/2008 Investimento SESES 112.517 (2.419) (3.555) 1.291 107.834 SESPA 8.124 (2.733) (5) 3.339 8.725 SESCE 16.905 (3.734) (176) 21.179 34.174 SESPE 7.878 (1.985) (18) 7.279 13.154 STB 22.047 (3.223) (584) 9.725 27.965 IREP (2.368) 45.097 (3.275) 39.454 CURITIBA (377) 1.710 508 1.841 SESSA 3.219 397 (140) 3.476 SESAP 1.363 (22) (536) 805 SESAL 2.455 (32) 701 3.124 SESSE 1.051 (75) (195) 781 UNEC 1.816 (1.138) 678 Total 164.726 56.711 (14.094) 397 (4.467) 38.738 242.011 On July 15, 2008, the Company increased the capital stock of IREP with the advance balance for future capital increase it holds in such institution, amounting to R$ 23,297. On December 17 and 18, 2008, the Company carried out a capital increase at subsidiaries IREP and Curitiba, amounting to R$ 21,800 and R$ 1,710, respectively. The companies SESSA, SESAP, SESAL, SESSE and UNEC were acquired in 2008, as mentioned in Note 1. 34
  37. 37. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 8 Investments in subsidiaries--Continued (b) Information about subsidiaries SESES SESPA SESCE SESPE STB IREP CURITIBA SESSA Participação no capital 100% 100% 100% 100% 100% 100% 100% 100% Quantidade de quotas detidas 12.113.000 964.400 6.897.000 3.727.000 3.371.000 25.255.656 248.134 10.607 Capital social integralizado 12.113 964 6.897 3.727 3.371 25.256 253 2.544 Patrimônio líquido (passivo a descoberto) 31 de dezembro de 2008 107.834 8.725 34.174 13.154 27.965 39.454 1.841 3.476 31 de dezembro de 2007 112.517 8.124 16.905 7.878 22.047 (2.368) (377) Saldo reserva de capital - PROUNI 31 de dezembro de 2008 8.825 1.305 10.212 3.401 5.872 112 543 - 31 de dezembro de 2007 6.792 225 3.204 910 2.380 (377) Constituição reserva 31 de dezembro de 2008 2.032 1.079 7.008 2.491 3.492 111 167 31 de dezembro de 2007 6.792 225 3.204 910 2.380 Lucro (prejuízo) líquido do exercício/período 31 de dezembro de 2008 (741) 2.259 14.171 4.790 6.233 (3.387) 340 (140) 31 de dezembro de 2007 15.478 769 6.565 1.830 5.763 (1.077) (78) Investimento total: 31 de dezembro de 2008 107.834 8.725 34.174 13.154 27.965 39.454 1.841 3.476 31 de dezembro de 2007 112.517 8.124 16.905 7.878 22.047 (2.368) (377) Investimentos adquiridos em 01 de outubro de 2008: ALAGOAS SERGIPE NATAL AMAPÁ Participação no capital 100% 100% 100% 100% Quantidade de quotas detidas 6.185 8.741 6.036 2.524 Capital social integralizado 6.185 8.741 6.036 2.524 Patrimônio líquido (passivo a descoberto) 31 de dezembro de 2008 3.124 781 678 805 31 de dezembro de 2007 Saldo reserva de capital - PROUNI 31 de dezembro de 2008 955 - - 146 31 de dezembro de 2007 Constituição reserva 31 de dezembro de 2008 98 31 de dezembro de 2007 Lucro (prejuízo) líquido do exercício/período 31 de dezembro de 2008 603 (194) (1.138) (536) 31 de dezembro de 2007 Investimento total (inclui ágio): 31 de dezembro de 2008 3.124 781 678 805 31 de dezembro de 2007 Investimento total: 31 de dezembro de 2008 242.011 31 de dezembro de 2007 164.726 The result of equity pickup booked by the Company comprises the portion of the tax incentive related to PROUNI recorded in the subsidiaries’ result, as provided by Law no. 11,638, in the amount of R$ 16,478. On December 31, 2007, such tax incentive was booked in the capital reserve account (R$ 13,511 in 2007). The financial statements used for application of the equity method of accounting were prepared as of December 31, 2008. 35
  38. 38. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 8 Investments in subsidiaries--Continued (b) Information about subsidiaries--Continued The description of subsidiaries and the activities developed thereby are summarized as follows: (i) SESES With its principal place of business in the city of Rio de Janeiro, until February 9, 2007 SESES was defined as a non-profit philanthropic company, mainly engaged in maintaining schools for any educational level, in conformity with Brazilian laws, as well as developing philanthropic initiatives, on a free-of-charge basis, aiming at assisting the community in the areas including healthcare and legal, medical, and social services, as well as recreation, sports and charitable assistance to invalids. As from February 10, 2007, the form of business organization adopted was changed and SESES became a business company. Currently, SESES includes 48 units in seven Brazilian states and comprises one University – Universidade Estácio de Sá – and eight colleges. Universidade Estácio de Sá consists of 39 units located in the state of Rio de Janeiro. Colleges supported by SESES are: Faculdade Estácio de Sá in the city of Campo Grande, state of Mato Grosso do Sul; Faculdade Estácio de Sá in the city of Belo Horizonte and Faculdade Estácio de Sá in the city of Juiz de Fora, both in the state of Minas Gerais; Faculdade Estácio de Sá in the city of Ourinhos, state of São Paulo; Faculdade Estácio de Sá of Santa Catarina, in the state of Santa Catarina; Faculdade Estácio de Sá in the city of Vitória and Faculdade Estácio de Sá in the District of Vila Velha, both in the state of Espírito Santo; and Faculdade Estácio de Sá of Goiás, in the state of Goiás. (ii) SESPA With its principal place of business in the city of Belém, until September 30, 2005 SESPA was defined as a non-profit company. As from that date, the form of business organization adopted was changed and SESPA became a business company. SESPA is the sponsor of Faculdade do Pará – FAP. (iii) SESCE With its principal place of business in the city of Fortaleza, until September 30, 2005 SESCE was defined as a non-profit company. As from that date, the form of business organization adopted was changed and SESCE became a business company. SESCE is the sponsor of Faculdade Integrada do Ceará – FIC, located in the city of Fortaleza, which includes two units, and Faculdade de Medicina de Juazeiro do Norte – FMJ, located in the city of Juazeiro do Norte. 36
  39. 39. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 8 Investments in subsidiaries--Continued (b) Information about subsidiaries--Continued (iv) SESPE With its principal place of business in the city of Recife, until September 30, 2005 SESPE was defined as a non-profit company. As from that date, the form of business organization adopted was changed and SESPE became a business company. SESPE is the sponsor of Faculdade Integrada do Recife – FIR. (v) STB With its principal place of business in the city of Salvador, until September 30, 2005 STB was defined as a non-profit company. As from that date, the form of business organization was changed and STB became a business company. STB is the sponsor of Centro Universitário da Bahia – UNIFIB, which comprises two units. (vi) IREP Located in São Paulo, IREP is a business company, with 8 units: 6 in São Paulo, 1 in the ABC region in São Paulo and 1 in Curitiba. (vii) CURITIBA With its principal place of business in Curitiba, CURITIBA is a business company the main purpose of which is to manage institutions offering post-secondary education, regular and distance learning courses, as well as sequential, undergraduation, extension, graduation (lato and stricto sensu), master, doctor, technical and technologist courses, which render consulting services, perform research and offer training. (viii) SESSA With its principal place of business in the city of Asuncion, in Paraguay, controlling entity of Universidade de La Integración de Las Americas – UNIDA, SESSA is an education institution offering undergratuate courses in the following areas, among others: administration, marketing, law, education, information technology, physical education, medicine and nursing. 37
  40. 40. Estácio Participações S.A. Notes to financial statements as of December 31 In thousands of reais, unless otherwise stated 8 Investments in subsidiaries--Continued (b) Information about subsidiaries--Continued (ix) SESSE With its main place of business in Sergipe, until February 2007, SESSE was defined as a non-profit company. As from that date, the form of business organization adopted was changed and SESSE became a business company. SESSE is the sponsor of Faculdade de Sergipe – FASE. (x) SESAL With its main place of business in Maceió, in the state of Alagoas, SESAL is a limited liability company, which was incorporated on October 14, 1997. Its academic activities began in April 1999. SESAL is the sponsor of Faculdade de Alagoas – FAL. (xi) UNEC With its main place of business in Natal, until February 2007, UNEC was defined as a non- profit company. As from that date, the form of business organization adopted was changed and UNEC became a business company. UNEC is the sponsor of Faculdade Câmara Cascudo - FCC. (xii) SESAP With its main place of business in Amapá, until February 2007, SESAP was defined as a non-profit company. As from that date, the form of business organization adopted was changed and SESAP became a business company. SESAP is the sponsor of Faculdade do Amapá - FAMAP. 38

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