Estacio Part 12 31 2007 Free Translation

922 views

Published on

Published in: Education
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
922
On SlideShare
0
From Embeds
0
Number of Embeds
18
Actions
Shares
0
Downloads
9
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Estacio Part 12 31 2007 Free Translation

  1. 1. (A free translation from the original in Portuguese) Estácio Participações S.A. Financial Statements December 31, 2007 with Report of Independent Auditors
  2. 2. A free translation from the original in Portuguese ESTÁCIO PARTICIPAÇÕES S.A. FINANCIAL STATEMENTS December 31, 2007 Contents Message from the Management.........................................................................................1 Report of Independent Auditors..........................................................................................4 Audited Financial Statements Balance Sheets...................................................................................................................6 Statements of Income.........................................................................................................7 Statement of Changes in Shareholders’ Equity..................................................................8 Statement of Changes in Financial Position.......................................................................9 Statement of Cash Flows..................................................................................................10 Notes to Financial Statements..........................................................................................11
  3. 3. A free translation from the original in Portuguese Estácio Participações S.A. December 31, 2007 MESSAGE FROM THE MANAGEMENT Estácio Participações S.A. was incorporated on March 31, 2007 through the transfer to its capital of the majority interests (99%) of the capital of five post-secondary education controlling institutions: Sociedade de Ensino Superior Estácio de Sá – SESES, Sociedade Tecnopolitana da Bahia - STB, Sociedade de Ensino Superior do Ceará - SESCE, Sociedade de Ensino Superior de Pernambuco – SESPE and Sociedade de Ensino Superior do Pará – SESPA, institutions controlled by Estácio’s shareholders. All these institutions are organized as limited-liability companies and the controlling institutions STB, SESCE, SESPE and SESPA were transformed into for-profit companies already in 2005. SESES was transformed from a philanthropic organization into a for-profit company, pursuant to Brazilian legislation - also as limited liability company, in February 2007. Estácio Participações has a strong position in the post-secondary education sector in Brazil enabling the Company to access the capital markets in July of 2007, when it became a publicly held company. The net proceeds from the IPO, of R$251 million, are being invested in the opening of new units, maintenance and expansion of existing units, acquisitions of other institutions and development of related businesses. In compliance with governance standards, the Company, its managers and controlling shareholders signed an agreement with the São Paulo Stock Exchange – BOVESPA to join the Level 2 Corporate Governance Segment and is committed to adopting best corporate governance practices in all of its activities. The company also follows the regulations regarding arbitration as issued by the Market Arbitration Committee, in accordance with the Company´s by-laws. In fiscal year 2007, in addition to the administrative improvement changes, the Company continued to grow, recording 178,000 students in its undergraduate programs. Approximately 70,000 new students enrolled in the teaching units during the year, spread across 11 states. With all of its subsidiaries joining the “University for All” Federal Program (Programa Universidade para Todos - PROUNI), the Company had over 12,000 scholarship students in this program in 2007, representing more than a 27% increase over 2006. The Ministry of Education – MEC authorized the creation of nine programs in four of our colleges, of 24 programs in the Salvador and São Paulo University Centers and also recognized 17 traditional undergraduate programs and 12 technical programs, which were 3
  4. 4. granted G (good) and VG (very good) grades. The colleges located in Belo Horizonte, Campo Grande, Recife and Fortaleza received excellent grades in the external evaluation carried out by INEP. In 2007, the Company posted consolidated gross revenue of R$1.3 billion and net revenue of R$860 million, and registered an additional R$63 million in taxes due to the transformation of SESES into a for- profit company. Despite the additional tax burden, already expected, Estácio recorded an operational cash generation (EBITDA) of over R$100 million, as shown in the Financial Statements herein. The academic and operational rationalization in progress, with changes occurring in the whole organizational framework, is leading the Company to scale gains and consistent margin expansion. In line with these objectives, we reviewed the syllabuses for 43 undergraduate programs (bachelor and graduate degree programs) and 56 technical programs. Based on its sound balance sheet and cash available and no indebtedness, the Company plans to expand its leading position in the post-secondary education sector in Brazil. As an initial step into growth in the São Paulo market, the Company acquired IREP, the controlling institution of UniRadial, with 10,000 students. In early 2008, it completed the acquisition of another three post-secondary education institutions in São Paulo, adding more 4 thousand students. We are taking important steps to create a distance learning unit, granting to a group of students the opportunity to enhance their education and professional career, in spite of distance, income or other constraints, allowing them to complete their studies at home or at the workplace. This teaching model is a global trend. We began a national integration project, with the expansion of the academic and corporate management systems to all units, which is expected to be concluded in 2008. Another important development was the centralization, in Rio de Janeiro, of all the back office activities of our units with the creation of a Shared Services Center, a driver to operating gains. In 2007, net income stood at R$80.9 million, including on a pro-forma basis the first quarter and excluding non-recurring expenses related to the IPO and goodwill amortization from acquisition. This represents an increase of 36% on 2006, and a 20% return on Shareholder’s Equity position, as of December 31, 2007 and a net income margin of 9.4% of net revenue. Since the Company was incorporated on March 31, 2007, net income for the nine months of operations amounted to R$27.3 million. In 2007, the Company invested a total amount of R$94.3 million, with R$55.7 million used to acquire IREP/Radial and R$38.6 million allocated to maintenance capex, national integration and organic expansion. The management will submit to the Annual Shareholders’ Meeting a proposal for a dividend payment of approximately R$13.6 million, corresponding to 50% of net income, after Legal Reserve constitution. 4
  5. 5. At the same time, It will be submitted to the shareholders’ meeting a Capex budget for 2008 in the amount of up to R$293 million, to support its operations and organic growth, with expansion of existing units and the acquisition of post-secondary institutions, to be financed mainly with existing cash and internal cash generation. As of 2007 fiscal year ended on December, 31, the independent auditors that rend services to the company, Ernest & Young Auditores independentes S.S., had not rendered any services which were not linked to the Company´s External Auditor contract agreement that could have represented more than 5% of the annual contracted fee. The Company´s Fiscal Committee is not of permanent function, being installed solely in the years requested by the shareholders holding a certain percentage of interest as established by the applicable law. At the present, the fiscal Committee is not on operation, not having being installed during 2007 social year. The Company performance reached in the year derives from the confidence on its operations granted from the shareholders and other share owners, from suppliers and from faculty and employees´ performance and dedication. To all, the Company is grateful for all of your cooperation. Rio de Janeiro, march 19, 2008. The Management 5
  6. 6. A free translation from Portuguese into English of Report of Independent Auditors of financial statements prepared in Brazilian currency in accordance with the accounting practices adopted in Brazil. REPORT OF INDEPENDENT AUDITORS To the Board of Directors and Shareholders of Estácio Participações S.A. 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, 2007, and the related statements of income, shareholders’ equity and changes in financial position for the period from March 31, 2007 to December 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements. 2. We conducted our audit in accordance with generally accepted audit standards in Brazil, which comprised: (a) the planning of our work, taking into consideration the materiality of balances, the volume of transactions and the accounting and internal control systems of the Company and its subsidiaries; (b) the examination, on a test basis, of the documentary evidence and accounting records supporting the amounts and disclosures in the financial statements; and (c) an assessment of the accounting practices used and significant estimates made by 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 above 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 at December 31, 2007, and the results of their operations, changes in their shareholders’ equity and changes in their financial position for the period from March 31, 2007 to December 31, 2007, in accordance with the accounting practices adopted in Brazil. 4
  7. 7. 4. We conducted our audit with the purpose of issuing an opinion on the financial statements referred to in the first paragraph. The statement of cash flows for the period from March 31, 2007 to December 31, 2007, presented to provide additional information on the Company and its subsidiaries, is not required as part of the basic financial statements, according to the accounting practices adopted in Brazil. The statement of cash flows was submitted to the same audit procedures described in the second paragraph and, in our opinion, is fairly presented, in all material respects, in relation to the overall financial statements. Rio de Janeiro, March 10, 2008. ERNST & YOUNG Auditores Independentes S.S. CRC-2SP015199/O – 6 – F - RJ Fernando Alberto S. de Magalhães Accountant CRC-1SP 133.169/O-0-S – RJ 5
  8. 8. A free translation from the original in Portuguese Estácio Participações S.A. Balance sheets as of December 31, 2007 (In thousands of reais) Parent Company Consolidated Parent Company Consolidated Assets Liabilities and shareholders’ equity Current assets Current liabilities Cash and cash equivalents (Note 4) 2,974 22,853 Loans and financing (Note 9) 175 Marketable Securities (Note 4) 198,001 206,365 Suppliers 1,115 17,212 Accounts receivable (Note 5) 89,487 Salaries and payroll charges (Note 10) 40 58,510 Accounts receivable – FIES System 3,705 Taxes payable (Note 11) 52 12,810 Advances to employees / third parties 6,423 Prepaid monthly tuition fees (Note 5) 30,967 Related parties (Note 6) 13,905 Taxes paid in installments 502 Prepaid expenses 583 Related Parties (Note 6) 3 Other 1,161 5,821 Dividends payable (Note 14) 13,658 13,658 Commitments payable (Note 1) 5,702 Total current assets 202,136 349,142 Other 2,835 Total current liabilities 14,868 142,371 Noncurrent assets Noncurrent Noncurrent liabilities Prepaid expenses 946 Noncurrent Judicial deposits 283 Loans and financing (Note 9) 2 Provision for contingencies (Note 13) 13,703 1,229 Taxes paid in installments 223 Permanent assets Total noncurrent liabilities 13,928 Investments (Note 7) Investments in subsidiaries 164,726 Goodwill 53,382 53,382 Deferred revenues Other 233 Advance under partnership agreement (Note 12) 11,395 218,108 53,615 Fixed assets (Note 8) 165,498 Stockholder's equity (Note 14) Deferred Asset 3,586 Capital 295,237 295,237 Capital reserve 96,482 96,482 218,108 222,699 Income reserves 13,657 13,657 Total noncurrent assets 218,108 223,928 405,376 405,376 Total assets 420,244 573,070 Total liabilities and shareholders’ equity 420,244 573,070 See accompanying notes. 6
  9. 9. A free translation from the original in Portuguese Estácio Participações S.A. Statements of Income Period from March 31, 2007 to December 31, 2007 (In thousands of reais) Parent Company Consolidated Gross revenue Undergraduate Program 803,728 Associate Program 105,632 Specialization 25,292 Others 20,208 954,860 Deductions Gratuities - Scholarships (253,801) Monthly tuition fees and charges returned (2,156) Allowances (29,954) Taxes (28,694) (314,605) Net revenue 640,255 Direct Cost of services rendered (409,288) Gross profit 230,967 Operating (expenses) revenue Provision for Doubtful accounts (Note 5) (27,587) General and administrative expenses (3,632) (169,821) Equity accounting (Note 7) 42,762 Goodwill amortization (Note 7) (2,321) (2,321) Financial income (Note 15) 9,174 20,323 Financial expenses (Note 15) (1,198) (8,133) 44,785 (187,539) Operating income 44,785 43,428 Non-operating income (expenses), net (Note 16) (17,470) (14,004) Income before social contribution and income taxes 27,315 29,424 Social contribution (Note 17) (554) Income tax (Note 17) (1,555) Net income for the period 27,315 27,315 See accompanying notes. 7
  10. 10. A free translation from the original in Portuguese Estácio Participações S.A. Statement of Changes in Shareholders’ Equity Period from March 31, 2007 to December 31, 2007 (In thousands of reais) Capital Reserve Shares Income Retained Capital premium Legal retention earnings Total Company incorporation on March 31, 2007 1 1 Capital increase on March 31, 2007 27,072 27,072 Constitution of reserve 96,482 96,482 Capital increase on August 1, 2007 268,164 268,164 Net income for the period 27,315 27,315 Allocation of net income: Constitution of reserves 1,365 12,292 (13,657) Dividends proposed (13,658) (13,658) At December 31, 2007 296,236 96,482 1,365 12,292 406,375 Income reserves See accompanying notes. 8
  11. 11. A free translation from the original in Portuguese Estácio Participações S.A. Statement of Changes in Financial Position Period from March 31, 2007 to December 31, 2007 (In thousands of reais) Parent Company Consolidated Sources of funds From activities: Net income for the period 27,315 27,315 Amounts that do not affect w orking capital: Equity accounting (42,762) Goodw ill amortization 2,321 2,321 Residual value of permanent asset disposals 1,372 Depreciation and amortization 19,005 Total from (used in) activities (13.126) 50,013 From shareholders: Capital subscription and capital increase in cash 268,165 268,165 From third parties Decrease in noncurrent assets, net 6,903 Initial net w orking capital of companies included in consolidation (10,768) Total sources 255,039 314,313 Applications of funds Investment increase, including goodw ill 54,113 55,709 Increase in fixed assets 31,003 Increase in deferred charges 3,570 Decrease in noncurrent liabilities, net 506 Transfer from noncurrent to current liabilities 710 Decrease in deferred income 2,386 Dividends proposed 13,658 13,658 Total applications 67,771 107,542 Increase in working capital 187,268 206,771 Changes in net working capital Current assets At end of period 202,136 349,142 At beginning of period 202,136 349,142 Current liabilities At end of period 14,868 142,371 At beginning of period 14,868 142,371 Increase in net working capital 187,268 206,771 See accompanying notes. 9
  12. 12. Estácio Participações S.A. Statement of Cash Flow Period from March 31, 2007 to December 31, 2007 (In thousands of reais) Parent Company Consolidated Cash flow from operating activities Net income for the period 27,315 27,315 Adjustments to reconcile net income to cash generated by operating activities: Depreciation and amortization 19,005 Goodwill amortization 2,321 2,321 Equity pickup (42,762) (13,126) 48,641 Changes in assets and liabilities : Increase in accounts receivable (14,048) Increase in other assets (1,161) (8,987) Increase in accounts payable 1,115 2,205 Increase in taxes payable - Suppliers 52 1,496 Increase in salaries and social charges 40 (22,663) Increase in prepaid monthly tuition fees 2,058 Increase (decrease) in the provision for contingencies (,374) Increase in other liabilities 6,417 Changes in transactions with related parties: Increase in accounts receivable (5,309) Increase in accounts payable 3 Deferred revenue (2,386) Initial cash of companies included in consolidation (1) Net cash gerated by (used in) operating activities (13,077) 7,049 Cash flow from investing activities: Short-term investments (198,001) (159,515) Investments in subsidiaries 1,590 Goodwill on investment acquisition (55,703) (55,703) Other investments (6) Fixed assets (29,631) Deferred charges (3,570) Net cash used in investing activities (252,114) (248,425) Cash flow from financing activities : Capital increase in cash 268,165 268,165 Payment of loans and financing (3,936) Net cash generated by financing activities 268,165 264,229 Increase in cash 2,974 22,853 At beginning of period - - At end of period 2,974 22,853 Increase in cash 2,974 22,853 See accompanying notes. 10
  13. 13. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 1 Operations Estácio Participações S.A. was incorporated by private investors that subscribed to shares as of March 31, 2007, and is business corporation based in the city and state of Rio de Janeiro, primarily engaged in developing and/or managing activities and institutions in higher 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. At the same date of its incorporation, with an initial capital of R$ 1 (represented by 1,000 registered book-entry common shares, without par value), 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 without par value, which were fully subscribed and paid up with the transfer of the investment held by each shareholder of Estácio Participações in units of interest of Sociedade de Ensino Superior Estácio de Sá Ltda. (SESES) and in the Sponsoring Entities 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 specialized firm, in the amount of R$ 27,072. On June 21, 2007, reverse split of shares representing Company 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 Brazil’s Corporation Law article 12. On July 26, 2007, the Company obtained registration with the Brazilian Securities Commission (CVM) to trade its shares on the São Paulo State Stock Exchange (“Bovespa”). On July 27, 2007, the Company communicated the beginning of the Public Offering of Primary and Secondary Distribution of Share Deposit Certificates (Units) of its issue. There was issue of 11,918,400 Units, fully subscribed by new shareholders. Shareholders João Uchôa Cavalcanti Neto, Marcel Cléofas Uchoa, André Cléofas Uchoa and Cléofas Uchôa sold 7,945,600 Units, each representing 1 (one) common share and 2 (two) preferred shares of the Company, which were all also 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 Company cash inflow of R$ 255,083. As disclosed in the Definitive Public Offering Memo for Primary and Secondary Distribution of Units issued by the Company, these funds were destined to finance business expansion through potential acquisitions; opening of new units and expansion and maintenance of existing units. 11
  14. 14. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 1 Operations--Continued To date the Company destined only part of these funds, as described below, the remaining balance was maintained in short-term investment. On September 3, 2007, upon operation financial settlement, the Company acquired all the units of interest representing 100% of capital of Irep Sociedade de Ensino Superior, Médio e Fundamental Ltda. (“IREP”) and Faculdade Radial de Curitiba Sociedade Ltda. (“CURITIBA”), companies that compose Centro Universitário Radial. The total cost of acquisition amounted to R$ 54,113, and the units of interest purchase and sale contract was entered into on August 20, 2007. In addition, the Company acknowledged 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 as intercompany loan (both disclosed in the consolidated financial statements in commitments payable). 2 Basis of preparation and presentation of the financial statements The consolidated financial statements have been prepared in accordance with accounting practices adopted in Brazil, with the observance of the accounting guidelines established under Brazil’s Corporation Law and specific rules issued by the Brazilian Securities Commission (CVM). Since the Company was incorporated on March 31, 2007, its statement of income is not presented on a comparative basis, and also includes only 9 months of operation. The preparation of the financial statements in conformity with said accounting practices requires management to use accounting estimates. These accounting estimates were based on the Company management’s judgment for determining the adequate amounts to be recorded in the financial statements. Significant items subject to these estimates and assumptions include selection of useful lives and recoverability of fixed assets, credit risk analysis in determining the allowance for bad debts, as well as the analysis of other risks in determining other provisions, including provision for contingencies, and measurement of financial instruments and other assets and liabilities at the date of the financial statements. The settlement of transactions involving these estimates may result in amounts significantly different from those recorded in the financial statements due to uncertainties inherent in the estimate process. The Company reviews its estimates and assumptions at least annually. 12
  15. 15. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 2 Basis of preparation and presentation of the financial statements--Continued Assets and liabilities are classified as current whenever their realization or settlement is likely to occur within the following twelve months. Otherwise, they are stated as noncurrent. Authorization for preparing the consolidated financial statements was granted by Company management on March 10, 2008. Significant accounting practices adopted by the Company are summarized as follows: (a) Cash and cash equivalents Include bank account balances and short-term investments redeemable within 90 days from the balance sheet dates. Short-term fixed-income, variable-income investments as well as in federal securities and Bank Deposit Certificates (CDB) refer to investments redeemable in more than 90 days from balance sheet date and comprise securities acquired to be actively traded, classified as trading securities. Such investments are posted at market value determined based on quotations or estimates, also related realized and unrealized gains or losses are recognized in the statement of income. (b) Accounts receivable and prepaid monthly tuition fees Accounts receivable are derived from provision of educational activity services and do not include any amounts of services provided after the balance sheet dates. Services billed but not yet provided at the balance sheet dates are accounted for as prepaid monthly tuition fees and will be 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 the 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. 13
  16. 16. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 2 Basis of preparation and presentation of the financial statements--Continued (c) Allowance for bad 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 collection of amounts related to monthly tuition fees and checks receivable, considering the risks involved. (d) Investments in subsidiaries Investments in subsidiaries are carried under equity method, and eliminated on consolidation. Other permanent investments are stated at acquisition cost. Goodwill on investment acquisition is being amortized over the period of the projections of future results on which it was based. (e) Fixed assets Stated at acquisition or construction cost, monetarily restated pursuant to the legislation in force to December 31, 1995, less accumulated depreciation. Depreciation is calculated by the straight-line method over the useful live of the assets at the rates mentioned in Note 8. Assets acquired through leasing have their guaranteed residual value (GRV) capitalized directly in Leased assets – under the Fixed assets group of accounts – and, after settlement of these contracts (normally 36 months), these amounts are transferred to the definitive fixed asset accounts, and depreciation starts to be calculated over remaining useful life of the assets. The portion related to leasing is not capitalized, and is recorded directly in the statement of income. (f) Deferred charges Comprise expenses incurred with special projects, being amortized over the period of 5 years from the date benefits start to accrue. (g) Loans and financing Stated at the principal amount plus financial charges thereon incurred on a time proportion basis through the balance sheet dates, according to contractually defined terms. 14
  17. 17. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 2 Basis of preparation and presentation of the financial statements--Continued (h) Provision for contingencies The provision for contingencies is set up based on an estimate made by 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. (i) Other current and noncurrent 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. (j) Deferred revenues This refers to advances on revenues under the partnership agreement, which have been recognized in net income (loss) for the year, over the contract period. (k) Taxation At September 30, 2005, the Sponsoring 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 of articles 12 and 15 of Law No. 9532/97, ruling on tax immunity and exemption, and was recognized as an entity of public interest within federal and state laws by Decree No. 86072 of June 4, 1981, and Law No. 2536 of January 3, 1975, respectively. IREP and CURITIBA have already been constituted as commercial companies. However, as SESES and IREP e a CURITIBA and the Sponsoring Entities had already enrolled under the “College for Everyone” Program (Programa Universidade para Todos - PROUNI), in accordance with Law No. 11096/2005, regulated by Decree No. 5493/2005 and Brazilian IRS Revenue Procedure No. 456, dated October 5, 2004, pursuant to the terms of article 5 of Executive Order No. 213, dated September 10, 2004, they benefit from exemption, during the program enrollment effective term, from the following federal taxes: 15
  18. 18. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 2 Basis of preparation and presentation of the financial statements--Continued (k) Taxation—Continued • Corporate Income Tax (IRPJ) and Social Contribution Tax on Net Profit (CSLL), instituted by Law No. 7689 of December 15, 1988; • Social Contribution Tax on Gross Revenue for Social Security Financing (COFINS), instituted by Complementary Law No. 70 of December 30, 1991; and • Social Contribution Tax on Gross Revenue for Social Integration Program (PIS), instituted by Complementary Law No. 7 of September 7, 1970. The above exemptions are applicable to the amount of revenue earned from higher 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 Sponsoring 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 the 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 year up to 100% in the 5th year). IRPJ e CSLL As from October 2005 and February 2007, respectively, the Sponsoring Entities and SESES started to calculate current income tax and social contribution following the criteria established by the Brazilian IRS Revenue Procedure, specifically for PROUNI, whereby the taxpayer is allowed not to pay such taxes on profit from specific regular undergraduate and polytechnic educational activities (associate programs) that benefit from favorable tax treatment (the so-called “lucro da exploração”) and to convert them into capital reserve. Prior to that date, the Sponsoring Entities and SESES, as non-profit organizations, were exempt from these taxes. PIS SESES and the Sponsoring Entities paid PIS based on 1% of their payroll through the period they changed into business companies. From then on, PIS started being paid under PROUNI rules, whereby revenues from regular undergraduate and polytechnic educational activities (associate programs) are exempt from PIS contributions. Revenues from other educational activities are subject to PIS at the rate of 0.65%, whereas revenues from activities not related to education are subject to PIS at the rate of 1.65%. 16
  19. 19. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 2 Basis of preparation and presentation of the financial statements--Continued (k) Taxation--Continued COFINS Beginning October 2005, considering that the Sponsoring Entities were already under PROUNI, they were exempted from COFINS on revenues from regular undergraduate and polytechnic educational activities (associate programs). Revenues from other educational activities are subject to COFINS at the rate of 3.0%, whereas revenues from activities not related to education are subject to COFINS at the rate of 7.6%. As a philanthropic entity, SESES shall only be subject to COFINS under PROUNI rules, since it had its form of organization changed into a business company on February 9, 2007. (l) Additional information In order to provide additional information, the statement of cash flows is being presented, prepared in accordance with NPC20 – Accounting Standards and Procedures issued by the Brazilian Institute of Independent Auditors - IBRACON. 3 Consolidation principles The consolidated financial statements comprise the financial statements of the Company and of its following subsidiaries at the balance sheet date is summarized as follows: Ownership interest SESES 100% SESPA 100% SESCE 100% SESPE 100% STB 100% IREP 100% CURITIBA (*) 100% (*) 98% directly and 2% through IREP. 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 IREP and CURITIBA were consolidated as from their acquisition, i.e. only after September 2007 (4 months). 17
  20. 20. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 3 Consolidation principles--Continued The main consolidation procedures are: • Elimination of intercompany account balances, components of assets and/or liabilities between consolidated companies; • balances of intercompany current accounts and others under Assets and/or Liabilities; • effects from significant intercompany transactions; and, • interest in capital, reserves and retained earnings of the consolidated companies. 4 Cash and cash equivalents and Marketable Securities 12/31/2007 Parent Company Consolidated Cash and cash equivalents: Cash and banks 2,766 21,923 Short-term investments 208 930 2,974 22,853 Marketable Securities: National Treasury Bills (LFT) 98,387 102,543 Bank Deposit Certificates – CDB 20,754 21,630 Debentures of financial institutions 78,860 82,192 198,001 206,365 Total 200,975 229,218 Short-term investments are made in Private Credit Fixed-Income Investment Fund (Exclusive Fund) denominated ESTARPART, managed by UBS Pactual Serviços Financeiros S.A. DTVM. This fund is composed by Federal Securities (49.7%), Bank Deposit Certificates - CDB (10.5%) and Debentures of Financial Institutions (39.9%), remunerated at rates varying from 100.70% and 101.40% of Interbank Deposit Certificate (CDI). The investment fund allows prompt redemption with no grace period. At December 31, 2007, CDI rate was of 11.12% p.a. 18
  21. 21. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 5 Accounts receivable Consolidaded 31/12/2007 Monthly tuition fees 195,644 Uncleared checks 17,340 Unidentified credits (3,353) Allowance for bad debts (120,144) 89,487 Breakdown of accounts receivable by aging is as follows: 31/12/2007 % To be due 15,424 7% Overdue for up to 30 days 19,238 9% Overdue from 31 to 60 days 16,191 8% Overdue from 61 to 90 days 15,136 7% Overdue from 91 to 179 days 26,851 13% Overdue for more than 180 days 120,144 56% 212,984 100% Consolidated Changes in consolidated allowance for doubtful accounts were as follows: Balance at March 31, 2007 91,788 Constitution of allowance for doubtful accounts 27,587 Addition IREP and CURITIBA (1) 2,185 Provision write-off (2) (1,416) Balance at December 31, 2007 120,144 (1) As described in Note 3, the operations of subsidiaries IREP and CURITIBA were consolidated as from their acquisition, i.e. only as from September 2007 (4 months). (2) Reversal against accounts receivable after resorting to all collection procedures. 19
  22. 22. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 5 Accounts receivable--Continued Monthly tuition fees received in advance amounting to R$ 30,967 are recognized in the statement of income on an accrual basis 6 Balances and transactions with related parties The most significant transactions with related parties carried out under conditions considered by management to be consistent with those observable in the market relate to: Type of transation Parent Company Consolidated Index Current Asset Loans to companies (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 Current liabilities Loans to companies SESES 3 3 Rent payable to shareholders (2) 11 Suppliers 1 Statement of Income Financial income Loans w ith shareholders 339 and related companies 104 2,181 104 2,520 General and administrative expenses Rent (2) 255 Sundry services (3) 1,258 1.513 12/31/2007 20
  23. 23. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 6 Balances and transactions with related parties--Continued (1) Controlling shareholders also hold all the units of interest of the following entities: (i) Sociedade de Ensino Superior de Sergipe Ltda. (“SESSE”), sponsoring Faculdade de Sergipe – FASE; (ii) Sociedade de Ensino Superior de Alagoas S/C Ltda. (“SESAL”), sponsoring Faculdade de Alagoas – FAL; (iii) União Nacional de Educação e Cultura – UNEC, sponsoring Faculdade Câmara Cascudo, in Rio Grande do Norte State; and (iv) Sociedade de Ensino Superior do Amapá Ltda. (“SESAP”), sponsoring Faculdade do Amapá – FAMAP. In 2007, loan agreements were entered into by and between these sponsoring companies and consolidated companies, maturing on September 1, 2008. (2) Annual rent contracts were entered into for 12 properties owned by shareholder João Uchôa Cavalcanti Netto, of which 8 are commercial rooms used by Management, 3 are stores used by SESES and 1 apartment 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 January/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 are charged, as determined by the Executive Council for Standard Rules (CENP), which regulates this type of activity. Shareholding structure of Editora Rio is: (i) 98% of units of interest are held by SVJ Participações Ltda. (owned by 2 employees of SESES and José Roberto Vasconcelos (Academic Director)); (ii) 1% of units of interest are held by Dílson Gomes Navarro (Managing Vice- President of SESES); and 1% of units of interest are held by Sylvio Augusto do Rego Barros Reis (SESES employee). The amounts paid to Editora Rio until May 29, 2007 and disclosed in the December 31, 2007 consolidated financial statements aggregated R$ 948. (b) SESES entered into, in September 2004, a rent contract of 200 computers of Estácio de Sá Futebol Clube Ltda., which were received under a free lease agreement with Investiplan Computadores e Sistemas Ltda., rescinded on April 29, 2007. Rent of these 200 computers totaled R$ 65 at December 31, 2007. 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. 21
  24. 24. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 6 Balances and transactions with related parties--Continued (c) Certain expenses incurred by the general administration department (Financial, Legal and Operations) of SESES attributed, on a minority basis, to the non-consolidated companies (SESSE, SESAL, UNEC, SESAP) were recorded by SESES. As from April 2007, these expenses started to be debited directly to the sponsoring companies, based on technical apportionment criteria among such companies, totaling R$ 66 at December 31, 2007. As described in Note 20, the Company has already signed the agreement memorandum for the acquisition of these companies. 7 Investments in subsidiaries (a) Changes in investments and goodwill Equity Balance at pickup / Balance at 3/31/2007 Additions amortization 12/31/2007 Investment SESES 90,247 22,270 112,517 SESPA 7,130 994 8,124 SESCE 7,136 9,769 16,905 SESPE 5,138 2,740 7,878 STB 13,903 8,144 22,047 IREP (1,291) (1,077) (2,368) CURITIBA (299) (78) (377) 123,554 (1,590) 42,762 164,726 Goodwill IREP 49,050 (2,044) 47,006 CURITIBA 6,653 (277) 6,376 - 55.703 (2.321) 53.382 Total 123,554 54,113 40,441 218,108 On September 3, 2007, the Company acquired all the units of interest corresponding to 100% of capital of IREP and CURITIBA, companies that compose Centro Universitário Radial. The total cost of acquisition was R$ 54,113, and the contract for units of interest purchase and sale was entered into on August 20, 2007. 22
  25. 25. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 7 Investments in subsidiaries--Continued (a) Changes in investments and goodwill--Continued Upon acquisition of these investments, as of August 31, 2007, net equity of investees was negative. As such, the initial equity pickup balance was negative, and goodwill represented the difference between this result and cost of acquisition. Thus, goodwill of R$ 55,703 was arrived at based on future profitability, according to the Economic and Financial Valuation Report issued by a specialized company, to be amortized over 8 years. (b) Information about subsidiaries SESES SESPA SESC E SESPE STB IREP C URITIBA Ownership interest 100% 100% 100% 100% 100% 100% 100% Units of interest held 12,113,000 964,400 6,897,000 3,727,000 3,371,000 12,431  248,134  Paid-up capital 12,113 964 6,897 3,727 3,371 1,958 253 Net equity (capital deficiency) 112,517 8,124 16,905 7,878 22,047 (2,368) (377) Capital reserve balance - PROUNI 6,792 225 3,204 910 2,380 377 Reserve constitution in the period 6,792 225 3,204 910 2,380 Net income (loss) for the period 15,478 769 6,565 1,830 5,763 (1,077) (78) Total investment (including goodwill): TOTAL December 31, 2007 112,517 8,124 16,905 7,878 22,047 44,638 5.999 2 18 ,10 8 The result of equity pickup recorded by the Company comprises a proportional portion resulting from recording of PROUNI tax incentive by subsidiaries as Capital Reserve in the amount of R$ 13,511. As such, in order to better reflect in the consolidated financial statements the economic nature of this tax incentive, its effect was adjusted directly in the consolidated statement of income in income and social contribution tax expenses. (c) Significant information on subsidiaries The financial statements used for application of the equity method of accounting were prepared as of March 31, 2007. Description of subsidiaries and activities developed by them are summarized as follows: 23
  26. 26. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 7 Investments in subsidiaries--Continued (c) Significant information on subsidiaries--Continued (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. 24
  27. 27. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 7 Investments in subsidiaries--Continued (c) Significant information on 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. The purpose of sponsoring entities SESPA, SESCE, SESPE and STB is: developing higher education courses, supporting university research and continuing education courses; organizing and maintaining independent separate schools and college league systems or University Centers or Universities; providing cultural services in the teaching area by means of agreements with local, foreign, public or private entities; providing educational services at their respective different levels; developing and promoting arts and related sciences; participating in cultural and artistic initiatives, conferences, courses, lectures, etc. (vi) IREP Located in São Paulo, it is an entrepreneurial company, with 8 units, to wit 6 in São Paulo, 1 in ABC region in São Paulo and 1 in Curitiba. IREP’s business purpose is integral education; education for the formation and improvement of professionals; high level technicians and researchers; pure and applied research; conduction and promotion of cultural and artistic activities at all levels; formation of secondary level technicians; extension of the three-level education courses; administration of properties and chattels, as long as components of own assets; participation in capital of companies that have similar or different business purposes in relation to its own, in Brazil or abroad. 25
  28. 28. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 7 Investments in subsidiaries--Continued (c) Significant information on subsidiaries--Continued (vii) CURITIBA Located in Curitiba, it is an entrepreneurial company whose business purpose is the administration of institutions that offer university courses, in-person and on-line courses, sequential and graduate courses, extension and post-graduate courses (lato and stricto sensu), technical and technological Master and PhD courses, that render consulting services, carry out researches and training. 8 Fixed assets Restated cost Accumulated depreciation Net Annual depreciation rates (%) Land 21,226 - 21,226 Buildings 77,982 (23,261) 54,721 4% Leasehold improvements 58,596 (41,859) 16,737 (i) Furniture and fixtures 25,479 (13,479) 12,000 10% Computers and peripherals 23,620 (19,529) 4,091 20% Machinery and equipment 17,887 (8,844) 9,043 10% Vehicles 211 (95) 116 20% Library 35,417 (14,516) 20,901 10% Right of use - softw are program 20,468 (15,363) 5,105 20% Facilities 4,729 (1,256) 3,473 10% Other 8,499 (3,956) 4,543 10% Construction in progress 984 - 984 Commercial lease 12.558 - 12,558 307.656 (142.158) 165.498 Consolidated 31/12/2007 (i) Amortization of leasehold improvements has been made over the respective agreement term, unless these improvements have a useful life that is shorter than such term. The Company has entered into leasing agreements for several assets used in its operations, subject to interest rates ranging between 1.20 and 1.97% p.m. with purchase option provision. Operating expenses incurred in such agreements totaled R$ 3,392 at December 31, 2007 Commitments made in connection with such agreements, including that related to the net book value (purchase option) amounted at December 31, 2007 to R$ 8,877 to be paid in monthly installments until 2009. 26
  29. 29. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 8 Fixed assets--Continued The building located at Rua do Bispo, 83 (Rebouças Campus), owned by SESES, was offered as collateral, in connection with a litigation in court in which the Municipality of Rio de Janeiro is charging the payment of the Municipal Real Estate Tax (IPTU) related to said building from SESES. According to information from its legal advisors, a favorable judgment has already been issued and SESES has been addressing with the Municipal authorities the release of respective lien. Additionally, as discussed in Note 9, certain assets acquired by means of finance were offered as guarantee for respective agreements. The Company has not offered other guarantees consisting of its own assets for any other transaction performed. 9 Loans and financing Type Financial Charges Em moeda nacional FINAME TJLP + 6% ao ano 177 177 Current Liabilities 175 Non current liabilities 2 177 31/12/2007 Consolidated As guarantee for loans and financing, promissory notes were offered guaranteed by “aval” of members and financed assets themselves, the net book value of which as of December 31, 2007 was R$ 270. The long-term amount represented by an arrangement with FINAME (Government Agency for Machinery and Equipment Financing) shall be paid in monthly installments to 2009. 10 Salaries and payroll charges Parent Company Consolidated Salaries and payroll charges payable 40 29,847 Accrual for vacation pay and related charges 28,663 40 58,510 12/31/2007 27
  30. 30. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 11 Taxes payable Parent Company Consolidated ISS payable 3,062 IRRF payable 21 6,548 IRPJ payable 2,005 CSLL payable 7 771 PIS and COFINS payable 24 424 52 12,810 12/31/2007 12 Advance under partnership agreement On March 24, 2004 a partnership agreement was entered into between SESES and affiliates (including Sponsoring Entities) and UNIBANCO – União de Bancos Brasileiros S.A., effective until March 24, 2009. The purpose of such agreement was granting exclusivity/preference to UNIBANCO with respect to the offering and provision of products and services to students, employees and suppliers, as well as for UNIBANCO to be the main provider of financial services. In exchange for it, UNIBANCO made an advance payment equivalent to R$ 4,000 to SESES and Sponsoring Entities to be offset on a monthly basis during the term of the agreement based on a method established by the parties. On August 3, 2006, the parties entered into an amendment to said agreement aiming at extending the partnership and changing the type of remuneration to SESES and affiliates (including Sponsoring Entities), the other provisions in the agreement remaining valid. According to such amendment, in exchange for the exclusivity granted to UNIBANCO, and for maintaining such a condition during the term of the agreement, i.e., until July 31, 2011, UNIBANCO paid to SESES and Sponsoring Entities fixed revenues of R$ 15,954, which have been recognized in the statement of income over the term of the agreement. At December 31, 2007 the balance related to revenues paid in advance in connection with the partnership agreement amounted to R$ 11,395, recorded under deferred revenues On February 18, 2008, without significant changes in the main contractual clauses, the parties entered into a new agreement extending the partnership until February 18, 2018. In consideration for the exclusive rights granted to UNIBANCO during the validity of the contract, UNIBANCO will pay to the Company the additional amount of R$ 18,000. 28
  31. 31. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 13 Provision for contingencies Subsidiaries are involved in several civil, labor and tax proceedings at different levels. Management, based on the opinion of its internal and external legal advisors, recorded a provision at an amount considered to be sufficient to cover potential losses on such pending actions. At December 31, 2007, the provision for contingencies, net of corresponding judicial deposits, was as follows: Provision for Judicial Total contingencies deposits net Civil 7,888 (1,990) 5,898 Labor 7,671 (1,837) 5,834 Tax 7,822 (5,851) 1,971 23,381 (9,678) 13,703 31/12/2007 Consolidated Changes in the provision for contingencies are as under: Balance at March 31, 2007 22,541 Additions computed in the corresponding tax account (i) 5,627 Additions 455 Write-offs (5,242) Balance at December 31, 2007 23,381 (i) Refers to FINSOCIAL and PIS that are being questioned in court by SESES and deposited with the courts (see Note 13c). In the statement of income, these taxes were posted to the corresponding tax account. (a) Civil contingencies Most of the proceedings involve mainly undue collections, claims for material damages and pain and suffering. Our legal advisors carried out a survey, evaluation and quantification of civil proceedings, also management maintains a provision for probable losses from these cases in the amount of R$ 7,888 at December 31, 2007. 29
  32. 32. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 13 Provision for contingencies--Continued (a) Civil contingencies--Continued Main proceeding involving probable loss is related to a claim for damages that was filed related to an accident resulting from a stray bullet which shot a student in the Rebouças Campus. The trial court entered judgment against SESES and, the Court of Appeals of Rio de Janeiro, upon the appeal filed by SESES, sustained judgment partially, establishing: (i) payment of damages for pain and suffering to the plaintiffs, in the approximate amount of R$ 1,800; (ii) ongoing medical treatment; (iii) monthly pension for life in the amount of a minimum salary plus labor charges (13th Monthly Salary, vacation pay and Government Severance Indemnity Fund for Employees - FGTS); and (iv) continuous lease of an adapted real estate for plaintiff’s abode (home care). Average amount spent on a monthly basis by SESES for the plaintiff’s medical treatment is approximately R$ 39. Without prejudice of decisions to be issued in connection with Appeals to the High Court of Justice and to the Supreme Court of Justice filed against the Court of Appeals of Rio de Janeiro judgment, still pending, plaintiffs filed a request for provisory execution of judgment, and the amount of R$ 1,800 was deposited in court in three equal and consecutive installments as from December 2006. According to our legal advisors’ assessment the likelihood of an unfavorable outcome is considered to be probable and estimated at R$ 5,800 at December 31, 2007. Therefore, relevant amount is accrued in the consolidated financial statements. The major suits for which the likelihood of loss is possible are shown below: (i) Declaratory action, with request for interim relief, filed by Associação Beneficente e Educacional Recoleta, the objective of which is to sentence SESES to pay contractual fine in the amount of R$ 2,350, in view of the rescission of the surface agreement regarding the property located in Barra da Tijuca, in Rio de Janeiro. Based on the opinion of our legal advisors, the likelihood of loss is possible; and (ii) Public civil action, with request for interim relief, filed by the Federal Public Ministry, regarding several higher education institutions, including the Company, the objective of which is to refrain the defendants from charging fee to issue the first copy of the diploma for completion of studies and the refund, in duplicate, of the fee charged from students already graduated. Based on the opinion of our legal advisors, the likelihood of loss is possible, and the case amount is estimated at R$ 1,000, and; (iii) Suit filed by Wilson Park Hotel (“WPH”) and others, with request for interim relief, the purpose of which is to eliminate the effects of the agreement for lease, assignment of lease and sublease of the property located at Rua Caçador, nº 185 (currently 211), in the city of Nova Hamburgo, Rio Grande do Sul state. Based on the opinion of our legal advisors, the suit is estimated at R$ 500. No provision for contingencies was recorded for such proceedings in the consolidated financial statements. 30
  33. 33. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 13 Provision for contingencies--Continued (b) Labor contingencies Labor claims refer namely to overtime, recognition of employment relationship and salary parity. The legal advisors gathered information, assessed and quantified the labor-related claims and, in order to cover probable losses on such claims, management recorded provision in the amount of R$ 7,671 at December 31, 2007. Among the labor claims considered most significant considering the amount involved and the institutional interest, we pinpoint five assessment notices drawn up by the Ministry of Labor, in the total amount of R$ 1,050. Such assessment notices refer to the percentage of positions held by physically challenged employees; adequate facilities for household employees’ children; lack of recording of entry and exit time and rest periods of teachers; and hiring of apprentice workers. Based on the opinion of our legal advisors, the likelihood of loss is possible; therefore no provision was recorded in the consolidated financial statements. (c) Tax contingencies SESES is questioning the assessment referring to collection of FINSOCIAL (Social Security Funding Tax) in court, considering the suspension, by the Brazilian IRS, of its tax immune condition, through Declaratory Statute No.14/96. Judicial deposits in the amount of R$ 930 were made in 2005 regarding this process, and a provision for contingencies in the same amount was recorded. SESES is also questioning the requirement to pay Social Contribution Tax on Gross Revenue for Social Integration Program (PIS) in court. This concerns a suit the objective of which is the declaration of non-existence of a legal-tax relationship for purposes of payment of the PIS, once SESES was granted a Philanthropic Welfare Entity Certificate (CEBAS), in addition to recognition of the right to reimburse the amounts paid over the past ten years. A favorable decision was handed down to the Entity, and the Federal Government filed an appeal on the merit of the case, still pending judgment. On account of this process, judicial deposits are being made in the PIS amounts that would be due (at the rate of 1% on payroll). At December 31, 2007, judicial deposits correspond to R$ 4.900, and a provision for contingencies in the same amount was recorded, considered sufficient by management and its internal and outside legal advisors. 31
  34. 34. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 13 Provision for contingencies--Continued (c) Tax contingencies--Continued (i) Contribution to the INSS - Employer SESES was defined as a non-profit philanthropic entity until February 9, 2007. Thus, until such date, in the terms of article 150, item VI, subitem C, and article 195, paragraph 7 of the Federal Constitution, and articles 12 and 15 of Law No. 9532/97, it was entitled to tax immunity and exemption, being considered a public interest entity at the federal and state levels, through Decree No. 86072, of June 4, 1981, and Law No. 2536, of January 3, 1975, respectively. In addition, SESES holds the following certificates issued by Government agencies: (a) certificate of registration with the Municipal Council of Social Welfare; (b) Declaratory Certificate of Good Standing at the State Level; and (c) Philanthropic Welfare Entity Certificate – CEBAS, issued by the National Council of Social Welfare - CNAS. Article 55 of Law No. 8212/91, subsequently amended by Law No. 9732/98, sets forth that the philanthropic welfare entity meeting the following requirements is exempt its share of payment to the INSS: (a) is considered a Federal, State and Municipal public interest entity; (b) holds the Certificate of Entity for Philanthropic Purposes – CEFF, issued by the National Council of Social Welfare, renewed every three years; (c) promotes exclusive free of charge philanthropic welfare services; (d) its officers, board members, members, establishers, benefactors do not receive compensation, advantages or benefits, under any circumstances; and (e) possible operating income is fully invested in maintenance and development of its institutional objectives. Law No. 9732/98, in addition to amending the wording of item III, article 55 of Law No. 8212/91, established the following: (a) educational non-profit entities that do not offer exclusive and free of charge services to needy people are exempt from the contribution taxes referred to in articles 22 (contribution to the INSS - employer) and 23 (CSLL and COFINS) of Law No. 8212/91, proportionally to the value of seats offered, full-time and free of charge, to needy people, provided the requirements set forth in article 55 of the referred to Law are met, (b) the new wording of article 55 of Law No. 8212/91, and article 4 of the mentioned Law, will be effective as from April 1999 and (c) as from April 1999, all and any exemptions from contributions to the INSS granted, whether generally speaking or under special circumstances, not complying with article 55 of Law No. 8212/91, in its new wording, or with article 4 of said Law, are cancelled. We must point out that the effectiveness of article 1, regarding the new wording of article 55 of Law No. 8212/91, and of articles 4, 5 and 7 has been suspended as a result of the injunction obtained on the Notice of Claim of Unconstitutionality – ADIN No. 2028-5, of November 11, 1999. 32
  35. 35. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 13 Provision for contingencies--Continued (c) Tax contingencies--Continued (ii) Contribution to the INSS - Employer—Continued As mentioned above, at the time of its organization, SESES was defined as a non-profit entity and, as such, was entitled to exemption from payment of the INSS tax levied on payroll. Subsequent legal rulings maintained its condition as an exempt corporate entity until February 2007, occasion when SESES was transformed into a profit-oriented company. SESES is being questioned by the INSS as to renewals of the CEBAS granted in 2000 and 2003. The Social Security Revenue Office filed appeals with the Ministry of Social Security for the purpose of eliminating the effects of the last two CEBAS renewals granted by CNAS. SESES, however, enrolled with PROUNI in December 2004, which grants the entities that adhere and adopt its rules the right to restore the CEBAS and reestablish exemption from the social contribution tax, in the event the rejection or canceling of the exemption regarding the past two three-year periods was not based on non-compliance with the provisions established in items III, IV and V, article 55 of Law No. 8218/91, that is: (a) promote free of charge welfare services; (b) managing officers are not entitled to compensation; and (c) operating income is invested in the development of its institutional objectives. The questionings presented by the Social Security Revenue Office do not allege violation of the above provisions, which, in theory, would grant SESES the right to restore the CEBAS should it come to lose such right. Considering that, from the tax authorities’ viewpoint, CEBAS is mandatory in order to benefit from tax immunity/exemption benefits, in the event of its canceling in a given moment, all other social contribution taxes due by business companies may come to be required by tax authorities retroactively, increased by late payment charges, in addition to the INSS amounts under dispute. The Company management, based on the opinion of its legal advisors, does not expect an unfavorable outcome in this process, classifying the likelihood of loss as remote; as such, no provision was recorded in the consolidated financial statements. 33
  36. 36. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 13 Provision for contingencies--Continued (c) Tax contingencies--Continued (ii) Transformation into profit-oriented business company The Sponsoring Entities and SESES changed their form of business organization from civil non-profit companies to profit-oriented companies on September 30, 2005. With such change, the Sponsoring Entities and SESES are no longer entitled to the tax immunity/exemption benefits granted to non-profit entities, and are now subject to taxation rules applicable to the other corporate entities, excluding exemptions under PROUNI rules. Management, based on the opinion of its legal and tax advisors, understands that the mere transformation of the Sponsoring Entities into profit-oriented companies is not a tax- triggering event, and that only profits, earnings, revenues and capital gains generated after such transformation are subject to taxation, except for tax benefits under PROUNI rules. Accordingly, the surplus amounts generated during the period in which the Sponsoring Entities benefited from tax immunity and exemption were not and will not be subject to taxation, provided such amounts are not distributed to the entities’ members and are reinvested in the institutions themselves, in other words, the amounts remain in the entities’ corporate assets. Tax authorities, however, could question such transformation and require payment of the taxes levied on exempt profit earned to that date. (d) Other contingent tax issues With reference to the other taxes to which SESES and the Sponsoring Entities are subject, we highlight the following: (i) CPMF (Provisional Contribution Tax on Financial Transactions): in SESES’ understanding, it is not subject to such tax, in the terms of Constitutional Amendment No. 21/99, in the same way as its legal advisors construe that said exemption was provided for in Law No. 9311/96 and applicable IRS Revenue Procedures; (ii) COFINS (Social Contribution Tax on Gross Revenue for Social Security Financing): exemption from the mentioned tax for tax-triggering events occurring after February 1, 1999, on revenues from own activities of educational and welfare institutions, referred to in article 12 of Law No. 9532/97. Furthermore, SESES, based on the legal advisors’ opinion, construed that it is entitled to such exemption, once the effectiveness of the articles of Law No. 9732/98 was suspended by a Notice of Claim of Unconstitutionality; (iii) CSLL (Social Contribution Tax on Net Profit): SESES and the Sponsoring Entities understood that, while under the non-profit regime and considering suspension of the effectiveness of the articles of Law No. 9732/98 by a Notice of Claim of Unconstitutionality, they were exempt from the referred to tax, in the terms of article 15, paragraph 1 of Law No. 9532/97. 34
  37. 37. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 13 Provision for contingencies--Continued (d) Other contingent tax issues–Continued The management of SESES, of the Sponsoring Entities and their legal advisors are of the opinion that the total exemption from the above taxes is ensured; accordingly, no provision was recorded in the consolidated financial statements. 14 Shareholders’ equity (a) Capital The Company was set up on March 31, 2007 with initial capital of R$ 1, divided into 1,000 registered, book entry common shares, with no par value. On said date, shareholders approved capital increase to R$ 27,073 through issue of 299,999,000 common shares and 100,000,000 preferred shares, all registered, book-entry shares with no par value, which were fully subscribed and paid through contribution of investment held by each Company shareholder in units of interest of SESES, SESPA, SESCE, SESPE and STB. Of the total transferred capital, R$ 15,191 refers to capital reserve recorded in the shareholder’s equity of the related investees, resulting from the PROUNI tax incentive. Such amounts cannot be distributed to members of these subsidiaries and, consequently, to the Company shareholders, via capital reduction or refund for a five-year term after the date said capital increase occurs in the investees. On June 21, 2007, reverse split of shares representing Company capital was approved in the proportion of 2 (two) shares to 1 (one) share of the corresponding type and class, according to the provisions of article 12 of Brazil’s Corporation Law. As a result of the referred to reverse share split, Company subscribed and paid up capital became R$ 27,073, divided into 200,000,000 registered book-entry shares with no par value, comprising 150,000,000 common and 50,000,000 preferred shares. On August 1, 2007, the Company’s Board of Directors approved capital increase, observing authorized capital limit, through capital subscription of R$ 268,164, with public issue of 35,755,200 shares, comprising 11,918,400 common and 23,836,800 preferred shares, all registered, book-entry shares with no par value, for R$ 7.50 (seven reais and fifty cents) per common share and R$ 7.50 (seven reais and fifty cents) per preferred share. 35
  38. 38. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 14 Shareholders’ equity--Continued (a) Capital--Continued As such, Company capital was increased from R$ 27,073 to R$ 295,237, divided into 161,918,400 registered book-entry common shares with no par value and 73,836,800 registered book-entry preferred shares with no par. At December 31, 2007, the Company’s authorized subscribed and paid-up capital amounted to R$ 1,000,000, as under: Shareholder Common Preferred João Uchôa Cavalcanti Netto 137,554,397 32,608,795 Marcel Cleófas Uchôa 1,507,500 500,000 André Cleófas Uchoa 1,500,000 500,000 Monique Uchoa Cavalcanti de Vasconcelos 1,500,000 500,000 UBS Pactual Asset Management 1,845,920 3,698,960 Other shareholders 18,010,583 36,029,045 161,918,400 73,836,800 Quantity of shares (b) Capital reserve As described in Note 2j, SESES was originally organized as a non-profit philanthropic entity and, therefore, was entitled to tax immunity and tax exemption, being recognized as an entity of public interest at federal and state levels. On February 9, 2007, when its form of business organization changed to a for-profit entity, SESES became subject to the tax burden levied on business entities, except for exemptions in connection with enrollment under the PROUNI Program. Similarly to SESES, although not philanthropic in nature, the Sponsoring Entities were also recognized as non-profit entities when they were established, being entitled to certain tax exemptions up to September 30, 2005, on which occasion their form of business organization changed to business entities. Upon capital increase referred to above, Company’s shareholders assigned the stock issue price at R$ 27,072, whereas assets used for capital subscription indicated that SESES’ and the Sponsoring Entities’ units of interest had an equity value of R$ 123,554. 36
  39. 39. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 14 Shareholders’ equity--Continued (b) Capital Reserve--Continued Capital increase (R$ 27,072) is equivalent to funds actually contributed by controlling shareholders, in the form of initial capital or capital increase through capitalization of profits and income reserves generated after SESES and the Sponsoring Entities became business entities. The difference (R$ 96,482) between the amount assigned to the assets by subscribing shareholders and the equity value of such assets was recorded by the Company under a specific capital reserve account (premium on capital subscription) and refers substantially to the remaining balance of retained earnings of subsidiary companies (SESES and the Sponsoring Entities) before their form of business organization changed from non- profit entities to business entities. (c) Income reserve (c.1) Legal reserve The legal reserve is constituted appropriating 5% of net income for the year until its balance reaches 20% of the amount of realized capital, or 30% of capital increased by capital reserves. After this limit, such appropriation is no longer required. Capital reserve may only be used to increase capital or absorb accumulated losses. (c.2) Profit retention reserve This reserve is destined to be used in capital investments, according to article 196 of Brazil’s Corporation Law. The proposed allocation of net income for the year ended December 31, 2007 provides for profit retention of R$ 12,292, to be used in the annual investments program established in the 2008 budget, subject to approval by the General Shareholders’ Meeting. (d) Dividends Under the Company’s charter, shareholders are assured of compulsory minimum dividends of 25% (twenty-five percent) of net income for the year, adjusted as allowed by article 202 of Brazil’s Corporation Law. 37
  40. 40. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 14 Shareholders’ equity--Continued (d) Dividends--Continued Proposed dividends presented in the Company’s financial statements, subject to approval by the General Shareholders’ Meeting, are as under: Net income for the year 27,315 Appropriation to legal reserve (1,365) Adjusted net income – dividends calculation base 25,950 Percentage of proposed dividends 52.63% Proposed dividends payable (13,658) (e) Allocation of adjusted net income Net income for the year 27,315 Appropriation to legal reserve (1,365) Adjusted net income 25,950 Proposed dividends (13,658) Profit retention reserve (12,292) - 15 Financial result Parent Company Consolidated Financial income Arrears fine and interest 6,835 Short-term investments yield 9,070 10,849 Other 104 2,639 9,174 20,323 Financial expenses Bank expenses 1 3,050 Interest and charges payable 3 884 CPMF 1,191 3,891 Other 3 308 1,198 8,133 12/31/2007 38
  41. 41. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 16 Nonoperating result Parent Company Consolidated Nonoperating income Income from fixed asset disposals 3,317 Other nonoperating income 220 3,537 Nonoperating expenses Extraordinary expenses (i) (17,470) (17,470) Other nonoperating expenses (71) (17,470) (17,541) (17,470) (14,004) 12/31/2007 (i) According to Circular Letter CVM/SNC/SEP No. 01/2007, the Company recorded expenses related to its listing process in extraordinary expenses, detailed below: 12/31/2007 Parent Company and Consolidated Lawyers, auditors and consultants 3,210 Taxes and charges 114 Placement commission 13,320 Other 826 17,470 39
  42. 42. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 17 Income and social contribution taxes Under Law No. 11096/2005, regulated by Decree No. 5493/2005 and Revenue Procedure No. 456/2004, on the terms of article 5 of Executive Act No. 213/2004, higher educational entities while participating in the PROUNI program are exempt from IRPJ and CSLL, among others, and the tax computation shall be performed based on profit from tax incentive operations (“lucro da exploração”). Sponsoring companies SESPA, SESCE, SESPE and STB as well as SESES started to participate in the PROUNI program in the 1st 2005 half, and started to use its benefits upon conversion of the companies from not-for-profit to entrepreneurial companies in October 2005 and February 2007, respectively. Before said dates, the referred to sponsoring companies and SESES were IRPJ and CSLL exempt. Reconciliation of taxes determined by the sponsoring companies, at statutory rates, and the amount of taxes recorded in 2007 is as under: 12/31/2007 Parent Company Consolidated Income before income and social contribution taxes 27,315 29,424 Company tax loss 13,126 Permanent additions: Nondeductible expenses 1,151 Goodwill amortization 2,321 2,321 Permanent exclusions: Equity pickup (42,762) Tax loss offset (109) Other (3,254) Temporary additions/exclusions: Provision for contingencies 3,494 Calculation base (13,126) 46,153 Rates Income tax 15% 15% Surtax (on excess portion) 10% 10% Social contribution 9% 9% Income and social contribution taxes: Income tax 6,923 Surtax (on excess portion) 4,540 Social contribution 4,157 15,620 Less: total exemption (capital reserve of Sponsoring Companies) (13,511) Income and social contribution taxes due – current 2,109 40
  43. 43. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 17 Income and social contribution taxes--Continued As described in Notes 2k and 7b, subsidiaries benefit from tax incentives related to federal taxes while participating in the “PROUNI” program, and such incentives are recognized by these subsidiaries in capital reserve, while the effect on the Company is recorded in equity pickup. For consolidation purposes, the incentive portion considered in the Company’s statement of income is adjusted against income and social contribution tax expenses account. The Company has not recognized deferred tax assets on income and social contribution tax losses since it has been recently set up, and its future results will basically derive from equity pickup. Subsidiary SESES and subsidiaries SESPA, SESCE, SESPE and STB were converted from not-for-profit companies to entrepreneurial companies in February 2007 and October 2005, respectively, and do not present a history of profits. In view of this, deferred tax assets on temporary differences and income and social contribution tax losses (R$ 4,463) have not been recorded. 18 Financial instruments Financial asset and liability market values were determined based on market information available and valuation methodologies deemed appropriate to each case. However, considerable judgment was required in interpreting market data to estimate the most appropriate realizable value. As a consequence, the estimates presented herein do not necessarily indicate amounts realizable in the current exchange market. The use of different market information and/or valuation methodologies may have a material effect on the amount relating to market value. The Company’s financial instruments under assets and liabilities at March 31, 2007 are recorded in the balance sheet accounts at amounts compatible with those observable in the market. Main financial instruments are described below as well as the criteria, assumptions and limitations adopted for determining their market values: (a) Cash and cash equivalents Amounts accounted for under this heading approximate market values due to these instruments’ short-term maturities. 41
  44. 44. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 18 Financial instruments--Continued (b) Related parties Stated at book value, since there are no similar instruments in the market and they refer to related-party transactions. (c) Loans and financing Loans and financing market values are similar to those stated in the account balances, and their conditions and terms are mentioned in Note 9. (d) Other asset and liability financial instruments The Company financial assets’ and liabilities’ estimated realizable values were determined based on information available in the market and appropriate valuation methodologies. Risk management All subsidiaries’ operations are carried out with banks that have proven liquidity, thus minimizing their risks. Management sets up an allowance for bad debts in an amount deemed sufficient to cover possible risks underlying the accounts receivable realization; accordingly, the risk of incurring in losses on billed amounts has been measured and accounted for. Major market risk factors that affect the Company business may be listed as follows: (a) Credit risk The Company’s enrollment policy for preparation of these financial statements is closely associated with the credit risk level tolerated by the entities in the course of their businesses. (b) Interest rate risk The interest rate risk to which the subsidiaries are exposed relates to their long-term debt and, to a lower extent, their short-term debt. The floating-interest-rate debt expressed in Brazilian reais is principally subject to the fluctuations in the Long-Term Interest Rate (TJLP) and in the Interbank Deposit Certificate (CDI). Additionally, any increase in interest rates may raise the cost of educational loans, including those loans under FIES, and reduce the demand for courses. 42
  45. 45. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 18 Financial instruments--Continued Risk management--Continued (c) Exchange rate risk The Company’s net income is not subject to changes deriving from exchange rate volatility, since its subsidiaries do not have significant foreign-currency-denominated operations. There were no operations involving derivatives at December 31, 2007. 19 Insurance (unaudited) The Company and its subsidiaries rely on a risk management program aimed to limit their risks, seeking coverage compatible with their size and operations. Insurance coverage was taken out at the amounts stated below, considered sufficient by management to cover any losses, based on the nature of its activity, the risks underlying its operations, and guidance from insurance expert advisors. At December 31, 2007, the Company and its subsidiaries had the following main insurance policies taken out from third parties: Insurance types Insured amounts Fixed assets fire 29,450 Civil liability 4,880 Fixed expenses 1,340 Eletronic equipament 1,530 Aircraft crash 860 Other types 3,508 20 Commitments The subsidiaries have several facilities’ rental contracts, and future commitments are related to contracts effective on March 31, 2007 will correspond to R$ 72,000 on a yearly basis, for the next 5 years, considering that their due dates will be renewed as usual and the amounts known at that date. 43
  46. 46. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 20 Commitments--Continued Controlling shareholders hold all the units of interest of the following sponsoring companies: (i) SESSE; (ii) SESAL; (iii) UNEC; and (iv) SESAP, sponsoring Faculdade do Amapá. In addition, said shareholders hold all the units of interest of Asociación de Estudios Superiores de Las Américas, in Paraguay, which has one unit, and 80% of the units of interest of Escuela de Informática SRL, in Uruguay, which has one unit, both recently acquired. On April 7, 2007, the Company entered into an Agreement Memorandum with controlling shareholders, as members of said companies, in order to acquire, through a cash payment, these companies at book value as soon as they present positive net equity. Presently, it is not possible to forecast when this will occur. 21 Remuneration of administrators Remuneration of administrators, comprising Board of Directors’ members is computed in expenses for the period. As approved by the Common and Special Shareholders’ Meeting of April 30, 2007, maximum limit of R$ 150 per month was established for remuneration of Board of Directors members. Remuneration of statutory directors is being made by subsidiary SESES, and then apportioned to the other sponsoring companies, as mentioned in Note 6. The monthly amount of such remuneration, including applicable social charges, is R$ 392. 22 Subsequent events 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., sponsoring 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., sponsoring Faculdade Europan, for R$ 8,352; and (iii) Faculdade Brasília de São Paulo Ltda., for R$ 2,235. On said date these acquisitions were financially settled, in part through debt assumption (which totaled R$ 3,099). 44
  47. 47. A free translation from the original in Portuguese Estácio Participações S.A. Notes to financial statements December 31, 2007 (In thousands of reais, unless otherwise stated) 23 Changes in Brazil’s Corporation Law Law No. 11638, approved on December 28, 2007 by the Brazilian President, amends and revokes provisions of Law No. 6404, dated December 15, 1976 and Law No. 6385, dated December 7, 1976. The requirements of this law apply to financial statements for fiscal years ended on or after January 1, 2008. The Company is analyzing the impacts of the changes introduced by the new Law, mainly in relation to disclosure of the Statement of Cash Flow and the Statement of Value Added, creation of an account subgroup denominated Adjustments to Asset Valuation in net equity, introduction of new criteria for classification and valuation of financial instruments, including derivatives, and the concept of Adjustment to Present Value for long- term asset and liability operations as well as significant short-term ones. Presently it is not possible to anticipate the effects from Law No. 11638/07 on the Company’s results of operations and financial position for the year ending December 31, 2008, and retrospectively on the financial statements for the year ended December 31, 2007, when compared with the financial statements for the year ending December 31, 2008. * * * 45

×